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5 posts from February 2007

Namibia and De Beers Extend Diamond Sales Agreement

Namibiamap Namibia, the world’s seventh largest rough diamond producer and De Beers already had a 50-50 joint venture named Namdeb for mining diamonds in Namibia.  Traditionally De Beers exported almost all the African rough diamond production to London for distribution to sightholders along with production from countries all over the world.  However, the two parties have now expanded their agreement to include local diamond sales until 2013.  The agreement creates a new sales company, Namibia Diamond Trading Company, which by 2009 will be distributing up to $300 million worth of diamonds.

Namibiadiamondmine This new agreement is similar to ventures De Beers has entered in with Botswana and South Africa in an effort to keep more of the diamond pipeline dollars within the producing countries.  Local diamond factories will be allotted enough diamonds for their cutting and polishing operations as well as selling rough diamonds for export.

The Namdeb mining joint venture is already the country’s biggest employer, represents 40 percent of the country’s exports and 10 percent of the gross domestic product (GDP).  The increased jobs and revenue from expanded sorting, polishing, and sales will provide a boost to the Namibia economy. 

Botswana Strives to be Top Diamond Distributor

Botswanamap The diamond industry is undergoing major changes and a many of those changes focus on Botswana.  For many years, Botswana has been the host country for the world’s largest, most profitable and longest-life diamond mines.  It is the world’s largest diamond producing country by value with production in 2006 valued at $3.38 billion.  This production represents about a fourth of the world’s total diamond production by value.

Debswanalogo The ties between Botswana and De Beers run very deep.  De Beers is owned 45 percent by mining group Anglo American Plc, 40 percent by the Oppenheimer family and 15 percent by the Botswana government.  Debswana Diamond Company, an equal partnership between De Beers and Botswana, develops mineral resources including the Jwaneng Mine, the largest diamond producer by value in the world.  The company operates four mines: Jwaneng, Orapa, Letlhakane, and Damtshaa. Today Debswana produces over 70% of Botswana’s exports, 30% of gross domestic product (GDP) and half of the government’s revenue.

Botswanadiamondsorting What is changing in Botswana is what happens to the diamond once they are mined.  Historically, the rough diamonds were shipped to London where De Beers sorted the rough diamonds and then distributed them to their exclusive list of sightholders.  The sightholders then cut the diamonds or sold them to other cutters.  As a result, the country of Botswana did not benefit from any part of the diamond pipeline except for their compensation for the mining operations.  Most of the value added part of the diamond pipeline occurred outside the Botswana border and few of the profit dollars stayed in the country.

Because of a recent agreement between De Beers and Botswana, more of the value added cutting and distribution dollars would stay within Botswana.  Construction is continuing at numerous locations including the new Diamond Trading Company (DTC) Botswana, the new Debswana building, and six or more new diamond factories.  The construction is gearing up for 2008 when Botswana will begin offering rough diamonds directly to sightholders.  This will be first time that sightholders will have the choice to get their diamond allocations in London or in Gaborone, capital of Botswana.

In 2006, there were five factories operating in Botswana transforming the rough diamonds from the mines into polished diamonds ready to sale to jewelry manufacturers and retailers around the world.   By 2009, sixteen or more factories will be operating in Botswana and will receive at least $500 million worth of rough diamonds annually.  Moving the sorting, sightholder distributions and cutting operations to Botswana will mean that more of the diamond pipeline dollars will stay in Botswana.

These changes in the diamond distribution process will provide more stability and financial resources for Botswana.  These changes will also have ripple effect through out the entire diamond industry as the marketing of rough diamonds becomes less centralized.  This will create new and shifting business relationships between the many players in the diamond industry.

BHP Billiton Sees Supply/Demand Gap Growing

Bhp_billiton_logo Alberto Calderon, president of BHP Billiton’s Diamond and Specialty Products agrees with De Beers’ projection that the gap between rough diamond supplies and demand for polished diamonds will widen over the next ten years.  The gaps results on the one hand due to the success of De Beers’ marketing efforts, and on the other hand, by the small number of new diamond sources to replace the dwindling diamond production at mature diamond-mining operations.

Supplydemand_graph BHP Billiton, the world’s largest resource company, estimates that supplies of synthetic diamonds will grow to five percent of the world’s market production but that will still not be enough to fill the gap between supply and demand.  BHP Billiton sees synthetic diamonds as being another source of diamond for the world markets in future years but they see plenty of demand for their natural diamond production.  They have an 80% stake in the Ekati diamond mine in Canada and are developing joint ventures in Angola and the Democratic Republic of Congo. 

For the diamond industry, the strategy is to be aggressive on growing demand and supply because as long as demand grows faster than demand, the industry is a big winner.

De Beers Supports Canadian Diamond Cutters

Snaplakediamondmine Snap Lake Diamond Mine operations will begin this summer and it is the first diamond mine in Canada and the first outside Africa to be owned by De Beers.  Beginning in 2008, De Beers Canada has agreed to offer 10 percent of its Snap Lake diamonds to cutters and polishers in the Northwest Territories.

De Beers is expressing its support for the growing diamond cutting industry in northern Canada.  It is likely that De Beers will be reserving the larger and more valuable rough diamonds for the local Canadian cutters while the bulk of the diamonds will be released to cutters in countries like India that have lower labor costs.

In keeping with De Beers’ policy of only selling diamonds to its exclusive list of sightholders, the Canadian cutters will be required to only sell diamond to clients who meet the criteria set by De Beers’ sales and marketing company, the Diamond Trading Company.

The start up of diamond mining operations at Snap Lake comes at the same time that De Beers is reducing its purchases of rough diamonds from Alrosa, the giant Russian diamond producer.   Under pressure from the European Commission, De Beers has agreed to reduce purchases of Alrosa production by $100 million in 2007 and $100 million each subsequent year until purchases are zero in 2009.

In addition to Canada, De Beers has also pledged to provide rough diamonds to southern African countries so they can expand their involvement from mining into cutting and polishing and thus enjoy a bigger share of the economic wealth created by diamonds.

216-Carat Discovered

Letseng216ct The Letseng Diamond Mine in Lesotho is in the news again with the announcement they recovered a rare 216-carat white diamond (right photo).  This mine, situated in the Maluti Mountains in Lesotho, is the highest diamond mine in the word but is best known for the large world-class diamonds that it produces.

In August of 2006, the mine made headlines with the discovery of the Lesotho Promise, a 603-carat white diamond that is the 15th largest gem quality diamond reported in the world.  The Lesotho Promise was sold in Antwerp last year to Safdico, owners of Graff Jewelers, for $12.4 million.

The recently discovered 216-carat diamond has been sent to Antwerp where it will be tendered in a parcel containing two other white D color stones of 54.9 and 30 carats respectively.

Lesothomap De Beers previously owned the Letseng Mine from 1977 to 1982 before it was closed with less than 10 percent of the open pit mineable ore being processed.  The first diamonds were discovered in the financially destitute mountain kingdom in 1957 and a modest mining industry was established in the 1960s. During the 1960s and 1970s, several large gems were recovered from Lesotho's mines and the industry employed thousands of people.  Mining activity in Lesotho's Maluti Mountains ceased in the 1980s because of low world market prices for diamonds and royalty disagreements between the government and mining companies. The mine opened again in 2006 by a partnership of Gem Diamonds (70% ownership) and the Lesotho Government (30% ownership).

Previous articles about the Lesotho Mine:

Lesotho Promise Discovered

Lesotho Promise Sells

Four Giant Diamonds