Botswana and De Beers signed a new 10-year sales agreement in September 2011, which gave some clout to Gaborone, which is the leading global diamond producer by value.
The agreement, which backdated to January 1 2011 paved way for the diamond giant to transfer its rough diamond sales activity to Gaborone, ending a 100 year tradition of sending African gems to London.
The Diamond Trading Company (DTC)’s relocation of its sights and sales operations – including professionals, skills, equipment and technology – from London to Gaborone was completed last year.
Botswana was also aggregating diamonds from De Beers’ mines including South Africa, Namibia and Canada.
This commenced in August 2012, two months ahead of schedule, ending 80 years of aggregation in London.
The agreement also provided for the setting up of an independent sales outlet for the Botswana Government, which was meant to begin in 2011 at 10 percent of Debswana’s run of mine production and rise to 15 percent over a five year period.
Without wasting much time, Botswana established the Okavango Diamond Company in March 2012, though it was officially launched in September 2013.
Okavango accrued about $20 million from diamond lots offered at its pilot auction last July in Botswana’s capital, Gaborone.
The company was now holding regular sales via its customised online auction platform.
It was also planning to introduce fixed term supply contracts in 2014.
This, it said, signaled that the company had formally opened its doors to the global diamond market.
This success story of Botswana, which has a 15 percent stake in De Beers and could have earned more shares in the group had it not decided to decline the offer, could have encouraged the Namibians to consider setting up a company to sell its diamonds outside the De Beers framework.
Currently, all diamonds mined by Namdeb, a joint venture between the Namibian government and De Beers, were being exported to De Beers sorting facilities in Botswana and mixed with other De Beers goods from its mines across the globe.
Namdeb produced 1.762 million carats in 2013, accounting for about 6 percent of De Beers total production.
Only 10 percent of Namdeb’s total was returned to Namibia to be sold to approximately 12 local sightholders via the Namibia Diamond Trading Company, which was also jointly owned between the Namibian government and De Beers.
The current sales agreement expired at the end of last year and De Beers reportedly asked for a six-month extension, although officials thought it was too long.
Talks started in the first quarter of the year.
The outcome of the talks was expected anytime soon given that the 2007 sales agreement was extended up to the end of June.
However, the industry got a glimpse of what the Namibians are demanding from De Beers.
“Our diamonds are sold through a joint venture with De Beers but we are considering setting up a company through which we will be able to sell our gems directly to the trade,” Namibia’s minister of mines and energy Isak Katali was quoted as saying by Rapaport at the World Diamond Congress meeting in Antwerp.
The company, if formed, will give diamond dealers and manufacturers an opportunity to buy diamonds directly from the southern African country.
The question that many will be asking is whether De Beers will agree to such an arrangement that will reduce stones sold by its diamond trading company?
Perhaps Namibia might not entirely return all of the diamonds produced in the country, but a certain percentage just like what De Beers conceded to Botswana.
“Will De Beers agree to such an arrangement that will reduce stones sold by its diamond trading company?”
The only way Namibia will auction all diamonds mined by Namdeb in the country is when it elbows out De Beers, but that is highly unlikely.
The appointment of Namibia’s mines minister to the Dubai Diamond Exchange (DDE) board last March could also be interpreted as the source of the country’s demands.
There is no doubt that DDE wanted a share of Namibia’s diamonds but the current system put in place by De Beers, is a hindrance to such an ambition.
The outcome of the talks will be very interesting, although I personally do not see De Beers straying away from the template it set in Botswana.