Thursday, April 25, 2024

De Beers bullish on outlook as prices push earnings up

De Beers, the world’s top diamond miner, is bullish about the future after it released half year results that showed its performance was better than the prior year at the back of good prices for stones and rising demand in Asia.

The company’s half year results for the six months ended 30 June 2011 saw revenues for the group going up by 30 percent from the same period last year.

Diamond Trading Company (DTC) sold rough diamonds worth US$3.5 billion (about P22.8 billion), which included those through joint ventures, in the first half of 2011. This was 33 percent better than the same period in 2010.

The impressive numbers were driven mainly by the rough diamond prices growth of approximately 35 percent.

It is also the highest ever sales figure recorded for the first half of the year, buoyed by continued retail demand from the Indian and Chinese consumer markets and stronger than expected demand in America.

“Despite the ongoing turmoil with the global economy, we are encouraged by the continued strong growth in price and demand during the first six months of 2011,” the company said in a statement accompanying the financial results.

“De Beers is confident that the exceptional growth in retail markets in India and Asia will continue to drive demand for diamonds. Reports from the recent JCK trade show indicate that the all-important Christmas season in the US, and Diwali, are set to be strong.”

Total sales were US $3 887 (about P25.3 billion), which was 30 percent better than US $2 979 (about P18.8billion) in the same period last year and earnings before interest, tax, depreciation and amortisation (EBITDA) was US$1.18 billion (about P7.6 billion), an improvement of 55 percent over US$762 million (about P4.9 billion) in 2010.

De Beers said carats recovered during the period amounted to 15, 53 million, which was flat from 15, 43 million carats recovered in the first half of last year. Botswana (Debswana) contributed 72 percent of De Beers carat output as it recovered 11, 320 million in the first half of 2011.

It added free cash flow of US$469 million (about P3.04 billion) is a reduction of 24 percent on last year due to the timing of stock purchases in the current period compared with 2010.

Analysts believe diamond prices are defying sense by going through the roof at the time of uncertainties in the global economy.

Simon Gardener-Bond, an Investec Mining Analyst based in London, is baffled by price movement, but is reluctant to believe diamonds are a diversified investment vehicle. 

“In these times of extreme uncertainty and global austerity measures, diamond prices are defying sense by going through the roof,” Gardener-Bond said.┬á

He said diamond prices can be read almost as a proxy for consumer confidence (as the ultimate in luxury / non-essential products) and the global market is not supported by a few oil-rich millionaires ÔÇô rather the bulk of jewellery diamonds end up in the US (-40percent).┬á

“There is talk that Americans are viewing diamonds as a diversified investment vehicle but I severely doubt this because: a) the market for selling your diamonds again is very opaque (as a non-professional seller of diamonds there is a good chance you would be shafted); and b) the price is so volatile that it is not even a sensible strategy for “investment diversification,” he said.


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