Author: halcrow -- Date:2000-08-01 08:53:50
Subject: defining a bone of contention
Re joint-marketing of production (this is mine and that one is yours).See last paragraph.Brgds
Concern over De Beers bid for Ashton By Julie Earle Published: July 31 2000 23:28GMT | Last Updated: August 1 2000 04:20GMT
Rio Tinto, the Anglo-Australian mining group, cannot successfully compete with De Beers in the global diamond market if the South African diamond company wins control of Australia's Ashton Mining, warn analysts.
Rio Tinto owns a 59.9 per cent stake in the Argyle mine, a top producer of rough diamonds, in Western Australia while Ashton owns the remaining 40.1 per cent. The mine is the crown jewel among Ashton's assets and a key prize should De Beers' unsolicited bid for Ashton succeed.
Ashton on Monday rejected the De Beers offer, but stock market analysts say it appears unlikely the Australian company can remain independent. De Beers has already secured 19.9 per cent of Malaysian Mining's 49 per cent stake in Ashton, and its cash offer of A$1.62 a share is an almost 50 per cent premium to Ashton's average share price in the previous month.
Analysts said on Tuesday that a successful acquisition of Ashton could make Rio Tinto's position untenable at Argyle, given the two companies are fierce rivals. In 1996 Rio and Ashton thumbed their noses at De Beers, the world's most powerful monopoly in marketing diamonds, and decided to sell diamonds on their own through the Argyle Diamond Sales marketing team, based in Antwerp.
De Beers' bid includes a condition that allows it to cancel some of its existing marketing arrangements for Argyle's production and direct Ashton's share of production through De Beers' own channels. Only Rio's 60 per cent share of Argyle production would go through the Argyle marketing system.
A successful bid also would give De Beers access to Argyle's key commercial data such as its prices, strategies and marketing plans, analysts said.
"De Beers' motivation is to gain control of the lower end of the diamond market after saying in recent months they will not be involved in 'conflict' diamonds," said one analyst in Sydney.
The bulk of De Beers' output comes from Botswana, Namibia and South Africa.
"De Beers' ability to influence the market in that way is a lot less than before, even though conflict diamonds are at the high end of the diamond market," he said.
Argyle is positioned at the low end of the spectrum and able to produce what most customers want - cheap diamonds.
"There is no way that Rio Tinto will be part of the De Beers marketing strategy after leaving it in 1986 after more than 10 years because they felt De Beers was shortchanging them," the analyst said.
At the time, Argyle accused De Beers of deliberately dragging its feet in marketing Argyle products in an attempt to force the closure of a mine it deemed problematic. The cartel also took a 10 per cent commission on sales. De Beers claimed the Argyle stones were too hard to sell and the original "take-or-pay" contract was unworkable.
Rather than sell its low-value diamonds into the cartel, Argyle decided to sell direct to India, where labour costs are low. Its strategy was hugely successful. Argyle has since said it has "no intention of going back to De Beers."
Analysts said Rio Tinto felt then they were not getting the best price for their diamonds, and nothing had changed.
"Now Argyle has successfully developed the lower end of the market to the extent thay purchases of diamonds generally has been very good, De Beers wants back in," the analyst said.
Rio Tinto on Monday said it had not been consulted by De Beers prior to the Ashton bid. A Rio spokeswoman in London told Reuters that Rio did not have pre-emptive rights to acquire the rest of the Argyle mine. Asked if Rio was interested in bidding for the balance, she said: "It's too early to say."
Argyle is operated as a joint venture, and the spokeswoman said this would continue if De Beers succeeds in its A$522 million bid for Ashton, with Rio and De Beers marketing stones from the mine separately - a situation that analysts says won't work.
--------------------------------------------------------------------------------
Top Reply
Author: teevee -- Date:2000-08-01 09:32:46
Subject: bones of contention and albatrosses
halcrow,
DeBeer's knows full well that RTP has alot on its plate with the multi billion dollar Diavik albatross hanging on its neck. In addition to taking over Ashton on its own merit, not only does a run at Ashton take Ashton out of the Snap Lake picture, but it clearly also takes out RTP with Ashton as their partner at the Argyle mine, given the commercial arrangements mentioned in the article you posted. As for musings on an offer from Aber, well, Gannicott clearly indicated that they have enough (financing) problems of their own, intimating that perhaps obtaining financing may necessarily be tied to DeBeer's uptaking a portion of their production(that should make RTP doubly nervous:-)). Any comments on just how important DeBeers uptake of 35% of Diamet's production is? Are there cancellation clauses in their sales agreement with DeBeer's? Could diamet easily sell the 35% uptake by DeBeers elsewhere? Maybe Diamet is out of the picture too? That would only leave BHP as a possible white knight, provided that they intend on staying in the Diamond Business. As for Pattison steping up to plate as the white knight, that would probably ensure a DeBeers victory. Lots of time left yet for a pleasant surprise or two.
regards, teevee |
