Apr 09 2009
Yesterday Financial Times (the UK business daily) published two articles on De Beers – the one on production cutbacks worldwide and the other on the financial health of the world’s biggest diamond miner.
The articles painted a picture of a company going through tough times, but nothing more.
Click here for links to the stories.
Today Financial Times Deutschland (FTD) carried its own cover story on De Beers – and this time the reader is left wondering whether De Beers will survive the downturn unscathed.
Here my translation of the article as it appeared (Tip: Don’t forget to read between the lines.)
De Beers, the world’s biggest diamond mining company, rejected rumours that it might be in financial trouble. The company said in the current financial year income will cover the running costs – despite the difficult market conditions.
De Beers mines 40% of all diamonds in the world.
Voices questioning the financial health of De Beers have become ever louder since the company accepted a loan of over €500 million from its three shareholders in February. The shareholders are the Oppenheimer family, the mining concern Anglo American and the government of Botswana.
The loan, which is interest free for the first two years, is the first step in the refinancing of the company’s €3.5 billion debt. The refinancing is done against the backdrop of a forecasted big drop in global diamond demand this year.
“The market might have underestimated the extent of the problems at De Beers,” maintains Christopher LaFemina, analyst at Barclays Capital. Since diamond prices dropped 30% last year, the company has been losing liquidity in big style.
De Beers rejected LaFemina’s estimate that it had lost over $100 million in each of the first three months of 2009.
“Trading conditions are tough,” admitted finance head Stuart Brown. “But, we saw what was coming and took drastic steps company-wide quite early. That’s why we are now positioned to get through 2009 and 2010 without extra money from the shareholders.”
Even if turnover dropped by 50% in 2009, it would still be possible to make a profit, maintain the 2008 liquidity levels and service the debt, ensured Brown.
De Beers’ forecast that turnover could drop by as much as 50%, shows just how negative the company is about the prospects of the sector. The company cut back its production by 40% from last year’s level. All mining activities at the most important mines in Botswana have been stopped.