Anglo American announced in November 2011 that it had agreed with CHL and Centhold International Limited, together representing the Oppenheimer family interests, to acquire their 40% interest in De Beers for $5.1 billion.
The acquisition was completed in August 2012 for a cash consideration of $5.2 billion, comprising the agreed purchase price of $5.1 billion and several adjustments.
Gaborone had pre-emption rights in respect of the CHL Group’s interest in De Beers, enabling it to participate in the transaction and to increase its interest in De Beers, on a pro-rata basis, to up to 25%, but it opted to exercise its rights.
This saw Anglo’s shareholding in De Beers rise from 40% to 85% while the Botswana government held the remaining 15%.
Anglo was a major shareholder in De Beers since 1926, according to Nicky Oppenheimer.
At the time of the acquisition, the then Anglo chief executive, Cynthia Carroll had so much hope in the potential of De Beers.
“This transaction is a unique opportunity for Anglo American to consolidate control of the world’s leading diamond company – De Beers,” she said on 4 November 2011.
“Today’s announcement marks our commitment to an industry with highly attractive long-term supply and demand fundamentals.”
Liking
Carroll further said then that De Beers’ management team had led the business successfully through the financial crisis into a stable position and was well placed for the future.
“I believe that the benefits brought by Anglo American’s scale, technical, operational, and exploration expertise and financial resources, combined with the unquestionable leadership of De Beers’ business and iconic brand, will enable De Beers to enhance its position across the diamond pipeline and capture the potential presented by a rapidly evolving diamond market,” she said.
Then Anglo chairperson Sir John Parker said the acquisition of an incremental interest in De Beers aligned entirely with the board’s strategic priorities.
“The value created in De Beers and the diamond industry by the Oppenheimer family over the past century has been a remarkable achievement,” he said.
“We look forward to increasing our involvement in the business and building strong links and relationships with De Beers’ Sightholders and partners.”
I argued in 2012 that Anglo was not suicidal by spending $5.2 billion to boost their stake in De Beers as they could anticipate growth.
“One does not need to waste time speculating over the intentions of the Oppenheimers but look at the conviction Anglo American had on the positive outlook of the diamond industry. The mere fact that they are prepared to part ways with that amount of money was enough testimony that the company had great faith in the future of the diamond industry,” I argued.
“Surely, it would have been an act of stupidity if the company had decided against its collective wisdom to splash [$5.2 billion] on a sinking ship.”
Two years later, De Beers was fast proving to be a cash cow for the diversified mining group, leading to some sections of the media describing it as a “star performer” for Anglo during the first six months of the year.
De Beers had contributed $469 million to the diversified mining conglomerate’s underlying earnings of $1.284 billion.
Ironically, the second greatest contribution to Anglo's profit, of $443 million, came from the iron ore and manganese unit.
“We are delighted with our performance, but we cannot just sit back,” then De Beers head of media relations Lynette Gould told Rough & Polished.
“We are focused on delivering profit growth for the full year as we head towards the ROCE (return on capital) target of 15% by 2016, set by Mark Cutifani for all the Anglo American business units.”
The then De Beers chief executive Philippe Mellier was equally pleased by his company’s contribution to the group.
“Anglo respects De Beers. That is the difference,” he said.
Hearing these words in 2014 one would have never imagined that Anglo would drop De Beers like a hot potato a decade later.
Detestation
Yes, Anglo no longer wants anything to do with diamonds.
It started with BHP’s bid to take over Anglo for $49 billion earlier this year, which showed less interest in the group’s diamond, iron ore and platinum business.
When the move collapsed Anglo chairperson Stuart Chambers said the group had set out a clear pathway to accelerate the delivery of its strategy and unlock significant value for its shareholders.
“Our shareholders will benefit from value transparency and undiluted exposure to a simpler portfolio of world-class assets, consistently stronger operational performance, and highly attractive growth in copper, premium iron ore, and crop nutrients,” he said.
Anglo chief executive Duncan Wanblad said earlier this year that the growth strategy developed for De Beers would be "better executed by different owners and in a different structure."
De Beers then went on to announce last May that it was exploring the full range of options to separate the business to set it up for success in unlocking full value from its new Origins strategy, its world-class assets and its iconic brand.
It said that this will provide both Anglo American and De Beers with a new level of strategic flexibility to maximise value for both companies’ shareholders.
As reported by MiningMx, Wanblad told the Financial Times Mining Summit in London at the end of September that the group will not vacillate on its intention to offload De Beers saying the diamond miner no longer fits in its portfolio.
“The plan is to get it done and there is no way De Beers [fits] in the [Anglo] portfolio,” he was quoted as saying. “There is no flip-flop possibility.”
The same De Beers that was seen in 2012 as the “star performer” for Anglo is now being said it doesn't fit in its portfolio.
But why this volte-face?
Perhaps this assessment by Petra Diamonds’ non-executive chairperson, Varda Shine sheds more light: “It has been a difficult year for the diamond industry. I am privileged to have had a 30-year career in the diamond industry and must admit these are unprecedented times.
From the Russian G7 import ban to a prolonged slowdown in China, a new generation of consumers, lack of historic marketing ‘power’ for over a decade, and the emergence of lab-grown diamonds (LGDs)—I have not seen the industry face so many different developments.”
The prolonged slowdown in China has been a major cause of the low demand for diamonds from the Asian giant.
Greater China was considered to be the second-largest market for the diamond industry until 2023 when India overtook it.
Diamond industry analyst Paul Zimnisky recently opined that demand for diamonds from China is projected to have dropped by more than 50%, with polished sales to the country seen between 20 and 40% of normal levels.
However, a recent stimulus in China is projected to boost demand.
While Anglo has had enough of the diamonds, other players, such as Petra Diamonds, are not giving up yet.
Shine said the industry has risen to the multiple challenges to adapt and become stronger.
“Producer discipline has emerged as Petra and its larger peers have cut production budgets, while the Indian import moratorium of last year has shown discipline from the midstream,” she said.
“Spending on marketing of natural diamonds is set to increase, with partnerships forming between major producers and jewellery chains and the Natural Diamond Council also collaborating with jewellery chains in China to boost demand.”
The pending exit of Anglo from De Beers is not a train smash as the company will find other suitors despite its intricate marketing agreements.
The diamond market will no doubt rise like the proverbial phoenix taking with it De Beers to the zenith levels.
Mathew Nyaungwa, Editor in Chief, Rough&Polished
