De Beers, 85% owned by Anglo American, is arguably the world’s leading diamond mining company by value and second largest by volume after Russia's Alrosa.
The miner produced 31.9 million carats in 2023, down 8% compared to 34.6 million carats recorded in 2022.
Venetia mine in South Africa, which closed its open-pit operations at the end of 2022 as construction of the underground mine continued, saw output drop 64% to 2 million carats last year, dragging the group output with it.
De Beers had projected an output of between 30 million and 33 million carats for the year.
The decline came at a time when the industry was experiencing a drop in demand for rough diamonds, and De Beers is expecting to produce 29 million carats to 32 million carats in 2024.
We recently carried out a report that cited Trans Atlantic Gem Sales (TAGS) as saying that its May tender, which consisted of high-quality South African products in Dubai, yielded disappointing results.
This demonstrated that the rough diamond market was still in the doldrums due to weak demand for polished diamonds.
Poor demand in the Chinese and American markets, according to TAGS, made the seasonal slowdown in April worse.
This continued in May, as the rough market was in sixes and sevens.
De Beers’ rough diamond sales for the fourth sales cycle of 2024, which was held in May, also dropped to $380 million compared to $479 million, a year earlier, or $446 million realised during the third sales cycle of the year.
Company chief executive Al Cook attributed the decline to the seasonally slower second quarter and a quieter period of trading in India during the elections.
“The focus of the global diamond industry now turns towards the JCK jewellery show in Las Vegas at the end of May,” he said.
“Demand trends in the US are expected to be driven by short-term macroeconomic issues but supported in coming years by a recovery in engagements as the after-effects of pandemic lockdowns fade.”
While he talks of “seasonal” lower demand in the second quarter, the reality is that demand had been on a downward trajectory for a while, hence the company resorted to price cuts mainly for smaller rough stones.
This was the case at the fourth tender as well.
Rapaport quoted unnamed sources as saying that the miner reduced the price of 3-grainer (0.75-carat) and smaller goods by 4% to 6%.
The sources also projected that the price decline was around 4% in 4- to 6-grainers (1 to 1.5 carats), while that of 5- to 10-carat rough rose marginally, but this was partially attributable to adjustments to the assortments.
Hard times
Zimnisky Global Rough Diamond Price Index show that prices have so far this year dropped by 5.9%.
Angara founder and chief executive Ankur Daga was quoted by CNBC as saying that prices of natural diamonds might drop by an additional 15% to 20% over the next year.
These are hard times for De Beers, which looks set to be dropped from the Anglo family.
The diversified mining company paid $5.1 billion to buy the 40% stake in De Beers held by the Oppenheimer family in 2012, rejecting BHP's $43 billion buyout offer.
This raised its stake in the company to 85%, while the remaining 15% is held by the Botswana government.
Once a profitable business for Anglo, De Beers is currently trading on a rough patch.
Anglo chief executive Duncan Wanblad said in December last year that they had plans to cut $100 million in annual expenses from the diamond company due to losses.
He said that they had also reduced capital expenditure for 2024, with their investment focused on the highest value opportunities they see in southern Africa from existing assets as well as on the exploration front.
Wanblad said at the time that long-term fundamentals were strong and the group had access to the world’s best diamond assets.
He is now determined to drop De Beers.
The diversified miner recently unveiled its strategies for future dissolution through a demerger or the sale of some of its assets.
The intention, according to Wanblad, is to sell or spin off De Beers.
Ironically, BHP’s failed bid came with several proposals, which showed less interest in Anglo’s diamond and platinum business.
While Wanblad endorses the growth strategy that Anglo has devised for De Beers, Anglo considers it to be "better executed by different owners and in a different structure" from today's.
Unnamed sources cited by Reuters said Anglo is considering an initial public offering (IPO) of De Beers.
De Beers might be valued between eight and ten times its core earnings, according to one of the individuals.
De Beers intends to achieve an annual core profit of $1.5 billion by 2028.
It generated a mere $72 million in revenue last year, although its profits have historically fluctuated between $500 million and $1.5 billion as the diamond sector experiences boom and busts.
Fighting for survival
On its part, De Beers is not folding hands and waiting to be washed away by a tsunami.
The company recently indicated the path it intends to take to boost its prospects.
De Beers unveiled its new ‘origins’ strategy to enhance value across its business, from mining through to retail.
“We are reinventing every part of De Beers to grow value. Through the delivery of our origins strategy, De Beers will be streamlined, focused, and a leader in diamond technology, provenance, and luxury retail. We will recreate the magic of natural diamonds for modern consumers," said company chief executive Al Cook.
"The outlook for natural diamonds is compelling. Global supply is declining, with no new mines discovered in the past decade. Consumers in key regions are becoming more affluent and are increasingly differentiating between natural diamonds and lab-grown diamonds.”
De Beers will focus its upstream investments on the major projects that will deliver the highest returns, including the ramp-up of Venetia Underground in South Africa and the progression of Jwaneng Underground in Botswana, with the future option to deliver additional projects in Namibia and Canada should the industry dynamics warrant.
It said exploration expenditure will be refocused towards Angola, which represents the most prospective region in the world and where De Beers’ exploration activities are well underway in the northeast of the country.
De Beers is reportedly planning to discontinue a six-year initiative that broke one of its oldest taboos by discontinuing a contentious attempt to market lab-grown diamond jewellery.
As man-made stones gained popularity and began to directly compete with natural diamonds, De Beers established its jewellery brand in 2018, known as Lightbox.
The intention was to reduce prices and establish a clear distinction in the minds of consumers.
De Beers will not immediately cease the sale of its Lightbox stones but exhaust its current inventory, which will take approximately one year, and subsequently determine its course of action, according to Bloomberg.
The group will redouble its efforts to promote natural stones as it prepares for the separation.
"We know how to do it, and we're coming back," Cook was quoted as saying.
"All of this comes together under a big theme of differentiating natural diamonds from lab-grown."
Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished
