By John W. Miller and Alex MacDonald
LONDON--De Beers Group, one of the world's two major
diamond-mining companies, said Thursday that it intends to sell its
Kimberley Mines Tailings asset, its last production operation in
the central South African town where it launched the modern
diamond-mining business in 1888.
The unit, which extracts diamonds from waste from old mines,
still makes money but has become too small relative to De Beers'
roster of mega-diamond mines. "It'll still be profitable in 10
years," said spokesman Tom Tweedy. "But the scale better suits a
smaller, lower-cost operator."
The Kimberley operation produced 722,000 carats last year,
making it De Beers's second-largest operation in South Africa but
only 2% of the company's overall production. De Beers is a unit of
Anglo American PLC and has operations in Canada, Botswana, Namibia
and South Africa. Last year it reported revenue of $7.1 billion, up
11%, and produced 32.6 million carats globally, second only to
Russia's Alrosa, which produced 36.2 million carats. The two
companies usually account each for around a quarter of total global
diamond production, far ahead of Rio Tinto PLC, in third place with
around 10%.
De Beers sold its last mines in Kimberley in 2006 but continued
to pull diamonds from the waste rock in a plant that uses X-ray and
other modern technology.
As existing ore bodies get tapped out, mining tailings is a
small but increasingly important niche business in the sector.
Thanks to technology, it is possible to recover chunks of valuable
minerals that were missed during the first go-round using more
primitive mining techniques. The process, however, is fraught with
risks, such as spilling old chemicals locked in the ground and
competition from illegal miners sifting through the waste rock.
And it can be too low-volume at a time when big mining companies
are seeking to strip down to their core, mass-producing mines. De
Beers has an exploration plan in Kimberley that covers the business
until 2018. After that, however, it will need to map a new
exploration program detailing which tailings piles will be most
profitable to exploit. The risk, Mr. Tweedy said, is if production
dips, it will be more difficult for De Beers to quickly cut
operating costs than it would be for a smaller producer.
De Beers said it is inviting third parties to submit their
expression of interest with a view to selling all the assets and
associated debt in a single transaction, and hopes to conclude a
sale "in a matter of months." Mr. Tweedy declined to comment on a
possible price, but said the unit generates several hundred million
dollars year in revenue with more than $100 million in profit. By
putting the asset on the block now, De Beers is allowing the buyer
time to set up a business and exploration plan before De Beers's
own expires in 2018, he said.
Phillip Barton, chief executive of De Beers Consolidated Mines,
a unit of De Beers that owns the mine, said the company was
"engaging fully with employees, union representatives" and
government, to ensure a smooth transfer of ownership and
"facilitate a greater degree of job security." De Beers employs
about 320 people in its tailings operations. It will maintain a
back-office sorting and selling operation in Kimberley, which
employs around 500 people.
The diamond industry's presence in town is a far cry from what
it was in the late 19th century, when tens of thousands flocked to
Kimberley to dig for diamonds with pick-axes. One of them was Cecil
Rhodes, the English colonialist and explorer who founded De Beers
and later gave his name to the country Rhodesia, which became
Zimbabwe. The deposit was so big that Kimberley gave its name to
that type of geological formation, the kimberlite, and the United
Nations program for certifying conflict-free diamonds.
The juicy clusters are all gone now. Diamond deposits are
notoriously difficult to find. A major new one hasn't been
discovered anywhere in the world since the 1990s. There are
currently 7,000 miners who belong to the local chapter of the
National Union of Miners, one quarter of the number 20 years
ago.
The biggest legacy remaining is the Big Hole, a gigantic, empty
cavity, 700 feet deep and 1,500 feet wide, in the middle of a main
residential and business neighborhood. "The companies got all the
diamonds," says Lucas Phiri, the local union director, said during
an interview in February. "What we got is a hole."
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