De Beers sees diamond market showing signs of recovery, focused on SA mine expansion

The world's biggest diamond producer De Beers Group said Friday jewellery demand will experience moderate growth this year, which represents a major shift from the 12% decline in rough diamond prices last year.

Announcing its financial results for the year ending last December, the company — an 85%-15% partnership between Anglo American (LON: ALL) and the government of Botswana — said sales dropped 16%. However, a slight recovery in major jewellery markets during the holiday season helped stabilize prices.

CEO Phillippe Mellier said between January 1 and December 31, rough diamond prices fell by 12%, in line with polished diamond prices.

De Beers diamond production totalled 27.9 million carats, while in 2011 production stood at 31.3mn carats.

However, the company enjoyed a strong cash flow of US $697mn (R6.06bn).

Net debt was reduced to US $722mn (R6.3bn) excluding shareholder loans.

Mellier said migration of the London-based sales function to Botswana continued ahead of schedule, with relocation of aggregation, quality assurance, and other preparation activities during 2012.

Construction of the Jwaneng mine Cut-8 infrastructure in Botswana was complete, he said.

The Venetia underground project in Limpopo had received final regulatory clearances and would commence in 2013.

Stores licensed to sell the company's Forevermark diamonds grew by 40% to more than 900 independent jewellers worldwide.

Mellier said another major development in 2012 was that Anglo completed its acquisition of a further 40% interest in De Beers, bringing its total shareholding to 85%.

“In 2012 demand for diamond jewellery in the key markets of the US, China and Japan grew, albeit at a slower pace than in 2011,” Mellier said.

“This, together with higher polished stock levels, resulted in a decline in polished prices, particularly in the third quarter of 2012.”

He said the decrease in rough diamond sales was largely a result of diminished demand, changing product requirements from sightholders, and reduced availability of some goods.

Sales of rough diamonds via De Beers’ auction platform decreased to $356 million in 2012 from a previous $405 million in 2011, due to restrained buyer activity.

Debswana produced 20.2 million carats, down 2.7 million, mainly as a result of the Jwaneng mine slope problems.

In Canada, production remained relatively steady at 1.6 million carats.

De Beers unearthed 4.4 million carats in South Africa.

The company surprised investors Thursday by announcing it will invest $2 billion in a new mine in South Africa’s Limpopo province.

The firm is set to start digging below its existing open-pit Venetia Mine, South Africa’s largest diamond mine, extending the life of the complex up until 2042.

De Beers said about 1,000 jobs will be created during the development and build phase and once the mine enters production, which is due to happen in 2021, would yield around 96 million carats during its lifetime.

Image courtesy of DeBeers