Anglo American announced on Tuesday it had lifted its stake in De Beers from 40% to 85% after the Botswana government passed on its pre-emptive rights worth $1.26bn - a development that was widely expected by the market, writes David McKay in an article posted on www.miningmx.com on July 31.
The way is now clear for Anglo American to conclude its $5.1bn takeover of the Oppenheimer stake in De Beers, possibly in September, or earlier. The outcome was hailed by Cynthia Carroll, Anglo American CEO, who said the group looked forward to strengthening its relationship with the Botswana government.
In terms of a previous agreement, the Botswana government has the right to take up its pro-rata share of the Oppenheimer stake, which would lift its shares in De Beers to 25% from the current 15%. This would have left Anglo with a 75% stake in De Beers, and cost the Botswana government $1.26bn.
“The Botswana government already has control of its stake in Debswana so it may not make sense to follow its rights,” Miningmx quoted Des Kilalea, an analyst for RBC Capital Markets, as having said.
Said Botswana's mines, energy and water resources minister, Ponatshego Kedikilwe: "We look forward to building on the excellent relationship we have with Anglo American, both through our ownership of De Beers and through the Debswana joint venture, and to sharing in De Beers’ highly attractive long term prospects."
US MARKETS
One of De Beers' long-term prospects is new business that may open in the US, although the last time it was able to trade unrestricted in the US was in 1948.
This August, De Beers executives, who for years were banned from entering the US even if with a ticket for Disneyland, will be setting about plans to roll out a new US business strategy. Given that the US currently comprises 40% of all diamond sales, this is no small beer, as it were.
De Beers racked up $296m in settlement funds since 2006 all of which became unconditional in May. These were claims by rough diamond polishers, jewellers and even consumers dating from about 1994, instituted through class action suits, which claimed De Beers had manipulated the market and therefore forced them to pay exorbitant or above market prices for diamonds.
What’s odd about these settlements was they were US in origin. De Beers argued at the time it hadn’t done business in the US, but the legal finding was that $272.5m of the $296m related to indirect purchases of diamonds. De Beers also paid $73m in attorneys costs and fees, adding insult to injury. The funds have been held in an escrow account and will now be paid out as set down by a court schedule. “The settlement is part of De Beers’ clear strategy of being legally compliant in all the jurisdictions in which it operates,” the company said in its interim results announcement two weeks ago.
A De Beers’ spokesperson in London remained equally tight-lipped about the group’s plans when asked follow-up questions by Miningmx. However, one analyst thinks De Beers could push with more vigour its retail footprint than achieved by its joint venture with French luxury goods company LVMH Moët Hennessy Louis Vuitton S.A., or its Fifth Avenue store in New York.
Its willingness to operate legally globally might also stand it in good stead in other regions such as in the European Union itself.
Although not tested in court, De Beers is thought to be a dominant diamond producer and therefore cannot bid for control of operating mines. The EU’s opposition to such transactions means the group has to develop mines itself, or focus on brownfields expansions such as Jwaneng in Botswana or the South African Venetia mine. Perhaps having achieved operating status in the US might potentially help strengthen De Beers’ case as it would have demonstrated its global good corporate citizenship.
