Botswana should pull out of De Beers - Analyst

In an interview in Gaborone this week, Even-Zohar said although the re-listing makes sense for De Beers, Botswana will not get anything out of it and should actually use it as an opportunity to offload its 15 percent stake in the company. 

In fact, Even-Zohar says he has never seen any reason Botswana should have a 15-percent stake in De Beers. 'It does not make any sense and it does not bring any benefit to the country,' he says. 'The diamond resources are here in this country and the government should concentrate on that. Why would you need to have a minority stake in a company that owns other mines in Canada or Namibia?

'I would advise the government to offload its stake in De Beers. If the government does not do that, then it would be wiser for it to bundle its 15 percent stake into a holding company and list that company on the Botswana Stock Exchange. That would give Batswana a chance to participate and own shares in their resources.'

Afterall, Even-Zohar says he believes Botswana only got the 15 percent stake to keep the shareholding balance in De Beers because each of the two other shareholders, Anglo and the Oppenheimer family, did not want the other to have a majority stake.

Commenting on speculation on re-listing, Even-Zohar - who is the author of the book From Mine to Mistress - says a number of developing factors point to a re-listing of De Beers, probably in 2012. The company being highly indebted at the moment (to a tune of US$3billion), Even-Zohar says it would make it unattractive to potential investors before a listing, making the shareholders want to strengthen the balance sheet.

Even-Zohar, who has been involved in the diamond industry for the past 35 years, cites the recent loans and the US$1 billion rights issue as one of the pointers to an eventual re-listing. 'Nicky Oppenheimer had to borrow money for him to participate,' he says.

'Why would anyone borrow money and then lend it somewhere unless if it is only meant to strengthen the balance sheet?'

The second factor the analyst cites is De Beers' recently adopted economic production policy of keeping the goods in the ground ostensibly to create a supply gap with the hope of driving up prices. Even-Zohar believes the policy is meant to maximise revenues and reduce expenses in the short-term so that the company becomes as attractive as possible to investors in preparation for re-listing.

 'Although they have denied (and of course, they have to deny it), I believe they are preparing the company for re-listing,' he says.

'This is what a company does before listing - it strengthens the balance sheet, reduce expenses, optimises revenue, cuts out excess baggage.'

In a bid to help out heavily indebted De Beers, the Government of Botswana has parted with P1.5 billion in loans and rights issue subscription to De Beers in the past year. 

Even-Zohar also points out to the issue of the De Beers Canadian mines which he says have heavily chewed up shareholders' capital worth billions of dollars in investment and that the money will take years before it is recovered, if it can ever be recovered.

He says Canada has been a big disaster for De Beers and it will probably make sense if De Beers lists and closes up the investments.