[miningmx.com] — DE BEERS had restructured its debt with Ponahalo Investments, the black-owned group that has a 26% stake in the diamond group’s South African business unit, De Beers Consolidated Mines (DBCM).
This was after a slump in cash flow amid a decline in diamond sales saw De Beers follow a “disproportionate dividend policy” with Ponahalo Investments in which it paid the empowerment group a dividend, but did not extend it to other shareholders which include Anglo American, the Oppenheimer family and the Botswana government.
De Beers and its shareholders approved continuation of dividends to Ponahalo Investments or face the possible collapse of De Beers empowerment structure, the terms of which were unveiled officially at a cost of R3.7bn in April 2006 to much fanfare.
That’s because Ponahalo uses the dividend flow from De Beers to pay interest and debt it raised to buy the 26% stake in DBCM. It was also supposed to use R10m per year of the dividends to reinvest in other business sectors and diversify its risk. Standard Bank, the South African banking institution, is Ponahalo Investment’s counter party.
Stuart Brown, chief financial officer for De Beers, told Miningmx the group could not continue with the disproportionate dividend policy because it created expectations among other shareholders the dividends would be caught up. There would also be interest to pay on the unpaid dividends.
So once having restructured the group’s balance sheet earlier this year, De Beers agreed to guarantee 57% of the pref shares Ponahalo Investments holds, at the DBCM level, and which carry a total value of R3.6bn, said Brown.
There are four different classes of pref shares of which one class are being amortised and which Standard Bank has agreed to roll over in return for De Beers guaranteeing Ponahalo’s debt, he said.
The stakes are high for De Beers’ empowerment deal with Ponahalo because some 35% of the firm is owned De Beers South African employees and pensioners through a trust.
A further 15% of Ponahalo is owned by current and future key employees deemed crucial in helping develop the business. The remaining 50% of Ponahalo is owned by Ponahalo Investment Holdings of which the largest holding is the 18% owned by Manne Dipico, a former provincial premier.
Brown keen on job
Brown, who also declared himself interested in being appointed CEO of the diamond group following incumbent Gareth Penny‘s announcement he was to resign, said net debt of about 43% could be handled.
Improved cash flow was expected to help it cut debt further but it would be tough to reach the internal EBIT goal of $1bn as the diamond market seemed to be softening.
“It would be difficult to do,” said Brown. “We made $586m in the first half EBIT but it really depends on the market. We’ll have some see-through after the seventh sight,” said Brown of an upcoming sale of diamonds to De Beers’ sightholders.
It’s between June and September that the sightholders start buying rough diamonds for the Christmas season which has traditionally seen a spike in sales.
Earlier on Friday, Penny told Reuters that he expected to officially leave De Beers in the fourth quarter whereafter Brown and chief commercial officer, Bruce Cleaver, would become joint acting CEO of De Beers.
Said Brown of taking the CEO position: “If you’d asked me about this position a couple of months ago I would have answered differently. I have always enjoyed working with Gareth.
“But yes I would be interested in the position. It is something that I could see myself doing,” he said.
It has also been suggested that patriarch of the Oppenheimer family, Nicky Oppenheimer, might press for his son Jonathan to succeed Penny, but market sources believe this unlikely to be accepted by all shareholders.