Monday, September 19, 2011

De Beers to shift diamond trading business 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 on Monday 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 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% of its output, rising to 15% over the next four years. That provides the country with its own price verification system, Mines minister Ponatshego Kedikilwe said.

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 on Monday. The agreement is effective from January 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, which owns 45% of De Beers, "believes in diamonds," chief executive officer Cynthia Carroll said.

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