Close

The De Beers Group (De Beers) has delivered steady sales and improved production in the first half of 2013.

In the its H1 2013 itsrough diamond prices recovered some of the losses experienced in second half of 2012, with an improved product mix offsetting the lower price index.

Philippe Mellier, CEO of De Beers Group, commenting on the H1 2013 performance said: During the first half of 2013, we saw encouraging signs of stability and moderate growth in the major diamond consumer markets of the USA and China. While polished diamond prices have increased slightly during the period, trading conditions remained challenging for our rough market partners.

“We made good progress in our production, with improved grades at our two biggest mines, Jwaneng and Orapa.  The remediation of last year’s slope failure at Jwaneng, and the de-watering of the Venetia pit that was flooded earlier this year, are both now largely completed. De Beers continues to secure long-term production with the progression of three core projects across Botswana, South Africa and Canada.”

De Beers also continued to improve its safety performance during the first half of 2013, said Mellier, with a further decrease in its lost time injury frequency rate. “However, while we did not experience any losses of life on De Beers’ operations, we are deeply saddened by the deaths of two employees and one community member in off-site vehicular accidents. We are studying ways to reduce the risk posed by road transportation, and my deepest sympathies go out to the families and friends of those who have died.”

The relocation of its London-based sales function to Botswana is progressing on schedule, Mellier said the company was looking forward to hosting its first Sight from its new facility in Gaborone later this year. Further downstream, Forevermark and De Beers Diamond Jewellers continue to build strong brands and expand in areas of market opportunity.

Looking forward, said Mellier, while the market continues to experience volatility and macro-economic uncertainty, the company remains cautiously optimistic that the growing strength exhibited in the polished market, particularly in the USA, will translate to overall global growth for the year. “In the longer-term, the fundamentals of the industry remain strong, as growing demand will continue to outpace flat to declining production.”

He also welcomed Mark Cutifani to De Beers as its new Chairman. “Mark is highly respected in the mining industry, and brings with him strong operational experience that will be invaluable to De Beers as we drive value for our shareholders, partners, customers and consumers as the world’s leading diamond company.”

Extracts from Anglo American plc Half Year Financial Report:

De Beers’ underlying operating profit contribution to Anglo American increased by US$322 million to $571 million, driven primarily by Anglo American’s increased shareholding from August 2012. In addition, there was a favourable exchange variance and slightly higher realised prices, partially offset by acquisition depreciation of $80 million.

Markets

Retailer results for the early part of 2013 were mixed in the key consumer markets. The USA exhibited encouraging growth. Growth in China continued though at a slower pace and was somewhat patchy. Polished prices edged up on the back of moderate retailer re-stocking, but high cutting centre stock, tight midstream liquidity and a weakening rupee continued to create challenges for the rough market.

De Beers has continued to improve its safety performance year on year, with a further reduction in the lost time injury frequency rate to 0.24 (30 June 2012: 0.45). The company is benefiting from an increasingly integrated approach with Anglo American in the management of environment, community, occupational health and safety matters.

De Beers’ half-year production increased by nearly one million carats to 14.3 Mct (30 June 2012: 13.4 Mct) owing to improved ore grades at Orapa and Jwaneng Mines. Progress on the remediation programme following the Jwaneng mine slope failure that occurred in June 2012 continues, with full resolution expected in the third quarter of 2013.

In South Africa, Venetia mine was impacted by the heavy flooding in the Limpopo province in January, but ore mining shortfalls were mitigated through the processing of ore stockpiles. Restoration of full operations is expected during the second half of 2013.

In Canada, work continues on optimising the Snap Lake Mine to enable economic access to the promising, though challenging, ore body. A 16-day winter road blockade during February 2013 near Victor mine was eventually removed when an interlocutory court injunction was granted. The Mine continued to operate at full production during the blockade.

In Namibia, production has increased at both Namdeb and Debmarine Namibia operations.

After a challenging start to 2013, Element Six experienced slightly stronger sales momentum in the second quarter with improved market conditions across the Abrasives and Technologies business areas, combined with the introduction of new Element Six product innovations, and new Technologies’ capacity coming online.

Sales

Sales remained steady during the first half, with total sales of $3.3 billion (30 June 2012: $3.3 billion) and rough diamond sales of $3.0 billion (30 June 2012: 3.0 billion). After a 12% decline in De Beers’ rough diamond prices during the second half of 2012, prices increased by 6% in the first six months of 2013. The realised average price to June 2013 was 2% higher than for the same period 2012, driven by an improved product mix, more than offsetting the lower price index.

Brands

Forevermark continued to grow, particularly in the core markets of China, Japan, India and the USA, and is now available in more than 1 000 authorised jewellery stores around the world.

Despite an adverse exchange rate impact from the Japanese yen, De Beers Diamond Jewellers delivered sales growth compared with the first six months of 2012, with strong growth in Europe and most Asian markets. During the period, two new franchise stores were opened, in Kuala Lumpur and Baku.

Projects

In Botswana, infrastructure at the Jwaneng mine Cut-8 extension project is now complete.  Within the current life of mine plan, Cut 8 will provide access to an estimated 86 Mt of ore to be treated yielding 102 Mct of high quality diamonds, and extend the life of mine of the world’s richest diamond mine to at least 2028.

In South Africa, final outstanding regulatory clearances for the Venetia underground project were received in February 2013. The project team has been established and early earthworks have already commenced. The project will extend the life of Venetia Mine beyond 2040, and contains an estimated 96 Mct in approximately 130 Mt to be treated.

In Canada, permitting on the Gahcho Kué project is in progress, and a socio-economic agreement has been entered into between De Beers and the Government of the Northwest Territories. The Gahcho Kuéproject is currently planned to treat approximately 31 Mt containing an estimated 47.6 Mct.

Outlook

With full recovery from the Jwaneng slope failure and Venetia mine flooding expected during the second half, De Beers continues to anticipate full-year production will recover to be broadly in line with 2012 subject to market conditions.

De Beers expects moderate growth in diamond jewellery demand in the remaining six months of 2013, supported by improving sentiment in the US market and continued growth in China, albeit at a lower rate. Conditions in India and Japan remain more uncertain due, in part, to the continuing volatility of their currencies, which is expected to affect growth in US dollar terms. Overall, despite the fragility of the global economic recovery, macro-economic conditions are generally supportive of global growth in the polished diamond market in 2013 at levels slightly above 2012.

 

Additional Reading?

Request Free Copy