De Beers has informed clients that it will reduce the number of sightholders in the next contract period as it anticipates a decline in available rough.
“Sightholder selection for the new supply agreement will be determined by an objective selection and allocation process, but with lower anticipated availability for the sightholder supply model, we anticipate the process to result in consolidation and fewer sightholders,” the group said in a letter obtained by avikrawitz.com from multiple sources.
The changes will take effect from January 2026 as the current supply agreement runs through to the end of next year and will not be further extended, management confirmed in the communication. The letter was dated on September 20, following a sightholder reception that De Beers hosted at the Hong Kong show.
The announcement comes as De Beers is due to sign a new marketing agreement with the Botswana government. The new deal will see the state-owned rough tender house Okavango Diamond Company (ODC) gain a larger portion of production from Debswana, De Beers’ Botswana mining subsidiary in which it is a joint venture partner with the government.
ODC is currently entitled to 25% of Debswana’s output, leaving De Beers with the remainder which it mixes with production from Canada, Namibia and South Africa before supplying the goods to sightholders.
Under the new marketing agreement, ODC’s share will rise in stages over the next decade to 50%. That will leave De Beers with significantly fewer goods to supply sightholders, considering Debswana accounts for over two-thirds of De Beers’ total production.
Pressure to buy
Market sources noted the timing of the announcement might have aimed at putting pressure on sightholders to increase their rough buying, despite the flexible supply policy that De Beers has enacted at recent sights.
De Beers has been willing to sell fewer diamonds to help support the market, while keeping its rough prices steady. It effectively canceled a sight by combining its August and October sales into one event that took place in September, shortly after the Hong Kong show.
The hope was that allowing sightholders to refrain from purchasing rough would enable them to reduce their polished inventories, and return to the rough market with some appetite to buy.
However, rough trading remains weak. There is no secondary market as dealers can only sell at 10% below De Beers list price, noted one rough broker. The only game in town are the tenders, but it’s not clear what prices they’re achieving since they don’t publish their results, he added.
That has fueled expectations that De Beers will reduce prices to stimulate demand at the next sight, at the beginning of November, or at the very latest in December.
Meanwhile, sightholders see the September 20 letter as a signal that the supply flexibility will yet come at a cost for those who did not give a little back to De Beers. “There is a sense that De Beers is telling sightholders its time they support the company, given all the support it has provided them,” suggested one market participant.
Sightholder criteria
De Beers is also under pressure to improve its sales and show potential investors it carries value, since Anglo American is trying to offload the diamond division. De Beers is also holding high inventory that is weighing on those investor valuations, particularly if it will be forced to reduce prices.
Furthermore, there is speculation that tensions are rising in the relationship between De Beers and the Botswana government as finalizing the 10-year marketing agreement and 25-year mining lease has been delayed multiple time.
Some expect the agreements to be signed after the upcoming Botswana election, slated for October 30, while others suggest the Botswana government is waiting to see how Anglo American’s proposed sale of De Beers plays out.
That might take some time.
For now, De Beers is making plans according to the terms of the agreement that have been made public. The reality is that regardless of when that deal will be signed, De Beers will have access to a lot less Botswana rough in the future.
That will naturally impact sightholders and result in a consolidation of the De Beers ecosystem. On its website, De Beers lists about 63 companies as sightholders and four as industrial sightholders. Many have multiple sights across the various sales units and locations the company operates.
There are 53 named as international sightholders, receiving rough from the Global Sightholder Sales (GSS) division, 40 in Botswana, 14 in Namibia and nine in South Africa, according to the website.
Strategic partners
It appears De Beers is seeking a closer working relationship with sightholders who make the grade.
The company assured that the application process will be simplified, and that as availability will be lower, “we look to create more strategic collaborations between GSS and our clients across diversified distribution channels,” the letter stated. De Beers will also consider “the potential for future value creation, and opportunities to collaborate going forward.”
In other words, De Beers is looking for partners with whom it can work in other areas, beyond rough supply. One can only speculate what that might mean for sightholders. Perhaps it would require participating in marketing or branding efforts, as they have in the past. More significant might be a profit share in polishing, and participation in De Beers own polishing efforts.
Under the new Origins business strategy unveiled at the Las Vegas show in June, CEO Al Cook said the company would be looking to work with third-party contractors to cut and polish and to sell premium polished diamonds.
It’s still a matter of speculation what that might look like, but it seems the company will look to extract additional value from the rough sales and polishing process – as other miners have done, albeit while managing far smaller production profiles.
For now, though, sightholders are acutely aware that their De Beers rough supply is on the line. In addition to the conditions already stated, De Beers stressed that in selecting future sightholders it will consider its “extensive knowledge of sightholder businesses and the performance over the term of the extended supply agreement.”
The underlying message is that De Beers will consider buying patterns in the current downturn. That puts pressure on sightholders to take their full allocations, even as De Beers is being “flexible” to allow higher than normal buybacks and refusals.
It will likely result in an increase in buying at the remaining two sights of the year. This, at a time when the market still might not be ready to absorb the significant volumes of new rough that De Beers currently holds.
Image credit: De Beers.
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