JOHANNESBURG (Business Day) -- The final pricing for the De Beers empowerment deal with Ponahalo Holdings has come down to R3.7 billion ($614.4 million) from the R3.8 billion ($631 million) originally announced. The price was still subject to the finalisation of the proposed amendments to the Diamonds Act and an assessment by De Beers and Ponahalo Capital of the effect of these amendments on De Beers' business.
De Beers Soci'et'e Anonyme, the holding company of the South African operations, said last November it would sell 26% of De Beers to a new company called Ponahalo Holdings, which is 50% owned by De Beers' employees and pensioners and 50% by black investors grouped together as Ponahalo Investment Holdings.
The transaction, which took more than a year to finalise, is significant because it introduces a new generation of black entrepreneurs as shareholders in De Beers. It could also help De Beers improve its relations with government.
Dealings between government and the local diamond industry became tense amid last year's talks on the Diamond Amendment Act, which changed the regulatory regime for local diamond sales and exports, and was criticised as being overly interventionist by the industry.
Preliminary discussions about the Mining Royalties Bill, whose first draft is promised by next month, suggested the diamond industry would be the most heavily taxed, with a royalty of about 8% of revenue.
The whole mining industry is averse to a royalty on revenue rather than profit.
De Beers said that as the Royalties Bill would be implemented only in 2009, it would continue talks with government on the effect of the bill on De Beers. It was optimistic that "a sensible approach will be adopted."
Ponahalo Investment Holdings is well connected as it is headed by former Northern Cape premier Mannie Dipico, and includes former ambassador to the U.K. Cheryl Carolus and former Spoornet CEO Dolly Mokgatle.
The business partners in Ponahalo provided R10 million ($1.7 million) in capital. De Beers employees and pensioners were not required to contribute anything, and nor were the broad-based trusts representing disadvantaged women, disabled people and community groups.
Because the transaction is fully financed, there is no immediate cash value for the De Beers employees, and they will receive dividends only once the loans have been repaid.
Both employees and key employees will be restricted from selling or encumbering their shares until May 2014 so that De Beers can comply with the mining charter.
Note from Resource Investor: While De Beers' mining operations are primarily in South Africa, its diamond cutting, polishing and marketing operations reside in a separate entity and are not part of this transaction.
