An unusual offer by De Beers, allowing sightholders to defer up to 50% of purchases from its latest sight to March next year, had been “welcomed” according to Philippe Mellier, CEO of De Beers, writes David McKay on miningmx.com.
“We will get the results from the sight in the next few days. My assumption is that a lot [of sightholders] will take the opportunity,” said Mellier.
“Money available for lending has become more scarce. The amount of dollars to the industry is quite capped,” he added.
Mellier was speaking following the announcement of the diamond group’s first half operating and financial figures, in which sales by De Beers’ trading arm, the Diamond Trading Company (DTC), fell $400m to $3.1bn compared on a year-on-year basis.
De Beers holds 10 ‘sights’ a year, in which it presents rough diamonds for sale to approved buyers, polishers and cutters who borrow heavily from banks to pay for the goods. The Eurozone economic crisis, and difficulties with the regions banks, had reduced liquidity.
Mellier said the offer to provide deferments on rough diamonds signalled De Beers’ responsibility to sightholders. Normally, De Beers allows a deferment of purchases from one sight to the next, but never before has it provided buyers with so much breathing space.
Nonetheless, Mellier said the fundamental condition of the diamond market remained intact. “There are pretty good opportunities for the diamond market to go up,” he said.
De Beers expected “moderate growth” in the diamond market this year, although demand in India and Europe remained weak.
He expected, however, that India, the Gulf region and China would constitute 40% of all diamond sales by 2014 and therefore represented the bulk of growth in the market in the medium term. Currently the US comprises about 48% of diamond sales.
De Beers’ diamond production totalled 13.4 million carats in the first half of the year, a reduction on the 15.5 million carats in the first half of the 2011 financial year.
Diamond supply is normally metered in line with expected buying at the cutting and polishing centres, but this year production was additionally affected by an accident at the Jwaneng mine, held in joint venture with Botswana’s state-owned Debswana, in which three employees lost their lives.
Production had been interrupted for a 20-day period, but Mellier said output was set to resume shortly. The production decline at Jwaneng would be made up by other mines in the group’s portfolio, he said.
US PROSPECTS
A $295m settlement of anti-trust litigation in the US, involving a number of class actions, had been deemed unconditional by the authorities paving the way for De Beers to trade unencumbered in the region, for the first time since 1948.
Mellier hailed the moment as historic, but declined to provide details on how the group intended to extend its trading activities in North America. “Give us a bit of time,” he said. “We will be celebrating being able to trade in the US in the autumn.”
In the past, De Beers has been restricted to buying large operating mines owing to anti-trust fears. However, the decisions by BHP Billiton and Rio Tinto to divest from its diamond businesses created opportunities for De Beers to entrench its leading position in world diamond production. This is largely held through its joint venture with Debswana.
Mellier said that a decision by Debswana as to whether it would exercise a pro-rata pre-emption on the sale of the Oppenheimer family’s 40% stake in De Beers was imminent. “So far, we’ve had no news from Botswana. The process is expected to close before the end of August,” Mellier said.
Analysts told Miningmx last week [July 9-15] that the Botswana government was likely to pass on the pre-empt option, which was estimated to cost it $1.25bn. The Botswana government already owns 50% of the De Beers’ Botswana business via its joint venture, and effectively gets 80% of the income. Botswana also has the right to market 10% of its own production from the joint venture while De Beers is also relocating its sorting and marketing offices to Botswana’s Gaborone.
Mellier said the migration of the sorting office to Gaborone from London was ahead of schedule and would be completed before the end of 2013.
