Nicky Oppenheimer, De Beers
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Alrosa deal squeezes De Beers
Allan Seccombe
Posted: Fri, 09 Feb 2007

[miningmx.com] -- DIAMOND producer De Beers felt the squeeze of reduced Russian supplies of rough diamonds in 2006, with sales coming off six percent, and it expects to continue seeing tight availability of stones for its marketing and sales arm DTC in the coming year.

The drop in sales comes despite a year of record diamond production for the company from its mines at 51m carats on the back of record output in Botswana and Namibia. South African diamond output fell to 14.6m carats from 15.2m before.

Global diamond demand is expected to remain strong after a particularly good year for sales in China and India, De Beers said.

“Preliminary anecdotal reports suggest global sales of diamond jewellery increased by four to five percent in 2006, with China and India achieving double digit growth,” De Beers said in a statement accompanying its results.
double digit growth in China, India
“The outlook for further growth in retail diamond jewellery sales remains positive, with India and China likely to be the leading growth markets, and the US continuing its five-year growth trend,” it said.

De Beers will “review assets” that it feels do not fit its portfolio, and it will continue its focus on exploring for fresh deposits in the most prospective areas like Angola, Botswana and the Democratic Republic of Congo.

Sales of diamonds through the Diamond Trading Company (DTC) were lower than last year’s $6.54bn, but still the company’s second highest at $6.15bn.

The reduced sales reflected a drop off in Russian supplies and difficult conditions for the wholesale market where the effects of high interest rates are being felt.

De Beers and Russian diamond group and world number two rough diamond supplier Alrosa agreed in 2002 to a five-year contract under which the South African diamond company would buy $800m worth of gems a year.

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However, the European Commission stepped in on concerns that there would be no real alternative source for rough diamonds globally apart from De Beers, stifling competition. De Beers and Alrosa agreed last year to terminate the agreement.

Alrosa’s sales to De Beers will fall from $600m this year to $400m in 2008 before being phased out completely.

De Beers is bringing new production on line. Output at its Snap Lake project in Canada will start in 2007 building up to full production of 1.5 million carats/year in 2008. Victor, also in Canada, will start producing in 2008 and hitting its stride of 600,000 carats/year 12 months later.

South African President Thabo Mbeki said in his state of the nation address on Friday that De Beers would help the government’s new State Diamond Trader, which will buy local diamond production for sale to domestic cutters and polishers.

“We are happy that De Beers has agreed to assist free of charge with management, technical skills and asset provision for a period of three years;” Mbeki said.

Anglo American owns 45% of De Beers, the Oppenheimer family 40% and the Botswana government the rest.