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Edahn Golan: IPO feasible but not Anglo’s preferred way to sell De Beers

17 june 2024

edahn_golan_xx.pngThe diversified mining group Anglo American is set to sell or spin off De Beers, the largest diamond producer globally in terms of value.

It currently holds 85% of De Beers, while the remaining portion is owned by the government of Botswana, the location of the company's largest mines.

Although Anglo chief executive Duncan Wanblad endorses the growth strategy that the group has developed for De Beers, he considers it to be "better executed by different owners and in a different structure" from today's.

Recent media reports revealed that Anglo is considering an initial public offering (IPO) of De Beers.

However, Edahn Golan, owner of the eponymous Edahn Golan Diamond Research and Data, told Rough&Polished's Mathew Nyaungwa in an exclusive interview that while an IPO is “feasible," he does not think this is a route Anglo wants to take.

He said an IPO is costly and takes time to conclude.

Golan also commented on De Beers’ request for the G7 to extend the sunrise period on Russia's diamond sanctions and the challenges of routing all diamonds through Antwerp.

Below are excerpts from the interviews.

 

Reports show that Anglo American is considering an IPO during its breakup with De Beers. How feasible is this?

It's feasible, but it's not their preferred way to sell De Beers. An IPO is a pricey and lengthy process, during which they’ll need to explain to investors why the company has great prospects and a future, but they are out.

If an IPO is not Anglo’s preferred way to sell De Beers, what other options can they explore?

Anglo’s preferred option seems to be selling De Beers as a whole to a group that understands the company and the value it holds. Such a group would likely comprise a combination of a financing entity that teams up with seasoned mining experience. The government of Botswana may enter such a group or simply buy an increased share of De Beers.

Which factors determine the pricing of an IPO?

The level of investor demand will set its price. To generate that demand, potential investors will need De Beers to demonstrate it has a firm and reasonable plan to return to profitability.

In addition, natural diamond price expectations, the viability of De Beers as a brand name, the stability of long-term agreements and relations with governments in diamond-producing countries, as well as the financial market’s ability to fully understand the diamond market, which requires it to step away from antiquated notions about it.

What is the best jurisdiction for the IPO?

I suspect London or New York City.

Does De Beers have the capacity to assume debt from Anglo or to invest in reinventing itself as a retail and luxury brand?

It is safe to assume that if De Beers proposed an ambitious plan to go downstream and made it the centre of its plans, then they know the costs involved and have a financial plan to execute it.

What is your assessment of De Beers’ request for the G7 to extend sanctions on Russian diamonds by a year?

The G7 set a six-month sunrise period that started on March 1, 2024. During that period, and even before that, a series of snags revealed that there was a chance the industry wouldn't be ready on time.

Partially, it had to do with the significant delay in drafting the essential details necessary to define the technical framework.

For the sanctions to work effectively, the system for implementing it needs to be carefully constructed and not harm the diamond industry at large.

What is the reason behind De Beers' request for the import restrictions to be extended to 0.5 carat and above polished diamonds?

This is part of the G7's timeline, announced last December. As of March 1 of this year, sanctions are placed on Russian diamonds weighing 1 carat and larger. The sanctions will be extended to diamonds weighing half carats and larger starting September 1 of this year.

What are the dangers of routing all diamonds through Antwerp?

There are a few issues with that. From the perspective of the diamond industry, the crucial issue is one of efficiency. Shipping rough from Africa to Antwerp and from there to India or Israel means increased costs, plus a slowdown in delivery.

There is also a technical issue. Having one node means there is no backup. What happens if, for some reason, that node can't operate?

Antwerp does not want the full burden to fall on it. They prefer sharing the responsibility and the costs, and maybe they make sure the entire industry doesn’t get unhappy with them for real or imaginary problems.

Finally, establishing a single node in Europe was perceived as a vote of no confidence in African countries’ ability to develop a dependable operation. That caused some diplomatic tensions.

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