Botswana is still considering increasing its stake in De Beers as Anglo-American moves ahead with plans to spin off its diamond business. At the Mining Indaba in Cape Town, Anglo-American CEO Duncan Wanblad told the media that the companyโs divestment from De Beers would be โsubstantively completeโ by the end of 2025. Currently owning 15 percent of De Beers, Botswana has expressed interest in acquiring a larger share, though the specifics of its ambitions remain unclear.
โThey certainly indicated a desire to increase their stake, and they have also said they would do so on commercial terms,โ Wanblad said, though he declined to reveal the exact size of Botswanaโs intended stake.
Anglo American has been restructuring its portfolio after rejecting a $49 billion takeover bid from BHP, the worldโs largest miner. Since then, the company has streamlined its operations, offloading coal assets, agreeing to separate its platinum business, and seeking buyers for its nickel operations in Brazil. Spinning off De Beers, Anglo believes this could boost its valuation as global demand for diamonds remains weak.
โItโs going to be fully set up as a stand-alone business to ensure itโs not a drag on Anglo American,โ Wanblad explained.
De Beers, which draws its value from the diamond market, is currently facing significant challenges.ย
Anglo-American said it is conducting an impairment review of De Beers’ carrying value, evaluating the impact of current diamond market conditions and the decline in demand from China, which is likely to result in an impairment in the full-year results. The company expects De Beersโ full-year 2024 EBITDA to be marginally negative.
โChallenging trading conditions persisted throughout the quarter, with cautious retailer purchasing and above-normal inventory levels in the midstream suppressing demand for rough diamonds,โ Anglo said in its Q4 2024 report.ย
It also reported that rough diamond sales from four Sights in Q4 2024 totaled 4.6 million carats (4.3 million carats on a consolidated basis), generating consolidated rough diamond sales revenue of $543 million. This compares with 2.8 million carats (2.6 million carats on a consolidated basis) from two Sights in Q4 2023, which generated consolidated rough diamond revenue of $230 million.
Anglo-American stated that full-year consolidated sales volumes had decreased by 28 percent year-on-year, while the average realized price increased by 3 percent to $152/ct. This reflects a higher proportion of higher-value rough diamonds sold, partially offset by a 20 percent decrease in the average rough price index.
โWe expect full-year 2024 EBITDA for De Beers to be marginally negative (H1 2024 EBITDA: $300 million),โ the company added.
In February 2024, Anglo-American announced a $1.6 billion write-down of De Beers’ book value. When Anglo acquired 40 percent of De Beers from the Oppenheimer family for $5.1 billion, increasing its stake to 85 percent, the company was valued at $12.75 billion.
The global diamond sector has been in decline since the second half of 2023, continuing into 2024, with reduced diamond sales volumes and lower prices. This downturn also impacts Botswanaโs exports, GDP, and government revenues. Over the first three quarters of 2024, De Beersโ diamond sales dropped by 40 percent year-on-year, and production at De Beers mines (in Botswana, Namibia, Canada, and South Africa) fell by 21 percent, with Debswana, the largest contributor to De Beersโ output, seeing a 26 percent reduction.
De Beers-Gov concludes deal
Anglo American received a boost this week with confirmation of a sales agreement with the new Botswana government. Wanblad confirmed that the terms were consistent with the โin-principleโ agreements signed with the previous government under former president Mokgweetsi Masisi in 2023. Minister of Minerals and Energy, Bogolo Kenewendo, expressed hope that the deal would restore stability and rebuild market confidence in diamonds, making De Beers an attractive target for investors betting on a market recovery.
โAn IPO would be great, but given the ongoing weakness in the diamond market, a trade sale would likely bring more value,โ Wanblad said regarding the potential sale of Angloโs stake in De Beers. โTrader buyers have a better feel for the market, but as markets recover, the public may gain confidence. Both options are on the table, though I wouldnโt rule out an IPO.โ
Botswana is well-positioned to pursue a larger stake in De Beers, with analysts suggesting a potential 50/50 partnership. Increasing its share could provide Botswana with greater revenue, particularly if the diamond market recovers. It would also allow more influence over the companyโs strategic direction and protect against dilution if other investors, such as Angola, continue to draw attention as a diamond investment hub.
Larger stake would increase revenueย
โThe sale of Anglo Americanโs shares in De Beers presents Botswana with an opportunity to evaluate the benefits and risks of increasing its stake,โ said Sheila Khama, former CEO of De Beers and a leading Extractives Policy advisor. โIf itโs deemed appropriate, a larger stake could generate more revenue while preventing dilution, especially if Angola becomes more involved. The challenge is balancing the potential upside with the associated risks.โ
Historically, Botswanaโs stake in De Beers has grown steadily from 2.5 percent in 1987 to 15 percent in 2004. In 2011, when Anglo American acquired the Oppenheimer familyโs 40 percent stake, Botswana had the option to increase its stake to 25 percent but declined due to fiscal concerns. The government at the time argued that such an investment would worsen the countryโs budget deficit and hinder its ability to fund other development projects.
Analysts believed there was little strategic advantage in the government spending $1.26 billion to increase its stake in a business it already controlled through a 50/50 joint venture with De Beers in Debswana.
Economist says Govโt should abandon HB Antwerp stakeย
A key question now is how Botswana would finance the acquisition of additional shares. Especially because Dr Keith Jeffries, an economist at Econsult Botswana, suggested that the government reconsider its decision to buy shares in diamond company HB Antwerp, estimated to cost nearly P1 billion. While the government believes that investing in the Belgian diamond trader could expose Botswana to a wider diamond value chain, Jeffries noted there has been no convincing case for the expenditure.
Additionally, Botswanaโs over-reliance on diamonds is a growing concern. With uncertainty in the diamond market due to lab-grown diamonds, changing consumer preferences, and economic fluctuations, many believe Botswana should prioritise diversifying its economy rather than deepening its dependence on a single commodity.
De Beers Q4 performanceย
โChallenging trading conditions persisted throughout the quarter, with cautious retailer purchasing and above-normal inventory levels in the midstream suppressing demand for rough diamonds,โ Anglo said in its Q4 2024 report.ย
De Beers continues to monitor market conditions and is implementing measures to better manage cash flow, spending, and inventory levels for 2025. The production guidance for 2025 has been revised to 20โ23 million carats (100 percent basis), down from the previous 30โ33 million carats, due to the ongoing challenges in rough diamond trading. De Beers will continue to assess trading conditions and adjust its approach as necessary.
Anglo-American noted that, despite lower output, mining operations delivered steady performance during Q4 as the company continued to adjust production levels in response to the market. Rough diamond production decreased by 26 percent to 5.8 million carats, a proactive response to sustained low demand and higher-than-normal inventory levels in the midstream. Despite low sales volumes, De Beers has managed to slightly reduce inventory year-on-year by controlling purchases and downstream stocks.
In Botswana, production fell by 31 percent to 4.2 million carats due to planned reductions at Jwaneng. In Namibia, production increased by 3 percent to 0.6 million carats, driven by higher-grade mining and better recoveries at Namdeb, partially offset by lower production at Debmarine Namibia. South African production grew by 27 percent to 0.6 million carats, thanks to Venetia underground and a slight improvement in the grades of processed ore. In Canada, production declined by 43 percent to 0.5 million carats due to planned treatment of lower-grade ore.
