Charlotte Mathews
8 July 2009
Johannesburg — DE BEERS and its joint venture partner in the Gahcho Kué diamond project in Canada, Mountain Province Diamonds, had renegotiated the terms of their agreement, Toronto- listed Mountain Province said this week.
The terms are less financially onerous for De Beers than the previous arrangement, whereby, as operator of the project, it could have been called upon to fund the full costs of building a mine in return for an increased stake.
With recent weak diamond prices and cutbacks in production, De Beers was forced to ask its shareholders for additional assistance this year and they have provided $500m in loans, of which $225m is held by Anglo American, the 45% shareholder.
Asked if the renegotiation of the contract reflected De Beers' tight financial situation, spokeswoman Lynette Gould said yesterday De Beers was a profitable business and projections were that it would remain profitable this year.
"We believe that the benefits to be gained by agreeing a new structure where each party pays its way, both parties interests are better aligned, and Mountain Province reimburses De Beers a significant portion of historic sunk costs, are more commercially advantageous for De Beers and an improvement on the original joint venture arrangements," she said.
Gahcho Kué is one of the world's largest potential new diamond mines, with an indicated resource of about 50,5-million carats in three kimberlite pipes.
Several diamonds of gem quality have been discovered during exploration, including a 25,13-carat stone valued at about 440000.
Although diamond prices are currently under pressure because of weak consumer demand and high debt levels in the diamond industry, analysts have forecast a shortage of high -quality diamonds in the long term because so few substantial diamond discoveries have been made in the past few years.
De Beers and Mountain Province signed an agreement in 2002 to explore the property, and Mountain Province is about to commission a feasibility study into the economics of building a mine.
It is currently busy with an environmental impact review to identify and address all the key environmental issues resulting from a mine.
Under the new agreement, Mountain Province will retain 49% of the project and De Beers 51%.
Each participant will pay a proportionate share of development costs and will market their own share of production.
Money already spent on the project up to the end of last December would be limited to C120m and Mountain Province would repay De Beers C49m of that sum according to an agreed schedule, it said.
Mountain Province president and CEO Patrick Evans said the partners were committed to advancing the project as quickly as possible.
De Beers already operates two mines in Canada, the Victor mine in Ontario and the Snap Lake mine in Northwest Territories.
Both mines were officially opened last year.
Snap Lake will produce up to 1,2- million carats a year at full production while Victor will produce about 600000 carats a year.
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