189 (11.03.18)




Anglo American could raise a packet by listing its giant diamond subsidiary De Beers on the London Stock Exchange, but what are the obstacles?

Ever since it appointed its former top lawyer Bruce Cleaver as group CEO, diamond giant De Beers has been firing on all cylinders.
   Having taken the top job at the world's most prestigious diamond house, Cleaver has pledged to make its mines carbon neutral within five years. He has bumped up its advertising budget to win over young consumers and has signed a three-year deal with the UN, to push gender equality in southern Africa.
   For good measure, Cleaver has also launched a blockchain initiative to improve the traceability of diamonds, benefiting those that come from modern, taxpaying operations, versus those that drop into the supply chain from Zimbabwe or Angola. Alongside Canada's prime minister Justin Trudeau and the president of the World Bank, Cleaver is also one of the UN's “He4She” ambassadors, promoting women's rights.
   So is Cleaver readying De Beers for something larger, listing it on the London Stock Exchange and unwinding its existing relationship with its parent company, Anglo American?
   A listing would generate a packet for Anglo's shareholders. De Beers generated $5.8bn of sales last year and nearly $900m of profit. On a ritzy stock market multiple, it could be worth $10bn to $15bn. Investors could meanwhile buy into the world's richest diamond mines without also having to own Anglo's clunkier assets, from manganese in South Africa to iron ore in Brazil, and De Beers' shares could pop to a premium.
   The timing is also favourable, with smaller producers struggling with sub-par, marginal mines and no new operations due

to enter production in the foreseeable future, keeping the market tight and diamond prices buoyed.
   Cleaver would love to list De Beers, according to senior bankers advising Anglo American. He also has the legal knowhow. But the obstacles are huge.
   The bulk of its diamonds come from Botswana, which has grown from one of the world's poorest countries fifty years ago to one of the world's fastest growing, as diamond revenue has poured into the capital Gaborone. A third of Botswana's GDP now comes from the diamond industry and the biggest component of that is its joint-venture with De Beers. Listing the company and shining a spotlight on a relationship that was originally little more than a private treaty is in no-one's immediate interest.
   The second constraint is pride. Anglo bought the Oppenheimer family out of De Beers in 2011, paying a princely $5.1bn for the family's 40 per cent stake. If a spin-off falls short of that price tag, Anglo will look like it paid too much, or is selling for too little, leaving management bound by a deal done seven years ago.
   There is also Anil Agarwal, the Indian billionaire who has amassed a $4bn position in Anglo's stock in the last 12 months, equal to around 20 per cent. Anglo's board, bankers and investors all remain twitchy about what Agarwal's intentions may be. Spinning-off De Beers would simplify Anglo and shrink it. Why do anything to make the group more digestible?
   Anglo American's parts may be worth more than the group bundled together. Realising that value is a different matter. Stasis wins the day.



BlackRock Pumping Capital Into Battery Metals

“We're going to see a massive, massive shift,” says the chairman of BlackRock's World Mining Trust

Q&A: Gary Goldberg

After a stellar 2017, gold giant Newmont is planning several major output expansions, says CEO Gary Goldberg

Briefing: Trump's Steel Trade War

Top mining headlines: US threatens trade war, cobalt prices flying, exploration spending on the up

Ask Julian

Fund manager Julian Treger, the driest man in London, answers business questions from readers