Into whose hands will De Beers fall?
Mbongeni Mguni | Wednesday August 7, 2024 09:45
Anglo American is “dual-tracking” the process it is taking to dispose of its 85% stake in De Beers. Last Friday, CEO Duncan Wanblad told an analyst briefing that the mining group was weighing more than one option of how to exit the diamond business.
“In terms of an IPO or sale, obviously it would be great to sell the business into the right hands and it’s very important that it is the right hands.
“To the extent that this is not possible, then moving down the IPO track is the right one.
“So we are going to be dual-tracking this for a good few months still,” he said.
An IPO or Initial Public Offer (IPO) would see Anglo American offer its 85% shareholding in De Beers to the general public for a listing on a stock exchange.
Batswana will best remember an IPO from the wildly successful public offer of the Botswana Telecommunications Corporation Limited (BTCL) in 2016. At the time, an extensive countrywide marketing campaign to reach ordinary Batswana ultimately resulted in 776.3 million share requests against the 462 million shares on offer.
Today, BTCL has one of the highest concentrations of individual investors on the Botswana Stock Exchange, a platform dominated by institutional investors such as pension funds.
Wanblad stressed that the IPO was the back-up option for Anglo to exit from De Beers.
“Realistically, I think the sale option remains open until the day that you actually go to market with a prospectus and I think that that’s the way that we are going to be looking at it.”
The IPO route for Anglo American would mean government’s publicly stated desire to influence or control the choice of a new partner in De Beers, would be significantly limited. President Mokgweetsi Masisi has said government wants greater control over who succeeds Anglo American in De Beers because the company’s stability is crucial for an economy dependent on diamonds.
“We want investors for that company who have patient capital because the business of diamonds is cyclical with ups and downs,” the president told a rally in Palapye last month.
'We are going to assess those that want to buy De Beers.”
Masisi is understood to have repeated the same in a meeting with Wanblad and De Beers CEO, Al Cook late in June in Gaborone. Last Friday, the Anglo American CEO told analysts that the meeting was cordial.
“My meeting with President Masisi was very constructive.
“We have had a 60-year relationship and all of us want to get to an outcome that’s great for all of us.
“I was very positive coming out of that meeting,” he said.
The challenge for Anglo is that with diamonds continuing in a downturn, the IPO option may become unavoidable. Anglo American is engaged in several divestments as part of a strategy to refocus on commodities such as copper, premium iron ore and crop nutrients.
Transaction teams have been established for the different divestments and engagements with potential buyers have begun. However, the De Beers’ deal is seen as being at the back of the queue with a potential closing date late in 2025.
Part of the reason is the complexity of disengaging from a business Anglo has partnered in for 98-years, as well as difficulty of finding the right partner who can sit alongside government in the shareholder registry. An added complication, however, is finding that right buyer, with that patient capital and ability to partner with a government shareholder, at a time when De Beers and diamonds in general are in a downturn that increasingly appears structural in nature.
Anglo wrote down the value of De Beers by $1.6bn for 2023, valuing the diamond business at $7.6 billion. Aggressively hunting for a takeover partner now could attract opportunistic bargain hunters, the opposite of the “patient capital” type of investor sought by Masisi and Anglo.
“De Beers is likely to be the last of the sequence,” Wanblad said.
“We have the transaction team assembled.
“The diamond business has been through many twists and turns over time and we have full confidence that they are best positioned to navigate this.
“We believe they will see the business through the downturn.”
The focus appears to be on supporting De Beers in its recovery and allowing it to build back value, a form of prettying up before entering the ballroom.
De Beers, meanwhile, is focussed on riding out the downturn and strategising for a recovery from next year. A major part of that involves stimulating demand in the retail market through nuanced but aggressive marketing in the upcoming peak period for diamonds. Every year, De Beers spends most of its marketing budget on the period between Thanksgiving in the United States and the Chinese New Year, when most diamond jewellery is bought.
That marketing is critical this year as the industry struggles with a glut of supply in the midstream of cutting and polishing firms as well as the retail end of jewellery stores.
“We will stick to the $100 million marketing spend and that will continue but we will look at refining our strategy,” De Beers’ Executive Vice President of Global Sightholder Sales, Paul Rowley told Mmegi last week.
“The US has been fairly stable and we expect it to continue doing well.
“We will turn our focus to China in our marketing spend, which has been having challenges with a slow recovery from the lockdowns.”
Rowley said De Beers would work with partners such as Signet, the world’s largest diamond jewellery retailer, as well as other industry organisations to push the marketing of natural diamonds.
Besides marketing, De Beers is stepping up its strategy unveiled at the end of May, which involves actions across the diamond pipeline and a commitment to cut costs by $100 million.
A healthier De Beers would help Anglo in its options for divestment. It would also ultimately help government secure a partner of higher calibre than the bargain hunters trawling the market for quick wins.
But should this fail, Anglo will at some point put together an IPO prospectus and head to a market teeming with the unknown and the uncertain.