‘We Are Partners With the People of Namibia’

8 June 2011

interview

The Namibian (TN): For many years in the diamond context has been talked about as the carrot or jewel in De Beers’s crown (though that has changed in the past few decades), but to what extent is this country still crucial to De Beers?

Bruce Cleaver (BC): It’s still very important to De Beers both on land and on sea. Firstly, obviously, on sea you know that we have significant technology to mine the sea, which nobody else has. That’s a resource that will go on for many years still, comfortably 15 years or more. And we are the people who developed the technology over the years.

One of the reasons we are doing this deal on the sea-side is to get complete alignment with the government as a partner and continue investing in the sea. Land remains important to us. Namibia is not a huge contributor to the De Beers Group, but it is not, by any means, irrelevant. It’s a small but valuable contributor. When you talk about the carrot or the jewel approach, for many years the average value of the Namibian diamond per stone has been higher and still is higher than any of our other countries.

Now there are some mines in certain countries that will have higher value than some Namibian [diamonds] but if you take the average, Namibia would still have higher value per carat from the countries in which we operate.

The challenge in Namibia, particularly on land, it’s very expensive to get the land goods out. So, even if they are very valuable and people will pay good money for them, and they don’t make Namdeb very good profit under the current scenario. That’s the challenge for Namdeb. How do you continue to invest in a way that gets you an appropriate return and still be able to access the land diamonds?

TN: Earlier on, you mentioned Jwaneng in Botswana (which is investing something like US$6 billion) and the issue of extending the life of the land diamond mining operations. The Namdeb Managing Director Inge Zaamwani-Kamwi says they might need N$5 billion. Will that be enough?

BC: These are two different mines. Jwaneng is the greatest mine in the world without a doubt. It is very much more profitable than Namdeb and the reason is that even if its stones are on average probably lower value than Namibian stone, they are much much cheaper to mine. The reason is you are mining in a contained area, you are mining on an open pit basis, the quality of the ore is fantastic. An investment of that amount of money in Jwaneng, which is massive money, it is north of five billion US dollars still has an adequate return for De Beers. So, even after investing all that money we’ll get our money back plus an additional amount which we’ll be happy with. So it will be above our hurdle rate. That’s for a couple of reasons: one is that the ore body is so rich and easy to mine; the other is that the tax regime in Botswana is much more favourable to a diamond company than it is in Namibia. So the two reasons make the difference. So, will the N$5 billion be enough for Inge [Zaamwani-Kamwi]? I don’t think we have the answer to that because Inge needs to do, Inge has two exciting projects which we call inner-shelf and in-shore both more in the sea than where it is currently being mined but not in the deep sea. We know there are diamonds there and we know they are good quality diamonds. What we don’t have is the technology to exploit them.

Namdeb’s management is making a very considered and a very educated guess. But it’s a guess. Until they have done some research it remains a guess, but I will be surprised if it costs less.

TN: For years there have been talk of beneficiation or value addition in the countries that De Beers mine. Polishing has gone on for several years, especially in Namibia. Has it worked?

BC: To step back, we’ve always said we want to invest in countries where we can make a sustainable difference to the communities around which we work. We are not just about making money. That comes from Ernst Oppenheimer [1954] and that’s how long we started to think like this. So, we supported, within reason, governments’ beneficiation objectives around the world. And we understand why governments would want more of the economic benefits of a natural resource to find the way back into the country were the resource was extracted. So we understand that. Significantly so in Namibia we had an obligation to do this and we agreed to the creation of NDTC (Namibia Diamond Trading Company), which is a joint venture. Government got 50 per cent of that company, which markets Namibian goods.

The factories that have been established here to cut and polish have largely been successful. Not all of them, but largely. In Botswana it’s been the same. They are not our factories but our clients and we said you can only get our goods if you cut and polish in Botswana or Namibia.

The answer is that beneficiation has been a success. The difficulty is that you can’t wish away the fact that it costs substantially less to cut and polish diamonds in places like India, where probably it costs you seven dollars (US$7) a carat to cut and polish and it costs you between US$50 and US$70 a carat in southern Africa. You can’t get away from that.

So our strategy has been, only those diamonds that are valuable enough or big enough should be cut and polished in a local country because they can absorb that cutting cost. If the diamond is worth about US$200 you can probably cut and polish in Namibia or Botswana. Our philosophy has been – where goods are economically cuttable in a local country then we’ll support that. Where they are not we will not because that will lead to the subsidisation of the industry and we don’t think that’s good for anybody in an internationally competitive world. So, in general terms that has been successful. There have been failures but there are always failures in businesses. Provided it’s done in a certain way, that there are good that can be economically cut in a certain way, then we can make a success of it.

TN: More on the value addition debate, why is De Beers is still based in London, especially the marketing arm?

BC: The main De Beers office is actually in Luxembourg, funny enough, not in London. But it is fair to say that the bulk of the goods are sold in London and we do need a presence in London for a couple of reasons. Firstly, diamonds don’t get sold in the countries in which they are produced, by which I mean the end consumer. The end consumer is in China, India, America and Japan. So our marketing teams are not actually in London. They are where you expect them – in the Far East, China India and Japan, and in America. But that’s because it’s a global product.

As for sales we sell the goods where our clients are and our clients are international folks. De Beers is a global multinational after all, it is not a South African, Botswana or Namibian company. For the bulk of our clients the most convenient place to be is London, geographically it’s the best place to be. Many of them are Indians, many are Israeli and many are from America. It is the logical place to be and it is where our technology is that we have built up over the years in relation to sorting and cutting. It is where you access the international capital market when we raise our debt in De Beers, for example, that’s where you do it because it’s a global business.

We do as much as we can in the local markets where our mines are. Our management is split about half in London and half in the southern hemisphere. So it’s just where the job fits and where the client fits and the way the marketing is done. Probably less than five per cent of our employees are in London.

TN: It is still an emotive issue of perception that the diamonds come from here and are just shipped out, isn’t?

BC: Of course it is. But we have goods from Canada, we have goods from South Africa, we have goods from Namibia and we have goods from Botswana and we explore in Angola. So one day we’ll have goods from Angola. And we explore in India, so we hope one day we’ll have goods from India. And as you know what we do with goods is that we aggregate them. We don’t sell you Canadian goods or Namibian goods. We blend them and that allow our clients to get a much more constant supply than any other supplier can supply because we have this blend of production from around the world. It is important to our sales model that we get the balance and London at the moment is the logical place.

TN: When our government announced that it’s new mining company, Epangelo, will be given all the rights to certain minerals, what did that make De Beers think?

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