Sunday, September 20, 2020

De Beers cut Q3 production on weak global demand

De Beers, the prominent global diamond producer, said this week that it has slashed diamond production in a move aimed at better reflecting the current global trading conditions.

Parent company, Anglo American plc said on its production report for the third quarter ended 30 September 2015 that diamond production decreased by 27 percent to 6.0 million carats in the third quarter of the year with major reduction in production guidance reductions from Botswana operations.

 

De Beers co-owns Debswana on a 50/50 basis alongside Botswana governmentÔÇöwhich recently went on panic mode by announcing a stimulus package that will draw down on foreign reserves to jump-start the ailing economy.

 

“At Debswana, production decreased by 35% to 4.1 million carats as a result of planned maintenance being prioritised in light of current trading conditions at both Jwaneng and Orapa, whilst at Jwaneng there was also a focus on waste mining and the processing of lower grade material,” Anglo American said.

Botswana is the largest diamond producer by value and slowing demand has impacted prices which could translate into reduced dividends to shareholders that include the government of Botswana. Diamonds remain the major contributor to the country’s GDP although exports have declined over the years.

Debswana has four operations in Jwaneng, Orapa, Letlhakane and Damtshaa with a staff compliment of close to 5000. It is hoped that scaling down production will help the company owned 50/50 by Botswana government and De Beers to undertake plant maintenance.

Jwaneng Mine is still the cream of Debswana as it contributes about 60-70 percent of the company’s total revenue. The mine is still recovering from a freak accident as a result of a slope failure that led to the death of one worker employed as a General Shift Foreman in the Mining department since March 2012.

Debswana, which is where De Beers gets most of its output had reduced its production target recently to align it to the global developments as the diamond market is currently subdued on the back of a slowdown in demand in diamond jewellery.

The move was part of the company’s strategy to ‘producing to demand’ in reaction to slowdown in consumer demand for diamond jewellery (measured in US dollar terms) towards the end of 2014 and into the first half of 2015, driven by slower global economic growth, a weaker than expected Q1 in the US (weather related) and the dollar strength.

“This, combined with liquidity and working capital challenges, has put pressure on midstream finances, negatively affecting rough diamond sales in the first half of the year,” the company said in response to Sunday Standard at the time.

“In response to prevailing market conditions, we have utilised operational flexibility to make marginal adjustments to production plans.”

The Debswana carat production has remained flat at 20 ÔÇô 24 million carats, in line with market demand with the company production for 2014 at 24 237 carats.

Debswana said prices are likely to remain subdued for the remainder of the year given the challenges faced in the midstream during the first half of 2015, rough diamond demand is likely to remain constrained for the year as a whole, with demand conditions in the second half of the year dependent upon the level of retailer restocking that takes place.

Production at DBCM (South Africa) decreased by 8 percent to 1.0 million carats, largely as a result of reduced throughput and processing lower grades at Venetia, again as a response to current trading conditions. Production in Namibia increased by 4 percent due to higher volumes from the marine operations, partly as a result of increased availability of the Mafuta vessel. Production in Canada increased by 11 percent, due principally to improved grades at Snap Lake.

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