Anglo American’s De Beers dilemma 

After writing down the value of De Beers by a further $2.9 billion (R53.4 billion), Anglo American may find it difficult to monetise the asset as it proposed as part of its restructuring. 

De Beers has come under immense financial pressure over the past few years as diamond prices have slumped, with manmade alternatives soaring. 

Anglo American has been forced to write down the value of the renowned diamond producer for the second consecutive year after a $1.6 billion hit in 2024. 

The writedowns have been partly caused by De Beers’ inability to exercise its historic power over the diamond industry, which required it to slash prices by 10% to boost demand. 

It had also completely halted supply for a period towards the end of 2023 to try to artificially raise prices. 

However, for the first time in a century, it appears De Beers’ stranglehold on the supply of diamonds is broken. 

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.

This is a far cry from when De Beers, under Anglo, created the Centralised Selling Organisation (CSO) to completely control the supply of a large portion of the world’s diamonds. 

The brainchild of the Oppenheimers, the CSO gave De Beers a stake in every single pipe diamond mine worldwide. 

Under the leadership of Sir Ernest Oppenheimer’s son, Harry, De Beers would produce 21.4 million carats of diamonds and generate R1.7 billion in revenue annually from 1957 to 1982.

The Oppenheimers no longer hold stakes in Anglo American or De Beers. Harry’s son Nicky led the family’s 2011 sale of its $5.1 billion holding in the diamond miner.

If it has its way, Anglo may no longer hold any shares in the diamond miner as it goes through the most extensive restructuring in its history to ward off a potential takeover. 

Spurred on by a takeover attempt by BHP in 2024, Anglo presented its own plan to create a mining giant based largely on copper mines in South America. 

As part of this ambitious plan, De Beers would be separated out of Anglo alongside Anglo American Platinum and the company’s coal mines in Australia. 

In effect, the Anglo eggs would be unscrambled to form a copper giant, which could prove extremely lucrative for investors. 

This restructuring is set to result in a much simpler mining company focused on iron ore and copper, in which Anglo has extremely high-quality production. 

Anglo’s bet on these metals is clearly a play on the green transition, with both being vital for the buildout of new electricity infrastructure. 

The company’s copper mines and iron ore are also its two largest and most consistent earners, providing a stable base for future growth.

De Beers dilemma

However, a potential spanner in the works is the declining value of De Beers, which Bloomberg commodities specialist Javier Blas has warned may be very difficult to monetise as it has promised shareholders. 

The rise of manmade alternatives to mined diamonds has put the miner under immense financial pressure in recent years. 

Anglo’s willingness to dump De Beers may signal its desperation to effect a successful turnaround, but it is more likely to reflect the rapidly declining demand for natural diamonds.

Research from McKinsey & Company showed that consumers have no issue buying manmade diamonds as they share the same physical properties as mined gems. 

McKinsey estimates that natural diamond production is only expected to grow at 1% to 2% annually until 2027, below the historical average of 3% to 4%. 

Growth will likely be constrained by a combination of major mine closures, production ramp-ups for existing mines, and price volatility.

Demand and prices for natural diamonds have historically been balanced by mining supply, but this link appears to be broken. 

As consumers search for more affordable options, lab-grown alternatives have soared in demand while more expensive natural diamonds have plummeted. 

These factors are playing out in an environment of limited growth for natural diamond supply, other geopolitical tensions, and shifts in financing – creating a perfect storm for diamond miners.

Appearing to acknowledge the reality that the unbundling of De Beers may be tough, Anglo CEO Duncan Wanblad admitted the disposal may be delayed following its most recent set of results in early February. 

Wanblad said the company does not expect much progress on its plans to sell De Beers in the first half of the year, either through a sale or a separate listing. 

De Beers is now valued at around $4 billion, still a handsome sum, but Anglo has so far only received unsolicited interest in the business and no formal process has been started. 

Anglo 2.0

Loftty Mmola, a research analyst at Melville Douglas, explained that Anglo has to reinvest itself to stay relevant and competitive with global mining giants such as BHP and Rio Tinto.

These companies stole a march on Anglo by rapidly diversifying into copper and other green metals, expanding heavily into South America.

However, Anglo has an edge with its higher-quality copper assets and iron ore deposits in South Africa.

Anglo’s bet on these metals is clearly a play on the green transition, with both being vital for the buildout of new electricity infrastructure. 

Mmola said the company’s copper mines and iron ore are also its two largest and most consistent earners, providing a stable base for future growth. 

The company plans to increase annual copper production to more than one million tonnes by the early 2030s to benefit from the green transition. 

Dubbed Anglo 2.0, Mmola said the restructuring provides the company and investors with enhanced exposure to profits from copper. 

Mmola explained that Anglo has unrivalled growth prospects for copper, given its ability to increase production from existing mines. 

Its competitors, if they want to match this potential production increase, would have to spend billions to build new copper mines that take around 15 years to come online. 

Furthermore, the simplified structure after the restructuring would give Anglo shareholders greater exposure to copper and a superior commodity mix that would result in greater profitability. 

The image below, courtesy of Melville Douglas, shows how significantly Anglo can increase its copper production from its existing mines, with its Quellaveco mine in South America able to increase its output by 300 kilotonnes per annum (KTPA).