De Beers bullish about the future

SHARE   |   Sunday, 15 February 2015   |   By Kabelo Adamson
Debswana MD, Balisi Bonyongo and Bruce Cleaver Debswana MD, Balisi Bonyongo and Bruce Cleaver

Despite 2015 forecast to be a slow, De Beers Group of Companies is optimistic for another inspiring year as the demand for diamonds is expected to spike benefiting from the stable US economy which is the major consumer of the company’s diamonds.
Briefing members of the media through a conference call from London office on Friday, the group Executive Head of Strategy and Corporate Affairs, Bruce Cleaver, said they are targeting other markets such as India and China and will continue to make significant investments, including investing $3 billion on a new mine to be opened in Canada next year.
The group has also put more focus on diamond retailing as it strives to maintain profit making. Cleaver said as such they continue to invest in brands such as Forevermark, which now is available in more than 1500 outlets in 34 markets.
De Beers, a unit of Anglo American plc through the partnership with the Botswana government, operates Jwaneng and Orapa diamond mines with the former described as the world best producer of diamonds by value.
Cleaver says the partnership between De Beers and Botswana, which forms Debswana, is the best and long standing Public Private Partnerships (PPP) in the world which spans 40 years.
“As De Beers we remain positive about mining, being in business is to make profit, last year we spent $700 million in investments and we will continue with more investments in the coming year,” Cleaver said.
Cleaver predicts that the next coming year will continue to be eventful for the diamond group and has made it clear that they are not threatened by synthetic diamonds. Synthetic diamonds are a laboratory manufactured diamonds as opposed to naturally mined diamonds.
“Our research shows that consumers still prefers natural diamonds and we have a very clear strategy on how to deal with the emergence of the synthetic diamonds,” he said, adding that the lab gem diamonds will do not compete with the natural ones.
Production in 2014 for De Beers was 32.6 million carats, which is an increase of five percent from the previous year with major contribution from Jwaneng and Orapa Mines. The increase was primarily due to solid demand across key markets, mainly the US, which resulted in strong revenue growth.
He added that lower oil prices would likely have a greater impact on reducing costs in 2015, although these would be partially offset by higher power costs in southern Africa and a lower benefit from currency movements than in 2014.
Cleaver explained that operating costs benefitted from a favourable exchange rate as South African Rand and Canadian Dollar weakened against the USD while operating costs in Botswana improved due to efficiency at the local mines. As a result, Debswana produced 24.2 million carats with Orapa contributing 12.9 million while the remaining 11.3 million came from Jwaneng.
De Beers’ total sales roles 11 percent to $7.1 billion with rough diamond sales up by 12 percent to $6.5 million. The high rough diamond revenue is said to have been driven by a 12 percent increase in consolidated sales volumes in strong revenue growth.
According to Anglo American Preliminary Results for 2014, despite sharp commodity price declines and other adverse market conditions, the holding group delivered on all major commitments for 2014 which include operational performance, project delivery and portfolio restructuring.
De Beers is one of the most performing components of Anglo American Group, according to the 2014 financial results; De Beers contributed $1.4 billion of underlying Earnings Before Interest and Tax (EBIT) in 2014, 28 percent of  and the largest contributor to the group’s total and delivered a 15 percent return on capital employed.
Commenting on the results statement, Anglo American CEO, Mark Cutifan, said “2014 was a year of significant operational improvement against sharp commodity price declines amid generally adverse market conditions.”
He noted that despite the headlines of economic uncertainty and geopolitical tensions, the underlying fundamentals of the business - applying world class technical skills to world class assets - remain attractive over the long term.
In its operational outlook, De Beers forecasts that its diamond production in 2015 will be in the range of 32 to 34 million carats, which is subject to market demand. During the past year, De Beers posted underlying earnings of $1.4 billion which is a 36 percent increase whereas revenue went up by 11 percent to arrive at $7.1 billion.

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