The De Beers Distraction

Another week, another round of speculation about Anglo American’s sale of De Beers. The question is no longer which bid Anglo will accept, but who will make up the group that takes ownership.

The latest reports suggest that luxury jewelry group Richemont and US retailer Signet Jewelers are in talks to buy minority stakes in Gareth Penny’s Global Diamond Consortium, the apparent frontrunner in the bidding. They would join three or four sightholders reportedly already involved, as well as the governments of Angola and Namibia, which have expressed interest, and Botswana, which intends to raise its ownership of De Beers from 15% to 25%.

The questions I’m thinking about are why Penny needs such a broad and diverse group of partners, what a company like Richemont stands to gain from such an investment, and what it all means for the diamond market.

For now, I’m just posing the questions while I work on my opinionated answers. I do think the industry may be placing too much hope on the new De Beers to reboot the diamond market, as if the combination of Richemont, Signet and sightholders contains some secret sauce that will benefit the whole industry.

That may prove to be the case in time, but such a prospective board will also bring a diverse range of interests, putting Penny’s chairmanship (and juggling) skills to the test. Amid all the industry discussion surrounding the deal, it’s important to remember Penny’s primary objective: fixing De Beers, not the industry.

The two may be intertwined, and some investors need a strong De Beers to support the wider industry and their own survival. But first, Penny has to turn around the company itself, making the cuts and structural changes needed to put it on a sustainable path to profitability.

Penny must convince prospective partners that he can turn De Beers around. They, in turn, will be seeking a healthy return on their investment.

Stay tuned for more on that.

Read the full October 19 edition of the Pressing Matters Executive Memo here.

Image: Sightholder inspects De Beers rough. (De Beers)