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AFKI Mining: How Botswana Can Be An All-Mineral Economy

AFKI Mining: How Botswana Can Be An All-Mineral Economy

In this continuing AFKInsider series we are examining the influence and ownership of foreign companies on mines and other natural resources throughout the African continent. In the first two pieces we have found that the continued influence of foreign multi-national corporations is substantial, often sending a good portion of the profits across oceans.

Generally, and intuitively, the less developed the economy, the greater ownership multi-national corporations with technical and financial capability have over mining interests. This has been countered in a number of states through so-called “resource-nationalism” movements or an attempt to ensure local ownership of minerals through legislation. Most often this takes the form of legislation requiring mineral companies to form joint ventures with local ownership.

In Parts 1 and 2 we examined sub-Saharan Africa’s two largest oil- and- gas-producing states, Nigeria and Angola and its largest producers of industrial metals, South Africa and Zambia. While all these countries make use of locally owned joint ventures, the requirements for such joint ventures vary widely, with anywhere from 10-to-50-percent required local ownership and other, more particular, clauses such as South African Black Economic Empowerment policies.

Part 3 will examine diamond production in Botswana. The country’s success in turning its unique natural resources into collective wealth by partnering with private industry demands particular attention, especially when contrasted with Zimbabwe, a country also blessed with diamonds but without the foresight of the Botswana government.

According to the U.S. Geological Survey, the country is accountable for approximately 31 percent of the world’s gem-quality diamond exports. While there is a tendency for resource-rich countries to rest on the success of their exports, assuming the profits will continue indefinitely, Botswana is attempting to use its geographic advantage to transition to a diverse, modern economy.

Precious gems have already taken the country from impoverished sub-Saharan state to middle-income economy and have forced some of the world’s most important firms to take notice. In 2013, the De Beers Group, the world’s largest diamond producer, moved much of its operation from London to Gaborone, setting the stage for more value-added industry.

As the transition progresses, the diamond mining industry continues to play an outsized role on the country’s economy. The industry currently accounts for more than a third of Botswana’s gross domestic product, between 70 percent and 80 percent of export earnings and approximately a third of total government revenues.

At the moment, the lion’s share of this mining is done in four mines through a 50/50 joint venture between De Beers (owned by London-based mining conglomerate Anglo-American) and the Botswana government, known as Debswana, the country’s largest private employer. The four Debswana mines accounted for more than 2 million carats in 2012, down from nearly 2.3 million in 2011.

While the Marange fields in Eastern Zimbabwe account for more carats than any other mine in the world, two of the Debswana mines — Orapa and Jwaneng — are more productive in dollar value due to the high quality of the diamonds.

In addition to Debswana, other companies are attempting to break into the Batswana diamond market, including London-based Gem Diamonds Ltd., which owns the Ghaghoo mine, expected to commission in the second quarter of this year. Lucara Diamond Corp., a Canadian corporation, owns the Karowe mine which is producing on a small scale and working to expand, including a number of rare types of the precious stone. A 9.46 carat blue diamond sold for more than $4.5 million in November 2012.

Mine Location Owner Nationality of Owner Production (thousands of carats)
Orapa Botswana De Beers/Botswana government England/Botswana 11,089*
Jwaneng Botswana De Beers/Botswana government England/Botswana 8172*
Letlhakane Botswana De Beers/Botswana government England/Botswana 764*
Damtshaa Botswana De Beers/Botswana government England/Botswana 191*
Karowe Botswana Lucara Canada 496.3**
Marenge Zimbabwe Various Zimbabwe/Ghana/China/UAE/Mauritius/South Africa*** 12,000

*2012 totals based on company press release.

** 2012 estimate based on company projections and incomplete information

***2012 estimate based on Analysis by industry analyst Paul Zimnisky for Mining.Com

The soon-to-be-commissioned Ghaghoo facility is an underground mine, while the rest of the Botswana mines use open-pit mining techniques. Additionally, after the open-pit resources have been exhausted, Debswana predicts that Jwaneng will be able to go underground. Open-pit and underground mines typically have the longest lifespans of diamond mines. Combined with sustainability measures ensured by the successful public-private partnership, these types of mining ensure decades of continued mineral wealth.

The closest parallel in terms of size and prominence, the Marenge fields in Zimbabwe run in sharp contrast to those in Botswana. Not only are these fields used for alluvial mining — traditionally the cheapest but least sustainable type of diamond mining — but Zimbabwe’s deeply flawed government has made no attempt to transition the diamond revenues into diversifying the economy.

The importance of Botswana as an international example is its successful use of public-private partnership along with the country’s eye towards the future. While the country and De Beers have worked towards sustainability, diamonds, like all minerals, will not always be a source of income. Botswana has worked to ensure it is prepared. Zimbabwe, like too many other mineral exploiting states, has not.