De Beers Diamond Sales Up 27%, Cautious Outlook

The De Beers Group said Friday that total sales increased 26 percent year-over-year to $7.4 billion. Sales of rough diamonds by the Diamond Trading Company, the company’s the rough diamond sales and distribution arm, increased 27 percent for the year to $6.5 billion—the second highest level of sales for the diamond giant. Diamond prices for 2011 rose 29 percent as diamond production fell 5 percent to 31.3 million carats, compared with 2010.

EBITDA for the year increased 21 percent to $1.7 billion with third party debt reduced to $1.3 billion, compared with $1.8 billion in 2010.

De Beers described 2011 as “a year of two halves.” The first “saw exceptional consumer demand growth which, when coupled with lower than historical levels of global diamond production, resulted in very strong polished and rough diamond price growth,” the South African-based company said. “Rough diamond prices in this period included an element of speculative buying in the trading centers.”

However, in the second half of the year demand fell as “both retail and cutting center sentiment was impacted by the challenging macro-economic environment, restricted liquidity (particularly in dollars) in the cutting centers and a slowdown in the rate of growth of consumer demand at retail,” the company said.

De Beers Diamond Jewellers, a diamond jewelry retail venture with LVMH, reported “good growth” in sales across all regions, with greater China particularly strong. “The China opportunity is a priority for De Beers, with further 2012 expansion plans following the opening of stores in Beijing, Tianjin, Dalian and a second Hong Kong store in 2011,” the company said.

De Beers Forevermark diamond brand continued its expansion as it entered India and the U.S. during the second half of the year.  Forevermark is now available in 658 retail doors across nine markets, an increase of 89 percent compared with 2010.

In its outlook, De Beers said that despite economic uncertainty and “barring a global economic shock,” it expects “to see continued growth in global diamond jewelry sales, albeit at lower levels than the exceptional 2011 growth,” driven by luxury goods sales, improving sentiment in the US (the largest diamond jewelry market), continued growth in China, and “the positive impact of the 2011 polished price growth on retail jewelry prices.”

On the production side, the company said it does not expect an increase in diamond carat production in 2012 and that it will “ramp-up profitable carat production as Sightholder demand dictates. In the medium to longer term, the industry fundamentals remain positive with consumer demand, fueled by the emerging markets of China and India, outpacing what will likely be level carat production.”

This should be the last time in the 80-plus-year history of De Beers that it will file an annual report under the ownership of the Oppenheimer family. On November 4, 2011, the family agreed to sell its 40 percent interest of De Beers to its main partner, Anglo American, for $5.1 billion in cash. The transaction is expected to close during the second half of 2012.

On Wednesday, De Beers named Gareth Mostyn as its new CFO and board member.

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Anglo American Receives Regulatory Approval for De Beers Acquisition

London-based mining giant Anglo American said Friday that it has received final regulatory approval to acquire the Oppenheimer family’s 40 percent stake in the De Beers Group.

“Now that all the conditions to the transaction have been satisfied, a formal pre-emption offer will be served by CHL Holdings Limited (representing the Oppenheimer family interests) on Anglo American and the Government of the Republic of Botswana under the terms of the De Beers Shareholders' Agreement,” Anglo-American said in a statement Friday.

The Oppenheimer family, which has owned the De Beers Group for more than 80 years, announced in November that it will sell its remaining 40 percent stake in the diversified diamond company to Anglo American plc for $5.1 billion in cash. Consent under Section 11 of the South African Mineral and Petroleum Resources Development Act 2002 was the final approval required for this transaction to proceed.

The pending acquisition means that Anglo American will increase its current 45 percent shareholding in the world's largest diamond company to up to 85 percent, subject to adjustment as provided for in the agreement. In January 2012, the transaction was approved by Anglo American shareholders, with 99.94 percent voting in favor.

The Government of the Republic of Botswana, which currently owns a 15 percent stake in De Beers has the opportunity to participate in the transaction and increase its interest in De Beers, on a pro rata basis, to up to 25 percent.

In the event that the GRB exercises its pre-emption rights in full, Anglo American will acquire an incremental 30 percent interest in De Beers, taking its total interest to 75 percent, and the consideration payable by Anglo American would be reduced proportionately.

Anglo American expects the transaction to close in the second half of 2012, in line with its previously stated timeline.

De Beers is a family of companies that dominate the diamond, diamond mining, diamond trading and industrial diamond manufacturing sectors. De Beers is active in every category of industrial diamond mining: open-pit, underground, large-scale alluvial, coastal and deep sea. Mining takes place in Botswana, Namibia, South Africa and Canada. The company’s subsidiaries also include the Diamond Trading Company, the rough diamond sales and distribution arm of the company, the Forevermark diamond brand and De Beers Diamond Jewellers, a luxury joint-retail operation with LVMH-Moët Hennessy Louis Vuitton.

Anglo-American is one of the world’s largest mining companies with a portfolio that includes iron ore and manganese, metallurgical coal and thermal coal; base metals – copper and nickel; and precious metals and minerals – in which it is a global leader in both platinum and diamonds. The company operates in Africa, Europe, South and North America, Australia and Asia.

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De Beers Diamond Sales Decline 14%

De Beers Group, the world’s largest producer of diamonds, reported a 14 percent drop in overall diamond sales and a similar fall in rough diamond sales for the first six months of the year. The company’s profits fell about 50 percent and it announced that it will reduce diamond output from its mines in response to the “challenging” conditions.

The diamond mining and sales company said total sales decreased 14 percent to $3.3 billion for the first six months of 2012, compared with $3.9 billion in the first half of 2011. Sales of rough diamonds by the Diamond Trading Company, the rough diamond distribution arm of De Beers, in H1 2012 were $3.1 billion (including those through joint ventures).

Profit before finance charges and taxation for the first half of 2011 was $502 million, down from $1 billion a year earlier.

The company blamed “lower demand and changing product requirements from sightholders (75 approved buyers of De Beers rough diamonds under long-term contracts),” the company said in a statement. “While overall consumer demand for polished diamonds remained relatively healthy, sightholder demand was impacted by increased stock in the cutting centers, tightening liquidity and challenging conditions in India. However, early indications are that the US market continued to perform well, and the Chinese market, while slowing considerably, still showed positive growth.”

In the first six months of 2012, De Beers’ production totaled 13.4 million carats, compared with 15.5 million carats in the first half of 2011.

Philippe Mellier, chief executive of De Beers, reportedly said the company will continue to reduce its output through the end of the year and allow its sightholders to hold onto their inventories for up to six months, far longer than normal.

In its outlook, De Beers says it “expects trading conditions in the mid-stream to remain challenging during the second half of 2012 … (and) expects to see moderately positive growth in global diamond jewelry sales for the full year 2012, albeit at relatively modest levels, especially when compared to the exceptional growth levels seen in 2011. In the short term, the USA, China, the Gulf and Japan are expected to contribute the bulk of the growth, while India and Europe are expected to remain weak.”

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