De Beers Group, the world's oldest and largest diamond producer, has agreed to give Botswana, its main supplier of rough diamonds, a larger share of the gems from their joint venture Debswana over the next decade, in a deal that reflects the changing dynamics of the global diamond industry. The deal, which was announced on Saturday after months of negotiations, also includes a 25-year mining license for Debswana and a 10-year sales agreement for De Beers to market Debswana's production.
The deal is seen as a win for Botswana, which is the world's top diamond producer by value and relies on diamond revenues for its economic development. Botswana will increase its share of rough diamonds from Debswana's 25%, currently to 30% in the near term and 50% by 2033, matching De Beers' share. This will allow Botswana to sell more diamonds through its state-owned Okavango Diamond Company (ODC), which was established in 2012 to compete with De Beers and other global players.
The deal also secures multi-billion-dollar investments from De Beers to extend the life of Debswana's Jwaneng mine, one of the richest diamond mines in the world, and to explore new mining opportunities in Botswana. De Beers will also contribute $75 million to a diamond fund that will invest in projects that add value to Botswana's economy.
However, the deal also exposes the challenges that De Beers faces as it tries to maintain its dominant position in the diamonds and shift consumer preferences. De Beers, which is owned by Anglo American. has seen its market decline from over 80% in the 1980s to around 35% today, as new producers such as Russia's Alrosa and Canada's Lucra have emerged.
De Beers has also faced pressure from Botswana and other producing countries such as Namibia and South Africa, to increase their benefits from diamond mining and sales, as well as from Western customers who demand more transparency and ethical sourcing of social initiatives, such as its Tracr blockchain platform brand and its Building Forever strategy.
De Beers CEO Al Cook, who took over in February, said the deal with Botswana was a balanced outcome that met the needs of both parties. "There was...a desire to cooperate and reach a deal. The opposite would have been very damaging for everyone concerned, for our industry", he told Reuters on Monday.
However, some analysts said the deal could erode De Beers' profitability and attractiveness as an investment. Richard Chetwode, a diamond industry analyst, said: "With the mines going deeper and capital operating costs significantly increasing, the investment required by De Beers for only 19.2% of the profits makes this partnership no longer the dripping roast it once was". RMB Morgan Stanley estimated that the dial could result in a $100 million hit on De Beers' core earnings in the near term and upto $200 million over a decade.
