Rough and polished diamond markets have been on an upward trajectory during the first half of the year mainly due to a strong demand in China, India and the United States.
De Beers, which recorded a 33 percent increase in sales through its trading arm, Diamond Trading Company during the first six months of the year, said the price growth was exceptional.
It said although strong demand will sustain prices for the remainder of the year, it does not anticipate prices increasing as rapidly as they did in the first half.
Rough & Polished’s Mathew Nyaungwa caught up with the group’s head of media relations Lynette Gould to discuss these developments, among other issues.
Below are the excerpts.
De Beers produced 33 million carats last year. What is the company’s projected output this year?
We anticipate production levels will be slightly higher than in 2010 (33m carats) although details will only be provided when De Beers announces its 2011 results in February 2012.
Your company is planning to further expand its retail outlets in China. What is the drive behind this expansion?
De Beers Diamond Jewellers recently opened its first China store at Shin Kong Place, Beijing, marking its entrance into one of the world’s fastest growing jewellery markets. Shin Kong Place is a landmark of luxury shopping in Beijing and the opening is the start of De Beers’ new journey in China. The Beijing store represents De Beers’ entry into the fast growing market, recognising the demand for exquisite designs and diamonds of superlative quality by Chinese consumers.
What is the current level of demand from the U.S.?
We don’t have any proprietary research into diamond jewellery demand, Mathew, but publically available data shows that retailers had a strong Q1 and US DJ growth was better than expected. Overall retail results for July look pretty positive and the higher end continues to do well. The major retailers are due to report their Q2 figures at the end of this month so we’ll be watching out for those.
Do you see prices for rough diamonds rising further over the coming months and if so what will be the driving factor?
We are confident in the strength of both the rough and polished diamond markets and we continue to see strong pull through in China, India and the US. The price growth seen in the first half was exceptional and, whilst we believe strong demand will sustain prices for the remainder of the year even, we don’t anticipate prices increasing as rapidly as they have in the first half. All eyes will be on the forthcoming Hong Kong show in September.
Your sales of rough diamonds in the first half for the year 2011 totalled $3.5 billion. Do you see the figure going up in the second half?
We only comment on sales totals in the De Beers’ end of year and mid-year results announcements.
Can you say the diamond industry has fully recovered from the debilitating effects of the global economic meltdown?
The global economic environment remains volatile - we saw what happened in the US last week [August 8-14] and there’s continued uncertainty in the Eurozone - and, like any other industry, the diamond industry isn’t immune to the downside risks in the market. This is why De Beers has worked hard to strengthen its balance sheet over the past two and a half years – reducing debt and improving our cash position. De Beers is now in a much stronger position to face any shocks to the market.
What is the position on De Beers’ plans to expand underground operations at Venetia mine, in South Africa?
The Venetia feasibility project is at an advance stage and is expected to go to the De Beers Consolidated Mines Board for consideration in 2012.
De Beers had been selling some of its properties in South Africa, with Namaqualand and Finsсh mines being the latest. Why is the diamond giant offloading these properties?
As part of De Beers’ global strategy, our business model no longer drives us to maximise our share of global production. Instead our priority for future investment is on those mining opportunities that fit our mining portfolio and provide a superior risk adjusted return. Today, De Beers Consolidated Mines is a smaller and more efficient mining company, focused on maximising the value of its three South African operations – Venetia Mine, Voorspoed Mine and the Kimberley Tailings.
De Beers’ outfit in South Africa experienced a two-week industrial action (though it came to an end recently). How has this affected output at your operations in that country?
De Beers Consolidated Mines had contingency plans in place in the event of a NUM strike and is confident that it can meet production targets for this year. We are pleased that we were able to reach a resolution with NUM.
De Beers recently altered its agreement with the Namibian government to give it a larger stake in operations in that country. What is the new ownership structure now and did this change came as a result of pressure from the southern African country?
The agreement allows the Government of the Republic of Namibia (GRN) to increase its shareholding in De Beers Marine Namibia (DBMN) from 15 percent to 50 percent deepening the partners’ joint commitment to diamond mining in Namibia. As part of the agreement, the shareholders have agreed to establish a new 50/50 joint venture holding company for Namdeb and DBMN. The company will hold all of the licences both for land and sea operations (currently held by Namdeb), and will own the diamonds mined from those areas. All the diamonds produced by Namdeb and DBMN will continue to be sorted, valued and marketed exclusively by the Namibia Diamond Trading Company (NDTC), which is also a 50/50 joint venture between the GRN and De Beers.
The GRN and De Beers have continually deepened their partnership since it began in 1994. The new balance of equity in DBMN, and the establishment of a holding company for all joint land and sea mining, will further strengthen that relationship and fully align the shareholders on the long-term visions of Namdeb, DBMN and NDTC.
Any update on your Botswana sales and marketing negotiations?
No. Discussions around the new Sales Agreement are still on-going but we expect to conclude these very soon.
Mathew Nyaungwa, Rough&Polished
