Diamond Trading Company (DTC) sightholders listened with intent as Tim Dabson, DTC’s director of beneficiation, introduced Lot 8 of the charity auction at this week’s ‘Diamonds in the Sky’ event in Hong Kong. Up for grabs was the honor to officially open the first DTC sight of 2012, or as Dabson stressed in an effort to up the ante, “the last ever sight cycle that will take place in London.”

Not to diminish the worthy beneficiaries – the China Charity Federation and the Diamond Empowerment Fund (DEF), which will split close to $3 million raised on the night. But, the $300,000 winning bid for Lot 8 certainly underlined that perhaps more was at stake than the described reward, indicating the sweeping changes that lie ahead at De Beers and DTC in 2012-13.

That said, the deal penned by De Beers and the Botswana government late last week offered few surprises for the diamond industry but much relief for the parties involved. Like any deal of significance, the devil is in the details, and the details are still forthcoming. It is unclear what took so long - the agreement was about nine months overdue - so the lack of details was surprising in itself.

Still, the deal is a game changer for De Beers and Botswana, offering short and long term consequences for both, and the industry at large.

The contract, which is effective retroactively to January 1, 2011, revolves around two key issues: the transfer of DTC’s aggregation and sales operations from London to Botswana, and the introduction of independent rough sales of 10 percent of Debswana production to be conducted on behalf of the government. Debswana is the local diamond mining company owned by De Beers and the government in equal partnership.

In the near-term, the question arises whether De Beers will have to supply 10 percent of its Debswana production from the first nine months of this year that have already passed. That would amount to 1.1 million carats reported from the first half of 2011 plus the third quarter production. Sightholders will be wondering if this will impact supplies to DTC sightholders for the remainder of 2011. De Beers output, which is already lagging behind planned rates, may well be under increased pressure to meet its clients applications, and demand as a result.

Varda Shine, DTC’s chief executive officer (CEO), maintained that these are some of the details that still need to be ironed out, while insisting that the deal will benefit DTC’s clients. “Sightholders know that for the next 10 years we’ll have goods to supply with consistency and that is essential at a time when there is such a difference between supply and demand,” Shine told Rapaport News. “But now the real work starts regarding this agreement.”

It is therefore assumed that much depends on the government’s timeline to start the independent sales and its efficiency to get the project off the ground.

Construction recently began on the phase two development of Gaborone’s Diamond Technology Park (DTP), which is presumed to become Gaborone’s trading base. According to a report by Mmegi posted on the website of SAFDICO, a local sightholder which manages the DTP, the tender house is expected to be operational by the first half of 2012.

It is critical that the government has its own house in order by then. It has much to prove with this project, especially now that it has achieved what it sought out for so long – gaining access to rough to sell on its own.

It will need to oversee the introduction of direct flights from the major trading centers to Gaborone, build better hotels and improve the city’s physical and virtual infrastructures. These will go a long way to helping the government achieve its ultimate goals set out within the diamond trading platform: to expand and diversify the economy and attract foreign investment.

The project is vital for Botswana as the country remains highly dependent on diamond mining with about 80 percent of export earnings, 40 percent of government revenue, and approximately one-third of gross domestic product (GDP) coming from diamonds. Botswana’s mines will not last forever and developing a trading platform in Gaborone is therefore an important attempt by government to ensure that the country has a diamond industry and alternative revenue stream in the long run.

However, the industry will want to know how the government will be selling its diamonds and whether these will have an impact on De Beers pricing. The government still has a 15 percent share in De Beers and is an equal partner with the company in Debswana and DTC Botswana. With access to its own independent pricing mechanisms, which are expected to be higher than DTC’s price list, the government is likely to exert additional pressure on De Beers to ensure that they get maximum leverage from the sights.

It is hoped that the government will be transparent and fair in this regard. Still, it is questionable whether De Beers will have the same control over its production as before. Therefore, at first glance it seems the company came out of the negotiations second best and in a weaker position. In fairness, it had no choice. The government had the better diamonds in its pack of cards to play.

These developments are bound to impact sightholders. From a practical point of view, they will now have to travel to Gaborone rather than London to view and buy their goods, which signals a culture change as well as a less convenient travel commitment. As an aside, as one broker mentioned, it may well increase the role that brokers play in the equation.

But more importantly, sightholders will be questioning to what extent this will impact supplies in the next contract period, which begins in April 2012, and if the number of sightholders chosen to be DTC clients from that period will be reduced as a result.

While Debswana’s production rose 25 percent year on year to 22.218 million carats in 2010, DTC will now lose access to 10 percent of the total each year, and the amount will rise to 15 percent over a five year period. One can therefore expect fewer "London" sightholders when DTC announces its new list of clients in December and more in Botswana.

In turn, the shift from London to southern Africa will be as complete as it was inevitable. Sightholders will need to adapt and work with the changes as ultimately it is a positive and necessary move. But now that Botswana and De Beers have secured their respective access to rough, sightholders and other diamond manufacturers will have to work to secure their own. Hopefully, they will not do so at just any price, no matter what the auction, or who the beneficiary.