Botswana Government Examining Its Diamond Marketing Options

The government of Botswana, quite unexpectedly – and without prior consultation with De Beers – has issued a tender for a strategic review of its diamond industry options. It wants to explore whether there is scope for downstream added value creation and/or whether it would be more advantageous for Botswana to market its rough diamond output independently.

The tender was won by L.E.K. Consulting LLP, the London headquartered global consulting firm that has pioneered the shareholder value approach to business planning and performance improvement. L.E.K. is driven on the principle that cash flow drives value and, from that perspective, it advises on corporate and business unit strategies, allocation of capital, and performance measurement and rewards.

Though L.E.K.’s consultants are apparently drawing, at least initially, much of their information and “diamond learning” from Charterhouse Street 17, there is no certainty that their findings will necessarily represent a strategic fit with the best interests of the Oppenheimer Family and De Beers. Is it possible that the Botswana government would want to market its goods independently? This is highly unlikely, but not impossible.

De Beers seems to be moving firmly into the direction of a new business model. In this model there will be four (or maybe five) independent and truly competing diamond companies. De Beers Consolidated Mines in South Africa, headed by Jonathan Oppenheimer; Debswana headed by Louis Nchindo, Namdeb headed by Inge Zaamwani and the London-based Diamond Trading Company, headed by Gareth Penny.

In order to make each company truly competitive and to secure that each company collects in an undiluted manner all the profits it has generated, these companies are likely to market their output through the DTC only if the DTC provides higher income prospects than alternative channels would yield.

But the independent companies might be given the choice NOT to market through London. If each company guarantees arm’s length sales, this would, overnight, solve all De Beers worldwide anti-trust problems. The DBI holding company in Luxembourg would basically become a passive management company, with little interference in the day-to-day management of each unit. When Snap Lake and Victor in Canada come on stream, there is further room for an independent De Beers Canada company, headed by John Hughes. 

In that business model, the hardest job would be Gareth Penny’s, who simultaneously must convince both sightholders and other De Beers mining companies that marketing through the DTC is a win-win situation for everyone. Much will depend on the added services, which the DTC will give its stakeholders. There is much uncertainty out there; not just that the EC has to rule on the Alrosa contract, but also what L.E.K.’s judgment will be.

If L.E.K. is going to do to Botswana what Bains did to De Beers, there may be far more changes in store. However, nothing will happen ‘overnight’ as the DTC has firm marketing agreements with Debswana, which still have to run a few more years.

The fact that Botswana has decided to look at its options is, for the time being, the real story here. That would have been hardly thinkable a few years ago. Times are changing.