Tuesday, November 8, 2011

More thoughts about Oppenheimer selling to Anglo

We read today that Stephen Lussier's, of De Beers, stated that there will be no changes in De Beers operations.  It would have been destructive to have said otherwise.  Such comments are a necessary part of keeping the boat from rocking.  There is nothing else he could really say.  As the closing on this sale will take time, it is of paramount importance to have "business as usual."  By the time Anglo fully takes over, Lussier's comments will have faded away.

I thinking about this kind of distance between actions, I cannot help thinking there has been some pre-planning in the Oppenheimer sale.  There had been some rumblings about a sale at least a year ago.  But there were a few open issues that had to be dealt with first.

First, Nicholas Oppenheimer had to quit the Anglo board, a necessary move as his presence at this juncture would once again tie him to whatever moves Anglo wants to makes.  Second, there had to be a new contract with Botswana.  That happened recently, with a ten-year deal that also rips up most London operations.  Third, there was the recent refinancing of a few $b in debt.  Now, with the De Beers operation "cleaned up" a bit, the move to Anglo raises few questions and does not further erode Anglo's stock prices.  On the contrary, it makes the deal a plus as viewed by the world markets.  (Reuters opines that it all fits well with possible buyout of Anglo by another mining giant.  See the New York Times note about Anglo at http://www.nytimes.com/2011/11/07/business/de-beers-makes-anglo-american-a-better-merger-catch.html?_r=1&scp=1&sq=de%20beers%20sells%20out&st=cse)

As much as all this makes sense, it is still only speculation that the purchase was planned many months ago, predicated on all these moves, even though a number of insiders have been reported to confirm that Anglo management was anxious to make a change.

Interesting, of course, that the industry's own views of the impact of this change are largely ignored by the press - irrelevant, really.  The only view is that rising markets and shrinking production will make diamonds more profitable, etc., etc., etc. We see it as having far more disruptive potential on the industry as a whole.  Nevertheless, my guess is that Anglo will take actions to strengthen profits, and if Anglo sells out to another mining company, we can be doubly assured of that objective.  Forevermark, for one, will be on short leash.

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