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De Beers Production to Peak in 2018

Earnings Increase Due to Lower Costs

Feb 22, 2018 9:03 AM   By Joshua Freedman
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RAPAPORT... De Beers expects its production to hit a high point in 2018 as a number of its mines approach the end of their life span, CEO Bruce Cleaver told Rapaport News.

The company is planning production of 34 million to 36 million carats in 2018, up from the 33.5 million carats it unearthed last year. However, output will then slide to 32 million carats in 2019 and 2020, he said.

The decline is due to its Venetia mine transitioning from an open-pit to an underground operation, while its Victor mine in Canada is due to close in the first half of 2019. Some of its operations in Namibia will shut in the coming years, with De Beers also recently putting its South Africa-located Voorspoed mine up for sale, Cleaver explained.

“Global production is peaking, and will remain at these levels without a significant increase for some time,” he added.

De Beers maintained a positive outlook for this year off the back of stronger consumer demand for diamond jewelry in US and China in 2017. Demand has picked up for certain polished categories that had struggled of late, including VVS-clarity stones, while the miner’s retail unit, De Beers Diamond Jewellers, saw a strong December sales period, Cleaver noted.

“Improving global macroeconomic conditions remain supportive of consumer demand growth for polished diamonds in 2018,” the company said in its 2017 earnings report Thursday.

Even so, De Beers’ revenue declined 4% to $5.84 billion in 2017, with rough sales declining 7% to $5.2 billion. Other revenue, including from the Element Six industrial-diamond unit, increased 20% to $600 million, according to Rapaport calculations.

The drop in rough sales reflected inflated demand for lower-value rough in early 2016 as sales volume increased, but the average price achieved during the year slid 13% to $162 per carat. De Beers said its price index measuring like for like diamonds increased 3% during the year.

Meanwhile, its average cost per carat also fell, which helped buoy operating profit: Underlying earnings before interest, taxes, depreciation and amortization (EBITDA) grew 2% to $1.44 billion. EBITDA margin — a common measure of profitability — increased to 25% from 23%, reflecting a 6% decline in costs to $63 per carat.

Underlying earnings — after interest, taxes, depreciation and amortization — fell 21% to $528 million due to accounting changes at Gahcho Kué and Venetia, Cleaver explained.
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Tags: Anglo American, costs, De Beers, earnings, ebitda, element six, Gahcho Kué, Joshua Freedman, mining, Production, Rapaport News, Snap Lake
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