The company signed an agreement with the Namibian government last year, committing to allocate 15% of its Namibia production to state-owned company Namdia, which will conduct independent sales on behalf of the government. The move was part of the country’s beneficiation efforts to diversify its diamond industry. In that vein, De Beers also agreed to increase the amount of goods it provides its Namibia-based sightholders.
De Beers supplies rough on a contract basis, whereby its sightholders make what is known as an intention to offer (ITO) – an indication of how much rough they will require for the coming year. The company has about 80 core clients at its international sights, which take place 10 times a year in Botswana. As part of its beneficiation program, it also supplies rough in separate sights to 11 local sightholders in Namibia, 20 in Botswana and seven in South Africa.
With the new ITO period starting in April, sightholders are bracing for lower supply given De Beers’ new commitments to Namibia and a similar arrangement already in place in Botswana, where the government takes 15% of local production to sell via Okavango Diamond Company. De Beers allocates an additional 10% of its production to its auction business before distributing the remainder through the sight system.
As such, the company is predicting a lower available supply for sightholders in the upcoming ITO period, compared to what it forecast for the 2016-2017 ITO year, said De Beers spokesperson David Johnson.
“The impact has been biggest in the international ITOs, as our producer country beneficiation commitments have seen a greater share of our availability being allocated through these channels,” he explained.
Sightholders have estimated that allocations will be up to 20% lower under the new ITO arrangement – which begins at the next sight in April – than they were in the previous one.
De Beers declined to comment on the extent of the reduction. However, Johnson said it would vary for each sightholder, depending on the client’s location and whether it was a participant in the programs aimed at keeping manufacturing within Botswana, South Africa or Namibia.
De Beers this week held its third sight of the year – the last one in the current ITO period – and is expected to announce the sales result early next week. Sales are expected to be lower than those of the first two sights, which yielded $720 million in January and $545 million in February.