In a hugely important sector to Botswana, the diamond mining industry has taken a knock in recent months. This has made the environment for Debswana, the country’s leading diamond producer, very difficult. Fortunately, management has come up with a clear-cut strategy to navigate this rough market.
The story of Botswana’s development and its diamonds is a remarkable one. For a country that is largely covered by desert and with a relatively low population, its growth in output has been dramatic. Formerly one of the world’s poorest countries and one that has a serious problem with HIV/AIDS, the Botswana of today is very different from the Botswana of pre-1966. After gaining independence on 30 September 1966, the country has maintained a strong tradition of stable representative democracy, recording good levels of economic growth, with a consistent record of uninterrupted democratic elections and this has allowed commercial trade in Botswana to thrive.
Like its neighbours, mineral resources are a vital component of the country’s income. This industry provides about 40% of all government revenues and includes production of diamonds, gold, uranium, copper and even oil.
However, it is diamonds that drive the thriving economy that has been realised over the past five decades. Botswana is home to the world’s largest and the world’s richest diamond mines – Orapa and Jwaneng respectively. Both of these mines, along with two others Damtshaa and Letlhakane, are owned by Debswana, the world’s leading producer of diamonds by value. It is a partnership between De Beers and the Botswanan government, with both parties holding a 50% share. This expert company also owns the Moropule Colliery.
Debswana is a great example of private/public sector involvement and the company has operated successfully, contributing to the growth of Botswana since its formation in 1969. To date, the company has been one of the most prominent contributors to economic security in Botswana, employing thousands of local people, earning 90% of the governments revenues from exports and creating one third of the country’s GDP.
But in 2016, the globe is experiencing problems that this generation might not have come across before; crashing oil prices, a large reduction in the worlds commodity prices, uncertainty in the Eurozone and China (some of the world’s biggest buyers of diamonds), and falling diamonds prices. These conditions have thrown up a unique set of challenges for Debswana’s management. In 2014, Managing Director, Balisi Bonyongo was confident, saying: “While we are extremely proud of our history, we are very aware that we operate in a complex and volatile world. While we remain committed to the plans that will take this company to 2050 and beyond, we must be agile enough to respond to obstacles and changing market conditions. We are confident that we are building a sustainable business that can contribute to Botswana’s development story for many decades to come.”
The Chairman of the company was equally as positive. Phillipe Mellier, also the Chief Executive of the De Beers Group, said: “Debswana’s success is shaped by a shared vision and cemented by hard work and perseverance on both sides of this relationship – ensuring that the effort and contribution made, and the rewards earned, are equitable and sustainable.
“We look forward to the decades to come with anticipation and excitement, knowing that we will continue to deliver on the diamond dream.”
That was in 2014. Today, life in the diamond business is a little more exasperating. Because of the price crash and a slow demand from China, one of the world’s largest diamond consumers and a consumer which De Beers expect to surpass the largest consumer in the world (the USA) by 2020, it’s looking like 2016 will be a year in which instead of ‘delivering the diamond dream’, Debswana will use all of its experience to try and revive the murky market.
But this will not be easy as production of diamonds was also down on previous years. Mellier said in Gaborone at a sightholder meeting in January that 2015 had been difficult: “It felt as though the fates conspired against us” he said, “there were several persistent headwinds and many unforeseen challenges. Each time it looked as though there might be the opportunity for an improvement, another unexpected problem raised its head.”
But even in these tough times, the Chairman remains positive and urged everyone in the sector to adopt an optimistic stance.
“If we trust the sector’s positive fundamentals, then we can usher in a bright new dawn for the world of diamonds. Let’s look to the future and make 2016 the year that the diamond industry truly regains its sparkle,” Mellier said.
A SPARKLING 2016?
Two important strategies that have been adopted by Debswana in the last 12 months to combat the slow market have been consolidation and investment in new technology.
Unfortunately, due to market conditions and slowing production rates, Debswana was forced to close its Damtshaa mine for three years or until the market improves. This news came alongside the announcement that the company would also downscale production at its Orapa mine. Debswana also reduced its output expectations from 23 million carats to 20 million.
Company spokesperson, Esther Kanaimba-Senai said: “Debswana Diamond Company is to place Damtshaa Mine, which is part of the Orapa, Letlhakane and Damtshaa mines, into a care and maintenance programme for up to three years as part of the company’s response to the downturn in the diamond market.
“As a result Debswana has revised its production for 2016 to 20 million carats to match expected levels of demand for rough diamonds.
“This is an unprecedented situation which has impacted the entire diamond pipeline from rough producers, cutting and polishing companies and the retail sector,” she added.
She was also keen to point out that the company had put huge efforts into preserving jobs by re-deploying affected employees to other parts of the business so that job losses would be at an absolute minimum.
Although news like this quickly throws up negative headlines, there is an underlying expectation from Debswana that this is a temporary issue and the turnaround will come quickly and heavily.
“We are tackling the slow down with prudence, care and vigour. We must not lose sight of the fact that there will be a recovery and we must prepare for the eventual upturn,” said Bonyongo.
“Our mines are becoming bigger and deeper and costs are rising. Our greatest challenge is to remain competitive,” he added.
The Orapa mine exemplifies the optimism for a bounce back. Operations have been reduced but will still run at a production level of approximately one million carats per year in order to maintain plant readiness to ramp up quickly when needed.
The company’s investment in new technology comes an important division: Security. In a bid to consolidate and lose as little as possible, Debswana last year began installing new x-ray technology at checkpoints within its mines. These investments were announced in 2014 and the company chose Scannex to supply the x-ray technology (subject to the approval of the Department of Environmental Affairs). Old-school methods of using surveillance and physical searches have proved insufficient. While the initiative was originally resisted by some employees, it is now being accepted as a tool for bolstering the success of the company.
“The Debswana Security department has evolved over the years from being an object of fear, viewed as policing unit, to as a strategic partner central to the success of our mining business,” said Bonyongo.
“Our Corporate Security is rising to the challenge with a strategy that seeks to position security as a credible, approachable and value-adding business partner with a focus on people, culture, security systems, solutions, investigations and intelligence,” he added.
Scannex x-ray technology has been used in Namibia and South Africa for the past two decades.
The system will reportedly cost Debswana P50 million and while final approvals are granted and talks with the Botswana Mining Workers’ Union are finalised, the company will continue to send the message that these systems are safe, less invasive and more efficient for employees resulting in improved management of the business.
As the company moves through what is set to move through a challenging 2016, these investments, and drive of leadership from Mellier and Bonyongo, will see Debswana use every resource at its disposal to stimulate its market.
Mellier said in a speech in Gaborone last month: “Another central part of our 2016 planwillbe a continuedinvestmentin non-proprietary marketing.We will need to find the most effective method of pooling our resources, and the most effective vehiclesfor delivering the programmes, but we saw the power of diamond marketing(and specifically De Beers’expertise) at the end of last year and we will ensure that consumers –young and old, eastern and western –continue to celebrate their own facetof forever with the magic of diamonds.
“There will certainly be opportunities and it will be up to us how we use them.”