Canary in a diamond mine

De Beers, the world’s biggest diamond digger, announced relatively robust 2008...

De Beers, the world’s biggest diamond digger, announced relatively robust 2008 results on Friday, with underlying earnings rising to USD 515m, from USD 483m in 2007, but warned at the same time that it has "taken steps to significantly reduce production levels". Net debt fell to USD 3.6bn, from USD 4.1bn on 31 December 2007, but a new item described as "Shareholder’s loans" has appeared for 2008, at USD 248m.De Beers is unlisted, but a selection of 40 listed diamond stocks, some of which are now little more than penny stocks, shows up the subsector up as the worst performing among the global mining sector. The combined market value of these companies is less than USD 1bn, raising interesting questions about how much De Beers would be valued at if still listed.In line with a number of other mining companies, liquidity and cash flow may have become a serious issue with De Beers. On Friday, Anglo American announced that the shareholders of De Beers had agreed to provide loans to De Beers, proportionate to their shareholdings, totaling USD 500m in 2009. Anglo American holds a 45% interest in De Beers and will thus provide a loan of USD 225m. Clearly, the two other shareholders, the Oppenheimer family and the Botswana government, are coming to the party.The wording chosen by Anglo American suggests that the USD 500m is in addition to the USD 248m shareholder’s loans reflected in the 2008 De Beers financials. Spokespersons for De Beers were asked if the group was taking up shareholder loans given the possibility that De Beers was unable to successfully raise further bank debt, but no response was forthcoming. There is, however, substantial anecdotal material available supporting the contention that De Beers has been making radical cutbacks at its mining operations in South Africa and Botswana.