Monday, September 19, 2011

De Beers to shift its UK gem works to Botswana

BOTSWANA, the world’s leading producer of diamonds, is set to also become the largest seller of rough diamonds after a new 10- year agreement with De Beers that was announced on Friday.

The deal will see De Beers move its rough diamond sorting and trading division from London to Gaborone by the end of 2013.

Botswana’s government expects th e move will see the value of its diamond trading reach $6bn, all of which will go through its banks. It expects the number of businesses set up by diamond cutting and polishing firms to rise and it is pushing for jewellery makers to come to the country too.

The new deal with De Beers also sees the Botswana government securing 10% of the annual output of its diamond mining joint venture, Debswana, rising to 15% over five years.

The Botswana government wants to increase the value of rough diamonds to the local industry to $800m from $550m.

There are 16 cutting and polishing companies operating in Botswana and the government wants to grow that number, boosting employment and government coffers.

Botswana’s Minerals, Energy and Water Resources Minister Ponatshego Kedikilwe said the reason for this was to give the state an independent price and market verification system. Mr Kedikilwe said that the days when De Beers determined the direction of prices by stockpiling production were over and the state wanted to have its own understanding of market conditions.

Mr Kedikilwe said this was no reflection of the government’s confidence in De Beers as a partner. The government holds a 15% stake in De Beers along with Anglo American, which owns 45% and the Oppenheimer family, which has a 40% holding.

Under the new agreement, diamonds produced by Debswana will be aggregated in Gaborone with those from De Beers’ mines in SA, Namibia and Canada to be sold to the company’s 70 clients, or sightholders, as they are known in the industry.

"This agreement, and the tangible outcomes it will deliver, will enable Botswana to achieve its aspirations to be a major diamond centre engaged in all aspects of the business," Mr Kedikilwe said.

In the past, Debswana’s diamonds were sold to De Beers’ Diamond Trading Company, which mixed them with stones from its other operations and sold them at sights in London.

Nicky Oppenheimer, chairman of De Beers, said: "We welcome this. Anything that helps give confidence in the prices paid is something that De Beers is completely in favour of and it’s something we as partners, we need to work at closely together."

De Beers normally had five- year sales agreements with the Botswana government to buy Debswana’s production and sell it on to carefully selected clients.

Achieving a 10-year sales agreement with the government was important enough to De Beers for it to agree to shift its London operation to Gaborone.

"We were prepared to move here in exchange for a 10-year agreement," said Bruce Cleaver, executive director for strategy and business development at De Beers, who was the chief negotiator for the company. "It’s a bit disruptive to your business to do this every five years.

"We’ve got an arrangement where we’ve got what we want and the Botswana government has what it wants," he said.

De Beers produced 33-million carats last year and lowered its forecast for this year to 35-million carats from 38-million. At full capacity, De Beers is capable of producing 45-million carats.

Source: BusinessDay