De Beers gets $500 million loan to weather hard times

JOHANNESBURG The world's largest diamond group, De Beers, said its three shareholders have agreed to loan the company $500 million to help it weather the economic downturn, following muted sales in 2008.

De Beers Managing Director Gareth Penny said on Friday the global economic crisis was having a negative impact on sales of retail diamond jewelry, liquidity and demand for rough diamonds, which had hurt the group's sales.

"We expect trading conditions to remain challenging throughout 2009," said Penny.

De Beers, which controls around 40 percent of the rough diamond market, saw record sales in the first nine months of 2008 fizzle in the fourth quarter as the economic slowdown bit.

Analysts said De Beers' performance might worsen this year.

"It looks pretty bad," said Henk Groenewald, a Cape Town-based analyst at Coronation Fund Managers.

"Clearly sales have been badly affected by the global downturn. It will look even worse this year in terms of sales."

Anglo American Plc (AAL.L), which owns 45 percent of De Beers, said in a statement on Friday it would inject $225 million into the company, as part of the $500 million in loans from the company's three shareholders.

The global miner said its loan to De Beers was interest-free for two years, and that it did not think the diamond producer would need a further cash injection.

"In light of the weak outlook for diamond sales, the shareholders of De Beers have agreed to provide loans to De Beers, proportionate to their shareholdings," Anglo said.

The news came as Anglo announced a 1 percent fall in profit, missing analysts' forecasts, scrapped its 2008 final dividend to conserve cash and said it will cut 19,000 jobs, citing a bleak economic outlook

De Beers' two other shareholders are Central Holdings, representing the Oppenheimer family, with a 40 percent stake, and the government of Botswana, which has a 15 percent stake.

Finance Director Stuart Brown told a presentation that the cash would be a buffer, and that De Beers was not cash-strapped.

"The additional funds will help De Beers withstand any shocks that may come through during the year in these uncertain economic times," Brown said.

Anglo said De Beers' net interest-bearing debt fell to $3.55 billion from $4.06 billion in 2007 as a result of the benefits of a stronger dollar, repayment of debt and shareholder support.

PRICES FALL

De Beers said total sales for 2008 rose 1 percent to $6.9 billion after demand collapsed in the last quarter of the year.

Production fell 6 percent to 48.1 million carats, with production sharply lower in South Africa after it sold its Cullinan mine and closed The Oaks mine, the company said.

Prices rose 14 percent in 2008 versus the previous year.

Penny could not give an estimate of how far prices had fallen this year, but would give a figure later this year.

De Beers said earnings before interest, taxes, depreciation and amortization (EBITDA) rose 0.5 percent to $1.22 billion.

Penny repeated that De Beers would cope with the expected slowdown in its business this year by significantly reducing output levels, costs and capital expenditure at its operations to help the group weather the tough times.

Penny declined to give specific figures on the production cuts and said the reductions would affect all its mines.

"I think the production cuts will probably be more in South Africa where it has high-cost operations than in Botswana, where De Beers has low-cost, high grade mines," Groenewald said.

(Reporting by James Macharia; editing by Simon Jessop and Rupert Winchester)