FNB Acacia

Dark Christmas for Debswana

SHARE   |   Wednesday, 09 December 2015   |   By Ditiro Motlhabane
Dark Christmas for Debswana

"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 has been forced to close down operations at Damtshaa mine, and scale down production at Orapa No.1 mine for the next three years due to continuing deterioration of the diamond market, which has become even more serious. The announcement was made by Debswana Managing Director, Balisi Bonyongo, in a confidential memo to all employees on Tuesday afternoon with the subject matter "market update". Bonyongo 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.