This content was first published on IGR – Italian Gemological Review no. 19 in 2024. The information provided here is therefore current as of the original publication date.
The first indications came on May 14, 2024. A document from mining giant Anglo American explicitly mentioned “portfolio transformations”. Certain sectors, such as steelmaking coal and nickel, were to be divested. But there was one surprise: De Beers, which is 85% owned by Anglo American and 15% by the Botswana government, is also is in the crosshairs of downsizing, to be either demerged or sold off.
However, Anglo American’s annual report in February 2023 had already raised some alarm bells. The total book value had exceeded the recoverable amount, forcing the company to lower its estimate to $7.6 billion. In the previous year, the group’s profit had fallen by 94%.
Something was afoot, but it seemed to affect Anglo American’s entire commodities portfolio. Few would have expected that the restructuring would have hit the diamond sector so hard. Sure, the group’s problems mirrored those of its subsidiary. But the fact that De Beers wasn’t doing so well either, with sales down 36% to $3.63 billion (and prices per carat down 25% to $147), didn’t cause much of a scandal. Ups and downs are the order of the day in the volatile and capricious commodity markets that fuel the production of luxury goods.
Instead, this has been a cold shower of sorts. Relying on the ongoing global redistribution of wealth, the entire jewellery and gemstone supply chain has always operated as if it could weather any upheaval. Traditionally, a workaround for the luxury industry has been to balance the stagnant revenues of declining economies with the growing purchasing power of emerging markets. All that is needed is to educate these new markets to consume diamonds, and to make local cultures understand that diamonds are a symbol of wealth. Just look at how successful the marketing of diamonds has been in China in recent decades, competing with jade.
But how bleak must the outlook be for the entire industry if Anglo American is cutting diamonds? Why has it downgraded its asset valuations? If Anglo American is in such a hurry to divest from De Beers, what will happen to diamonds?
That is the key question many are asking. Will whoever buys Anglo-American send a signal of confidence and recovery?
After weeks of tough negotiations, BHP, the world’s largest mining company (with operations in 25 countries, 36,000 employees and revenues of over $62 billion in 2021), recently withdrew from the takeover deal following three rejected bids.
Whoever ends up buying Anglo American will likely find that De Beers has already divested itself of diamonds. Botswana’s President Masisi has publicly stated that his country may increase its stake in De Beers.
For industry players, De Beers has been a traditional reference point and stabilizing force, monopolizing the market for nearly a century and serving as a bulwark of value control. The perception that De Beers is now a burden to be shed is a shock to the jewelry industry.
This perception of weakness must have reached the very top of the company once owned by the Oppenheimers. At the JCK conference in Las Vegas in early June 2024, De Beers CEO Al Cook presented a document for revival. He highlighted ongoing investment in the Venetia Underground and Jwaneng Underground projects and announced a 25% cost reduction.
Cook’s optimistic vision relies on realigning after the natural and synthetic diamond markets split. And with the price of synthetic diamonds plummeting, the split appears to be inevitable. Some fear that this bifurcation, with natural diamonds in high-end jewelry and synthetics supposed to feed fashion jewelry, won’t result in the former triumphing and the latter defeated.
The erosion of natural diamond market share will continue, especially in the melee sizes. The bifurcation may well have already occurred, but consumer confusion remains a real issue, as evidenced by Cook’s declared intention to work closely with retailers to detect synthetics. This is an indication that the threat to natural diamonds persists.
After bifurcation, synthetic diamonds appear irrelevant to the future strategies of the CEO. After a dramatic launch in 2018, De Beers significantly reduced the price of its synthetic Lightbox diamonds in May 2024 and announced the end of production in June. «We believe the value of lab-grown diamonds – Al Cook said – is in the technology, not the jewelry… We’ll see where the brand goes and we’ll see what happens». Few would be surprised if Lightbox were to be on sale soon, in light of the price collapse while diamonds for industrial use will be continued.
Seasonal fluctuations in natural diamond consumption have been a constant for decades, and major mining companies are prepared for them. No scenario foresees a decline in the desirability of natural diamonds. The real concern is the inevitable loss of market share to synthetics in the medium and long term.
This downsizing of the diamond mining outlook is taking place just when it is no mystery that the mining industry scenarios of the future are changing. It is no coincidence that Anglo American does not intend to affect its portfolio in copper and iron mining at all. Traditionally used in construction and electronics, copper is now key to moving to clean, zero-carbon energy. This segment currently accounts for 25% of global copper demand. This is expected to rise to 61% by 2040 as a result of increased reliance on wind, solar and electric vehicles.
Copper is a mineral that had a sales volume of $308.67 billion in 2023, almost ten times more than all gemstones sold in total ($32.38 billion). Copper is now more strategic than diamonds, and major mining companies are holding onto it tightly.
Reshaping the new context of precious gemstones for jewelry will take months. But even when all the issues are resolved, including the outcome of the Ukrainian conflict and the Russian diamond embargo, and the developments of major financial operations such as the acquisition of De Beers within Anglo American, one element will remain undeniable: mining strategies are being reconfigured according to new models. The entire diamond industry must adapt to changing times.
Gem news published on IGR – Italian Gemological Review #19 – Autumn 2024.
