Diamond sales up 10% despite US slump

Brian Benza
Staff Writer | Thursday July 24, 2008 00:00

 

Presenting the group's first half-year results in a teleconference from London, Managing Director Gareth Penny said although there was a decline in the traditional market, the US, strong demand from emerging markets such as China, India and the Middle East mitigated the slump.

'The group faced a few challenges in the period, which included the slow down of the US economy as well as the energy challenges in southern Africa, which mostly affected South Africa's production,' Gareth said.

'However, strong demand from emerging markets, coupled with rising prices, pushed sales to US$3.7 billion up from US$3.4 billion in the same period last year.'

De Beers increased prices by 8.5 percent in April and by a further 5 percent early this month.

Penny also disclosed that the group will be opening three new mines this year, two in Canada and one in South Africa, a goal which, once achieved, the De Beers MD described as a record in the company's history. The Snap Lake Mine in Canada has the capacity to produce 24.6 million carats over 20 years while the Victor Mine has the capacity to produce 6.2 million carats over 12 years. The Voorspoed Mine in South Africa is expected to yield 8.3 million carats over 13 years.

Although the group is looking at opening new mines while aggressively searching for new deposits, Debswana still remains the largest contributor to De Beers' production. For the first six months of this year, De Beers mined a total of 24.2 million carats of diamonds, of which 16.1 million came from Botswana, followed by South Africa's 6.3 million carats.

The company is also focusing on its large priority projects which are rapidly moving from early to advanced stages of exploration in countries such as Angola, the DRC, Botswana, Canada and others in India, South Africa, Namibia, and Russia which are still in the early stages of exploration.

Presenting the group's financials, Finance Director Stuart Brown said underlying earnings rose 8 percent to $350-million, while earnings before interest and tax rose 31 percent to US$831 million.

Operating costs rose by a slight 4 percent in the period under review. 'Fixed assets, on the other hand, went down slightly from US$3.89 billion to US$3.75 billion, while gearing on the other hand increased by 1 percentage point to 49.4 percent.

Although the company said it was satisfied with its performance in the first half, Chairman Nicky Oppenheimer said economic conditions would require a more cautious outlook for the second half of 2008.

'Mass market retail diamond jewellery sales have been impacted by economic issues in the US market, which accounts for about half of all our diamond sales,' Oppenheimer said.

'While demand for high-end diamonds is likely to remain robust, the smaller, lower qualities, which are more dependent upon US demand, are expected to remain subdued.'

In a statemenet acompanying the results, De Beers also announced some board changes in which Dr Atlholang Tombale, a nominee of the Government of Botswana who resigned from the board on May 6,2008 was replaced by G. Gabaake on May 7, 2008.

Gabaake was also appointed a member of the Environment, Community, Health and Safety Committee.