De Beers' New Strategy

Personal copy; not for onward transmission De Beers’ new td. pany L strategy om In what is described by its chairman, Instead, it aims to be the ‘supplier of Nicky Oppenheimer, as “one of the choice’. However, it currently sells ron & C most significant developments the dia- about two thirds of the world’s annual mond industry has seen since the supply of rough diamonds, and the Georgian House 1930s”, De Beers this week unveiled a mines that it manages contribute about oeb A 63, Coleman Street new strategy whereby it will abandon 40% of world production. Hence it L London EC2R 5BB Tel :+44 (0)20 7628-1128 its long-held role as custodian of the remains very much the dominant play- REGULATED BY THE SFA diamond market, and focus instead on er, and intends to continue to sell dia- boosting demand. Since the depression monds to selected clients through its years of the 1930s when the price of dia- regular sales or ‘sights’ held roughly monds slumped, De Beers has stock- every five weeks. piled the world’s surplus diamonds as a There will be some marked changes means of controlling supply (and though in how the sights are conducted. prices). Under the new strategy, the At present, they are characterised by stockpile is not being eliminated but it their opacity. The 125 selected will be substantially reduced – to a sightholders or diamantaires – it is esti- working level of around six months’ mated that as many as 900 diaman- supply, equivalent to some US$2.5 bil- taires are on the ‘waiting list’ – have no lion. According to Gareth Penny, the formal contract with De Beers, nor any De Beers executive mainly responsible control over the quality, quantity or the for developing the new strategy, the price of the ‘parcel’ of diamonds they working-stock level should be achieved are offered. De Beers decides what the towards the end of next year, or even market can absorb and customers are sooner. At the end of 1999, it stood at given their allocations accordingly on a US$3.9 billion. take-it-or-leave-it basis. As from July De Beers will no longer underwrite next year, legal contracts with the the market as a buyer of last resort. sightholders Continued on p.19 Establishment of the joint venture is subject to a number of conditions, of (Photograph courtesy of De Beers). Falconbridge which three are highlighted as key. First is the clarification of commercial joins in Gag arrangements with Aneka Tambang. The latter’s interest in Gag Island, a Inside The Canadian nickel producer seventh generation Contract of Work, Falconbridge Ltd is to join the Gag is currently described as 15% free-car- JOURNAL Island lateritic nickel project, in the ried and 10% loan carried, with an • Gold threat adds to eastern part of the Indonesian archipel- option to gain an additional 20% inter- Zimbabwe’s woes (p.23) London, ago, as project manager of a new joint est after 13 years of commercial opera- July 14, 2000 venture. Gag Island is currently held tion. Although publicly listed on the • Freeport’s copper shipments Volume 335 75% by Broken Hill Proprietary Co. Jakarta Stock Exchange, with a sec- No. 8591 Ltd (BHP) of Australia and 25% by ondary listing in Australia, Aneka fall (p.27) the Indonesian mining company PT Tambang is still controlled by the Aneka Tambang. Falconbridge will Indonesian Government which holds a • Analyst’s poll of forecast earn a 37.5% interest from BHP by 65% interest in the company. The gov- investing US$75 million in the project, ernment plans to dispose of a further base metal prices for 2000 with BHP retaining 37.5% and Aneka 14%, but would still retain control at and 2001 (p.30) Tambang 25%. 51%. BHP has been planning to bring in a The second condition is clarification partner experienced in the nickel busi- of the forestry classification of the land • Alcoa earnings keep rising ness, and the funds injected by on Gag Island. Commentators in (p.32) Falconbridge will be directed mainly Indonesia have expressed concern over towards completing a feasibility study, a new law which threatens to ban open- over the next two years, under the pit mining in protected forest areas 1.35% Ni and 0.08% Co. The mea- Canadian company’s management. (MJ, April 14, p.282). Thirdly, the sured and indicated portions total 12 According to BHP, the feasibility study scope of work for the proposed feasibili- Mt and 93 Mt respectively. According “may lead to development of the pro- ty study needs to be established. to Aneka Tambang, feasibility work ject”, but the company stresses that Gag Island has a total resource of carried out in 1999 envisaged potential there is no commitment to proceed 240 Mt, including both oxide and sili- production of 61,000 t/y of nickel, and I Established 1835 beyond feasibility at this stage. cate zones, at an average grade of a capital cost of US$1.16 billion. ISSN 0026-5225 http://www.mining-journal.com COMMENT Editor Roger Ellis B.Sc., C.Eng. Deputy and Finance Editor Disposable assets Richard Morgan M.Sc., DIC, C.Eng. n the industrialised countries waste dis- Ok Tedi is a prime example of the range of Assistant Editor: Mineral Markets posal is a mounting problem; the millions contradictions, dilemmas and socio-political/ Andrew Thomas M.Sc., DIC Iof tonnes being generated each year by a environmental problems faced by govern- throw-away consumer society are rapidly ments, local communities and mining com- Assistant Editor: Industry in Action exhausting available landfill sites and there panies when attempting to extract minerals Dominic Mercer M.Sc., DIC, FGS is environmental opposition to creating new and metals for the greater human society sites or to the alternative, incineration. In and for the betterment of local communities Production some instances it has been deemed expedi- and national income. Commentary on these Susan Roberts ent to pay to export the rubbish to develop- issues is predominantly from non-govern- Eileen Smith ing countries where revenue from whatever mental organisations, mainly based in the Advertising source is very much to be welcomed. industrialised countries. It is instructive, Michael Bellenger For many developing nations, however, by therefore, to receive a viewpoint from the Frank Gordon far the most important source of revenues developing world and from someone with Shelley Hannan and foreign exchange is their mineral direct knowledge of the local situation (this resources. Here again, it is a convenient issue, p.19). Marketing arrangement; mines in remote parts of the Professor Bordia, head of the department Gareth Bowers world are relied upon to meet the raw mate- of mining engineering at the PNG University Carole Hoy rials needs of the affluent society of the of Technology at Lae, is forthright. He readi- Executive Director developed nations who much prefer not to ly concurs that any major development such have an unsightly mining operation on their as mining will disturb the environment but Chris Hinde Ph.D., C.Eng. doorstep. It is an imperfect solution but one argues that often it is the only source of Mining Journal, published weekly, is available only as part of a which is mutually beneficial. livelihood for the local populace. Local com- subscription with Mining Magazine and Mining Annual Review. But mining also generates waste, and munities, provincial and national govern- Annual Subscription: worldwide an estimated 3,000 Mt is pro- ments, he says, will accept such develop- £247 (US$440) duced each year from metal mining alone. ment, as long as the economic trade-offs are © Mining Journal Ltd 2000 Much of the overburden and mined waste is sufficient to compensate for environmental inert and stored safely above ground or used damage. Member of the Audit Bureau of Circulations to backfill previous mining areas (open-pit The total economic benefits and spin-offs and underground). A significant proportion, from Ok Tedi are huge by any world stan- WORLD GOLD as processed waste, is stored in tailings dards. The local town, once a hamlet of 500, Paul Burton ACSM, M.Sc., MBA Helen Payne M.Sc., DIC ponds which may or may not contain quanti- now has a population of about 10,000, and ties of heavy metals. The safe containment more than 50,000 people are estimated to MINING MAGAZINE of such waste, or lack of it in recent depend on income generated by the mine. John Chadwick B.Sc. Des Clifford B.Sc. instances, has probably generated more There is no social security net in a develop- adverse publicity for mining than any other ing country such as PNG, and Professor SUPPLEMENTS/REPORTS single issue. Bordia contends that on balance most peo- Austin Wheeler B.Eng. In Papua New Guinea, the Ok Tedi copper- ple in PNG’s Western Province (where the MINING ENVIRONMENTAL MANAGEMENT gold mine was developed controversially in mine is located) would like to see its contin- Tracey Khanna M.Sc., MCSM the mid-1980s without a tailings impound- uation. CONSTRUCTION PUBLICATIONS ment area because the steep topography at For those environmental lobbyists “who Ian Clarke B.Sc. the mine site precluded dam construction. are located far away from the real scene of Alan Kennedy B.Sc. Tailings are consigned directly into the Fly action, where their governments take Mike Smith HND (Min.) River system and the operation has been care of their livelihood”, his message is sim- RESEARCH SERVICES plagued by complaints about pollution. The ple – their efforts should be directed Iris Moncrieff majority owner, BHP, is considering selling towards forcing governments in emerging Editorial Consultant & Chairman its 53% stake or halting operations early – countries to create basic social security Michael West B.Sc., F.Eng.

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