Feb 10, 2008

De Beers Diamond Sales Down 3% in 2007


De Beers Group reported Friday that diamond sales declined 3 percent in 2007 to $6.42 billion. Total sales for the company also fell 3 percent for the year to $6.86, which includes a 2.5 percent increase in non-diamond sales to $414 million.


The South African-based company, which is majority owned by London-based Anglo American PLC, said it recorded a net loss of $521 million for 2007 against a profit of $730 million the year before. The figure includes a $965 million charge against its Canadian operations to reflect the rise in value of the Canadian dollar; and higher fuel, labor, and capital costs.


The company, which claims 40 percent of the world diamond market, said underlying earnings rose 14 percent to $483 million. EBITDA fell slightly (1 percent) to $1.21 billion "as effective cost management at the Group’s African mining operations offset the impact of slightly lower sales which were constrained by supply to the Diamond Trading Company," De Beers said.


The company said capital expenditures rose 18 percent to $1.12 billion in 2007, primarily for the construction at the Snap Lake and Victor mines in Canada, the Voorspoed mine in South Africa, and an offshore mining vessel in South Africa.


Demand for rough diamonds from the Diamond Trading Company remained healthy throughout the year, De Beers said. Following the weakening in the rough diamond market towards the end of 2006, which led to downward price adjustments, improving market conditions allowed prices to be increased beginning in the second quarter of 2007.

De Beers noted it expects consumer sales of diamond jewelry worldwide to increase by about three percent in 2007, based on strong sales growth in China, India, and the Middle East, which, in part, offset a disappointing Christmas season in the U.S.


De Beers said its independently managed retail joint venture with Louis Vuitton Moet Hennesy, De Beers Diamond Jewellers, increased sales by 44 percent over the previous year. Eight new stores were opened in 2007 in the U.S., Japan, Dubai, and Korea, bringing the total to 23 stores worldwide. There will be more expansion in 2008 in the U.S., Hong Kong, Russia, the Middle East, and Tokyo markets.


De Beers tempered its outlook for 2008 based on "a high level of uncertainty over world market conditions. The economic conditions in the U.S. could continue to impact consumer diamond jewelry sales through the first half particularly at the lower end."


The company expects continued strong demand from China, India and the Middle East for larger and better quality diamonds.


On the production front, De Beers said energy issues in southern Africa could present operational challenges. The company recently had to stop its mining operations in South Africa due do nationwide power shortages.


It said that its De Beers Consolidated Mine operation has been making good progress toward a target of a 15 percent energy reduction by 2012. In addition, it is putting in place contingency plans that will make the most effective use of the available energy between the different operations. Early indications are that even if the power supply is maintained at 90 percent levels there will be an impact on the overall group. However below this level the impact on production will be significant.


The company said its De Beers Canada management team is focused on bringing the two new mines into full production in 2008. It added that it has continued to monitor the impact of the increase in the Canadian dollar.


De Beers said the current mining environment requires "a continued focus on cost containment on the mines and cost reduction, in general."


Looking beyond 2008, De Beers said "it is confident about diamond market fundamentals. With strong growth in the emerging markets of China, India and Russia, demand growth should exceed growth in new supply with the opportunity for future price growth."


De Beers said it will focus on "finding and developing the new mines of the future, assisting our government partners in achieving their aspirations for local value addition, finding new efficient ways to operate the global Group and developing innovative marketing initiatives such as De Beers Diamond Jewellers and the FOREVERMARK, to drive demand and create new revenue streams."
Source: jckonline

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