ETFs in diamonds backed as a necessary step change

AFTER missed copper production guidance last year, the next most criticised aspect of Anglo American’s performance for the 12 months ended December was its 85% stake in De Beers.

A dramatic decline in diamond prices resulted in second-half losses at the diamond producer, part of the Anglo group for over a century. Anglo wrote down De Beers for $1.8bn.

Questions about De Beers’ suitability in Anglo are not new. Lately, the criticism has been how the quintessential luxury product fits in with Anglo’s tilt towards battery minerals. De Beers’ financial underperformance has compounded these concerns, made worse still by the apparent sluggishness in diamond price recovery.

Diamonds are undermarketed, as Anglo has acknowledged. But an added pressure for the group is a new marketing deal last year with its Botswana partner Debswana — a 50/50 joint venture between De Beers and Botswana which controls and operates the Jwaneng, Orapa, Letlhakane and Damtshaa mines in Botswana.

The pact, agreed last year, provides for the share of Debswana’s (De Beers Botswana) diamond production sold via Botswana’s state-owned Okavango Diamond Company to increase to 30% from 25%. A further rise in participation to 50% is allowed for before the contract expires.

“The question is, how does De Beers remake itself,” said Mark Cutifani, the former CEO of Anglo American in an interview with Miningmx. “It is a different world where its 15% shareholder has now become a major competitor. For me, that is a big change. It has to change the model to some degree.”

Cutifani has remained active in the mining industry since leaving Anglo in April 2022. He is chair of Brazilian group Vale’s newly spun-out base metals division.

But he’s also consulting to the Diamond Standard, a trading exchange for diamonds. Exchange traded funds (ETFs) represent a valid source of investment demand, especially for standard white diamonds of 0.3 to 1.5 carats which trade like a commodity, he said.

“If you think about it, the Middle East in particular is interested in this sort of stuff, even to back [it] financially because in sharia financing you can’t charge interest,” said Cutifani.

An ETF backed with physical product may then create a new source of demand for diamonds. “I think that type of thinking is what has to occur in the diamond industry to take it forward in a different way,” he said.

“Is it likely to be successful? No-one knows, but unless we do something different, the one thing we do know is the industry won’t prosper if it doesn’t put money into marketing its products, or creates new products that actually drive demand.”