Govt revenues face drop as De Beers� sales plunge
Brian Benza | Friday July 17, 2015 12:04
De Beers, which gets about 75 percent of its output from Botswana mines, pays government of Botswana 80 cents out of every dollar derived from Debswana revenues. According to figures released yesterday by the parent company, Anglo American production fell six percent to 7.96 million carats in the second quarter and by three percent to 15.63 million carats in the first half of the year.
The lower output is in line with De Beers’ strategy to lower supply and maintain steady prices.
“Total rough diamond sales volumes for the first six months of 2015 decreased on the prior half year by 26% to 14.0 million carats and consolidated sales volumes decreased by 27% to 13.3 million carats.
This reflected relatively low levels of re-stocking by the midstream in 2015, in contrast with particularly strong sales conditions in the first half of 2014,” said Anglo in a statement.
By value, De Beers’ sales are projected to have declined by 28 percent to $2.5 billion in the first half of the year, according to Rapaport News estimates.
De Beers’ lower output and sales also come at a time when the state-owned entity, Okavango Diamond Company (ODC) reported that its first half sales also nosedived 23 percent year-on-year to $231 million.
ODC, which has held five tenders in 2015, is expected to sell 14 percent of Debswana’s production through auctions this year. Government is expecting to receive about P19 billion from minerals revenue this year, which will be predominantly from diamond sales.
The diamond market has been characterised by weak sentiment this year with manufacturers pressing producers to cut rough prices.
Analysts say De Beers Sightholders are under pressure as rough diamond prices have appreciated by 65 percent in the last three years, while the polished diamond prices are either stagnant or reduced by 15 to 20 percent.
As a result, De Beers sightholders have refused to take high-priced rough in the first quarter of the year, rejecting about 25 percent of goods offered.
Industry sources say sentiment continues to be weak in the diamond manufacturing sector and further high-volume rejections are expected at this week’s sight that ends in Gaborone today.
According to Rapaport, De Beers has reportedly maintained relatively stable prices at the July sight, while sightholders have the option to defer 25 percent of the goods on offer.
“De Beers has put in place a 25 percent additional deferral option at the Sight.
“This was done to offer additional flexibility to our customers in the current industry environment,” De Beers midstream communications manager, David Johnson told BusinessWeek.
Johnson, however, declined to comment on the possible impact of lower sales on Botswana government revenues saying the company does not make any forward looking statements.
“Regarding information on full year sales and by extension Government revenues and sales projections, please note that we do not provide any forward looking views on expected values of sales.
“Our sales over the balance of the year will be a function of the prevailing demand conditions in the industry as our strategy is to sell in line with demand,” he said.
Figures provided by Anglo, show that production at Debswana fell six percent to 5.913 million carats in the second quarter, while production at Namdeb Holdings in Namibia slipped 15 percent to 431,000 carats.
De Beers Consolidated Mines in South Africa saw production down five percent to 1.12 million carats and De Beers Canada production declined 11 percent to 502,000 carats.
Anglo explained that lower grades and reduced plant availability at the Orapa mine in Botswana affected overall production.
The miner adjusted its production forecast for the year in light of the weak market and expects to recover 30 million to 32 million carats across its four mining divisions, rather than the originally planned 32 million to 34 million carats.