De Beers’ new agreement with the government of Botswana to continue to mine and market diamonds from the country has resulted in Botswana taking a greater share of the global diamond supply and revenue.
The parties signed an agreement last week which enables De Beers to market diamonds mined in Botswana for the next decade.
Crucially for the Anglo American subsidiary, it also inked a new mining lease for 25 years from 2029.
The deal went through months of negotiations, with Botswana President Mokgweetsi Masisi threatening to cut ties with De Beers if the country could not get a better deal.
This is normal for deals of this type, according to Paul Rowley, an executive vice president at De Beers.
However, Botswana has come out with a much better deal than it had previously, with a greater share of locally mined diamonds going to the government’s Okavango Diamond Company (ODC).
Rowley told The Money Show that the previous deal had 90% of diamonds mined in Botswana to De Beers and 10% to the government’s ODC.
This increased to 25% at the end of last year, and the present agreement will have the government’s share of diamonds growing to 50% within a decade.
The significance of this lies in the fact that Botswana alone accounts for 70% of De Beers’ diamond supply, which Rowley admitted will come down due to the new deal.
Some analysts have said that this will result in De Beers’ control over diamond supply being slowly diminished, with the company losing its control over diamond prices.
De Beers has historically had tight control over the global supply of diamonds, which enabled the company to artificially control prices by ensuring supply was always below demand.
This deal threatens to undo that control. However, the company is not worried about it, forecasting growing diamond demand.
De Beers is also looking to diversify the supply of diamonds outside of Botswana. Rowley said the company is looking to expand production in Angola and other neighbouring countries.
Importantly, it still has access to the world’s two premier diamond mines in Botswana and the right to continue exploration there.
However, while Debswana Diamond Company is a 50-50 joint venture between De Beers and the Botswana government, the government takes 80% of its earnings as government revenue while De Beers only get 20%.
This has significant implications for Anglo American, whose shareholders are due to vote on the deal.
De Beers contributes $700 million per annum to Anglo American’s operating profit on average, which is roughly 10% of the company’s total.