Anglo American / De Beers (AAL)

The obvious parallel today of course is the diamond market. For decades the supply of diamonds has been effectively one of the world’s few real cartels, controlled by De Beers, but this looks increasingly like going the way of pearls. In May last year, De Beers shocked the jewelry world by making its own lab built diamond, selling it for 80% of the price of a mined diamond, at $4200 a carat rather than $6000. Within six months however this had fallen to just $800 a carat, Massie Plant’s pearl necklace took 40 years to drop that much in value. De Beers is trying to keep the distinction between mined and lab grown, as assuredly as jewelers tried to keep the difference between real and cultural pearls, especially as the cost of manufacturer has dropped to $300 a carat from $4000 over the last decade according to Bain & co.

Since we originally wrote this post, De Beers, the South African based mining company that has dominated the market for natural diamonds has been put on the market by Anglo American, with Botswana, who own 15% a likely buyer of a larger stake. However, despite a book value of around $5bn, most analysts think that they would be lucky to get half that. Moreover, with revenue down 44% in Q1 and inventory of around $2bn (i.e. unsold stock in a market that doesn’t seem to want the product), Anglo American is looking rather like Morton Plant and his wife’s string of pearls.