For a long time now, there have been whisperings that the Oppenheimers were planning to sell off their stake in De Beers. Rumours that Nicky Oppenheimer continued to deny almost up to the announcement on November 4, 2011, put out in a joint press release issued by Anglo American and CHL Holdings Ltd (one of the holding companies of the Oppenheimer family), that the former had agreed to acquire the 40 per cent stake of the Oppenheimer family in De Beers, for a consideration of $ 5.1 billion.
While the announcement did make waves, it was certainly no tsuami leaving the diamond industry devasted; its force considerably weakened by the persistent discussions about the possible sale in prior months. Also, there was the dwindling of the Oppenheimer stake – to less than two per cent – in Anglo American, a company established by Nicky Oppenheimer’s grandfather, Sir Ernest Oppenheimer, in 1917. And finally, there was Nicky’s stepping down from the Board of Anglo American in February this year – the first time ever that there has been no Oppenheimer on its Board.
Yet, there is a strong sense of nostalgia within the industry, particularly amongst the sightholders.
“It is sad that the Oppenheimer family is selling their stake,” said Anoop Mehta of Mohit Diamonds, a sightholder and also President of the Bharat Diamond Bourse. “The association of the family with the diamond business is long cherished and valued.”
Rajiv Mehta, director of sightholder company Dimexon, reacting to the announcement in a similar vein said, “I feel for the Oppenheimer family who have been vested in the diamond business for over a century - therefore, I am certain this would have been a difficult decision.”
Confirming this view, Nicky Oppenheimer said in the press release about the proposed sale, “This has been a momentous and difficult decision as my family has been in the diamond industry for more than 100 years and part of De Beers for over 80 years. After careful and deliberate consideration of the offer, and what is in the best interests of the family, we unanimously agreed to accept Anglo American’s offer. Anglo American is the natural home for our stake as they have been major shareholders in De Beers since 1926 and have a deep knowledge of the diamond business. I am certain that Anglo American will provide strong support to Philippe Mellier and the De Beers management team.”
While the motivation of the Oppenheimer family to sell its stake is neither at issue nor a moot point for discussion, the industry is clearly relieved that the sale is to Anglo American.
"I don’t envisage any problems in the aftermath of the sale,” comments Sanjay Kothari of Kunal Diamonds and the Vice Chairman of The Gem & Jewellery Export Promotion Council. “The stake will be sold to Anglo American which has been not only a part of the diamond industry, but associated with De Beers for a long time. So we don’t expect any major changes and certainly in the immediate future the status quo will be maintained.”
“After all, the stake is being sold to a partner and not an outsider or someone who is new to the business,” says Anoop. “Also, Anglo has offered serious money so they will no doubt have plans to ramp up the business.”
For Anil Shah of sightholder Venus, a venerable name in the business, “This purchase demonstrates Anglo American’s full confidence in the future of both De Beers and the global diamond industry. Anglo American fully intends to “build upon the long heritage of the De Beers name” and views De Beers as a “long term investment” with substantial opportunities to “contribute profitably”.” A reassuring aspect, which fosters the hope that there will be continued stability in the imminent future. “While the new policies and team takes shape we expect the present ones to remain in place for a short term and we only hope that any change that comes across is a gradual one while maintaining stability,” comments Shah.
Anoop too dismisses the possibility of the sale causing any instability. For him, of greater concern is the current market condition. “The market is in a precarious position,” he says. “Hopefully that will change.”
Looking beyond the immediate situation, Rajiv spells out his company’s hopes for the future. “I think change brings new opportunities and Dimexon loves changing environments - so we see this as yet another opportunity for our industry to consolidate and evolve in line with other industries – and finally, to grow!” he says.
The first question is whether there will be strategic and policy changes in the medium and long term. However, with few indications from Anglo American at this time, most people feel it is too early to try and pinpoint these, but that there might be changes is the underlying belief within the industry, howsoever muted it might be at the moment.
But there is also confidence, as Rajiv adds, “In this case, Anglo American have been long time shareholders of De Beers, therefore they know the business and know what is needed to make it a long term, consistent investment.”
Strategic and policy changes can result from different factors. “With the changing dynamics, either way strategies would have to be changed to adapt to situations,” says Shah. But again, the confidence is evident when he continues by saying, “Anglo American has been a part of De Beers even before they considered extending their stake, therefore they would certainly be aware of the core value systems which would be the key for them to make further decisions and carrying on the legacy.”
While there is positive hope at one level, there are also many concerns, which are rippling through the industry like an undercurrent. From speculating that Anglo American intends to purchase (some say at a low valuation) the Oppenheimer stake only to sell De Beers off, thereby making a profit; to the fear that the Oppenheimers – particularly Jonathan – might go in a big way into the laboratory grown diamond business, which he is said to have nurtured within De Beers; to the replacement of the current distribution system through sightholders to a wholly tendered one, there are several questions in the minds of diamantaires.
Kothari puts his finger on the pulse as he voices the key concerns of the industry. “At the moment there is no clarity whether Element Six has been sold, and whether that business will be hived off and go with the Oppenheimers,” he says. “Also, Anglo should maintain the current sightholder system which has worked well and should not move to a tender system.”
On the other hand, the possibility of Anglo American making the purchase for a quick buck, based on the supposedly low evaluation of De Beers’ worth, is strongly negated by many within the industry.
Anglo American itself explains its interest in the purchase by saying in the press release: “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.
“Anglo American is well positioned to enhance the value of De Beers through its expertise and scale in such areas as technical, supply chain and financial management functions as part of a simplified and more integrated ownership structure.”
Further spelling out the logic of the move and reiterating its commitment to the company and the industry, Cynthia Carroll, Chief Executive of Anglo American, is quoted as saying, “This transaction is a unique opportunity for Anglo American to consolidate control of the world’s leading diamond company – De Beers. Today’s announcement marks our commitment to an industry with highly attractive long term supply and demand fundamentals…”
Stressing on the synergy that will follow, and in a sense outlining Anglo American’s strategic goals, Carroll further states, “I believe that the benefits brought by Anglo American’s scale, technical, operational and exploration expertise and financial resources, combined with the unquestionable leadership of De Beers’ business and iconic brand will enable De Beers to enhance its position across the diamond pipeline and capture the potential presented by a rapidly evolving diamond market.”
There has been a positive reaction from the third partner in De Beers, the Government of Botswana as well. Emphasising that “The diamond industry is a major contributor to our economy in Botswana,” Dr. Ponatshego H Kedikilwe, Minister of Minerals, Energy, and Water Resources, said on behalf of the Republic of Botswana, “We are grateful to the Oppenheimer family for their vision and contribution to the diamond industry and to Botswana and we will proudly take forward that legacy with Anglo American.”
So, it would seem that all said and done, the diamond industry has taken the proposed selling out of the Oppenheimer family stake in its stride, and is keen to move ahead to the next stage – one of proactive growth for industry.
“Certainly we hope for some stability to enhance productivity,” says Shah spelling out Venus’s expectations for the future. “Due to speculative ups and downs we have focused our efforts and invested in effective research, financial planning and HR development with the hope of increasing efficiency. It is important to create faith in the mind of the customers and entice the trust of long term investing.”
“The only thing that we would like to see is a rising entry barrier for players to enter our industry,” says Rajiv when quizzed about Dimexon’s wish list for a change. “This could be by way of regulatory and/or higher capital requirements. Such changes would make the industry more attractive for investors to bring in further equity.”
Most obviously, there is the vastly reduced share of the rough market, which has over the past few decades fallen from a high of well over 80 per cent to only 35 per cent. Though it is a situation difficult to change immediately, Anglo American’s approach of focusing on its core business, will no doubt stand De Beers in good stead. As one media report summed up, “Cynthia Carroll reorganised management after being named chief executive officer in 2007. She advanced the strategy of her predecessor, Tony Trahar, selling assets from sugar to paper to focus on copper, iron ore, nickel and other raw materials demanded by the expanding economies of China and India.” Today, Anglo American is focussed on its seven core areas - iron ore and manganese; metallurgical coal; thermal coal; copper; nickel; platinum group metals; and diamonds.
There is also a great emphasis on exploration at Anglo American. “Our success depends upon a constant supply of world class mineral deposits,” proclaims the company website. “They must represent resources capable of being economically extracted, and we obtain them either through our own exploration or by the acquisition of mineral deposits found by others.”
In 2010 the company spent $136 million on exploration in 21 countries. “Exploration continues to be one of the key activities to facilitate growth for Anglo American, as we look to maintain and expand one of the largest project development portfolios in the mining industry,” the company states. With much of the world’s resources being exploited, exploration is demanding more and more sophisticated equipment. With Anglo American’s strong financial position, it is possible for the company to invest in technology, as well as in acquiring existing assets as stated above.
At the time of Mellier’s appointment, we believed that given his background, qualifications and strengths, his being chosen indicated a certain direction for the company – towards a stress on mining, building stronger and long term relations with governments of diverse countries: both on the supply and demand side.
Also, the industry expects that direct management control by Anglo American one of the world’s largest mining companies, headquartered in the UK and listed on the London and Johannesburg stock exchanges will instill greater corporatisation within De Beers. “Family businesses are a thing of the past,” commented one member of the industry. It is necessary for De Beers to have a more corporatised system of functioning.”
Again, Anglo American’s corporate outlook, its answerability to a wider group of shareholders and stakeholders, and the approach born out of this reality, will hopefully provide positive energy to De Beers’ strategy and workings. As we noted in our earlier piece, De Beers has grown its topline from US$ 5.67 billion to US$ 5.88 billion over more that a decade. This hardly describes a healthy, growth-led company. This is something Anglo American will no doubt want to change, and in a hurry.
All in all, the Anglo American purchase of De Beers stock may even come as welcome relief to the diamond industry. It may well spell the beginning of a new regime – one in which there is a clear outlining of policy and targets, an energetic bounding towards goals and a dynamic and streamlined organisation – accountable, answerable and truly transparent. All, very much the need of the hour at De Beers.
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