Monday, November 28, 2011

Debswana feels diamond market pinch

Debswana has embarked on a cost-saving and reprioritization exercise to mitigate the effects of the current market volatility, deteriorating global economic conditions and a decrease in both demand and prices of rough diamonds in the past few weeks, The Southern Times learnt this week.

Debswana is a joint venture between the Botswana government and diamond mining giant, De Beers.

The company is the world’s largest diamond producer by value and second largest producer by volume.

Group public and corporate affairs manager Esther Kanaimba-Senai said following the rapid-price growth of rough diamonds earlier in 2011 ( up 45 percent), the situation in the market had become more challenging in recent months with lower volumes of diamonds being traded.

This is in addition to rough and polished diamond prices sliding and liquidity problems being felt at the cutting centres.

“The reduction in polished prices (down 10 percent) and lack of liquidity has meant that rough sales and rough prices have been under pressure.

“There is limited amount of cash available for diamantaires (expert diamond cutters and polishers) to purchase.

“Trading of rough diamonds in the secondary market has been very depressed. Tenders and auction prices have reduced by 20-50 percent,” she said.

Kanaimba-Senai said the situation has resulted in substantially reduced rough diamond sales during the 2011 penultimate sight (selling period) which ended on the November 3.

Indications are that the last sight for the year might also be small.

The first sights of 2012 will also be impacted until the Christmas sales figures are known. As such Debswana is putting in place plans to mitigate the situation.

“In spite of these challenges, consumers have continued to buy diamond jewellery throughout the year, with particularly strong sales in India and China and better-than-expected performances in the US.

“If the end of the year selling season (results not known until end of February 2012) meets expectations then things may return to normal,” she said.

Kanaimba-Senai added that the announcement by European leaders of a eurozone debt deal should also improve the situation.

Debswana said it will continue to maintain an uncompromising focus on safety, conserve cash by eliminating all discretionary expenditure and review production activity so that only cash-efficient core activities are undertaken.

Meanwhile, the allocation of rough diamonds for beneficiation in Botswana will gradually increase to US$800 million within the next three years, Minister of Minerals, Energy and Water Resources Ponatshego Kedikilwe has said.

“That would be a significant increase from the 2005 beneficiation which stood at about US$28 million and just above US$400 000 in 2010,”the minister told a Diamond Processing Exchange Conference this week.

According to Kedikilwe the full diamond beneficiation impact will be felt in the long-term.

“The diamond beneficiation programme would increase the mining sector’s contribution to job creation and income generation.

“There were 16 factories as at the end of September this year with a total employment of 3 262 of which 2 876 were Batswana,” he said.

He added that the country continued to be rated favourably by international institutions owing to factors such as competitive mining laws, low sovereign risk and social risk as well as good infrastructure. “This favourable investment climate is not limited to the minerals sector but prevails in the wider economy.

“The government is alive to the fact that economic diversification was a partnership of different players particularly the private sector.

“To achieve, Botswana should create an environment conducive to investors,” he said.

Botswana, Kedikilwe said, as a founding member of the Kimberly Process Certification Scheme (KPCS) continued to uphold its values and principles.

“Such is to ensure that diamonds were used for development and appealed to all stakeholders to ensure that the Kimberly process is natured as it existed for orderly survival of the industry,” said the minister.

The conference, organised by the World Bank and the Botswana government, brought together industry stakeholders to thrash out issues affecting the processing of rough diamonds

Economist and former Bank of Botswana Governor Dr Keith Jefferies observed that the country was probably the largest economy in the world which depended heavily on a single mineral source.

“Diamond production would probably reduce by 2030 hence leading to declining government revenues.

“Diversification from mining and related sectors is of paramount importance,” he cautioned. “Beneficiation did not necessarily have to be located where the source or users were based hence that of diamonds could be done anywhere in the world.”

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