Russian diamond miner ALROSA and Anglo American’s 85 percent-owned De Beers, arguably the two leading diamond producers in the world, recently released their third quarter results. The diamond mining companies had been under pressure throughout the year to lower rough prices as polished prices weaken amid poor global demand.
On 21 October, ALROSA published its results, which revealed that the company’s diamond sales had eased 44 percent year on year to about $563 million.
It said gem-quality rough diamond prices dropped 8 percent during the quarter in line with the slowdown in the diamond market. As shown in the table above, ALROSA’s gem-quality rough diamond sales achieved an average price of $182 per carat. This was in line with the average price reported a year earlier and a jump from the $176 per carat reported previously.
A shift in production to higher grade deposits during the year may explain the firm average price achieved, claimed Rapaport. However, ALROSA’s volume of gem-quality sales plunged to 3 million carats, a 43 percent drop from 5.3 million carats realized a year earlier. Industrial diamond sales volume eased 17 percent to 1.9 million carats.
When Anglo American announced De Beers’ third quarter results, it didn’t provide the company’s sales figures in detail and these were only expected when the diamond miner publishes its second half results. However, DeBeers’ rough sales were said to be down 38 percent year on year so far this year, according to Rapaport.
Production
As far as production is concerned, ALROSA recorded a 20 percent increase to 11.635 million carats during the third quarter despite the decline in sales.
This, according to Rapaport, was even its highest quarterly output in seven years since production data was officially made available. ALROSA’s output during the first nine months of the year, jumped 16 percent to 29.648 million carats. It said that its full year production target of 38 million carats was still on track.
Meanwhile, Anglo said De Beers’ output fell by 27 percent to 6.0 million carats during the third quarter of the year from 8.2 million carats a year earlier.
The decline was attributed to the group’s decision to reduce production to “better reflect” current trading conditions. Anglo said production at Debswana, in Botswana decreased by 35 percent to 4.1 million carats as a result of planned maintenance being prioritized in light of current trading conditions at both Jwaneng and Orapa. At Jwaneng, it said, there was also a focus on waste mining and the processing of lower grade material. Production at De Beers Consolidated Mines (DBCM) in South Africa dropped 8 percent to 1.0 million carats, said Anglo. The decline was mainly attributed to weak throughput and processing of lower grades at Venetia, as a response to current trading conditions.
However, output in Namibia increased by 4 percent due to higher volumes from the marine operations, partly as a result of increased availability of the Mafuta vessel. Production in Canada also went up by 11 percent, mainly due to improved grades at Snap Lake. Anglo said full year production guidance was now about 29 million carats. The group previously expected De Beers to produce between 29 and 31 million carats. It planned to mine as much as 34 million carats at the start of the year.
Different strategies
While both companies had been facing a battering from the ongoing soft market, ALROSA decided against scaling down output, while De Beers had done the opposite. The Russian diamond company’s CFO Igor Kulichik confirmed this last September during a conference call when he said that they would prefer to up inventory rather than lower output as the cost of adjusting operations was high.
ALROSA’s inventory was said to have gone up from 14 million to of 17 million carats during the first half of the year. De Beers executive head of strategy Bruce Cleaver was quoted by BusinessDay of South Africa last July that the lower output was a conscious decision to reduce production by slowing output from tailings retreatment at Jwaneng in Botswana and Venetia.
De Beers adopted the same approach during the 2008 global credit crunch that hit the diamond industry badly. While, the current scale-down was driven by weak prices, one De Beers official identified as Gareth Penny told the Financial Times in 2010 what one might say best explains what the company regards as strategy.
“Do we want to ramp production back up to 48m carats, given the lack of availability in the future?” asked Penny. “Diamonds are a treasure of nature that should be properly protected, because there will be less to sell. The reality is that supply cannot keep up, and that will become very accentuated over the next 15 years.”
Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished
