Saturday, May 30, 2020

De Beers had a good run last year

BY BONNIE MODIAKGOTLA

De Beers, the leading diamond producer by value, had a good run in 2018 meeting its production targets, but the miner warns that production this year will decrease.

This was revealed by De Beers’ parent company Anglo American in its fourth quarter production report.

Figures released by Anglo American show quarterly growth except for the third quarter where production went down.

Production was up 4.4 percent to 8.5 million carats in the first quarter before recording the strongest quarterly growth of the year in the second – increasing by 5.8 percent to 8.9 million carats.

In the third quarter, diamond production declined 3.6 percent to 8.6 million carats. The decline was largely due to shutdown of some of De Beers mines.

However, the miner recovered in the fourth, with production up 5.2 percent to unearth about 9.1 million carats ÔÇô the highest volume of the year. In the end, total production for 2018 was 35.3 million carats, an increase of 6 percent from 33.5 million carats in 2017.

Last year, production volume was at the lower half of De Beers production guidance which was set at 35 ÔÇô 36 million carats.

The marginal improvement in production was of course led by the Botswana based mines – which are the major source of diamonds for De Beers. Leading the charge was Jwaneng – the most valuable mine in the world ÔÇô which churned out 11.9 million carats last year, representing about 33.7 percent of total production for 2018.

The mine experienced growth in the first three quarters of the year before faltering in the last quarter of the year – production dropped 12.7 percent to 2.7 million. Discovered in 1972 and commissioned in 1982, Jwaneng mine fast tracked Botswana’s economic growth, and remains Debswana’s flagship mine due to its high quality diamonds that fetch a higher value in the markets.

With over 37 years operating, Jwaneng is getting another lease of life this year as Cut 9 is due to commence. Cut 9 refers to the extension of the mine as they dig deeper to get to the diamond ore. The Cut 9 project is expected to give the mine a lifespan up to 2034, however production will drop by almost half.

With reduced output at Jwaneng, the Orapa, Letlhakane and Damtshaa (OLD) mines are tipped to become the avenue of growth as they boost diamond production, ensuring that Botswana remains an important source of diamonds for De Beers. Orapa mine is the world’s largest diamond mine by surface, and experts are saying the mine is still yet to reach its potential.

In 2018, the OLD mines delivered 12.2 million carats, contributing 34.6 percent to 2018’s total production. The ramp up in production at OLD mines was responsible for the overall improvement in De Beers’ fourth quarter production. The mines’ output shot up 41 percent in Q4 2018 on the back of “planned favorable grade and higher plant utilization”, Anglo American said.

In the end, diamond production in Botswana based mines came at 24.1 million carats, up by 6 percent from last year. This means Debswana contributed 68.3 percent to De Beers total production for 2018.

According to Anglo American report, total rough diamond sales volume for 2018 declined 4 percent to 33.7 million carats. The sales volume was also lower than production (35.3 million carats), driven by lower demand for lower value rough diamonds in the second half of 2018.

De Beers holds ten Global Sightholder Sales and Auction Sales every year in Gaborone and the sights or auction sales are restricted to its sightholders who buy the diamond packages at a price determined by De Beers. In 2018, the mining giant sold rough diamonds worth $5.4 billion (P54 billion), a slight figure above $5.3 billion (P53 million) earned in 2017.

Using the rough diamond sales volume, and the amount earned during the auction sales, the average realized price is estimated at $171 per carat, which was 6 percent higher than the $162 per carat realized in 2016.

Anglo American explained that this too was due to a lower proportion of lower value rough diamonds sold in 2018. For this year, De Beers has since lowered its production target as they project to produce between 31 to 33 million carats, subject to trading conditions.

“The lower production is driven by the process of exiting from the Venetia open pit with the underground becoming the principal source of ore from 2023. Associated with this, an increased proportion of production in 2019 is expected to come from De Beers Group’s joint venture partners, a proportion of which generates a trading margin, which is lower than the mining margin generated from own mined production,” read part of the Anglo American report.

Anglo American owns 85 percent of De Beers while the Botswana government’s stake is 15 percent. De Beers has mining operations across Africa and North America – with Botswana being the biggest source of rough diamonds for the company.

Production in Botswana is carried through Debswana ÔÇô a joint venture between De Beers and Botswana government – which operates four diamond mines in the country (Orapa, Letlhakane, Damtshaa and Jwaneng).

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Sunday Standard May 24 – 30

Digital copy of Sunday Standard issue of May 24 - 30, 2020.