De Beers and Botswana Have (Finally) Made a Deal. What Now?
By Rob Bates | July 07, 2023
'In 2011, De Beers and Botswana signed a contract that moved De Beers’ sorting and sales from its traditional London base to Botswana’s capital of Gaborone. At the time, this was hailed as a significant concession. “De Beers bends the knee to Botswana,” said one headline.
If De Beers bent a knee during that deal, this time feels like the company was almost brought to its knees.
Though the two sides have hailed their new 10-year sales agreement—which includes a 25-year extension of De Beers’ mining licenses—as “transformational” and a “win-win,” not everyone believes De Beers won much here, except for removing a troublesome issue from its plate. Botswana’s diamond mines are highly profitable and will likely remain so going forward. However, analysts at RMB Morgan Stanley told Reuters that De Beers could lose as much as $200 million, or 15% of its earnings, from the deal. (De Beers CEO Al Cook responded that the analysts “misinterpreted” the arrangement.)
The agreement in principle was signed on June 30, right before the current one expired, with some details yet to be announced and others still to be finalized. It followed what local journalist Mbo Mguni called Botswana’s “most open debate [ever] on the country and the industry’s principal economic covenant.”
Headlines have mostly centered on Botswana winning the ability to sell 50% of its diamond production through state-owned Okavango Diamond Company (ODC) by the contract’s 10th year. That will be “indeed transformational,” former De Beers Botswana CEO Sheila Khama wrote in Mining Weekly, as “Botswana enters the big league of rough diamond marketing.”
At a press conference broadcast live Thursday on Facebook, minister of mines and energy Lefoko Moagi said that ODC—which currently tenders its goods—plans to set up a sight system, with regular customers buying regular allocations, similar to De Beers. A “noncompete” included in the last contract—which prevented ODC and De Beers from selling to the same customers—has been scrapped, though Moagi said Botswana plans to cultivate its own sales roster.
Moagi also provided a lot of new details on new De Beers contract. One is that De Beers and Botswana will partner on certain “exceptional” diamonds. “We will jointly find who is the best person to polish that stone,” Moagi said. “It won’t be chosen by De Beers alone, so we can both take accountability.”
De Beers will also establish entrepreneurship programs and educational institutions to train Batswana (people of Botswana) in skills like marketing and jewelry creating, and will collaborate with Botswana on a “world-class international jewelry manufacturing facility” that will employ 250 people.
If De Beers doesn’t meet certain beneficiation targets, it will “not be allowed to sell,” Moagi said. “Look at Surat, look at Antwerp, look at Tel Aviv. They take rough, they make it polished, they make [it into] jewelry. And they make a killing. We can’t be sitting on rough. That’s the value chain development. That’s the beneficiation.”
Under the new pact, De Beers will move some IT support and the De Beers Institute of Diamonds grading lab (including its inscription services) to Gaborone. Moagi also said De Beers and Botswana will form an entity that will search for new diamond deposits, both in Botswana and abroad. The sales split will depend on each partner’s investment, Moagi said, adding that Botswana may also explore on its own.
There are also plans, according to Moagi, for a “Botswana diamonds provenance initiative” as well as a joint “natural diamond defense” to counter the threat of lab-grown diamonds, which could be separate from the Natural Diamond Council.
“We will together put money into marketing spend so that we market our natural diamonds and we tell the Botswana story,” said Moagi. “We have to make sure that we develop our marketing skills as Batswana, and it is not driven by De Beers alone.”
(Though if you want to tell a positive “Botswana story,” headlines like “Is Botswana Getting a Raw Deal From De Beers Diamonds?” don’t help.)
While these initiatives risk increasing Botswana’s much-lamented “diamond dependency” (the gems currently account for about 50% of government revenue), the two parties are also creating a Diamonds for Development fund meant to diversify the country’s economy. Moagi explained that the fund intends to invest in initiatives like solar power and tourism and build Botswana’s “knowledge economy.” It will be seeded by $75 million from De Beers, which could kick in as much as $750 million over the next decade.
The ownership structure of the fund has yet to be revealed, but De Beers spokesperson David Johnson said it will “be fully transferred to the [government of the Republic of Botswana] on the 75th anniversary of the discovery of diamonds in Botswana in 2042.”
Still, Khama wrote, the fund “begs the question of how a private company steeped in diamonds [can succeed] in diversifying Botswana’s economy where one administration after another has struggled to diversify Botswana’s economy for five decades.”
The new contract includes a possible five-year extension. However, the industry shouldn’t be surprised if the fireworks restart a decade from now.
“This is an evolving partnership,” said Moagi. “Who knows? Perhaps after the next negotiations, [Botswana] will take 100% of our diamonds, and De Beers will just do mining.”
Questions remain about another diamond deal that Botswana president Mokgweetsi Masisi announced this year, with HB Antwerp. In March, Masisi said his country was taking a 24% ownership stake in the 3-year-old company, which also won the right to buy choice goods from ODC. HB executives have said their deal with ODC will be an “exact replica” of their setup with Lucara, where both sides share revenue from the final piece of polished.
As was pointed out on Twitter, if ODC sells to HB, and Botswana owns 24% of HB, Botswana will essentially be selling to itself. (The country also owns 15% of De Beers, the company mining the goods.) However, details on the HB deal remain elusive, with Moagi telling Botswana’s parliament this week that he couldn’t provide any as “there is no signed agreement [and] no final commercial terms to state.”
De Beers, on the other hand, has a deal. At a July 2 signing ceremony, Cook—who’s served as CEO for less than five months—struck an appropriately humble note, noting that De Beers did not have a “right” to Botswana’s goods. (The video of the signing includes a glimpse of former De Beers exec Stephen Lussier in the background. Lussier, who once handled government relations and has continued to consult for the company following his retirement in January, was said to be part of the team that helped land the deal.)
The signing ended with applause and a hug, but afterward neither side seemed all that happy. This was an unusually contentious negotiation, so a lot of hard feelings have surfaced over what has generally been viewed as a successful and enduring partnership. The animosity doesn’t seem to have gone away. Post-signing, President Masisi told reporters that his country got a “raw deal” in the past.
As has been stated many times, Botswana and De Beers need each other: The country has the diamonds, but only De Beers and parent company Anglo American have the resources and desire to get them out of the ground.
Even so, it doesn’t feel like their current connection is ... "
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