New De Beers: The Mystery Behind the Shares

By Erez Jacob Rivlin, interim CEO of IDEX Online, a marketplace offering over a million diamonds to jewelers worldwide. Erez is an entrepreneur and consultant who served as a diamond advisor to the Russian government in the nineties, and to the late Angolan President dos Santos.

De Beers, the company that ruled the diamond world for over a century, has lost over 80% of its value. Even so, investors are queuing to buy it. That's a strong indication of the potential value it holds. But potential for who? The upcoming sale of De Beers could be a turning point for the natural diamond industry or the opening of a Pandora's box.  

Anglo American gained overall control of De Beers in 2011 from the last representative of the Oppenheimers, adding it to a portfolio of mining businesses that includes nickel, copper, and manganese. And where passion ended, trouble began. Anglo treated diamonds just like all its other minerals. There was no 'favorite child', unlike the special place diamonds had held in the Oppenheimers' hearts.

The Oppenheimers had been pouring money into shaping the global consumer demand since the Second World War. Once the Oppenheimers were out, Anglo poured money into expanding its mining operations. Point.

In 2022, De Beers delivered a record profit of $1.4 billion to its shareholders following a COVID sales surge. The rush toward synthetics was already well underway. If Anglo had allocated just a third of those earnings, a $0.5 billion global campaign promoting natural diamonds, it might well have changed the course of the diamond industry's history.

But it didn't. Instead, Anglo's leaders chose to direct the cash into copper, meeting an ever-increasing demand for electric vehicles and AI data centers, leaving diamonds on the back seat. But were they wrong?

Look at Anglo American's share price, which is almost at its all time record since the COVID happy days of 2022. Anglo's directors chose to replace the diamond sparkle with the new glamor of copper.

The shareholders of Anglo American appointed a board of directors with the skills and experience to focus on benefiting all the shareholders of Anglo American. Their job is to ignore the interests of part of the shareholders, the global diamond industry, Botswana, Angola, or any other sector or country. If the future is copper, then copper it is.

Sell De Beers and focus on what brings Anglo a brighter and more profitable future. Anglo's share price shows that their board of directors' strategy was successful for its shareholders. For the diamond industry it meant tough times and a critical crossroad - the sale of De Beers.

For the first time in a hundred years, De Beers' umbilical cord will be cut from its mining giant parent. A new and focused board of directors will be appointed, without iron ore, nickel, or manganese to blur its vision. The strategy it chooses could determine the fate of the diamond industry and the natural diamond brand. But what skills and experience will those directors bring? Will they be united under a common goal, like Anglo's successful directors who delivered strong returns to their richer and happier shareholders?

There are two main types of new potential De Beers shareholders: owners of assets and owners of cash. On the one hand, mining countries - namely Botswana, Angola, and perhaps Namibia - hold assets in the form of diamond reserves within their territories, bringing a strong balance sheet to the table. On the other hand, funds or billionaires with available capital provide the liquidity needed to turn those valuable assets into long-term profits. To make the deal work, one must partner with the other. As the love song says, "you can't have one without the other".

Unfortunately, just like love, it is not as simple as it seems at the outset. The challenges are countless. In which country will De Beers invest more in exploration? If prices continue to fall, which country and which mine will be closed first? From which country or fund will the CEO, CFO, and other top executives come? How will the interests of minority shareholders be protected? How much will be spent on diamond advertising, and how much will be distributed to citizens?

More than fifty years ago, industrialized countries began abandoning the model of government-owned corporations. UK Prime Minister Margaret Thatcher privatized more than 40 state-owned companies. President Reagan and other Western leaders followed, sharply reducing government involvement in their economies.

The key will lie in the bylaws of the new De Beers. In the constitution of this emerging sovereign diamond corporation. Its founders will face the challenge of balancing government interests with those of funds and private investors. Its fate will most likely be determined by the profile of its leaders. An objective, professional, and experienced management team, with a touch of government guidance, could succeed. A mixed group of non-objective managers appointed to represent the sometimes conflicting interests of governments, funds, diamantaires, or private billionaires would be a recipe for failure.

There is probably one word that will determine the success of this unusual group of shareholders: Meritocracy.

De Beers' new shareholders should appoint a management team based on proven expertise and experience. The board of directors must share one common goal: increasing the value of the new De Beers for all shareholders. Managers should focus on daily operations without favoritism toward any party, serving only the interests of De Beers itself. De Beers needs directors and executives like those at Anglo American. Top professionals who made life tougher for diamantaires, but delivered great returns to their shareholders.