Botswana’s Diamond Landscape

December 1, 2014
By Avi Krawitz

Jwaneng Mine

Suddenly, everything seems bigger in Botswana’s diamond industry. The country has seen monumental growth during the past year across its mining operations, cutting and polishing sector, trading and rough diamond buying activity. Much of the development stems from the 2011 supply and marketing agreement signed between the Botswana government and De Beers. The deal laid the groundwork for establishing the state-owned Okavango Diamond Company (ODC), through which the government now independently sells a portion of local production, as well as for De Beers decision to move its sorting and sightholder sales operations from London to Gaborone. As a result, the past year has seen a hike in diamantaire traffic to the capital city of Gaborone, which also has stimulated growth in Botswana’s hospitality industry, as well as its construction and transportation sectors. In addition, the increase in visitors doing business has forced the country to improve its information technology infrastructure and brought in more ancillary services associated with the diamond industry. These developments signal that the country’s beneficiation dream to create a sustainable industry outside its mining sector is fast becoming a reality — even if it’s only the start of its journey from the government’s point of view. “For me, it’s the beginning of the real story,” said Onkokame Kitso Mokaila, Botswana’s Minister of Minerals, Energy and Water Resources, in an interview with Rapaport Magazine. “Now it’s a question of how rapidly we can grow to become the diamond trading center that we wish to be.” Next Goal: Jewelry Manufacturing The government aims to develop various independent business enterprises around the diamond industry as a means to stimulate much-needed overall economic activity. Having successfully introduced cutting and polishing and, more recently, rough trading activity, Mokaila has prioritized the creation of a viable jewelry manufacturing industry in Botswana as the next stage of development. With that goal in mind, Mokaila traveled to the United States in June to get a clearer understanding of what it would take to get U.S. jewelers to open manufacturing facilities in Botswana. He admits it was a new concept for those he talked to and something they had not previously considered. Not sure what incentives his country would have to offer to attract U.S. manufacturers to set up shop there, Mokaila says he asked companies to submit proposals for what they could offer and what they would need in return. Some major jewelers already have diamond manufacturing operations in Gaborone, among them Tiffany & Co., Signet Jewelers and Hong Kong–based Chow Tai Fook. In total, Botswana’s full complement of diamond factories has grown to 21, as more rough has become available to local sightholders. Expanding Jwaneng Although Mokaila lost his parliamentary seat in the national election that took place October 24, he was quickly reappointed to his ministerial position as a specially elected member of parliament. In that post, he remains committed to extending business and development activity as far down the value chain as possible to establish a sustainable diamond industry that is independent of mining and viable for the long term. Mokaila reports that Botswana has a diamond resource that will last to 2050 at stable production of around 23 million carats a year. To achieve that production goal, much depends on the Jwaneng mine, arguably Botswana’s most valuable asset. It accounts for about half of the production volume for Debswana, a joint venture between the government and De Beers that operates the mine, and an estimated 70 percent of the company’s revenue. Debswana is currently overseeing a $3 billion expansion project of the Jwaneng mine known as Cut 8 that will extend mining to around 2031. While Cut 8 was launched in 2010, current work is focused on clearing away waste so that mining the ore body will begin toward the end of 2016. As a result, Jwaneng has significantly grown in size in the past few years to a circumference of approximately 30 million square feet once Cut 8 is complete, according to one of the managers at the mine. In coming years, Debswana will decide whether to invest in a further Cut 9 expansion and consider the possibility of going underground with Cut 10, which would extend the life of Jwaneng mine to around 2050. Rough Selling The longer diamond mining can be sustained, the more the Botswana government can leverage its production along the value chain and attract attention — and customers — to its ODC auction sales. Toby Frears, managing director of ODC, reports that the company is holding ten sales in 2014, coinciding with the De Beers sights, with about 330,000 carats valued at approximately $50 million to $60 million on offer during each sale. ODC is entitled to 13 percent of Debswana’s production in 2014, which will grow to 14 percent in 2015 and stabilize at 15 percent annually between 2016 and 2020, when the next marketing and supply contract between De Beers and the government will take effect. Frears notes that ODC management has designed a scalable business that has the capacity to take on additional production should the opportunity arise. However, he stresses that the company is currently focused on attracting the right customer base to its online auction platform, while also weighing the possibility of introducing long-term contracts. “We recognize the value that buyers place in predicted and committed supply arrangements and it’s always been our intention to introduce some form of contract supply to complement our spot auction sales when we have sufficient volume,” Frears explains. “It’s an important decision. At the moment, we’re assessing whether we have the scale to introduce contracts and we hope to communicate our intentions shortly.” Mokaila notes that ODC has enabled the government to gain intelligence on how diamonds are valued consistently, and to have a mechanism through which it can forecast pricing of diamonds. He hinted that gaining such knowledge may influence future government supply contracts with De Beers, as it explores the possibility of selling more Debswana production through ODC.

A SAFDICO worker inspects polished stones at the company’s factory in the rapidly expanding Diamond Technology Park.

Ready for Growth The launch of ODC sales has meant that nonsightholders are also traveling to Botswana to view goods, shifting the focus away from De Beers as the sole supplier. ODC also has helped consolidate activity in the Diamond Technology Park (DTP) where it is located. The complex is currently expanding to a fourth building that will be complete by the end of 2014. Rutang Moses, director and chief executive officer (CEO) of SAFDICO Botswana and DTP, says demand for space in the technology park has paralleled the rapid expansion of the country’s diamond industry. The new building will be the biggest in the complex so far, covering 43,000 square feet of rentable space, of which two-thirds has been filled. Tenants include ODC and the Diamond Hub of the Ministry of Minerals, Energy and Water Resources, diamond brokers, banks, tender houses, the Gemological Institute of America (GIA), diamond courier companies Brink’s and Malca-Amit, manufacturing companies — specifically SAFDICO, which manages DTP and has its Botswana factory on location — as well as other mining companies, including Firestone Diamonds and Boteti Mining of Lucara Diamond Corp. Moses notes that more than 800 people work in the complex and Mokaila estimates that about 4,600 people are currently employed in diamond industry activities outside of mining. Among those, De Beers notes that about half of the 160 people employed at its Global Sightholder Sales are native Botswanans, while all 434 positions at Diamond Trading Company Botswana (DTCB), which sorts and values Debswana production for De Beers and ODC, are now filled by local residents. As companies become more entrenched in Botswana’s diamond landscape, Mokaila expects there will be sufficient skills training and advancement so that higher-end jobs can be filled by locals also. For a country with an estimated 20 percent unemployment rate within a population of just under 2 million, the need for employment opportunities in the diamond industry is not underestimated. Nor is the expectation — and importance — of generating additional economic activity around the diamond industry. “Every Botswanan benefits from the impact of the diamond industry, be it through health subsidies, water, education or the infrastructure that’s going up,” Mokaila concludes. “But we can’t lose focus on developing the diamond industry further. We can increase rough trading, move into jewelry manufacturing and develop business clusters around the industry that will encourage our citizens to participate more in the diamond story. Everything is in place and now it’s a question of how rapidly we can grow.”