"Although at this juncture we do not anticipate any job losses, we cannot guarantee that this may not change should the market worsen materially and require us to review our current response plans"- Bonyongo.
Debswana's closure of Damtshaa mine for three years, coupled with an announcement on the same day (Tuesday) that Anglo American is set to cut around 85,000 jobs, preceded by calls for the resignation of De Beers CEO days earlier, summed up a difficult week in the diamonds market. Still on the same day, just hours behind, another mining giant British-Australian firm Rio Tinto announced that it was being forced into action to fight the commodity slump by cutting capital expenditure.
These events, unfolding at the world's biggest miners, are a clear confirmation that diamonds are not forever. While Anglo American boldly declared that it has been forced to undertake a "radical" restructuring of its business to weather the commodity crash, Debswana has taken a cautious approach claiming not to foresee jobs losses. Employees will be redeployed to other areas of the business says Debswana MD Balisi Bonyongo. But the trade union representing workers at the mine - which employs about 250 workers Botswana Mine Workers Union (BMWU) - is not convinced Bonyongo's solution is the best.
When Debswana management meets BMWU during the week the main issue proposed by the latter will be for the provision of different options for the workers at the closed mine. The President of BMWU Jack Tlhagale expressed disappointment late Friday after they were informed about the looming closure of Damtshaa and management decision the same day. "We met today and heard that management has decided to redeploy staff to other areas of the business without giving other alternatives like voluntary exit packages.
This could result in people being forced to work in areas that are not their specialty. The three years is not even definite, the problems in the diamond market could continue beyond that, for all we know," said Tlhagale. He said they will propose other options to management when they meet for negotiations during the week. Minister of Minerals Kitso Mokaila declined to comment on the implication of the closure and declining production at Debswana on the economy, saying he was officially on leave. Debswana is the biggest contributor to the GDP, and has been the cornerstone of the local economy since discovery.
Although Debswana may not lose financially because they have enough stock to sell for the next three years without production, so its cost saving, the closure will negatively distort forecast profits. Debswana closed down operations at Damtshaa mine, and is scaling down production at Orapa No.1 mine for the next three years due to continuing deterioration of the diamond market. With trimming of production it is inevitable Debswana will cut short term contractors, scale down on long term ones and people will lose jobs inside Debswana and outside.
Bonyongo, made the announcement to staff on Tuesday. He said although Debswana reduced production by three million carats to match demand during 2015, the demand for rough diamonds has continued to be weak. Consequently, Debswana has not been able to achieve their planned sales target for 2015. "The collapse of the diamond market has resulted in an unprecedented slow movement of diamond stocks throughout the entire pipeline which has negatively affected sales by producers throughout most of this year," said Bonyongo.
The primary drivers for the deterioration of the diamond market have been:
• Constrained consumer demand for diamond jewellery in 2015 due to weaknesses in the global macroeconomic environment (slowing economic growth rate in China and a strong US Dollar impacting demand in non US Dollar denominated markets);
• Higher than desired retailer stock levels and excess inventory of polished stocks that has accumulated throughout the diamond pipeline; and
• Limited access to cash by the cutting and polishing businesses, particularly in India where banks have reduced lending to the diamond industry.
Bonyongo told employees that it is difficult to determine with certainty the length of time it will take before the market situation stabilises and the current best view suggests a period of up to 18 months. During 2015, Debswana's efforts have been centred on aligning production to demand and the preservation of cash by reducing operational and capital expenditure. "In view of this year’s sales trends and medium term outlook, as well as the amount of unsold inventory that we currently hold, we have had to review our mitigation plans in order to protect our business going forward. The Debswana Board has approved a business plan for the period 2016 – 2018 which maintains diamond output at 20 million carats per annum to match expected levels of demand for rough diamonds," he said.
To achieve the business plan Debswana will produce more from Jwaneng Mine, which is the highest revenue and lowest cost operation while reducing production from Orapa, Letlhakane and Damtshaa Mines (OLDM) which offers the most optimal production flexibility options. Jwaneng Mine will produce an average 12 million carats per year while production at OLDM will average 8 million carats per year for the 3-year period. Delivering the sad news Bonyongo explained that to achieve the lower production at OLDM, Damtshaa Mine will go into a care and maintenance programme for up to three years. "In addition, Orapa No. 1 Plant’s output will be reduced to approximately one million carats per year in order to maintain plant readiness for a quick production ramp-up should this opportunity present itself," said Bonyongo, adding that employees will be re-deployed to other parts of business while optimistic that the market will recover at some point.