JOHANNESBURG (I-Net Bridge) -- Diamond mining giant De Beers and South Africa's Department of Minerals and Energy (DME) on Friday announced the formation of a new stand alone diamond mining company.
In terms of the deal, announced in Cape Town on Friday, following full consultation with affected parties, the West Coast operations of Alexkor and De Beers Consolidated Mines' (DBCM) Namaqualand Mines will be amalgamated into a new, stand alone diamond mining company.
"This independent and empowered company will be well-positioned to capitalise on synergies that exist across both operations and will realise the full economic potential of the West Coast diamond mining industry. As a first step in this process, De Beers will be issuing, through a special purpose vehicle, a 20% stake in its Namaqualand Mines to the DME," the parties said in a statement.
The agreement was signed in Sonjica's office at Parliament - soon after President Thabo Mbeki delivered his State of the Nation address - by Oppenheimer and the minister on Friday. They were flanked Minerals and Energy director general Sandile Nogxina, De Beers deputy chairman Manne Dipico and managing director David Noko.
"Throughout our global operations, De Beers' competitive advantage is in our ability to engage in real and lasting partnerships with governments, ensuring that diamonds continue to help diamond producing countries, like South Africa, to build a more prosperous future for themselves," said Nicky Oppenheimer, Chairman of the De Beers Group.
The ground breaking agreement heralds a new era of cooperation aimed at creating an even more empowered and sustainable diamond mining and exploration industry in South Africa.
It is expected that the process of consolidating these assets will be concluded in 2008 and thereafter the option of a listing may be fully examined by the operator of this new company.
It is not De Beers' intention to be the operator of this company and De Beers will dilute its stake over time, it said.
As a first step in this process, De Beers will be issuing, through a special purpose vehicle, a 20% stake in its Namaqualand Mines to the department of minerals and energy, the parties said in a statement.
Oppenheimer said: "The 20% will come across at no value. One must stress that this is part of a process... of the whole deal. What the ultimate shareholding deal will depend on is the value of the assets which will take some time."
"This is going to be a company in its own right... De Beers will be a shareholder. We intend over time to dilute our stake, maybe through seeking a public quote. The important thing this company is going to be an independent company. It has no name yet... I like the idea of West Coast Diamonds."
Oppenheimer added the agreement was "important and innovative" and demonstrated that the De Beers and the department's partnership could "think outside the normal box."
Asked by I-Net Bridge if it were creeping privatisation or nationalisation, Oppenheimer said: "I would hope creeping publicisation," he quipped. "This is the bringing together of assets not in the public domain at the moment."
Furthermore, as part of the agreement, De Beers will, with appropriate firewalls, make its management, technical expertise and assets available to the DME for the next three years to facilitate the start up of the State Diamond Trader.
This further cements De Beers' commitment to play a constructive leadership role in the diamond industry by encouraging industry growth and facilitating broad BEE ownership and competition within the diamond sector in South Africa.
De Beers remains focused on implementing its R2.2 billion ($306.9 million) capital investment programme in building new mines in South Africa.
SASA (South African Sea Areas) Project and Voorspoed Mine in the Free State are expected to be operational in 2007 and 2008 respectively.
Other capital investments in growth projects include significant investment in its world class assets, Finsch and Venetia Mines, as well as funding of new exploration activities to find the diamond mines of the future in South Africa.
The signing of the agreement was hailed as "an exciting day" by Minerals and Energy Minister Buyelwa Sonjica.
"This announcement represents an important step forward for the communities along the West Coast, the people of South Africa and De Beers who will all benefit from a consolidated mining operation founded in the spirit of partnership," said Sonjica.
The Minister further stated that she appreciates the spirit that the DME and the De Beers Group are building for the success of the diamond industry in South Africa.
Sonjica believes that this will have a positive impact on the South African diamond market.
"In addition to our growth strategy, we intend to accelerate our transformation drive and continue to contribute to the development of a sustainable diamond industry in South Africa. This agreement will provide real opportunities for a new BEE company in the diamond sector to help meet Government's aspirations for a transformed South African
diamond industry," said David Noko, MD of DBCM.
De Beers 2006 Sales Decrease
De Beers reported on Friday a 6% decline in sales to US$6.15 billion for the year ended December 2006 from $6.539 billion in 2005. De Beers noted that the 2006 sales were the second highest on record.
De Beers attributed the 6% decline to reduced Russian supply available to the DTC, and the continued challenging environment in the wholesale market for rough diamonds, where a lack of liquidity, margin pressure and increased financing costs impacted pipeline demand.
"However solid consumer demand for diamond jewellery continued in 2006, with China and India reporting strong sales growth and the USA growing in line with GDP," it said.
Earnings before interest, tax, depreciation and amortisation - at $1.232 billion, was down 12% from 2005's $1.403 billion, as a result of lower level of DTC sales and increased exploration and development costs.
Net earnings increased by 32% to $730 million due to the sale of 26% of DBCM to Ponahalo, a broad-based Black Economic Empowerment consortium, and the sale of the group's interest in the Fort `a la Corne joint venture in Canada.
Underlying earnings at $425 million are $277 million lower than 2005, after adjusting for the impact of the Canadian tax credit, due to reduced margins in the diamond account, the impact of increased finance charges and the dilution in earnings caused by the sale of 26% of De Beers Consolidated Mines (DBCM).
Anglo American plc [Nasdaq:AAUK] will report underlying earnings of $227 million for the year ended 2006 from its investment in DBI.
De Beers said its family of companies achieved record production in 2006 of 51 million carats - from 49 million in 2005. Debswana produced a record 34.3 million carats from 31.9 million in 2005 and Namdeb production exceeded two million carats, compared with 1.8 million carats in 2005, for the first time since 1977, with land and sea each contributing over one million carats.
In South Africa, production totalled 14.6 million carats, down from 15.2 million carats in 2005, from six mines in the DBCM Group.
In June last year, DBCM announced that it had been granted a new order right to mine for diamonds at the Voorspoed Mine, near Kroonstad in the Free State.
This will be the group's first "greenfields" mine since Venetia. The mining vessel Peace In Africa, has arrived in Cape Town and, once commissioned, will commence mining off the west coast of South Africa in Q3 2007, it noted.
In Canada, De Beers is on target to start production at the Snap Lake mine in North West Territories in October 2007 and at the Victor mine in Ontario in Q4 2008, it said.
"When all four are in full production they will contribute approximately 3.3 million carats and US$700 million to De Beers' annual production capacity," it noted.
Looking ahead, de Beers said the outlook for further growth in retail diamond jewellery sales remains positive, with India and China likely to be the leading growth markets, and the US continuing its five-year growth trend.
"While DTC sales are likely to be constrained by availability in 2007, due to the reduction in Russian purchases as agreed with the EU, the De Beers Group will benefit from bringing new production on-stream towards the end of Q3," it said.
De Beers will focus on implementing its new vision of 'maximising the value of its leadership position'. This includes, in addition to new production, reviewing assets that do not fit the De Beers portfolio criteria, focussing exploration on the most prospective areas, continuing to improve cost efficiency, and investing in DBDJ and the Forevermark marketing programmes, it concluded.
(c) 2007 I-Net Bridge. All rights reserved. I-Net Bridge, Tel: +27-11-280-0644, newsdesk@inet.co.za.
