Gareth Penny, managing director, De Beers
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De Beers exits second SA mine
Allan Seccombe
Posted: Fri, 09 Feb 2007

[miningmx.com] -- DE BEERS and the South African government will form a new diamond company, which could be listed on the JSE, in a move that appears to herald a new way for De Beers in dealing with its marginal assets in the country.

De Beers MD Gareth Penny made it clear during a presentation on the group’s annual results that the company is reviewing its assets that do not fit its portfolio and is looking at creating opportunities for smaller players.

It is not hard to see that De Beers is looking for elegant ways to exit its marginal mines and at the same time win it goodwill from the South Africa government with which it has had a rocky relationship in the past.
opportunities for other or smaller players
De Beers has also offered the use of its management, technical expertise and assets to the Department of Minerals and Energy for three years to set up the State Diamond Trader.

De Beers is not under any real pressure to do further empowerment deals, having concluded a R3.7bn transaction in April to sell 26% of its South African division to Ponahalo.

South African diamond output fell to 14.6m carats in 2006 from 15.2m carats in the previous year.

“We believe there are opportunities for other or smaller players to take advantage of things that may not have a strategic fit with what we are doing,” Penny said.

“We will continue to look for these kind of innovative opportunities to ensure all the mines we are mining are strategically and financially aligned with our own objectives,” he said.

This is precisely what is happening with the marginal Namaqualand Mines asset. It is one of the four unprofitable mines out of the six De Beers has in South Africa.

Apart from the Namaqualand transaction, De Beers has also sold its 42% stake in the Fort a la Corne joint venture to Shore Gold for $155m.

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The million-carats a year Namaqualand mine is to be combined with the embattled Alexkor operation that has limited land-based mining and draws roughly three quarters of its revenue from shallow sea mining.

Alexkor produced 49,577 carats in its 2005 financial year against a target of 90,000 carats.

The transaction will be concluded in 2008. De Beers will not be the operator of the company and could dilute its stake in the new company.

The other unprofitable South African mines are The Oaks, Cullinan and Kimberley. De Beers Consolidated Mines, the South African arm of De Beers, is undergoing a restructuring exercise to restore margins.

De Beers has disposed of its Koffiefontein operation, which was bought by Petra Diamonds and it is rationalising its operations at the treatment plant in Kimberley.

Ross Gardiner, an analyst with JP Morgan said Alexkor had important offshore concessions that would boost the Namaqualand operations.

“It’s great to hear this new company might come to the market,” he said.

An independent party will evaluate Namaqualand and Alexkor as part of the next step of their amalgamation.

Value will be unlocked by putting the two assets together because they can share plant, land and infrastructure. The two companies share a border.

“It will give the West Coast diamond industry a new lease on life,” De Beers chairman Nicky Oppenheimer said.

The first step in the transaction sees De Beers transfer 20% of Namaqualand Mines to the Department of Minerals and Energy.