Sunday, September 18, 2011

De Beers to Deal in Botswana

The world's largest producer of rough diamonds, De Beers SA, is moving a key sales unit to Botswana from the U.K., highlighting how African governments are pushing miners to expand beyond mineral extraction in order to create additional local jobs.

African governments want miners to create more local jobs. Above, uncut diamonds at De Beers in London.

Under an agreement signed Friday, De Beers will move its London-based rough-diamond sales activity and as many as 150 jobs to Botswana's capital, Gaborone, by the end of 2013 . De Beers said it is still assessing the cost of the move and declined to disclose whether it will entail additional investment in the southern African nation.

As part of a new 10-year sales pact, the Botswana government also will have the right to sell 10% of diamonds mined in the country from a local joint venture between it and De Beers. Currently De Beers's trading arm sells all the output.

Botswana is the world's largest source of the precious stones, accounting for 21% of global diamond-mine production and about two-thirds of De Beers's output. The government of Botswana maintains a 15% stake in the company.

"It has long been a desire of the Botswana government to maximize its position as a leading diamond producer," said Bruce Cleaver, the executive director for strategy and business development at De Beers.

African governments have been trying to diversify their economies and add jobs beyond the extraction of precious stones and minerals to cushion any downturn in commodity prices. They have urged foreign miners to invest in sectors that add value to what comes out of the ground, such as polishing diamonds or refining platinum and gold.

Neighboring South Africa, the world's largest producer of platinum, is hoping to follow Botswana's example. South Africa's Department of Mineral Resources is drafting legislation aimed at encouraging miners to open more refining and manufacturing operations involving what is mined in country. In Zimbabwe, another major platinum producer, Impala Platinum Holdings Ltd. said it is considering opening a plant to refine locally mined ore; however, it is waiting until there is a clearer outlook for the implementation of a law requiring miners to sell a 51% stake in their enterprises to government-designated black-owned entities.

De Beers's Diamond Trading Co. will mix production from its mines and its global joint-venture operations to sell from its new base in Botswana. That will require big diamond buyers from India, Israel, the U.S.—and increasingly China—to come to Botswana. Currently, most of De Beers's diamonds are sold at meetings the company hosts in London.

"The agreement gives us direct access to market, which will be helpful for the successful development of the downstream diamond industry in Botswana," said Ponatshego Kedikilwe, the country's minister of mines, energy and water.

Such a trend is expected to ripple more broadly through the economy of Botswana, one of the most stable countries in southern Africa, to boost tourism and other sectors.

Botswana relies heavily on diamond mining for revenue. During the 2008 financial crisis, demand for diamonds dropped. That forced the Botswana government and De Beers mining venture, Debswana, to idle some mines for months at a time. Revenue from diamond sales in Botswana went from $366 million in 2008 to $193 million in 2009, before rising to $482 million in 2010.

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