admin
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 sightholders 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 sightholders 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 sightholders 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 in 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.”
For now, those challenges are pretty big. De Beers made just US$72 million in core profit last year, down from US$1,4 billion a year earlier. Still, Anglo CEO Duncan Wanblad said Tuesday that the market is expected to recover and the company wouldn’t rush to sell the business at the bottom of the market.
As a discretionary purchase, gems have always been vulnerable to macro-economic swings, especially in the key US market.
There are also questions about whether diamonds face a structural shift as lab-grown alternatives become more popular. – Bloomberg
Online Reporter