Anglo American’s annual Investor Day, held Dec. 8, included some interesting comments from De Beers CEO Philippe Mellier.
The United States is strong. Unlike 2008–2009, the industry is in a “stock crisis” rather than a “demand crisis,” he said. He noted that demand remains particularly “robust” in the United States, where sales are poised to increase 6 percent this year.
Overall, he forecast a 1–2 percent decline in diamond sales this year in dollar terms, due to the strength of the U.S. dollar and macroeconomic issues in China.
De Beers will increase transparency. In a significant announcement, De Beers will—for possibly the first time in its history—communicate the value of each sight after the sale, so that the market “doesn’t rely on rumors,” he said. Price will not be part of that communication, spokesperson David Johnson tells JCK.
Transparency in action: De Beers’ additional advertising investment this holiday will total $20 million, a number it has never discussed publicly before.
The current crisis is not De Beers’ fault. Midstream profitability issues stem from banks departing the industry and reduced sight financing, Mellier said, as well as a backlog at the grading labs, which led to an overstock at the beginning of the year. He did not address any role producers may have played.
Still that was alluded to when one analyst told him: “Good to see you still in one piece given the anger that part of the diamond market has clearly projected at you.”
“When things are tough, like in a crisis like this one, you have to blame somebody,” he responded. “The midstream has been fragile [for] two to three years [and] we knew that it has to restructure itself. This is a wake-up call.”
Regardless, Mellier has done something of an about-face on profitability issues, at least in his public statements: “We are mindful that the midstream has to generate profit,” he said, noting that while polished prices have fallen 8 percent this year, De Beers has decreased rough prices 15 percent. “We have opened the gap between polished and rough, and I think there is profit available. Some of our clients, not all of them, are making money in the circumstances. It’s not a full disaster for everybody.”
About calls to reduce prices further, he argued, “It’s not a good idea to implement a price decrease when you have two to three months of overstock, because you really kill the business.” He added price decreases need to be done “in a responsible way.”
De Beers is hopeful the industry will emerge from this crisis in 2016. “We have been through crises many times before,” Mellier said. “We will bounce back.”
He mentioned that De Beers has one of the best safety track records in Anglo American, which is important and praise-worthy, if not always talked about in publications such as this.
On a related note, as many problems as De Beers has, parent company Anglo American is arguably doing worse. The company has lost 70 percent of its market value since the beginning of the year and plans to slash 85,000 jobs—more than 60 percent of its workforce.
Consider this: In 2012, Nicky Oppenheimer sold his family’s 40 percent interest in De Beers for $5.1 billion. Reports suggested that Anglo had pushed the family out. At press time, Anglo’s market cap was $4.57 billion. (See correction) Theoretically, for less than he received for his 40 percent stake, Oppenheimer could now buy 85 percent of De Beers—with the rest of Anglo, the company started by his grandfather, as a bonus.
CORRECTION: The $4.57 billion market cap is listed in Great British pounds, which converts to over $6 billion. Nicky can’t buy Anglo—yet.