July 6, 2012: The day the Oppenheimers said goodbye to De Beers
The Oppenheimer family, controller of giant diamond miner DeBeers since 1927, has officially let go of its 40% stake in the company, after South Africa’s Mineral Resources Minister Susan Shabangu on Friday approved the acquisition of that portion by Anglo American (LON:AAL).
The $5.1 billion deal, announced in November, increases Anglo’s stake in the diamond mining giant from the 45% to 85%, marking the end of Oppenheimer era at De Beers.
De Beers and the Oppenheimer family are one of the most storied relationships in the world of diamonds, and perhaps in mining itself.
Cecil Rhodes formed De Beers Consolidated Mines in 1888. Recognizing that limiting the production of diamonds was the only way to enhance their value, Rhodes bought up or squelched competitors. Cullinan Mine, operated by Bernard and Ernest Oppenheimer, refused to join the De Beers cartel, and the business grew to rival De Beers. During World War I Cullinan Mine was finally absorbed into De Beers, and Ernest Oppenheimer became chairman of De Beers in 1927.
Ernest Oppenheimer also founded Anglo American in 1917.
There have been three generations of Oppenheimers exerting major control of De Beers, up to Nicky Oppenheimer, who represented the family during the sale.
“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," said Nicky Oppenheimer.
"After careful and deliberate consideration of the offer, and what is in the best interests of the family, we unanimously agreed to accept Anglo American’s offer. Anglo American is the natural home for our stake as they have been major shareholders in De Beers since 1926 and have a deep knowledge of the diamond business. I am certain that Anglo American will provide strong support to Philippe Mellier and the De Beers management team.”
Diamonds uncertain future
BHP, the globe's biggest mining company, launched in November a review of its diamond operations with an eye to selling most or all of its assets. BHP has already off-loaded its Chidliak exploration project in Canada to Peregrine Diamonds.
Rio Tinto followed in March saying it is rethinking its gems business.
Rio operates three diamond mines including Argyle in Australia, Diavik and Murowa in Zimbabwe. The miner also has an advanced diamond project in Bunder, India.
The diamond business may simply be too small for the mining giants. Rio Tinto's diamond mines contribute less than 2% to its earnings and it’s a tiny proportion of BHP's income as well.
On top of that the profit margins for the gems, compared to say iron ore, which sits at a more than comfortable 70% in Rio Tinto's case, is too small.
With De Beers going private a decade ago and now being subsumed by Anglo-American direct exposure for resource investors to diamonds had always been hard to come by.
De Beers is the globe's number two diamond producer behind Russia's Alrosa.