Botswana and De Beers struck a last-minute agreement over the weekend, highlighting the pressure that the 135-year-old gem manufacturer is facing as it tries to mend relationships with its main supplier in the face of declining prices and escalating competition.
If negotiations failed, there may be a lot of disappointment for both parties. Although Botswana provides 70% of De Beers’ rough diamond needs, the country receives two-thirds of its foreign exchange earnings and a fifth of its GDP from diamond sales.
However, when the time for a new sales agreement drew near, President Mokgweetsi Masisi made a public threat to scuttle Botswana’s 54-year relationship with De Beers unless it gave the state a larger portion of rough stones.
In a crucial discussion, it looked like nationalist rhetoric—that is, until the world’s largest diamond miner gave in.
“There was… a desire to cooperate and reach a deal. The opposite would have been very damaging for everyone concerned, for our industry,” according to De Beers CEO Al Cook, who joined the leadership team of the business in February.
The firm, in addition to a majority of the worldwide diamond industry, is dealing with market share losses to synthetic diamonds and a 6.5% decline in diamond prices so far this year.
Western consumers’ requests for guarantees that purchases do not originate in Russia, where the other major producer Alrosa is situated, also significantly favoured Botswana in the negotiations.
That assisted the nation in obtaining valuable concessions from De Beers, including a boost in the company’s share in the production of diamonds from their Debswana joint venture from 25% to 30% in the near future and 50% by 2033.
Botswana already expanded its share of gems from Debswana from 10% in 2011 to 25% in 2020, with sales of these gems reaching $4.588 billion in 2022 compared to $3.466 billion in 2021.
In addition, the largest producer in terms of value, the Jwaneng diamond mine, one of the richest in the world, earned multi-billion dollar spending commitments.
Diamonds industry analyst Richard Chetwode said, “With the mines going deeper and capital operating costs significantly increasing, the investment required by De Beers for only 19.2% of the profits makes this partnership no longer the dripping roast it once was. Without diamond price upside, this deal makes the investment much more marginal.”
The arrangement, according to analysts, makes the diamonds miner owned by Anglo American less attractive as an investment.
According to RMB Morgan Stanley analysts, the agreement might cost DeBeers’ core earnings $100 million. According to them, the financial impact may total $200 million over the course of a decade, or 15% of the company’s total earnings before interest, taxes, depreciation, and amortisation.
