De Beers said on Friday its total sales fell drastically on the back of tough trading conditions in 2012, characterised by reduction in production blamed on the low demand for the diamond jewellery.
The South African company with operations in Botswana said the decrease in rough diamond sales was largely a result of diminished demand, changing product requirements from Sightholders, and reduced availability of some goods.
“After an exceptional first half of 2011, the macroeconomic uncertainty that triggered difficult trading conditions in the fourth quarter of 2011 continued, as expected, into 2012. Demand for diamond jewellery in the key markets of the US, China and Japan grew, albeit at a slower pace than in 2011,” De Beers said in a statement accompanying the results.
“This, together with higher polished stock levels, resulted in a decline in polished prices particularly in the third quarter of 2012. Although rough diamond prices remained broadly stable in the first half of 2012, a combination of weaker polished prices, high levels of cutting centre stock and tightening liquidity in the midstream resulted in a rough diamond price correction during the third quarter,” it added.
The full year financial results for the company showed sales went down by 16 percent from US$7.3 billion (about P58 billion) on the prior year to US$6.1 billion (about P48.8 billion) while sales of rough diamonds decreased 15 percent from US$6.5 billion (about P52 billion) to US$5.5 billion (about P44 billion).
The company recovered 27.9 million carats in 2012 compared to 31.3 million carats in 2011. Debswana, a 50/50 partnership between De Beers and Botswana government, produced 20.2 million carats, down 2.7 million carats of 22.9 million carats in 2011 attributed to mainly as a result of the Jwaneng Mine slope failure that led to loss of life of miners.
Canada produced 1.6 million carats almost flat from the 1.7 million carats recovered in 2011 while Namdeb Holdings production increased to 1.7 million carats from 1.3 million in 2011.
De Beers recovered 4.4 million carats in South Africa down from 5.4 million carats in 2011 saying the reduced output was partly due to the sale of Finsch Mine which completed in September 2011, which contributed 0.9 million carats during 2011.
The company is also investing the future as it continues to spend a fortune in exploration and fund expansion project.
The construction of the infrastructure at the Jwaneng Mine Cut-8 project is complete. Cut-8 will provide access to approximately 95 million carats of mainly high quality diamonds and extend the life of the world’s richest diamond mine to at least 2028.
The company increased its expenditure on exploration to US$59 million from US$46 million in 2011on exploration programmes in Angola, Botswana, Canada, India and South Africa.
Despite the tough trading environment, by the end of 2012 however, rough diamond prices stabilised, reflecting a modest improvement in consumer demand during the holiday sales season in most major diamond jewellery markets, said De Beers.
“De Beers expects moderate growth in diamond jewellery demand in 2013. This will be supported primarily by a more positive picture emerging from China and India compared to 2012,” the company said.
However, it added that some upside is possible in the US, while trading conditions in other developed markets are likely to be challenging.
“The rough diamond manufacturing sector closed 2012 with high levels of inventory, particularly in the higher-end categories of diamonds, and faces continued pressure in terms of midstream liquidity. In the medium to long term, industry fundamentals are expected to strengthen as diamond production plateaus and demand continues to increase.”
