Cape Town, South Africa — MININGREVIEW.COM — 06 March 2009 – Diamond producer Trans Hex has ended negotiations over the acquisition of the Namaqualand division of De Beers – the largest diamond mining company in the world – citing current uncertain global economic and industry conditions.
Fin24.com reports that the company started negotiations with De Beers in September 2008, but the diamond market has undergone a severe contraction since then as the demand for rough gems collapsed because of the global financial crisis. This has resulted in De Beers shutting down its Botswana mines until May 2009, and making unspecified production cuts on its South African mines.
The Trans Hex share price – already under pressure because of difficult operating conditions at its Angolan mines – has set a series of new lows, dropping from 380c in November to 150c.
According to a diamond industry source a key issue in the negotiations concerned the environmental liability at the Namaqualand division, which has carried out extensive surface mining since the 1920s. De Beers had previously disposed of its Koffiefontein and Cullinan mines to Petra Diamonds through deals in which Petra took over the environmental liabilities at these operations.
The source said: “The environmental liability at Namaqualand is enormous, and estimated at around four times the value that Trans Hex actually put on the business.”
Trans Hex company secretary George Zacharias said: “The environmental liability was one of the major negotiating points, but the main problem was the uncertainty created by the economic climate which made it impossible to agree on issues fundamental to the valuation of the transaction.”
De Beers spokesperson Tom Tweedy said: “The environmental liability at Namaqualand was a factor in the negotiations, but it was not a deal-breaker because there was an understanding between the parties on the rehabilitation issues.”
Production has been cut back at the Namaqualand division, but Tweedy refused to provide specific numbers for current output. The division has produced up to 300 000 carats annually in the past. Tweedy said employment levels at the Namaqualand division had dropped steadily over the past four years from about 2 000 to the current level of about 550 mineworkers.