If there was any doubt that 2012 was a difficult year for the diamond industry then one needs to peruse De Beers’ poor annual results, which were released last Friday.
The group reported that its underlying earnings eased 49 percent to $506 million, while total sales tumbled 16 percent to $6.1 billion.
“After an exceptional first half of 2011, the macroeconomic uncertainty that triggered difficult trading conditions in the fourth quarter of 2011 continued, as expected, into 2012,” De Beers said.
“Demand for diamond jewellery in the key markets of the US, China and Japan grew, albeit at a slower pace than in 2011. This, together with higher polished stock levels, resulted in a decline in polished prices particularly in the third quarter of 2012.”
Falling
Rough diamond sales also fell 15 percent to $5.5 billion during the year.
The decrease in rough diamond sales, De Beers said, was largely a result of diminished demand, changing product requirements from Sightholders, and reduced availability of some goods.
Sales from the group’s auctions were not spared either as they declined 12 percent to $356 million from the previous year’s $405 million.
“Although rough diamond prices remained broadly stable in the first half of 2012, a combination of weaker polished prices, high levels of cutting center stock and tightening liquidity in the midstream resulted in a rough diamond price correction during the third quarter,” said De Beers chief executive Philippe Mellier.
As if that was not enough, De Beers’ production tumbled 11 percent to 27.9 million carats in 2012 from the previous year’s 31.3 million carats as its operations focused on maintenance and waste stripping backlogs.
Debswana, the main source of De Beers’ diamonds, produced 20.2 million carats, down 2.7 million carats from the previous year mainly as a result of the Jwaneng Mine slope failure last June.
South Africa, which was the second top producer of diamonds for De Beers after Botswana, also recovered 4.4 million carats down from 5.4 million carats recorded a year earlier.
The reduced output was partly due to the sale of Finsch Mine to Petra Diamonds, which completed in September 2011.
The mine contributed 0.9 million carats to De Beers’ output in South Africa during 2011.
Brighter side
Meanwhile, the diamond giant expected moderate growth in diamond jewellery demand in 2013.
This, it said, would be supported primarily by a more positive picture emerging from China and India compared to 2012.
“Some upside is possible in the US, while trading conditions in other developed markets are likely to be challenging,” De Beers said.
In the medium to long term, industry fundamentals were expected to strengthen as diamond production plateaus and demand continues to increase, it said.
De Beers also relocated its aggregation, quality assurance and Sight preparation functions to Botswana ahead of schedule during the period under consideration.
As part of the 10-year Debswana sales agreement between De Beers and the government of Botswana, De Beers will complete the migration of its London-based sales activities to Gaborone by the end of the year.
Thereafter, the sale of De Beers’ worldwide production to international and Botswana-based Sightholders would be carried out in Gaborone.
Also in South Africa, the Venetia Mine underground project was approved by the De Beers and
Anglo American Boards.
Final outstanding regulatory clearances were obtained this month and the project was expected to commence shortly.
De Beers said it would invest about $2 billion to build the new underground mine, which was expected to extend the life of the resource until 2042 and replace the open pit as South Africa’s largest diamond mine.
The group’s Forevermark brand also continued to grow “strongly” in 2012, particularly in the core markets of China, Japan, India and the US, it said.
Forevermark was now available in more than 900 retail partners - an increase of 40 percent compared to 2011 - in 12 markets.
Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough & Polished
