De Beers’ Penny quits firm

[] — GARETH Penny who during five years as CEO of De Beers presided over profound changes in the way the Anglo American-owned group operated, said on Friday he would quit the company “in the coming months”.

The announcement comes amid a resounding return to financial health for De Beers in the first half of the 2010 financial year following a dismal time in 2009 in which it slashed output and waded into its cost base lopping off a quarter of total staff.

Earnings before interest, tax, depreciation and amortisation doubled to $762m in the six months to end-June while the board confirmed complex rescheduling and shuffling of debt had eased the pressure on its balance sheet.

The profit improvement was owing to far improved economic conditions in which consumers returned to jewellers shops again, particularly in India and China, and the cutting industry began the process of restocking inventories.

Sales of rough diamonds to the DTC, De Beers trading company based in London, totalled $2.6bn including attributable sales from joint ventures the group operates.

De Beers, which also mines diamonds as well as selling them to manufacturers, saw production increase to 15.4 million carats. Carats recovered in the first half of last year totallled only 6.6 million following severe mine cutbacks.

Commenting on the resignation of Penny, De Beers chairman, Nicky Oppenheimer said Penny had positioned the firm for strong revenue growth.

Yet De Beers acknowledged the global economic recovery remained “fragile” especially in the US, Japan and Europe such that it viewed the remainder of the 2010 financial year “with caution and measured optimism”.

Said De Beers: “With most restocking activity by the trade now largely completed, further demand growth is dependent on increases in consumer demand, and De Beers remains encouraged by the strength of demand in the emerging markets of Asia, particularly China and India.”

Penny resignation unsurprising

The market had been aware of speculation over the past six months that Penny was being asked to step aside so that fresh management could take the company forward.

This was partly linked to some expectations among top-rated analysts that De Beers, which is 45% owned by Anglo American, was considering relisting after being taken private by the Oppenheimer family in 2000.

Both De Beers and Anglo American have told Miningmx that a listing is not on the horizon.

Speaking to Reuters on Friday, Penny said: “Our shareholders have indicated no desire at all to IPO this business. There are not any plans being worked on and that is the bottom line”.

Sources close to the situation told Reuters in May that De Beers’ owners, including mining group Anglo American, had been considering a possible re-listing of the firm, but felt the time was not right yet.

Penny declined to comment on whether an initial public offering was a future option, saying he had no further information to provide.

In addition to Anglo American, De Beers other shareholders are the Oppenheimer family (40%) and the Botswana government which has a 15% stake.

Said Oppenheimer regarding Penny’s plan to resign: “Gareth has made an enormous contribution to De Beers throughout his 22 years with the company and, most recently, five years as CEO.

“He has been a passionate and effective leader during some of the most difficult challenges De Beers has faced in its long history.”

De Beers said the process to find a replacement for Penny was underway during which time the group’s chief financial officer, Stuart Brown, and Bruce Cleaver, its chief commercial officer, would serve as joint acting CEOs.

There were other changes in the De Beers directorate with Sir Chips Keswick and Oppenheimer family member, Anthony Oppenheimer, both resigning from the board after 17 and 30 years experience respectively.

One of De Beers most recent challenges was its balance sheet where debt and third party debt was $3.2bn and $3.09bn respectively.

In its results commentary, De Beers said net debt now amounted to $1.98bn while third party debt was reduced to $1.87bn.

However, the group is not completely out of the woods with gearing on total debt still relatively high at 42.5% compared to 57.9% in December 2009.

“It’s still a bit high, but much better than previously,” said RBC Capital Markets diamond analyst, Des Kilalea of De Beers’ total net gearing.

“Also remember that De Beers will be generating a lot more cash flow this year, possibly as much as $1bn EBIT if the markets are kind to it,” he said.