World number-one diamond miner De Beers is “very close” to completing its black economic empowerment (BEE) deal at its South African diamond-mining operations, De Beers group MD Gary Ralfe said on Thursday as part of a presentation to investors.
Transformation in South Africa is about changing the society from the old one formed out of apartheid society to one that reflects the demographics of the country, he added.
The group aspires to be part of that reality, and the appointment of David Noko, a black South African, as MD of De Beers Consolidated Mines (DBCM) is part of that, Ralfe said.
DBCM is preparing for the BEE deal, he added.
The governments of South Africa, Botswana and Namibia are all pushing for greater beneficiation of diamonds in order to create more jobs, Ralfe said.
Within South Africa, the South African government is seeking greater access to rough diamond demand from BEE concerns.
The government is also looking to reimpose a 15% export duty for diamonds exported from South Africa, Ralfe said.
About 50% of the value of DBCM’s production cannot be polished in South Africa and this value is about $0,5-billion — 15% export duty on this amount would be about $75-million, he observed.
The export duty would place De Beers’ South African marginal diamond mines in jeopardy, Ralfe said.
De Beers hopes to resolve its proposed deal with Russian diamond miner Almazy Rossi Sakha (Alrosa) at the European Commission before the end of this year, Ralfe added.
The company is concerned about the “hot” labour environment in the global mining industry, as the group’s skilled personnel may be poached, he said.
End of a chapter
Ralfe said De Beers is set to move from its “Chapter One” phase, which ran from 1998 to date, to its “Chapter Two” phase.
Chapter One ran from 1998 when De Beers moved away from being managed by global resources group Anglo American (Anglo) to being managed by its own personnel, and this was followed by the group’s privatisation in 2001, when the group was delisted from the JSE, Ralfe said.
Anglo has a 45% stake in De Beers.
Chapter One also saw De Beers’s share price following a pedestrian path, when tracked against the Dow Jones Industrial Average, Ralfe said.
The market saw De Beers as “ex-growth” and “pedestrian”, and the group operated as a cartel, a monopoly in diamonds and tried to control supply, he added.
“We realised that we were no longer creating value,” Ralfe said. De Beers was a company that “destroyed value over a decade”, he added.
Part of the reason to change the group’s business model to driving demand was aimed at complying with competition law worldwide, Ralfe added.
In 1999, De Beers changed from a supply-control business to a demand-driven business, he said.
The group’s implied enterprise value at the time of its delisting in June 2001 was $9,3-billion.
The conclusions of De Beers’s Chapter One, on the supply side, is that its share of world production, by value, has been on the decline, Ralfe said.
De Beers’s share of global diamonds is currently standing at below 50%, down from 60%, mainly due to the sell-down of the group’s stockpile of diamonds, he said.
Efficiency and productivity
There are also challenges in terms of the group’s efficiency and productivity.
On the demand side, there have been significant improvements in terms of De Beers’ management of pipeline efficiencies, Ralfe said.
The group has also made significant stock reductions during Chapter One; the group’s marketing arm, the Diamond Trading Company (DTC), has seen a decline in its market share; and price as well as sales growth has been modest, he added.
The group’s financial performance is strong with regard to cash flow, Ralfe said.
A key part of De Beers’s new business plan, or its supplier-of-choice programme, is to increase marketing spend substantially from very little previously.
De Beers has settled its case with the United States Department of Justice, but still faces the possibility of civil lawsuits in the US, which the group will have to settle in order to get back into the US, Ralfe noted. — I-Net Bridge