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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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