De Beers’ profit up 2%

SHARE   |   Wednesday, 03 August 2016   |   By Kabelo Adamson
Head of Strategy and Corporate Affairs, Gareth Mostyn Head of Strategy and Corporate Affairs, Gareth Mostyn

De Beers’ profits for the first half of 2016 increased by two percent from the previous corresponding period, and have been described as positive by the mining group’s Head of Strategy and Corporate Affairs, Gareth Mostyn. The group, which operates Debswana mines along with the government of Botswana, registered earnings before interest and tax of $585 million compared to $576 million recorded during the same period last year. The increase, according to Mostyn, is because of strong rough diamond demand along with other factors such as tight operating cost control and favourable exchange rates. So far De Beers has held five sights while the sixth one is still ongoing. Results of the sixth sight are not due until next week, Mostyn said during a teleconference with the media on Thursday afternoon.

Rough diamond production decreased by 15 percent to 13.3 million carats compared to 15.6 million carats, which is said to be a reflection of the decision made to reduce production in order to withstand prevailing trading conditions. Of the 13.3 million carats rough diamonds produced by De Beers, 10.5 million carats were from Debswana. Statistics Botswana indicated in the monthly International Merchandise Trade Statistics (IMTS) report for the month of May that the surplus registered in the trade balance was mainly influenced by the high value of diamond exports while imports of the same commodity recorded a low value. A trade surplus of P4, 100.6 million was registered in May. Going into the next half of the year, De Beers expects rough diamond revenues to be weighted, consistent with prior years and typical of the seasonal drivers.

During the period under review, Debswana’s production volume stood at 10.5 million carats dropping from 11.5 million carats in the prior period with earnings from the company at $270 million from $240 million registered in the previous period. Total production at Orapa decreased by nine percent with output at Orapa down by 25 percent compared with H1 2015. Debswana remains the largest contributor to De Bees earnings and for this period was followed by Namdeb Holdings, a partnership between De Beers and Namibia at $121 million. Macro-economic conditions underpinning consumer demand for diamonds are said to remain stable in aggregate, but with persistent downside risks looking into the last half of the year. Mostyn, however, explained that the recent political events, specifically the Brexit is unlikely to affect their earnings as the UK constitutes a small portion of their market.

“The UK is insignificant in terms of the jewellery market, there will be little impact from the exit,” Mostyn said. The trading conditions in the rough diamond industry have normalised and Mostyn believes this is all due to the action taken by De beers to reduce production across the group which he said has given their customers more flexibility. Mostyn, who before assuming his current role was the group’s Chief Financial Officer, said De Beers is making significant investments towards Forevermark which he said is key to their marketing campaigns. Forevermark – De Beers’ own jewellery brand – is now available in 1,874 retail outlets which is an increase of 6.5 percent from the end of 2015.