2015 was a disappointing year- DeBeers CFO

Portia Nkani
Thursday, 18 February 2016
De Beers CEO, Phillipe Mellier De Beers CEO, Phillipe Mellier

2015 has been a disappointing year for the world’s leading diamond company, DeBeers group as it saw the rough diamond prices crawling down and further depressing profitability.

The company’s Chief Finance Officer, Gareth Mostyn revealed in a teleconference with the media this Tuesday that total DeBeers revenue fell by 34 percent to $4.7billion from $7.1billion in 2014. This was mainly driven by lower rough diamond sales, which declined by 36 percent to $4.1billion. This was due to a reduction in consolidated sales volumes to 19.9million carats from 32.7million carats in 2014, partly offset by a 5 percent increase in the average realised diamond price.

This increase realised diamond prices to $207/carat from 2014’s $198/carat reflected a stronger product mix, despite an 8 percent lower average rough price index for the period. Owing to weaker diamond demand, DeBeers reduced production, costs and capital expenditure in US dollar from the record levels of 2014, as growth in the US was offset by the economic slowdown in China and the strength of the dollar.

On the outlook for 2016, the company expects the US market to remain the main driver of growth in consumer demand in 2016. Mostyn revealed that, “The extent of global growth will however be dependent upon a number of macroeconomic factors including the strength of the dollar and economic performance in China and its impact worldwide. Longer term, the sector is likely to continue to see benefit from a continuing rise in the world’s middle classes in emerging markets, particularly China and India.”

In addition, the expectation on rough diamonds demand in 2016 will be dependent upon consumer demand for diamond jewellery and the resultant levels of restocking required by retailers, and consequently the midstream.

The production is therefore forecast to be in the range of 26-28million carats, which will also be subject to trading conditions. He indicated that the company spent about $750million in the prior year to safeguard the future of DeBeers adding that, “We shall continue to expand the lives of our operations and invest in explorations to try and find future mines.”

Botswana’s Debswana performance
Debswana’s production decreased by 16 percent to 20.4 million carats from 24.2million in the prior year, driven by reduction in tailings production in Jwaneng, combined with the bringing forward of planned maintenance in both Jwaneng and Orapa.

Debswana is focusing on improving reliability and cash costs, while maintaining flexibility, with Damtshaa, a satellite of Orapa, being placed on temporary care and maintenance from January 1st 2016.

South Africa’s Venetia
In South Africa, production was in line with 2014 though below planned 2015 production. The production was at 4.7million carats compared to 4.6million carats in 2014. A decline in Venetia, owing to lower throughput and a reduction in tailings processing again in response to softer trading conditions was offset by increased production in Kimberly.

The completion of sale of Kimberly Mines to Ekapa Minerals was announced on January 21st, 2016.

Namibia’s Namdeb
Production at Namdeb Holdings decreased by 6 percent (from 1.9million carats in 2014 to 1.8million carats in 2015), as a result of focus on lower grade mining areas in response to prevailing trading conditions. This impact was partly compensated by increased availability of the Mafuta vessel at the Debmarine Namibia.

The terms of a new 10 year sales agreement between DeBeers and the government of the Republic of Namibia are currently being finalised.

Canadian mines
In Canada production was in line with the prior year as lower grades at both Snap Lake and Victor were offset by improved throughput. In December 2015, DeBeers announced that Snap Lake would be placed onto long term care and maintenance with immediate effect. Element Six experienced challenging trading conditions throughout the year, primarily as a result of the effect on sales of the contraction in global oil and gas drilling activity.

The resulting impact on revenue and operating margins was partly offset by a cost containment programme, affecting both direct and indirect costs. The plant in Sweden has been closed, while plants in South Africa and Ireland have been upgraded and restructured to optimise production and reduce the cost base.

Marketing campaign strategies
In 2015, Forevermark, one of the company’s brands announced a re-launch of the ‘A diamond is Forever’ marketing campaign, which began in the US and India in advance of the key selling season in the fourth quarter.

DeBeers also invested additional holiday marketing campaigns to further stimulate diamond jewellery gift giving across the key US and China markets. Mostyn said these campaigns were received positively by the industry.

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