De Beers FY18 revenue up 4% y/y

Anglo American subsidiary De Beers achieved a 4% year-on-year increase in revenue to $6.1-billion in 2018, compared with $5.8-billion in 2017, which was supported by improved high-end jewellery sales at De Beers Jewellers.

Its earnings before interest, taxes, depreciation and amortisation, however, decreased by 13% to $1.2-billion, compared with $1.4-billion in 2017.

“While unit costs and upstream profit margins were maintained, De Beers undertook incremental expenditure on a number of new initiatives, including the launch of Lightbox Jewellery, Tracr and Gemfair, as well as increasing expenditure in marketing, exploration and evaluation in Canada and increasing provisions in respect of closure obligations,” Anglo stated.

Margins in the trading business were lower owing to volatile market conditions, and the margin at Element Six decreased as a result of lower sales to the oil and gas market.

During 2018, production rose by 6% year-on-year to 35.3-million carats.

Anglo stated on Thursday that production increases at Orapa, in Botswana, and the contribution from the ramp-up of Gahcho Kué, in Canada, more than offset the effect of the temporary suspension of production at Venetia, in South Africa, following a fatal incident and the placing of the Voorspoed mine, also in South Africa, on care and maintenance.

Rough diamond sales increased by 4% year-on-year to $5.8-billion, compared with $5.2-billion in 2017, which was driven by improved overall consumer demand for diamond jewellery and a 1% increase in the average rough diamond price index.

The average realised price in 2018 increased by 6% to $171/ct, compared with $162/ct in 2017, reflecting the lower proportion of lower-value rough diamonds being sold in the second half of the year, which resulted in a 2% decrease in consolidated sales volumes to 31.7-million carats, compared with 32.5-million carats in 2017.

2019 OUTLOOK

“Although current economic forecasts remain positive, the outlook for 2019 global diamond jewellery consumer demand faces a number of headwinds, including the risk of a potential intensification of US/China trade tensions, the Chinese government's ability to rebalance economic growth towards consumption and further exchange rate volatility.

“Production in 2019 is expected to be between 31-million and 33-million carats, subject to trading conditions. The lower production is driven by the planned process of exiting from the Venetia openpit, with the underground operation becoming the principal source of ore from 2023,” Anglo said.

It added that, associated with this, an increased proportion of production in 2019 is expected to come from the De Beers group's joint venture partners, a proportion of which generates a trading margin, which is lower than the mining margin generated from own-mined production.