De Beers Renewed His Contract With Namibia For 20 Years

Background

Before reading this news, we must first understand the cooperative relationship between De Beers and the Namibian government (as shown in the figure below).

The two sides have jointly established a holding company called Namdeb Holdings with a 50 / 50 equity ratio. It has two wholly-owned subsidiaries: Namdeb and Debmarine, which carry out land mining and marine mining respectively.

In addition, the two sides also jointly established ndtc (still 50 / 50 equity ratio), fully known as "Namibia Diamond Trading Company", whose function is to "coordinate and manage the local diamond market in Namibia".

Therefore, the Namibian government and De Beers have a very close and equal interest cooperative relationship, which is also the "Partnership" they have always emphasized.

▲ source: namdeb Holdings

Events and significance

On October 14, De Beers' official website announced that through a series of positive contacts with the namdeb government, the namdeb management team finally led to a mutually beneficial new business plan, thus extending the time of land mining for 20 years.

Originally, the cooperation between the two sides would end in 2022. One reason is that Namibia has been transporting diamonds to the world for a century, and there are not many remaining aboveground diamond resources at present. Therefore, the company called debmarine has been exploring marine diamond resources since 2016.

Now Namibia's annual output of marine diamonds has exceeded the country's aboveground diamond mining, and the total reserves are estimated to be more than 80 million carats. They account for about 77 per cent of namdeb's total diamond production and 90 per cent of its total diamond reserves.

We can refer to the 2020 financial report issued by Anglo American (parent company of De Beers), which describes the output of Namibia as follows:

▲ source: Anglo American

I marked with a black arrow: the total amount of diamonds mined by sea is 1125000 carats, and the amount mined by land is 323000 carats.

Obviously, offshore mining is now De Beers's focus in Namibia.

However, if namdeb, which dominates land mining, is closed (by the expiration of the contract), it may lead to a large number of unemployment and even affect the livelihood of tens of thousands of people (including children), which will cause severe social unrest in Namibia. Therefore, this renewal is of great significance. It not only means that Namibia will continue to provide diamond resources to the international market in the next 20 years, but also the economic source of thousands of families.

In terms of policy, the Namibian government supports the renewal of the contract between the two parties: it reduces the royalties of namdeb from 2021 to 2025 (from 10% to 5%). This is very beneficial to namdeb's operation, because according to riaan burger, CEO of the company, the output is likely to increase to about 160% in the next two years, but at the same time, it also needs to add about $122 million in investment.

Of course, namdeb company will also pay off to Namibia. For example, it will increase 600 jobs (at present, the company has 2100 employees), continue to support local community, medical treatment, education and ecological construction, etc. The Namibian government is very smart. They know the importance of these public welfare construction to their country.

By the way, according to statistics in mid-2020, namdeb's contribution to Namibia's GDP exceeds the sum of all other mining activities in the country. For De Beers, Namibian diamonds account for less than 6% of its total production of 25.1 million carats (2020 data).

In short, this is an important event, which is good news for Namibia, De Beers and the international diamond market in short supply. The continued cooperation between the two sides means that the joint deep cultivation of giant enterprises and Namibia has not ended due to changes in the situation, but towards a more secure and sustainable development tomorrow.