[miningmx.com] — ANGLO American has no intention to list De Beers once its proposed takeover of the Oppenheimer family’s 40% interest in the diamond miner has been completed, according to CEO Cynthia Carroll, saying the $5.1bn deal would be paid for in cash.
“This is not about doing an IPO, I want to be absolutely clear on that,’ Carroll told journalists during a conference call. “We’re focused on taking the business of De Beers forward.’
The transaction would give De Beers an effective market cap of $12.75bn. Should Anglo nevertheless decide to proceed with a listing, the Oppenheimers would also be due 20% (in the event of a listing within a year after the deal has closed) or 10% (in the second year) of De Beers’ market capitalisation at the time of listing in excess of $12.75bn.
A possible listing of De Beers has been the subject of ongoing speculation in the market, as it would’ve provided both Anglo and the Oppenheimers a mechanism to reduce their stakes of 45% and 40% in De Beers respectively. Many commentators pointed to the fact that the diamond business was looking somewhat lonely in Anglo, which was increasingly focusing its efforts on developing bulk products like iron ore and coal.
However, Carroll said on Friday diamonds were always core to Anglo’s business and have been a point of differentiation relative to others in the industry. She also said the diamond industry has strong long-term supply and demand fundamentals, with rising demand from China and developing markets expected to outstrip scarce supply coming on line in the next ten years.
She said Anglo would be able to add value to De Beers through its “expertise and scale’ in such areas as technical, supply chain and financial management functions, while De Beers would also benefit from a simplified ownership structure.
“Underpinned by the security of supply offered by a new 10-year sales agreement with the government of the Republic of Botswana, this forms a compelling proposition,’ Carroll said. “I believe that the benefits brought by Anglo American’s scale, technical, operational and exploration expertise and financial resources.will enable De Beers to enhance its position across the diamond pipeline and capture the potential presented by a rapidly evolving diamond market.’
The Oppenheimers’ management contract at De Beers would terminate on the closing of the deal.
De Beers posted a 55% increase in interim earnings in July, driven by record sales and prices on the back of rising demand from China, India and the United States.
CODELCO CONUNDRUM
Carroll also strongly denied that the transaction was related to Chile’s state-owned Codelco’s intention to take-up a 49% stake in Anglo American Sur, a company which houses low-cost copper producer Los Bronces, for around $6.5bn – even though De Beers chairman and representative of the Oppenheimer family, Nicky Oppenheimer, told Miningmx Anglo presented this offer around two weeks ago.
“This (the De Beers offer) is not coming about recently, Carroll said. “We’ve been working on this for a long time.’ Anglo’s Finance Director Rene Medori said the deal would be paid for from existing cash and a $3.5bn undrawn credit line.
Anglo American SA executive director Godfrey Gomwe said Anglo’s priorities at De Beers would be “business continuity”.
The deal is subject to shareholder approval as it involves a transaction with a related party – Oppenheimer has until recently been an Anglo director – but Gomwe said it would be unthinkable that Anglo’s backers would disapprove.
“It’s an asset that we’ve already invested in,” he said.
Shares in Anglo American traded 3.6% higher at 11:45 on the JSE, costing R306.40. Carroll said the deal would be accretive in underlying earning, while it would also help to simplify the way Anglo accounts for its De Beers income.
Said a UK fund manager: “The ownership structure was always considered sub-optimal, especially as Anglo couldn’t fully consolidate it and therefore the accounting and earnings were always messy’.
