[2007-11-02]  Botswana enters new era as diamond beneficator and trader
Debswana chairperson Dr Akolang Tombale and many members of government have been focused on "this new dream", said De Beers MD Gareth Penny in his speech to ululating guests at last week's celebration in Botswana, held to mark a quarter century of mining at Jwaneng, the world's richest diamond mine, in a country where diamonds account for 70% of export earnings.

It's a "new dream" of 3 000 jobs, of 16 factories and of $550-million-plus worth of diamonds that will be cut and polished in Botswana, which supplies a quarter of the $13,1-billion worth of rough diamonds produced in the world each year, said Penny.

It's also a "new dream" of moving the centre of diamond sorting gravity from London to Gaborone, with Botswana Diamond Valuing Company transitioning into Diamond Trading Company Botswana.

Penny drew thunderous applause at the showground venue when he concluded his lively speech with these words:

"I have no doubt that in 25 years' time, when we are here to celebrate the next 25 years of Jwaneng, we will look back on other new and great mines in Botswana, and on a thriving new downstream industry that is taking and extending the most wonderful product that we deal with into a totally new arena."

He said that it was exciting that an application for regulatory approval had been lodged with Botswana's Ministry of Minerals for the establishment of the new AK6 diamond mine.

Botswana President Festus Mogae was as resolute, telling Mining Weekly that he wanted Botswana to become a diamond centre in "no less" a way than Antwerp, Jerusalem and Mumbai are, and that he was glad that the current global regulatory climate favoured beneficiation in Botswana.

Mogae told Mining Weekly that, in addition to the 16 diamond houses already granted cutting-and-polishing licences, ten others were on the waiting list, anxious to do the same.

He said that legislation would also be passed to attract the banks to facilitate a secondary market in diamond trading.

DIAMOND BENEFICIATION

"For the first time, there is going to be cutting and polishing of diamonds in this country," the President said.

Six of the 16 licensed cutters and polishers are already operational and ten more will be in the next three years.

"That is a very important and ambitious project," Mogae emphasised.

"We aim to be a diamond centre no less than Antwerp, Jerusalem and Mumbai are.

"Our position is that we are not asking the cutting-and-polishing houses to move their works to Botswana from wherever they are, but we are asking that they include Botswana as one of the places where they cut and polish, since we are the largest producer of diamonds by value.

"Our stance is that they should include us as one of the places where they have cutting-and-polishing activities.

"We are not saying that they should cut and polish all the diamonds that we sell to them here in Botswana, but we are saying that, since they have facilities in New York, London, Antwerp, Mumbai and Thailand and so on, they should also have facilities here.

"We, as a diamond-dependent country, are the last ones to do anything to disrupt the global dia- mond trade. Diamond revenue contributes 50% of public revenue and 33% of gross domestic product.

"We care about our diamonds and our dia- mond industry, but we also care about the international diamond industry and we work within the rules of the international community, that's why we are cofounders of the so-called Kimberley Process," he told Mining Weekly.

"We are going to pass legislation to attract the banks that have financed diamonds so we are going to try to facilitate the secondary market in diamond trading.

"Right now, things are going well and what is important is for us to implement all the decisions that we have taken and I have confidence that my colleagues will ensure that implementation will take place.

"I am glad that the global regulatory climate has favoured diamond cutting and polishing in Botswana.

"Many companies, that used not to be interested in cutting and polishing in Botswana, are now interested.

"We are adopting a cautiously optimistic policy. If some fall by the wayside, we have ten others on the waiting list to license," Mogae said.

The Botswana government had partnered De Beers in the 50:50 Debswana joint venture at a time when De Beers was a much more important player in the diamond industry than it currently was.

"De Beers once controlled 85% of the world's production; now it controls 60%, partly because of the regulatory framework in the world now.

"In the European Union, De Beers is no longer allowed to market the diamonds of other producers. De Beers is allowed to sell diamonds from only its own or associated mines, and De Beers is having to scale down gradually," he said.

There was also a growing desire to allow the people of Botswana to share in the success of companies active in Botswana through investing in their equity.

Several mining companies had listed on the Botswana Stock Exchange, which was, on a small scale, enabling the people of Botswana to share in mining wealth and benefit from share growth and dividends.

"As we have developed the physical infrastructure of roads, airports, electricity and water, many mineral deposits not considered to be a paying proposition are now becoming attractive to investors, who are creating new mines," the President said.

NEW ENERGY VISION

He adds, "We have a Vision 2016 in which we intend to be an informed, educated, prosperous and compassionate nation.

"That is why we use our revenues from mining towards developing our country. Pursuant to that vision, education and training takes top priority. It is allocated a minimum of 25% of revenue a year, towards being an informed society, but an open society also.

"We want to remain an open society, pursuing open trading policies. We have created an enabling environment for private-sector investment, including especially private foreign direct investment, and some of that is happening right now.

"We have a number of major projects in the min- ing sector itself. In the recent past, we have opened a gold mine, a copper/nickel mine and now we have two coal-mining projects; one is a new mine and [the other an] export power station with a capacity of 2 400 MW for the export of power to South Africa.

"Then we intend to treble the capacity of our own Morapule coal power station so that we are not only self-sufficient, but also have some available for export.

"The export power station is a $7-billion project. The expansion of our own Morapule power station is a $1,2-billion project.

"We have a $1,2-billion university of science and technology project, with associated infrastructure.

"We are building seven little dams I say little because we don't have large rivers, but we do have some rivers for which we will be creating dams between now and 2009 to service the mining activities that are going to be taking place.

"There are a number of projected investments in the textile industry. They are not huge, but they are important and complementary to other developments.

"That is where we see ourselves going and being increasingly integrated into the global economy," Mogae told Mining Weekly.

AIDS SCOURGE

"We have identified Aids as a major challenge to us. We were the first country to report to the United Nations on the occasion of the discussions regarding the Millennium Development Goals (MDGs).

"We reported that we would have had no difficulty in meeting the MDGs had it not been for the Aids epidemic that had broken out in Botswana.

"As a result, a number of research institutions and private organisations, like the Gates Foundation and the Harvard Aids Institute, began working with us.

"They have provided generous assistance and we are meeting 80% of the costs of combating Aids and we would not have been able to meet our counterpart contribution to the tune of 80% were it not for diamonds," Mogae said.

INTERNATIONAL SCHOLARSHIPS

Debswana group human resources manager Paul Gahagan told Mining Weekly that, at any one time, the Botswana government provided full international scholarships to 19 000 university students.

"Ninety-eight per cent of these students return to work in Botswana and three to four per cent of those people are in mining," Gahagan said.

In addition, Debswana itself sponsored 200 of its own students across a wide spectrum of university studies.

"Education at primary, secondary and graduate levels is based on the British system, with a strong family ethic around education. This is not a country where children will miss school.

"The world is now realising that there is a lot of skill in Botswana and it is now coming to attract that skill at relatively cheap international rates and there will be a pick-up on that drawing of people out of Botswana and we have to guard against that," Gahagan said.

Debswana is the second-largest employer in Botswana after the government. It employs 6 500 people, 95% of them Botswana citizens and 20% of them women.

The joint-venture com-pany contributes half of government income.

Last year, Debswana recovered a record 34,3-mil- lion carats, generating a profit of P12-billion, most of which was remitted to government in the form of dividends, royalties and taxes.

Debswana also owns 15% of De Beers and London-listed Anglo American plc 45%.

Debswana MD Blackie Marole warned that there were both operational and growth challenges ahead.

"We have had a honeymoon for 25 years, but that honeymoon is coming to an end. We are now going to have to manage a very difficult marriage between ourselves," Marole said.

Debswana would, however, deliver increasing value to shareholders up to at least 2017, he pro-mised.

CANADIAN TRAINING

As studies are conducted for moving mining from the openpit to underground workings, personnel are already receiving training in Canada in order to prepare them for the transition.

Jwaneng GM Balisi Bonyongo says that these studies will inform the company of the underground mining potential.

"Studies are meant to take our understanding of the resource to 1 000 m in order to delineate the orebody and determine how it should be mined.

"Only after all those studies have been concluded will we be in a position to make decisions," Bonyongo said, adding that more women would be employed when Jwaneng went underground and women underground mining engineers would be developed for the purpose.

The Jwaneng Resource Extension Project was initiated two years ago to mine to 1 000 m and understand the challenges of depth.

By 2008, Bonyongo and his team intend arriving at a new geological, geotechnical, hydro- geological and hydrometallurgical model for Jwaneng.

An exploration shaft is expected to be sunk in solid rock, 1,2 km north-west of the openpit in order to avoid slope instability.

Envisaged is an initial eight-metre-diameter vertical exploratory shaft that will be reamed to 14 m in diameter when it becomes fully fledged.

Sinking is expected to a depth of 1 200 m, followed by underground development to the pit at a depth of about 800 m.

Work on the shaft is expected to begin next year so that sinking can take place in 2009.

Besides the Jwaneng underground project, on the cards, too, is the construction of new treatment plants at both Jwaneng and Orapa, these projects collectively likely to involve Debswana in a capital expenditure of P10-billion to P15-bil-lion in the next ten years.

Debswana produces 25% of the world's diamond production by value from Jwaneng, Orapa, Letlhakane and Damtshaa.

OPEN PIT

Debswana mining manager James Kirby reported that Jwaneng's openpit was now 350 m deep and that Cut Six would take it to 450 m, Cut Seven to 550 m and the final Cut Eight to 650 m.

"Every time we open up a new cut, the pit deepens, and the sides of the pit move further apart, turning the pit into a super pit," says Kirby.

He said that underground drilling and exploration was down to 650 m in preparation for the move underground.

Cut Eight would involve the removal of 120-million tons of waste at a stripping ratio of twelve to one compared with the current profile of 40-million tons a year and a four-to-one stripping ratio.

"That is a major shift in terms of equipment and the number of people required," says Kirby.

He explained that twelve to one is the worst-case scenario, however, and that steps would be taken to reduce that stripping ratio to eleven or ten to one.

Cut Eight is scheduled to begin in 2011 and portions of the existing processing plant, if not the entire plant, will have to be removed to make way for it.

From the in-pit crusher, the ore from one of the crushers, through which Jwaneng's 10-milion tons of ore was fed a year, moved on a conveyor to a primary stockpile area prior to being fed into the plant. A second surface crusher, also fed Jwaneng's primary section.

A radar device in the pit scanned the slopes continuously, alerting the surface control room to the slightest of slope movements.

The control room remains in radio contact with those in the openpit so that they can be evacuated in the event of impending danger.

State-of-the-art technology, including high- precision geographical positioning and satellite coordination, is to position equipment in the pit.

Kirby said that the Jwaneng operation mined three pipes, a south pipe, centre pipe and the north pipe, the extensive a centre pipe being where the remaining surface mining would take place.

The grade distribution of the south pipe was the lowest at 0,8 carats a ton.

"When we mine south, the grade does drop, but the revenue increases immensely because of the tendency to find bigger stones there," Kirby said.

The centre pipe has the highest grade of 1,8 carats a ton and the north pipe a grade of 1,3 carats a ton.

Overall, that gave a yield of $169 per carat revenue across the three streams.

Collectively, the Debswana diamond-mining assets produce 31-million carats a year.

While Jwaneng produces only 14-million carats compared with mainly Orapa's 17-million, the gemstone value it brings overwhelms the rest.

Jwaneng's 2 300 employees thus contribute up to 70% of Debswana's total earnings.

TYRE ISSUE

Kirby reported that a waste-removal deficit had arisen as a result of the global shortage of large off-road tyres used by the equipment mining the pit.

The mine had, however, succeeded in reducing this waste-removal deficit to 250 000 t from the million-ton deficit in August.

He estimated that the deficit would be made up in the next three weeks and be turned to surplus by the first week of December.

Debswana director Debbie Farnaby forecast that the tyre shortage would be over by the end of 2008.

She told Mining Weekly that capacity coming on stream in China was of such a calibre that radial tyres were already being produced.

"Nobody anticipated that China would be making radials by now. Everyone thought China would be making cross-plys," she said.

LAGGING DIAMOND PRICE

"The challenge that we've got is that we are not seeing the kind of diamond price increases that platinum is seeing and, obviously, very different things are driving the platinum market," Penny reported.

"There is diamond price growth, but it is modest and it is incremental it is not step change, as is being seen in copper, uranium, platinum or gold.

"But on the other hand, we are seeing all the same cost increases that they are seeing.

"We are still impacted by steel prices, oil prices and challenges on vehicle tyres, so we just have to run a tighter ship.

"You have to look at your costs very carefully and make sure that you keep them down to low single digits, and that is a challenge. But I think we will meet that," Penny said.

"We are still bullish about the diamond price, but we are not seeing what other com- modity businesses are seeing, because many of them are being driven by primary industrialisation in places like China and it is going to take some time for people to want to buy luxury items.

"We are not about prime industrialisation. We are a luxury product, a discretionary product with many different alternatives and competitors.

"The advantage of the diamond price is that it is not volatile like the other commodities. "Diamonds are among the least volatile of minerals, so we never see the great rises on the upside, but we also don't see the volatility on the downside.

"We have to wait and see what happens in America over this Christmas period because something like 40% of all sales happen between now and the end of the year.

"But, for the moment, the year has been pretty reasonable," he said.


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