Okavango Diamond Company (ODC), a rough diamond marketing company that is wholly owned by the Botswana government, took an extraordinary decision to polish the 20.46-carat Okavango blue diamond recovered at Debswana’s Orapa Mine in 2018.
It was cut into a 20-carat oval VV51 fancy deep blue polished diamond.
Company managing director Mmetla Masire recently told Rough & Polished’s Mathew Nyaungwa on the sidelines of the Mining Indaba in Cape Town, South Africa, that they delayed selling the biggest blue diamond ever discovered in the southern African country due to the current subdued market.
Although he acknowledged that specials are usually not determined by obtaining market conditions, the ODC MD said the timing of the auction was crucial.
Meanwhile, they registered a decline in rough demand from the second half of 2022 and their lowest performance was recorded in December.
He said demand remains at the low end of the market and that manufacturers are sitting with a lot of expensive stock that they are now finding difficult to sell profitably.
Below are excerpts from the interview.
What was the level of demand for rough diamonds last year?
It started very well in the first quarter and middle of the year, we saw a decline right to the end of the year. Our lowest performance was in December, but our January (2023) was slightly above December, but it's still at the low end of the market.
What contributed to the dip in demand?
Well, we believe that the biggest contributor was the overpricing or the vibrant market in the early parts of last year and towards the tail end of the previous year. So, our belief is the manufacturers are sitting with a lot of expensive stock that they are now finding difficult to sell profitably.
What has been your observation in terms of the type of stones that are in demand?
Very clearly the type of stones that are in demand and where we are seeing decent margins is on the smaller stones and your industrials. But on the two carats and above we are not getting good value in most cases, you're either breaking even or running at a slight loss.
How many carats did you sell last year and how much did you earn?
We sold about 6 million carats last year and that's the average that we sell. I mean, it's not a secret, the Debswana production is available online and we take 25%. So that's exactly what we sold. We sold everything that we purchased last year…. We made about $1.1 billion.
So how are the prices of rough diamonds that you buy from the Diamond Trading Company Botswana (DTCB) determined?
Well, the prices that we buy from the DTCB are set by the DTCB, but with the input of the government diamond valuers, because the government diamond valuers have to make sure that all diamonds that are sold are sold fairly. And the government is interested in fair prices because they will qualify for royalties and tax. So the government diamond valuers together with the DTCB and will then confirm that the prices that have been set by the team are correct, and then based on that information, we buy them at a fair price. Our job is to see how we can then add some value in terms of marketing them, and selling them in a manner that will yield a profit.
How do you get special stones or coloured stones from DTCB?
We buy them, but remember, we are entitled to 25%. So there's a mechanism between us and De Beers we use to determine which specials and exceptional stones come to us and which go to them. And using that understanding which is structured in a way to try and be as fair as possible, we then get our specials and our exceptional stones.
Speaking of exceptional stones, I understand that you decided not to sell the Okavango Blue diamond, but to polish it. What made you take that decision?
When you have a stone of that magnitude, colour and size, it's not the perfect size, there is no simple way of deciding how best to sell it. You can sell it as rough or polish it, because ultimately, in most cases it will end up being polished. So, if you can polish it yourself, that value that you're getting should be increased, all things being equal. It also obviously depends on how you cut it and how you polish it, whether you're going to make one big stone or a set of stones or whatever. Those are the difficult decisions that the planning department must look at and decide on what is believed will maximise value because ultimately a rough buyer is going to do the same.
So are you done with the polishing and cutting of the stone?
We were long done with cutting and polishing, it was displayed at The American Museum of Natural History in New York for about eight months from November 2021 to about July 2022, and we are happy with the exposure and positive feedback we have since received.
What did you get out of the stone after polishing?
We have a 20 Carat oval cut VV51 fancy deep blue polished diamond.
Which shape did it take?
It took the shape of an oval cut. This cut shape was considered to be the one that would yield maximum value.
When do you plan to sell the polished stone?
We have not finalised our selling strategy around it. There are several options that a person has, you know, as we say an auction is an option where you take it to major luxury auction houses or you sell it as straight buying or you sell it through a partnership where you work with a partner. So, the final strategy of selling has not been signed off. So we're still working on finalising the strategy.
What is delaying the finalisation of the selling strategy?
If you look at how the big stones and some of the fancy stones behaved towards the end of last year that will explain why we may have decided to hesitate on putting it out. Currently, the general market of diamonds is right now subdued. Although I must highlight that the specials and exceptional stones don't follow that trend, they follow other trends. So you have to look beyond what the general diamond market is doing. So the two are not related. But the timing, when you look at the market of the type of stone we have, we felt it was not going to give us the optimal value to put it out at the time. A little bit of research towards the last quarter of 2022, if you look at some of these stones that were put out, you can understand the reason we may have decided to hold back.
Do you envisage an increased threshold of the diamonds that you buy from DTCB?
The 25% is not a question of what we can handle or what we want to buy, it is a function of the agreement that the Botswana government and De Beers have come up with through their negotiations. So yes, the question is if ODC wants more. Yes, ODC would want more and ODC is able and prepared to handle more. So if they were to increase, say, for instance, 30 or 40% ODC would be more than happy to do that, because we've been very profitable with 25% and we believe we can do the same with an increased allocation. But that is not a question of whether we are capable or have the finances, etc. It's a function of the agreement between the Botswana government and De Beers. So since they are negotiating and the negotiations are still going on, we can only hope that the outcome of the negotiations will be favourable to us.
What is the level of beneficiation in your country?
The level of beneficiation depends on one's definition of beneficiation. But if we look at the fact that there are about 35 cutting and polishing factories in Botswana now owned by different companies, that in itself can be seen as some positive movement on the beneficiation side. So from that point of view, it's generating about 3000 plus direct jobs, and a lot of indirect jobs are associated with that. So I don't know whether you consider that as enough or success, but it is beneficiation because they were manufacturing diamonds. We know there is still more that needs to be done. We are not participating or active in other parts of the diamond value chain. We still have a lot of work to do as a country in this area.
How are you supporting Botswana’s beneficiation strategy?
As a responsible company in Botswana, we support the government. We are reviewing our sales model. We will then be packaging some of our diamonds with a specific view of selling to beneficiation companies that are Botswana-based. So if you set up a company that does cutting and polishing in Botswana, we will be in a position where we can support you with the diamonds, the same way as our other competitors are doing.
How are the Botswana-based companies competing with foreign buyers in terms of pricing?
No, no, the buyer doesn't make a difference because the pricing for the beneficiation of diamonds is just the same, the difference is where they are processed. So I think the question should be the manufacturers that are manufacturing in Botswana, and manufacturing in India, see big differences in their profit margins. But from the sale of rough they buy them at the same price from ODC. There's no beneficiation price advantage, because you're processing them locally.
Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished
