The New Diamond Boss
June 13, 24
by Erez Jacob Rivlin, diamond market analyst and consultant. Served as an advisor to the Russian Government (Minister Bychkov), and to the late Angolan President dos Santos. Managing editor of www.diamondherald.com Contact erez@diamondherald.com
De Beers is heading for what will probably be its second consecutive year of net losses. That's beyond alarming for any business entity, even one which is, like De Beers, operating under extremely tough market conditions.
Last month parent company Anglo American rejected a $49bn takeover bid by Australian mining giant BHP. Some of Anglo's shareholders, led by BlackRock, advocated for the takeover, but others objected, probably relying on its positive cashflow and a healthy $6bn in financial reserves - more than enough to hold to De Beers and Anglo's other activities.
A New Boss in Town
But even the most caring parent sometimes has to show tough love. De Beers' joint venture promoting natural diamonds with US-based Signet jewelers and its announcement that it will no longer produce synthetic diamond production, are tactical steps in the right direction. But De Beers' management doesn't call the shots. It's up to Anglo to decide on the overall strategy and how much money it wants to invest in any rescue plan.
Distributing profit to shareholders is a simple business fundamental. But the idea of shareholders putting money into a business is a reversal of roles. The real boss now is whoever is accountable for the allocation of precious reserves to nurse the sick child back to good health. Meet Mr. Duncan Wanblad, Anglo CEO and, for the time being, the most important person in the diamond industry.
As a youngster he surprised his mother when he told her his dream was to become a Formula One car mechanic. Most of his close relatives, including his father, uncle and grandparents, worked in the mining industry. True to his word he followed his passion to motor sports and actually became a mechanical engineer. But a vacation job in mining brought him back to his family roots. He went on to become directly involved in the management of Anglo's copper and platinum operations, and in 2009 he was appointed as a member of Anglo's executive leadership team (ELT) which oversees its entire diversified mining operations.
Industry at a Turning Point
BHP's takeover bid caught Wanblad and his management team off guard. The chairman and CEO sections in the 2023 financial report published just a few months earlier, acknowledged some major difficulties in some of its corporate activities but the rest was "business as usual". Nobody mentioned a major restructuring plan for many of Anglo's operations and there wasn't a single word about selling De Beers or a potential IPO.
At a Q&A conference on 14 May, Wanblad explained why his plan for Anglo was better than that of his rival Mike Henry, CEO at BHP. The BHP takeover bid was still on the table at the time and Wanblad was fighting not only for Anglo American's future, but for his own personal career.
BHP's takeover bid forced Anglo's shareholders to choose a road without return. If the BHP bid had succeeded, they would have swapped their shares for those in a new and more efficient, giant corporation - a merger of BHP and Anglo American.
Once the bid was rejected, the ELT headed by Wanblad, faced a tremendous pressure to prove their plan, rather than BHP's, would bring the most value to Anglo's shareholders. After its share price was cut in half in the past two years, a winning score for Wanblad would be a recovery of at least 20 per cent under similar tough commodities market conditions.
So what could diamantaires expect from "the most important man in the diamond industry"? Let's go back to that Q&A on 14 May. Analyst Alexander Pearce, of BMO Capital Markets, asked Wanblad whether Anglo would consider "splitting up the upstream and downstream parts" of De Beers operations.
His answer: "I really want to reinforce what I have been saying for ages. It is a great business, and it has fantastic assets, and it has an exceptional brand. And, therefore, on that basis, it really deserves to be together on that set of criteria. How we do this is going to be a journey."
Another analyst, Matt Greene, from Goldman Sachs, asked about the risks of value leakage in a restructuring plan including a potential sale of De Beers. Despite the pressure he'll experience in the coming year, Wanblad showed no signs of panic, and answered as a good negotiator should answer. "We are not forced sellers here," he said.
De Beers is a risky but attractive business opportunity. To make a penny, one should buy a company in trouble when it has a reasonable recovery potential, rather than for a high price when it is at its pick. A buyer or buyers for De Beers should appear soon, and for a reasonable (not the highest) price, it would make sense that Anglo's shareholders would gladly pass on Wanblad's new diamond MVP (most valuable player) title, to let him focus on the other, less complex activities.
Nobody can guarantee a successful IPO or a deal for De Beers (and half of the diamond industry). Wanblad needs to promote a deal, but act as if there would never be one. Anglo's financial reserves will not be directed exclusively towards the recovery of its problematic diamond (and platinum) operations. For example, investing in its healthy copper mines would further increase its profits from an existing healthy and most lucrative activity. As diamantaires we can only hope that Wanblad will see that natural diamonds can outshine at least some of the sparkling profits currently being generated by copper.