Tuesday, April 20, 2021

De Beers sees glitter at the end of the tunnel

The world’s leading diamond company, De Beers, suffered a setback last year as output and profits tumbled on the back of Covid-19 disruptions. However, the diamond behemoth says better days are ahead.

On Thursday, Anglo American which owns 85 percent of De Beers released its financials for the year ended December 2020, giving an insight on how the world’s top diamond producer by value was hampered by the pandemic.

“The pandemic also had a major impact on the diamond industry, driving a 45 percent decrease in rough diamond sales volumes at De Beers in the first half of the year, followed by significant improvement in the second half, as lockdown restrictions eased in many countries, resulting in an overall 27 percent decrease in rough diamond sales volumes for the year,” Anglo American disclosed in the financials.

De Beers’ rough diamond production decreased by 18 percent to 25.1 million carats last year compared to 2019’s 30.8 million carats, in response to lower demand due to the pandemic and Covid-19 restrictions in southern Africa during the first half of the year.

In Botswana, where the company sources nearly 70 percent of rough diamonds, production decreased by 29 percent to 16.6 million carats, with volumes at Jwaneng reduced by 40 percent to 7.5 million carats, while production at Orapa decreased by 16 percent to 9 million carats. This was largely due to a nationwide lockdown from 2 April to 18 May, and the planned treatment of lower grade material at both Jwaneng and Orapa, following their restart, as a production response to lower demand.

Diamond demand from the midstream, made up of cutters and polishers of rough diamonds, was affected throughout the year by Covid-19 lockdowns, travel restrictions and retail store closures. Much of the industry was temporarily unable to operate, with up to 90 percent of jewellery stores closed at the peak of lockdowns, first in China, then in Europe and the US, the company said.

“Reduced demand from jewellery retailers due to store closures, combined with the closure of diamond cutting and polishing factories in India from April to June, led to a substantial reduction in rough diamond purchases in the first six months. In response, De Beers reduced production and offered significantly increased flexibility to customers.”

As a result of the difficult market conditions, lockdowns in India and associated flexibility offered to customers, total revenue decreased to $3.4 billion, down from $4.6 billion raked in 2019, with rough diamond sales falling by 30 percent to $2.8 billion compared to the prior year’s $4.0 billion. Rough diamond sales volumes decreased by 27 percent to 21.4 million. The average realised price last year declined by 3 percent to $133 per carat, with a 10 percent decline in the average rough index largely offset by an increased proportion of higher value rough sold in 2020, driven by midstream demand and inventory mix, according to the company’s financials.

On what lies ahead, Anglo American says recent consumer demand trends have been positive in key markets and industry inventories are in a healthier position, providing the potential for a continued recovery in rough diamond demand during 2021, subject to the ongoing impact of Covid-19. Consumer desirability for natural diamonds is set to remain high over the medium to long term despite the economic impact of the pandemic and increasing supply of lab-grown diamonds, the company said.

The mining giant added that the impact of Covid-19 has accelerated the transformation that was already underway across the industry and which is expected to continue at pace. This includes more efficient inventory management, increased online purchasing, and a growing consumer desire for products with demonstrable ethical and sustainability credentials, including an enhanced appreciation for the natural world.

“The long-term outlook for the sector remains positive as De Beers continues to focus on its business transformation to support the continued growth of its own business and the wider diamond value chain,” said Anglo American.

For 2021, production guidance is 32 to 34 million carats, subject to trading conditions, the extent of further Covid-19- related disruptions and ongoing operational challenges. The higher production is expected to be driven by an anticipated increase in ore and improved grade performance at both Jwaneng and Venetia mine.

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