Anglo ditching De Beers is hard blow for troubled diamond market

17 May, 2024 - 00:05 0 Views
Anglo ditching De Beers is hard blow for troubled diamond market

eBusiness Weekly

The diamond industry has already been feeling the heat. Prices have slumped, Russian sanctions are threatening trade and the emergence of lab-grown gems is eating into some key traditional markets.

Now, the sector’s most dominant name is being cast adrift. Anglo American Plc on Tuesday said it will spin off or sell its De Beers business, ending an almost century-long relationship with the industry’s most famous name.

The move, part of a wider restructuring to fend off a $43 billion approach from BHP Group, is a seismic shock for the diamond world.

The uncertainty over how a new-look De Beers may operate is spooking some of the industry’s biggest players.

The entire supply chain knows exactly how an Anglo-backed De Beers works in a market it largely controls, and the prospect of a new owner could upend the way diamonds are sold.

The news couldn’t have come at a worse time. After becoming one of the Covid pandemic’s great winners — when stuck-at-home shoppers turned to luxury purchases like diamonds — the industry’s fortunes have soured.

Inflation-hit consumers are spending less, leaving diamond buyers holding too much stock. Man-made stones have made major inroads into parts of the crucial US market and are also becoming cheaper.

That forced De Beers and Russian rival Alrosa PJSC to all but halt supply to prevent a complete market collapse.

The downturn has been especially bad timing for De Beers. Just as the business teetered, owner Anglo began the process of overhauling its entire structure and looking to cast off weak units to bolster its crown jewel copper business.

Anglo has ultimately become tired of the boom-and-bust nature of diamonds, which along with the platinum division has dragged down the entire company and eroded returns from commodities that shareholders covet, such as copper.

The announcement that Anglo will sell or spin off De Beers is a big worry for the 80 or so hand-picked buyers who are known as sight holders and form the crucial link between African mines and jewellery stores around the world.

The one-time monopoly has long acted as a custodian for the industry. Even as its market share shrunk in recent decades, it routinely held back stones rather than selling into a falling market.

Some customers are already worried that a new owner won’t have the same kind of financial backing — or appetite — as mining giant Anglo to sacrifice sales in order to protect prices while staying in business.

Because of that, several sight holders who asked not to be identified said they’re concerned a new owner will potentially be more aggressive in selling diamonds, even at low prices.

Some also expressed concern about De Beers’s ability to fund expansions at Jwaneng, its most important mine in Botswana.

De Beers is trying to alleviate those fears. Chief executive officer Al Cook on Tuesday told sight holders that a new ownership will allow the company to be more flexible in the way it operates, according to a copy of a memo seen by Bloomberg. It also said any changes will likely take months, or even years.

There are few obvious buyers for De Beers. Most big miners — including BHP — have turned away from diamonds, and jumping into mining would be a big ask for some of the fashion houses that De Beers has previously been linked to. Still, sovereign wealth funds have in the past expressed interest it what remains an iconic brand.

“De Beers is a bit of a trophy asset. It’s really rare that something this exceptional becomes available, but if it does, it offers the buyer a unique opportunity to take leadership of a luxury segment,” said Anish Aggarwal, a partner at specialist diamond advisory firm Gemdax.

While building a stronger demand profile and navigating complex mining projects isn’t easy, “for the right buyer, these challenges can be turned into opportunities.” — Bloomberg

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