Prof­itable carats para­mount

Finweek English Edition - - Finweek -

THERE HAVE BEEN many changes at De Beers Con­sol­i­dated Mines (DBCM) over the past few years. How­ever, one thing that’s stayed the same is the size and scope of the think­ing that keeps the com­pany the lead­ing pro­ducer of di­a­monds and it’s now more fo­cused on the qual­ity of its op­er­a­tions, busi­ness and rep­u­ta­tion of its di­a­monds than on quan­tity pro­duced at any cost. In min­ing it’s called “prof­itable carats”.

Mike Brown, head of min­ing and tech­ni­cal op­er­a­tions at DBCM, says this year it’s on track to mine un­der 13m carats of di­a­monds, a mil­lion more than it pro­duced in 2003, the year be­fore the com­pany car­ried out a ma­jor re­struc­tur­ing.

“We’re pro­duc­ing the same num­ber of carats with half the peo­ple. Pro­duc­tiv­ity has been im­proved and we’re now well po­si­tioned for the fu­ture mar­ket we’ll op­er­ate in,” says Brown. “In 2004 we looked at De Beers SA and came up with six ma­jor ini­tia­tives. It was clear we had some core as­sets and some non-core mines. With the rand ex­change rate move­ment strength­en­ing at the time we adopted a pol­icy known as ‘thrive at five’.”

The in­ten­tion was to en­sure all DBCM’s mines would run as vi­able con­cerns even at an ex­change rate of US$1/R5. De Beers, like many min­ing com­pa­nies, sells its prod­ucts for US dol­lars and a stronger rand means in­creased op­er­a­tional costs while at the same time rev­enue will de­cline as any dol­lars gained from sales are changed back to rand.

“It was a strate­gic de­ci­sion. We wanted to op­er­ate in the up­per quar­tile of mines in terms of mar­gins. It gives you some lee­way and when the prices of prod­ucts fall, the op­er­a­tions can be sus­tained with higher cost op­er­a­tors drop­ping out of the mar­ket and prices re­cov­er­ing,” says Brown. The de­ci­sion was made to sell three of De Beers’ mines and tail­ings from an­other. At the time those in the in­dus­try and com­mu­ni­ties were shocked that De Beers – so long the cus­to­dian of the di­a­mond mar­ket over the past cen­tury – would make busi­ness de­ci­sion to ac­tu­ally sell mines and ques­tions were asked about the vi­a­bil­ity of th­ese op­er­a­tions be­ing sold.

“It took some care­ful con­sid­er­a­tion be­fore em­bark­ing on the sale of as­sets. How­ever, in the life cy­cle of an op­er­a­tion some as­sets per­form bet­ter un­der other own­ers. The sales also added sig­nif­i­cantly to trans­for­ma­tion in SA’s di­a­mond min­ing, where pre­vi­ously more than 90% of pro­duc­tion was con­trolled by one com­pany,” says Brown.

The in­ten­tion was to be­come more pro­duc­tive at De Beers.

The num­ber of em­ploy­ees at De Beers has more than halved since 2003, when it had around 9 000 peo­ple. With the pos­si­ble sale of De Beers’ Na­maqua­land mine next year, the num­ber of em­ploy­ees will be around 4 000. Many of those work­ers af­fected took early re­tire­ment or job op­por­tu­ni­ties on one of its six re­main­ing mines. Those re­main­ing on the mines of­fered to con­sor­tiums with broad-based black empowerment cre­den­tials joined the com­pany that bought the op­er­a­tion and Brown says DBCM didn’t have to ask for com­pul­sory re­dun­dan­cies.

Di­a­mond pro­duc­tion world­wide by other ma­jor play­ers has re­port­edly fallen slightly, while new pro­duc­tion has come on stream in Canada and in SA.

As the same time as the De Beers’ board made the de­ci­sion to sell some of its DBCM mines, plans were also made to ex­pand oth­ers. DBCM has started pro­duc­tion at the marine min­ing ar­eas off SA’s West Coast and built a new kim­ber­lite mine, the Voor­spoed mine, which opened in early Novem­ber this year. De Beers has also brought two new op­er­a­tions into pro­duc­tion in Canada in the past year – the first time within 12 months it’s brought four new mines into pro­duc­tion in its 120-year his­tory.

DBCM con­tin­ues with what’s called its Con­tin­u­ous Busi­ness Im­prove­ment (CBI) ini­tia­tive in­tro­duced at the time of its re­struc­tur­ing.

“The Voor­spoed mine came into pro­duc­tion in record time. All op­er­a­tors have to have a min­i­mal qual­i­fi­ca­tion of a ma­tric pass and are trained over two to three years to a level of ex­per­tise where they’d be able to carry out main­te­nance on the ma­chines they op­er­ate and take fuller ac­count for their work­ing area,” says Brown.

Some of the equip­ment costs mil­lions of rand. “We’re in­vest­ing in the peo­ple op­er­at­ing that ex­pen­sive cap­i­tal re­source.”

The up­shot of its re­view is that DBCM op­er­a­tions are on a par in terms of ef­fi­ciency and pro­duc­tiv­ity with some of their di­a­mond-pro­duc­ing com­peti­tors.

“Fin­sch is cer­tainly one of the world’s top di­a­mond un­der­ground mines and Vene­tia is a world-class open pit,” says Brown.

DBCM con­tin­ues to ex­plore in SA (see sep­a­rate re­port) and its mines have a sig­nif­i­cant num­ber of pro­duc­tive years left. Cur­rently, the gems in SA aren’t as large as those mined in Botswana, with the av­er­age carat price be­ing $100 against $200 in Botswana, says Brown.

Vene­tia has life of mine to 2017 and Brown says work is be­ing car­ried out on an un­der­ground mine de­sign. A fea­si­bil­ity study is be­ing com­pleted that, to date, in­di­cates po­ten­tial for vi­able un­der­ground min­ing.

At Fin­sch, with its cur­rent life of op­er­a­tion be­ing 2013, pre-fea­si­bil­ity stud­ies and fea­si­bil­ity stud­ies are be­ing car­ried out to de­ter­mine ways to ex­tend its eco­nomic life.

Voor­spoed’s ex­ist­ing mine plan sees it op­er­at­ing un­til 2021. And SASA’s – DBCM’s marine min­ing op­er­a­tions – prospec­tive ar­eas of op­er­a­tion are still to be eval­u­ated from a re­sources view­point and, of course, the dol­lar per carat is bet­ter than kim­ber­lite mined di­a­monds, says Brown.

Vene­tia Mine in Lim­popo, which is eval­u­at­ing its de­posit for be­yond 2017.

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