President Mokgweetsi Masisi has coined the De Beers 50/50 partnership with Botswana Government as a â€œmarriageâ€ and at the last Diamond Conference he spoke of â€œrenewal of vowsâ€ referring to talks between the two parties.
The Botswana-De Beers diamond sales deal was renewed into a 10 year union in 2010, it lapses this year in September. However there is a widespread concern that ever since the ongoing talks began, the talks have been taking place in secrecy in Gaborone and London boardrooms. But a lot of public curiosity is about the two parties publicly appearing to be diplomatic about their negotiations and promoting an unbreakable five decade bond.
Masisi borrowed all the metaphors of a long standing and flourishing love or romantic relationship while De Beers group CEO Bruce Cleaver last year, brandishing a huge smile before reporters at the Diamond Conference, spoke of not even dreaming of â€œany better partner than Botswana.â€ Antagonist see this with an eye of scepticism, some just sense a lot of flattery by lovers who would not talk about what happens when alone in private, in bedroom. Some observers or the opposition see this as just sweet nothings on public display, while a lot is happening behind closed doors.
Owner of De Beers, Anglo American, has recently indirectly released a hint red flagging on how dicey it is for the company to be in a business partnership with governments, like the deal with Botswana through their subsidiary. Anglo American owns 85 percent of De Beers while the Government of the Republic of Botswana owns the remaining 15 percent. On the other hand De Beers has a 50/50 venture with Botswana government which resulted in the birth of Debswana.
Another offspring of the partnership is Diamond Trading Company Botswana (DTCB), also a 50 -50 venture, DTCB avails 85 percent of their sorted and valued diamonds to De Beers Global Sight holder Sales (DBGSS) and 15 percent to Okavango Diamond Company (ODC) which is wholly owned by Botswana Government. In its recently released annual financial report and notice of AGM, Anglo American hinted that in a deal with Botswana through De Beers there could be, â€œuncertainty over future business conditions leads to a lack of confidence in making investment decisions, which can influence future financial performance.â€
Anglo American wanted to highlight â€œprincipal risksâ€ that come with the companyâ€™s business and political and regulatory concerns were in the basket, with a worry that a deal with government may bring unexpected and uncalculated future changes. There could be, â€œuncertainty and adverse changes to mining industry regulation, legislation or tax rates can occur in any country in which we operate.â€
â€œThe Group has no control over political acts, actions of regulators, or changes in local tax rates. Our licence to operate through mining rights is dependent on a number of factors, including compliance with regulations,â€ said Anglo American. Anglo American will be watching the De Beers-Botswana talks with hope that it does not end up in what many predict as â€œto bring shocking changes.â€ Masisi has told journalist last year that he wants more for Botswana in this deal, sitting next to Cleaver who maintained a diplomatic PR esque grin.
What is reported by those who eavesdropped the De Beers-Botswana talks from a distance are saying there has been a possibility to discuss the issue of Botswana being ripped off along the way as the stones leave Debswana operations crossing borders to diamond trading centres around the globe. Another issue expected inside the talks is the increase in percentage volume of ODCâ€˜s uptake from DTCB. The argument has always been that Botswana as one of the largest diamond producers in the world has the capacity and ability to develop its own price book through its own independent window outside De Beersâ€™ channels. It has been said that currently ODC rakes in sales in the region of $500 Million annually (approximately P5 billion).
The 2011 negotiations were seen to have brought the positive being the relocation of DBGSS from London to Gaborone, transferring De Beersâ€™ operations consolidated rough diamond sales into Gaborone, bringing alongside professionals, skills, and the worldâ€™s biggest rough diamond transactions to Africa. The year 2011 also gave life to ODC which found its feet to move a year later in 2012.
Debswana is also expected to start investing in other sectors outside its core business of mining diamonds. Some see Masisi to be playing hard-ball on the deal despite his diplomatic talks with Bloomberg in May 2018 of, â€œwe have had a wonderful relationship with De Beers and we expect that relationship to be even more cemented, there is a way of actually achieving a win-win for both, we want to participate more on cutting, polishing and retail.â€
Veil of secrecy
Tax Justice Network -a tax watchdog- in its 2020 report portrays Botswana as too secretive and the countryâ€™s dealing with De Beers was attributed as â€œhighly secretive.â€Â Tax Justice Network quoted a recent Open Society Initiative for Southern Africa (OSISA) study titled â€˜Botswanaâ€™s Diamond Deceptionâ€™ which says, â€œBotswanaâ€™s paper success does not translate to the kinds of gains the country should be receiving. Disclosure of key information and removal of De Beersâ€™ monopoly would liberate the economy and its democracy.â€
The study said initially Botswana held a 15 percent share, but several years later when exceptional diamonds were unearthed, Botswanaâ€™s share was increased to 50 percent. â€œDe Beers wanted to ensure it could keep its monopoly and control production so this find would not disrupt market prices. Then in 2004, Botswana acquired a 15 percent share in De Beers itself, an unprecedented entangling of a sovereign country with a single private company.â€
According to the OSISA paper, the exact structure of this deal between Botswana and De Beers is complex and confidential in a few key places, but it promises Botswana continued revenue while handing power of the diamond industry to De Beers. OSISA study alleges De Beers has â€œa relationship with the ruling BDP. â€œDe Beers and the BDP have knit the political and corporate structures together in such a way that they undermine accountability and regulatory systems with a culture of secrecy (framed by De Beers as â€œconfidentialityâ€).
As a private entity, De Beersâ€™ dealings are largely protected from scrutiny. Unlike the EU and U.S., where governments once banned or prosecuted De Beers for price-fixing and other anti-competitive activities, Botswanaâ€™s government and its ruling party have been direct collaborators.â€
Anglo American further uncertainties in politics staining a sparkling diamond business
In last yearâ€™s divisive national polls this country could have been dragged into what looked like a civil shake up with the former President fighting with his successor, the diamond industry was watching with crossed fingers. Anglo American in its recent annual financial report says: â€œPolitical instability can also result in civil unrest and nullification or nonrenewal of existing agreements, mining permits, sales agreements or leases. These may adversely affect the Groupâ€™s operations or performance of those operations.â€
In the run-up to elections Botswana opposition was also posing serious threat, with an influential figure like the former President throwing his weight behind the block, this could have scared De Beers mother Anglo American as her child (De Beers) is only used to the red interior designs of the ruling BDP 53 year old walls. Opposition could have painted the walls with a different colour and worse enough chased away Anglo Americanâ€™s De Beers. A new party might change laws and policies to be closer to its political ideology.
Anglo American in that situation envisage possible change in laws which might be unfavourable like; increased costs can be incurred through additional regulations or resource taxes, while the ability to execute strategic initiatives that reduce costs or divest assets may also be restricted, all of which may reduce profitability and affect future performance. This could lead to, â€œuncertainty over future business conditions leads to a lack of confidence in making investment decisions, which can influence future financial performance.â€
Anglo American also explained of a scenario where global economic conditions can have a significant impact on countries whose economies are exposed to commodities, placing greater pressure on governments to find alternative means of raising revenues, and increasing the risk of social and labour unrest. These factors could increase the political risks faced by the Group, says Anglo American
According to the mining giant, as mitigation to deal with political uncertainties that may hamper the companyâ€™s progress, Anglo American has an active engagement strategy with governments, regulators and other stakeholders within the countries in which we operate, or plan to operate, as well as at an international level.
This week Minister of Finance & Economic Development, Dr Thapelo Matsheka approached parliament seeking lawmakers approval of Government’s intention to increase bond program ceiling from the current P15 Billion to P30 billion.
“I stand to request this honorable house to authorize increase in bond issuance program from the current P15 billion to P30 billion,” Dr Matsheka said. He explained that due to the halt in economic growth occasioned by COVID-19 pandemic government had to revisit options for funding the national budget, particularly for the second half of the National Development Plan (NDP) 11.
Botswana Stock Exchange (BSE) has this week revealed a gloomy picture of diamond mining newcomer, Lucara, with its stock devaluated and its entire business affected by the COVID-19 pandemic.
A BSE survey for a period between 1st January to 31st August 2020 — recording the second half of the year, the third quarter of the year and five months of coronavirus in Botswana — shows that the Domestic Company Index (DCI) depreciated by 5.9 percent.
Botswana Diamond PLC, a diamond exploration company trading on both London Stock Exchange Alternative Investment Market (AIM) and Botswana Stock Exchange (BSE) on Monday unlocked value from its shares to raise capital for its ongoing exploration works in Botswana and South Africa.
A statement from the company this week reveals that the placing was with existing and new investors to raise £300,000 via the issue of 50,000,000 new ordinary shares at a placing price of 0.6p per Placing Share.
Each Placing Share, according to Botswana Diamond Executives has one warrant attached with the right to subscribe for one new ordinary share at 0.6p per new ordinary share for a period of two years from, 7th September 2020, being the date of the Placing Warrants issue.
In a statement Chairman of Botswana Diamonds, John Teeling explained that the funds raised will be used to fund ongoing exploration activities during the current year in Botswana and South Africa, and to provide additional working capital for the Company.
The company is currently drilling kimberlite M8 on the Marsfontein licence in South Africa and has generated further kimberlite targets which will be drilled on the adjacent Thorny River concession.
In Botswana, the funds will be focused on commercializing the KX36 project following the recent acquisition of Sekaka Diamonds from Petra Diamonds. This will include finalizing a work programme to upgrade the grades and diamond value of the kimberlite pipe as well as investigating innovative mining options.
Drilling is planned for the adjacent Sunland Minerals property and following further assessment of the comprehensive Sekaka database more drilling targets are likely. “This is a very active and exciting time for Botswana Diamonds. We are drilling the very promising M8 kimberlite at Marsfontein and further drilling is likely on targets identified on the adjacent Thorny River ground,” he said.
The company Board Chair further noted, “We have a number of active projects. The recently acquired KX36 diamond resource in the Kalahari offers great potential. While awaiting final approvals from the Botswana authorities some of the funds raised will be used to detail the works we will do to refine grade, size distribution and value per carat.”
In addition BOD said the Placing Shares will rank pari passu with the Company’s existing ordinary shares. Application will be made for the Placing Shares to be admitted to trading on AIM and it is expected that such admission will become effective on or around 23 September 2020.
Last month Botswana Diamond announced that it has entered into agreement with global miner Petra Diamonds to acquire the latter’s exploration assets in Botswana. Key to these assets, housed under Sekaka Diamonds, 100 % subsidiary of Petra is the KX36 Diamond discovery, a high grade ore Kimberlite pipe located in the CKGR, considered Botswana’s next diamond glory after the magnificent Orapa and prolific Jwaneng Mines.
The acquisition entailed two adjacent Prospecting Licences and a diamond processing plant. Sekaka has been Petra’s exploration vehicle in Botswana for year and holds three Prospecting Licenses in the Central Kalahari Game Reserve (Kalahari) PL169/2019, PL058/2007 and PL224/2007, which includes the high grade KX36 kimberlite pipe.