Recent media reports noted that the Russian state-owned diamond miner ALROSA will remain the world’s top diamond producer in 2010 as a result of massive support by Kremlin during the financial crisis that saw several miners scaling down operations.
However, De Beers, which has operations in South Africa, Canada, Botswana and Namibia, was tipped to regain the summit position in 2011 as the world’s largest diamond producer in carat terms.
Speculation was also high that the miner would produce 40 million in 2011 up from 31 million targeted in 2010.
So does De Beers’ prospects for 2011 go with what the market analysts have projected? Rough & Polished’s Mathew Nyaungwa filed this and other questions to De Beers’ spokesperson Lynette Gould, who is based in London.
Below are the excerpts.
Some analysts from RBC Capital Markets say De Beers may produce as much as 40 million carats in 2011 against ALROSA’s projected 34.4 million carats. Is this prognosis in line with your company expectations for the year?
Assuming continuing global economic recovery and Sightholder demand, our current expectations are to produce around 31 million carats this year and to break 40 million carats in 2011.
De Beers’ carats recovered in H1 2010 amounted to 15.4 million when compared with 6.6 million carats in H1 2009. What has been driving this improvement in output given the tempest that battered the market from late 2008 and during the better part of 2009?
We saw increased demand for rough diamonds from the DTC Sightholders in the first half of this year in line with an improvement in market sentiment especially in the important emerging diamond markets of Asia, particularly China and India. Clearly, the global economic recovery remains uncertain and we will continue to plan for 2011 with caution and measured optimism. In the long term, international demand for diamonds is on the rise, especially as an increasing number of high net worth individuals emerge in the Russian, Middle Eastern and Asian markets
Has Americans’ appetite for diamonds improved?
As we emerge from the worst recession in living memory we have seen that American consumers’ desire for diamonds remains high. They still want to celebrate important events with diamonds. Some 40% of all US diamond jewellery purchases take place between Thanksgiving and Christmas so this is currently a critical time for all of us in the diamond pipeline.
What challenges did diamond miners, including De Beers, faced in 2010 and what is being done to improve the situation?
The leadership shown by De Beers at the end of 2008 and throughout 2009 undoubtedly shepherded an industry through an unprecedented crisis, and sustained the value of diamonds and the health of our businesses for the long-term. Through 2010 we have looked to take advantage of the opportunities for growth the continued economic recovery presents. This has meant:
a. Looking to sustainably maximise the value received for our rough diamonds through DTC’s distribution system. At the end of August De Beers announced enhancements to its distribution system. This included making the application process for DTC diamonds simpler and more efficient. Secondly De Beers announced that, with effect from October, DTC Sightholders would be able to participate in Diamdel auctions in a pilot that would be extended to further qualifying diamantaires from April 2011.
b. Beneficiation, which aims to optimize economic returns from diamond revenues through national capacity building, increased employment, the attraction of ancillary economic activity etc, remains core to our business model. Through our beneficiation activities De Beers works with producer governments to ensure that more of activities like sorting and valuing, cutting, polishing and jewellery setting take place in diamond producing countries. This is principally driven through three locally established distributors of rough diamonds – DTC Botswana, Namibia DTC and DTC South Africa. Whilst the 2010 sales year is not yet complete (and therefore full year sales figures are not yet available), there has been an increase over 2009 levels and the sales through these operations are broadly in line with what we have agreed with our partners.
c. One of our strategic levers is to find, operate and invest in those mines that generate superior risk adjusted returns. This is evidenced most clearly by our announcement to proceed with the Cut-8 extension at Botswana’s Jwaneng mine – securing approximately 102 million more carats and extending the life of the mine out to 2025. This investment ensures continuity of supply from the world’s richest diamond mine, and could be worth in excess of $15 billion over the life of the mine.
d. Our new proprietary diamond brand, Forevermark has been launched successfully in the increasingly important Asian markets. In China in particular, Forevermark has gained a strong foothold in a market that not only kept growing strongly during the recession, but that we expect to double in size by 2016.
e. We have examined all our costs throughout this year to ensure the 2009 cost and capital efficiencies become the new normal for De Beers. This cost saving and efficiency programme will enable De Beers to be profitable and highly cash generative even at lower levels of sales.
China and India have been described as the future great players in the consumption of global diamonds. What was the level of demand from these Asian countries in 2010?
We don’t have precise figures for 2010 but what I can confirm is that China and India are expected to become an increasingly significant source of demand for diamond jewellery. Our estimates for 2010 are that, together, they will account for around 16 percent of worldwide consumer demand. By 2016, our estimates suggest that India, China, Hong Kong and Taiwan are expected to account for approximately 30 percent of worldwide consumer demand.
Turning to our own diamond brand, Forevermark, 2010 has seen the brand fully establish itself in China, Hong Kong and Japan reaching over $200million of retail sales this October, just two years after launch. Forevermark is now available from over 300 doors across these three launch markets, a 25 percent increase on the beginning of the year. Expansion, particularly across China is progressing rapidly with 5 new cities added this year and further locations planned for 2011.
De Beers noted earlier in the year that the large-diameter drill bulk sampling programme of the Mulepe-1 kimberlite cluster, in Angola was “on track” for completion by the end of 2010. Is this still feasible and when do you expect production to start at this project?
The Mulepe-1 deposit assessment programme was completed on schedule and a desktop study is ongoing, to be completed in Q1 2011.
Firestone Diamonds became the second miner in 43 years to produce and market diamonds outside the De Beers' marketing system in Botswana. What impact does this have on De Beers’ market share in the southern African country?
This has no impact on our market share in Botswana. As 50:50 partners with Botswana, we understand their aspirations to develop a sustainable downstream industry and that the announcement from Firestone Diamonds recently is part of that aim. We are in constant dialogue with government about how De Beers can assist with the development of the Diamond Hub in Botswana.
Has the strong South African rand affected your operations in South Africa and Namibia, whose currency is paired with the rand?
Yes. Like most mines in the region we still face a number of challenges, including dollar exchange rates and rising fuel and power costs, particularly in southern Africa. Our challenge is to continue to focus on costs as production levels rise in line with increased demand for our rough diamonds.
Mathew Nyaungwa, Rough&Polished, from Namibia
