De Beers’ H1 sales dip by 54%

The De Beers Group has released the reports of its activities during the first half of 2009. It saw its sales dip by 54 percent to $1.7 billion in the said period. Its net earnings decreased by 99 percent to $3 million and underlying earnings suffered a $164 million worth of loss when compared to underlying earnings of $350 million one year ago.

For the Diamond Trading Company (DTC), sales during the said six months dipped by 57 percent to $1.4 billion, which the company attributed to the decreased purchase by Sightholders, who focused on reducing inventory and liquidating stocks. Trading for DTC picked up in the second quarter of 2009, with the average sight increasing more than twice over the first quarter sight.

Production dipped by 73 percent to 6.6 million carats, due to decreased demand, and subsequently De Beers mines in South Africa, Namibia, Botswana and Canada being placed on care and maintenance during first quarter. The company estimates production for the year 2009, to reduce by 50 percent over 2008.

During the second quarter of 2009, De Beers noted improvement in the industry, with prices of rough diamonds moving upwards, so also its sales figures. Although it is confident of positive demand from retail markets of emerging markets like India and China, the US retail scenario is yet subdued. The company is optimistic of more stability in the market, as rough inventories at the cutting centers have decreased by 30 percent over the excess in 2008, and debt levels across the cutting centers have also reduced to sustainable levels.

It mentioned in its release that "De Beers will continue to take a cautious approach in terms of production, sales and cost management, while anticipating the continued steady recovery of the industry. Looking to the medium-term, diamonds have historically performed well in periods following recessions, with significant price growth seen in almost every recovery period dating back to before the 1970s. In the long-term, the fundamentals of the diamond industry remain strong. With no major new diamond discoveries in more than a decade, and with worldwide reserves at an all time low, diamonds will become more scarce. As demand grows in emerging markets it is likely that sales will outpace forecast diamond supply for many years to come."

During the first six months of 2009, De Beers accounted for 50 percent reduction in costs, realising $612 million in savings, with capital expense reductions amounting to $241 million. The company’s net debt in June 2009 was worth $4.1 billion, increasing from $3.8 billion in December 2008. Funds from shareholders amounted to $500 million, total loans amounted to $817 million, before IFRS interest adjustments. The company is working towards renew a $1.5 billion bank term loan, expiring in March 2010.