CVI 0.00% 0.3¢ cvi energy corporation limited

de beers... very interesting

  1. 3,107 Posts.
    lightbulb Created with Sketch. 3
    De Beers rolls the dice in Angola
    Brendan Ryan
    Posted: Fri, 22 Feb 2008

    [] -- DE BEERS has focused its exploration drive on five countries and is spending half its annual US$100m prospecting budget on just two of them: Angola and the Democratic Republic of Congo (DRC).

    That’s a remarkable commitment, given De Beers’ prior volatile history in Angola, where it fought a legal battle against the government for several years trying to hang on to its extensive exploration rights.

    During that period De Beers was prevented from prospecting in Angola. The group eventually agreed in 2005 to the Angolan government’s demands that it retain prospecting rights to 3,000sq km. The diamond-mining giant gave up far more than that to be reallocated by the government to other exploration companies.

    Interviewed at the recent Mining Indaba held in Cape Town, De Beers’ exploration head Charles Skinner said the company had retained “the core” of its previous exploration discoveries in Angola.

    The changed attitude to doing business in Angola eventually paid off handsomely, because Skinner said last year that De Beers had signed up prospecting rights to another three concession areas – each 3 000sq km in extent.

    Bulk sampling of the kimberlite pipes discovered so far is now under way, using special drills that can take samples of 100t to 200t of ore down to depths of 500m.

    Driving force behind this focused exploration effort is the need to find a major, new diamond mine to meet rapidly growing demand for rough diamonds. Angola is reckoned to be the most prospective country in the world for the discovery of such a deposit.

    Ironically, kimberlite pipes – the host body in which diamonds are found and of which the best known is the “Big Hole” at Kimberley in South Africa’s Northern Cape province – are common but less than 1% of them have been turned out to be viable diamond mines.

    Skinner says: “Finding kimberlites is easy. Last year we found 45 of them – so what? We’ve found 515 kimberlites globally over the past 10 years but not one new mine.”

    De Beers’ aim in Angola is to assess the kimberlite pipes it’s discovered as quickly as possible to see which ones merit closer evaluation. Skinner says 17 pipes were bulk sampled last year and he hoped to bulk sample another 40 this year. He says the first big bulk sampling rig was moved to the DRC two weeks ago to start work on the 13 kimberlite pipes that De Beers’ geologists had already found. “At that rate we hope any interesting kimberlite will pop pretty quickly. If it doesn’t, then we move on.”

    That’s a big change to De Beers’ previous exploration strategy, which was to cover all the bases as best it could. In 2000, the group was exploring in 25 countries and management’s approach was to hang in for as long as possible just in case something turned up.

    Proving a kimberlite that looks promising is a long process, because one pipe can contain several different structures within it. A grid of boreholes has to be drilled across the pipe and again at depth within the pipe to check the consistency of the grades of contained diamonds.

    Should De Beers decide it has a viable kimberlite pipe in Angola, the next major hurdle would be to negotiate the commercial terms for its development.

    Diamond industry analysts have described the Angolan financial regime as harsh.

    The foreign mining company isn’t allowed control of the Angolan operation but it takes all the commercial risk. Typically, it owns around 40%, with a similar stake held by state-owned mining company Endiama and the balance owned by an Angolan private sector partner chosen by the government.

    The foreign mining company is expected to foot the entire capital expenditure bill by itself but gets that outlay back as a first call on the profits before those are split between the shareholders.

    Skinner says: “The proof will be in the pudding when the first big mine is discovered and the development terms have to be negotiated.”

    De Beers’ results for the year to December 2007 reported last week showed a drop in rough diamonds sales to US$5.92bn (2006: $6.15bn), while operating profit fell to $340m ($419m).

    Net earnings turned negative, showing a loss of $521m ($730m profit) after De Beers made a provision of $965m in impairment charges against its Canadian mining assets. That resulted from the strength of the Canadian dollar against the US greenback, increased construction costs at the Snap Lake mine and higher, long-term fuel and labour costs.
arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.