Anglo, De Beers face billion-dollar diamond shake-up
Mbongeni Mguni | Wednesday May 15, 2024 09:57
Meanwhile, Australian mining giant, BHP, has separately moved towards a $39 billion (P540 billion) offer to fully take over Anglo American. At present, the deal includes De Beers and involves as yet unclear implications on the country’s ongoing efforts around diamonds.
The Wall Street Journal yesterday reported that Anglo was looking at selling De Beers, the diamond giant in which it holds 85% equity interest. The Government of Botswana holds the other 15%.
Anglo in February said it was reviewing its global assets after its 2023 profits fell 94%, with a $1.6 billion impairment charge on De Beers due to the double digit fall in retail diamond prices and demand suffered last year.
The global mining industry was shaken by the announcements yesterday that began in the early hours of the morning, when Anglo American revealed that BHP had made an all-share offer that analysts have valued at $39 billion.
The developments comes as De Beers and government prepare for final signatures on a sales agreement hailed as transformational in the short and long-term commitments secured by Botswana for greater diamond value and sustainable growth beyond the precious stones.
Government and De Beers are due to sign the final agreement before June 28, having sealed the agreement in principal on June 30 last year and signed non-variable heads of terms on September 30.
By Press time yesterday, government officials were yet to respond to Mmegi’s enquiries on the developments, although insiders indicated that technocrats were analysing the matter in order to formalise the country’s official position on the planned takeover.
Industry analysts meanwhile, said an all-share offer from BHP would mean Botswana, which holds equity in De Beers, would find itself sitting across from new faces at the diamond giant’s board.
The analysts also added that the proposed takeover was unlikely to affect the finalisation of talks between government and De Beers.
“There are numerous variables,” one analyst said. “Firstly, Anglo American shareholders may not approve the takeover by BHP. “Even if it does go ahead, these transactions take time, including valuations and negotiations as well as other regulatory approvals which will take place long after the deadline of June 28 that government and De Beers have. “BHP would also be bound by the covenants Anglo entered into prior to the takeover.”
A sale of De Beers by Anglo is seen as being further down the road, although the Wall Street Journal named “luxury houses and Gulf sovereign-wealth funds,” as potential bidders who have spoken to Anglo in recent weeks.
Anglo has generally been supportive of De Beers, diamonds and Botswana, approving multi-billion dollar capital projects in the country over the years and generally riding out the frequent cycles of turmoil in the precious stones’ market.
After a tough 2023 however, Anglo is this year pushing for $100 million (1.4 billion) in cost savings at De Beers, while assessing options to reduce production. Anglo also wants a 25% reduction in executive leadership positions at De Beers.
Market insiders told Mmegi that if the BHP deal was successful, the Australian group would likely also look closely at De Beers’ position within the group.
“BHP’s target in taking over Anglo is the copper assets, which is one of the minerals most sought after all over as the world undergoes an energy transition. “Diamonds are a much lower priority for BHP in the minerals it is interested in.”
As at Thursday, BHP, an Australian mega-corp, had a valuation of about $146 billion, while the proposal to Anglo American implied a value of $39 billion (P540 billion) for the smaller mining group.
Anglo American’s shares in London rose after the announcement of BHP’s proposed takeover, indicating positive initial reactions amongst investors as well as an indication that the market wants a higher price point than what BHP has offered thus far.
Anglo American directors said the board was looking at BHP’s proposals.
“The board is currently reviewing this proposal with its advisers. “There can be no certainty that any offer will be made nor as to the terms on which any such offer might be made,” Anglo said in a statement to investors.
According to Anglo, BHP has until 5.00 p.m. on May 22 2024, to either announce a firm intention to make an offer for Anglo American or announce that it does not intend to make an offer.
Meanwhile, South Africa’s mineral resources and energy minister, Gwede Mantashe, has reportedly expressed opposition to BHP plans to takeover Anglo. The Financial Times yesterday quoted Mantashe as saying his previous experience with a BHP takeover had been “negative”.
Citing BHP's merger with South African miner Billiton in 2001, the Financial Times quoted Gwede as saying the deal 'never did much for South Africa'.