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De Beers Profits, Sales Slump in 1H
Production -13% to 13.5M Carats
Jul 20, 2012 2:56 AM
By Avi Krawitz
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RAPAPORT... De Beers reported that net earnings slumped 44 percent year on year to $386 million in the first half of 2012 as rough diamond demand fell in difficult trading conditions. Group sales declined by 14 percent to $3.35 billion while sales of rough diamonds through the Diamond Trading Company (DTC) dropped 12 percent to $3.07 billion. De Beers noted that DTC prices remained relatively stable during the period.
Philippe Mellier, De Beers chief executive (pictured), explained that sightholder demand was impacted by increased inventories in the cutting centers, tight liquidity and challenging conditions in India. He added that lower bank lending to the industry is also having an impact on diamond buying. De Beers Diamond Jewellers saw a decline in the high-end market, while experiencing growth in its core jewelry market, the company explained.
While overall global diamond jewelry demand has softened due to economic uncertainties, Mellier noted that the U.S. has continued to perform well. While sales in China have slowed, the Chinese market has showed positive growth, he added.
De Beers expects trading to remain challenging in the second half of the year but forecasted that global diamond jewelry sales should still see moderate, positive growth in 2012. The company expects the U.S., China, the Gulf and Japan to contribute the bulk of the growth, while India and Europe are expected to remain weak.
Maintains Production Outlook
Given the weak outlook, De Beers said production will continue to be in line with sightholder demand. DTC sales in June and July have slowed as sightholders have rejected allocations being offered. DTC notified sightholders in June that they could defer up to 50 percent of their July sight target to any other sight in the current intention to offer (ITO) period that ends in March 2013.
Mellier saids it was too soon to assess the extent to which sightholders used the facility but added that he does not expect the recent decrease in demand to impact the company's production plans.
De Beers production in the first half of the year fell 13 percent to 13.449 million carats. De Beers Botswana production fell 9 percent to 10.294 million carats, while in South Africa it slumped 41 percent to 1.638 million carats. The group’s Namibia production grew 30 percent to 778,000 carats and production in Canada fell 9 percent to 739,000 carats. Gareth Mostyn, De Beers chief financial officer, reported that sales volume was slightly in excess of production and stressed that the company is not building inventory.
Mellier said the company has maintained its forecast to achieve 28 million to 30 million carats in the full year. He noted that the strategy to focus on waste stripping and maintenance at the beginning of the year has positioned the company to ramp up its operations if the need arises. Mellier added that the current suspension of mining at the Jwaneng mine in Botswana, the group’s largest operation, due to a fatality at the mine on June 29 would not diminish its forecast output for the year. The mine is expected to resume operations in the coming weeks.
De Beers cost of sales fell 6 percent to $2.88 billion while operating costs grew 24 percent to $247 million. Trade investment income dropped 32 percent to $275 million. Earnings before interest, taxation, depreciation and amortization declined 47 percent to $626 million. The company cut its interest bearing debt by 22 percent to $980 million while its cash flow fell 12 percent to $283 million.
De Beers stated it expects the Anglo American buyout of the Oppenheimer family’s 40 percent stake in De Beers to close in the third quarter. The Botswana government will indicate its intention whether or not to take its option to raise its stake in De Beers from 15 percent to 25 percent in the next few weeks.
Shares in Anglo American, which currently owns 45 percent of De Beers, were up 1.5 percent to 2,065 pence in Friday morning trade on the London Stock Exchange.
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Tags:
Avi Krawitz, De Beers, De Beers Diamond Jewellery, Debswana, Diamond Trading Company, diamonds, DTC, Rapaport
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