DIAMOND 22 August 2012 Vol.27 ♦ No.721 INTELLIGENCE By Chaim Even-Zohar August 16, 2012: Bye, Nicky; Hi, Cynthia The final check was for US$5.2 billion. With the money in the bank,Nicky Oppenheimer cleared his desk and moved out of his offices. With a final click on his e-mail’s “send” button, Nicky dispatched a quite compassionate “dear colleagues” farewell letter to the De Beers employees. (See full text of letter following this editorial.) It is a telling, historic document. “Moving forward, we will be out of the diamond business, but we will be keeping our eye on you,” he writes. Apparently, the Anglo American sales agreement contains a restraining clause – Nicky and Jonathan Oppenheimer must refrain from any involvement in the diamond business for one year. Any active partnership in the business needs to be resolved. Nicky won’t come back; what position could possibly be available for him? Having celebrated his 67th birthday on the eighth of June, retirement age for most of us, what could possibly beat going home with US$5.2 billion – some US$100 million more than initially announced? (Anglo American explains that the extra US$100 million comprises “a number of adjustments as provided for under the agreement.”) Nicky (l) and Jonathan Oppenheimer Jonathan’s Future BRIEFS Nicky’s son, Jonathan, is a different story. He will turn 43 in another three months. The best part of his professional life is still in front of him. I have always believed – and still do – that he will end up selling gem-quality synthetic diamonds. In a conversation in Italy earlier this year, he enthusiastically told me that the De Beers synthetics arm, Element Six (E6), of which Jonathan is (or “was” as I should probably say) Chairman, has concrete marketing concepts and plans, “but they will not compete with De Beers. We would never do that,” he said. He intimated that the pricing of synthetics would be quite different from the natural counterpart. E6 is quite a successful global industrial diamond super-materials business, supplying toolmakers and application providers across a diverse range of industries. It has extensive manufacturing facilities in Ireland, China, Germany, Sweden, South Africa and the UK. It is partly a De Beers-controlled joined venture with Belgium’s Umicore, though the gem-synthetics business A Confidential Service for Executives in the Diamond and Diamond 7453 4 CORNERS OF THE GLOBE 7455 DIGGING THE DIRT Jewelry 7459 MOVERS AND SHAKERS 7460 BRIEFLY NOTED 7461 OFF THE SHELF Business EDITORIAL is 100 percent owned by De Beers. It is quite an oddity in the will appoint as the new De Beers Chairman. Actually, most of De Anglo American stable, and I fully expect that after a two-year Beers’ London employees have no clue what the future has in waiting period, it might sell this part of De Beers’ business back store for them. It will be interesting to see whether the important to the Oppenheimers. chairmanship position will be filled by an accountant or by a miner. It may make a big difference – both to the company A Long-Planned Exit? and to its clients. The full story behind Nicky’s exit has still not yet been told. I was It seems quite certain that the appointment will come from struck by a recent judgment in South Africa’s Supreme Court of within Anglo American. It would not be unprecedented within Appeal in a case between the Commissioner for the South African the Anglo American group if Cynthia herself would become De Revenue Service (SARS) and De Beers Consolidated Mines Limited Beers Chairman, though given the fact that she has become a (DBCM). It involved the VAT payment that the government says “beleaguered” CEO, resisting powerful calls from shareholders was due on an invoice for US$19,895,965 submitted in June 2001 for her to resign or be fired, she may have other priorities at this by NM Rothschild and Sons Ltd (NMR), a London-based advisory point in her career. Nevertheless, most stakeholders believe she services company, to De Beers. These advisers were appointed will want to take that seat. More about this later. to advise on the 2001 De Beers privatization transaction, where the Oppenheimers got their 40 percent in De Beers, plus an Potential Candidates exclusive management contract. They were also involved in for De Beers’ Next Chairman the present sale of these acquired shares by Nicky. A possible alternative choice for De Beers Chairman would De Beers had to spell out to the court what the reasons be Cynthia’s number two, Anglo American Finance Director were for the privatization (and thus for securing the Rothschild René Médori. René is already a services). The transcript shows that the reasons put forward by Board Member of De Beers, and René Médori DBCM included the argument that the transactions derived real he is also the other Executive advantages for the diamond business, inter alia, that the revised Director on the Board of Anglo structure allowed increased involvement by the Oppenheimer American. As Finance Director family in the business, thus adding to its image and morale, and of Anglo American, René that the restructure eliminated certain negative effects resultant Médori is above all determined from the Anglo American cross-holding. to maintain investment grade It was just ten years ago that the Oppenheimers bought the rating for its debt. The acquisition business – the very same business they had managed for three of De Beers has made that a generations. Did they, in retrospect, do the privatization just to challenging objective. prepare it for their subsequent exit? This wouldn’t surprise me a Anglo American’s corporate bit – and they did well. level of debt stood at US$3.1 However, last year, the word was out that Nicky’s only sister, billion at the end of June. The acquisition price plus some existing Mary, who will turn 69 on New Year’s Eve, wanted money. She De Beers debt that needs to be consolidated as well will drive pressured Nicky to receive her share. One would have expected the debt to close to US$10 billion. That level of debt makes that Nicky had enough resources (collateral) to buy her out. He Anglo American vulnerable. Not only rating-wise, but also in didn’t; he also decided to turn terms of becoming an easier takeover target by other mining Cynthia shares into cash. There might conglomerates. Anglo American will need to optimize its revenues Carroll have also been other reasons. from diamonds – and quite immediately so. Another potential Chairman Cynthia Carroll vaguely mentioned in the Takes Over rumor mill is Peter Whitcutt, The moment Nicky got his Anglo American’s Group check, two things simultaneously Director for Strategy and happened: he resigned the Business Development. He is Chairmanship of De Beers a chartered accountant and and terminated the exclusive climbed the ranks through the management contract held finance department in Anglo by Central Holding Limited American, which he joined 22 (representing the Oppenheimer family interests). Anglo American years ago. His extensive mergers Peter Whitcutt CEO Cynthia Carroll has not said anything yet about who she and acquisitions experience is DIAMOND INTELLIGENCE BRIEFS 7450 EDITORIAL cited as an asset for overseeing a smooth integration of De Except for the name, De Beers as of August 16, 2012, has Beers within the ranks of Anglo American. Though not a board become effectively a part of Anglo American. Full stop. It will member, he is part of Anglo American’s management team. set the policy; it will run the business. He is said to be close to René Médori. He is young, still in his forties, but that is not unprecedented in De Beers. Nevertheless, Cynthia under Siege – he is a “far shot.” Fighting to Survive Cynthia might consider a gesture to her 15 percent minority The personal situation of Cynthia shareholder partner and actually promote one of the current Carroll is unprecedented in Anglo Botswana directors to be De Beers Chairman. It might be a wise American’s history: a number of large move – but it seems unlikely. institutional shareholders have called on Chairman Sir John Parker to sack Lifting the Clouds her or, at least, to immediately start In the months ahead, the clouds will be lifted above many a search for a suitable replacement. uncertainties. Most of all, the jobs of quite a few mid-level The reasons for the discontent are not Sir John Parker executives at De Beers may be at risk. Anglo American will diamond-related: Anglo American’s undoubtedly seize the opportunity to rationalize its business share price lost some 25 percent since she assumed office in 2007 and incorporate many functions in its existing business structures. (while the shares of peer mining conglomerates have risen); a Some may remember that when Cynthia took the helm at Anglo stake in what is seen as an erroneous purchase of a Brazil iron American, some 40,000 workers lost their jobs or were part of project (for US$4.2 billion) – a project that has only faced trouble, divested companies. Today, Anglo American employs some more expenditures, and a delayed start of production (2014); 140,000 people. an overreliance on South Africa (enhanced by the De Beers Anglo American might move De Beers’ London employees purchase); legal challenges against some acquisitions; and – to the Anglo American headquarters at Carlton House Terrace, what is most serious for De Beers – bad management. near Rio Tinto and BHP Billiton, or the other way around, and Relations between Cynthia and Nicky Oppenheimer, at least move itself into 17 Charterhouse Street.