Oppenheimer's Sell DeBeers!

[Michael Alexander]

ohannesburg - Global miner Anglo American [JSE:AGL] has agreed to buy the Oppenheimer family's stake in diamond miner De Beers for $5.1bn in cash, taking its ownership of the diamond miner to up to 85%, it said on Friday.

Anglo has long been speculated to be considering a deal to increase its stake in unlisted De Beers, which vies with Russia's Alrosa for the title of the world's largest diamond producer, from the current 45%, but Friday's announcement was unexpected.

"Today's announcement marks our commitment to an industry with highly attractive long term supply and demand fundamentals," Anglo American CEO Cynthia Carroll said.

"Underpinned by the security of supply offered by a new 10-year sales agreement with our partner, the Government of the Republic of Botswana, this forms a compelling proposition."

Anglo American said it had reached a deal with the CHL Group, which represents the Oppenheimer family interest, but added Botswana had a pre-emption right over the CHL stake, potentially lifting the government's ownership to up to 25%.

Anglo said that if Botswana exercised its rights in full, it would raise its own interest in De Beers to 75%.

De Beers, founded by Cecil Rhodes in the 19th century, controls about 40% of the world's rough diamond supply.

Anglo American shares were up 2.3% at R302.52 on Friday morning on the JSE Top 40 - (Tradeable)

[toonfandangl]

Yep..................... was on our news yesterday


By: Martin Creamer
4th November 2011



JOHANNESBURG (miningweekly.com) – The shares of Anglo American rose sharply on the news that the diversified major has agreed to buy the Oppenheimer family's 40% interest in De Beers for $5.1-billion cash.

"A sparkling purchase. We believe that Anglo has struck a very good deal for itself," was Liberum Capital's reaction from London, as Anglo's shares rose 3.38% in Johannesburg before noon to more than R306 a share.

"We're very, very attracted to the diamond industry," Anglo CEO Cynthia Carroll told Mining Weekly Online from London in a media conference call.

No other diversified rival mining major can match what Anglo will have in De Beers' 39% diamond market share. The diamond assets of both Rio Tinto and BHP Billiton have a small 6% market share. Alrosa of Russia has the second biggest market share of 23%.

"There's massive growth potential for diamonds. The attractiveness of this industry is the fact that not only is the demand out of the emerging countries, but its also in the developed countries as well," Carroll added to Mining Weekly Online.

De Beers chairperson Nicky Oppenheimer, 66, who in April quit the Anglo board, described the family's decision to sell out of De Beers as "momentous and difficult".

Liberum Capital put the reason why the Oppenheimers are selling down to "succession issues".

Jonathan Oppenheimer, the Oxford graduate son of Nicky and Strilli Oppenheimer, was at one stage seen as the heir apparent, but he has played a far less visible role in the group since stepping down as MD of South Africa's De Beers Consolidated Mines in 2006.

The family has been in diamonds for more than 100 years and Anglo has been a major De Beers' shareholder since 1926.

But Oppenheimer has told Brendan Ryan of Miningmx in Johannesburg that he and Jonathan intend using th $5.1-billion proceeds from the sale to pursue projects in South Africa and Africa under the long-standing banner of E Oppenheimer & Son.

As he has a two-year restraint clause, he was restrained from getting back into diamonds for two years.

He said he never believed in simply leaving money in the bank and would continue to operate out of Johannesburg.

Anglo is taking up to 85% in De Beers at a time of "rapidly evolving diamond market", and would not have to make any special financial results to do so.

Anglo CFO Rene Medori said that the company's $3.5-billion undrawn facility and $2.2-billion cash available outside of South Africa would be used to fund the deal, which was not expected to close until "at least" mid-2012, because of its subjection to regulatory approval.

Carroll told Mining Weekly Online that, while the current 40% of world diamond demand from the US was poised to continue, India, China and the Gulf would likely also represent close to 40% of global demand by 2015.

"The country which is really leading the charge is India, where demand is growing at between 20% and 30% per annum," she said.

She would not be drawn on whether a new acquisitiveness might replace the ongoing asset shedding of De Beers given the under supply position.

She also declined to comment on whether the speculated separate listing for De Beers might eventuate under greater Anglo control.

"We're interested in the business as it stands right now, and taking it further," she said.

The Anglo deals with CHL Holdings and Centhold International gives Botswana the right to increase its interest in De Beers from the current 15% to 25%.

In his comment, Botswana's Minerals Minister Dr Ponatshego Kedikilwe made no mention of exercising that pre-emption, however, but instead said that the country looked forward to building on its relationship with Anglo through the Debswana joint venture.

If Botswana decides to exercise its right in full, Anglo will acquire an incremental 30% interest in De Beers, taking its total interest to 75% rather than the full 85%.

What Anglo would then pay to CHL will be reduced proportionately, and Botswana would be required to pay a pro rata amount of the $5.1-billion.

Carroll was present when Botswana in September gave De Beers ten years of certainty for more than 60% of its diamond sourcing, in a period of supply constraint and exponential consumer demand.

DIAMOND PRICES

"Prices have exceeded the peak levels of 2008," Carroll said, adding that demand was expected to outperform mine supply significantly, which would lead to the supply-demand gap continuing to drive rough diamond prices.

She was confident that the "iconic" De Beers brand would enable the diamond giant to capture the opportunities of the "rapidly evolving diamond market".

On expanding De Beers' 30-store diamond retail business, Carroll said it was early days to have the retail conversation, but spoke of upside potential in Asia.

She declined to say whether the forced sale of Anglo's copper assets to the State-owned Codelco in Chile had influenced the company's decision to do the De Beers deal.

The transaction is expected to be accretive to underlying earnings before depreciation and amortisation on fair value adjustments in the year of acquisition.

Anglo's current 45% stake in De Beers generated attributable earnings before interest, tax, depreciation and amortisation of $666-million and, as at June 30, De Beers had $1.5-billion of non-interest bearing debt.

Anglo itself has acquired a deep understanding of diamonds as a De Beers shareholder for 85 years, and its largest shareholder since 2001.

It is doing the deal in the belief that it can add value to De Beers' geographically diverse large-scale, low-cost mining assets and pipeline of greenfield and brownfield projects.

Anglo chairperson Sir John Parker said that Anglo looked forward to building strong links with De Beers' sightholders, its government joint venture partnerships in Botswana and Namibia, and its black economic-empowerment partners in South Africa.

It was Parker who reportedly surprised Oppenheimer two weeks ago by putting the offer on the table.

On quitting the Anglo board earlier this year, Oppenheimer said: "There comes a time when it's right to stand aside and allow others to carry the baton. For me that time is now."

The family's holding in Anglo had at that stage dwindled to 2%, following the sale in 2006 of one third of their Anglo shares to Chinese billionaire Larry Yung, followed by another 2.1-million of them at £30.44 a share on the open market.

Oppenheimer once described his personal best achievement as "choosing my parents very well".

His first Anglo job was as a 'bottlewasher' in the then gold division.

While Anglo at one stage moulded South Africa's economic fabric, its influence has waned considerably since it transferred its corporate domicile from Johannesburg to London.

It is currently the world's fourth largest mining company after BHP Billiton, Vale and Rio Tinto.