De Beers is nearing the finalising of protracted negotiations for the renewal of a five-year sales contract in Namibia, PolishedPrices.com reports.

At the interim results conference last week, De Beers‚ managing director Gareth Penny said the negotiations were constructive and progressing well.

Namibia is the last of the three Southern African countries, incorporating Botswana and South Africa, to conclude such negotiations with De Beers.

Although it is the smallest in terms of volume, the quality of its alluvial diamond production has a disproportionate impact on the quality of the mix of diamonds that De Beers is able to offer in what is termed its London Mix.

Botswana and South Africa have taken radically different approaches in their negotiations with De Beers.

Botswana, the world’s largest producer by value, has effectively asserted control over supplies in a new joint venture called DTC Botswana.

In the process Botswana has reduced the after tax profit share to De Beers in the mines from 25% to 15%. With the formation of the DTC Botswana joint venture it reduced De Beers’ 10% marketing margin by 3%, and it increased its stake in De Beers from 10% to 15%.

In South Africa, the government under the new mining laws has created a State Diamond Trader whose main job is to ensure that local cutters receive supplies.

Namibia is understood to be leaning towards similar terms set by the South African government, which in most likelihood includes a centralised body that receives local supplies, as well as supplies from De Beers selling arm, the Diamond Trading Company (DTC) in London. Thus mirroring the South African State Diamond Trader.

Under the negotiations with the Namibian government, De Beers is expected to agree to the creation of a joint venture.

An inevitable consequence of the negations will be reduced profits if only through a reduction in contributions previously paid by the government, such as marketing costs.

However, it is expected that the negotiations will directly impact more directly on the current overall take that De Beers enjoys under its current arrangements.

Should De Beers agree to such a structure, industry players will be looking at the rough supplies that the new body in Namibia will receive from Namdeb - the mining joint venture between De Beers and the Namibian government - as well the DTC.

These will to be high-value goods, which the government would like to see manufactured in Namibia.

It will be interesting to see how Namibia will finance support for local cutting and what changes the government will force on all the current producers - De Beers, Lev Leviev and Diamond Fields.

According to insiders, the so-called section 59, which the Minister can at any time invoke, whereby 10% of any production will be sold separately to test the market, is expected to remain in place.

Finally, Diamdel‚s future in Namibia is in doubt after its local manager was transferred to DTC Valuations in Namibia following complaints by cutting factories in both Namibia and South Africa that its goods are too costly. This will be another impact on De Beers’ margin.

The actual outcome of the negotiations will be interesting given just how much Namibia relies on De Beers as the largest contributor to government revenues.

However, whatever the outcome of the talks, the conditions applied by Botswana and South Africa have set a precedent for Namibia to follow - PolishedPrices.com.