After a year of turbulence, international rough diamond prices have started to rise in what could be a boost to Botswana's revenues and foreign exchange inflows.In a market update released yesterday, Gem Diamonds Limited, says that rough diamond prices are beginning to firm after a suppressed third quarter in which sales nosedived due to weak economic environment and tight liquidity in the market. London Stock Exchange (LSE) listed Gem Diamonds are the promoters of the Ghaghoo Diamond mine, which is currently under construction in the Central Kalahari Game Reserve (CKGR).
The company reported a 38 percent drop in sales at its high-value
Let_eng mine in Lesotho during the three months that ended on September
30, 2012. But it says that in October, prices began to rise as the US
holiday sales period approaches. Gem indices suggest a seven percent
increase in prices for the year.
"Rough and polished market indices are beginning to reflect a more
encouraging overall trend, but the rough trade is expected to be quieter
in November as the Indian market celebrates Diwali. A more positive
expectation for the holiday season retail sales in the major US market
should provide some stimulus to prices in the short term. However the
supply strategy of the major producers in an illiquid and fully supplied
market, as well as the aftermath of Hurricane Sandy in the US may have
an impact," said the company.
Following the reduction in rough prices in September 2011, the rough
diamond market moved positively through to May 2012. However, lower
margins and continued illiquidity in the diamond market coupled with the
poor macroeconomic climate resulted in significant pressure being
exerted on rough prices, which began weakening in June 2012. This
pressure continued through to September 2012 after which a market
correction process started.
For Botswana, which gets over 70 percent of its foreign exchange
revenue from diamond sales, the 2012 turbulence has hit hard on
government coffers with reduced income expected for the 2013-2013 fiscal
year. In the State of the Nation Address delivered last week, President
Ian Khama said that during 2012, diamond carat sales and revenue are
forecast to reduce by 13 percent and 19 percent respectively. He said
this will translate into a slower economic growth rate for Botswana.
"The economy is seen growing by 3.5 percent this year before rising
by five percent in 2013. Output from the mining sector will be heavily
curtailed by the weak diamond market which is currently suppressed due
to the global economic slowdown," Khama said.
Botswana's economy grew by eight percent last year according to
figures from Statistics Botswana. Meanwhile Gem Diamonds say that
construction of the Ghaghoo mine is progressing though at a slower rate
due to challenges encountered in advancing through an area of
"Development of the sand tunnel re-commenced in September 2012
following the final inspection review by the Department of Mines to the
tunnel integrity and modifications to the open face tunnel shield which
were implemented during the period. The sand tunnel, however, continues
to progress slowly as it descends through an area of hard material.
Plant and camp infrastructure development continues to progress
according to plan," Gem CEO Clifford Elphick said in a statement.