Anglo American’s planned takeover of the Oppenheimer’s 40 percent interest in De Beers has sent tongues wagging in the diamond industry.
Questions are being asked why the Oppenheimer family had decided to dispose of their stake after over a century in the diamond industry and over 80 years as a De Beers shareholder.
Others said the family could have realised that “diamonds were not forever” given that De Beers faced serious problems during the financial crisis of 2008/2009.
The $5.1billion offer, which Anglo American dangled like a carrot to the Oppenheimers could have been tempting enough for them to make “a difficult decision” to let go their stake.
However, away from this speculation, it was no secret that Anglo American wanted to boost its stake in the diamond firm.
Shareholders recently called for the London-based company to up its stake in the De Beers.
Anglo American, which currently has a 45 percent stake in De Beers said it was convinced that the diamond market had a good outlook.
It said that it had a deep knowledge and understanding of De Beers as well as an appreciation for the unique nature of diamonds.
“De Beers’ geographically diverse portfolio comprises large scale, low cost mining assets with proven distribution, sales and marketing capabilities and further potential from its leading pipeline of greenfield and brownfield projects and an expanding consumer-facing footprint,” said Anglo American.
The company also said that it was “well positioned” to enhance the value of De Beers through its expertise and scale in technical, supply chain and financial management functions.
The Financial Post reports that unlike De Beers, which was dogged by questions about leadership and succession, Anglo American had “decisive leadership, a strong balance sheet and significant technical expertise”.
Analysts said that rough diamond prices were currently higher than they were before the 2008 recession, adding that there was optimism about the future as the new middle classes in China and India embrace luxury goods.
Diamond demand from China, India and the Gulf was expected to match the United States by 2015.
“In some Chinese cities, you’ve got 80 percent of brides having diamond engagement rings bought for them,” The Financial Post quoted a source close to Anglo American as saying.
“That didn’t even exist in their culture 10 years ago. It gives you an indication of the demand growth from a cultural perspective.”
Mountain Province Diamonds chief executive Patrick Evans also told the Financial Post that the marketing of diamonds could change with Anglo American in charge.
De Beers currently sell most of its diamonds to a select group of sightholders but industry rivals want a more open process.
“I do believe higher prices can be achieved through a more transparent auction system,” Evans said.
The sightholder method was viewed by some as a take-it-or-leave-it system under which buyers were obliged to purchase predetermined lots of rough diamonds at fixed prices.
The transaction, subject to regulatory and government approvals as well as third party consents (if any), was expected to close in the second half of 2012.
Anglo American could end up with 75 percent or 85 percent, depending on whether Botswana exercises rights to boost its stake.
Botswana had, however, indicated that it would explore an option to increase its stake in De Beers as it had a pre-emption right over the CHL shares, potentially lifting Gaborone's ownership to 25 percent.
CHL represented the Oppenheimer family interest in De Beers.
De Beers operates in more than 20 countries, and is the world’s leading diamond producer with mining operations across Botswana, Namibia, South Africa and Canada. As at 30 June 2011, De Beers had gross assets of $8.2 billion and reported EBITDA of $1.2 billion for the six months to 30 June 2011.
For the twelve months to 31 December 2010, De Beers reported profit before tax of $863 million.
So with the deal likely to go through, the industry was watching on whether there would be significant changes regarding the manner in which De Beers is currently marketing and selling its diamonds.
Although, chief executive Philippe Mellier will maintain his position, chances are high that Anglo American will shake up De Beer’s management or ask for new ways of doing business.
It, however, remains to be seen whether De Beers will be transformed (or not) to a greater heights, as the Oppenheimers say “adieu” to the diamond industry.
Alexandr Shaburkin, Rough&Polished, Moscow
