De Beers Group reported Friday that diamond sales declined 3 percent in 2007 to $6.42 billion. Total sales for the company also fell 3 percent for the year to $6.86, which includes a 2.5 percent increase in non-diamond sales to $414 million.
The South African-based company, which is majority owned by London-based Anglo American PLC, said it recorded a net loss of $521 million for 2007 against a profit of $730 million the year before. The figure includes a $965 million charge against its Canadian operations to reflect the rise in value of the Canadian dollar; and higher fuel, labor, and capital costs.
The company, which claims 40 percent of the world diamond market, said underlying earnings rose 14 percent to $483 million. EBITDA fell slightly (1 percent) to $1.21 billion “as effective cost management at the Group’s African mining operations offset the impact of slightly lower sales which were constrained by supply to the Diamond Trading Company,” De Beers said.
The company said capital expenditures rose 18 percent to $1.12 billion in 2007, primarily for the construction at the Snap Lake and Victor mines in Canada, the Voorspoed mine in South Africa, and an offshore mining vessel in South Africa.
Demand for rough diamonds from the Diamond Trading Company remained healthy throughout the year, De Beers said. Following the weakening in the rough diamond market towards the end of 2006, which led to downward price adjustments, improving market conditions allowed prices to be increased beginning in the second quarter of 2007.
De Beers noted it expects consumer sales of diamond jewelry worldwide to increase by about three percent in 2007, based on strong sales growth in China, India, and the Middle East, which, in part, offset a disappointing Christmas season in the U.S.
De Beers said its independently managed retail joint venture with Louis Vuitton Moet Hennesy, De Beers Diamond Jewellers, increased sales by 44 percent over the previous year. Eight new stores were opened in 2007 in the U.S., Japan, Dubai, and Korea, bringing the total to 23 stores worldwide. There will be more expansion in 2008 in the U.S., Hong Kong, Russia, the Middle East, and Tokyo markets.
De Beers tempered its outlook for 2008 based on “a high level of uncertainty over world market conditions. The economic conditions in the U.S. could continue to impact consumer diamond jewelry sales through the first half particularly at the lower end.”
The company expects continued strong demand from China, India and the Middle East for larger and better quality diamonds.
On the production front, De Beers said energy issues in southern Africa could present operational challenges. The company recently had to stop its mining operations in South Africa due do nationwide power shortages.
It said that its De Beers Consolidated Mine operation has been making good progress toward a target of a 15 percent energy reduction by 2012. In addition, it is putting in place contingency plans that will make the most effective use of the available energy between the different operations. Early indications are that even if the power supply is maintained at 90 percent levels there will be an impact on the overall group. However below this level the impact on production will be significant.
The company said its De Beers Canada management team is focused on bringing the two new mines into full production in 2008. It added that it has continued to monitor the impact of the increase in the Canadian dollar.
De Beers said the current mining environment requires “a continued focus on cost containment on the mines and cost reduction, in general.”
Looking beyond 2008, De Beers said “it is confident about diamond market fundamentals. With strong growth in the emerging markets of China, India and Russia, demand growth should exceed growth in new supply with the opportunity for future price growth.”
De Beers said it will focus on “finding and developing the new mines of the future, assisting our government partners in achieving their aspirations for local value addition, finding new efficient ways to operate the global Group and developing innovative marketing initiatives such as De Beers Diamond Jewellers and the FOREVERMARK, to drive demand and create new revenue streams.”
Other highlights from the report:
* In 2007, De Beers produced 51.1 million carats, maintaining the record production achieved in 2006.
* Debswana, the joint venture between De Beers and the Government of Botswana, remains the Group’s major producer contributing 33.6 million carats.
* In South Africa, De Beers Consolidated Mines increased production to 15 million carats, mainly due to improvements made to the diamond recovery process at Venetia mine where carats recovered increased by nine percent.
* Production from off-shore operations in Namibia increased, resulting in Namdeb, the joint venture with the Namibian Government, increasing production by four percent to 2.2 million carats.
*Snap Lake in Canada’s Northwest Territories started production in late 2007. The mine is currently being commissioned with the achievement of full production expected in 2008. It will then be expected to produce approximately 1.6 million carats annually.
* By mid-2008, Canada’s Victor mine is planned to begin production and once fully commissioned, it will produce 600,000 carats of high quality diamonds per year.
* In mid-2007, the mining vessel “Peace in Africa” began operations off the South African Atlantic coastline. It is expected to produce approximately 0.2 million carats per annum.
* The Voorspoed mine in the Free State in South Africa is scheduled to commence production in Q4 2008. Voorspoed is expected to produce 0.7 million carats annually.
* Boteti Exploration Company, the joint venture between De Beers, African Diamonds Plc and Wati Ventures, has filed for a mining licence for AK06, a kimberlite in the Orapa region of Botswana. AK06 has an estimated reserve of 11.1 million carats.
* The advanced exploration project at Gahcho Kue, in Canada’s Northwest Territories, also moved forward, completing successful winter and summer drill programmes, and has commenced the environmental permitting process.
* During 2007 De Beers committed $126 million to an exploration program with significant investment in the Democratic Republic of Congo and early and advanced programs in place Angola, Botswana, and South Africa. In the DRC and Angola, in particular, the team is focusing on optimising ground holdings in order to move projects into advanced stages as quickly as possible. De Beers identified 45 new kimberlites in 2007, and its 2008 drilling and evaluation program will focus on these high potential targets.
* In 2008, the Group aims to maintain production capacity at 2007 levels with new production of more than 1.5 million carats from its Canadian mines offsetting the impact of the sale of its operations at Cullinan and Kimberley in South Africa.