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Higher Costs Hit De Beers Profit
Feb 21, 2019 6:00 AM
By Rapaport News
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RAPAPORT... De Beers’ earnings fell in 2018 due to the costs of new initiatives such as
its Lightbox synthetics business.
Underlying earnings slid 34% to $349 million, as capital expenditure rose 53% to $417 million for the year, the company reported Thursday. That included outlays related to the launch of De Beers’ lab-grown jewelry brand, as well as its Tracr blockchain program, and Gemfair, which aims to help artisanal miners. It also spent more on marketing, exploration and evaluation in Canada.
Volatile conditions also negatively affected margins in De Beers’
trading unit, it added. Consumer demand for diamond jewelry was strong in the first
half, but faltered from July onward amid political uncertainty, unstable stock
markets, and the US-China tariff dispute. Manufacturers bought less rough as a
result.
“In the second half, the low-priced-product segment came
under considerable pressure due to weak demand and surplus availability, the
rapid depreciation of the rupee, and a reduction in bank financing in the
midstream,” De Beers explained.
Revenue still increased 4% to $6.08
billion for the year, driven by strong consumer demand in the first half, with
prices growing 1% on a like-for-like basis. Sales of rough diamonds grew 4% to
$5.4 billion, while the average selling price climbed 6% to $171 per carat,
reflecting lower sales of cheaper goods in the second half. Sales volumes
dropped 4% to 33.7 million carats.
De Beers noted an improvement in sales at De Beers
Jewellers, its high-end consumer chain. Revenue from Element Six, its
industrial-diamond subsidiary, dropped 5% due to lower sales to the oil-and-gas
market.
The company expects some of the group-wide challenges to continue this year.
“The outlook for 2019 global diamond-jewelry consumer demand
faces a number of headwinds, including the risk of a potential intensification
of US-China trade tensions, the Chinese government’s ability to rebalance economic growth towards consumption, and
further exchange-rate volatility,” it said.
De Beers maintained its production forecast of 31 million to 33
million carats for this year, down from 35.3 million carats in 2018. However, profitability
could suffer as output from its wholly owned Venetia mine in South
Africa enters a lull this year amid a transition from open-pit to underground mining. A
larger proportion of production will, therefore, come from mines in Botswana
and Namibia that it operates in joint ventures with governments. Those businesses generate lower margins than it receives from deposits it owns completely.
Image: Large shovels at De Beers’ Venetia mine in South Africa. (De Beers)
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Tags:
Botswana, De Beers, De Beers Jewellers, element six, GemFair, Lightbox, mining, Namibia, Production, Rapaport News, Rough Diamonds, South Africa, Tracr, venetia
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