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Anglo American taking control of De Beers

By · November 4, 2011 · 9:02 am · Leave a Comment

 

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By Peter Koven

A landmark deal on Friday promises to change the face of the global diamond sector.

Mining giant Anglo American PLC announced it will take control of industry leader De Beers by buying the Oppenheimer family’s entire 40% stake for US$5.1-billion in cash. That takes Anglo’s interest in De Beers to 85% from 45%.

De Beers dominates the industry and effectively created much of the consumer demand for diamonds, so this deal places Anglo at the forefront in this business.

“This has been a momentous and difficult decision as my family has been in the diamond industry for more than 100 years and part of De Beers for over 80 years,” family representative Nicky Oppenheimer said in a statement.

Anglo is well familiar with De Beers. It has been a shareholder since 1926, and the largest single investor since De Beers became a private company in 2001. Anglo thinks it can use its own skills to improve on De Beers’ technical, supply chain and financial management functions.

Edward Sterck, an analyst at BMO Capital Markets, noted that the transaction “underlines Anglo American’s belief in the longer-term prospects of the diamond industry” and has positive implications for junior diamond companies, of which there are several in Canada. The European Commission blocked De Beers from buying producing mines because of its controlling market position, but it can buy assets that are still in development.

Mr. Sterck calculated that Anglo paid 0.9 times net present value for the De Beers stake, above the weighted average of 0.7 times for publicly-listed diamond companies.

De Beers operates mines in Southern Africa and Canada, where it recently opened the Victor mine.

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