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Pickled

By Charles Wyndham.

The cocktail is getting rather more complicated.

First of all, there was the announcement by Anglo American that its subsidiary De Beers saw a 31% shortfall in production in the third quarter.   Then, figuratively, a few hours later came the news that Cynthia Carroll was standing down as the Chief Executive of Anglo American and therefore by definition as the chair (man, person or woman) of De Beers.   It is all getting a bit much, as it was only a very short while ago that Anglo bought the 40% stake in De Beers from the Oppenheimers, so sealing their exit from the diamond business, which has been very much their preserve for the past 90 years or so.   Maybe there is a connection in what might appear to be a set of random events, though we must all be very careful about trying to find order in the random machinations of events.   Taking each of the points in turn.   News of the shortfall in production does not come as a surprise. I have been muttering about production problems at the De Beers mines for sometime.   All my anecdotal evidence was that De Beers has had a serious problem at the mines for a long time.   Catch up has arrived.   The combination of providing incentives to its mine managers that, like the banks, guaranteed the erosion of the asset and then the closing of mines in the last crisis in 2009 and stopping to all intents and purposes the proper care and maintenance of the mines, has inevitably now caught up with current production, or rather the absence of current production.   We got a hint of a more open admission when Monsieur Mellier said that despite all their projections being correct, they were going to have problems finding enough of the right diamonds.   A statement that I found pretty incomprehensible at the time, but the latest announcement fully explains the Delphic pronouncement.   At the time, I simply translated this as admitting that they were in a pickle.   And what a pickle.   But I like pickle.   I always have those old stalwarts of Branston Pickle (great in a cheese sandwich), mango chutney (great in anything) and lime pickle (great in one of my anglicised curries) in the cupboard.   De Beers must be regretting that they do not have enough ‘pickle’ in their cupboard, and instead, for example, have to deal with such a major collapse at the Jwaneng mine.   To say they have produced less because of the state of the market is of course a pleasant divergence from reality, for if that was the case why did the company pump out such a huge sight last time at around $750 million, and from which the market is still suffering indigestion?   For the rest of us it is some of the best news for ages.   The good news about the demise of the Oppenheimer reign at De Beers was somewhat tempered by the knowledge that Anglo were obviously going to have to justify such an eye watering price that they paid for the extra 40%, $5 billion, which presumably explains the pressure to sell that $750 million at the last sight.   Clearly, they will not be able to pump out rough at that rate for sometime, which in the context of the current dire state of the market cannot be bad, indeed, I would argue that it is extremely positive, assuming that in the longer term these mining problems are sorted out.   As to the departure of Cynthia Carroll, I am relatively ambivalent.   The news did not come as a surprise, as there has been so much speculation about her position, that said, the timing was a surprise to me, but so what.   Maybe she was clever enough to jump before everyone realises just what a wacko price they paid for the Oppenheimer stake comes home to roost.   I have always said that I hoped that the introduction of Anglo as the main driver at De Beers would be positive for the industry, anything has got to be better than having the Oppenheimers as the chauffeur, or put differently, cannot be as bad.   Cynthia Carroll’s departure does not change that position, we will all have to wait and see what the net result is when her successor is chosen.   Now, I must just finish my cheese and pickle sandwich.    

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