De Beers empire faces an existential threat

Diamond mining faces its largest threat in history, as the rise in manmade alternatives threatens to undercut traditional miners. Anglo American and BHP are set to leave De Beers out in the cold. 

BHP, the world’s largest miner, is seeking to buy Anglo American for its South American copper assets, making it the biggest copper producer alongside its sprawling portfolio of iron ore and coal. 

Anglo rejected BHP’s initial approach and an improved offer, which was 15% higher than its first approach.

In an attempt to stave off this takeover, Anglo revealed a wide-ranging overhaul of its business, with plans to sell its platinum business and demerge or sell De Beers alongside its coal mines in Australia. 

It will also slow spending on a giant fertiliser mine in England. That will leave a simpler company focused on iron ore and copper, a key metal for the energy transition.

Anglo is pinning its hopes on investors supporting its plan — and backing management to deliver it — rather than pushing to accept an offer from BHP.

If BHP manages to take over Anglo, it is unlikely the Australian giant will hold onto De Beers. This means that De Beers, once the jewel in Anglo’s crown, may be left out in the cold regardless of the outcome of the takeover process. 

The director of mining at Modern Corporate Solutions, Peter Major, said this is largely due to the declining demand for natural diamonds and the inherent volatility of trading the precious gem being too much for most to stomach. 

He explained to Kaya Biz that demand is not declining because people cannot afford diamonds anymore but because manmade diamonds are taking over the market. 

“This is probably the scariest threat diamond mining has faced in the past 100 years since supply from South Africa threatened to flood the market,” Major said. 

Diamond miners are facing an almost perfect storm. Demand for their product is declining, while supply is increasing due to manmade alternatives entering the market. 

For the first time in 100 years, diamond miners, led by De Beers, do not have a stranglehold on the supply of the precious gem. 

Historically, miners have been able to increase their prices in line with the rising cost of mining diamonds by artificially limiting supply. This is not the case anymore. 

At the same time the costs of mining diamonds are rising, the price of the gems is declining – putting miners under severe pressure. 

In January 2024, De Beers cut its prices by around 10% to try and boost demand following almost a complete halt in supply in the second half of 2023. 

This has failed to reignite demand, with prices continuing to slump across the board. 

“On the corporate side, this may mean the business is too risky to hang on to. If BHP or Glencore take over Anglo, they may get rid of the diamond business as its future is not good,” Major said. 

Other commodities are rapidly increasing in value due to the green transition, making diamonds an unwise bet in a future with manmade alternatives. 

“It is scary to think about it, but if you look at diamonds and how far they have fallen in price, barely any of the miners are self-sustaining.”