JOHANNESBURG (miningweekly.com) – Diversified miner Anglo American will take up an additional 10% shareholding in De Beers following the decision of the Botswana government to pass up its pre-emptive rights to acquire more than 15% in the world’s largest diamond-mining company for $1.3-billion.
Anglo will now have 85% of De Beers instead of the 75% if Botswana had exercised its rights.
When Anglo announced late last year that it would buy the Oppenheimer family’s 40% interest in De Beers for $5.1-billion cash, Anglo CFO Rene Medori said that the company’s $3.5-billion undrawn facility and $2.2-billion cash available outside of South Africa would be used to fund the deal, which Anglo now expects to be completed during September or before.
The Anglo deals with the Oppenheimer family’s CHL Holdings and Centhold International gave Botswana the right to increase its interest in De Beers from the current 15% to 25%, but doing so at this time would have run contrary to its stated goal of reining in expenditure and lessening its heavy dependence on diamonds.
The R1.3-billion price, which is close to 10% of Botswana’s gross domestic product, would also have negated its plan to eliminate Botswana’a budget deficit in the next 18 months.
Minerals Minister Dr Ponatshego Kedikilwe described Botswana’s relationship with Anglo as “excellent” and said the country looked forward to sharing in De Beers’ “highly attractive long-term prospects”, and CEO Cynthia Carroll said Anglo looked forward to strengthening what she described as its “innovative” partnership with the Southern African country.
De Beers and Botswana have a ten-year agreement to sell the diamonds produced by Debswana, their 50:50 joint venture.
No other diversified mining major comes close to what Anglo will have in De Beers’ 39% global diamond market share. The diamond assets of both Rio Tinto and BHP Billiton have a small 6% market share. Alrosa of Russia has the second biggest market share of 23%.
Diamond mining accounts for a high 41% of the Botswana government’s revenue, which has prompted the country's current diversification drive.
The global financial meltdown saw Botswana’s diamond production plummet to 17.7-million carats in 2009 from 32.6-million carats in 2008 and employment in cutting and polishing fall from 3 267 in 2008 to 2 183 in 2009, rising back to 3 297 in the first quarter of 2012.
The Botswana government will be buying 10% to 15% of the production of Debswana and selling those diamonds itself through the Okavango Diamond Trading Company as a verification exercise.
"To us, that leverage is extremely important because we won’t be depending solely on De Beers to do the marketing,” Kedikilwe told Mining Weekly Online earlier this year, when he added that a mining investment company had been established to manage Botswana’s investment in mineral resources on a daily basis.
Because Botswana’s large but ageing diamond mines are yielding declining revenues, the country is racing against time to find revenue substitutes through amendments to Botswana’s Income Tax Act and Value Added Tax Act that lean towards investor friendliness.
“It is through this effectiveness that we are able to lure, to entice and to goad companies to search for nondiamond minerals,” Kedikilwe told Mining Weekly Online.
While the US is expected to continue to provide 40% of world diamond demand, India, China and the Gulf are likely also to represent close to 40% of global demand by 2015.
The country leading the charge is India, where demand is growing at between 20% and 30% a year.