Tuesday, November 8, 2011
Diamond investment market to gain on Anglo American buyout of Oppenheimer stake in De Beers
Anglo American Plc has agreed to buy the Oppenheimer family’s 40 percent stake in De Beers for $5.1 billion. This deal marks the end of the iconic century-old involvement of the Oppenheimer’s in the diamond industry and giving Anglo as much as an 85 percent stake in the world’s largest diamond company. Undoubtedly this announcement will leave an indelible effect on the industry and clearly signals the “changing of the guard” with many within the close-knit diamond trading industry likening this announcement to the abdication of a monarch.
Whilst the financial analysts begin to postulate about who got the better end of the deal and the diamond market is left to ponder the future direction of their business in a post-Oppenheimer diamond industry, two fundamental issues are already as clear as day. One, the diamond industry is becoming more and more streamlined and two, the diamond industry has just been catapulted onto the radar screen of the professional investment community.
The Anglo stock responded positively to the news today rising almost three percent to £2,390 in intra-day trading and easing back to £2,366 in late afternoon trading ending the day up 1.2 percent. Commenting on the acquisition Cynthia Caroll, Chief Executive of Anglo alluded to the more simplified and integrated ownership structure the deal will bring to De Beers. Notwithstanding the benefits of the simplified structure, the buy-out is a clear and aggressive bullish play on diamonds by one of the world’s leading diversified mining and minerals company. In her announcement to the market, Caroll noted that the deal marks Anglo’s commitment to “an industry with highly attractive long term supply and demand fundamentals” and “captures the potential presented by a rapidly evolving diamond market.”
Beyond the nostalgic sentiments the deal may conjure up for the traditional diamond trading markets around the globe, the news bodes very well for the emerging international investment diamond market. The increased exposure the announcement will provide for investment diamonds in the broader financial market is yet another factor driving the increased awareness of investment diamonds as an outperforming alternative investment asset class. Coupled with its safe-haven characteristics and strong underlying fundamentals, the investment diamond market is set to become a hot topic this Holiday Season with potential capital inflow ready to surpass that of less liquid and transparent tangible assets such as wine and art which themselves have experienced exponential growth over the last few years.