De Beers ups output as demand picks up

[] — DE BEERS, the world’s largest diamond producer, expects to boost output in South Africa by nearly 50% this year as global demand recovers, but has abandoned an effort to mine gems in the country’s coastal waters.

South Africa’s diamond output would jump to about seven million carats in 2010 from 4.8 million carats last year, when some mines were temporarily shut due to the global downturn, said acting CEO of the group’s local unit Barend Petersen.

De Beers, which controls around 40% of the rough diamond market, also plans a R15bn investment over 10 years at its flagship Venetia mine, to maintain output and extend mine life to 2043, Petersen said in an interview on Wednesday.

Petersen said De Beers – which also operates in Canada, Botswana and Namibia -would produce an estimated 31 million carats for the group in 2010, up from 24.6 million carats the previous year.

Petersen said De Beers had consolidated all its marine diamond operations in Namibian waters, abandoning an effort off South Africa after obtaining low grade gems there.

De Beers has long used sophisticated vessels to scoop up gems from the sea floor off Namibia and in 2006 launched a project worth nearly R1bn to outfit another vessel and use the same techniques off the South African coast.

“In the Namibian waters, it was an exceptional turnaround. So in terms of our marine business, it’s clearly more advantageous for us to mine the sea waters of Namibia than the South African sea waters,” said Petersen.

In Namibia, production from marine mining has overtaken output from increasingly lower-grade land mines.

Stop the bleeding

Plans by the South African unit – De Beers Consolidated Mines – to sell its Namaqualand and Finsch diamond mines would be concluded as expected by the first half of 2011 to enable it focus on profitable units.

“We have decided that we should stop the bleeding … we will sell off underperforming units over time,” he said.

He said the sale of some loss-making units would put pressure on production, but he was optimistic output would still be maintained at seven million carats from 2010 onwards. This is down from production of about 12 million carats in 2008.

Diamond producers were hit hard during the global economic meltdown, but a rebound in demand has encouraged producers to step up exploration for gems in order to maintain output.

“Generally, the market is starting to improve. Of course, our biggest sales are in the US, but China and India are becoming important (markets),” Petersen said.

Petersen said the State Diamond Trader (SDT), set up in 2007 to encourage local processing of gems and to create jobs, had performed well so far.

De Beers had no plans to re-list on the Johannesburg bourse, he added, echoing statements by other company officials in response to talk that the firm may return to the stock market.

De Beers is 45% owned by mining group Anglo American, 40% by the Oppenheimer family and 15% by the Botswana government.