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Anglo American takes over diamond miner De Beers

By Robert Barr
Associated Press / November 4, 2011

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LONDON—Mining company Anglo American is gaining a controlling interest in De Beers, paying $5.1 billion for the 40 percent of the company's shares held by the Oppenheimer family.

The deal announced Friday marks a historic change for the South African industrial dynasty, which has had a leading role in both companies for nearly nine decades.

The transaction potentially raises Anglo American's stake in De Beers to 85 percent. However, the government of Botswana has pre-emption rights to buy one-fourth of the Oppenheimer shares for $1.275 billion at the time the transaction closes, potentially increasing its stake to up to 25 percent.

"This has been a momentous and difficult decision as my family has been in the diamond industry for more than 100 years and part of De Beers for over 80 years," said Nicky Oppenheimer, speaking for the Oppenheimer family interests which are held by CHL Group.

Oppenheimer and his son Jonathan are both directors of De Beers, but the family's clout has waned. Nicky Oppenheimer, who retired from the Anglo American board earlier this year, was rebuffed when he asked whether his son might replace him.

"They said I was an anachronism in a sense, and if proper corporate governance had been applied, I would not have got onto the board," Oppenheimer said in a September interview with the South African business newspaper Financial Mail.

Anglo American, founded by Ernest Oppenheimer, became the largest single shareholder in De Beers in 1926. The Oppenheimer family, influential in philanthropy, cultural affairs and politics in South Africa, has 25.2 million shares in Anglo American, a 2 percent stake, through E. Oppenheimer & Son International Ltd.

Anglo American "is the natural home for our stake," said Oppenheimer, who retired from the Anglo board earlier this year.

Anglo American shares were up 2.8 percent in midday trading in London.

De Beers produces 35 percent of the world's rough diamonds by value, and has mines in Botswana, Namibia, South Africa and Canada; it employs more than 13,000 people in 20 countries.

Cynthia Carroll, chief executive of Anglo American, said the deal was strengthened by a 100-yaer-sales agreement with the Botswana government that ensures a steady supply of diamonds.

De Beers' roots goes back more than a century. The discover of the 83.5-carat "Star of Africa" in 1869 sparked a South African diamond rush, and Cecil Rhodes, a teenager from England, joined in, setting up a business selling ice to miners.

Rhodes used his profits to buy up mining rights including the farm originally owned by Johann and Diederik de Beer, whose land became the site of the Kimberley and De Beers mines, before he agreed to a merger with another Englishman, Barney Barnato, to form De Beers Consolidated Mines Ltd.

Ernest Oppenheimer cannily exploited uncertainties during World War I to gain assets in the rich diamond fields of the Sperrgebiet in German South West Africa, now Namibia. He offered shares in the newly formed Anglo American to the German investors in the Sperrgebiet, and they accepted, fearing they might lose all of their stakes if Britain won the war and expropriated their holdings.

Oppenheimer then swapped his Namibian assets for shares in De Beers and a seat on the board, and became managing director of De Beers in 1927.

He founded the Central Selling Organization, a cartel that restricted the supply of diamonds to keep prices up. De Beers also turned to advertising -- and the famous slogan "a diamond is forever" -- in the late 1930s to generate demand, especially for engagement rings, which had not been commonplace until then.

Ernest's son Harry -- described as "the prince of South African businessmen" in Allister Sparks's definitive history, "The Mind of South Africa" -- supported the white, liberal opposition during the apartheid years.

He was elected as an opposition member of Parliament in 1948, but left parliament to run De Beers following his father's death.

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Associated Press writer Donna Bryson in Johannesburg contributed to this report.