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De Beers Profit Second Highest Ever

De Beers ProfitJohannesburg - Diamond giant De Beers stated on Tuesday that its 2006 Diamond Trading Company (DTC) sales reached the second highest figure ever achieved, US$6.15bn.

The 2006 sales were down from 2005’s record $6.5bn, reflecting reduced purchases from Alrosa in line with the commitments given to the European Commission, and the continued challenging environment in the wholesale market for rough diamonds, where a lack of liquidity, margin pressure and increased financing costs impacted pipeline demand, De Beers said.

Releasing its operating and financial review for 2006, De Beers stated earnings before interest, tax, depreciation and amortization (Ebitda) was down 12% to $1.23bn, as a result of lower DTC sales and increased exploration and development costs.

Net earnings were 32% higher at $730m due to the sale of 26% of De Beers Consolidated Mines (DBCM) to Ponahalo, a broad-based black economic empowerment consortium, and the sale of the group’s interest in the Fort �? la Corne joint venture in Canada.

Underlying earnings at $425m were $277m lower than 2005, after adjusting for the impact of a Canadian tax credit, due to reduced margins in the diamond account, the impact of increased finance charges and the dilution in earnings caused by the sale of 26% of DBCM, it said.

Consumer demand for diamonds grows

De Beers said that consumer demand for diamond jewellery continued to grow in 2006, with China and India reporting strong sales growth and the United States growing in line with GDP.

“This was an extraordinary year in terms of our own production, 51m carats, up from 49m carats the previous year, an all time record,” noted MD Gareth Penny.

Looking ahead, Penny said the outlook for the global economy is encouraging, with leading indicators showing signs of continued expansion and a strong underlying demand for diamond jewellery.

“India and China are likely to be the leading growth markets, and the United States is predicted to continue its five-year growth trend.

“While growth in DTC sales in 2007 is likely to be constrained by availability, due in part to the reduction in purchases from Alrosa, De Beers will benefit from its new mines coming on-stream towards the end of the third quarter,” he said.

“We will continue to drive demand for our diamonds and seek other opportunities to create value for our shareholders across the diamond pipeline,” he added.

Non-SA diamonds for first time

2007 marks a new era for De Beers, as it will produce diamonds outside of the African continent for the first time.

“As a measure of our progress in Canada over the course of 2006, under the leadership of Jim Gowans, President and CEO of De Beers Canada, 88% of hours worked by De Beers employees were in a construction environment.

“Snap Lake, in the Northwest Territories, is on target to start production in October 2007 and the Victor mine in Ontario remains scheduled to come on-stream in the fourth quarter of 2008,” Penny said.

Also in 2007 two further African projects will come into operation. The mining vessel Peace in Africa has arrived in Cape Town and, once commissioned, will commence diamond recovery off the west coast of South Africa in the third quarter of 2007.

Similarly, in June 2006, DBCM announced that it had been granted a new order right to mine for diamonds at the Voorspoed mine, near Kroonstad in the Free State Province. This represents DBCM’s first “greenfield” mine since Venetia in 1992 and will produce in excess of 700 000 carats per year.

The project will provide 700 new jobs in construction and 400 jobs as the mine reaches full production in the second quarter of 2009.

“At a time when consumer demand for diamonds has never been so strong, it is reassuring to note that when all four mines achieve full production they will contribute approximately 3.3m carats and US$700m to the annual production capacity of De Beers,” Penney said.

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