In a significant development, Diamond Giant De Beers has agreed to increase Botswana’s share of the diamonds mined in the country from the current 25% to an impressive 50% within the next ten years. This deal not only extends De Beers’ long-standing relationship with Botswana but also reflects a more balanced distribution of diamond production in the region. The news has already caused shares in Anglo American, the U.K.-listed mining company that owns 85% of De Beers, to rise by more than 4% during afternoon European trading.
Deepening the Ties with Botswana
The agreement, initially announced over the weekend, was elaborated upon by De Beers’ Chief Executive Al Cook on Monday. The negotiations surrounding this new deal had been keenly observed by the diamond industry. The partnership between De Beers and Botswana goes beyond the usual miner-host state relationship. De Beers holds the title of the world’s largest producer of rough diamonds by value, while Botswana accounts for a significant 70% of De Beers’ global production.
The Current Deal and Its Evolution
As per the existing agreement, inked in 2011, De Beers receives 75% of the production from Debswana, a 50-50 joint venture between the government and De Beers. De Beers then sells these rough diamonds to buyers who proceed to polish and sell them. On the other hand, Botswana sells its share of production from the pact. However, under the new terms, Botswana’s share will undergo a remarkable transformation. Initially, it will increase to 30% of production, then rise to 40% in five years, and finally reach an equal 50% after a decade, as confirmed by Cook in an interview.
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As part of this far-reaching agreement, De Beers and Botswana have also extended De Beers’ current mining licenses by an additional 25 years. Originally slated to expire in 2029, these licenses will now remain valid until 2054. However, it is important to note that the new sales agreement is still subject to approval by Anglo American’s shareholders, as stated by the company.
Historical Perspective and Diamond Prosperity
De Beers, founded in 1888 by a group that included Cecil John Rhodes, historically controlled more than 80% of the world’s diamond supply until the 1980s. Botswana’s journey with diamonds began when De Beers prospectors discovered a diamond-bearing rock ore, known as a kimberlite pipe, in central Botswana in 1967, just one year after the country gained independence from Britain. Diamonds play a vital role in Botswana’s economy, responsible for approximately 90% of the country’s exports. This landlocked and sparsely populated nation of 2.6 million people boasts a per-capita gross domestic product more than four times the sub-Saharan Africa average and comparable to larger economies like Peru or Thailand.
Adapting to Change
De Beers has shown its willingness to adapt to pressure in the past. In 2012 and 2013, the company surprised the market by relocating its international sales department and related stone-sorting operation from London to Botswana’s capital, Gaborone. This move was part of the previous 10-year sales deal struck between De Beers and the government in 2011. Furthermore, Botswana currently owns a 15% stake in De Beers.
A Decisive Stance by Botswana
This time around, Botswana’s President, Mokgweetsi Masisi, took a decisive stance, expressing his readiness to break ties with De Beers if the miner did not agree to more favorable terms in the production-sharing agreement. The previous deal, which expired on June 30, will remain in effect until the new agreement is finalized. The 2011 agreement granted Botswana the right to market and sell its rough diamonds independently, providing the government with invaluable expertise and a stronger negotiating position in the current round of talks.
In conclusion, this groundbreaking deal signifies a major shift in the diamond industry’s landscape, showcasing a deeper collaboration between De Beers and Botswana. With Botswana set to enjoy a significantly increased share of production, the country’s role as a key player in the global diamond market is solidified.