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06 may 2024

Paul_Zimnisky_2023.pngIt was recently reported that the diversified miner Anglo American, which is subject to a takeover by BHP Group for $39 billion, is considering selling its subsidiary De Beers.

The group had engaged in discussions with prospective buyers, including Gulf sovereign wealth funds and luxury houses, according to the Wall Street Journal.

This comes after De Beers made an underlying loss of $314 million in 2023 as the global diamond market failed to rebound in terms of sales volumes and prices.

Anglo chief executive Duncan Wanblad also said in February that the organisation's asset portfolio was undergoing a "systematic" examination in which everything is possible.

Although Anglo has not come out to confirm reports of its willingness to offload De Beers, New York-based independent diamond and jewellery analyst Paul Zimnisky told Rough&Polished’s Mathew Nyaungwa in an exclusive interview that diamonds might not be what the group needs going forward.

He said Anglo’s longer-term strategy is that of focusing on commodities to support the green infrastructure buildout.

This means it is more interested in commodities such as copper.

Zimnisky said that should Anglo sell De Beers, the new owner should be someone who believes the diamond business has a long runway ahead.

NB: Zimnisky produces an industry podcast called the Paul Zimnisky Diamond Analytics Podcast, which can be streamed on Spotify, Apple Podcasts or here. In the latest episode, author and journalist Rob Bates joined the show to discuss the latest in lab-grown diamonds and whether retailers are pivoting back towards natural diamonds.

Below are excerpts from the interview.


Recent media reports suggest that Anglo is willing to sell De Beers. What could be the driving factor?

Anglo has not explicitly said that they are selling De Beers, but they did say all of their assets are up for review, so there is some implication. It was reported by the Wall Street Journal that they are shopping De Beers. Ultimately, Anglo is going to do what its shareholders want, and it seems they want a longer-term strategy of focusing on commodities to support the green infrastructure buildout, for example, copper. So, I guess diamonds don't fit in.

What has changed between the time Anglo bought the Oppenheimers' stake in De Beers and now?

The diamond industry has been transitioning to a post-monopoly structure for a couple of decades now, and the reality is, as you can imagine, the monopoly structure was better for business. The challenge these days is sharing the costs of promoting diamonds as a category when the trade has become accustomed to De Beers doing all the heavy lifting.

What does the selling of De Beers mean for the natural diamond industry at large?

If De Beers is sold, it will likely have a notable impact on the larger diamond trade as the company is the industry steward. So, any changes in De Beers will be felt throughout the supply chain. What the trade should hope for is that the acquirer has a longer-term ambition of growing the industry with proper investment. If the buyer Is more of a myopic value-buyer, I would be concerned.

Some analysts think that De Beers' power over the diamond market has weakened. What is your reaction to this assessment?

The company’s influence is not what it was thirty years ago, however, De Beers is still the most important company in the industry. They continue to spend billions of dollars on capital expenditure, for instance on mine extension projects, and they support the longer-term demand for diamonds with an array of investments, including marketing, new technology and ESG initiatives.

What are the prospects for De Beers?

Well, the diamond business has been one of the most resilient industries of the last, probably, 100 years. This is a testament to the power and long-lasting effect of De Beers' famous marketing campaigns. The larger diamond and jewellery industry has also been supported by a lot of great people. This industry tends to attract high-quality people from across geographies, cultures, and religions, so there is a strong coalition of advocates. So, I wouldn't bet against the natural diamond industry, but that doesn't mean the trade can take things for granted and just assume it will thrive forever.

Botswana had been making huge demands from De Beers in their quest to benefit more from the diamonds. To what extent could this be one of the reasons behind Anglo's consideration to offload the diamond miner?

Perhaps this is a factor. I would add that the relationship between De Beers and the government of Botswana has probably been one of the best in mining, and maybe one of the strongest public/private relationships across industries. That said, I guess you can make an argument that the Botswana government has pushed things too far. Time will tell.

Who are the potential buyers of Anglo's stake in De Beers?

All we can do is speculate. Perhaps a luxury company, a sovereign wealth fund, a private investor, or maybe a government?

Talking of a government, do you think Botswana would want to increase its stake in De Beers from the current 15%?

I think the government of Botswana could certainly be a suitor. That said, they have indicated ambitions to diversify some of their exposure away from diamonds, so maybe they would prefer to spend money elsewhere.

What would the new owner of De Beers need to do to make the business viable?

Someone that believes the diamond business has a long runway ahead could certainly keep it relevant, and even considerably grow it, with proper investment. I think the key will be to take a longer-term approach. The investment today may not bear fruit until tomorrow, but the diamond business has always been a long game. Humans have always wanted rare and precious natural treasures like diamonds, it’s kind of ingrained in us. But the industry still needs to be properly supported for it to thrive.

Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished