De Beers' final denouement?
Charles Wyatt*, 11 August 2008
MANY years ago, when I was working at the Financial Times, there was a file on a colleague’s desk that grew fatter by the week. “What’s that?” I asked one day. “That’s my pension. One day I’m going to write a book about De Beers,” he explained. “It’s like the Mafia, only worse. Either the book will make a fortune or they'll pay me a lot not to publish.”
“Maybe they will make sure that you have a very short retirement,” I suggested. “The Mafia would.” My colleague wandered off with a slightly unhappy look on his face.
Some years later I wrote to Nicky Oppenheimer asking for an interview as I was then writing on Mining Matters for Business News. A man called Bill Lear got in touch to say that Nicky would not be in the country at the suggested time. “But it’s just between the Lord’s Test and Ascot,” I protested. “He is as sure to be staying at Waltham Place as the Queen is to be residing at Windsor Castle”.
Mr Liar, sorry Lear, went off to consider the matter for a few days. A few days became a few weeks so contact was renewed. “Yes, he will be over here” – no apology or anything like that – “but he has no time to see you.”
“Are you sure you asked him?” “Of course I did, but he will be very busy.” Watching horses and cricket I thought, but that was that.
A few years later on I took an interest in the exploits of De Beers in Canada, where it was in a joint venture with a tiny company called Kensington Resources on a diamond play called Fort a la Corne. First, De Beers totally understated the number of diamonds recovered from bulk samples and followed this up by suggesting an exploration budget so small that it signalled total lack of interest in the project. The board of Kensington, however, called De Beers’ bluff by raising $C1 million on their own, and eventually De Beers followed suit. The following year such a huge budget was suggested by De Beers that Kensington would have been diluted out of the project if it had not been able to come up with the cash.
The full saga of Kensington is worth a book in itself as it demonstrates so clearly the ethos of De Beers: a self-interested view of the truth, and arrogance. The Kensington shenanigans were followed closely by a particularly vicious takeover battle for another junior, Winspear, where the prize was the Snap Lake kimberlite project. Then came the episode where De Beers crushed another Canadian junior called Rhonda Corporation under a mountain of legal fees and delays. The essence of the argument was that De Beers wanted the right to market all diamonds from Rhonda’s Knife pipe before it would agree to joint venture.
This has a strong resonance with what is happening today in the argument between De Beers and little AIM-traded African Diamonds over the future of the AK 6 pipe in Botswana. The same old characteristics are still to the fore, though De Beers is not the power it once was. It is now a private company and doesn’t control the sale of most of the rough diamonds in the world – only 40% as opposed to the previous 60%.
African Diamonds may be a little company, but it is listed on AIM, and has a lot of Irish shareholders as well as a significant number in Botswana. The world-class AK 6 pipe, discovered by African Diamonds, is in the Orapa region of Botswana and a lot of money will be required to bring it into production. It was for this reason that John Teeling, chairman of African Diamonds, agreed a joint venture with De Beers, the terms of which eventually diluted his company down to a 28.4% holding, through to production.
Then the delays started. The first came from the Botswana Government, which held up the issuance of a mining licence as it wanted the diamonds to be sold by tender and not through the De Beers’ own DTC system. De Beers refused to accept this as the idea of one million carats per year being marketed elsewhere got right up its nose. Totally ignored was the fact that lately several sightholders have put boxes of diamonds bought from De Beers up for re-sale and made profits of up to 25%. This is a clear indication that De Beers isn’t obtaining the best price for the diamonds. And the Botswana Government wants to get the best price.
Now, De Beers has declared its intention of putting the AK 6 project on hold, on the basis that it can’t be sure of power supplies in the country over the next four or five years. What that says about the outlook for all the other mining operations there, including De Beers’ own big Orapa mine, is the subject of lively debate at the moment. As far as African Diamonds is concerned, its future depends on getting AK 6 into production as quickly as possible – it’s already been delayed by two years.
There is little doubt now that John Teeling, who is a tough fighter, also has the Botswana government on side, a government that has been alienated by the tactics of De Beers. And that puts everything in a very different light. No longer can De Beers get away with bullying a small company. Its battle is now with the government of the country that produces more diamonds than any other in the world, and moreover, one with which it also has a joint venture - Debswana.
The deadline for a decision about the mining lease appears to have been extended by a few weeks, and a date of September 23 has now been set for a full court hearing. The question now is whether or not De Beers will want to appear full and frontal in a court battle to decide whether it should sell its interest in AK 6 back to African Diamonds and relinquish operatorship. This could be the final denouement for a company which has few technical staff, is $US4 billion in debt, wrote off $US1 billion recently on Snap Lake and has very few friends.
Even as this is being written, De Beers is in disagreement with its Canadian partner Mountain Province Mining over the joint venture on the Gahcho Kue kimberlite project in north-west Canada. All the old stuff about diamond values and marketing, and again delays to the development program are appearing. This time around, however, the emperor has no clothes. The simple fact is that De Beers doesn’t have the money to develop Gahcho Kue as well as to go underground at Juaneng and to develop AK 6. The mighty legacy of Ernest and Harry Oppenheimer is definitely on the wane.
*This article first appeared on Minesite.com
Also in the August 11 - 17, 2008 edition
- AFRICA
- Anvil's hardens Dikilushi focus
- Not so Faso (Part II)
- Oklo targets Mali phosphate
- ALTERNATIVE ENERGY
- Solar spotlight on new mines
- Solar's chance to shine again
- COAL TRADE
- Vietnam to disappear from trade picture: UBS
- CONSULTING
- CSA goes Global
- CONTRACTING
- Byrnecut sinks rivals
- EXPLORATION
- Clock still ticking at Caldag
- Finding the right funding model essential
- FINANCE
- Frog's Leg advantage could be with La Mancha
- Golden challenge
- Hopes rise on Cigar Lake fall
- Juniors need more time to grow up: Cairns
- M&A or no M&A, that is the question
- FORUM
- Western Areas clarification
- INDIA
- Pebble Creek tries to break impasse
- ReGENERATION
- 60 seconds with Brad Sampson
- Discovery's new Maun
- UnCUT
- Operating costs, Minara, tin, Andean
- VIEW FROM THE WEST END
- The Football Factor