Job Cuts Continue In Diamond Sector

- January 11th, 2010

De Beers is set to cut jobs in Botswana, which might send a shiver down the diamond industry’s spine, but India has made clear its intention to source diamonds directly from Botswana. Better sense has prevailed, and Botswana has recognized that it would be wise to diversify the sellers of its famed diamonds, rather than just go through De Beers.

By Kishori Krishnan Exclusive To Diamond Investing News

The year has not begun on a good note for the diamond industry. This week, the joint venture between the Botswana government and De Beers, the Debswana Diamond Co has maintained that it would cut 1,000 jobs in an attempt to contain costs.

The retrenchment of one fifth of its 4,900 combined workforce at the Jwaneng, Orapa and Letlhakane mines is the latest in what appears to be a series of downscaling initiatives for what was once the leading bulk supplier of international rough diamond sales.

De Beers, which is 45 per cent owned by Anglo American Plc, is seeking to raise $1 billion through a rights offer to cut debt.

Managing Director Gareth Penny said on November 24 that sales were 47 per cent of the level a year earlier.

De Beers, which owns six mines in South Africa, four in Botswana and two in Canada, now provides about 40 per cent of the world diamond supply, leaving more room for adversaries Rio Tinto and BHP Billiton.

At its peak, De Beers had produced 34 million carats in Botswana and about 12 million carats in South Africa.

Until the mid-1990s it sold about 90 per cent of the world’s diamonds and enjoyed lucrative contracts with Australia and Russia. “Now it only sells its own diamonds,” an analyst said.

De Beers spokesperson Tom Tweedy said while production was suspended in Botswana, no mines would be closed. However, the company’s Namaqualand operation which was producing less than one per cent of total production has been placed under “review”.

He said operations would be suspended rather than shut down and its 240-strong labour force redeployed elsewhere.

Esther Kanaimba, spokesperson for Debswana said the restructuring was an outcome of a planned review and the company’s 2006-2010 strategy.

India shining

Still on Botswana, India, the world’s largest diamond importer wants to buy uncut diamonds directly from Botswana, Indian government officials announced.

The Indian vice president Hamid Ansari, who reached Botswana Saturday afternoon from Malawi on the last leg of his tri-nation tour in Southern Africa that took him first to Zambia,is set to make a proposal to the Botswana Government.

If approved, Botswana will directly supply India with uncut diamonds for its diamond cutting and finishing industry.

Ansari was quoted as saying, “This is of direct interest to us, as we have a large and prosperous diamond cutting industry in Gujarat.”

Another Indian government official was reported to have said “Even the government of Botswana wants to diversify the procurers for its diamonds,”

In 2007, India announced its interest to do business with Botswana, in particular in the diamond industry because Botswana is the world’s largest producer of diamonds by value.

India boasts of vast experience in diamond cutting and diamond polishing. The Asian country’s trade with Africa is estimated around $39 billion, and trade with Zambia, Malawi and Botswana is around $302 million.

Officials said Botswana has recognised that it would be wise to diversify the sellers of its famed diamonds, rather than just go through a single company (read De Beers) as it has being doing.

“The global recession had made an impact on the government decision, when they saw that De Beers was unable to take all the diamonds mined due to a decline in global demand. It demonstrated that depending on a single distributor was not wise,” said an official.

Canada calling

On to Canada, where there are a group of people who are trying to reactivate an Ontario company that many investors would like to forget: Lydia Diamond Exploration of Canada Ltd.

It is the first serious attempt to generate value from Lydia since its two former leaders were convicted in early 2007 of improperly selling shares to investors.

Back then, a German artist and his Romanian-born wife laid claim to serial diamond discoveries (yellow, pink and blue) north of Peterborough, and raised more than $2 million, by one estimate. Soon, they ran afoul of the securities law.

Shareholders were left in the lurch until a special meeting in Toronto, where they voted in favour of the plan to convert Lydia shares into Crown William shares.

Crown William bought Mr von Anhalt’s 38.8 per cent stake for $1.4-million last year. The firm is now eager to get back on its feet.

And Spider Resources Inc (TSXV:SPQ ), diamond exploration firm was up one cent on January 8, or 18.18 per cent at seven cents on volume of 11,491,663 shares.

It announced the completion of its private placement recently.

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