De Beers' mother company, Anglo American, reported that the diamond miner's production rose 5% to 32.6 million carats, and that this year the company expects production to be in the range of 32-34 million carats. De Beers' underlying earnings soared 74% on the year to $923 million in 2014, according to Anglo American’s share in De Beers, with expansion being driven by higher rough diamond prices and lower operating costs.
“ De Beers' CEO Philippe Mellier said the second half of the year was weaker than the first six months, with the Christmas sales season around was slightly lower than expected, but the U.S. performed very strongly overall. China was a bit on the low side while India has started to pick up again after a challenging two years.”
Mellier noted that the diamond market was robust until around September, after which demand weakened due to a lack of liquidity in the diamond pipeline. He added that similar weak conditions continue in early 2015 but the company expects the market to rebound in the second quarter of the year. Anglo American owns 85% of De Beers and 15% is owned by the Botswana government.
Anglo American reported that its share of De Beers' revenue jumped 11% to $7.11 billion last year, and that rough diamond sales surged by 12% to $6.5 billion. The outstanding amount of $614 million came mainly from the company’s Element Six industrial diamond business, as well as some consulting revenues and De Beers' Forevermark brand. The diamond brand grew its retail outlets by 20% to more than 1,500, while its laboratories graded 50% more diamonds than in 2015, Mellier commented.
De Beers’ underlying earnings before interest payments increased by 36% to $1.4 billion (2013: $1.0 billion). The increase was due primarily to solid demand across key markets, particularly the US, which resulted in strong revenue growth. Operating costs benefited from favorable exchange rate movements, which offset underlying inflationary pressures.
Average realized diamond prices were in line with 2013 at $198/carat, driven by 5% higher average rough price index in 2014, offset by a marginally lower product mix.
Consumer demand for diamond jewelry showed positive growth in local currency terms in all the main markets in 2014. The economic recovery gained momentum in the US, the largest consumer diamond market, which resulted in healthy diamond jewelry sales growth throughout the year. Growth in diamond jewelry demand in China continued, albeit at more modest levels, reflecting slowing economic growth. year being offset by a reduction in the second half. Rough diamond prices increased over the course of 2014, albeit with some softness experienced towards the end of 2014 and early in 2015.
In July, De Beers announced details of a new approach to its rough diamond Sightholder sales contracts.
Macro-economic conditions in India started improving in the final quarter of 2014, following the election of a new government earlier in the year, which boosted consumer confidence, lifting hopes that growth will return.
Polished prices ended the year broadly in line with where they started in 2014, with the increase in the first half of the year which will start in March 2015 and run for three years, with an option for De Beers to extend, requires, amongst other things, its rough diamond customers to comply with more rigorous financial and governance criteria in order to be eligible for supply.
Operating Performance – Mining and Manufacturing
De Beers’ full year production increase of 5% to 32.6 million carats reflected a strong performance from Debswana, partly offset by slightly lower production at Snap Lake and Kimberley, with all other regions performing broadly in line with 2013, the firm said.
Debswana benefited from greater efficiency at its processing plants following operational improvement initiatives, producing 24.2 million carats (Orapa 12.9 million and Jwaneng 11.3 million). Performance was enhanced by recovery from the carry-over effects through 2012 and 2013 of the Jwaneng slope failure clean-up as well as the Orapa No. 1 plant maintenance stoppage that occurred in 2013. Jwaneng Cut-8 waste mining is progressing well, with just over 50% of the 500 million tonnes of waste stripping required to expose the ore now complete. During 2018, Cut-8 will become the main source of ore for Jwaneng and extend the life of one of the world’s richest diamond mines to at least 2033, providing access to an estimated 91 million tonnes of ore, containing approximately 110 million carats.
In Namibia, production was marginally higher at 1.9 million carats (Namdeb (land operations) 0.6 million and Debmarine Namibia 1.3 million), driven by strong operational improvement by the MV Mafuta vessel. Namdeb production was broadly in line with the previous year, despite a 19-day strike in the third quarter. Namdeb Holdings has received a 15-year licence extension for both land and sea operations to 2035.
In South Africa, a 2% decrease in output to 4.6 million carats (Venetia 3.2 million, Voorspoed 0.7 million and Kimberley 0.7 million), was principally due to lower grades at Kimberley.
In Canada, production was slightly lower at 1.8 million carats (Snap Lake 1.2 million and Victor 0.6 million). A decline in production at Snap Lake of 0.1 million carats was due to the impact of flooding, forest fire smoke protocols, and reviewing and implementing revised ground support standards. Work continues to optimize Snap Lake to enable economic access to the promising, though challenging, orebody.
Element Six (E6) enjoyed a year of solid growth, with a strong performance in the synthetic industrial diamond product groups, both for abrasives and advanced technology applications. This growth was offset partially by weakness in tungsten carbide sales in the first six months. In order to continue improving customer service and operating efficiencies, E6 announced in April that it would close its plant in Robertsfors, Sweden, to focus on its primary plants in Shannon, Ireland and Springs, South Africa.
