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Getting the best out of Venetia
Julie Walker
DE BEERS' purchase of 22% of Avmin last year was an indirect way of sharing more of the cash flow from the Venetia diamond mine, in which Avmin has an indirect 43.5%.
A cautionary announcement this week could see De Beers buying Avmin's share of Venetia, held as an 87.5% shareholding in the Saturn Partnership. Listed company Industrial and Commercial Holdings (ICH) has the other 12.5% of Saturn.
Avmin chief executive Rick Menell confirms that De Beers and Avmin would not be talking to each other if De Beers had not undertaken to place its Avmin shares into non-mining, nonAnglo hands. Avmin's market cap is R5.6-billion.
Menell says he worked as a junior geologist in a student vacation job at Venetia during the 1970s when Avmin was prospecting for copper in the Limpopo valley. The story goes that Avmin invited De Beers geologists - prospecting in the region for diamonds - for a braai. The road was indicated by white stones which the De Beers men recognised as kimberlites.
The real story, says Menell, is that the Avmin camp had been standing on a layer of calcrete covering the undiscovered kimberlite pipe for at least three years before the pipe was noticed. The chief geologist's name of Mostert reportedly became "Missed it". Nevertheless, Avmin has done brilliantly out of being at the right place at the right time.
De Beers paid for the entire mine's development and still operates it. Avmin did not put in a cent, and the costs of the initial copper prospecting have long since been written down. De Beers gets 50% of the pre-tax profits and Saturn the balance.
Avmin's royalty income has exceeded R1.5-billion and this is before the proceeds of the sale. As Menell observes: "We would have had to get a partner with diamond-mining expertise in any event. We have done well out of Venetia; the biggest drawback has been the inability to control the cashflow."
The balance of Saturn is JSElisted ICH's only asset. The market capitalisation of the seldom traded ICH is R513-million (13.8million shares in issue, last trade at R34 on a historic PE ratio of 19). This notionally values 100% of Saturn at R3.7-billion. Menell says this is only one way of valuing the mine - others will be quantified.
A De Beers spokesman says the company had a good year last year and obviously the shareholders will be looking to see the profits reinvested wisely for a greater slice of the Venetia cash flow.
Saturn is the most cash-generative of Avmin's portfolio and the proceeds of its sale will be used to develop other prospects. Menell declines to comment on whether Avgold, 60% held by Avmin, will be delisted. Avgold is developing the Target mine in the Free State. After the R45-million sale of Hartebeestfontein to Durban Roodepoort Deep last year - which netted a hedge-book profit of R251-million - Avgold's only operating asset is ET Cons. Target will continue to need funding - possibly as much as R540-million. However, Avgold says this should be repaid within a year of Target's reaching full production in the first quarter of 2002.
Avgold has appointed David Murray, a Capetonian with many years of international experience with TVX Gold, RTZ, Somincor SA, Rossing and others, to succeed the retiring Jurie Geldenhuys as managing director. Murray is impressed by what he has seen of Target so far.
To focus on its two operations, Avgold has discontinued its African exploration programme and reduced its headoffice complement to 20.
De Beers wants to buy Venetia more passionately than Avmin was thinking of selling it. Avmin still offers value for money even at R55. Avgold is also generating additional interest at 425c, and its hedge book is well in the money.
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