De Beers and Botswana reached a diamond sale agreement after tense talks

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De Beers has renewed a deal to market diamonds from Botswana after negotiations with the government of President Mokgweetsi Masisi broke down due to the continuation of a 54-year partnership between one of the richest countries in Africa and the world’s largest diamond company by value.

The 135-year-old company owned by Anglo American struck an “agreement in principle” with the Botswana government late Friday for a 10-year deal to sell rough diamonds produced by their Debswana joint venture and a 25-year extension to mining licences.

The two parties said in a joint statement that the new “transformational” agreement “reflects the aspirations of the people of Botswana, fuels the progress of Botswana and De Beers, and sustains the future of their Debswana joint venture through long-term investments”.

The agreement will give the southern African country 30 percent of the diamond output for sale through the state-owned Okavango Diamond Company, rising to 50 percent in the final year of the contract, De Beers said.

The new shift in terms favored Botswana’s government compared to a 2011 agreement that gave it a 25 percent share. Those terms will remain in place under the interim deal while a new deal is finalized, the two parties announced on Friday.

Masisi’s government signaled it was ready to leave if it didn’t accept a better share of production in talks with De Beers, which is 15 percent owned by Botswana. De Beers relied on the country for about 70 percent of its rough diamond supply, or 24 million carats, last year.

In return, diamond mining accounts for a third of the landlocked country’s gross domestic product and has fueled its rise to become the sixth richest country per capita in Africa. Only Russia produces more precious stones.

“The agreement represents our commitment to delivering investments in Botswana diamond production, the Botswana diamond value chain, Botswana’s knowledge-based economy and, above all, the people of Botswana,” said Al Cook, chief executive of De Beers.

De Beers added that it could contribute up to $750 million over the next 10 years in a fund to accelerate Botswana’s economic diversification away from diamonds.

In elections next year, Masisi’s Botswana Democratic party is seeking to maintain the grip of power it has held since independence in 1966. Masisi says he wants to take the country further up the diamond value chain, from mining to hosting more diamond cutting and polishing. the rocks in Botswana itself.

De Beers has long argued that Botswana receives most of the value of its diamonds when taxes and royalties are included.

The future of the relationship has been complicated by uncertainty over the cost of extending the life of Jwaneng, Debswana’s flagship and the world’s largest diamond mine, analysts say.

The deal comes after four challenging months since Cook took over at De Beers, as the diamond mining industry also faces push from G7 nations to introduce a traceability system to identify Russian diamonds.

The negotiations have cast uncertainty over the strategic value of the diamond miner for Anglo American. Analyst Berenberg said last week that “Anglo American should question whether De Beers should remain in the group’s portfolio for a number of reasons”, including the possibility of worse economic conditions due to negotiations.

Botswana increased the pressure on De Beers by agreeing a deal – not finalized – to take a 24 percent stake in Belgian diamond producer HB Antwerp, which could offer the country an alternative way to market its diamonds.

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