De Beers value proposition

Avi Krawitz

The analyst presentation  that De Beers published this week on behalf of Anglo American was as revealing as the company’s much publicized Diamond Insight Report. Whether this was a once-off publication or not, the presentation was another step that De Beers took to open up to the industry and investors alike.

For the first time, De Beers provided detailed data about its core mining operations, including reserves, life-of-mine, ore grades and price per carat of production at select mines. The company also revealed some insights into its performance this year that was not previously published.
As part of the Anglo American group, De Beers adheres to the requirements of its parent company in its interim and annual reports. That has resulted in less information being divulged than before when De Beers was controlled by the Oppenheimers.

In a presentation plus question and answer session that lasted two-and-a-half hours, De Beers management outlined the nature of its operations both at the mining and downstream level, its position in the market, how it approaches seasonality of diamond and jewelry demand, key trends in the diamond industry and how it is positioned in that context, along with its complicated structure and accounting methods.

What has emerged is a company focused on driving its value proposition for Anglo American. As such, the presentation was designed to accent Anglo’s value proposal to investors. There’s simply no other reason for De Beers to reveal such sensitive data.

ROC(E) Solid

Not only does the future look bright for Anglo’s diamond division, but so does the present. Analysts continue to view De Beers as the best asset in Anglo’s portfolio, particularly as commodity prices have dropped this year. Anglo’s other key divisions include iron ore, coal, platinum, and copper.

[two_third]As Anglo’s star performer in the first half of 2014, De Beers accounted for 26 percent of Anglo’s underlying operating profit, up from 18 percent a year earlier, while its share of group revenue rose to 24 percent from 21 percent in the first half of 2013. Perhaps most importantly, De Beers return on capital employed (ROCE), a measure of efficiency that Mark Cutifani, Anglo’s CEO, is bent on scrutinizing, improved from 8 percent to 13 percent. That far outpaced the overall Anglo average, which fell slightly to 10 percent.


“While Anglo has imprinted a strong focus on improving efficiencies, growth at De Beers will be driven by long-term price inflation and full volume of sales.”


De Beers management reiterated its pledge to achieve Cutifani’s ROCE target of 15 percent by 2016. The presentation was largely geared toward relaying that message.

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Source Rapaport