De Beers to Switch Its Diamond Trading Activities to Botswana From London
De Beers, which produces more than a third of the world’s diamonds, has agreed to move sorting and trading of the gems to Botswana by the end of 2013, ending an arrangement for sales in London that’s been in place since 1888.
The move is part of a 10-year deal signed today with the Southern African nation in the capital, Gaborone. The agreement ensures De Beers’ continued access to diamonds from the country, which produces more of the gems by value than any other, and will mean increased revenue and jobs for Botswana.
De Beers sorts diamonds by value in London and holds sales in the city every five weeks, attended by about 75 buyers from Antwerp, Israel and India, among other regions. De Beers’ trading arm, called Diamond Trading Co., sold $3.49 billion of rough, or uncut, diamonds in the first half of the year.
“De Beers should benefit from a longer agreement as it removes the periodic disruption in having to wrestle with a new pact every five years,” Des Kilalea, an analyst at RBC Capital Markets Ltd. in London, said in an e-mailed note. “In a world with looming tightness in rough diamond supply, the certainty of a long-term agreement over the world’s largest source of rough is welcome.”
Under the agreement, Botswana will sell local production to the market for the first time, initially 10 percent of its output, rising to 15 percent over the next four years. That provides the country with its own price verification system, Mines Minister Ponatshego Kedikilwe said in a speech.
‘Believe in Diamonds’
De Beers’ trading arm will also increase the value of diamonds it makes available to manufacturing companies in Botswana to $800 million a year from $550 million, the company said in a statement handed to reporters today. The agreement is effective from Jan. 1 this year.
The new marketing arrangement is, on a net basis, probably neutral for De Beers, Chairman Nicky Oppenheimer said in an interview.
Anglo American Plc (AAL), which owns 45 percent of De Beers, “believes in diamonds,” Chief Executive Officer Cynthia Carroll said after the announcement. Carroll was asked about the future of Anglo American’s holding in the diamond producer. The Oppenheimer family owns 40 percent and the Botswana government the rest.
The agreement will “transform Botswana into a leading diamond trading and manufacturing center,” De Beers said.
De Beers will relocate about 100 roles in its London diamond marketing operation to Botswana from the end of 2013 as a result of the agreement, Lynette Gould, a spokeswoman, said in an e-mailed response to questions today.
Travel to Botswana
Diamond clients, known as sightholders, will travel to Gaborone for gem sales once the agreement’s in place. The affected London staff were briefed on the plan at the end of June, Gould said.
The diamond industry accounts for about 30 percent of Botswana’s gross domestic product and 80 percent of its export earnings. The country provided about 21 percent of global industry output by value last year. Two-thirds of the 33 million carats De Beers produced last year was mined in Botswana.
Debswana Diamond Co., a joint venture between De Beers and the Botswana government, started the Cut-8 extension at Jwaneng mine last year at an estimated total project cost of $3 billion through 2015, in the largest single investment in the southern African country.
Cut-8 will extend the life of Jwaneng to at least 2025 in an effort to provide access to 100 million carats of diamonds, which could be worth in excess of $15 billion over the life of the mine, about 160 kilometers (100 miles) west of Gaborone.
“With diamond demand and prices continuing to grow, De Beers has secured long-term, uninterrupted access to the largest supply of diamonds in the world,” the gem producer said in a statement today.
To contact the reporter on this story: Carli Lourens in Johannesburg at clourens@bloomberg.net
To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net
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