Debswana’s recent move to establish its own mining services firm carries echoes of a decision four years ago by one of its shareholders, De Beers, to enter the synthetic diamonds industry, analysts say.
By investing millions of US dollars into producing its own synthetics, De Beers’ powerplay allowed it to bring its considerable financial and technical muscle into an industry that was increasingly imperilling its core business.
For Debswana, the launch of Naledi Mining Services is equally a powerplay built on financial and technical expertise, but one that allows the country’s biggest minerals producer to better dictate terms in a future where the costs of digging up the precious stones will only get more expensive.
Officially incorporated on August 4, Naledi is set charge into the competitive mining contractor industry, where major players, mainly from South Africa and beyond, have enjoyed free rein over the decades dating back to country’s mining boom.
Mining contractors are independent entities engaged by the owners of mines to undertake their mining operations, handling everything from the labour, equipment, mining method and others. The contractors help restrain operating costs for the owners through their economies of scale and the fact that a fixed rate is negotiable, while technical and financial risks to the owners are minimised.
New mines who do not have the capital for earthmoving equipment or the skills for mining, prefer to engage mining contractors while building up their own capacity.
The contracts are money spinners. In 2019, Khoemacau engaged an Australian firm, Barminco for its mining services in a deal worth $554 million (P7.2 billion at current rates) over five years. At Debswana, the Cut 9 project to expand Jwaneng Mine was awarded to Majwe Mining for P15.7 billion, before the diamond giant terminated the deal early last year.
Majwe would have conducted waste mining involving billions of tonnes of rock and sand, allowing Debswana to then tap into the ore.
In shifting its weight into contract mining, Debswana is taking a leaf out of De Beers’ book and going in big. In 2018 when De Beers moved into synthetics, it budgeted $94 million for a Portland, Oregon laboratory that would produce 500,000 carats annually, or about one in every eight synthetic diamonds in the world.
Naledi is similarly not getting into the industry from the bottom rung.
“The company will employ more than 750 workers and have an annual turnover of P300 million,” Debswana’s head of technical services, Bakani Motlhabani told a recent business briefing.
“Initially it will provide labour services for Cut 9, including operational skills such as machines, trucks, supervision, earthmoving equipment, repairs and maintenance.”
While Debswana’s move into the echoes De Beers’ own powerplay from a few years ago, officials at the local company say the development is innocuous. The move, rather, was motivated by the push for lower costs and the lack of local capacity, when the original contract with Majwe was terminated in favour of a hybrid arrangement where Debswana would partner with a citizen contractor.
“You will have heard about our bold and big decision to move away from full contract mining at Jwaneng in order to find a lower cost model of operating,” Motlhabani said.
“Since then, we have been looking to say ‘what’s the sustainable way to implement the preferred hybrid model where some of the services are managed by us and others are outsourced?’
“We went to market and settled on having outsourced labour services for Cut 9, but we were not successful in getting a suitable partner for this and after thinking long and hard, and innovating, we landed on a subsidiary of Debswana as a way of getting the benefits of the large Cut 9.”
According to Motlhabani, by engaging Naledi for Cut 9, Debswana will benefit from efficiencies around lower costs.
“If we had not come up with this initiative, with the current high inflation we would be worse off.”
Naledi’s rivals in the industry would have been happy had Motlhabani’s remarks ended there. However, Debswana has grander plans for Naledi, which include competing in the industry and even branching out of the country.
The prospects of how far Naledi could go are massive. Debswana’s board has approved several megaprojects intended to take the company into the future, including expansions at Orapa and an underground project at Jwaneng expected to cost P65 billion. The latter project will involve 360 kilometres of tunnels, the world’s largest underground diamond mine, and take Debswana’s production to 2054.
While no one is saying Naledi will be at the front of the line when the underground contract hits the market, the new subsidiaries rivals will be feeling the heat, particularly as Debswana has been ramping up the skills required for the project, including sending people outside the country for training.
Motlhabani’s comments at the recent business briefing would have provided little comfort about Naledi’s ambitions.
“We believe that Naledi will grow the mining services industry and that this will mushroom.
“From January 2023, Naledi will provide labour services to Cut 9, then after that, the organisation will look for other opportunities not only in Debswana but the whole mining industry and beyond our borders, providing bespoke mining services.
“Through Naledi, we will accelerate the development and growth of the mining services industry in the country and we are very excited and optimistic about Naledi’s future,” Motlhabani said.
