To De Beers or not to De Beers Pt 2: An investment analyst perspective
Mphoeng Mphoeng | Wednesday November 12, 2025 14:45
That letter became an article which I published in Mmegi but in both submissions there was a lack of data to feed the opinion. In this article, I try to feed the national discourse with some important data and considerations that an investment analyst would consider in making the decisions. Unlike in my original submission, I will try to avoid offering an opinion on which way to go but rather focus on the cold hard facts that the government and its appointed consultants would likely focus on and hopefully this will assist Batswana out there to form their own opinions on the strategic move.
Below are the four major factors that in these kind of instances, an investment analyst would consider for any deal as they prepare a motivation to their investment committee:
1. Strategic rationale & fit:
This applies to the reason for doing the investment or acquisition. In corporate companies this might relate to how acquiring the company could be helpful to the future strategic position of a company. For example, a bank could acquire a fintech startup or company which is innovating in mobile wallets and payments. Or a microlender such as Letshego could purchase a small bank. In Botswana’s case, purchasing a controlling stake in De Beers should be assessed looking at things such as Botswana’s sovereign and national interest, value creation logic and the timing of the strategic move.
Sovereign national interest: Botswana already participates in the diamond value-chain via its 50/50 joint-venture Debswana Diamond Company with De Beers, which mines much of Botswana’s high-value gem output. Botswana mined diamonds made up 71% of De Beers production carats in 2024 according to De Beers 2024 financial results. This resulted in revenues of about P40 billion in 2024 (down from P89 billion in 2022 and P62 billion in 2023). This P40 billion was 60% of all government revenues and the P22 billion drop between 2022 and 2023 was largely the main cause of the government budget moving from being a balanced budget in 2022 to a deficit of P24 billion in 2024. These numbers highlight how Botswana is dependent on De Beers and diamonds and shows how being able to “control” De Beers and hopefully diamond markets, is crucial to Botswana.
A greater stake in De Beers would also give Botswana deeper upstream and potentially downstream integration. For example, it would allow greater control in marketing, branding, cutting/polishing, global sales which align with national resource-sovereignty goals. For a few years there have been whispers that De Beers is potentially enjoying revenues and margins on diamond sales without much value and if this is true it could potentially lead to more revenues for the country or could allow the country to service the diamond markets at a cheaper price which could potentially boost sales and competitiveness of natural diamonds. For Botswana’s national interests this outcome could be a bigger win if Debswana mining production business remains strong even if that makes the overall De Beers business potentially weaker.
Value-creation logic: A question to ask is outside of the dependence of Botswana on diamonds, does buying more of De Beers create greater economic value for the country on purely financial basis i.e. will it improve revenues and return on investment from the diamond industry, will it improve diversification away from specifically diamond mining only and give us access to other revenue levers in the value chain like jewelry retailing etc? That is, will buying De Beers effectively increase government revenues? A big question with regards to return on investment will be what price do we pay for De Beers (currently listed on Anglo Americans books valued at $4 billion which is P55 billion). I will jump into this consideration in more depth when discussing deal structuring later on.
Value creation could also come from synergies. We would need to examine whether purchasing more shares could possibly get Botswana better terms on mining, sales, improved margins up the value chain making De Beers more profitable. We would also need to assess whether we believe De Beers is a growing business in a growing industry and whether acquiring it would give us great value in the future, or whether it is in an industry facing structural headwinds which might undermine the attractiveness of increased ownership?
2. Valuation & deal structure
Value can be acquired from any investment if it’s acquired at the “correct” price. Therefore, this may be the most important element of any negotiation with Anglo American. Anglo recently wrote down the value of De Beers by $2.9 billion in 2024 after another write-down of $1.6 billion in 2023 (and further impairments) due to weaker diamond demand, synthetic alternatives, and cost pressures. Currently the holding valuation of De Beers is around $4 billion (I’m assuming for its 85%) and therefore expect that this would be the asking price from any buyer. Unfortunately, details of how De Beers does its calculations for valuations are not available at time of writing this article so I am not able to test their assumptions.
So how are valuations determined? There are many different ways to value companies. The easiest, most objective way is to use share prices. This is not available to us as De Beers is part of the Anglo group. In instances like this, the investor would have to assess the financials and future forecasts for the company. Botswana’s consultants would have to assess the industry prospects and how much revenue they think De Beers would be able to make. An “easy proxy” would be to forecast dividends that De Beers will pay and try assess a fair price because valuations are just discount of future cashflows. We must pay for what we think we will receive in the future but for the past two years De Beers has been making losses (and am assuming not able to pay a dividend). Whatever valuation negotiated with De Beers would therefore likely factor its balance sheet, goodwill, skills and experience to reflect a value that one can turn into cashflow.
This will singularly be the most important exercise to be done to determine whether this will be a worthy investment.
Deal structure: After determining valuation, it will be important to agree on how the purchase will be structured. That is, how much shares will Botswana buy and how they will be financed and the implications on control and running of the company such as board seats etc. If we assume that Botswana purchases all shares at $4 billion (P55 billion), it is safe to assume Botswana would have to borrow money to purchase the shares. Ordinarily, a deal like this would be financed by debt paid for by the expected dividends the asset would generate over time. You would have to ascertain that whatever loan payments would be due per year, the company would be able to generate in profit and dividends. Assuming the borrowed money would be charged an 8-10% interest in Pula terms to reflect government borrowing rates for a loan of 5-10 years, the annual payment for the loan assuming amortization would be about BWP9 billion a year that would need to generated via profits from the entity. Considering trajectory of 2023 and 2024, this would likely not be possible but if you look at 2022 numbers (and a few years before COVID), Earnings before Interest, Tax and Depreciation was above $1 billion. This would have been marginally be able to pay this loan assuming we believe De Beers can go back to that level of profitability (not revenues). Failure to meet these revenue and profitability targets would mean Botswana has to pay for the loans from our own accounts or fiscus.
Another element in the deal structure would be how Botswana exits the De Beers investment in future. Botswana would have to determine whether this investment will be a permanent investment or whether we would have a holding period where we’d eventually then find a way to exit in a profitable manner. This could be done via listing the entity again in future or selling it off to another party like Anglo. This would be especially important if we are part of a consortium of shareholders and would need to agree on what happens if one of us in five years for example decides to sell.
3. Operational & business risk
Our consultants and investment analysts would need to assess issues related to the industry risk and what the implications would be for the operational side of the business. So what are the facts when it comes to the outlook of the diamond industry? Below are some critical ones.
Industry risk: According to the 2024 Global Market Insights Report on the Diamond Industry, the diamond industry was worth about $100 billion in 2024. Of this about 75% is natural diamonds, down from 99% in 2018. Therefore synthetic diamonds have grown exponentially in the past seven years with the expectation of growing another 5% year on year until 2032. With this report forecasting a total diamond market of $132 billion in 2032 and synthetics growing to $43 billion, the implication is that natural diamonds would drop down to roughly 67% of global diamond industry. Considering that synthetic diamond prices continue to drop, with synthetics now 90% lower than natural diamonds, it is possible that they could take a larger market share of carats from natural diamonds as they become more mainstream and accepted.
This does imply there will be growth in natural diamond sales. Considering that De Beers currently accounts for about 60% of natural diamond sales it means any shrinking of the natural diamond industry will likely affect De Beers mainly. This has largely been seen in drop in revenues for De Beers with headline revenues dropping from $6.6 billion in 2022, $4.2 billion in 2023 and $3.2 billion in 2024. Underlying Earnings before Interest and Tax also dropped from $994 million in 2022 to a loss of $252 million in 2023 and $349 million in 2024. This is largely because De Beers mines produced a lot more than they were able to sell and this could imply that going forward, De Beers may need to produce less, potentially shutting down other mines or reducing investment in mining. The years of De Beers producing 30,000 carats a year may be over and a new normal between 15,000 and 20,000 carats may end up being where we settle in future.
Mckinsey and Co also published a report in November 2024, opining that the diamond industry is at an inflection point. Mckinsey notes that the industry is now driven by Gen Z demand and this change from Baby Boomers is pushing more ESG, socially conscious purposes. This has made it more important that companies like De Beers clearly show where their diamonds come from and tell socially acceptable stories and focus marketing on stories such as the “Origins” story they launched in May 2025. This could therefore mean that while the natural diamond industry grows at a slower pace, potentially even at lower prices as forecasted, companies with the right type of branding and marketing can still potentially grow and be valuable. Botswana has to therefore ask itself if leaning even further into the diamond industry by buying De Beers shares reflect an asset which they think will be able to grow in the future.
Operational control & joint-venture complexity: Another consideration would be whether Botswana needs to acquire all of the De Beers shares or whether we move our stake from 15% possibly to 30% or even 50 (+1)% in order to be a controlling shareholder. This would have operational and stakeholder implications. Just as much as Botswana wants to impose its sovereign will on such an important asset to its future, having Botswana become the only or majority shareholder would affect South Africa, Namibia, Angola and possibly even Canada. These countries would see the same risk that Botswana is now seeing with Anglo selling.
This is why Angola itself has expressed in purchasing a majority stake (which will likely come to Botswana to at least match first due to pre-emptive rights for existing shareholders).
An essential part of the deal would be how the entity would be governed. That is, who is the controlling shareholder, what that implies for board seats and if there are other shareholders how are they protected as minorities. If Botswana owns the full company or majority (or Angola), it would be prudent to believe that the other countries would be uncomfortable with their assets being controlled by another country. This essentially creates a geo-political issue. One suggestion could be to have all the countries own and equal amount of De Beers (or at least have significant minority protections) but this could essentially turn the company into an intergovernmental organization like SADC, SACU, AU etc. This would likely mean the decision making becomes cumbersome and slow. Similarly having one country own it would essentially turn it into a parastatal which will affect operational efficiencies. De Beers should be able to make business driven decisions without being hampered by government bureaucracy and political considerations.
Related to this would be management and oversight capacity of the countries to run an entity like De Beers which is sprawled across many countries and across the value chain. Would we have sufficient expertise to provide oversight of these? This however could be solved by enlisting independent board members who have requisite skill in governance of the entities.
In order to manage efficiencies and ensure the company continues to be nimble and operate as best in class, consideration could be had to potentially also have a private corporate shareholder as the managing shareholder of the business. This could be structured in a manner where they continue to wield majority operational and oversight power ensuring that shareholder value continues to be the main consideration in operations.
*Mphoeng Mphoeng is a director at a corporate finance, economics and investment consultancy, MP Consultants. He has previously worked at University of Botswana, BIFM, Standard Chartered and Bank of Botswana