DE Beers will invest $75m up-front into a Diamonds for Development Fund and could increase that to a total of $750m over the next 10 years which is the duration of the new diamond sales agreement between De Beers and the Botswana government.
The fund appears to have been a key issue in the new agreement which was reached late last Friday after several years of negotiation but, according to De Beers CFO, Sarah Kuijlaars so far this is only an “agreement in principle”.
The agreement provides for the share of Debswana’s (De Beers Botswana) diamond production sold via Botswana’s state-owned Okavango Diamond Company (ODC) to increase to 30% from the current 25% and rise further to 50% by the end of the new contract.
Debswana is a 50/50 joint venture between De Beers and Botswana which controls and operates the Jwaneng, Orapa, Letlhakane and Damtshaa mines in Botswana.
Kuijlaars declined to provide financial details on the terms of the diamond sales through ODC commenting “at this stage it is an agreement in principle and there is a huge amount of detail that needs to be worked through.
“We are focusing on a heads of terms by the middle of the year and then the long term version of the contract which will ultimately have to go the shareholders of Anglo for support because it is a contract with a related party. So, a lot of the details have to be worked through but at this stage we have agreed to supporting the evolution of ODC.”
Kuijlaars also declined to give a specific date for completion of the contract saying “we are handing it over the lawyers. It will be months not days.”
“We support the growth of the ODC share and also how ODC acts in the future. At present ODC is only involved in auction sales, but as their role extends they will obviously get involved in local beneficiation.
“It’s important that you look at this deal in the round. Obviously the ODC share gets the headlines but it is also worth highlighting that the Diamonds for Developmemt Fund is how we support Botswana as they grow their footprint across the value chain.
“It is also about how we secure our alignment with the Government of Botswana on Debswana’s future; how collectively do we support the growth of roles in Botswana within the diamond industry as well as adjacent sectors and also support President Masisi’s commitment around a knowledge-based economy. We have had a lot of success elsewhere in the Anglo group with these country-focused funds.”
Asked about the possible impact on De Beers profit margins of the new deal Kuijlaars replied “it clearly has an impact on the margins at various stages, but it’s not just one price we are talking about. There’s a whole array of goods and we believe we have huge strength in our aggregation model which will continue in the future.”
Kuijlaars attributed the length of time taken to reach agreement to the “hugely complex” nature of the negotiations which affected not only the sales arrangements but the mining licences for the diamond mines in the country.
She declined to comment on the “ups and downs” of the negotiations and would not elaborate on statements made in January by Botswana mines minister Lesoko Moagai that “two material issues” remained to be resolved.
“I am delighted that we have got the agreement. It’s a very broad agreement about the multi-billion pula fund; about the long-term investment in Debswana; about the continued leadership and continued growth of the sector in the country and absolutely it supports the growth of Botswana’s jobs.”
