Surging demand for diamonds in the United States, which accounts for about half the world’s diamond market, provided a nice windfall for the company, which controls about two-thirds of the world diamond trade.
Sales from its London stockpile, which it reduced by $1.2 billion to $2.7 billion, was icing on the cake.
De Beers appears unlikely to squander its earnings frivolously. A dividend payment of US40c per linked unit compared with interim earnings of $2.19 per linked unit may have disappointed shareholders but sends a clear signal the group is conserving cash to fuel further growth.
It is De Beers’ plans for this excess liquidity that has diamond miners on several continents shaking in their steel caps. And for good reason. It primes the group for more of what managing director Gary Ralfe called “uncharacteristic behaviour”, referring to the $586 million buy-out of the Venetia diamond mine in South Africa.
He said the group could spend a further $2 billion over the next five years, particularly in developing new mines in South Africa, Canada and Botswana.
Australia’s Ashton Mining and Canada’s Winspear have already felt the cold blast of De Beers’ attention. Its A$522 million hostile bid for Ashton has left Ashton’s management fuming, terming the offer “inadequate and opportunistic”.
The 40% owner of the Arglye diamond mine maintains that the bid does not take into account plans to take Argyle underground, its revitalized earnings outlook or its strong balance sheet.
“It is difficult to see how De Beers could have fully factored into its pre-bid assessment of Ashton the likely extension to the mine life,” Ashton CEO Doug Bailey said. “De Beers has provided little information regarding the financial synergies to be extracted should it acquire Ashton.”
As part of the bid, De Beers is demanding that it market the Argyle diamonds, which are part of the fastest growing sector of the diamond market.
The diamond giant has not had access to stones of the type produced at Argyle since Ashton walked away from a deal with the cartel in 1996 and set up its own highly successful marketing program.
However, De Beers says it will allow the Argyle pink diamonds to continue to be sold through the existing tender process, a concession seen by some analysts as an attempt to appease Rio Tinto, which owns 59.7% of the mine.
Ashton has pinned its hopes on a white knight emerging from stage left, but with Malaysia Mining Corporation having already sold De Beers a 19.9% stake and seeking to offload its remaining 30% holding as it divests itself of its mining interests, the chances seem slim.
