De Beers warns of possible further downside risks

Although stock levels in the diamond industry’s midstream are returning to a more balanced position, following stable consumer demand, especially in the US, diamond miner De Beers has warned that risks remain.

The company on Thursday reported a 55% year-on-year decrease in underlying earnings before interest, taxes, depreciation and amortisation for the 2019 financial year, as a result of lower sales volumes and lower rough diamond prices.

Amid weak demand, De Beers had cut back on production in 2019. It produced 30.8-million carats, compared with the 35.3-million carats produced in 2018.

“While trading conditions have improved somewhat since the third quarter of the year, production was lower in response to softer rough diamond demand conditions compared with 2018,” the company reported on Thursday.

“In dollar terms, global consumer demand for diamond jewellery was broadly flat in 2019. This was despite the challenges of increased uncertainty around the economic outlook owing to the continued US–China trade tensions, as well as the impact of the Hong Kong protests and certain macroeconomic issues affecting consumer confidence in India.

“US consumer demand remained reasonably strong, but growth in local currency terms in China and Japan was offset by the strength of the US dollar, while demand from India and the Gulf declined,” De Beers explained.

Lower group production was led by a 59% decrease in production in South Africa to 1.9-million carats, compared with the 4.7-million carats produced in 2018. De Beers said the Venetia openpit mine had a higher waste to ore ratio at it moved into its final years, prior to transitioning underground.

In Botswana, production was 4% lower at 23.3-million carats, compared with the 24.1-million carats produced in 2018.

Production in Namibia decreased by 15% to 1.7-million carats, compared with the two-million carats produced in 2018, mostly owing to planned routine maintenance at the company’s marine operation.

Production in Canada was 13% lower year-on-year at 3.9-million tonnes, as the Victor mine had reached the end of its life.

In the months ahead, De Beers expects to see a further increase in online buying, which results in further retailer destocking.

Other downside risks include US–China trade tensions and the coronavirus outbreak that originated in China over the Chinese New Year.

De Beers has set its 2020 production guidance at between 32-million and 34-million carats.