End of Near Monoculture of Diamonds

Two Independent Reports Show Govt Revenue from Diamond Sales Declining Slightly Further. The first report by De Beers revealed this week that the diamond giant has sold $450 million of rough diamonds through sightholder sales and auctions in its fifth cycle of this year. These sales were lower than the $657 million of rough diamonds sold in the fifth sales cycle of 2022. This is the second underperformance of the year after the drop in revenue recorded during Cycle 4 when De Beers sold about $479 million of diamonds. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="1,2,3,4" ihc_mb_template="1" ] The result is that Botswana is likely to be affected by this drop in income from De Beers. Said De Beers: “The provisional rough diamond sales figure quoted for Cycle 5 represents the expected sales value for the period 5 and 20 June and remains subject to adjustment based on final completed sales.” Said the CEO of De Beers, Al Cook, commenting on the latest development: “With ongoing global macroeconomic challenges continuing to impact end-client sentiment, the diamond industry remains cautious heading into summer. “Reflecting this, we saw demand for De Beers rough diamonds during the fifth sales cycle of the year slightly softer than in the fourth cycle.” Reports indicate that if this situation persists, it could significantly reduce Botswana’s mining revenue. Diamonds account for 80 percent of Botswana’s total exports and about one-third of government revenue. The second report by Global Rough Diamond Price Index also shared the same concern about the slowdown in the diamond market this year. The report shows that diamond “prices are down 18 percent from their all-time highs in February 2022, and are lower 6.5 percent year-to-date.” There are even fears that their value is about to dive further, market watchers predict. Paul Zimnisky, the CEO of Paul Zimnisky Diamond Analytics, was quoted this week by CNBC as saying: “A slightly better-than-average-quality 1-carat natural diamond was $6,700 a year ago, today this same diamond is selling for $5,300,” Officially launching the 2023/2024 Government Borrowing Strategy and Issuance Calendar, finance minister Peggy Serame also shared the same concern about how rough diamond prices are expected to remain under pressure this year. “In line with global trends, domestic economic growth is expected to slow down to 4.0 percent (in 2023), on account of weak demand for rough diamonds.” At 87 percent, diamonds still dominate overall exports, according to Statistics Botswana. But a leading economic think tank says the sector is changing. Citing Statistics Botswana, Econsult notes that rough diamonds accounted for 63 percent of total diamonds in 2022, polished diamonds 20 percent, and re-exported (aggregated) rough, 17 percent. “Polished diamond exports have boomed as the local manufacturing sector has expanded and global demand was strong, increasing by 93 percent in 2022 over 2021,” says the think tank. Non-diamond exports still account for a small minority (13 percent) of total goods exports, and – according to Econsult economist Sethunya Kegakgametse, it is critical that this increases rapidly. “Non-diamond exports are made up of other minerals (copper, coal, soda ash and gold), at 45 percent of the total, manufactured goods (46 percent), and agricultural products (live cattle), at 9 percent.” The latest official merchandise trade data for the full year 2022 shows that overall export performance was not bad, with total goods exports increasing by 24 percent, from P82.3 billion in 2021 to P102.4 billion in 2022. Kegakgametse observes that this was based around strong performance of diamond exports, which grew by 20 percent. “But some other categories of exports have performed even better, at least in relative terms,” she says. Copper exports increased by over 200 percent as the Khoemacau mine (which commenced commercial production in mid-2021) ramped up to full capacity operation, and coal exports more than doubled as Botswana’s two coal mining companies took advantage of strong international demand. said in its half year ended 31 December 2022 results that Listed coal miner Minergy says there was exceptional demand for coal created by the war in Ukraine and that its impact on the company’s performance started early in March 2022. Morupule Coal Mine currently produces 2.8 million tonnes of coal a year from its underground operations. According to Econsult, other categories of exports experiencing strong double-digit growth were textiles (up 45 percent), vehicle parts (up 41 percent), machinery and electrical equipment (up 36 percent) and live cattle (35 percent). Of the major export categories, Econsult notes that only gold had lower exports in 2022 than in 2021. According to Econsult’s Kegakgametse, the good news is that the previous downward trend in non-diamond exports may have been reversed. “The ratio of non-diamond exports to non-diamond GDP fell from 2014 to 2019 (data is not available prior to 2014), but has since risen, particularly in 2022,” she says, adding that this has been mainly driven by increased exports of (in order of importance) copper, machinery, coal and live cattle. But she is worried that not all of these are likely to be sustainable. Her concern is that coal exports in 2022 were driven by exceptionally high coal export prices, but by March 2023, regional coal export prices had fallen by nearly 60 percent from their peak in mid-2022, which will make future exports less attractive. Infact, Minergy - which owns Masama Coal Mine located at Medie settlement in the Kweneng District - had stopped mining activities in March, citing a significant drop in coal prices from mid-December 2022 by more than 33 percent. “The significant drop in coal prices from mid-December 2022 (33 percent) has resulted in the need to curtail operations at Masama in order to optimise operational costs,” Minergy CEO, Morné du Plessis, said in a cautionary statement at the time. The coal miner approached its funders for assistance and has since signed a term sheet for funding offered by MDCB, which is its main funder. Meanwhile, Kegakgametse laments that live cattle exports have boomed and have been highly lucrative for the cattle farming sector. “But there are indications that such exports will be restricted once domestic capacity for the treatment of hides and skins into leather has been developed,” she notes. At least the outlook for copper production is positive, with a new mine opening later this year. [/ihc-hide-content]

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End of Near Monoculture of Diamonds

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