New diamond deal to earn Namibia U$550m

Windhoek – The new diamond deal between the Namibian Government and De Beers which will see the local supply of rough diamonds to the cutting and polishing industry increase from 10 percent to between 25 and 30 percent will see Namibia making U$550 million through local owned companies.

This is according to Mines and Energy Minister Obeth Kandjoze who described the new deal as significant.

Information and Communication Technology Minister Tjekero Tweya told the media on Monday that Cabinet had approved the new terms of references for the sales and marketing agreement with De Beers Société Anonyme, the holding company of the De Beers Group of Companies.

In an interview, Kandjoze said in the new agreement they negotiated a window in the market to enable the government to buy a meaningful portion of Namdeb Diamond Corporation rough diamonds and sell them through local alternative channels such as the Namibia Diamond Trading Company (NDTC) and a new government venture that will be formed in due course.

The minister said the new arrangement will allow for value addition of the local diamonds from Namdeb and “should be able to give us about U$150 million annually. Additionally the local supply has increased significantly from about U$200 million to over U$400 million worth of goods annually in the current agreement which brings the total to about U$150 million per year,” said the minister”.

In the old agreement local companies were only authorised to handle 14.8 percent carats sizes but now that has also changed and will see the local companies handle any products weighing any amount.

“There will be also no limitations meaning that Namibian companies will not just be limited to stones which weigh less than 14.8 percent as stipulated in the previous agreement. In the new agreement all the stones from the full run off of the mine will be now made available through the new channel.

“Nothing should be affecting NDTC and all other local productions. This new local 15 percent should supply and try to sell the diamonds here (locally). Meaning that we can market our own diamonds locally all sizes, category, special stones or anything else will be done here,” said Kandjoze.

The new agreement has also brought up the removal of the delivery entitlement clause, which only allowed De Beers to control the Namibian market by setting the price, choosing when to buy and not when to buy.

Such agreements contribute enormously to the losses of Namdeb – which is 50% owned by the government as they were forced to stock pile when the world market wasn’t buying any particular product.

That will, however, be a thing of the past in the new agreement.

“Back then if the market was bad and De Beers doesn’t buy, Namdeb will be forced to stock pile the diamonds at its own cost until the market gets better, which resulted in losses while De Beers doesn’t take any risks. And when they think that the market has improved they come back and they can pay whatever the price is but it’s just means that Namibia could do nothing.

“You mine and stock pile at your own risk without the buyer (De Beers) which sets the price and then it will come back and decide whether it can buy for that price while you are running a risk.

“Now with the delivery entitlement clause in the new agreement, it means that De Beers will no longer be setting the prices as was per the previous clause. That clause will not oblige Namibia to do business along those lines,” said Kandjoze.

He added that: “There is also a whole new regime about the prices but am not going to share it with media for now as it might bring confusion. But the new regime has looked roughly at all of those and in the whole agreement the removal of the delivery entitlement clause was significant as you could not do anything until De Beers calls the shots.”

Asked whether government will be looking to increase the percentage of the local diamond supply above the 30 percent, Kandjoze said that the government is satisfied with the new agreement.

The Minister said the fact that Namibian companies are now adding value to the local diamonds, and having a 50/50 percent shareholding with De Beers in Namdeb was a great achievement, in addition to the planned diamond sales and marketing company.

By setting a new diamond marketing company, Kandjoze said the country would try to market and maximise more value from “our own resources and not leaving certain classes of stones and special ones just for De Beers to run around the world and try to sell on the country’s behalf”. “In overall, I think local valued addition is the main driver of this whole purpose and those are really the big issues to talk about.”

The chief executive officer of multinational diamond giant, De Beers Group, Phillippe Mellier said on Tuesday his company was happy with the partnership it has with the Namibian government.

Following his curtesy call on President Hage Geingob at State House, Mellier noted that their partnership in diamond producer, Namdeb Diamond Corporation is going well and bearing fruits for the country.

Mellier told media after a closed meeting with President Geingob that they talked about the new diamond contract as proposed by Namibia.

He told reporters that De Beers is happy with the terms of diamonds sales and marketing agreement.

June 2015
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