More senior management changes at Anglo American can be expected following the recent appointment of Al Cook, an executive at Equinor, an energy group in Norway, to the top job at De Beers.
Anglo’s technical director, Tony O’Neill, is 64 and CFO Stephen Pearce is 58. Both are likely to step down in the coming months or year in the wake of Duncan Wanblad’s appointment as CEO in April, replacing Mark Cutifani.
Cook replaces Bruce Cleaver, CEO for seven years, at an uncertain time in the diamond industry. While prices are high and some diamond producers are making 50% more on like-for-like goods compared with a year ago, the critical US market could weaken. That’s because the US Federal Reserve has clearly moved to limit spending.
Bank of America, having sounded bullish on diamonds in August, is now moderating its view, forecasting a 10% correction in rough diamond prices equal to a 1% downgrade to Anglo American’s 2023 earnings before interest, tax, depreciation and amortisation (ebitda).
“Globally, we consider recession risks and continued Covid headwinds in Asia,” it says of its adjustment on Anglo. “Energy and higher rates also put the consumer under pressure in our view.” The US market accounts for 50% of total diamond sales.
Hopefully for Cook, diamond prices have long-term support owing to fundamental problems in new supply. Diamond producers have been banging on about limited new resources of diamonds for years; now, it’s finally happened.
It’s vital that De Beers keeps Botswana happy, given the role diamond production plays in Anglo American’s overall investment story
In 2009, mined supply totalled about 104-million carats. This grew to 157-million carats in 2017. Since then, depletion and closures, including Rio Tinto’s Argyle mine in Australia, have reduced global supply to 107-million carats.
Russia remains a wild card in all this. Its production accounts for about a quarter of all supply. Weak demand for its goods, owing to self- and official sanctioning, could bifurcate the market with low prices, while non-Russian goods could attract a premium. Cleaver was “iffy” on the subject when the FM asked him about it in August. “I’m not convinced provenance alone is going to give rise to a premium,” he said.
In any event, Cook comes to a leaner, more agile company, thanks to Cleaver. De Beers has tighter criteria for its buyers, is more flexible about how it sells to them, and is more mindful of partner demands for a greater share of the rough diamond supply chain. This is likely to be demonstrated in a new supply contract between De Beers and Botswana (joint venture partners in Debswana) which will probably result in Botswana enjoying a greater share of downstream revenue.
It’s vital that De Beers keeps Botswana happy, given the role diamond production plays in Anglo American’s overall investment story.
Forecasting a doubling this year in its contribution to Anglo’s ebitda — from 5% to 10% — Goldman Sachs said this week the increase in exposure to the luxury consumer gives Anglo “a differentiating factor” from diversified mining peers.
“We see diversity of Anglo’s portfolio as a key positive during a period when investors remain concerned with demand in the near term feeding into uncertainty over short-term commodity prices,” the bank added.
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