The increase was attributable to 50 percent increase in consolidated sales volumes to 30.0 million carats (2015: 19.9 million carats), partly offset by a 10 percent decrease in the average realised rough diamond price to $187/carat (2015: $207/carat), reflecting the 13 percent lower average rough price index, offset to some extent by an improved sales mix.
Underlying EBITDA increased by 42 percent to $1,406 million due to higher revenues from stronger rough diamond demand, which led to reduced inventory levels, reflecting improved trading conditions compared with those experienced in the second half of 2015. Results also benefited from cost-saving programmes, portfolio changes and the impact of favourable exchange rates. Unit costs decreased by 19% from $83/carat to $67/carat.
Sustained diamond jewellery demand growth in the US and marginally positive growth for the full year in China (in local currency, though declining slightly in US dollars) contrasted with weakening demand in the other main diamond markets including in India where there was a month-long jewellers’ strike in March and the government’s surprise demonetisation programme which started in November. For the full year, global consumer demand, in US dollars, is estimated to be in line with 2015. Additional marketing in the US, China, India and Japan in the final quarter of the year, the main selling season, had a positive impact.
Producers destocked during 2016, as sentiment in the midstream improved and rough and polished inventories normalised, supported by a series of initiatives put in place by De Beers, starting in the second half of 2015. These included lowering rough prices, providing flexibility to Sightholders for their purchase arrangements and increased marketing activity to drive consumer demand.
Rough diamond production decreased by 5 percent to 27.3 million carats reflecting the decision, taken in 2015, to reduce production in response to prevailing trading conditions. Debswana production stood close to previous year at 20.5 million carats, Jwaneng’s production increased by 23 percent and production at Orapa dropped 20 percent. By year end, 85 percent of the 500 million tonnes (Mt) of waste stripping required to expose the ore had been mined at Jwaneng Cut-8. The first Cut-8 ore to the processing plant remains scheduled for the first half of 2017, with Cut-8 becoming the main source of ore from 2018. Damtshaa (a satellite operation of Orapa) was placed onto temporary care and maintenance from 1 January 2016.
Production at Namdeb Holdings decreased by 11 percent to 1.6 million carats. In South Africa, production declined by 9 percent to 4.2 million carats (2015: 4.7 million carats), mainly due to the early completion of the sale of Kimberley Mines in January 2016, partly offset by an increase of 12 percent at Venetia owing to the processing of higher grades. Construction of the Venetia Underground mine continues to progress, with the underground operation expected to become the mine’s principal source of ore from 2023.
In Canada, production declined by 45 percent to 1.0 million carats owing to Snap Lake being placed onto care and maintenance in December 2015. Production at Victor decreased by 7 percent to 0.6 million carats. Development of the Gahcho Kué project was completed on schedule, with the ramp-up to commercial production expected to be reached during the first quarter of 2017.
Owing to continuing depressed markets in key industrial sectors (principally oil and gas), Element Six, the industrial diamonds business, experienced a challenging year. The reduction in contribution arising from lower sales has been largely offset through a comprehensive cost-reduction programme.
Forevermark™ is available in 2,010 outlets (a 14 percent increase) in 25 markets, including the new markets of Hungary, Thailand and now South Korea. In June 2016, Forevermark™ launched the Black Label collection (an innovative collection of fancy-shape diamonds) and, in the final quarter of the year, launched a US national television campaign featuring the Ever Us™(1) two-stone diamond collection.
In the first half of 2016, De Beers also invested in category marketing campaigns to stimulate diamond jewellery demand during key gifting periods in both China and Hong Kong. It did so in India in partnership with the Gem & Jewellery Export Promotion Council. In the third quarter, The Diamond Producers Association, co-funded by De Beers and other leading producers, launched “Real is Rare”, a new marketing platform targeting millennial consumers in the US.
De Beers Diamond Jewellers (a joint venture between LVMH Moët Hennessy Louis Vuitton and De Beers) maintained its focus on fast-growing markets, with 34 stores in 17 key consumer markets around the world. The significant growth in mainland China sales helped to offset the impact of lower Chinese tourist levels in France and Hong Kong, while the highlight of the year was the successful relocation in November of the New York flagship store to a new location on Madison Avenue, completing the repositioning of the brand in the US.
In May 2016, the Government of the Republic of Namibia and De Beers signed a new 10-year sales agreement for the sorting, valuing and sale of Namdeb Holdings’ diamonds. This represents the longest sales agreement ever concluded between the parties.
Macro-economic conditions underpinning consumer demand for diamonds remain broadly stable in aggregate, with the US expected to continue to be the main driver of global growth in 2017. The extent of global growth will, however, be dependent upon a number of macro-economic factors, including the new administration in the US, the strength of the US dollar impacting consumer demand, economic performance in China, the effects of Indian demonetisation, and sentiment following the main US and Chinese New Year retail season.
With midstream stocks having returned to more typical levels in 2016, rough diamond demand is expected to normalise in 2017, reflecting underlying consumer and retail demand. While producers continue destocking, forecast diamond production (on a 100 percent basis, except Gahcho Kué on an attributable 51percent basis) for 2017 is expected to be in the range of 31-33 million carats, subject to trading conditions.