Wednesday, October 27, 2021

De Beers getting back on its feet

After a stretched financial year in 2015 that forced De Beers to lower rough diamond prices and reduce mining production, results started trickling back in 2016 as the diamond Group sold more than what was produced in the same year.

It would seem that the diamond market has turned a corner said Gareth Mostyn, De Beers’s Executive Head of Strategy and Corporate Affairs.

However he was optimistic of the outlook on the backdrop of extreme volatility that was seen in 2015.

“The business has clearly turned a corner in terms of performance in 2016 than in 2015, but we are going to be very cautious in how we manage it in 2017 because it is important that we do get ahead of ourselves; that we closely work with our customers,” he said.

Mostyn said that the business recovered to a much better status in 2016 through the challenging actions in 2015 and continued discipline in 2016 De Beers was able to rebuild confidence and deliver very strong results.

He reported that profitability went up by 42 percent for the year ended December 31, 2016 to P1.4 billion from the previous year whereas sales of rough diamonds increased by about seven percent.

In the first half of 2016, De Beers had registered a growth of 2 percent in profitability compared to the corresponding period in 2015.

The 2016 year end results contrast the financially disappointing performance from 2015 which Mostyn described as the most challenging time.

Another change that was seen in 2016, as Mostyn indicated, is that of the diamond stock pile. In 2015 De Beers experienced difficulty in reducing the stock pile, causing a clog on the rough to polished diamond pipeline. He said that the company followed a careful approach by focusing primarily on what their clients needed to which he announced assisted in returning the stock level to what he regarded a normal inventory in line with targeted levels.          

The challenges in the mining activities rippled across the entire industry with the closure of a number of mines demonstrated the extent of the engulfment.

Merely two weeks ago Diamond mining company, Gem Diamonds announced a halt of its operations at Ghaghoo mine in Botswana due to low prices for the diamonds coming from the operation.

The mine is located in the middle of Central Kalahari Game Reserve (CGKR). It currently remains on care and maintenance, pending the upturn of diamond market to resume operations. The standstill of Ghaghoo mine followed the shutdown of the Damtshaa diamond mine in the Boteti region.

Given the current uncertain market, De Beers remains “cautiously optimistic” but Mostyn said it was encouraging for 2017.

A robust activity was reported in De Beers’ downstream activities, which comprises of consumer demand for diamond jewellery which Mostyn said continued to be sustained by the US market.

The positive growth in the US market contrasted with that of India and China where a weaker demand was observed. It was reported that the month-long jewellers’ strike in India during March and government’s demonetisation programme negatively affected demand.

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