Anglo American and Botswana: Divorcing and Remarrying

Ernest Oppenheimer gained control of De Beers in 1929, and Anglo American bought the control from the Oppenheimers in 2011. Just 14 years later, and the current owners have decided to pass the reins to the highest bidder. This upcoming sale holds both explosive and constructive elements that could impact the millions of people related to the global diamond industry. So who are the new owners that the diamond industry should embrace, and who might eventually become a threat to the industry?

Often, business partnerships are compared with the life of a married couple. Despite having their differences during a 60-year relationship, overall, the bottom line was positive for all involved. Botswana, in comparison with its neighboring African countries, became a prosperous nation, and Anglo American, at the same time, became a prosperous controlling shareholder. 

On 6th June this year, Clara Denina of Reuters, listed 6 potential candidates who could become the new owners with the controlling shares of De Beers. But before letting any new owners swap places, the Botswana Government is demanding an increase in its share in De Beers. Botswana, on one hand, allowed De Beers to enjoy a share of its riches till today, but on the other hand, Botswana would have never had any diamond riches without the initial De Beers' investment in risky exploration. 

By demanding a larger share beyond the current status quo, the Botswana Government's move could be interpreted by many as an aggressive act of nationalization of assets of foreign investors. A reputation that any reasonable government would rather avoid (read more on that issue in the article "Botswana, De Beers and the Infinite Question of Fairness" published in IDEXOnline Feb. 16th 2023). 

Stuart Brown worked for De Beers for 20 years, served as its CFO for six years, and in his last year was the joint acting CEO of De Beers. Stuart currently consults to the mining industry and is on the board of several companies, including Ferrexpo Plc and more. 

When asked about the upcoming sale, Stuart (who does not take part in any bidding group) shared his view with us. "The Botswana government enjoyed more than 80% of the profits generated by diamond mining operations. This represents the real value once we account for the combined revenues from Botswana's 50/50 partnership in Debswana, various taxes charged, and the additional dividends when paid, from its 15% direct ownership of De Beers. Any demands to increase its shareholding would not significantly raise Botswana's overall income but would mainly create difficulties in completing the sale of De Beers." 

Financial risk calculation and the bidding process will determine whether Botswana will increase its share in De Beers. But for both the Botswana Government and the rest of the diamond industry, the new type of shareholders represent a very high risk. 

Mining corporations know very well the high costs of mineral exploration and the endless, time-consuming process that it requires. Therefore, major miners are building a long-term strategy that is based on their advantage in mining know-how.

Venture capitalists, who are sometimes referred to as 'vultures', did not earn their belligerent reputation for nothing. And it is a reality. For as far as it was published, none of the current bidders are either bringing thousands of engineers with unique mining expertise, nor a unique know-how in luxury brand protection and development. 

Any bidding consortium will consist of some private investors backed by funds and banks, and in a similar version, will be a management buy-in that will include former De Beers managers. We do not know most of the details and the identities of all the bidders who form the bidding groups, but it seems that there is a main element that unites the diamond industry and the Botswana Government: Demand from the new controlling shareholders, a long-term investment, and a clear commitment to the recovery of the global natural diamond brand.

New 'diamond leaders' might even hide behind their short-term goals. Once in power, there could be many devastating scenarios, such as operating in a non-transparent way, which could lead to conflicts among the new shareholders and the Botswana Government. Seeking to maximize profitability in the short-term could prove to maximize the damage to the natural diamond brand and to the entire global diamond industry.

On the bright side, the right new responsible owners of De Beers, who will bring the right vision, along with the substantial fresh capital required for marketing, could revive the natural diamond brand. Such a move could prove once again that not all marriages last forever, but diamonds do.