July 23, 2010 / 6:45 AM / 10 years ago

UPDATE 2-De Beers CEO steps down after buoyant H1, no IPO

* CFO and chief commercial officer to be interim joint CEOs

* Quashes speculation that firm may relist

* Net profit jumps to $255 mln from $3 mln

* Looks to H2 with caution and measured optimism

* Anglo shares up 0.93 percent, outperforming mining index

(Adds CEO interview, analyst comment, Anglo shares)

By Eric Onstad

LONDON, July 23 (Reuters) - De Beers, the world’s biggest diamond producer, announced the departure of its chief executive in a surprise statement on Friday after reporting a surge in first-half net profit on the back of a rebound in demand.

The group also dampened speculation that had been swirling in recent months that the group’s three shareholders, including mining group Anglo American (AAL.L), were planning to relist the company.

Gareth Penny said he was stepping down because five years was a good time period for a CEO to be effective and he had long told De Beers Chairman Nicky Oppenheimer that was his intention, he told Reuters in an interview.

He planned to remain as CEO full-time through the current quarter and would work part-time in the fourth quarter as a replacement was sought both internally and externally.

“I think you have to signal this quite openly to the market that you’re going to engage in this sort of process otherwise the rumour mills just start,” he said.

Chief Financial Officer Stuart Brown and Chief Commercial Officer Bruce Cleaver will act as interim joint CEOs as Penny lessens his involvement.

“Gareth Penny thinking it is a good time to step down now strikes us as odd having just turned the company around and no doubt a few eyebrows will be raised,” Ambrian said in a note.

Penny, who has been with De Beers for 22 years, may have been blamed for the company being forced into a $1 billion rights issue finalised in February after debt piled up and revenues dried up during the global downturn, said another analyst who declined to be named.


Penny said De Beers’ owners were not working on putting the firm back on the stock market after the group scrapped a listing in Johannesburg and went private in 2001.

Sources close to the situation told Reuters in May that De Beers’ shareholders had been considering a possible re-listing, but felt the time was not right yet. [ID:nLDE63R08U]

“Our shareholders have indicated no desire at all to IPO this business. There are not any plans being worked on and that is the bottom line,” Penny told Reuters, declining to comment on whether an initial public offering (IPO) was a future option.

De Beers is 45 percent owned by mining group Anglo American (AGLJ.J), 40 percent by South Africa’s Oppenheimer family and 15 percent by the Botswana government.

The group posted a jump in first half net earnings after one-off items to $255 million from $3 million last year, which analysts said was higher than they forecast. Anglo said it will report an underlying profit of $148 million from De Beers.

“With the balance sheet repaired ... rough (diamond) pricing back to pre-crash levels and EBITDA (earnings before interest, taxes, depreciation and amortization) margins now above 25 percent, the company is no longer a problem child for Anglo,” Liberum Capital said in a note.

Net debt declined to $1.98 billion at the end of June from $3.2 billion at the end of last year.

Anglo shares gained 0.93 percent to 2500.5 pence by 1008 GMT, outperforming a 0.34 percent increase in the UK mining index .FTNMX1770.

De Beers rough diamond sales surged 84 percent to $2.6 billion and production more than doubled to 15.4 million carats.

Output in the second half would be similar to that in the first, bringing full year production to 30-32 million carats, up from 24.6 million in 2009, Penny said.

De Beers, which controls around 40 percent of the rough diamond market, was hit particularly hard during the global downturn as consumers shied away from luxury goods, forcing it to temporarily close mines in the early part of last year.

“While encouraged by the strengthening demand in H1, the global economic climate remains fragile especially in the important diamond markets of the U.S., Japan and Europe so we look to the remainder of 2010 with caution and measured optimism,” a company statement said.

The market has been buoyed by exceptionally strong demand from China and India while the key U.S. market was flat and accounted for 40 percent of the global market, down from 44 percent, Penny said. (Editing by Greg Mahlich, Sharon Lindores)

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