De Beers May Need More Loans

RAPAPORT... De Beers May Need More Loans

Christopher LaFemina, an analyst at Barclays Capital, wrote a note concerning the drag that De Beers may exert on parent company Anglo American. He stated that Barclays is concerned that more shareholder loans may be necessary to keep De Beers afloat, adding that Barclays believes diamond demand and prices will only gradually recover after 2009 and will not get back to 2007 levels until at least 2012.

Debswana Resumes Production at Three Mines

Debswana, the joint venture between De Beers and the Botswana government, resumed operations at its Jwaneng, Orapa and Letlhakane mines after a two-month shutdown at the sites due to reduced demand for rough diamonds. De Beers said in a statement that 5,800 people have now returned to work.
 
Production at the Damtshaa mine and the Orapa No. 2 Plant is scheduled to remain suspended until the end of 2009. Debswana and the Botswana Mineworkers’ Union reached an agreement on retrenchment measures for the 570 employees who will be affected. Debswana will cut production by over 60 percent for the year to remain profitable through 2010.

Ontario to Open Its First Cutting Facility

HRA-SunDiamond will complete the first diamond cutting and polishing facility in Ontario, Canada later this year, according to the province’s ministry of northern development and mines. The ministry said that the factory, operated by SunDiamond’s subsidiary, Crossworks Manufacturing, will employ about 50 people and cut and polish an estimated $25 million worth of rough diamonds per year. Crossworks will receive its rough from De Beers Canada’s Victor Mine through SunDiamond, a Diamond Trading Company (DTC) Canada sightholder.

Rio Tinto’s Diamond Production Soars
 
Rio Tinto reported that its diamond production rose 67 percent in the first quarter of 2009, boosted by higher grades at its flagship Argyle mine in Australia. The company mined 5.5 million carats of diamonds in the three months that ended March 31, 2009, compared with 3.3 million carats in the same period of last year.
 
The increase was spurred by production at Rio Tinto’s fully owned Argyle mine, where output doubled to 4.4 million carats. The growth is not expected to continue, however, as Rio Tinto slowed the Argyle underground mining project in March to critical development activities status.
 
Production at Rio Tinto’s 60-percent-owned Diavik mine in Canada remained flat at 1 million carats in the first quarter. Rio Tinto also owns 77.8 percent of the Murowa diamond mine in Zimbabwe, where its share of production fell 40 percent to 31,000 carats during the quarter.

Harry Winston Posts Loss

Harry Winston Diamond Corporation reported that sales in its fourth quarter of fiscal 2009 fell 37 percent to $118.4 million and the firm recorded a loss of $73 million, compared with profits of $90.4 million one year ago. Rough diamond sales in the quarter that ended January 31 dropped 50 percent to $51.1 million, while retail sales sank 21 percent to $67.3 million.
 
Companywide sales for full fiscal 2009 fell 10 percent to $609.2 million and profits dropped 34 percent to $70.1 million. Rough sales were down 21 percent to $328.2 million, but Harry Winston retail reported that jewelry sales grew 6 percent to $281 million.
 
Robert Gannicott, company chairman and chief executive officer (CEO), stated that with the completion of the $150 million Kinross Gold Corporation investment, the firm had paid down its mining segment debt. Kinross subscribed to 15.2 million treasury shares from Harry Winston at $3 per share or approximately 20 percent of the company’s issued equity post-transaction.
 
The firm’s Diavik Diamond Mine has scheduled two six-week production shutdowns, during which the mine will be placed on care and maintenance, from July 14 through August 24, 2009 and December 1, 2009 through January 11, 2010.


Metalex Finds Kimberlite in Angola, Diamonds in Ontario

Metalex Ventures Ltd. announced that it discovered a kimberlite pipe at the head of Angola’s Quango River. The pipe was modeled at 0.3 miles (500 meters) by 0.4 miles (600 meters). The firm plans to send kimberlite crate infill and primary kimberlite to C.F. Minerals Laboratory as soon as possible to be analyzed for diamonds. Metalex also reported that it presented lab results from its T1 and U2 kimberlites in the James Bay lowlands in Ontario, Canada to “three of the world’s largest mining companies” and that a joint mining venture may result. A single 134.6-kilogram sample of a 5.6-centimeter core in T1 recovered 102 diamonds, which firm spokespersons said is more than seven times as abundant as De Beers Victor mine. Based on test results from five core holes, the U2 kimberlite’s diamond contents and qualities appear similar to the Victor mine, the spokespersons stated.

Gem Diamonds in the Red

Gem Diamonds reported a net loss of $552.2 million in 2008, which included several one-time exceptional items, compared with profits of $40.5 million one year earlier. Before writing down the exceptional items, the company’s net loss stood at $31.3 million. Gem posted an impairment charge, the largest of the exceptional items, of $546.5 million related to the suspension of operations that it decided were not economically sustainable, according to a company statement. However, revenues rose 94 percent to $296.9 million. Gem holds a 70 percent stake in the Letseng mine in Lesotho, owns the Ellendale mine in Australia, holds an 80 percent stake in the Cempaka alluvial mine in Indonesia and has operations in the Democratic Republic of the Congo (DRC), the Central African Republic (CAR), Botswana and Angola.

Leviev Sees Rough Demand Jump

Diamond mogul Lev Leviev told journalists that demand for rough stones rose 50 percent in March compared with February, TheMarker reported. He added that rough prices grew 10 percent during the month. Leviev’s LLD Diamonds saw its exports from Israel drop 20 percent in 2008, but it was still the country’s top diamond exporter.

De Beers to Reduce DRC Exploration

De Beers is planning to scale back its exploration operations in the Democratic Republic of the Congo (DRC) due to the weak economic environment, according to Marie-Chantal Kaninda, head of administration for De Beers in the DRC. A company statement noted that a reduced team will continue limited work programs. De Beers has been prospecting in the DRC since 2005. Its programs there include the Kasai Oriental and a joint venture option agreement with Bugeco.

BHP Billiton’s Diamond Production Soars

BHP Billiton’s diamond production shot up 53 percent in the three months that ended March 31, which the company attributed to an increase in the amount of ore processed and the higher grades achieved at its 80-percent-owned Ekati mine in Canada. The mining giant’s share of production at Ekati grew to 951,000 carats during the quarter from 620,000 carats during the same period in 2008. The amount of ore processed at the mine increased 29 percent to 1.4 million tons (1.3 million metric tons).

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