Last year, banks were defaulting. This year, 
 countries are defaulting. Will that 
 dreaded double-dip eventuate or can the world look forward to a gradual return to better times?

At corporate level, confidence of a return to normality seems to be there, with Anglo American coming to the party to back not only De Beers, but also Anglo Platinum (see also page 8 of this edition of Mining Weekly) and the other De Beers shareholders, the Oppen-heimer family and the Botswana government showing commensurate verve.

The Anglo statement was terse: “Anglo American has undertaken to subscribe in full to its entitlement to the $1-billion rights issue announced by De Beers”, despite De Beers announcing a $37-million net loss for 2009 compared with a $294-million profit 
in 2008. Anglo will invest $450-million in equity, the Oppenheimers $400-million and Botswana $150-million.

De Beers’ total debt is more than $3-billion and the rights issue will be used to pay down $1-billion, leaving $2-billion thereafter.

The rights issue forms part of a wider De Beers refinancing package to secure ongoing banking facilities.

De Beers has a bank facility of $1,5-billion due to come up in March and the current 
refinancing will refinance $1-billion of that and the remaining $500 000 will go into a longer-term $2-billion debt.

De Beers group MD Gareth Penny says that the shareholders have followed their rights in the belief that De Beers is over the worst, with 2009 a difficult year for De Beers but with the business in far more positive shape now.

Diamond sales have been increasing, with diamond prices in the second half of last year rising 12,8%.

There have also been fairly strong price rises early this year, with the business seen as emerging from a very difficult period, but in a much more positive position currently, as reflected by the backing of the shareholders.

De Beers took extraordinarily tough action early in 2009, closing mines, which meant that a mere six-million carats was produced in the first half of the year as opposed to a normal 20-million carats.

But the market came back relatively quickly in the second half of 2009, with De Beers mining 18-million carats as 
opposed to the six-million in the first half.

The net result was a nigh-50% cut in operating costs and De Beers intends to keep going at the reduced level as part of the way it does business in the future.

The timing of the meltdown was inopportune as it coincided with the opening of four new De Beers projects: Snap Lake and Victor, in Canada, and the Peace in Africa ship, which mines the South African seas, and the Voorspoed mine, in the Free State.

All four of the projects opened in the second half of 2008, just ahead of the defaulting by global banks.

With the capital raising, De Beers’ balance sheet is firmed up and Penny sees the business returning to a semblance of normality towards the end of this year or early next year.

But, as De Beers looks forward to that prospect, it must be looking askance at the current global defaulting threat, this time not by the banks, but, even worse, by countries.

Sovereign debt was regarded as sacrosanct, until the wobbles in Greece and the growing concern about the so-called PIGS, made up of Portugal, Ireland, Greece and Spain.

Until the PIGS is out of its poke, the world will not know just how bad its threat is, 
although quick action to help Greece is offering some comfort.

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