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Are Botswana and De Beers Headed for a Breakup?


There was lot of excitement at last week’s opening of the HB Antwerp factory in Botswana’s capital city, Gaborone. The event—attended by Botswana president Mokgweetsi Masisi and livestreamed on his Facebook page—coincided with the country taking a 24% stake in HB Antwerp (for a currently undisclosed price) and agreeing to sell HB diamonds through state-owned diamond seller Okavango.

Yet, even assuming the factory is as state-of-the-art as billed, the country has seen plenty of facilities come and go. Clearly the lavish opening, and accompanying high-flown rhetoric, was meant to send a message.

That message was likely aimed at Botswana’s longtime partner De Beers. For five decades, Botswana and De Beers have jointly owned the country’s largest miner, Debswana. (Botswana also owns 15% of De Beers.) The two parties have been negotiating a new contract for several years now, after their previous deal expired in 2021. It has since been extended three times and will expire again in June—two months from now.

De Beers executives have repeatedly said they expect to reach a new agreement, stressing the new deal has taken so long because both the sales contract and mining licenses are being renegotiated at the same time.

“We have a strong connection to the country and the people of Botswana, underpinned by an enduring desire for the success of our operations and, by extension, the country itself,” says De Beers spokesperson David Johnson. “We are confident that our successful partnership will continue.”

Masisi seems less certain. He has openly mused that if the two sides can’t come to terms, “each party will have to pack its bags and go.” When a De Beers executive responded that Masisi was only talking to his “community,” the president labeled those remarks “silly.”

More recently, Masisi expressed a commitment to continue Botswana’s relationship with De Beers, but added the partnership needed to be “strengthen[ed] and reinvent[ed].” At the HB event, he proclaimed: “Today is the dawn of a new era for the diamond industry in Botswana.”

The constant back-and-fourth has turned negotiations between De Beers and Botswana—usually a sedate, behind-closed-doors affair—into an uncharacteristically rancorous public spectacle.

There are many theories why relations have hit this point. Some believe that Masisi is posturing for his reelection campaign next year, noting he made his boldest remarks at a political rally. Others say that for a company whose business is so tied to Botswana, De Beers should appoint more Botswana citizens to its upper ranks. Some locals perceive an undercurrent of disrespect from De Beers—as shown by how few executives live in-country.

But what changes is Botswana looking for? Masisi’s spokespeople and other government officials did not return requests for comment by the time of publication. Minister of mining Lefoko Moagi told Bloomberg that two “material issues” remain in the contract negotiations. Neither side has said what they are, but one can pick up clues.

HB, which has only been around since 2020, has a deal with another Botswana miner, Lucara, to polish all the specials  (diamonds over 10.8 carats) found at Lucara’s Karowe mine. It will then provide the miner with a portion of the final polished price. The HB/Lucara pact was recently extended for 10 years.

In an interview with JCK, HB co-founder Rafael Papismedov spelled out the main benefits of the Lucara arrangement: It offers more transparency to the generally opaque process of valuing top-quality rough; it generates higher prices for the miner; and it offers greater ability to track goods from the mine to the store. It’s a blueprint Masisi has repeatedly praised.

Currently “the government’s diamond experts don’t really know, in detail, the true profit generated from the Botswanan diamond mines,” diamond mining consultant Erez Jacob Rivlin wrote on Idex. “Once mixed into parcels, no one can really tell the true direct share in profit that the Botswanan diamonds contribute to De Beers’ bottom lines.”

But some argue the Lucara model has its downsides, and there’s disagreement about just how much extra value it offers. It involves providing credit, something miners have not traditionally done. (A government would presumably be even more reluctant.) James Campbell, a former De Beers executive who now heads Botswana Diamonds, a mining company, inherited a similar model when he headed Rockwell Diamonds.

“It’s all well and good to wait a year or more for these larger diamonds to sell if you’ve got a large balance sheet,” he says. “Then you can squeeze the maximum amount of money from your product. But if you’re having to pay hand to mouth, you can’t afford that pipeline length. It’s just unaffordable from a cash flow perspective.”

Botswana also reportedly wants to sell a larger percentage of Debswana’s production through Okavango. Its present deal allows sales of up to 25%.

Okavango has traditionally sold by tender (though it will sell to HB using the Lucara model). Selling at tender leads to more volatile prices than the standard De Beers price book, Campbell says: “The moment you have a falling market—and in this industry, falling markets do happen—that could cause a 30% drop in diamond prices.” (Okavango did not return a request for comment.)

Finally, Botswana—in a longstanding wish—wants more of its gems cut in-country.

“The diamonds are ours,” Masisi told reporters. “It does not make sense for us to continue to relegate ourselves to participating in the rough stones space only. Because if you look at the quantum of business in that space, it is very small, relative to the size of business in the value-added.”

Despite the recent controversy, De Beers and Botswana’s 50-year-old partnership has been widely viewed as successful; international lawyer Simon Wolfe called it “one of, if not the, best that a host government has made in the history of mining.”

Both parties own 50% of Debswana, but the deal is structured so Botswana gets 80% of the revenues, and De Beers 20%. During COVID, Debswana kept the company’s mines running and funded a half million doses of the COVID vaccine.

Another important consideration is there aren’t many miners who could take De Beers’ place. In fact, it doesn’t seem like there’s any. Rio Tinto and Alrosa are active in diamonds, but the latter is a little preoccupied right now, and Rio hasn’t shown much willingness to increase its diamond exposure. Lucara is small, and is getting hammered in the stock market.

Wrote Bloomberg’s Next Africa newsletter:

Debswana owns the world’s biggest diamond mine, Jwaneng, and three others. Jwaneng is undergoing a $1.2 billion expansion and a similar one is planned at Orapa. To extend operations for decades, an underground shaft will need to be dug at Jwaneng at a cost of $5 billion or more.

There aren’t many mining companies that can fund capital projects at that scale. And, while Debswana is essential to De Beers, it’s just one division at Anglo [American, De Beers’ 85% owner].

Which may be why—even with the tension here—four Botswanans who used to work in the industry tell JCK they all expect a new agreement will be signed.

Inside Botswana, there’s been a variety of reactions to Masisi’s remarks. Kitso Phiri, executive secretary of Botswana Mineworkers Union, warned against being “blinded by overpromises which may not be fulfilled.”

Others have questioned just how events are playing out. Has Botswana “just injected cash into a 3year old entity with no track record from Belgium so same company has cash to buy our best [diamonds]?” Sheila Khama, former CEO of De Beers Botswana, wrote on Twitter about the country’s deal with HB.

On the other hand, Hage Geingob, president of Namibia, another De Beers partner, praised Masisi and said his country is closely watching what’s happening at its next-door neighbor.

Certainly HB’s vision—better prices, greater transparency, increased domestic cutting, promotion of Botswanan provenance, and even salaries “30-35%” higher than average (according to Papismedov)—is compelling and attractive. But it’s also unproven. It’s based partly on building a Botswana brand, which won’t be cheap or easy.

Papismedov, who’s also an adviser to the president of the Democratic Republic of Congo, is not the first person to urge Africa to get more value for its diamonds.

He isn’t even the first Israeli. In the mid 2000s, Lev Leviev proclaimed that he would open diamond-cutting factories in Namibia and Botswana—contradicting decades of assertions from De Beers that local cutting and polishing wasn’t economical.

By posing a real threat to De Beers, Leviev broke a longstanding logjam, recalls his former consultant, gemologist Yianni Melas (who credits Botswana’s former mining minister David Magang with first raising the issue). And while Leviev is no longer involved with either Botswana or Namibia, he reshuffled the deck, forcing De Beers to meet a new and evolving set of producer expectations.

In 2007, a long list of sightholders opened factories in Botswana, at the urging of then president Festus Mogae. In 2012, De Beers moved its sorting and selling functions to Gaborone.

Several of those factories closed following the financial crisis. (That also happened in Canada.) Last week, Masisi proclaimed the trend had reversed itself, and Botswana has 50 licensed diamond cutting and polishing companies—half of which were licensed in the past two years.

Diamonds have played an important role in building Botswana. The country has made impressive strides, offering citizens free education and health care. But it still has 24% unemployment and substantial pockets of poverty. So it’s not surprising that it “wants more,” as Masisi put it. In the years since diamonds were discovered in Botswana, gem hubs have flourished in India and Dubai, neither of which house active diamond mines.

Possibly lurking in the background—though no one will admit it—is increased anxiety over lab-created diamonds. Last week, in Forbes, Martin Roscheisen, CEO of lab-grown manufacturer Diamond Foundry, declared he wants to “replace all of diamond mining in five years.” That’s unlikely, to say the least. But it must be disconcerting for a country’s president to hear Bond villain-ish predictions that its economy will soon be flattened.

Botswana has always known its diamond resources would run out one day. That time was always assumed to be decades from now, but as the natural diamond industry loses market share, Botswana obviously wants to squeeze every possible dollar out of its gem reserves. That is only just and fair.

De Beers, of course, is a business (even if it sometimes presents itself as a charity). And while it may be harder to feel bad for a company than for a country, De Beers bankrolls research and marketing that benefit Botswana. Any deal has to make sense from its perspective, too.

We’ll see if the two sides can thread that needle. The smart money believes they will. Then again, few predicted the very public drama that is happening now.

Correction: This article originally misstated Shelia Khama’s former title.

Top: Botswana’s coat of arms (courtesy of the Botswana government)


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By: Rob Bates

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