De Beers’ Historic IPO: The Dawn of a New Era for the Diamond Industry and a Golden Opportunity for Botswana

With the Anglo-American’s plans to sell a portion of De Beers through an IPO (Initial Public Offering) as a part of a reorganisation , Botswana's government is showing increasing interest in raising its stake in the world largest diamond company. A development that could further increase the stunning growth that Botswana has experienced in the past 10 years.

The Botswana government “has expressed an interest to increase its stake” in the group. - Al Cook, the chief executive of De Beers.

De Beers, the diamond magnates of southern Africa

The diamond magnate De Beers movement was founded in 1888. The name of the company is derived from the two Dutch settlers, brothers Diederik Arnoldus de Beer (1825–1878) and Johannes Nicolaas de Beer (1830–1883), after they discovered diamonds on their land. Cecil Rhodes, a British businessman in South Africa then founded the company with the funding of the Rothschild family, increasing the European and American stake in the diamond industry.

The company built its renowned reputation through its famous marketing campaign in 1947, which sold the idea that “A diamond is forever,” cementing the diamond’s status as a symbol of lasting love and commitment. This campaign, a “cartel” strategy,  in which they sold the diamonds they found portion by portion in order to set the price for diamonds, and aggressive mergers allowed the De Beers company to control 29% of the market share amounting to 60% combined with its Russian counterpart ALROSA. With such an oligopoly it is clear that the African countries do not have full control over their own resources.

Why an IPO Now?

Facing renewed pressure from a failed £39 billion takeover bid by its direct competitor BHP, Anglo American, which owns 85% of De Beers, has decided to restructure its company by initiating an IPO, a move that will transform the diamond market forever. What's more, according to sources, Anglo is open to an outright sale of the company especially from the Botswana government.

As Bogolo Kenewendo, Botswana’s Minister of Mines, closely monitors this IPO, the decision presents a unique opportunity for Botswana to increase its stake in one of the world’s largest diamond companies, which primarily operates in the country. Furthermore, the government has stated that this is an ideal moment to renegotiate its position within the company.

Source: KP, company reports, Edahn Golan analysis

Financial and Market Implications

Anglo’s previously announced that they would value De Beers at $7.6bn in its accounts, which raised questions about the price at which price they can sell down their stake. Furthermore, they will publish their annual results later this month before its anticipated IPO. While these recent announcements did not end up with official offers, there has been increasing interest, especially from the Botwana government, which could soon own a majority of the stakes in the company.

In such a scenario, the diamond market would undergo a drastic transformation. Not only would De Beers operate with greater transparency, but the shift from an oligopoly to a more competitive landscape could allow investors to push for a demand-driven pricing model, reducing artificial price controls. Furthermore, going public would necessitate increased financial disclosure, enhancing transparency regarding pricing, reserves, and supply strategies. Ultimately, these changes would likely lead to a decline in diamond prices.

“The idea will be to invest in businesses, initiatives, education and energy beyond diamonds that grows the economy of Botswana and grows thousands of jobs.” - Al Cook

What this means for Botswana and Africa

As Botswana gains more influence in the diamond industry, one might ask whether African countries could finally regain control of their own natural resources and lead a development initiative. The key highlight of this week’s agreement between De Beers and Botswana is the creation of a new development fund in the country. Structured similarly to a sovereign wealth fund, it will receive $75 million in initial capital from De Beers. Additionally, the fund will benefit from a portion of the revenues generated by Debswana, the 50-50 joint venture between the Botswana government and De Beers, which owns and operates the country’s diamond mines. This could mean the beginning of a movement where African countries establish control over their natural ressources.

What KABA sees in this

Botswana has been one of Africa’s real success stories. As the country has consistently recorded GDP growth of 5-6% annually, all while maintaining the lowest corruption rates in Africa according to Transparency International. And with a further increase in its stake in the diamond industry since De Beers agreed to transfer its London based rough diamond sales to Botswana in 2013, the country is on a positive trend of growth and development which leans on its main strength, diamonds. Though, for us, the real highlight is the new development fund which will shift diamond gains in order to develop other industries, therefore decreasing the risk of a “Dutch Disease”.

Written by Thomas Viarnaud