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De Beers Top No. 1 Diamond Miner Agrees Refinancing

As diamond demand begins to return and prices to recover, De Beers is upbeat on its debt position as it agrees refinancing terms and sets up right issue.

LONDON (Reuters) –

Top diamond miner De Beers is upbeat about cash flow after slashing costs by half and is making progress on shoring up its balance sheet after agreeing refinancing terms.

The group — 45 percent-owned by mining group Anglo American — said on Friday it was moving forward on refinancing a $1.5 billion debt facility and a rights issue of up to $1 billion announced last month.

“We’ve agreed a set of terms with our international lenders,” David Prager, director of communications, told Reuters. “That process will come to a conclusion over the next several weeks. We’re feeling very good about it.”

Once the refinancing process is concluded, shareholders will commit funding to help recapitalise the business through the rights issue, he added.Last month, De Beers said Anglo and other shareholders had agreed to a rights issue to cut its $4 billion of debt. The debt facility expires in March.

South Africa’s Oppenheimer family owns 40 percent of De Beers and the Botswana government owns the remaining 15 percent.

The group was well placed after cutting costs by 50 percent last year during a slump that hammered the sector, Prager said in an interview.

“We’re starting to see demand return and prices beginning to rise and it takes half the cost to produce what we produce,” he said. “In the future you can see how that is positive for growth and makes us a strong cash-generative business.”

HEALTHY DEMAND

Christmas sales in the United States, which makes up about half of the diamond jewellery market, were slightly better than expected and demand for rough, or unpolished, diamonds was still healthy, he said.

“We’re feeling quite good about the level of production we’re at and the price we’re at because there’s demand for it.

“The ‘sight’ (sales event) that just ended this week showed very healthy demand coming out of Christmas, so we were quite pleased.”

The group — with mines in Botswana, South Africa, Namibia and Canada — sells to specially selected clients, “sightholders”, at 10 week-long sales events during the year.

De Beers — which controls about 40 percent of the rough diamond market — posted a 99 percent plunge in first-half net profit to $3 million in July after it closed mines in response to sliding prices amid the global downturn.

The group slashed output in early 2009 and its biggest unit in Botswana shut down completely for several months after demand for luxury goods plummeted. The mines are open again, but at reduced levels as the sector adjusts to the post-crisis economy.

“Production will surely go up in 2010, but only in response to demand going up from clients,” Prager said.

De Beers has forecast 2009 output would be around half the level of the 48.1 million carats produced the previous year.

The group cut jobs by 20-25 percent last year in response to the downturn, but Botswana unit Debswana has launched a separate restructuring exercise which is due to conclude in the first quarter of 2011, Prager said.

Debswana, which accounts for the bulk of De Beers output, is a 50-50 joint venture with the Botswana government.

De Beers is due to release annual results on February 11.

© Thomson Reuters 2010. All rights reserved.

January 29, 2010 - Posted by | Money & Fund, News of Diamond

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