Where Next for De Beers?

What does the future hold for De Beers?

Things haven't been easy for anyone in the diamond industry of late.

Inflation and interest rates are up, lab grown sales are up, inventories are up, prices are down, China's post-Covid recovery has been sluggish, and in macro-economic terms the world's in a bit of a mess.

De Beers saw sales slump last year - down 36 per cent to $3.63bn, per carat prices down 25 per cent to $147 - and it made a loss in the second half of 2023.

Output at its mines in Botswana, Namibia, South Africa and Canada fell by 8 per cent to 31.9m carats.

But the bigger concern, by far, is that it sold just 24.7m carats during the year (down 19 per cent). According to De Beers CEO Al Cook the company has built up diamond inventories of around $2bn, which is considerably more than they'd like.

Parent company Anglo American has written down the book value (principally relating to goodwill) of De Beers by $1.6bn to $7.6bn - or 17 per cent - based on its assessment of global GDP growth and consumer demand.

It has announced $100m of cuts annually, through job cuts and the sale of peripheral parts of the business.

It has already suspended the Chidliak exploration project in Canada's vast, frozen Nunavut territory and the Gahcho Kue underground expansion, also in Canada.

A bit of history. Cecil Rhodes founded De Beers in 1888. Ernest Oppenheimer, founder of the Anglo American mining company, built the De Beers empire into a global monopoly.

Anglo American bought the Oppenheimer family's 40 per cent stake in 2011 for $5.1bn and currently owns 85 per cent. The remainder belongs to the Botswana government.

And a bit of context. Anglo American is a huge business, and De Beers is only a tiny part of it. Underlying EBIDTA last year for Anglo's iron ore division was over $4bn and copper was $3.2bn. De Beers was just $72m.  

But Anglo has been suffering, as well as De Beers. Earlier this month, it reported a 94 per cent plunge in 2023 profits to $283m and announced 3,700 job losses - around a fifth of the workforce inn its platinum division.

The diamond business is cyclical and it'll bounce back, but when?

"De Beers is absolutely at the bottom of a cycle and we've seen it before," said Duncan Wanblad, Anglo's CEO. "And there's no doubt that as the world's GDP comes under pressure then the diamond business really does take the brunt, but it is cyclical.

He noted that platinum group metals (PGM) and diamonds were the two assets that were dragging Anglo's portfolio. He said Anglo was systematically reviewing all its assets and that nothing was off the table.

It was keeping an eye on the De Beers' balance sheet, he said, but wasn't actively considering a sell-off at present.

That's hardly a ringing endorsement. Try telling your spouse or partner you're not actively considering ditching them.

Berenberg, the equity research team, is in little doubt about what Anglo should do with De Beers. "We continue to think that the asset (De Beers) should be disposed," it said.

"A sale to a luxury business could be sensible, but we remain sceptical as to whether this would be at the $7.6bn carrying value that Anglo includes in its valuation."

Time will tell.

Have a fabulous weekend.