Could De Beers be the next Twitter?

The value of what was once dubbed “a girl’s best friend” has crashed and last year London parent company Anglo American reduced its value by $1.6bn.

Now Anglo has put it on sale. But beyond a “vanity purchase” like Musk and Twitter, buyers may be scarce.

A vanity purchase? There are plenty of precedents.

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Before World War l, as his empire imploded, the last Russian Czar, Nicholas ll, continued to buy jewel-encrusted Fabergé eggs as Easter presents for his wife, Alexandra.

They and their children were murdered by the Bolsheviks after the revolution.

In 1985, having been repeatedly denied British citizenship, Egyptian arms dealer Mohamed Fayad consoled himself by taking over London’s most famous department store, Harrods.

He died last year, still with an Egyptian passport.

In 1987, Perth tycoon Alan Bond shocked the art world when at Sotheby's he outbid his rivals for the van Gogh painting Irises.

Bond was unable to raise the $53.9m, and not long after was declared bankrupt and eventually jailed for fraud.

Missed opportunity

Africa’s richest man, Aliko Dangote of Nigeria tried to buy the Arsenal Football Club but decided to spend the $4bn extending his oil holdings in Nigeria.

He says he now regrets the decision and the club is no longer on sale.

De Beers is linked to diamonds as Lindt is to chocolate or Chanel to fashion and would be nice to own. But the price of these once rare gems has fallen 30% since 2022.

The technology around factory made stones has improved to the point where even a jeweller with an eyeglass can’t tell them apart.

After all, it’s just carbon compressed under heat: millions of years in the earth or hours in a machine that can make an endless number with no licence, no royalties to the state and a very small workforce.

Depending on the setting, the difference in price can be a factor of four or five.

In 2018, just two percent of engagement rings in the US held a factory stone; today it’s close to half.

Diamond value dropping

Anglo American values the de Beers company at around $7.6bn, conceding that much of this is “goodwill”, a fancy term for client loyalty.

But for fiancés it seems size does count, and, with the same money, the ring can now sport a bigger diamond.

Anyone who’s tried to sell their jewellery knows how little it can be worth.

At retail, a ring includes profit and mark-up for the store but also the work of a designer and those who cut and polished the stone. And VAT on top.

When you sell, chances are you’ll get the weight of the ring itself depending on the price of gold, and a value on the stone without all the overheads pushing up the price.

As a token of love it’s a winner. As an investment, no so much.

History repeats itself

We’ve been through this cycle before. Folks who put their savings into buying a video library were onto a good thing until Netflix and YouTube killed the market.

Marilyn Monroe posed in mink and other furs but values have changed and few want to be seen in the skin of an animal (though shoes and belts are fine).

Diamonds are measured in carats and a third of the world’s supply comes out of Russia.

Next is Botswana with around half the carats but a greater dollar value because of quality.

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Diamonds make just one percent of Russian GDP. In Botswana they account for most of the export revenue and the industry is mostly in the hands of De Beers.

And there’s the danger. A multi-billionaire could ignore the falling diamond price to own both the brand and the economy of Botswana.

Diversity is strength

As Richard Branson has done with Virgin — which began as a record label — a name once established can be attached to any product.

For Virgin there’s now an airline, a cell-phone network and a credit card.

Maybe in the right hands, the same could be done with de Beers: jeans, champagne, sunglasses, all sold at a premium. Elon Musk could take it in a flash.

But what if it landed in the wrong hands?

Iran for example would then have enormous sway over Botswana which is also the headquarters of the regional Southern African Development Community (SADC) group of countries that includes all of southern Africa plus Tanzania.

An unsanctioned Russian oligarch with links to President Vladimir Putin or a regional hub for China.

India would be in the market since it controls much of the diamond cutting trade, but Pakistan could buy De Beers merely to annoy a neighbour for which it has little affection.

Less risky perhaps would be Taiwan seeking the kudos of holding the De Beers name, or Turkey which has a growing presence in Africa.

Limiting damage

Of course, Anglo American would have the right not to sell if it thought the buyer was unsound. But with diamonds tumbling as they are, it could be the only offer.

And Botswana would have the right to rescind the mining licence, but that would damage the good name they have as among the most reliable places in Africa to keep your money.

If mined diamonds continue on this downward spiral, and Anglo doesn’t find a buyer, there’s a risk they might have to simply walk away.