DIAMONDS AND GEMS
De Beers burns, southern African diamond producing countries smile
Both Botswana and Namibia are setting up diamond cutting and polishing operations to bring more local input into their diamond production, while De Beers may need to cut supplies to sightholders.
Posted: Monday , 23 Apr 2007
There was excitement in Botswana last week, as the country's leader President Festus Mogae inaugurated the US$3 million Pluczenik Botswana, a diamond-polishing factory owned by the Pluczenik Group, in the capital Gaborone.
Mogae said Wednesday the move, coming as the country - the world's largest producer of diamonds by volume - moves into diamond beneficiation, was a culmination of a new deal negotiated last year with De Beers that has seen the London-based Diamond Trading Company (DTC) relocate to Botswana and the extension of the Jwaneng mine lease by 25 years.
Jwaneng, together with three other diamonds mines in the country, is operated under Debswana - a 50-50 partnership between the government and De Beers, the world largest diamond producer.
Mogae admitted that diamond cutting and polishing factories were setting up in Botswana because of the new deal with De Beers, and the country was bracing itself for the over 3,000 jobs that would be created when the Botswana DTC became operational next year.
Belgian Group Pluczenik joins a list of diamond-polishing firms that include Eurostar Botswana, Teemane Manufacturing Company, Schachter and Namdar and Diamond Manufacturing Botswana which have a combined complement of 1 000 employees.
Israeli company Moti Ganz Diamond Manufacturing is also expected to set up shop next month bringing the number of cutting and polishing factories to six. Moti Ganz has said that it is already shipping equipment to Botswana in preparation for May opening.
Pluczenik would buy its rough diamonds from DTC London until next year when it would source its supplies locally.
Gareth Penny, managing director of De Beers, said the company had already received up to US$7 million in rough diamonds from the London DTC.
"This represents new jobs, new source of income for Batswana families, new sources of public revenue in the form of tax revenue and above all valuable skill for citizens," said Penny at the inauguration of the factory.
With all the good news that was making rounds in Botswana, all was not well in the Oppenheimer family-owned De Beers. The company had recently sent a letter to its clients, the sightholders, warning of cuts in supply of rough gems due to supply shortages and political demands in host southern African to supply their own local industries.
The company's difficulty is in meeting the ambitious targets of the governments in southern Africa and executing them with a global client base of 93 sightholders and limited supplies, said the letter, whose contents were published in an article by Polishedprices.com.
De Beers warned that competition for supply from London, its traditional supply centre, was expected to "become increasingly intense", as more rough gems were sold through the local DTCs in southern Africa.
To meet the supply challenges, De Beers was quoted, "it was considering only allocating to those clients, or ‘applicants', that could demonstrate sufficient manufacturing capacity to handle the ranges of diamonds being sought".
In February, De Beers posted a 6 percent fall in 2006 rough diamond sales due to reduced Russian supply and a sluggish market. Its annual contribution to the underlying earnings of 45-percent owner Anglo American Plc tumbled 47 percent to $227 million.
Since the deal last year that is resulting in more local beneficiation of diamonds in Botswana, about 15 cutting and polishing factories have been licensed, said the country's Ministry of Minerals, Energy and Water Resources Tuesday.
The country already expects its capital Gaborone to join the ranks of New York, Antwerp, London and Paris when its DTC becomes operational.
Botswana's excitement is also shared by its western neighbour Namibia, which in January also signed a new deal with De Beers that will see the country establishing its own DTC, which will supply 16 percent of all diamonds produced in the country by Namdeb - also a 50-50 partnership with De Beers - being supplied to local cutting and polishing factories.
The Namibian government says, for the first time in the history of diamond mining in the country, its citizens are on the verge of realising full benefits from their resources following the establishment of the DTC.
Namibian leader President Hifikepunye Pohamba is on record as saying that the country has not really tapped the full potential of its diamonds despite that the gems have been mined in the country for many years.
"There is a need to establish a strong manufacturing base that, not only creates jobs but produces finished goods for the local market and for exports," Pohamba said recently.
But unlike Botswana, Namibia has trended cautiously on licensing new cutting and polishing companies and has slapped a moratorium on issuing new licenses in a move designed to protect the investments of such companies as Lev Leviev Diamonds, Namcot Diamonds Limited, Hardstone Processing and Maurice Templesman's IKI from those wanting to "make quick money".
"The Ministry therefore deems it necessary to support those companies that believed in and had faith in the potential of Namibia's diamond sector, that they hung around long enough to witness the signing of our watershed agreement that makes provision for local supply," said Minister of Mines and Energy Erkki Nghimtina recently when he announced the moratorium.
"We have to make sure that these factories are nurtured like a baby and make sure that they can crawl and learn to walk," and make a profit on their investments, he added.
In South Africa, De Beers' headquarters where the company has found itself with fewer roughs to offer following the recent closure of Cullinan and Namaqualand, the government is setting up a State Diamond Trader body that will be offered a proportion of the diamond producer's production for local diamond cutters in accordance with new legislation.
Meanwhile, De Beers has launched a restructuring of its Diamdel sales operation, which sells gems to clients who are not among specially selected "sightholders, as part of a wider review to boost efficiency of the group, an official was quoted as saying Friday.
"De Beers is looking at restructuring the Diamdels in the light of a wider exercise looking at all aspects of the De Beers group," London-based spokeswoman Lynette Gould was quoted by Reuters. "In order to be a leader in this industry we have to keep looking at all aspects of the business to make sure they're running as effectively and efficiently as possible."
Diamdel has operations in Belgium, Israel, China, Hong Kong, South Africa, Namibia and India.