Anglo American Writes Down De Beers’ Value by $1.6 Billion
By Rob Bates | February 22, 2024
"As part of its annual financial results, Anglo American wrote down De Beers’ book value by $1.6 billion, principally relating to goodwill (brand value).
The diamond giant is now valued at $7.6 billion. Its write-down was driven “by lower prices than previous forecasts reflecting a reduction in forecast consumer demand,” Anglo American said in its year-end financial report. “This reflects macroeconomic uncertainty mainly in the U.S. and China.”
Other factors cited by Anglo: “the timing of differentiation between lab-grown and natural diamonds, the impact of recycling, the latest…estimates and life of asset plans for the mines and, less significantly, the financial impact of revised contractual terms [between De Beers and] the government of the Republic of Botswana (which are expected to be finalized during 2024).”
Regarding lab-grown diamonds, Anglo believes they eventually will stop cutting into naturals’ market share.
“It is still assumed that lab-grown diamonds will become clearly established as a product distinct from natural diamonds (as is increasingly clear in the market today, given the significant and clear price and consumer offering differential),” the report said. “The model forecasts an imminent bifurcation between lab-grown and natural diamond product offerings, with only limited residual impact on the natural diamond market in the medium to long term.”
Anglo noted that “while sales of lab-grown diamonds to consumers increased, wholesale lab-grown prices continued to fall sharply…leading to financial challenges at some leading lab-grown diamond producers. These price declines are expected to lead to further substantial reductions in retail prices (with De Beers’ Lightbox brand testing significantly lower prices for its products).”
De Beers spokesman David Johnson tells JCK that Lightbox is dropping its famed per-carat entry-level price point from $800 to $600 on a trial basis, and its higher-quality Finest line is being tested at $1,000 a carat, “ensuring Lightbox reflects prevailing LGD sector dynamics.”
In a separate financial statement, De Beers said the industry began to stabilize over the fourth quarter.
“Retail demand improved over the end-of-year holiday season, especially in the United States, helping to ease midstream inventory pressure,” it said. “However, with ongoing macroeconomic uncertainty, it is anticipated that recovery in rough diamond demand will be gradual.”
De Beers’ statement added: “The ongoing focus on diamond provenance—especially given the expected introduction of Russian diamond import restrictions by G7 nations—has the potential to reinforce demand for De Beers’ rough diamonds, supported by the blockchain Tracr platform. The global supply of rough diamonds is anticipated to continue to decline owing to the maturity of major mines and limited new discoveries.”
Johnson says the write-down “has no tangible impact and is simply an accounting assessment of the current value of the business compared with the value it was assigned at the time Anglo American purchased its majority shareholding [in 2012]. The new carrying value reflects the very challenging macroeconomic environment but has no bearing on our confidence in the positive long-term outlook for natural diamonds.”
In Anglo’s financial report, CEO Duncan Wanblad declared that the company is “systematically reviewing our assets,” a hint that asset sales were a real possibility.
Later, Wanblad told analysts he was examining “every single asset. Nothing is off the table.”
During the same presentation, De Beers CEO Al Cook said De Beers will maintain its policy of “producing [in response to] demand rather than maximizing volume” and will continue to delay purchases from its mines.
Anglo American owns 85% of De Beers, while the government of Botswana owns the other 15%.
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