If nothing else, the London stock market has been synonymous with mining shares – if you wanted to invest in world-class extractive resource companies, London was the place to do it.
But on Tuesday, one of the London market's mining mainstays, Anglo American, announced a plan to break up, separating its diversified mining assets from one another in a move that could result in yet another delisting from the London Stock Exchange.
Anglo will sell De Beers, 15 per cent of which is owned by the government of Botswana, its platinum mining operations (Amplats) in South Africa and its coking coal mines in Australia, leaving Anglo American itself to focus on copper and iron ore mining in South America and Southern Africa, as well as a fertiliser mining project in the north-east of the UK.
“These actions represent the most radical changes to Anglo American in decades,” said Duncan Wanblad, chief executive of Anglo American.
“I believe these are the right decisions to position Anglo American to capitalise on the outstanding resource endowment opportunities within our portfolio today.”
Many analysts feel that these “right decisions” were made so that Anglo could fend off takeover bids. While the board rejected BHP's revised £34bn takeover offer on Monday, Anglo has been assessing its assets for some time and the break-up plan was largely accepted as a fait accompli.
“Certainly, Anglo was feeling the heat and more so, after BHP revised its offer,” Varun Sikka, senior metals and mining analyst at Alphavalue, told The National.
“So, while this plan might have been work-in-progress since Anglo’s shares were hammered late last year, today’s announcement could have been hastened to fend off another, this time hostile, attempt from BHP.”
However, the break-up is leaving more questions than answers, not least on the issue of what the future holds for De Beers, which is the world's biggest diamond producer and mines the stones in South Africa, Namibia, Botswana and Canada.
Also, while there are now other diamond mining companies listed in London, for example, Petra Diamonds, for much of the last century the only way to invest in diamond mining on the London Stock Exchange (LSE) was through shares in Anglo American.
If Anglo's break-up results in it leaving the LSE, that investment pathway becomes closed off unless, as some speculate, De Beers eventually lists separately in London itself.
Recently, the sparkle has gone out of De Beers' financial numbers, with a drop in both sales and earnings last year.
Sales of rough diamonds dropped by 19 per cent in 2023 to 24.7 million carats, while total earnings plunged to $4.2 billion last year, compared to $6.6 billion in 2022.
Falling prices of rough diamonds and the advent of cheaper lab-grown diamonds took their toll on De Beers' bottom line.
Many analysts believed that the thinking inside Anglo was that De Beers was no longer the jewel in the crown, but had been replaced by copper thanks to decades of economic expansion by the likes of China and the advent of electric vehicles.
De Beers chief executive, Al Cook, said the Anglo American break-up “opens up new possibilities under new ownership”.
Saying he was “very confident in our future”, Mr Cook added that De Beers will present a new strategy later this month.
Diamond suitors
But now the market is asking just who could be a potential suitor for De Beers? Who likes it enough to put an engagement ring on it?
The government of Botswana already has a joint venture with De Beers called Debswana, but analysts say it is an outside possibility that it will bid for the 85 per cent of De Beers it does not own.
“The government of Botswana wanting to buy Anglo’s stake in De Beers seems far-fetched as the idea of state-owned and operational control of mining assets isn’t very efficient, and they may rather want to have an operating partner who views diamonds as a long-term play, despite the growing risk from lab-grown alternatives,” Mr Sikka told The National.
Even though a bid from Botswana is remote, the government will be concerned, given that around 16 per cent of the country's revenue come directly from the Debswana joint venture. As such, any potential suitor will need to woo Botswana as much as De Beers.
“The value of De Beers is fundamentally created by Botswana. Without Botswana, De Beers doesn’t exist,” Botswanan President Mokgweetsi Masisi told CNBC Africa this month.
A suitor may come from the luxury goods sector, according to Dan Coatsworth, investment analyst at AJ Bell.
“Theoretically, a luxury goods company is the most likely buyer of De Beers as marketing is so central to stirring up interest in the diamond market and having a direct supply of stones would be advantageous to such a business,” he told The National.
“Putting those strengths together would have major advantages.
“However, such a deal also comes with the operational risks of owning a mining company which can be significant and could alter the overall risk profile of a luxury group, hence the latter could see shareholder opposition if it was a listed entity,” he added.
No easy separation
It is possible that a bid may come from De Beers' own customer base. Most of De Beers rough diamonds are sold though its global sightholder sales network.
Ten times a year, sightholders, which are companies that cut and polish diamonds, gather in Botswana, Namibia and South Africa to buy De Beers diamonds and it is not unfeasible that a group of these diamantaires might raise enough cash for a bid.
Keith Bowman at Interactive Investor told The National that market rumours suggest Anglo has “been talking to luxury houses such as LVMH and Gulf sovereign-wealth funds” about buying its stake in De Beers.
However, there will be some debate over the valuation and final price tag that De Beers could eventually command.
The searching question the market is now asking is that if Anglo American has been looking to offload De Beers for some time, why has it not already been sold?
Mr Coatsworth notes that, in essence, there has been a “for sale” sign outside De Beers for some years and that Anglo American “might have lapped up an opportunistic bid for the group” if one had emerged.
As such, the new strategy De Beers is scheduled to reveal at the end of the month could contain plans for a stock market flotation.
“The fact we haven’t seen a deal to date might imply that willing buyers are thin on the ground, which could strengthen the argument for floating De Beers than finding a trade buyer,” Mr Coatsworth told The National.
“However, diamonds have fallen out of favour with investors because of concerns over the rise of lab-grown diamonds – meaning De Beers is not going to be an easy separation from Anglo American.”
Splitting De Beers from Anglo American may thus prove more delicate than cutting a rough diamond, and getting them together in the first place will look simple by comparison.
Named after the two Afrikaner settlers, Diederik and Johannes de Beer on whose farm diamonds were discovered, De Beers the mining company was established in 1888 by the British colonial entrepreneurs Cecil Rhodes (after whom Rhodesia, now Zimbabwe, was named) and Barney Barnato.
In 1926, De Beers was sold to Ernst Oppenheimer, a German immigrant who along with the American banker JP Morgan had founded Anglo American a few years before.
For the next 80 years, the Oppenheimer family essentially controlled De Beers alongside Anglo American until Anglo bought out the family's 40 per cent stake in De Beers in 2011 for $5.1 billion.
Ernest Oppenheimer was famous for once saying that “common sense tells us that the only way to increase the value of diamonds is to make them scarce, that is to reduce production.”
The principle of a monopoly controlling supply was always a matter of controversy and the US Department of Justice filed an antitrust case against De Beers in 1945.
However, by 2000 it became obvious to De Beers that competition had been chipping away at its grip on the diamond market for years and so it instigated a change in strategy. Gary Ralfe, De Beers' chief executive at the time, said the company wanted to be seen as “the leader of the diamond industry, not the custodian”.
In the 1980s, De Beers controlled around 90 per cent of the global diamond market, which had fallen to around 60 per cent by 2000, while today it commands around 29 per cent.
By the time De Beers switched to a more competitive strategy 24 years ago, the legendary stockpile of diamonds it used to control the market had largely been whittled down.
So, while De Beers may be a shadow of its former self, it is still a force to be reckoned with in the global diamond market, and a potential buyer may be in line for a bargain.
After all, Anglo American recently wrote down its book value by $1.6 billion to $7.6 billion, a potential sparkling price tag that could attract much interest.
