Wednesday, September 23, 2020

Covid-19 dims De Beers sparkle

Global diamond mining giant De Beers has seen its revenue fall by more than half, while profit took a drastic nosedive, in the latest sign of how the Covid-19 outbreak has had a major impact on the diamond market, affecting all stages of the diamond supply chain and resulting in decrease in rough diamond sales volumes at the iconic company that used to control the diamond trade.

According to Anglo American’s latest financials for the six months ended June 2020, total revenue decreased by 54 percent to $1.2 billion, down from last year’s  $2.6 billion in the corresponding period. The more than half decline was due to rough diamond sales falling to $1.0 billion, compared to June 2019’s $2.3 billion sales. Rough diamond sales volumes decreased by 45 percent to 8.5 million carats after the significant impact of Covid-19 on the global diamond industry.

Anglo American owns 85 percent of De Beers while the Botswana government has a 15 percent stake. De Beers and Botswana are in one of the world’s longest lucrative public private partnerships, where they hold equal shares in Debswana, which operates the best diamond mines in the country. Every year, De Beers holds sales cycles or sights in Gaborone, where diamonds from Botswana and its other mines from South Africa, Namibia and Canada are sold to selected diamond buyers known as sightholders. 

But with the outbreak of the deadly virus earlier this year, De Beers offered Sightholders the option to defer up to 100 percent of their allocations at the fourth and fifth Sights and held some viewings for Sight 5 outside of Botswana, following the cancellation of the third Sight of 2020 due to Covid-19 related travel restrictions. The average realised price decreased by 21 percent to $119/carat, down from last year’s $151/carat, driven by a higher proportion of lower value rough diamonds being sold in the first two Sights of the year and an 8 percent decline in the average rough price index.

Underlying earnings before taxes decreased to $2 million, a massive decline from June 2019’s $518 million, owing to the impact of the considerably lower sales volumes and the lower rough price index reducing margins in both the mining and the trading businesses.

In the first six months of the year, rough diamond production decreased by 27 percent to 11.3 million carats primarily due to the Covid-19 lockdowns in southern Africa. In Botswana, production was 36 percent lower at 7.5 million carats, below the 11.7 million carats in the same period last year. The reduction in production was attributed to lengthy nationwide lockdown from 2 April to 18 May. Production at Jwaneng, the most valuable diamond mine in the world, fell by 34 percent to 4.3 million carats due to the shutdown. Production at Orapa fell by 39 percent to 3.1 million carats due to the lockdown impact, as well as challenges related to commissioning of new plant infrastructure. Operations restarted from mid-May, with production targeted at levels to meet the lower demand.

De Beers says the current market outlook is highly uncertain owing to the possibility of a second wave of Covid-19 infections, the ability of fiscal and monetary measures to continue to support employment and businesses in consumer countries, as well as the shape and strength of the global macro-economic recovery. 

“Significant challenges for rough diamond demand look set to continue in the short term with the ongoing restrictions to travel in southern Africa, as well as the risk of further Covid-19 cases in the Indian cutting centres,” Anglo American said on Thursday when announcing their latest financial performance.

“In the longer term, the outlook for the diamond sector remains positive, and De Beers is accelerating its business transformation – from discovery and mining, to how we sell rough diamonds to customers and how consumers purchase diamond jewellery – to ensure it retains its position as the world’s leading diamond business.”

Production guidance remains unchanged at 25–27 million carats, subject to continuous review based on the disruptions to operations as a result of Covid-19, as well as the timing and scale of the recovery in demand.

RELATED STORIES

Read this week's paper

The Telegraph September 23

Digital edition of The Telegraph, September 23, 2020.