Anglo American’s decision to "divest or demerge" from De Beers, after a 98-year partnership, means government has to decide whether to increase its shareholding in the diamond group while also bracing for the entry of a new partner.
This morning, Anglo American – which became De Beers' 85% equity investor in 2012 when founding family – the Oppenheimers divested – announced that it was looking to exit its investment in the diamond group as part of a strategic review of assets.
Anglo in February said it was reviewing its global assets after its 2023 profits fell 94%, with a $1.6 billion impairment charge on De Beers due to the double digit fall in retail diamond prices and demand suffered last year.
That process was significantly put under pressure by a multi-US billion dollar buyout bid by BHP, the world biggest miner. The Australian super-miner specified that its own value proposition for Anglo included reduced South African exposure and a review of De Beers’ position in Anglo.
On Monday, Anglo rejected the second BHP all-share offer valued at about $43 billion (P548 billion) saying it “continues to significantly undervalue Anglo American and its future prospects”. Anglo pledged to announce its own strategic update to investors, a pledge it made good on today in announcing its plans for De Beers.
“De Beers – to be divested or demerged, to improve strategic flexibility for both De Beers and Anglo American,” reads the update today.
While Minerals and Energy ministry officials had not responded to Mmegi enquiries on the potential impact of Anglo’s plans, the group’s latest move involves or implies the following:
* The Government of Botswana as a 15% shareholder in De Beers, likely has pre-emption rights under which Anglo would be required to first make an offer of its shares to government, before any other buyer * When the Oppenheimers divested from De Beers in 2011, government declined to exercise its pre-emption rights which would have taken its shareholding from 15% to 25%. Anglo subsequently increased its own shareholding from 45% to 85% by buying the Oppenheimer’s stake for more than $5.1 billion * The Minerals Development Company Botswana is expected to play a key role in advising government on what route to take in terms of its pre-emption rights. Government has already made inroads into minerals exploration and diamond downstream value addition through private entities * Key factors government would consider in assessing an increased equity offer from Anglo would be De Beers’ dampened valuation (ie lower pricing) at the moment due to the diamond slump. Long-term fundamentals of the diamond market do still favour strong value from De Beers, which would only benefit from positive goodwill from closer Botswana branding * Last October, Government and De Beers moved their 10-year sales agreement from an agreement in principle, to heads of terms, thereby transitioning to a non-variable stage of the various conditions agreed to in June. * President Mokgweetsi Masisi has said a final, binding agreement was due to be signed before June 28. It is not yet clear what obligations from the agreement will fall to the new shareholder, but a final transaction allowing Anglo to exit is unlikely to be finalised anytime soon or before the June 28 deadline * De Beers has said it remains focussed on the sales agreement with government. “In particular, we look forward to finalising our transformational agreement with the Government of the Republic of Botswana, who hold a 15% ownership interest in De Beers,” said De Beers CEO, Al Cook earlier today. * De Beers acknowledges that a new partner is due on its share registry. “Today’s announcement from Anglo American opens up new possibilities under new ownership. But some things will not change," Cook said. “We will continue to deliver value for all our stakeholders, including our partners in Botswana, South Africa, Namibia, Canada, Angola and other countries.” * The new investor to take over Anglo’s shareholding will have to carry the bulk of the costs of billions of US dollars in planned capital projects at De Beers, which include the $6 billion underground at Jwaneng and resource expansion works at Orapa. Government as the minority shareholder, also has a cost to carry and under the new sales agreement, may have less room to make this cost indirect such as forfeiting dividends * Should government exercise its pre-emption rights and take on more equity in De Beers, its share of the costs of the capital projects would also rise * While it is unclear whether the De Beers’ board had already approved funding for these particular capital projects, they represent the future of De Beers and the value underpinning any acquisition
The Botswana Mineworkers Union (BMWU), meanwhile, is seeking answers on the latest developments.
“Once it affects Debswana, it affects our members and we need to understand in detail what led to this decision and what the implications will be,” BMWU president, Joseph Tsimako told Mmegi. “We can only have a position on these developments after getting information. “Thus far, neither Anglo nor De Beers have reached out to the union.”
