De Beers and Botswana’s new deal good news for Jwaneng Cut 9 and Orapa Cut 3
While the negotiations between Botswana and De Beers Group generated much interest, as government demanded a bigger slice of the diamond pie, the fate of Jwaneng and Orapa Mines’ Cut 9 and 3 projects faded into the background somewhat.
Little attention was given to the two major initiatives, even though they are crucial to the future of Botswana’s mining sector.
As De Beers agreed to hand over more diamonds to Botswana’s government, through a sales agreement eventually expected to reach 50/50, this in turn secured the future of both projects, set to extend the lifespan of both Jwaneng and Orapa mines.
The arrangement between the gem giant and the world’s second-largest producer is critical to both sides and plays a central role in the global diamond supply chain.
Speaking at a press briefing on Tuesday, Executive Head of Human Resources at De Beers Group, Malebogo Mpungwa revealed government had three key areas they viewed as priorities.
“These included how to elevate Botswana’s significant role in mining, escalation of unemployment in Botswana and key aspirations of alleviating that as well as huge contribution of diamonds since diamond mines are not forever,” she explained.
Under the new terms, Botswana’s state-owned diamond trader, Okavango Diamond Company (ODC), will get 30 percent of output from Debswana, an increase of five percent from the previous deal.
Government said there is also a ‘tentative agreement’ for this to gradually rise to as high as 50 percent over the next decade.
The two parties will also set up a Diamond Development Fund, which will generate P10 billion over the 10 years of the sales agreement.
“So for us it was all about having an economically viable deal and as a result we have since agreed with government to embark on exploration together internationally and in Botswana, something which will be beneficial when diamond mines are no longer operational. The Development Fund will further allow for diversification to various sectors since diamond mines are not forever,” continued Mpungwa.
While De Beers will no doubt be relieved to finally put pen to paper, the new agreement further weakens the company’s hold on the market, since more diamonds will be sold by a third party.
However, the deal does include a 25-year extension of the mining licenses from 2029 to 2054 and comes as surety for De Beers that their investment in both Jwaneng Cut 9 and Orapa Cut 3 is secure.
With an estimated cost of US$2 billion, Jwaneng Cut 9, which is set to extend the mine’s life to 2035, is expected to yield 53 million carats while Orapa Cut 3 project should increase the mine’s existence to at least 2050.
“We will take it bit by bit, because if we just do that all at once without a proper plan about how to sell the diamonds, the price in the market would fall,” warned Permanent Secretary to the President, Emma Peloetletse when speaking on state television-BTV over the weekend.
“But we have told ourselves that we will not go beyond ten years without getting to that 50 percent,” she declared defiantly.
The country is expected to reach the 50 percent threshold through a phased manner, first building up to 40 percent within the first five years.
De Beers, a unit of Anglo American Plc, has been negotiating with Botswana’s government for a new deal since 2018. The previous arrangement expired in 2020 but was extended several times, initially because of the pandemic.
The negotiations were extended as the two parties couldn’t agree on how much supply Botswana should get. Tensions also arose over the role of Belgian gem trader, HB Antwerp, which has established a close relationship with the government.
Earlier this year Botswana said it was taking a 24 percent stake in the company, without disclosing how much it paid, and would get some supply from ODC.
While the partners finalize the formal sales and mining agreements, an interim agreement will preserve the terms of the most recent sales agreement that expired on Friday.
“We don’t see government as a competitor but a partner in this business. This deal is a win-win situation for both of us because at the end of the day we want to see Botswana solidifying its position as a diamond centre,” added De Beers Vice President, Paul Rowley.