Copper Beats Diamonds
May 23, 24
What will become of De Beers? The future of its parent company Anglo American remains up in the air.
But whatever happens it's now clear that there's no place for the 135-year-old diamond miner in its future portfolio.
The big bucks these days are in copper, one of the most sought-after metals for the clean energy transition. And Anglo has plenty of it.
Its sales of copper last year were $3.2bn, accounting for a third of its total revenue. De Beers, by contrast, contributed just $72m in the same period, a relative drop in the ocean.
Diamonds may well be forever, but the market is shrinking, with the global recession and a surge in the sale of lab growns.
Not only that, but diamonds are a niche and troublesome non-commodity that doesn't fit easily with Anglo's masterplan, or indeed with BHP's, which sold its only diamond mine in 2013 to focus on its core activities.
Anglo has long been tipped as a takeover target. Its valuation plunged by $30bn in under two years, it announced 3,700 job cuts in February in its platinum division, and it has told De Beers to find $100m in annual savings in its diamond operations.
De Beers has been a nice earner for Anglo. Back in 2013 its operating profit was over $1bn, representing 15 per cent of Anglo's total profit. Today De Beers contributes just 1 per cent.
The trouble is that diamonds are an altogether more nuanced proposition than, let's say, industrial metals.
Copper is copper, trading today at $10,447 a ton. The diamond market is, as we all know, infinitely more intricate.
And that's why it doesn't really fit neatly in the general world of mining. Some of the same basic processes apply - the heavy lifting aspects of getting stuff out of the ground. But diamonds require of lot of extra and very specific knowledge and expertise.
When returns start diminishing, the corporate giants would rather stick with safer and less complicated bets.
Earlier this week Anglo rejected a third and "final" takeover offer from BHP, the world's biggest miner.
BHP opened the bidding a month ago with what Anglo described as a "highly unattractive" initial offer of $39bn. It subsequently upped it to $43bn and now says it will go to $49bn, but no higher.
Anglo is still saying no, although it has agreed to a one-week extension (from the original 22 May deadline) for the Australian corporation to review its offer.
If the BHP deal doesn't go ahead, it's always possible that another miner will step in. Rio Tinto, which ran the Argyle mine until 2020 and now operates Diavik, in a remote part of Canada's Northwest Territories, hasn't ruled out putting in a bid.
But whatever happens, Anglo has put its cards on the table and said it no longer wants De Beers.
It took control of the company in 2012, paying $5.2bn in 2012 for the Oppenheimer family's 40 per cent share, thereby increasing its stake to 85 per cent (the Botswana government owns the remainder).
Even before the BHP bid, De Beers had been sounding out luxury houses and Gulf sovereign-wealth funds as possible buyers.
Then on 15 May it announced, to nobody's surprise, that De Beers was officially for sale, as it sought to concentrate its efforts on a "radically simplified portfolio" with copper, premium iron ore and crop nutrients. Watch this space.
Have a fabulous weekend.