DE Beers has cut its full year production guidance by three million carats to between 23 and 26 million carats (previously 26–29 million carats) amid signs weaker demand “is expected to continue for some time”, the group said on Thursday.
Commenting in Anglo American’s interim results, the diamond producer said midstream inventories of diamonds were expected to remain “higher than normal” partly owing to poor demand from China and the US, offset by Indian demand.
Anglo said in its production update last week that another cut in De Beers output was on the cards after the diamond miner’s fifth sales cycle of $315m was a disappointing 31% decline year-on-year.
In April, De Beers chopped its rough diamond production forecast for 2024 by 10% dropping it to between 26 and 29 million carats from the previous estimate of 29 to 32 million carats.
The financial outcome was a $47m decline in underlying Ebitda of $300m for the six months ended June. De Beers was negatively impacted by high unit costs as it cut back production from its Botswana mines (by 24% to 9.7 million carats) and the cost of ramping up underground production at Venetia mine in South Africa.
De Beers has targeted a $100m cut in overhead costs and announced other initiatives including suspending production of lab-grown diamonds for jewellery, integrating the midstream for efficient rough diamond sales and focusing only on high-return capital projects on the upstream side.
It’s long-standing new marketing agreement with the Government of Botswana is yet to be concluded. Duncan Wanblad, Anglo CEO, said today he was “even more confident” that the agreement would be signed after a recent meeting with Mokgweetsi Masisi, Botswana’s president.
The new sales agreement – which is for 10 years and includes a 25-year extension to the Debswana mining licenses through to 2054 – does not require shareholder approval as previously expected. This is following an adjustment to UK listing rules due to come into effect on July 29 which have removed the need for approvals for related party transactions.
In addition the threshold for a related party transaction has been increased to 20% from 10%. The Botswana government is a 15% shareholder in De Beers through the Debswana joint venture.
Commenting on the diamond market, Wanblad said today that despite hopes for a turnaround this year, that would only materialise next year. For this reason De Beers “would be last” in the assets Anglo would sell in terms of the group’s restructuring.
“It will be some time before we definitively decide on a demerger or a trade sale as the preparation that goes into either is similar,” said Wanblad. “We think the sale will more likely be in the course of next year at this point in time,” he added.
There was no plan to halt the divestment of De Beers until the market had improved. “Buyers interested in diamonds understand how these sales work and on this basis, I’m not stopping anything. We will keep going until we know what the buyer set looks like,” said Wanblad.
“Given what we are seeing in interest we are still pretty determined to get it done next year.” He earlier said that the restructuring of Anglo would “be done” by 2025.
