De Beers And Botswana Agree To A 10-Year Diamond Sales Deal

The Government of the Republic of Botswana and the De Beers Group have reached an agreement in principal on a 10-year sales agreement for Debswana’s rough diamond production till 2033, the two parties said in a joint statement.

In addition, the two parties agreed to a 25-year extension of the Debswana mining licensing deal that will run through to 2054. Debswana is a mining company with four diamond mines in Botswana. Each party owns 50 percent of the company. It is the world’s leading producer of diamonds by value. Botswana as a country is the second largest producer of diamonds behind Russia.

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“The transformational new agreement between the Botswana Government and De Beers reflects the aspirations of the people of Botswana, propels both Botswana and De Beers forward, and underpins the future of their Debswana joint venture through long term investment,” the two parties said in a joint statement released by De Beers.

The contract has yet to be signed by the two parties and all of the details have yet to be released but the agreement includes the following key points:

• Increased share of Debswana supply sold through Okavango Diamond Company (ODC). From the start of the new contract period ODC will receive 30 percent of Debswana’s diamond production, progressively increasing to 50 percent by the final year of the contract. The ODC is the rough diamond marketing company owned by the Botswana Government. It currently has access to 15% of Debswana’s mine production with sales of approximately $500 million per year. This was a key sticking point in the negotiations. Botswana President Mokgweetsi Masisi wanted a larger share of rough diamonds from the Debswana mine, threatening to walk away from the deal.
• De Beers argues that through taxes and royalties, the government receives a much larger share of the diamonds mines in the country.
• Long-term capital investment to secure Debswana’s position as one of the world’s leading diamond producers, and Botswana’s largest private employer.
• An upfront investment of approximately $75 million to the Pula Diamonds for Development Fund, and similar contributions over the next 10 years that could total up to $750 million. The Pula Fund is one of Africa’s oldest sovereign wealth funds co-owned by the Botswana government and Bank of Botswana. Created in 1994, the fund had a total of $4.1 billion in assets as of June 2022.

The agreement promises to create “tens of thousands of new jobs in Botswana, both within an expanded Botswana-based diamond industry and emerging sectors, with a focus on supporting the growth of a knowledge-based economy,” according to the joint statement.

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“Our transformative agreement reflects the aspirations of the country, secures the future of our Debswana joint venture and reaffirms De Beers’ leadership position for the long-term,” said Al Cook, CEO, De Beers Group. “The agreement represents our commitment to deliver investments in Botswana’s diamond production, Botswana’s diamond value chain, Botswana’s knowledge-based economy and, above all, the people of Botswana.”

Under the terms of the agreement, the two parties will abide by the former contract, which initially expired June 30, until the new sales and mining agreement is finalized.

There was concern in the diamond industry that the two parties would not commit to a deal. The negotiations were quite tense and unusually public, as Botswana was insisting on a better deal for the country and its citizens. The negotiations went to the end of the contract’s June 30 deadline. The announcement of an agreement was sent after midnight July 1 in Botswana.

An end to the 54-year production deal would have been devastating for both parties. De Beers relied on the nation for about 70 percent of its rough diamond supply, or 24 million carats, last year.

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Meanwhile, the diamond industry accounts for about 30% of Botswana’s revenue and 70% of its foreign exchange earnings. It has provided free education, free healthcare and plans for a more diversified future. The Debswana mining company employs about 6,300 persons, of which 93% are local Batswana (as the Botswana citizens are called). DTC Botswana, the sorting and marketing arm of De Beers, employs approximately 500 skilled diamond sorters and salespeople, most of whom are also locals. The Okavango Diamond Company reportedly has about 27 employees.