Monday, October 26, 2020

De Beers’s first 2019 sale worst in three years

By Bonnie Modiakgotla

De Beers, the world’s biggest diamond producer by value, has recorded its lowest sales for the first sight of the year since it began publicizing its sales data in 2016, as demand for smaller and lower quality diamonds wanes.

The provisional rough diamond sales for the first sight, also known as sales cycle, came at about $505 million (P5 billion) – a decline of 25 percent from 2018’s first sale of $672 million and a 30 percent drop from 2017’s corresponding period which netted $720 million. Traditionally, the first sight of the year has always been the largest of the year as traders and manufacturers return to the market after working down their inventories over the festive selling period.

“Rough diamond sales during the first sales cycle of 2019 were lower than those for the equivalent period last year, reflecting higher than normal sales in the previous cycle (cycle 10 2018) and the slow movement of lower value rough diamonds through the pipeline,” said Bruce Cleaver, CEO, De Beers Group.

The diamond mining giant holds ten Global Sightholder Sales and Auction Sales every year in Gaborone and the sights or auction sales are restricted to its top 80 sightholders who buy the diamond packages at a price determined by De Beers. However, last year the biggest producer by value took an unusual move.

Concerns over decreasing demand for lower value rough diamonds gained momentum in mid-2018, forcing De Beers to break with its tradition and allowed buyers to postpone their purchase of some lower-quality stones, with the condition that they still had to purchase their quota of gems before the end of the year. This resulted in the unusually higher sales recorded in the last sight of 2018, which is even higher than this year’s opening sale ÔÇô an uncommon occurrence for De Beers.

While De Beers just had its worst opening sales of the year, the company was coming from its strongest year: In 2018, De Beers hit its lower end of its production target, unearthing 35.3 million carats, an increase of 6 percent from 2017’s 33.5 million carats. Moreover, the mining giant sold rough diamonds worth $5.4 billion (P54 billion), a slight figure above $5.3 billion (P53 billion) earned in previous year and 2016’s sales of $4.12 billion (P41 billion).

The lower sale in the first sight of the year also comes at a time when De Beers has cut its production target from last year’s 35 ÔÇô 36 million carats, as they project to produce between 31 to 33 million carats, subject to trading conditions. The diamond miner says the lower production target is driven by the process of exiting from their 100 percent owned Venetia mine – moving from 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’s fourth production report.

One of the joint ventures which De Beers will be counting on is Debswana ÔÇô a 50/50 partnership between De Beers and Botswana government – which operates four diamond mines in the country (Orapa, Letlhakane, Damtshaa and Jwaneng). The Botswana based mines last year recovered 24.1 million carats, contributing 68.3 percent to De Beers total production for 2018.

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