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De Beers diamonds dazzle Anglo American’s portfolio

by Greg Klein | February 13, 2015

A diversified miner battered by commodity prices, Anglo American sees increasing value in its diamond division. De Beers, as a February 13 Reuters story put it, is rapidly rising to become the jewel in the giant’s crown.

De Beers’ “profit leapt by more than a third in 2014 at the same time as its parent company Anglo saw earnings drop by about a quarter, hammered by a dive in prices of metals such as iron, copper and coal,” the news agency reported. “It overtook copper last year to become the second-largest contributor to group profit, fast closing the gap with the flagship iron ore business.”

De Beers diamonds dazzle Anglo American’s portfolio

Diamonds outshone almost every other commodity
mined by global giant Anglo American.

Anglo holds 85% of the vertically integrated diamond company, with Botswana holding the rest.

Calling its rise dramatic, Reuters added, “In 2013 De Beers accounted for 15% of group underlying earnings before interest and tax (EBIT) and the iron ore business 47%. But last year the diamond division’s share rose to 28% of the group’s $5-billion EBIT, while iron ore fell to 40%.

Earlier this month the Sunday Times stated Anglo “risks a downgrade to ‘junk’ status as it faces billions of dollars of write-downs and plunging profits as commodity prices tumble.”

De Beers estimates a 4% increase in global polished diamond sales last year, rising to about $26 billion, and forecasts another 3% to 4% rise in 2015, according to Reuters.

De Beers, which sells rough and polished diamonds as well as finished jewelry, once controlled about 80% of global rough sales according to diamond analyst Paul Zimnisky. He now attributes about 35% of global rough sales, nearly 15% more than De Beers’ own share of production, to the company’s diamond trading subsidiary.

The company’s Canadian operations consist of the Victor mine in Ontario and Snap Lake in the Northwest Territories’ Lac de Gras region. Another Lac de Gras holding is Gahcho Kué, in which De Beers has a 51% stake with 49% joint venture partner Mountain Province Diamonds TSX:MPV. Considered the world’s most promising new diamond development project, it’s scheduled for H2 2016 production.

While the global veteran took on Gahcho Kué’s majority stake and role of operator, Mountain Province spun out a Lac de Gras advanced exploration project to Kennady Diamonds TSXV:KDI. Earlier this week the Irish Times reported the latter company no longer wants a senior partner. If its Kennady North project “is confirmed [as an economic diamond project], then, subject to regulatory approvals, we would look to open a mine within about five years,” said Patrick Evans, president/CEO of Kennady and Mountain Province. “Our intention is to develop the asset without a senior partner.”

Read about diamond supply and demand.

Read about diamond mining in Canada.

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