Botswana likely to seek new terms from De Beers

JOHANNESBURG – Botswana is likely to demand more favourable terms from diamond giant De Beers for the renewal of a mining concession for the world’s biggest and most profitable diamond mine, an analyst said yesterday.

The current licence for Jwaneng expires at the end of July, but neither side has said that a routine 25-year renewal is expected, Investec analyst Nick Hatch said. “The silence on the issue is deafening.Is the unthinkable happening and the Botswana government exercising some muscle on its De Beers mining partners?” Hatch said in a research note.De Beers, 45 per cent owned by mining giant Anglo American Plc, said in February it had launched discussions about the licence, but neither company officials nor Botswana officials were immediately available for comment yesterday.De Beers controls around two-thirds of world diamond supply.Botswana might be forcing De Beers to help expand the country’s fledging diamond polishing industry with an aim to boost added-value in the sector and jobs creation, Hatch said.”The probability will be that there would be some sort of renegotiation at terms that are perhaps not as favourable as they have been for De Beers, but not necessarily onerous either,” Hatch told Reuters.The Botswana government owns half of the local diamond operating company Debswana and has a stake in De Beers itself.The government might seek to change the distribution method where all the country’s diamonds are shipped to London and mixed with De Beers’ global production before being sold to polishers.Non-renewal or change in terms could have an impact on the earnings of De Beers and its shareholder, Anglo American, Hatch said.Last year, Jwaneng contributed US$1,3 billion of the US$2,25 billion produced from Debswana mines, he said.”We calculate that Jwaneng contributes around 70 per cent of De Beers’ EBIT (earnings before interest and tax),” the research note said.”The total loss of Jwaneng would wipe around US$525 million from the De Beers’ EBIT contribution to Anglo American – this equates to around 17 per cent of Anglo’s 2003 operating profit, and 10 per cent of our forecast for this year.” London-listed shares in Anglo were up 2,2 per cent at 1,114 pence by 10h50 yesterday, outperforming a 0,6 per cent rise in the FTSE index.-Nampa-Reuters”The silence on the issue is deafening.Is the unthinkable happening and the Botswana government exercising some muscle on its De Beers mining partners?” Hatch said in a research note.De Beers, 45 per cent owned by mining giant Anglo American Plc, said in February it had launched discussions about the licence, but neither company officials nor Botswana officials were immediately available for comment yesterday.De Beers controls around two-thirds of world diamond supply.Botswana might be forcing De Beers to help expand the country’s fledging diamond polishing industry with an aim to boost added-value in the sector and jobs creation, Hatch said.”The probability will be that there would be some sort of renegotiation at terms that are perhaps not as favourable as they have been for De Beers, but not necessarily onerous either,” Hatch told Reuters.The Botswana government owns half of the local diamond operating company Debswana and has a stake in De Beers itself.The government might seek to change the distribution method where all the country’s diamonds are shipped to London and mixed with De Beers’ global production before being sold to polishers.Non-renewal or change in terms could have an impact on the earnings of De Beers and its shareholder, Anglo American, Hatch said.Last year, Jwaneng contributed US$1,3 billion of the US$2,25 billion produced from Debswana mines, he said.”We calculate that Jwaneng contributes around 70 per cent of De Beers’ EBIT (earnings before interest and tax),” the research note said.”The total loss of Jwaneng would wipe around US$525 million from the De Beers’ EBIT contribution to Anglo American – this equates to around 17 per cent of Anglo’s 2003 operating profit, and 10 per cent of our forecast for this year.” London-listed shares in Anglo were up 2,2 per cent at 1,114 pence by 10h50 yesterday, outperforming a 0,6 per cent rise in the FTSE index.-Nampa-Reuters