LET’s get this straight. No sooner has Clifford Elphick left a lifetime’s
employ with the Oppenheimers, South Africa’s billionaire mining family, than
he has dug up two of the world’s largest diamonds?
“Yeah, it’s probably starting to strain credibility that we got two out,”
grins Elphick, “but it’s just chance. Let’s hope we can find another one
before reporting our next results, eh?”
Then he laughs. Short and trim, with a bony, broken nose, frameless glasses
and bristle-brush hair, 47-year-old “Cliffie” is a semi-legendary figure in
mining circles. His role as low-key fixer for the Oppenheimers, who founded
the mining group Anglo American and control the world’s biggest diamond firm
De Beers, was firmly established long before he set out alone.
But look at him now. His new firm Gem Diamonds, based in Africa but floated in
London in February, is already a $1.4 billion (£670m) company in the FTSE
250 and growing fast. This month it’s expected to complete its acquisition
of the Kimberley Diamond Company (KDC) in Australia. It’s also selling the
second of those two supersize diamonds.
The first one, dug up from Gem’s Letseng mine in Lesotho last year, was – at
603 carats – the 15th largest diamond ever recovered. It sold for $12.4m.
The second, at 494 carats, is the 18th largest ever recovered and will be
auctioned by tender in a fortnight. No wonder Elphick, sitting in the
offices of his London PR off Threadneedle Street, has a smile that runs from
ear to ear.
It’s a great start for a boss who many suspect might have a personal agenda.
Elphick, who worked in Anglo American and De Beers, was personal assistant
to the late Harry Oppenheimer, and ran the family’s private interests, at
the heart of their vast commercial empire. He was regarded by some as a
protégé who might have troubled the next generation of Oppenheimers . . .
“I can sense where you’re going with this,” cuts in Elphick, “but it didn’t
put me in a difficult position.”
So no truth in the gossip that he set up Gem to settle a score?
“Not at all,” sighs Elphick. Then he lays out some facts. Gem is still small
compared with the $6.5 billion turnover at De Beers, and there are many
companies in between, not least Alrosa, and the diamond divisions of Rio
Tinto and BHP Billiton.
And his relations with the Oppenheimers are fine. He left simply because he
couldn’t rise any further. “A family business is a family business, what
sort of role are you ever going to play? It was clear I wasn’t going to run
the show.”
He talks quietly, logically, with only a hint of a South African accent. Like
most mining bosses these days, he looks more paper pusher than rock basher
and he enjoys the good life. He flies his own helicopter and has a string of
polo ponies. But beneath the affable front, there’s an obvious tough streak.
That, plus his connections, has made Gem surprisingly popular with investors –
surprising because it operates in some rough places, including the Central
African Republic (CAR) and the Democratic Republic of Congo (DRC), in a very
crowded market.
But Elphick, born in the eastern Transvaal to a farming family with British
roots, is used to digging in to achieve his goals. He patrolled the
riot-torn townships as a conscripted officer in the South African army in
the early 1980s, despite his liberal politics. And his family has since lost
its farm through a land claim – his elder brother has emigrated to Australia.
Yet still he wants to keep South Africa as a base, even though Gem’s assets
are all outside his home country. He has every incentive to make this
business work.
And the rewards are obvious. “There are only 25-odd diamond mines on the
planet,” says Elphick, “so it’s obviously a good place to be, given the
discrepancy between supply and demand.”
The difficulty is getting in. Elphick, though, had no shortage of backers. He
started Gem in 2005 with $200m raised through a private consortium headed by
JP Morgan. He bought the Letseng mine in 2006, and assets in CAR and DRC. By
the time Gem floated, raising another $600m, it was turning investors away.
Why? Because Elphick’s pedigree and his strategy of focusing on higher-value
diamonds, and buying broken mines he can fix, or potential mines he can push
quickly into production, caught investors’ imagination. He has also drawn a
seasoned ex-De Beers team round him. Some of that Oppenheimer magic has
stuck.
But do London investors really know what they are getting into? Elphick
shrugs. “London was much more interested in taking on African risk than
Johannesburg at the time.”
Because it knows less? “Not at all, it’s very astute and knowledgable. There
just is an appetite for African risk and natural resources.”
And has he been lucky? Maybe, he says, but to tell the truth, the large
diamonds plucked out of Letseng were not a surprise.
“The fact is we modelled statistically that we would find four large diamonds
a year – anything over 100 carats – at that mine, so we are pretty much on
track, there’s nothing extraordinary about what we are doing.”
Nor should it be forgotten Gem fought off 10 other bidders to buy Letseng.
“People now agree it was a bargain but they said at the time that we’d
overpaid,” he nods. “That’s what you want, isn’t it?”
He’s hoping for similar success if he clinches the $263m acquisition of KDC,
whose Ellendale mine in northwest Australia has underperformed. That deal
will conclude this month.
“It’s a mine with a good management team that has had a bit of bad luck. With
a combination of financial stability, a little technical expertise and a
good diamond selling price, it should be a profitable venture for us.”
Old colleagues say Elphick’s knowhow makes him a good investment proposition.
“Clifford’s sharp, straightforward and humble, and he’s got a nice way about
him,” says one who has known him for over 20 years. “He promotes the team,
not himself.”
Another describes him as “not a detail man, but inspirational”. Elphick also
knows the financial markets – he helped list Anglo American in London in
1999 and his unflashy, persuasive manner makes him very easy to trust.
That has been the leitmotif of a career in which many saw him as the
Oppenheimers’ éminence grise. He first joined Anglo
American in the corporate-finance department, then worked as Harry
Oppenheimer’s personal assistant for 14 years. He also took on the job of
managing director of E Oppenheimer & Son – “the family company at the
centre of the spider’s web”, as Elphick describes it. Working there was
simply “the greatest education one could get in business”.
It also gave him considerable power within the Oppenheimer empire, which mixed
liberal – by South African standards – politics with business secrecy.
“They are not people who chase publicity,” agrees Elphick when I put it to
him. Mining gossip says that once Harry Oppenheimer died in 2000, his son
Nicky was always likely to wrest some of Elphick’s power back.
But those who know the Oppenheimers say Elphick left without any bitterness.
It was only later, when he decided to compete directly with De Beers – a
business he helped take private in 2001 and which Nicky Oppenheimer chairs –
that the family was surprised, especially as key staff joined him.
Didn’t they make him sign a no-compete clause? “No,” says Elphick hesitantly,
“I think that would have been a difficult discussion.”
He says he left with little idea of what he would do next and spent six months
considering his options. It was only when he received an approach to take on
the Letseng mine that his ambition crystalised.
And, he points out, De Beers happily sold Gem its Gope Exploration subsidiary
in Bot-swana earlier this year, so there can’t be that much ill-feeling. The
fact that Gope’s diamonds lie in the middle of the Central Kalahari game
reserve, and are politically and environmentally sensitive, makes others see
this as a risk De Beers was happy to hand on.
But risks are what Elphick wants to take as he follows a fast-growth strategy.
He promises to consult all stakeholders to find a way to develop Gope
sustainably, and says that Gem will always act responsibly.
“But obviously our shareholders wanted some risk, we painted that picture for
them, so we put on our felt hat and went to look at the hinterland. We
negotiated on properties that we felt could be turned into mines.”
What could trip Gem up? Elphick’s eyes narrow. “We have an ambition to grow to
a certain size and at a certain pace. Unfortunately, the diamond industry is
small and the question is, can we get hold of the mines? If we can’t acquire
them, can we discover and build them?
“And as we’re not in the discovery business, can we make alliances with people
who have found deposits? There are always lots of people chasing the assets.”
So far, that doesn’t include the Chinese, but they are increasingly prominent
in Africa and could soon join the hunt.
Some in the sector think the price of diamonds will be Elphick’s biggest
worry. Consumers spent $72 billion on diamonds in 2006, but if increasing
demand in the Far East doesn’t make up for a likely decline in the West
recent price rises could tail off. After all, no-one really needs diamonds.
So does he want Gem to be as big as De Beers? He laughs, then composes
himself. “I am 47. Hopefully, I have a long time to go and I will push this
as hard as I possibly can. But I can’t define where we’ll end up.”
With his luck so far, however, investors expect the Oppenheimers to be looking
over their shoulders soon.
CLIFFORD ELPHICK’S WORKING DAY
THE Gem Diamonds chief executive wakes at his home in Johannesburg at 6.25
every morning. On the way to work, Clifford Elphick drops his children at
school and is at his desk before 7.30am. “I run through e-mails, work with
the senior team and usually have some shareholder interaction by video
conference. Diamonds are not well understood, perhaps because the industry
has not spent a lot of time explaining itself.”
Elphick avoids the phone during the day but returns messages from 6pm onwards,
and tries to be home by 7pm. A third of his time is spent in London, another
third visiting operations.
VITAL STATISTICS
Born:October 26, 1960
Marital status:married, with three children
School:St John’s College, Johannesburg
University:Cape Town
First job:corporate financier at Anglo American
Salary package:$670,000
Homes:Johannesburg, farm in Mpumalanga, London
Car:green Range Rover
Favourite book:Open Cockpit Over Africa, by Victor Smith
Favourite music:Annie Lennox
Favourite film:Mediterraneo
Favourite gadget:Garmin G1000 integrated flight instrument for
aircraft
Last holiday:Zambia
DOWNTIME
CLIFFORD ELPHICK relaxes on long holidays with his young family. “We go to the
Zambesi river with other families in August, and at the end of the year go
on sea safari to an island off Kenya. Very simple and rustic.”
He also likes flying his EC130 helicopter. “We have a weekend farm three
hours’ drive away – it’s only an hour by helicopter.”
He broke his nose playing fly-half at rugby when younger and used to play a
lot of polo but has stopped. “It’s dangerous if you don’t have time to put
in the hours,” he says. “And don’t ask me how many polo ponies I have – far
too many.”
