Botswana call the shots in diamond deal of the century: while the sale of the iconic Be Beers diamond conglomerate to Anglo American did not take industry watchers by surprise, the deal making revealed outstanding business shrewdness by Botswana. Tom Nevin has the details.

Author:Nevin, Tom
Position:Southern Africa
 
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The news of De Beers sale to Anglo American was dramatic but, in truth, not the biggest surprise for the region's mining and financial community. The market had been wired with rumour for months and De Beers had done little to quieten the gossip mill, spicing the issue by selling a clutch of prime South African diamond mines that included the glamour properties of Kimberley and Cullinan.

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At more or less the same time the Oppenheimer family, owners of the diamond giant, were also disposing of much of their shareholding in mining giant Anglo American. Not long ago the Oppenheimers owned some 8% of it; this has dwindled to less than 2% today with the family offloading Anglo scrip mostly to Chinese buyers. The De Beers shareholding (until its sale to Anglo is formalised in the middle of 2012) is Anglo 45%, Oppenheimer family 40% with 15% held by the Botswana government. Why did the Oppenheimers choose this moment to sell, and why so cheaply? After all, the diamond business had begun a stellar recovery from a torrid spell during the 2008/09 recession. The price fetched for Oppenheimer's 40% was considered a bargain by market watchers. Leading diamond analyst, Royal Bank of Canada's Des Kilalea, said "the price agreed is some 30% below our valuation". Other estimates put the market price even higher.

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"What is important to realise," says Tel Aviv-based diamond industry analyst Chaim Even-Zohar, "is that Botswana's clever contract renewal negotiations limited the Oppenheimer's options."

Botswana plays the market

The government of Botswana had been keeping a quiet eye on the Oppenheimers' disposal of their Anglo shares, alert to the persistent market buzz that they could be contemplating an exit from the diamond business. Why the interest?

"The last thing Botswana wanted was to take the risk that it suddenly would have a Chinese partner," reports Even-Zohar. "It needed to put in safeguards. It wanted to use its 15% stake as leverage to control its diamond future." Coincidental-ly, Botswana's marketing agreement with De Beers was up for renegotiation around the same time the Oppenheimers were preparing to announce their interest of quitting the business.

The talks were under way in early 2011 with De Beers' Diamond Trading Company CEO Varda Shine and her team fine-tuning the renewal of the 10-year contract that bound De Beers and the Botswana government, when they ground to a halt. The signing should have...

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