DE BEERS recorded provisional fifth cycle sales of $470m following a recovery in the Indian midstream sector and improved jewellery demand in the US and China.
This compares to confirmed fourth cycle sales of $385m, but a comparison with the previous year’s performance is irrelevant given sales were heavily disrupted by the onset of the Covid-19 pandemic. Combined fourth and fifth cycle sales last year were $56m.
“Overall sentiment is increasingly optimistic as we move towards the second half of the year and, while risks as a result of the global pandemic persist, we have been encouraged by the condition of the market,” said Bruce Cleaver, CEO of De Beers Group.
This takes total sales this year to $2.5bn – about 54% of De Beers’ 2020 revenues – and spells good news for Anglo American which owns 85% of the diamond miner and marketer, according to a report by Goldman Sachs.
The bank has Anglo American ‘buy-rated’ partly owing to an improvement in the performance of De Beers, as well as production growth and exposure to the copper and platinum group metals sector where price increases this year have been significant.
De Beers had increased its prices by more than 5% whilst its rival, the Russian diamond producer, Alrosa has raised its prices 9% on a like-for-like basis. Goldman Sachs estimates a 6% price increase in diamonds this year which is still 10% below the pre-Covid-19 three year average of $156 per carat.
De Beers is estimated to comprise about 6% of Anglo’s 2021 earnings before interest, tax, depreciation, and amortisation (EBITDA), generating $1.5bn in EBITDA.
Goldman Sachs also notes De Beers has production extension options over the next two to three years through its Namdeb business, which will add 500,000 carats a year from 2022, some five million carats from 2023 from going underground at Venetia in South Africa, and a potential nine million carats from Jwaneng in Botswana from 2027.
In comparison, there is limited supply-side growth from the rest of the world’s diamond sector whilst Rio Tinto decommissioned its Argyle mine this year.
De Beers has guided to production of between 32 to 34 million carats for this year, increasing to 30 to 33 million carats in the 2022 and 2023 financial years.
