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Building on Diamonds

The modern history of Botswana is closely linked to the story of diamonds. This, in turn, is linked to the story of the Partnership, formed in 1969 between the Government of Botswana and De Beers.

These intertwined stories are captured in Figure 1, which shows the close relationship between Botswana’s GDP growth from the 1970s onwards (above the horizontal axis) and the growing supply of diamonds produced by Debswana’s mines (below the axis). Over nearly five decades, the Partnership has recovered 708 million carats of diamonds. The more the Partnership has mined, the more it has supported Botswana’s socio-economic development.

The yellow line shows that, over this time, Botswana has improved its score in the United Nations Human Development Index, a composite statistic of life expectancy, education and income indices, and a broad measure of human development.

De Beers was established as a diamond mining company in South Africa in 1888, following the Kimberley diamond rush. Today, De Beers is the largest diamond producer in the world by value (approximately 34 per cent),3 and it is active in the exploration, mining, sorting, valuing, sales, marketing and retailing of diamonds employing nearly 23,000 people worldwide.4 De Beers has mining operations in Botswana, Canada, Namibia and South Africa.

FIGURE 1: GDP, HUMAN DEVELOPMENT AND CARATS EXTRACTED

FIGURE 1: GDP, HUMAN DEVELOPMENT AND CARATS EXTRACTED

The footprint of the Partnership in Botswana has expanded over time.

Together, De Beers and the Government established Debswana, then the De Beers Botswana Mining Company, as a joint venture in 1969. The Government held 15 per cent of the company at its founding, increasing its shareholding to 50 per cent in 1975. The name of the company became the Debswana Diamond Company (Pty) Ltd (or Debswana) in 1992.

From mining, the Partnership extended operations down the value chain. In 1971, the Botswana Diamond Valuing Company was formed as a 50/50 joint venture for the sorting and valuing of Debswana’s diamonds. This was replaced in 2006 with the formation of Diamond Trading Company Botswana (DTCB) (a 50/50 joint venture) in order to provide a regular supply of diamonds for local manufacture by Sightholders and further domestic diamond beneficiation. In 2008, DTCB opened the largest and most sophisticated rough diamond sorting and valuing facility in the world.5

The most recent development in this story of increased participation in the diamond value chain was the relocation of De Beers’ international sales function – De Beers Global Sightholder Sales (DBGSS) – to Gaborone from London at the end of 2013.

The activities of the Partnership companies, and the flow of diamonds through their operations, are depicted in Figures 2 and 3.

FIGURE 2: THE ORGANISATIONAL STRUCTURE AND ACTIVITIES OF THE PARTNERSHIP IN BOTSWANA

FIGURE 2: THE ORGANISATIONAL STRUCTURE AND ACTIVITIES OF THE PARTNERSHIP IN BOTSWANA

FIGURE 3: THE PIPELINE IN BOTSWANA FROM EXPLORATION TO MANUFACTURING

FIGURE 3: THE PIPELINE IN BOTSWANA FROM EXPLORATION TO MANUFACTURING

Botswana is one of 22 diamond producing countries. It is the second-largest producer in the world by value and third largest by volume (see Figure 4).

While some junior diamond miners operate in Botswana, the vast majority of the country’s production comes from Debswana’s Orapa and Jwaneng mines, with Jwaneng Mine being the world’s richest diamond mine by value.6 This is supplemented with additional production from Debswana’s Damtshaa and Letlhakane mines, which are part of the Orapa mining complex.

Debswana’s production is sorted and valued by DTCB and up to 15 per cent of its production is made available for sale to Okavango Diamond Company, a company established by the Government in 2012 to sell some of Debswana’s diamonds independently. The remaining 85 per cent of Debswana production is combined with De Beers’ global production from Canada, Namibia and South Africa in a process called aggregation. Aggregation creates a larger, more diverse and more consistent assortment of rough diamonds, allowing rough diamond parcels to be prepared to meet buyers’ specific requirements on a consistent basis.

The creation of bespoke assortments of diamonds – in different value categories depending on size, shape, colour and quality – to suit the needs of diamond manufacturing is an important step in maximising diamond value.

These assortments are at the heart of De Beers’ sales model, in which the majority of its rough diamond customers – called Sightholders – qualify for three-year supply contracts for the supply of a specific profile of diamonds.

Since the end of 2013, De Beers Sights – international rough diamond sales events held 10 times per year – have taken place at a newly-built facility in Gaborone. In addition to its global supply contracts, De Beers also sells rough diamonds to customers with factories in Botswana for cutting and polishing in-country, thereby supporting the development of a domestic cutting and polishing sector.

The Partnership is actively involved in exploration, mining, sorting, valuing and selling functions in Botswana, while also supporting activity in the local cutting and polishing industry.

The allocation of revenues and profits between the Government and De Beers is set out in long-term agreements that run broadly in parallel with the 25-year mining licences for the Debswana mines.

FIGURE 4: ROUGH DIAMOND PRODUCTION BY MAIN PRODUCING COUNTRIES, 2013 AND 2014

FIGURE 4: ROUGH DIAMOND PRODUCTION BY MAIN PRODUCING COUNTRIES, 2013 AND 2014
Botswana parliament building.

Botswana parliament building.

3 Diamond Insight Report (2015) http://www.debeersgroup.com/en/reports/insight/insight-reports/insight-report-2015/foreword.html ,(Accessed 7 October 2015).

4 De Beers Report to Society (2014) http://www.debeersgroup.com/content/dam/de-deers/corporate/documents/BuildingForever/Report%20to%20Society%202014.pdf (Accessed 20 October 2015). This number includes contractors.

5 All market-related and company-related information has been sourced and prepared by De Beers, unless otherwise stated.

Mining Global (2014) Top 10: Diamond Mines in the World: http://www.miningglobal.com/top10/1175/Top-10:-Diamond-Mines-in-the-World (Accessed 23 October 2015).