Debswana Resumes Production at Three Mines

Posted in News by Admin on April 20th, 2009

Debswana, the joint venture between De Beers and the Botswana government, has resumed operations at three of its mines after a two-month shutdown at the sites. De Beers said that operations at the Jwaneng, Orapa and Letlhakane mines restarted on Wednesday, with 5,800 people returning to work. Production at the Damtshaa mine and the Orapa No. 2 Plant will remain suspended until the end of 2009, De Beers said.

Production was suspended in February due to reduced demand for rough diamonds from Diamond Trading Company (DTC) sightholders, brought about by the global economic crisis. “The economic downturn has impacted all stages of the diamond pipeline, and as retailers have lowered their level of purchasing it has taken time for inventory to work through the pipeline leading to a disproportionately negative knock-on effect on production,” said Stephen Lussier, chairman of De Beers Botswana. “We have begun to see signs of improvement in the market and expect this to continue as the year unfolds.”

The resumption of mining follows reports of increased demand and higher sales at the March-April DTC sight. The sight had an estimated value of $200 million, approximately double the sales at each of the three previous sights. DTC sales for the first quarter were nevertheless about 76 percent down from last year. Underpinning its difficult situation, the mining giant recently took a $500 million loan from its shareholders to help weather the depressed market in 2009.

Christopher LaFemina, analyst at Barclays Capital, wrote last week, in a note concerning the drag that De Beers may have on parent company Anglo American, that the extent of De Beers problems may be underappreciated by the market. “We are concerned that more shareholder loans may be necessary to keep De Beers afloat,” LaFemina wrote.

LaFemina said he expects demand for diamonds to lag behind the upturn in the equity markets and the potential recovery in the global economy. “We believe diamond demand and prices will only gradually recover after 2009 and will not get back to 2007 levels until at least 2012,” he added.

LaFemina concluded that De Beers should ultimately be an incremental negative for the Anglo share price. Anglo owns 45 percent of De Beers, with the Oppenheimer family holding 40 percent and the Botswana government 15 percent.