Diamond sector to benefit from Anglo American’s $5 bln De Beers deal, says Northland

Anglo American’s (LON:AAL) US$5.1 billion deal to acquire a controlling stake in the world’s largest diamond company De Beers should increase the level of professionalism in the industry, according to analysts at Northland Capital.

This could potentially benefit other companies in the sector, it added.

This morning Anglo announced a deal to buy the Oppenheimer family’s 40 per cent stake in De Beers for US$5.1 billion. It sees Anglo increase its stake in the world’s largest diamond company from 45 to 85 per cent. 

The company said it is well positioned to enhance the value of De Beers through its expertise and scale. The diamond company will benefit from Anglo’s technical, supply chain and financial expertise, it said.

“It is great news for the industry as it will, in our view, result in the raising of the price of DeBeers diamond stock by raising the benchmark at which Anglo American will sell those diamonds,” Northland analyst Simon Brown said.

The Northland analyst believes the deal makes other diamond stocks lower risk investments because it reduces the threat of “a flood” in the diamond market. Specifically he says Stellar Diamonds (LON:STEL) and Petra Diamonds (LON:PDR) are now lower risk.

A number of other London listed diamond stocks would also potentially benefit from an improvement in the diamond market. Companies such as Gem Diamonds (LON:GEM), Firestone Diamonds (LON:FDI), DiamondCorp (LON:DCP) and Botswana Diamonds (LON:BOD).

In this morning’s note Brown also highlighted separate comments from Anglo that also point to an improvement in the diamond market.

“Anglo American has divulged some interesting facts in the associated analyst presentation and the group’s own projections on the state of the long term supply demand structure of the industry,” the analyst said. 

“It believes the combination of Chinese and Indian demand plus the Gulf region will equate to the rest of the world’s demand within 15 years.” 

Anglo already has a long history in the diamond industry. Indeed its involvement in De Beers dates back to the 1920s and it has been the diamond miner’s largest shareholder since the company went private ten years ago. 

"This transaction is a unique opportunity for Anglo America to consolidate control of the world's leading diamond company,” said Anglo chief executive Cynthia Carroll. 

“Today's announcement marks our commitment to an industry with highly attractive long term supply and demand fundamentals.”

Carroll added: “I believe that the benefits brought by Anglo American's scale, technical, operational and exploration expertise and financial resources, combined with the unquestionable leadership of De Beers' business and iconic brand will enable De Beers to enhance its position across the diamond pipeline and capture the potential presented by a rapidly evolving diamond market."