Marc Hasenfuss: A 'royal' exit

Most observers would probably agree that being a minority shareholder in De Beers could not have been easy for the Oppenheimers

Members of the British Royal family, Prince Charles and wife Camilla, may have received a good deal of media attention being whisked around the country last week — umbrellas open to the early summer glare.

On the other hand, South Africa’s royal family, the Oppenheimers, seemed to be expecting rain. Their rather surprising decision to offload the family’s 40 per cent stake in De Beers, still the world’s largest diamond group, to Anglo American in a $5.1-billion deal might suggest a determination to save some capital for a rainy day.

Historically, the deal ends a nearly 100-year association that the Oppenheimer family – now in its fourth generation – has with the South African resources sector. Ernest Openheimer, and son, Harry, were arguably the most influential (next to colonial crusader Cecil John Rhodes) personalities in the local mining sector.

The most intriguing aspect of the deal is its timing. Most observers would probably agree that being a minority shareholder in De Beers – especially with a more focussed Anglo American as the dominant shareholder – could not have been easy for the Oppenheimers.

Still, the sale was proposed at a time when the gem industry internationally has seemingly not fully recovered from the collapse in late 2008.

Indeed, the Oppenheimer sale infers an enterprise value of around $12.75 billion on De Beers. When the company was de-listed from the Johannesburg Stock Exchange in 2001, the inferred valuation was almost $18 billion.

What’s more, the Oppenheimers are taking leave of the diamond mining sector at a time when other South African investors seem willing to make sizeable investments in diamonds — including a number of old De Beers mines. Here we could include the likes of billionaire Johann Rupert (whose family controls luxury goods business Richemont), Trans Hex Group and Petra Diamonds.

Still, for some it might be tempting to interpret the Oppenheimer’s withdrawal as a downbeat pronouncement by “insiders” around prospects for the diamond sector.

Then again, let’s understand that most family businesses – even very successful ones – rarely extend through four generations. The Oppenheimer’s – or at least their investment arm E Oppenheimer & Sons – can surely be granted some leeway for investment diversity, although it would be most surprising to see the family commit funds to new mining projects in South Africa.

What has been conspicuously absent from the De Beers deal is political sniping. With the deal including a rider that offers the Botswana government a pre-emptive strike on a portion of the De Beers stake acquired by Anglo American, it is most surprising that the high-pitched squealing from the proponents of nationalisation (read: The ANC Youth League) have not yet been heard. Give it time, though…

Another matter, so far unspoken, is whether the De Beers deal means Anglo American has further ambitions to consolidate its investments. The most obvious pitch would be to take out the minority shareholders in Anglo Platinum, a company in which Anglo American has an almost 80 per cent stake.

Talking about buying out minority shareholders, what are the chances that ArcelorMittal, the Indian steel conglomerate, takes a tilt at buying out the struggling ArcelorMittal South Africa?

ArcelorMittal, recently struck with production hitches at its Newcastle plant after a blast furnace accident, notched up some rather ominous losses of Rs 460 million for the quarter ended 30 September 2011.

The business – apart from its production hassles – is being hobbled by markedly higher raw material prices and a 25 per cent increase in electricity prices. The gut feeling is that it’s going to be a tough few quarters for ArcelorMittal South Africa. And how tempting may it be for the Indian parent to make a pitch for the shares it does not own in the local steel business.

With ArcelorMittal South Africa holding a market capitalisation of around $3.7 billion, it is starting to sound like an affordable option.

On the local economic front, South Africa continues to enjoy reassuringly benign fiscal conditions — even though inflation is tipping to top of the target range of between three and six per cent. The Monetary Policy Committee (MPC) met this week and probably gave some serious thought to an interest rate cut. But the MPC opted to leave rates unchanged.

Politically, the outcome of rather prolonged disciplinary hearings into ANC Youth League leader Julius Malema (and other comrades) saw a rare moment of decisiveness by the ANC.

Malema, the enfant terrible of local politics, was surprisingly given a rather stiff sentence in being suspended from the ANC for five years (pending, of course, appeals).

Malema has lately been a most contradictory character. Barely hours after leading unemployed youths on an “economic freedom march” from the stock exchange steps in Johannesburg to the government buildings in Pretoria, he swapped his revolutionary chic (complete with a black beret) for a natty lounge suit as he mingled with well-heeled guests at an extravagant wedding reception at a luxury resort in Mauritius.