When the true history of Botswana diamond beneficiation is finally written, the names of Israeli diamond billionaire Lev Leviev and Greek gemologist Yianni Melas will feature prominently as the main architects who provided the initial blue print that formed the basis of the current experiment in diamond value add.
Their business case presented to the Botswana media at Hotel Mondeo on that auspicious day in 2004, enabled Botswana to gain confidence to proceed to negotiate better – but not the best – terms with De Beers which resulted, among others, in the relocation of the Diamond Trading Company from London to Gaborone.
From that day onwards Botswana’s diamond beneficiation debate gained momentum and intensity despite much negative publicity and opposition from both government and De Beers. De Beers and Botswana Government finally somersaulted in their opposition in a rather strange turn of events due to intense public debate and concerted media onslaught in support of diamond value addition.
The change of heart was clearly opportunistic, self serving and mere face saving in the light of mounting public condemnation and debate. The real reason seemed to have been De Beers’ paranoia and the need to block its strongest and most feared and effective international rival billionaire, Lev Leviev from entering Botswana’s diamond beneficiation market.
This was after Leviev had made a compelling business case in support of beneficiation which in turn exposed De Beers and some of its harmful business practices against Botswana. De Beers apparently had not been acting in good faith in its opposition to diamond value add.
Indications are Botswana's diamond beneficiation is a poor and half hearted plagiarism of billionaire Lev Leviev's original business model presented in 2004 at various media briefings in Gaborone through his gemologist consultant, Yianni Melas at a time when Botswana government and De Beers dismissed the idea as nonsense and unworkable. De Beers sought to keep Botswana out of diamond beneficiation for its own benefit.
Leviev was able to demonstrate how Botswana was probably being cheated and not realizing the true value of its rough diamonds because there was no independent way of grading and determining the price at the time. De Beers over decades was conflicted for having had a hand in the appointment of a sole diamond valuer to grade and price Botswana diamonds, which in turn were all sold to its wholly owned marketing arm in London- the Central Selling Organization.
It was a national shock to learn that Botswana’s leadership and the public for long did not know the true price and value of their diamonds in the absence of an independent and competent grading and valuing system as De Beers alone was a player and referee at the same time.
Leviev and his Greek consultant, Yianni Melas recommended for the first time that Botswana should engage the Gemological Institute of America (GIA) to provide an independent and credible grading, valuing and pricing for her diamonds as well as provide training in all aspects of diamond beneficiation as a basis for building a strong foundation for the emerging beneficiation industry.
â€¨â€¨Unable to find a coherent, cogent and convincing reason against Leviev’s proposal, the Botswana government, De Beers and their supporters in the media resorted to mudslinging, conspiracy theories and a smear campaign against Leviev and his supporters.
As a test case for those in doubt, Melas and Leviev had proposed for the first time, that Botswana set aside only ten per cent of her rough diamond production, a basis for a local diamond cutting and polishing segment to support an emerging jewelry manufacturing and retail industry.
Unlike local supporters of beneficiation who tended to appeal to nationalistic sentiments and rhetoric of patriotism, Leviev argued from an informed position as a practitioner with deep gemological knowledge, experience and understanding of the entire diamond value chain.â€¨â€¨
According to Melas, cutting and polishing segments were not meant to be stand alone but to be fully integrated through backward and forward linkages in the entire diamond value to move Botswana diamond industry a step further as a new and emerging diamond jewelry manufacturing and retail center in order to derive maximum returns from rough diamond production.
Melas and Leviev were advocating for branding Botswana internationally as a major diamond producer, by producing locally, "made in Botswana" an assortment of diamond jewelry, in turn creating new synergies and supporting new enterprises and other sectors of the economy such as air transport and tourism.
Leviev’s business case envisaged a scenario where international jewelry buyers would be persuaded through marketing and advertising to travel to Botswana to buy "made in Botswana" branded diamond jewelry at shops set up at major tourism and urban centers in Botswana like Kasane, Maun and Gaborone, at the same time, promoting the country as a premier retail, tourist, wedding and honeymoon destination.
For instance, for sentimental reasons, newlyweds were to be more pursued through advertising and marketing to prefer to travel to buy their piece of diamond jewelry where it is produced and probably wed and honeymoon at one of Botswana's world renowned and unique ecosystems such as various game reserves and the Okavango.â€¨
Other spinoffs of his business model was support for the development of hotel accommodation and bringing the huge investment and budget in marketing, advertising and promotions of diamonds and their transactions to Botswana which is currently done overseas. â€¨
However instead of seriously considering Leviev’s proposal and according him the opportunity to spearhead the new beneficiation industry because he was more competent than most, Botswana missed the boat by making the wrong policy choices by succumbing to the hostility and rivalry from De Beers.
There was no cogent reason for Botswana to have turned down Leviev’s business case since he was more competent and world renowned to deliver because he was already active and successful at participating in all levels of the diamond chain worldwide.
Botswana’s beneficiation model has been overtaken by events, because the trend now is for greater consolidation and integration through backward and forward linkages of the entire segments of the diamond value chain. In fact other African countries and Industry players are no longer content with specializing in mining and selling diamonds raw at low prices but to add value to them and invest in the entire value chain.â€¨â€¨
Because of lack of transparency in the valuation /and pricing of diamonds generally, Leviev also recommended use of other independent authorities to improve transparency and create an electronic trading platforms for diamonds such as IDEX, Guaranteed Diamond Transactions (GDT system, Rapport Net and DIAMDAX, which collects and supplies polished diamonds price data to a number of firms and utilizes online exchange that offers online trading platforms for polished diamonds using real time spot prices.
Leviev has a track record of being De Beers' most feared competitor after pulling the rug under the feet of De Beers on many occasions for lucrative diamond deals in Russia and successfully putting an end to De Beers' pervasive spell, dominance and gridlock hold on Southern Africa's diamond resources in Namibia and Angola.
Leviev called De Beers' bluff by demonstrating that indeed beneficiation was indeed not only desirable and overdue but also feasible as demonstrated by his impeccable track record internationally at all levels of the diamond value chain. Leviev’s proposal to Botswana diamond value add was unprecedented, more detailed, ambitious and innovative than what Botswana and De Beers ultimately settled for.
Unlike Levier's well thought out proposal, a reluctant De Beers gave Botswana a rope to herself by choosing to concentrate not only on cutting and polishing, but in venturing into the equally risky area aggregation and selling of selling rough stones. This is so because every diamond valuation is subjective.
Two appraisers can differ in their valuations of the same diamond by as much as 30%. A key consideration in diamond pricing is a stone's grade – not a monetary value – which is by no means an exact science but a subjective consideration, so that the same diamond often receive markedly different grades from different laboratories, resulting in large variations in the prices of comparable stones. â€¨
Tracing the diamond value chain is not the only way of measuring how African diamond producers lose on revenue and miss vast opportunities to diamond processing countries overseas.
By way of illustration, Botswana produces an estimated 33% of global diamond production and 75% by value of all the global diamond production and profit enjoyed by De Beers. Jwaneng mine in Botswana is the largest diamond mine in the world by value and third largest by carat volume.
In 2015, industry sources reveal that it is estimated to produce 11.0 million carats valued at $2.4 billion. The second largest diamond producer by value and volume, Orapa also in Botswana is estimated to produce 12.0 million carats in 2015 or $1.2 billion worth of diamonds up from 12.1 million in 2013.
Rio Tinto owned Argyle mine in Australia is the world’s largest in terms of production volume and is estimated to produce 17.5 million carats in 2015 up from 9.2 million in 2014 and expected to reach 20 million carats per annum in 2016. But Arygle diamonds, like those in Zimbabwe’s Marange, are of relatively low quality and colour are expected to fetch much less revenue than both Jwaneng and Orapa.
Yet the so called world diamond hubs have no significant diamond mines but where most of the diamonds from diamond producing countries like Botswana are sold and fully beneficiated makes such diamonds producers a laughing stock of the world and a shame to present future generations.
For example there are six major diamond hubs which aggregate a variety of industry activities in a single venue, including diamond trading centers, dealers and sales offices of cutting and polishing companies.
Spot trading of rough and polished diamonds between a buyer and a seller takes place in the sales offices. By contrast, Botswana generates revenues roughly of between US$1-2 billion on average per annum from its massive diamond production, and yet the traditional hub of New York, produces $35 – 40 billion turnover per year, hosts about 2600 diamond businesses.
Dubai with no single diamond mine, makes $40 -45 billion per year, and provides services to more than 500 regional and international diamond companies and is the fastest growing hub in recent years, according to the Bain report and INDEX.
Antwerp generates $50-56 billion per year, hosts four major diamond exchanges and 1500 diamond companies and is the largest diamond hub in the world. Mumbai attracts between $25-30 billion in turnover, is home to 2500 diamond offices and handles 60% of diamond exports from India.
The diamond hubs of Dubai and Hong Kong are luring trade with zero taxes on imports and exports and by exploiting their proximity to the cutting and polishing industry in China and India, while the traditional hubs on Antwerp, New York and Tel Aviv have opted to specialize by focusing on high value stones, well developed infrastructure and favorable tax revenues.â€¨
Botswana's potential to grow into a major cutting and polishing center is therefore limited on the basis of the opinion of Bains and Company report. It argues among others that the country's labour costs are high compared to those of China and India and its cutters lack expertise comparable to that of the craftsmen in Europe, Israel and the US.
The growth of Botswana's cutting industry may well be limited until it is better able to compete on cost with the industry in India and China. Cutting and polishing costs average range from approximately $100 per carat in Antwerp, New York and Tel Aviv, to $20 to $56 in China and Thailand and $10 to $30 in India.
However, Botswana still enjoys much competitive advantages to excel in diamond beneficiation across the entire value chain because unlike other cutting and polishing centers, she has access to secure supplies of rough diamonds and ability to resell.
But cost competition amongst cutters and polishers has intensified, making new investments in efficiency necessary while financing for working capital is growing harder and harder to obtain. Competition for access to key customers in jewelry manufacturing is heating up, while there is a never ending challenge of securing stones at prices that make economic sense.
At the upstream end of the value chain, the key challenges for retailers are to secure a supply of diamonds jewelry appropriate to their customer base and ensure that the diamonds in their jewelry are ethically secured, forcing many firms into more consolidation and integration of the entire value chain, according to the Bains and Company report.â€¨
Moreover, Botswana beneficiation model in aggregation and the sale of rough diamonds has severe limitations because there is no spot market for rough or polished diamonds, which are primarily sold through private contracts, with no public disclosure of negotiated prices.
Diamond producers have a compelling motivation to realize the highest possible price as prices directly affect their profitability. This desire may negatively affect the profitability of cutters and polishers who are in need of secure access to supplies of rough diamonds and ability to resell at competitive prices.
Cost competition among cutters and polishers has intensified naming new investments in efficiency necessary at a time when financing for working capital growing harder and harder to obtain. Competition for access to key customers in jewelry manufacturing is heating up.
There is also a never ending challenge of securing access to stones that make economic sense on the evidence of the Bains and Company report.â€¨â€¨Unlike Leviev's well thought out proposal, a reluctant De Beers has been calculative and seems to have given Botswana a rope to herself by choosing to concentrate not only on cutting and polishing, but in venturing into the equally risky area aggregation and selling of selling rough stones. This is so because every diamond valuation is subjective.
Two appraisers can differ in their valuations of the same diamond by as much as 30%. A key consideration in diamond pricing is a stone's grade – not a monetary value – which is by no means an exact science but a subjective consideration, so that the same diamond receives markedly different grades from different laboratories, resulting in large variation in the prices of comparable stones.
Although a substantial mark- up occurs at the cutting and polishing stages, it is only the countries and firms that are able to find the most cost effective, quality assured and increasingly safest means of doing so that will be globally competitive in the future.
Moreover, says Bains and Company, there is no spot market for rough or polished diamonds, which are primarily sold through private contracts, with no public disclosure of negotiated prices. Diamond producers have a compelling motivation to realize the highest possible price as prices directly affect their profitability.
This desire may negatively affect the profitability of cutters and polishers who are in need of secure access to supplies of rough diamonds and ability to resell at competitive prices. Cost competition among cutters and polishers has intensified naming new investments in efficiency necessary at a time when financing for working capital is growing harder and harder to obtain. Competition for access to key customers in jewelry manufacturing is heating up.
Botswana has recorded its first trade surplus for 2021 since the only one for the year in January.
The country’s exports for the month of July surpassed the value of imports, Statistics Botswana’s July International Merchandise Trade data reveals.
Released last Friday, the monthly trade digest reports a positive jump in the trade balance graph against the backdrop of a series of trade deficits in the preceding months since January this year.
According to the country’s significant data body, imports for the month were valued at P7.232 billion, reflecting a decline of 6.6 percent from the revised June 2021 value of P7.739 billion.
Total exports during the same month amounted to P7.605 billion, showing an increase of 6.1 percent over the revised June 2021 value of P7.170 billion.
A trade surplus of P373.2 million was recorded in July 2021. This follows a revised trade deficit of P568.7 million for June 2021.
For the total exports value of P7.605 billion, the Diamonds group accounted for 91.2 percent (P6.936 billion), followed by Machinery & Electrical Equipment and Salt & Soda Ash with 2.2 percent (P169.7 million) and 1.3 percent (P100.9 million) respectively.
Asia was the leading destination for Botswana exports, receiving 65.2 percent (P4.96 billion) of total exports during July 2021.
These exports mostly went to the UAE and India, having received 26.3 percent (P1. 99 billion) and 18.7 percent (P1.422 billion) of total exports, respectively. The top most exported commodity to the regional block was Diamonds.
Exports destined to the European Union amounted to P1.64 billion, accounting for 21.6 percent of total exports.
Belgium received almost all exports destined to the regional union, acquiring 21.5 percent (P1.6337 billion) of total exports during the reporting period.
The Diamonds group was the leading commodity group exported to the EU. The SACU region received exports valued at P790.7 million, representing 10.4 percent of total exports.
Diamonds and Salt & Soda Ash commodity groups accounted for 37.8 percent (P298.6 million) and 6.2 percent (P48.7 million) of total exports to the customs union.
South Africa received 9.8 percent (P745.0 million) of total exports during the month under review. The Diamonds group contributed 39.9 percent (P297.4 million) to all goods destined for the country.
In terms of imports, the SACU region contributed 62.7 percent (P4.534 billion) to total imports during July.
The topmost imported commodity groups from the SACU region were Fuel; Food, Beverages & Tobacco, and Machinery & Electrical Equipment with contributions of 33.3 percent (P1.510 billion), 17.4 percent (P789.4 million) and 12.7 percent (P576.7 million) to total imports from the region, respectively.
South Africa contributed 60.1 percent (P4.3497 billion) to total imports during July 2021.
Fuel accounted for 32.1 percent (P1.394 billion) of imports from that country. Food, Beverages & Tobacco contributed 17.7 percent (P772.0 million) to imports from South Africa.
Namibia contributed 2.0 percent (P141.1 million) to the overall imports during the period under review. Fuel was the main commodity imported from that country at 82.1 percent (P115.8 million).
During the months, imports representing 63.5 percent (P4.5904 billion) were transported into the country by Road.
Transportation of imports by Rail and Air accounted for 22.7 percent (P1.645 billion) and 13.8 percent (P996.2 million), respectively.
During the month, goods exported by Air amounted to P6, 999.2 million, accounting for 92.0 percent of total exports, while those leaving the country by Road were valued at P594.2 million (7.8 percent).
Founders from twenty companies have been accepted into the program from Botswana, Namibia, and South Africa
The 4th Cohort of the Stanford Seed Transformation Program – Southern Africa (STP), a collaboration between Stanford Graduate School of Business and De Beers Group commenced classes on 20 September 2021. According to Otsile Mabeo, Vice President Corporate Affairs, De Beers Global Sightholder Sales: “We are excited to confirm that 20 companies have been accepted into the 4th Seed Transformation Programme from Botswana, Namibia, and South Africa. The STP is an important part of the De Beers Group Building Forever sustainability strategy and demonstrates our commitment to the ‘Partnering for Thriving Communities’ pillar that aims at enhancing enterprise development in countries where we operate in the Southern African region”. Jeffrey Prickett, Global Director of Stanford Seed: “Business owners and their key management team members undertake a 12-month intensive leadership program that includes sessions on strategy and finance, business ethics, and design thinking, all taught by world-renowned Stanford faculty and local business practitioners. The program is exclusively for business owners and teams of for-profit companies or for-profit social enterprises with annual company revenues of US$300,000 – US$15million.” The programme will be delivered fully virtually to comply with COVID 19 protocols. Out of the 20 companies, 6 are from Botswana, 1 Namibia, and 13 South Africa. Since the partnership’s inception, De Beers Group and Stanford Seed have supported 74 companies, 89 founders/CEOs, and approximately 750 senior-level managers to undertake the program in Southern Africa.
Minergy, the coal mining and trading company with the Masama coal mine, this week released results for the year ended 30 June 2021. The company achieved revenue of P193 million (2020: P81 million) with significant improvement in sales volumes surpassing 415 000 tonnes sold for the year.
The performance was divided into two distinct periods with very different operating environments. The first eight-month period (July 2020 – February 2021), was negatively impacted by delayed funding, COVID-19 impacts and excessive rain; and the last four-month period (March – June 2021), was a more stable production environment moving toward nameplate capacity.
According to Minergy CEO, Morné du Plessis, production and sales initially recovered in July and August 2020 with the easing of COVID-19 restrictions and recoveries were further bolstered by the successful launch of the rail siding. Delays experienced in concluding the funding contributed to contractors limiting operations to manage arrears.
“However, the heavy rains we experienced from December 2020 through February 2021 flooded the mine pit making access difficult and impacting both production and sales. Fortunately, the rain subsided in March 2021, and we entered a more stable environment, with a positive impact on operations. Good recoveries in production and sales were experienced during the last four-month period of the year, with the mine moving closer toward a breakeven position.”
“Despite these operational constraints, including the effects of COVID-19 on logistics and manning of shifts, we expect to reach consistent nameplate capacity in the 2022 financial year,” du Plessis added.
In addition to the revenue reported above, the company incurred costs of sales of P256 million (2020: P150 million) with operating costs of P23 million (2020: P31 million). This effectively resulted in an operating loss of P86 million (2020: P100 million). Finance costs of P51 million (2020: P17 million) were incurred, bringing the net loss before taxation to P136 million (2020: P117 million).
Du Plessis explains that the adverse conditions in the first eight-month period contributed to 86% of the gross loss, while the more stable four-month period alone contributed to 50% of total sales value, helping to decrease monthly gross losses, albeit below breakeven levels.
The company benefited from a strengthening in the South African Rand (“ZAR”) supporting higher back-on- mine sales prices.
“As announced, we’re pleased to have secured P125 million of additional convertible debt funding through the Minerals Development Company Botswana (Proprietary) Limited (“MDCB”). Minergy remains grateful for this support.”
He added that the first tranche of additional funding provided by the MDCB had been received in December 2020, which allowed Minergy to settle the majority of the contractor’s arrears and allowed their teams to be remobilised. The second and final tranche was paid post the financial year-end and will allow the business to reach nameplate capacity in the new financial year.”
COAL SALES AND MINE PERFORMANCE
Sales volumes increased by 110%, supported by increased sales in Botswana and internationally in South Africa and Namibia. Sales for June 2021 exceeded 56 000 tonnes, a record since the inception of the mine, with pricing increasing late in the financial year on the back of buoyant international prices and a strengthening ZAR.
Minergy also concluded a further 12-month off-take agreement to the existing off-take agreement, with a further agreement finalised post year end.
Overburden moved during the reporting period increased by 86% and extracted coal by 50%. Coal mined in June 2021 alone exceeded 100 000 tonnes. “This is a good performance considering the challenges faced such as sacrificing pre-stripping activities for a period to manage arrears, excessive rain and COVID-19,” du Plessis indicated.
“The wash plant was initially starved of coal due to the factors noted already. Despite this, overall plant throughput performance was 37% higher than 2020. Consistent output was supported by the completion of the Stage 2 rigid crushing section as well as the water saving dewatering screen with filter press contributing to a reduction in water usage of 60% per tonne of coal. A record throughput of more than 84 000 tonnes was achieved in March 2021 and this consistency has been maintained.”
According to du Plessis, the completion of Stage 4 of the Processing Plant, the rigid screening and stock handling section, remains a key optimisation step, which has associated benefits. “The completion was unfortunately delayed by a southern African wide shortage of structural steel but was commissioned post year-end.”
Minergy expects the positive momentum in international coal pricing for southern African coal to remain in place. Higher coal prices have resulted in coal being withdrawn from the inland market in favour of lucrative international markets. Du Plessis added that the regional market is currently under- supplied with sized coal, which supports higher pricing and new customer opportunities for Minergy.
“Our objective for the 2022 financial year is to achieve nameplate capacity by completing final ramp-up of operations. This will enable the company to generate sufficient cash flow to stabilise the business at breakeven or better. The bullish coal market is also providing support. COVID-19 will still be closely managed, and we look forward to the lifting of the State of Emergency, as announced, and trust that vaccination programmes will achieve herd immunity in Botswana during the next 12 months.”
Du Plessis expressed his excitement on prospects stating that, “The Eskom due diligence process is continuing, and we are hopeful of receiving feedback during the current financial year. In addition to this opportunity, Minergy is also investigating participation in the request by the Government of Botswana to provide a 300MW power station for which the company has been shortlisted.”
The approved process to issue shares for cash is showing positive leads and he concluded by saying that a listing in London is still being investigated.