Lack of capacity forces ODC to hold-off on ‘third-party’ diamonds
In 2021, state owned Okavango Diamond Company (ODC) announced plans to expand its uptake and start buying third party, non-Debswana diamonds.
Two years later, and these plans are firmly on hold.
Currently, ODC depend on a single supply source, which is Debswana production through Diamond Trading Company Botswana (DTCB) channel. They have been flirting with the idea of expanding their facilities, in order to increase capacity and open up the added option of handling more diamonds from other suppliers.
Thoughts of new suppliers have since been put on the backburner following De Beers and the Botswana government’s new 50-50 deal.
Speaking to the media on Monday as ODC announced it’s financial results for the year, the company’s Managing Director, Mmetla Masire explained, “We are saying this because there is a growth strategy we are embarking on but things have changed, which is the allocation from Debswana.
“We don’t have the capacity to be able to hold large numbers; the physical size of our head office cannot hold 50 percent allocation and other diamonds from outside Botswana, that’s our challenge. In the meantime, we have decided to put third party sales on hold because we are waiting for the sales agreement to fall in place then see how allocation to ODC will be ramped up overtime then add capacity in there.”
Since starting operations in 2013, ODC has proved its worth over the years, emerging as a global player with 900 customers across Belgium, Hong-Kong, India and Israel, including 500 who are currently active.
However, with the demand for natural diamonds on a worldwide downward spiral, sales look set to suffer.
It remains to be seen what marketing strategy ODC will come up with to combat the dent in demand and whether they will follow the ultra-aggressive example set by De Beers.
Masire suggests that they will, saying, “One thing you are going to see a change in is a robust drive in marketing because of late ODC hasn’t been aggressive in that area.
“What we have done is join other organizations such as World Diamond Company who are into advertising and marketing of natural diamonds. We are also waiting to see what the sales agreement says about marketing but as ODC we believe our responsibility is to come to the party, but how much it will cost us at this point in time we don’t know but it’s something we are prepared to own up and take our share of responsibility!”
As a rough diamond trader, ODC has emerged as one of the leading, global suppliers of responsibly sourced natural diamonds, on average selling six million carats per year.
“The current market outlook is not looking good since it’s on a free fall. At the moment it’s going down every month because there is a lot of inventory. Lab grown diamonds have made some inroads into some areas so certain diamonds have been affected significantly and it’s a phenomenon we anticipate will take a year or two because prices for lab diamond are going down slowly, so in a matter of time they won’t be able to sustain themselves,” revealed Masire, adding they plan to increase sales channels and viewing rooms from 12 to 20.
“With the volume of diamonds we are currently handling and those we will handle after the sales agreement deal is concluded, we have decided not to rely only on auctions because our auctions are too big. Further, different selling methods respond differently to different market conditions, so sticking to one system might not be suitable all the time so that’s why we are introducing contract sales ,” he continued.
Despite the recent dip in demand, the latest financial results suggest 2023 was a productive time for ODC.
Revenue increased by 12 percent, reaching US$1.1 billion, a figure that stood at $1 046 last year. In total, the company sold 5.85 million carats compared to 4.04 million in 2022.
Although revenue increased, tax and dividends actually went down, with ODC handing over $28 million to the taxman, compared to a whopping $70 million in 2022, while dividends went down from $50 million to $20mill.
In terms of revenue by country, United Arab Emirates (UAE) were the biggest buyers, responsible for more than half (57 percent) of all sales. They were followed by Belgium, Israel and Hong-Kong with 30, 8 and 3 percent respectively. The remaining five percent is split by Botswana, South Africa, Singapore and USA.
Established in 2012, ODC started operating in 2013 with 12 percent allocation from Debswana production, then started receiving 15 percent in 2016. In 2020 the company‘s allocation increased to 25 percent.
Its first auction in 2013 raked $94 million, with the company going on to make history setting a record of a single day auction sales, recording $100 million in 2021 and $182 million in 2022, the largest in a single day.