Anglo owns 45% of deBeers through an interesting holding structure, and what is amazing is how little money they make off of it. DeBeers’ market is around 50 m carats of stones per year, and makes on an EBITA basis $1.2b in margin each year. Rather a small profit on such a legendary business.
After looking at the structure, anyone who buys Anglo with the possible exception of BHP will likely sell the Anglo stake in deBeers to the Oppenheimer family, which currently owns 40%, and the government of Botswana has the last 15%. The valuation would be easy, probably somewhere around 5-6% discount rate. Seems steep, but this is prime real estate. However, it is not going to grow unless it is managed well and that requires one owner who is watching closely. Or they are going to have to buy out the Oppenheimer family and that will require even more cash.
So what is this worth on the table? I see it as being worth $9-11b to a buyer of Anglo. Not a bad amount of cash, but they might be able to get a bit more if they split out the Canadian mines and floated them as an independent, or worked them into their company (Both BHP and Rio Tinto would love that). I do not see how, with a 45% stake in a business that has part stakes in different mines, it will be worth managing for the big boys.
This is a business that requires a clear iron hand, and it is probably back to the original family to get that.
To put this in perspective, 4% of Anglo’s profits come from diamonds, yet their stake in deBeers I think is worth $9-11b, or 10% of the value of the company. Diamonds might be forever, but in my mind the value of this business far exceeds the cash flow, unless it is managed right and that is going to take one majority owner.
If Anglo gets taken over, bye-bye deBeers.
Cheers,
Benjamin
