De Beers said that demand for diamond jewellery showed a moderate growth in the key markets of the US and China during the first half of the year despite some macro-economic concerns.
The De Beers price index increased by 6 percent in the first half of 2013 after recording a 12 percent decrease during the second half of 2012.
The realised average price during the period under consideration was 2 percent higher than in the first half 2012, driven by an improved product mix, which more than offset the lower price index, leading to steady year on year sales for the group of $3.3 billion, $3 billion of which was rough diamond sales, the rest being the sales of Element Six.
“Our brands are increasingly important in the consumer diamond market and De Beers continues to invest in its two downstream businesses,” said group chief executive Philippe Mellier during a conference call.
“Forevermark continued to grow in the first half of 2013, particularly in the core markets of China, Japan, India and more recently the USA. De Beers Diamond Jewellers showed good growth in Europe and most Asian markets in the first half of 2013.”
He, however, said further up-streams, high cutting centre stock, price liquidity and weakening rupee in India continue to create challenges for the rough market.
Mellier said macro-economic conditions and global economic fragility would continue to pose a risk to the market.
Asked to provide a diamond prices outlook for the year, Mellier refused saying it was not De Beers’ policy.
“We don’t discuss price outlook. We have always been following this line. Obviously we will price according to market conditions and we are looking at many factors like what is happening in the downstream, what is happening in the mid-stream and the final demand,” he said.
“We are cautiously optimistic. Clearly the US market is pulling well. The Chinese market is not bad, and we always have to think not only about China but about the Chinese market with all the Chinese buying not only in mainland China but also in Hong Kong, Taiwan, Macao and abroad like in Europe. So I think that the Chinese market, including the Chinese travelling abroad, is not such a bad market for the time being.”
Mellier said De Beers was more worried about the Indian market although it was not a huge one.
“Let us hope that the market will not drop in dollar terms because of the impact of the exchange rate and the weak market locally,” he said.
“We know that some of our customers are having debt in rupees and can be impacted. But we have also customers who don’t have any debt, and also debts in other currencies.”
Production
The diamond giant increased production by nearly one million carats in the first half of 2013 to 14.3 million carats versus last year’s 13.4 million carats.
The increase was primarily due to improved grade at Orapa and at Jwaneng mines, both of them in Botswana.
In addition, good progress had been made on the Jwaneng mine slope failure remediation programme, and it was expected to be completed in the third quarter of the year.
De Beers said the shortfall experienced after the flooding at Venetia, in South Africa last January was mitigated through the processing of ore stockpiles.
Full operation at Venetia was expected during the second half of 2013.
“If we look at our projects now, the long-term fundamentals of the diamond industry remain strong and De Beers continues to invest in all parts of the diamond pipeline to position the business for future growth,” said Mellier.
“De Beers is investing in mines that provide a superior risk-adjusted return. We have a number of exciting upstream projects underway including the Jwaneng Cut-8 extension in Botswana, the Venetia underground project in South Africa and the Gahcho Kué project in Canada.”
He said De Beers continued to estimate full-year production to be broadly in line with 2012, subject to market conditions.
Financials
De Beers’ underlying profit contribution to Anglo American increased by $322 million to $571 million. This was driven primarily by Anglo’s increased shareholding to 85 percent. Profit also improved on account of several foreign exchange movements and slightly higher realised prices, said Mellier.
He said working with Anglo had enabled the company access financing at cheaper rates.
Botswana migration
Mellier said the full migration of De Beers’ London-based sales operation to Gaborone as part of the 10 year sales agreement with the government of Botswana would be completed this year.
De Beers, he said, was prepared for the move and look forward to welcoming its sightholders in November when the first international sight was expected to commence in the southern African country.
“We are slightly ahead of schedule to have the first Sight done in Botswana in November. So today 80 people are currently located in the new global sightholder sales operation in Botswana,” he said.
“Some of our sightholders are already doing business and having polishing factories in Gaborone. So it is not a new destination. It is going to be a new destination for some of our sightholders who normally come to London. We have explained the move, how it was related to the sales contract and a long-term supply agreement with our biggest producing country. So I think the benefits are clearly overwhelming versus maybe a new destination.”
