The speculation in the Russian mass media that the Oppenheimer family may possibly buy shares in ALROSA turned out untenable. Commenting on these rumors, James Teeger, heading E. Oppenheimer & Son, an investment company, brought to our memory that one of the conditions for the sale of the Oppenheimers’ 40-percent stake in De Beers to Anglo American included the obligation undertaken by the family not to invest in competitive diamond businesses for two years. Thus, any return of the Oppenheimers into the diamond business until August 2014 (the deal was closed in 2012) is formally excluded.
This extraordinary commitment was by no means a secret. Both the representatives of Anglo and James Teeger himself mentioned it in the fall of 2011 (miningweekly.com), when the transaction just only started. Therefore, the attempt of the Russian press to dramatize the SPO of ALROSA, scheduled for later this year, in such a way had a zero chance from the very beginning. However, it may be worth to look more carefully into the terms of the transaction struck between the Oppenheimers and Anglo - this really unusual taboo can indeed have a significant impact on the market, although the shares of ALROSA have absolutely nothing to do with it.
What caused Anglo to demand from the Oppenheimers to refrain from investments into a ‘competitive’ diamond business for two years minimum? Where is this competitor? There is simply no option in the diamond market for a large-scale investment comparable to the amount gained by the Oppenheimer family for the stake in De Beers ($ 5.2 billion), while selling 40% in De Beers just to invest in a minority shareholding in ALROSA or in second-tier companies looks obviously beyond common sense. Or is it that "competition" meant something else?
At the end of 2012, Chaim Even-Zohar made an unexpected statement - in his view, Anglo overpaid the Oppenheimers for De Beers, and the overpayment was large, not less than $ 1 billion. In other words, there was some premium paid off. Chaim Even-Zohar did not explain what for. But if you take into account some of the export-import specifics in the Belgian diamond market, you can guess for what.
In the past five years, rough exports from Belgium exceeded rough imports to this country by 60 million carats. That is, it can be said that there is a “diamond mine” operating in Belgium with an average capacity of 12 million carats per year. This is quite comparable with Jwaneng. It is indeed a competitor.
Where do these diamonds come from and who is "mining" them? You may come across an assertion that these are “stocks of Belgian diamantaires." Could be. Why shouldn’t "Belgian diamantaires" keep tens (or maybe hundreds) of millions of carats in stocks for years? Of course, it is not clear why they need to do it, but the Belgian soul is a closed book... However, there is one oddity about it - this "mine" started to run at full capacity exactly after De Beers’ representatives announced that now the company’s level of stocks is minimal being "maintained at an operational level necessary to hold about 10 sights per year.”
We should rather trust these words - modern stocks held by De Beers are of mere tactical value. But the stocks accumulated over nearly a century of control exercised by the family over the industry, the stocks which are controlled by the investment company acting through "Belgian diamantaires" being customers of the family for several generations are a strategic resource. And the premium of one billion dollars is just a polite request not to exploit this "mine" too hard. It is a perfect diamond field that does not need mining equipment, where there are no problems with underground mining, no pesky native governments, beneficiation programs and "blood diamonds." There are only good-natured "Belgian diamantaires" so lucky to have "accumulated" millions of carats.
In 2012, Belgium’s rough exports exceeded imports by 16 million carats. Nobody knows, how long and at what capacity this "mine" will run. At his time, even Roosevelt could not get the Oppenheimer family to share information about the volume of diamond stocks that were in their possession, and being true to the tradition is a cornerstone in the diamond business. What could be more important than family values?
Sergei Goryainov, Rough&Polished
