Kinross to Invest in Harry Winston

RAPAPORT... Namdeb Temporarily Stops Production
The Namibian government agreed that Namdeb, its diamond-mining joint venture with De Beers, should halt production for three to four months because the global economic downturn has slashed demand, Hilifa Mbako, a Namdeb company spokesperson, stated. He added that the company has had no sales since January. The decision affects Namdeb’s MA 1, Orange River and Elizabeth Bay mines, while the company’s marine and pocket beach operations will continue to produce diamonds, albeit at lower levels, spokesperson Ndeshi Hangula-Shikwambi explained to Rapaport News.
Mbako said that employees would be given paid leave, but trade unions disputed this claim, saying it was far from certain that workers would receive their salaries. The company has been cutting production since December when mining was scaled back to one shift per day from the usual double shifts and the firm instituted voluntary layoffs.
— Additional reporting by Dialog NewsEdge.

Kinross to Invest in Harry Winston
Kinross Gold Corporation agreed to invest $150 million to acquire an indirect interest in the Diavik Diamond Mine and a direct equity stake in Harry Winston Diamond Corporation. RBC Capital Markets analysts had previously slashed their one-year target for Harry Winston from $13 to $5 per share and lowered their rating from “Outperform, Above Average Risk” to “Sector Perform, Speculative Risk.”

West African Diamonds Begins Mining in Guinea
West African Diamonds (WAD) announced that it will begin diamond production at its Bomboko alluvial mine in Guinea this month and sell its first parcel in late April. Initial production will be at a rate of 7,716 tons (7,000 metric tons) of gravel a month, according to a company statement. At full production, the mine is projected to produce 19,842 tons (18,000 metric tons) of gravel per month.

James Campbell, deputy chairman of WAD, explained that the firm decided to start production despite the current weak economic environment because: the company needed to maintain the terms of its mining license; the timetable for development was approved in October; and the cost of production is lower than the mine’s projected revenue stream. Campbell added that the price of diamonds in western Africa has been less affected by the economic crisis than other sources of rough.

Lucara Agrees to Buy Motapa
Lucara Diamond Corp. agreed to acquire Motapa Diamonds to focus on diamond exploration and development projects in Africa, the companies announced in a joint statement. Under the agreement, Lucara will acquire all outstanding shares of Motapa, exchanging each Motapa share for 0.9055 shares of Lucara. Motapa shareholders will hold 35 percent of the combined company.

This unified firm will focus on consolidating its ownership of the Mothae diamond development project, located next to Gem Diamonds’ Letseng diamond mine in Lesotho. The deal was approved by the boards of directors of both companies, but awaited Motapa shareholder approval at press time. A definitive agreement is expected to be signed by April 23.

Namaqualand Won’t Close
Though talks between Trans Hex and De Beers Consolidated Mines (DCBM) regarding a possible acquisition of DCBM’s Namaqualand mines were terminated, Lynette Gould, De Beers spokesperson, stated that the company plans to keep Namaqualand open, though at a reduced level. Gould explained that the company will try to sell the mines again when market conditions improve.

Australia’s Diamond Trade Drops
Australia’s diamond exports declined 11 percent to $107.3 million (AUD 163 million) in the second fiscal quarter that ended December 31, 2008, the Australian Bureau of Agricultural and Resource Economics (ABARE) noted in its quarterly minerals statistics report. The country’s diamond imports in the December quarter fell 16 percent to $66.5 million.

Production declined 11.7 percent to 5.4 million carats, all of which were exported. Total production in 2008 fell 18.5 percent to 15.7 million carats.

Zimbabwe Pledges Mining Funds Amid Controversy
Partnership Africa Canada (PAC) spokespersons called upon the Kimberley Process (KP) to suspend Zimbabwe and asked the United Nations (UN) Security Council to place an immediate embargo on diamonds from the country, stressing that diamond smuggling has become rampant, with dozens of diamond miners murdered by the military. Two weeks later, KP representatives arrived in Zimbabwe to begin a fact-finding mission.
The country’s government is preparing to jump-start commercial diamond mining at its Chiadzwa fields by funding new mining equipment for the state-run Zimbabwe Mining Development Corporation (ZMDC), according to the nation’s Herald newspaper. Obert Moses Mpofu, Zimbabwe’s mining development minister, dissolved the board of directors of the state’s Minerals Marketing Corporation of Zimbabwe (MMCZ) and the ZMDC, stating that their three-year terms had expired, the Herald reported.*

Debswana Temporarily Halts Operations
Debswana, the world’s biggest diamond-producing company by value, shut down operations from February 25 until April 14 and suspended production at two mines in Orapa and Damtshaa for the rest of 2009. Esther Kanaimba, a spokesperson for the 50/50 joint venture between the government of Botswana and De Beers, said that the changes will affect 580 workers, who the firm will redeploy within the company or offer early retirement and voluntary special leave incentives. According to Jack Tlhagale, secretary general of the Botswana Mine Workers Union (BMWU), workers’ representatives and Debswana’s management are engaged in retrenchment meetings to find ways to cushion employees.

Debswana employs approximately 6,300 workers, about 95 percent of whom are local staff. The Boteti community will bear the brunt of the cuts and may also lose benefits from corporate social responsibility (CSR) programs that provide services such as hospitals, road improvement and electricity for schools.

Botswana’s diamond exports fell 44 percent to $260.7 million (BWP 2.1 billion) in the three months that ended in December 2008, the Botswana Central Statistics Organization (CSO) reported. Moody’s Investors Service lowered its outlook on the country’s key foreign currency ratings to “stable” from “positive,” explaining in its report that the change reflects a potentially lengthy downturn in the diamond industry. Rough diamonds are the country’s largest industry, contributing 50 percent of public revenue, 33 percent of gross domestic product and 70 percent of foreign exchange earnings.
*Additional reporting by Dialog NewsEdge.

DiamonEx Sells Botswana Subsidiary
Australia-based DiamonEx agreed to sell 80 percent of its Botswana subsidiary, DiamonEx Botswana Limited (DBL), which owns the Lerala diamond mine, to Fleming Asset Management Botswana (FAMB). DiamonEx will also transfer its diamond exploration tenure in the U.S. to FAMB. The deal will relieve DiamonEx of approximately $16 million (AUD 23 million) in loans that it made to DBL, while FAMB will take over DiamonEx’s obligations under convertible bonds equivalent to $6.8 million (BWP 50 million). DiamonEx had been seeking investors for DBL since placing it under judicial management in February.

Target Resources, Bonaparte Exit Diamond Mining
With rough diamond prices at half of what they were in mid-2008, Target Resources placed its diamond mining activity in Sierra Leone on hold to focus on alluvial gold projects, according to its company note to investors. An operation is also being enacted to recover gold from the slimes discharged during diamond production in Kono.

Similarly, Bonaparte Diamond Mines suspended its diamond mining and exploration activities in South Africa and shifted its attention to managing exploration for its joint-venture marine phosphate project in Namibia. The decision was based on the drop in rough diamond prices over the past three months and lower-than-expected production at the firm’s Savanna Mine, the company explained in a note to the Australian Securities Exchange (ASX). Bonaparte recently posted a net loss of $1.5 million in the fiscal half-year that ended December 31, 2008, up from a loss of $3.1 million in the same period of 2007.

Article from the Rapaport Magazine - April 2009. To subscribe click here.