A summary of all the major stories on the Australian Stock Exchange
Diamonds once glamorous, forgotten
Whatever happened to Bonaparte Diamonds, Nordic Diamonds, Cons Global Diamonds, Motapa Diamonds, and what seems to be happening to Archangel Diamonds, and what's going down at Snowfield?
These are some of the names in the world's seemingly forgotten mining sector that have quietly disappeared or changed direction or even survived in some lucky way since mid-2008, when commodity prices of all kinds went into a swoon as Wall Street continued its flip.
Most commodity prices spent most of 2009 recovering; dollar gold bullion made fresh record highs in December 2009. For some months now, diamond companies of all kinds have been sending out the message that rough gem prices are doing all right; given the base, it's hardly surprising. Gem Diamonds says that prices for rough diamonds from the Letšeng Mine, in Lesotho, have "risen from an average of USD 1,017 per carat in Q1 2009 to USD 2,070 per carat in December 2009".
De Beers, the world's biggest miner of rough diamonds, owned be 45% by Anglo American, 40% by the Oppenheimer family, and 15% by the Botswana government, has been a private company for some years; as such, its market value as a company is a matter of conjecture. The aggregate value of listed diamond miners around the world is about USD 3.2bn, ranking the subsector as one of the smallest among well known mining products.
The terrible beating that diamond diggers have taken in the past 18 months seems to have taken even the best-informed by surprise. De Beers is busy negotiating around USD 1bn in fresh equity from its shareholders, in the wake of a financial nightmare. De Beers publishes limited financial data, but enough to show that in the 30 months to mid-2009, it generated negative free cash flow (operating cash flow less capital expenditure) in total of minus USD 864m.
There was significant capital expenditure, at USD 1.2bn in 2006 and USD 1.5bn in 2007, mainly dedicated to building new mines in Canada. Over the 30 months, while free cash flow was negative to the tune of USD 864m, De Beers paid out an astonishing sum of USD 730m in cash dividends.
The group's swelling cash deficits have been funded by increased bank borrowings (during 2006 and 2007), and advances from shareholders, at USD 248m in 2008, and USD 500m in 2009. Net debt, including cash, stood at negative USD 3.3bn on 30 June 2009. De Beers has lots of financial repair ahead of it, but at least the mood has been lifted somewhat by improving rough diamond prices.
Bombed out diamond stocks with signs of life have been picked up by investors for six months or more. For some, this bargain hunting has bought hefty rewards; Kopane Diamonds, with interests in Lesotho, and a market value of USD 52m, has seen an eight-fold expansion in its stock price. But lots of investors continue to lick big wounds. Gem Diamonds, which listed in London in 2006, has at its helm Clifford Elphick, who previously worked for a good number of years at E. Oppenheimer & Son.
To date, Gem Diamonds has raised USD 811m from investors, most of it in 2007. The company spent USD 119m buying 70% of the Letšeng Mine, and a terrific USD 250m buying the Ellendale operations in Australia. Yet from its listing in 2006 until mid-2009, Gem Diamonds has produced negative free cash flow of USD 138m.
