U.S. economic slowdown will hurt De Beers

Diamond mining giant De Beers , subject of a takeover offer by some of its biggest shareholders, on Wednesday forecast a 15% fall in rough diamond sales this year because of U.S. slowdown, Reuters reported.

De Beers said it was targeting sales of $4.8 billion in 2001 after a record $5.67 billion last year, citing a weaker U.S. market, which accounts for about half of retail diamond sales.

”We do have concerns about the sales in 2001 relating to the performance of the U.S. economy,” De Beers Chairman Nicky Oppenheimer said during a results presentation in Johannesburg, Reuters reported.

Managing director Gary Ralfe echoed Oppenheimer, saying: ”Confidence in the market has now evaporated. People are being much more cautious about the year going forward.”

”The sales forecast is much worse than they were forecasting earlier this month which saw sales falling by just 10%,” a Johannesburg-based analyst who declined to be named told Reuters.

De Beers, which supplies about 65% of the world’s rough diamonds, released the estimates as it announced its recommendation of the Anglo-Oppenheimer consortium’s bid.

De Beers said the offer valued it at $44.43 per share, or about $17.8 billion, based on Anglo’s close on Tuesday of 46.90 pounds. The offer comprises 0.43 of an Anglo share, $14.40 cash and $1 in a De Beers final dividend declared on Wednesday. A formal offer is expected to be sent to shareholders next month.

The stock has soared almost 30 percent since news of the bid approach was first released to the market on February 1.

Anglo, the billionaire Oppenheimer family and the third partner in the bid, the Botswanan government, are buying De Beers just as global diamond sales come off a record peak.

”Although the U.S. market showed overall positive growth for 2000, the third quarter had already seen a slowdown and the Christmas season was disappointingly below expectations,” De Beers said in its results statement.

”The American trade is therefore currently in an overstocked position.” It added that against this background its diamond-trading arm was budgeting for sales of $4.8 billion this year.

Both De Beers and Anglo shares have made strong gains on the deal, which ends a cross-shareholding between the two. Investors have long viewed the cross shareholding as bad for stock performance.

Some minority shareholders say the bid undervalues the underlying worth of De Beers’ core diamond mining business and want better terms. De Beers argues it is selling at the top of the diamond industry’s business cycle and says the bid is fair.