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DIVERSIFIED MINERS
 
Oppenheimers shed De Beers but continue with age-old E Oppenheimer & Son
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11th November 2011
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The big names of De Beers and Anglo American have hogged the limelight.

But perhaps questions should have been asked about E Oppen-heimer & Son.

If they had been, perhaps the exit of the Oppenheimer family from De Beers and its nigh-exit from Anglo might have come as less of a surprise.

E Oppenheimer & Son in St Andrew’s House, St Andrew’s Road, Parktown, Johannesburg – the same address of the Brenthurst Foundation – has two companies, one that invests in Africa and one that invests in South Africa.

In early August, E Oppen-heimer & Son announced that a 50:50 partnership had been formed to provide proving capital and support for African businesses.

It announced its teaming up with Sennett Investments of Mauritius, an indirect wholly owned subsidiary of Temasek, an Asian investment house headquartered in Singapore.

Created out of the joint venture was an Africa-focused investment company, Tana Africa Capital.

Interestingly, the explanation on the joint venture came from Jonathan Oppenheimer, the one-time heir apparent to the De Beers and Anglo American dynasty, who will turn 42 in seven days – November 18.

The Oxford graduate son of Nicky and Strilli Oppenheimer, who stepped down as MD of South Africa’s De Beers Consolidated Mines in 2006, is now a crucial member of the family that has been in diamonds for more than 100 years, with Anglo a major De Beers’ shareholder since 1926.

“Like its namesake, Ethiopia’s Lake Tana, which is the source of the Blue Nile, Tana Africa will aim to serve as a fount of development and leave a tangible and positive legacy,” the fourth-generation Oppenheimer says.

The mission of Tana, which brings together deep industry expertise and extensive networks across Africa, is to build “enduring” businesses in Africa.

The company will also benefit from Temasek’s on-the-ground African knowledge and operating experience and will provide capital and business building support to African businesses mainly in two primary sectors, consumer and agriculture, while also looking at opportunities in media, health and education.

In the consumer sector, it will focus on those companies that are well positioned to meet the consumption needs of Africa’s young, energetic and growing population.

In an interview with SAfm’s Alec Hogg, Nicky Oppenheimer said the money from the deal would boost funds in E Oppen-heimer & Son’s private-equity joint venture with Temasek and there was no intention at this stage to reduce the company’s 2% remaining holding in Anglo.

It will also support the develop- ment of the crucial agriculture sector, investing in the agriculture value chain from agricultural inputs to downstream opportunities in processing, storage and logistics. Tana reportedly already owns a quarter of Promadiso, a large consumer goods company in Nigeria.

Temasek MD Nagi Hamiyeh is enthusiastic about partnering the Oppenheimers, against the background of Africa’s growing population and the emergence of a middle class with an increasing disposable income within African domestic economies.

The involvement of E Oppen-heimer & Son with Stockdale Capital also introduces deep South African history in that Stockdale Street in Kimberley was originally the headquarters of BarneyBarnato’s Kimberley Central Diamond Mining Com-pany and one of the elements used by Sir Ernest Oppenheimer to mould De Beers into the world diamond leader it became, underpinned by the Anglo American mining giant that he also founded in 1917.

Today, Stockdale Street Limited reportedly advises the Oppenheimer family’s private-equity portfolio and Stockdale Capital is the family’s South African investment vehicle.

Nicky Oppenheimer reportedly told former Anglo American public relations executive and Miningmx journalist Brendan Ryan that he and Jonathan intended using the $5.1-billion proceeds from the sale of the Oppenheimer family stake in De Beers to pursue projects in South Africa and Africa.

Although the Oppenheimers have a two-year diamond restraint clause in the agreement with Anglo, it is reported that E Oppen- heimer & Son’s exploration and mining aspiration could include a return to the diamond mining business in time.

The family reiterate that they see Africa and South Africa as “exciting places to look at it in terms of business opportunities and we will continue to operate out of Johannesburg”.

Chairperson Sir John Parker, who two weeks ago put the offer on the table, said that Anglo looked forward to building strong links with De Beers’ sight- holders, its government joint venture partnerships in Botswana and Namibia, and its black economic-empowerment partners in South Africa.

The offer could not have been much of a surprise given this London Sunday Times headline of December 21, 2010: ‘Anglo American plotting De Beers takeover’.

E Oppenheimer & Son MD James Teeger spoke of the bulk of the proceeds of the quickly consummated transaction being earmarked for investment on this continent and, while the Oppenheimers had been restrained from investing in diamonds for a couple of years, there was no other constraint.

‘SPARKLING’ BUY
The shares of Anglo American rose on the news that the diversified major has agreed to buy the Oppenheimer family’s 40% interest in De Beers for $5.1-billion cash.

“A sparkling purchase. We believe that Anglo has struck a very good deal for itself,” was Liberum Capital’s reaction from London, as Anglo’s shares rose 3.38% in Johannesburg before noon to more than R306 a share.

“We’re very, very attracted to the diamond industry,” Anglo CEO Cynthia Carroll told Mining Weekly from London in a media conference call.

De Beers pioneered a strategy to combine diamond mining, trading and marketing. It expanded in the retail sector, opening outlets around the world. Most recently it said it plans to open more outlets in China and the Gulf region.

It is in the process of moving its historic trading headquarters from London to Botswana.

In her answers to the media, Carroll appeared warmest to the prospect of a possible initial De Beers retail expansion under the new watch.

Ten years ago, De Beers Diamond Jewellers was estab- lished as an independently managed and operated company by LVMH Moët Hennessy Louis Vuitton, the world’s leading luxury goods company, and De Beers SA, and currently has a retail network.

No other diversified rival mining major can match what Anglo will have in De Beers’ diamond market share, which Rio Tinto puts at 39%.

The diamond assets of both Rio Tinto and BHP Billiton have a small 6% market share. Alrosa, of Russia, has the second-biggest market share at 23%.

“There’s massive growth potential for diamonds. The attractiveness of this industry is the fact that not only is the demand out of the emerging countries, but it’s in the developed countries as well,” Carroll added to Mining Weekly.

Anglo is taking up to 85% in De Beers at a time of a “rapidly evolving diamond market” and would not have to make any special financial arrangements to do so.

Anglo CFO Rene Medori said that the company’s $3.5-billion undrawn facility and $2.2-billion cash available outside South Africa would be used to fund the deal, which was not expected to close until “at least” mid-2012, because of its subjection to regulatory approval.

Carroll told Mining Weekly further that, while the current 40% of world diamond demand from the US was poised to continue, India, China and the Gulf would likely also represent close to 40% of global demand by 2015.

“The country which is really leading the charge is India, where demand is growing at between 20% and 30% per annum,” she said.

She would not be drawn on whether a new acquisitiveness might replace the ongoing asset shedding of De Beers given the undersupply position.

She also declined to comment on whether the speculated separate listing for De Beers might eventuate under greater Anglo control.

“We’re interested in the business as it stands right now, and taking it further,” she said.

The Anglo deals with CHL Holdings and Centhold Inter-national give Botswana the right to increase its interest in De Beers from the current 15% to 25%.

While analysts put the balance of probabilities in favour of Botswana taking up the 10% available to it, Botswana’s Minerals Minister, Dr Ponatshego Kedikilwe, made no mention of exercising that pre-emption, however, but instead said that the country looked forward to building on its relationship with Anglo through the Debswana joint venture. De Beers owns half of Debswana, the world’s largest single diamond producer.

If Botswana decides to exercise its right in full, Anglo will acquire an incremental 30% interest in De Beers, taking its total interest to 75% rather than the full 85%.

What Anglo would then pay to CHL will be reduced proportionately, and Botswana would be required to pay a pro rata amount of the $5.1-billion.

Carroll was present when Botswana in September gave De Beers ten years of certainty for more than 60% of its diamond sourcing, in a period of supply constraint and exponential consumer demand.

DIAMOND PRICES

“Prices have exceeded the peak levels of 2008,” Carroll said, adding that demand was expected to outperform mine supply significantly, which would lead to the supply-demand gap con- tinuing to drive rough diamond prices.

She was confident that the “iconic” De Beers brand would enable the diamond giant to capture the opportunities of the “rapidly evolving diamond market”.

On expanding De Beers’ 30-store diamond retail business, Carroll said it was early days to have the retail conversation, but spoke of upside potential in Asia.

She declined to say whether the forced sale of Anglo’s copper assets to the State-owned Codelco in Chile had influenced the company’s decision to do the De Beers deal.

The transaction is expected to be accretive to underlying earnings before depreciation and amortisation on fair value adjustments in the year of acqui- sition.

Anglo’s current 45% stake in De Beers generated attributable earnings before interest, tax, depreciation and amortisation of $666-million and, as at June 30, De Beers had $1.5-billion of noninterest-bearing debt.

Anglo itself has acquired a deep understanding of diamonds as a De Beers shareholder for 85 years, and its largest shareholder since 2001.

It is doing the deal in the belief that it can add value to De Beers’ geographically diverse large-scale, low-cost mining assets and pipeline of greenfield and brownfield projects.

On quitting the Anglo board earlier this year, Oppenheimer said: “There comes a time when it’s right to stand aside and allow others to carry the baton. For me, that time is now.”

While Anglo at one stage moulded South Africa’s economic fabric, its influence has waned considerably since it transferred its corporate domicile from Johannesburg to London.

It is currently the world’s fourth-largest mining company after BHP Billiton, Vale and Rio Tinto.

Analysts at the Bank of America Merrill Lynch hailed the deal as a good move to tap into what it describes as a “late development” market.

While diamantaires in India expressed surprise at the Oppenheimer exit from De Beers, they expressed confidence in new owner Anglo American’s “equal competence”.

A price of $5.1 billion “is probably a bit on the cheap side, but for the Oppenheimers there was only one buyer”, said RBC Capital analyst Des Kilalea, who put it 25% lower than RBC’s valuation. “It was a clumsy structure that this cleans up.”

Headed by the legendary Cecil John Rhodes more than 120 years ago, De Beers remains 40% Oppenheimer-owned, 45% Anglo-owned and 15% Botswana-owned until the deal is approved.

Last May, De Beers appointed an unexpected outsider, former engineering executive Philippe Mellier, as the new CEO.

The acquisition is Anglo’s biggest since its purchase of the Minas Rio iron-ore project, in Brazil, for about $5.5-billion in 2008, says Bloomberg.

Edited by: Creamer Media Reporter

 

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