Saturday, May 30, 2020

High production costs weigh on De Beers bottomline

Anglo American financials show that its diamond production arm, De Beers, realised a slight increases in revenue but that was saddled by mounting production costs, this is contained in Anglo American’s half year results.

With Debswana, a 50-50 percent joint venture between De Beers and the Botswana government, not publishing financial information of the company, people rely on financial data from Anglo American, a public listed company which is expected to divulge its financial position, and on that regard it inevitably releases information about De Beers, giving insights in the secretive De Beers and Debswana axis.

The half year results for the year ended 30 June 2018 reveal that De Beers revenue was slightly up 1.9 percent to $3.2 billion on the back of increases in rough diamond prices that edged 4 percent in the first three months of the year. However, the slight increase in revenue buckled under pressure from unit cost increases driven by the impact of unfavourable exchange rate movements and higher proportion of waste mining costs having been expensed rather than capitalised, mitigated by higher production.

This resulted in underlying earnings before interest, taxes, and depreciation and amortization (EBITDA) decreased 9 percent to $712 million. Underlying EBITDA was also impacted by the lower trading margins experienced in the period.

At Debswana, production increased by 9 percent to 12.1 million carats in response to stronger market conditions. Debswana is responsible for 70 percent of De Beers’ production volume.  Production at Jwaneng was 2 percent higher owing to a 10 percent increase in plant throughput. At Orapa, a 16 percent rise in output was driven by the continued ramp-up of Plant 1, the successful restart of the Damtshaa operation and commissioning of the Letlhakane tailings plant. In June 2017, Jwaneng processed its first ore from Cut-8, which is now the mine’s main source of ore.

The mining giant holds ten Global Sightholder Sales and Auction Sales every year in Gaborone and the sights or auction sales are restricted to the top 85 customers who buy the diamond packages at a price determined by De Beers. So far it has held 5 sights, netting $2.88 billion or P28 billion.

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Sunday Standard May 24 – 30

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