To De Beers or not to De Beers Part 2: An investment analyst perspective :: Mmegi Online

A few weeks ago I gave a presentation on the Botswana economy and opined on whether it would be a good idea to purchase De Beers shares from Anglo American. 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.

With Part 1 of the article having run last week, below are the remaining major factors that in these kinds of instances, an investment analyst would consider for any deal as they prepare a motivation to their investment committee:

Regulatory, licensing, and contract risk: The long-term mining licences and sales agreements (with Debswana) have recently been extended/renegotiated through to 2054. Other agreements with other countries would also need to be evaluated to see the risk they pose. It would be prudent to assume that if any of the countries feel the change in ownership is not favorable for them, they might want to exit these agreements (adverse material change clauses could likely be triggered) and these would affect all contracts De Beers have with miners, suppliers and potentially sight holders. Botswana would have to do a due diligence and assess this risk and what that risk implies to future revenues and what the company would look like. Other issues could be if there is a consortium of countries owning De Beers, having uncertainty around elections and if change of governments could affect the running of the country or existing agreements. An example of regulatory risks is how the US imposed tariffs on Botswana and India for imports and how those kinds of dynamics could affect future sales.