2005 : A Challenging Year for the Diamond Industry

Competition with other Luxury Goods Better Now...
: Administrator
12 November 2005 12:00 AM
Reference: 7325

Anglo American p.l.c. which has 45 per cent stake in the De Beers Group is of the view that 2005 is likely to be a more challenging year for the diamond industry. However it feels happy that with the transformation of the industry that has taken place over the last few years, there is now growing evidence that diamonds are competing favourably with other luxury products.

De Beers Output Up:

According to reports reaching here, De Beers Group diamond production including joint ventures in Botswana and Namibia amounted to 47 million carats, 3 million carats (7 per cent) more than in 2003. While Debswana's production rose by 2 per cent to over 31 million carats, that at Namibia grew by 28 per cent to nearly 1.9 million carats. However De Beers' older and more marginal mines in South Africa remained under pressure, particularly due to weakness of the dollar, the currency in which diamonds are sold. In terms of value, aggregate sales by the Diamond Trading Company - the marketing arm of De Beers amounted to US$ 5,695 million, indicating a rise of 3 per cent over 2003. Rough diamond prices rose by an average of 14 per cent during 2004. Global retail sales of diamond jewellery in 2004 indicated an increase of about 6 per cent in local currencies and 8 per cent in dollar, compared with the same a year ago. Anglo American's share from De Beers' operating profit in 2004 rose by 4 per cent to US$ 586 million, compared with US$ 562 million in the earlier year.

Growth Areas for Jewellery:

Overall, 2004 was another good year for the Diamond Division of the Group. Against the background of accelerating economic growth in the major diamond consuming countries, diamond jewellery sales performed well. Strong areas of growth were Asia-Pacific, India and the Gulf region, with Japan also recording modest growth for the second year running. The U.S. which accounted for over 50 per cent of world jewellery sales had a solid Christmas season in 2004 overall; despite concerns over high personal debt levels.

Bank Borrowings Up:

During 2004, levels of polished stocks in the cutting centres declined, but cutting centre bank debt continued to climb in line with the increase in the volume of trade. However, the lending banks seemed reasonably comfortable with the ability of the trade to finance higher level of debt.

Rough Buoyant:

There was a strong demand for rough diamonds during 2004 from the cutting centres, as could be seen from the fact sales by DTC in 2004 reached US$ 5,695 million, showing a rise of 3 per cent over the earlier year diamond remained strong so far in 2005 as well. Though De Beers' output of rough in the first half of 2004 was significantly below the target for the period, the deficit was more than made up in the second half. Consequently production for 2004 totalled 47 million carats, i.e. 3 million carats (7 per cent) more than in 2003. No doubt, production went up in Botswana and Namibia as expected. Additionally De Beers' South African mines were also able to raise their total for 2004 to 13.7 million carats, an increase of 1.8 million carats (15 per cent) over 2003.

Kimberley Mines Record :

Kimberley mines turned out a record quantity of 2 million carats, a level that was last achieved 90 years ago in 1914. Although the mining costs which were payable in Rands went up this mine was able to show good performance. However five of its seven mines in South Africa were operating at a loss. The management continued to focus its efforts on further reducing the costs and driving efficiencies throughout its operations.

Botswana Pact:

As already announced De Beers has reached an agreement with Botswana government for the renewal of the Jwaneng mining licence for a further period of 25 years from August 1, 2004. Simultaneously its licences in respect of the Orapa, Damtsha and Letlhakane have been extended upto the expiry date for the Jwaneng licence. Further more, the De Beers and the Government of the Republic of Botswana (GRB) have also agreed that 15 per cent holding in De Beers' ultimate holding company, DB Investments, previously owned by Debswana will now be directly owned by the Government of Republic of Botswana.

Commitments to EC:

Meanwhile, De Beers has made a number of commitments to the European Commission in regard to its proposed trade agreement with the Russian diamond producers Alrosa. De Beers believes that it has now addressed the concerns raised by the European Commission and looks forward to having the commitments formally accepted by the Commission in the near future.

South African Reorganization:

The reorganization of De Beers South African assets is now in the process of being implemented. Accordingly, De Beers Consolidated Mines Ltd. is expected to be in a position to implement black economic empowerment during the current year. M.D. Dewani

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