South Africa’s most iconic company hits a roadblock

Anglo American has struggled to make progress in selling its iconic diamond business, De Beers, with the rest of its restructuring gaining momentum. 

The miner, which once controlled over 50% of the companies on the JSE, has been reinventing itself to stave off takeover attempts and position itself for future growth. 

Just over 30 years since it straddled the South African economy and dominated global mining, Anglo has been eclipsed by Australian giants BHP and Rio Tinto, while commodities trading companies such as Glencore have proven to be highly lucrative. 

To turn around Anglo’s fortunes and prevent a takeover from BHP, CEO Duncan Wanblad unveiled an ambitious plan to pivot towards resources of the future, such as copper, iron ore, and crop nutrients. 

This means the company is turning away from its historic crown jewel in De Beers and its platinum business to create a leaner mining house that is more cash generative. 

In Anglo’s latest production report for the second quarter ended 30 June, Wanblad gave an update on the progress it is making in reinventing itself. 

“We continue to progress with our portfolio simplification as we reshape our business for the longer term – and our reorganisation and cost reduction programmes are on track,” Wanblad said. 

At the end of May, Anglo successfully demerged its platinum business, which now trades under the name Valterra. Wanblad described this as a great success with considerable value unlocked for shareholders. 

Anglo is continuing to make progress in selling off its nickel and steelmaking coal businesses, selling the nickel assets for R9.2 billion in February. 

Wanblad anticipated Anglo’s restructuring to be completed by the end of the year, with Anglo 2.0 emerging in the coming financial year. 

This transition is set to be highly beneficial for Anglo, with it becoming a much higher margin and more cash generative business. 

Crucially, the company’s copper assets are among the best in the world, and it is poised to benefit from the growing demand for energy and data centres. 

A similar tailwind is emerging for its iron ore business, with the Chinese economy proving resilient and immense infrastructure development in the United States and Europe set to drive demand further. 

Perhaps more crucially, the sale of some of Anglo’s businesses will free up capital and management time to focus on more profitable areas of the company. 

The De Beers roadblock

One major fly in the ointment for Anglo is its struggles to sell De Beers, with the price of natural diamonds coming under immense pressure in recent years. 

The rise of manmade diamonds has reduced the demand for their natural alternatives, putting miners like De Beers under financial strain. 

Once able to dictate prices and supply, De Beers is now on the back foot, with its quarterly auctions no longer the centrepiece of the diamond trade. 

Its CEO, Al Cook, described manmade diamonds as a “huge con” to the Wall Street Journal in July, and has plans to save newlyweds from buying alternatives to natural stones. 

London-based De Beers almost single-handedly persuaded generations of consumers that love wasn’t genuine unless it was sealed with a diamond. 

The stones were prized not only for their beauty but also as a miracle of nature formed over a billion years deep in the earth, and then extracted in exotic locales – often on behalf of De Beers. 

Now diamonds can be made in labs that mimic the Earth’s extreme pressure and temperatures, but for a fraction of the price. 

A decade ago, such man-made gems were novel. Today, they are mainstream and increasingly challenging the perception of diamonds as a luxury accessory.

Synthetic diamonds currently account for more than a fifth of global diamond jewellery sales, up from less than 1% in 2016. 

The declining demand for natural diamonds has made it difficult for Anglo to sell De Beers, with major questions regarding the long-term viability of a standalone diamond miner. 

Another major headache has come from its partner, the government of Botswana, which owns 15% of De Beers and believes it has not been properly consulted regarding its sale. 

The southern African nation is weighing options, including buying Anglo’s stake, Bloomberg reported. The government has appointed advisers from a Swiss firm, adding that Anglo hasn’t met with Botswana, which has preemptive rights on any deal, to discuss the sale process.

De Beers is critical for Botswana, the world’s largest diamond producer by value. The precious stones account for most of its exports and about a third of its revenue.

The government expects its economy to either stagnate or contract this year due to a protracted downturn in diamond sales.

“De Beers is not doing its job,” said Botswana President Duma Boko on a visit to Lesotho this week. “The diamonds are ours. Before the end of this year, something very drastic in that space will happen.”