Best friends? Anglo keeps De Beers' diamonds

Thu May 19, 2016 5:10am EDT
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By Philip Blenkinsop

ANTWERP (Reuters) - Mining group Anglo American AAL.L has retained De Beers as a prize asset after a radical overhaul in the belief that surging Chinese and Indian demand for diamonds will outstrip dwindling supply even after a 2015 crunch.

The group, in which Anglo American has an 85 percent stake, has seen its market share fall from over 80 percent in the 1980s to about a third now, losing it control of supply and unleashing price volatility.

Its challenges are compounded by competition from synthetic diamonds and uncertain demand from customers in the "millennial" generation, aged roughly 18 to 34.

Anglo has cut the value of De Beers assets in its books each year since 2012, after it had paid $5.1 billion for a 40 percent stake.

But it remains the largest diamond producer by value ahead of Russia's Alrosa ALRS.MM, securing access to top mines through close ties to countries such as Namibia, with which signed a 10-year sales deal this week, and Botswana.

It repeatedly points to growing wealth in China and India drawing in ever more consumers while output gradually declines from 2020.

This is the basis of Anglo American's case for retaining De Beers in a drastic overhaul. Bernstein Securities analyst Paul Gait says Anglo is seeking to make itself attractive to a buyer, although De Beers' ties with states and joint ventures could make any sale complex.

"Most mining companies like diamonds," he said. "The basic reason why they've not been able to get bigger diamond positions speaks to the fundamental attractiveness of the industry."   Continued...

A near 3-carat polished diamond is displayed alongside a larger rough diamond at a cutting and polishing factory in Antwerp, Belgium, April 28, 2016.  REUTERS/Francois Lenoir