De Beers Sells 26% of SA Assets to Blacks

November 8, 2005

De Beers Sells 26% of SA Assets to Blacks

De Beers SA sold a 26% equity interest of De Beers Consolidated Mines in South Africa to Ponahalo, a new generation black empowerment company on Nov. 8. De Beers sold the stake for 3.8 billion rand ($562 million) to comply with new legislation on black ownership. Ponahalo, which means "emergence" in the Sotho language, is owned 90% by historically disadvantaged South Africans.

"This deal recognizes the shoulders on which our company was built," Jonathan Oppenheimer, managing director of DBCM, said in an interview with Bloomberg News in Johannesburg where the announcement was made.

South Africa's government last year passed a law requiring mining companies to sell at least 26% of their local assets to black investors by 2014 as part of a drive to boost black participation in Africa's biggest economy and help make up for discrimination under apartheid. Mining companies that don't comply will lose their licenses.

The transaction will give communities in South Africa's Northern Cape region, where the country's first diamond was found in 1867, a stake in mines that produce almost all of South Africa's gems. South Africa's diamond industry ranks third by value after those of Botswana and Russia.

Ponahalo is 50% held by De Beers' 9,600 employees and 8,700 pensioners and their spouses. The other 50% is owned by a consortium called Ponahalo Investment Holdings. That group includes Manne Dipico, a former premier of the Northern Cape; a group of four powerful South African women; and three trusts for disadvantaged women, disabled persons, and mining communities around De Beers' mines. Dipico is chairman of Ponahalo and will become deputy chairman of DBCM. Two other Ponahalo nominees will be appointed to DBCM's board of directors. Others will serve on key board and management committees.

The transaction will be funded by Ponaholo and by borrowing from De Beers and banks, De Beers said.

De Beers's South African mines produced 13.7 million carats last year, which accounted for 29% of the company's total output. It mines almost all of the country's diamonds. South Africa's output rose 19% to 7.73 million carats in the first half of this year and may reach a record this year, the mines ministry said Oct. 31.

Like other mining companies in the country, which meet most costs in rands and sell output for dollars, De Beers's margins have been hurt by the rand's 77% gain against the dollar since the end of 2001. Five of the company's seven South African mines were unprofitable in the first half of the year. However, cost cutting, engineered by Jonathan Oppenheimer, DBCM managing director, will returned all except one to profit next year.

Last year, De Beers separated its South African mines from its exploration unit and other businesses that provide services to the rest of the company's operations in Botswana, Canada and Namibia, in preparation for the black economic empowerment sale.

The mining industry is the only one in South Africa with laws governing the sale of equity. In other industries, ranging from banking to construction, companies have agreed to sell stakes voluntarily. The mining legislation also obliges companies to help fund part of the sale of equity in their operations and to appoint blacks to 40% of management posts by 2009. De Beers announced recently that when Jonathan Oppenheimer moves up to De Beers Group chairman's office in 2006, he will be replaced by David Noko, a black South African who is currently operations manager at DBCM's Kimberley Mines.

South Africa is also currently considering laws that would impose taxes on diamond exports. De Beers says the transaction announced on Nov. 8 may depend on the impact the taxes will have on the industry.

- by Peggy Jo Donahue

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