| |
De Beers turns eye on Russia
David McKay
Posted: Tue, 07 Jun 2005
[miningmx.com] -- FRESH from resolving a four-year standoff with Angolan authorities, De Beers now hopes to make progress in Russia, a region that last year accounted for 18% – around US$2bn – of the world’s rough natural diamond production.
Progress in relations with the Angolan authorities was accelerated once De Beers dropped an arbitration case against Angolan diamond agency Endiaman. The dispute was partly based on a $50m outstanding loan dating from the Nineties and had almost attracted as much in unpaid interest.
Happily, the new agreement with Endiama sees the establishment of exploration and marketing joint ventures with De Beers. Crucially, Endiama will control both companies with a 51% stake.
And in resuming exploration for diamonds in Angola’s Lunda Norte province, De Beers must stick to the terms of Angolan law with regard to diamond prospecting. That means
it may only hunt down diamond-bearing kimberlites in land parcels of no more than 3 000sq km packages.
Having recently canvassed management opinion, De Beers MD Gary Ralfe says that there’s an outstanding strategic imperative to get more carats. He adds that Angola has a significant role to play, as it’s regarded as geologically prospective.
Last year, Angola produced rough diamonds worth $1,2bn, 11% of the world market. For a relatively underexplored region the country’s now as important as SA in the discovery and mining of diamonds.
With geologists ready to pack for Angola, De Beers now sets its sights on Russia. It controls Archangel Diamond Corp, which is in a legal dispute with its Russian partner, Arkhangelskgeoldobycha. At stake is a 40% holding in Verkhotina, a mine with diamonds worth an estimated $5,3bn. The dispute, which has been under way since about 1998, concerns the transfer of the mining licence to De Beers’ Russian-based
company.
Commenting on the strategy, Ralfe says: “There’s a greater degree of flexibility in De Beers and we want to converge rather than diverge. A big imperative is to define our strategic partners, as we have in Angola.
“Our immediate problem with Archangel is that we have the challenge of making partners out of confrontation and people who still hold title. It’s a challenge. Angola is the template. We hope to replace hostile arbitration with constructive negotiation and a huge challenge is to find the key that will turn that confrontation.”
De Beers has to find more carats. Its control of the world market has slipped from about 65% in recent years to around 50%, but now finds the diamond market approaching a massive supply deficit. It believes demand should increase by around 50% from the $9bn in 2002 to $14bn by 2012 – more than the combined productions of Botswana and Russia, the world’s largest producers.
“So where’s $3bn net coming from
by 2012?” asks James Picton, an analyst at stockbroker WH Ireland. “That’s the equivalent of almost another De Beers.”
It’s not easy finding diamonds. There are almost 5 500 kimberlites and less than 1% are commercially mineable. It’s also costly: roughly $500m is spent finding each known diamond mine.
The outcome is that diamond prices are expected to continue their upward momentum, an opportunity that De Beers cannot afford to miss. Picton says that Rough diamond prices increased more than 20% on average during 2003 and 2004 and must rise another 30% in real terms by 2012.
Higher grade mining news. Straight to the point. Straight to your mailbox. Subscribe now for miningmx's free news alerts.
| |
