De Beers listing speculation resurfaces

[] — COULD De Beers relist? It’s being talked about again by some leading diamond and mining analysts who think the primary motivating role is that the shareholders – Anglo American (45%) and the Oppenheimer family (40%) – are seeking an exit strategy from the business.

It’s easy to see why Anglo would want to quit diamonds. As Macquarie First South analyst David Pleming said in a recent note, the diamond business looks a bit lonely in Anglo American, which is increasingly focusing its efforts on developing bulk products like iron ore and coal.

It’s less easy, however, to see why the Oppenheimers may want out given the long association between the family wealth and the diamond industry.

History shows, in fact, that the Oppenheimers are likely to have more affinity with Anglo American than De Beers, since the former is the business Sir Ernest Oppenheimer founded.

By contrast, the Oppenheimers derived a healthy commission from De Beers’ diamond trading activities by dint of a cross-holding through Anglo American and De Beers. Even Nicky Oppenheimer’s executive chairmanship role is a relatively new one. Until Anglo’s listing in London in 1999, the Oppenheimers had a non-executive role in De Beers only.

David Prager, a spokesperson for De Beers, seemed a tad weary of the relisting speculation. “It was being talked about 12 months ago, six months ago and we’ll probably be talking about it in 12 months time,’ he said in a telephonic interview.

That’s true: the relisting speculation has some history. But I also remember Anglo American CEO Cynthia Carroll rolling her eyes when asked whether Anglo could become a takeover target only weeks before Xstrata made its merger of equals proposition last year.

Analysts reckon that if De Beers does relist, it’ll be in 18 months to two years time with a value of somewhere between $6bn and $9bn.

And with the diamond market in full recovery mode – Prager said the firm was cautiously optimistic about sales at the first three sights of the year, which were nearly triple the first three of 2009 – you’ve got to wonder if now would be a good time for a relisting.

Unfortunately, that can’t happen. “It would be a popular listing,’ said Des Kilalea of RBC Capital Markets. The problem for De Beers is that it needs to have Botswana’s Debswana re-sign a mining contract first. This is a delicate situation for De Beers.

The Botswana government has been chipping away at the terms of its mining contract with De Beers, to the point where De Beers may have to review whether it’s getting a decent enough return on its investment.

Jwaneng and Orapa, Debswana’s mines, provide the bulk of the 30 million-odd carats/year (2008 figure before the output cuts) De Beers shares in Botswana diamond production, but with capital spend coming up for review on the mines, now is the time for De Beers to do some hard bargaining.

As for Anglo, De Beers is not really a dripping roast for it. The mining is ex-growth with Venetia mining beyond its resources, Finsch due to downsizing if not closure, Snap Lake in Canada not knocking investors off their feet and then the uncertainty over contract negotiations at Debswana.

Anglo doesn’t really need De Beers or a diamond business in its portfolio, and is most likely to have a highly decent-looking balance sheet in two years’ time such that it can go one of two ways: afford to divest of De Beers, notwithstanding cash flows it’s positioned to make, or buy out the Oppenheimers and bring the business to the centre to mould, cut and shape as it deems fit.

For their part, the Oppenheimers still own about 2% of Anglo American. And Nicky must know that Anglo, which has a veto over appointment of the De Beers Group MD, wouldn’t countenance for whatever reason the appointment of his son Jonathan at De Beers, thus further cutting the family links with the diamond business.


All in all, you’d have to say a pretty good seven days for Eskom. The World Bank funding for Medupi is in place, and BHP Billiton is to review the electricity supply contract which sees Eskom supplying power at prices thought to be below cost.

The integrated resource plan which will spell out how independent power producers can interface with Eskom is also due shortly.

Yet for all this good news, there’s been no indication of future leadership at Eskom with the chairmanship and CEO position not permanently occupied. Given the progress since the resignation of Jacob Maroga, however, I would have thought the appointment should be an internal one. Whoever’s pulling the strings at Eskom now isn’t doing a terrible job.

One final thing, I’ve heard a few questions about whether the World Bank ever dealt with the role of Chancellor House, the ANC investment vehicle, in Medupi. Chancellor House, by way of background, owns a chunky contract in the building of the station.

Well, it did. The World Bank has said no funds can fly Chancellor House’s way while the South African Treasury also acknowledged the difficulties of recent contract awards in Eskom power stations which I optimistically read as tacit agreement that such conflicts of interest can’t be allowed to reoccur in Eskom.