De Beers endures tough times in Namibia

Frik Els | Wed, 16 Sep 2009 10:32

[miningmx.com] -- AFTER THE BANNER YEAR of 2008 – when the De Beers' joint venture Namdeb produced more than two million carats of diamonds for the third year in a row – first half 2009 has proven devastating.

Production stopped for four months in the first half of the year and 600 workers lost their jobs – most of them at the Orange River operations, the centre of Namdeb’s land-based operations.

The collapse in diamond demand – both at cutting centres and at the retail jewellery level, particularly in the United States, which accounts for more than 50% of Namdeb’s customers – was behind the decision to halt production. Estimates for total production this year is less than one million carats.

Namdeb is a 50:50 joint venture between De Beers and Namibia’s government established in 1994. Namdeb also owns 30% of De Beers Marine, which mines the company’s offshore Atlantic concession. Namgem is a wholly owned subsidiary of Namdeb. Based in Okahandja, it cuts and polishes diamonds.

Group financial manager Markus Lubbe said the company had to make a call at the start of the year about production and the 600 people who left were all on voluntary retrenchment packages.

“There’s no plan to rehire any of the 600 workers now that we’re starting production again. The profile of land production is changing and the restructuring programme was in place last year already. We were going to be at this employment level in 2010 – the crisis just brought the programme forward," he said.

"It’s given us a chance to increase our productivity across all levels of the organisation. For example, we had 11 levels of reporting that we brought down to seven. We were also able to bring in more resources: we’ve actually been able to increase the life of onshore mine because of that. So it hasn’t been all bad.”

In total, Namdeb’s workforce has been reduced from 3 000 to 1 600 and Lubbe says N$1bn in costs have been taken out of the business. During the production holiday workers were on full pay.

”We’ve been mining on land for 70 years, so since 1994 we’ve been moving to marine mining. With new technology in research and development we’ll be able to mine in the so-called surf zone. We’re exploiting so-called pocket beaches. But everything is more capital intensive with dredging, etc. We’ve been at 50:50 sea and land split for the past two years,” says Lubbe.

Namdeb isn’t planning to increase production even though the market seems to have bottomed out -- Lubbe says it’s too early to make that call -- after the deep slide it entered into from around October/November 2008.

It has also been able to scale down stocks. As for the royalty tax regime, Lubbe says Namdeb has been paying since its inception and, despite the controversy about Namibia’s new taxation regime, it’s more of a case of the rest of the industry being brought into line.

Like the rest of the industry “Namibianisation” is an issue for Namdeb. However, thanks to its government shareholding it can really be considered a broad-based black economic empowerment company. On top of that only around 30 people out of the total workforce are expat workers.

Namdeb achieved turnover of N$5,7bn in 2008 and profits of just under N$500m. Longer term, Lubbe sees a bright future for the industry.

“Consumer demand remain strong and as economic conditions improve emerging demand (from the East and the bridal market), coupled with the decline in long-term supply, will underpin growth in diamond prices,” he said.

The fact Namibia produces some of the world’s highest quality diamonds should also help.