Last month, mining major Anglo American (GB:AAL) (OTC:AAUKF) successfully fended off a $49 billion takeover bid from its rival BHP Group (AU:BHP) (NYSE:BHP). BHP abandoned its weeks-long pursuit of Anglo after the two miners disagreed over the structure of the deal. In the aftermath, the focus has shifted to Anglo’s De Beers diamond unit, with the battle line drawn between natural and lab-grown diamonds.
Anglo Is Looking to Offload De Beers
Anglo has been a major shareholder in De Beers for decades. However, it has been looking to offload the famed diamond unit this year. According to the Wall Street Journal, the company has held initial talks with potential suitors, including luxury houses and sovereign wealth funds from the Gulf.
Anglo’s move comes amid challenging times for the diamond industry. Earlier this year, Anglo announced a $1.6 billion impairment charge on De Beers, which produces nearly a third of the world’s rough diamonds by value.
But the Challenge from Lab-Grown Diamonds
This is where the challenge from lab-grown diamonds comes into the picture for De Beers. Lab-grown diamonds are virtually impossible to differentiate from natural diamonds with the naked eye and cost around a fifth of what traditional diamonds do. Not surprisingly, lab-grown diamonds are growing in popularity. According to Edahn Golan Diamond Research and Data, the share of natural diamonds in engagement ring sales in the U.S. has declined from roughly 90% in 2020 to just about 55% this year.
Could Cast a Shadow Over the Move
This trend could make a potential deal for De Beers challenging. As a result, a public listing could also be on the cards for De Beers, but that might fetch a lower valuation for the unit, which Anglo values at around $7.6 billion at present. For now, Anglo plans to more than double De Beers’ global retail footprint. Recently, the company also unveiled a five-year strategy to boost the appeal of natural diamonds.
What Is the Price Prediction for Anglo American Stock?
Meanwhile, Anglo’s share price is up by nearly 30% over the past six months. Overall, the Street has a Moderate Buy consensus rating on the stock, alongside an average AAUKF price target of $36.58.
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