De Beers coy on 2012's prospects

André Janse van Vuuren | Fri, 10 Feb 2012 15:39

[miningmx.com] -- DE BEERS CEO Philippe Mellier said on Friday that he is cautious over the diamond market’s near-term prospects, indicating the group would give preference to maintenance backlogs and waste stripping over production increases in 2012.

Delivering his first set of annual results since being appointed in July, Mellier said sightholder demand would determine whether De Beers would increase production this year from 2011’s 31.3 million carats, but emphasised that he didn’t foresee an escalation.

“We will continue to prioritise waste stripping and maintenance backlogs, and we therefore do not expect a material increase in carat production in 2012,” Mellier said during a media conference call. “This focus … will position De Beers to ramp up profitable production as sightholder demand dictates.”

His remarks came after what Mellier labelled a year of two halves, wherein the first six months of 2011 saw exceptional consumer demand growth which, when coupled with lower than historical levels of global production, resulted in very strong polished and rough-diamond price growth.

This was followed by the second half, in which retail and cutting centre sentiment were impacted by the challenging macro-economic environment, restricted liquidity and a slowdown in the growth of consumer demand at retail.

Overall, sales of rough diamonds by the Diamond Trading Company increased 27% to $6.5bn, as total sales were up 26% to $7.4bn. DTC sales prices increased 29%, with EBITDA up 21% to $1.7bn.

Asked about his view on how big an expected shortfall in supply for 2012 would be, Mellier said the prevailing economic circumstances made it difficult to give an estimation.

“That’s a good question, but unfortunately I don’t know the answer,” he said. “It is very, very difficult to know what the situation will be.

“There’s a lot of uncertainty but [fortunately] luxury goods are holding well. We’ll have better visibility in the second half [of 2012].”

EKATI

Asked whether De Beers would be interested in snatching up BHP Billiton’s Ekati mine in Canada, which the global miner said was up for sale, Mellier referred the question to his Executive Director for Strategy and New Business, Bruce Cleaver, who didn’t rule out such a move.

Cleaver said De Bees would not speculate on individual cases, but that it would continue to look at any asset that would “make sense for value accretion”.

NAMAQUALAND

Sakhile Ngcobo, Head of Corporate Affairs at De Beers Consolidated Mines (DBCM), the South African wing of the group, told Miningmx the sale of Namaqualand mines to Trans Hex was progressing well, with the sale expected to be completed by April.

He said the Department of Mineral Resources has signed off on Trans Hex’s mining and social plan, with the environmental-management plan expected to be settled within the next month.

“We’re making very good progress on the environmental discussions,” he said.