Botswana leaned on Lucara to renew diamond deal

BOTSWANA may have had a lot to do with Lucara Diamond’s decision to renew a marketing agreement with marketer HB Group despite finding the Antwerp-based firm had breached a financial agreement in 2023.“The reason we got back together is not because we wanted to,” said William Lamb, CEO of Lucara Diamond Corp in an interview with Miningmx last month. “That’s all I’m saying.”The Botswana government has a 24% stake in HB Group and under its former president Mokgweetsi Masisi was interested in increasing its holding. Botswana is now led by Duma Boko, head of the Umbrella for Democratic Change, a coalition that surprisingly defeated Masisi’s Botswana Democratic Party in national elections last year.Whereas Mokgweetsi proved increasingly restive, Boko is – so far – more conciliatory to foreign-owned diamond miners in Botswana. He recently agreed to a new marketing agreement with De Beers the details of which are imminent but said to be largely unchanged from an in-principle deal unveiled in 2022.Yet Lucara’s Lamb thinks Boko will face many of the same economic problems with which Mokgweetsi was contending as the global diamond industry struggles to emerge from a prolonged downturn. The country is heavily reliant on the sector. Diamonds comprise 80% of Botswana’s exports, one third of fiscal revenue, and a quarter of GDP, according to an International Monetary Fund report in July.In December, Gem Diamonds CEO Clifford Elphick complained bitterly about “inappropriate sales” from Botswana. Goods, thought to be from HB Antwerp, were flooding the market at prices rivals couldn’t match. Operating through a single channel has problems, said Lamb.In terms of its 10-year deal, HB Antwerp is entitled to sell all diamonds from Lucara’s Karowe mine in Botswana above 10.8ct, known as specials, which account for 60 to 70% of Lucara’s average annual revenue. HB Antwerp’s manufacturing facilities are state of the art, but the firm lacks a distribution network. “If you’re trying to sell to the same people all the time, eventually those people are going to get their pockets full and they won’t pay the maximum value for the stones,” said Lamb.Diamond doldrumsIt hasn’t helped anybody diamond demand is so lacklustre. China, the world’s second-largest diamond market, remains the major drag on global demand. “From a diamond perspective we’re seeing a lot of polished goods come back from China, and that’s just adding into the available stockpile of goods,” said Lamb.Prices in the country fell 50% last year, while the industry’s average rough price index fell a fifth last year, according to a De Beers update on February 6 in which it also slashed production guidance up to 40%. De Beers also prepared the market for a significant impairment when it announces its 2024 numbers on February 20, partly owing to stockpiled goods worth $2bn, according to the Financial Times in December.The stockpile is not the largest De Beers has carried in its long history, but it’s certainly an unwanted complication. Anglo in May last year announced a far-reaching restructure in which it decided to sell its coal, platinum and diamond investments. Analysts think De Beers might be the hardest part of Anglo’s restructuring puzzle.Anglo has the balance sheet to support the capital build in De Beers, but would a buyer potentially limit the number of interested parties?Furthermore, knowing the stockpile can’t be easily released in a slow-burn market, the price for Anglo’s 85% in De Beers might be heavily discounted. It might be that Anglo decides to retain De Beers for longer, breaking CEO Duncan Wanblad’s pledge to complete the restructuring process in 18 months to two years.“I would actually say that it’s a much more complex question to answer because you can throw in Russian sanctions which start [the] first half of this year,” said Lamb. “You can also throw in the current fiscal situation in Botswana and how the government is going to view any Anglo/De Beers transaction.“I don’t think there’s a clear view on how that’s actually going to fall out,” he said.Karowe expansionIn this interplay between politics and markets, Lamb can’t afford any slip-ups with the commissioning of the expansion of Karowe, now pushed out two years from its original date to the first half of 2028.Shaft-sinking has progressed to more than 700m from 167m when Lamb rejoined Lucara. In addition, his team discovered De Beers’s data from exploration it conducted before 2007, providing accurate geology on potential water intersects. Had Lucara known this previously, its project delays might have been avoided.Lucara’s bind, however, is maintaining ore feed to its plant as its open-pit mine depletes. While stockpiles suffice, there is grade depletion which raises questions about production from 2027 until the project begins.In terms of the recapitalisation, Lucara raised a total $220m of debt of which $30m is a working capital facility. Crucially, Lucara’s largest shareholder Lundin Group, as well as HB Antwerp, have provided cost overrun guarantees totalling $57m.“Now we’ve actually got reality — and the reality is that it’s going to take two years longer to do the project,” said Lamb.A version of this article first appeared in the Financial Mail.The post Botswana leaned on Lucara to renew diamond deal appeared first on Miningmx.Weiter zum vollständigen Artikel bei Mining.com Weiter zum vollständigen Artikel bei Mining.com