De Beers 2007 sales lose sparkle

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De Beers 2007 sales lose sparkle

February 08, 2008

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Johannesburg, South Africa—The De Beers Group reported today that full-year sales dropped 3 percent in 2007, from $7.030 billion in 2006 to 6.836 billion, crediting most of the loss to a lower availability of goods from Russia.

EBITDA remained steady at $1.216 billion, as effective cost management at the Group's African mining operations offset the impact of slightly lower sales that were constrained by supply to the Diamond Trading Co. (DTC).

Underlying earnings were $483 million, up from $425 million in 2006.

Cash available from operating activities was up to $844 million, from $809 million in 2006.

Demand for DTC rough diamonds remained healthy in 2007, with prices increasing in the second quarter onward due to improved marketing conditions.

Consumer diamond-jewelry sales also appear to be healthy for the year, with a likely increase of 3 percent according to the Group. Specifically for the U.S. market, even though it was a disappointing holiday season, high-end independents still managed to show reasonable results in diamond-jewelry sales.

Regarding production, although it stayed flat in 2007 at 51.1 million carats, the Group declared it an accomplishment since its record production in 2006.

Debswana, the joint venture between De Beers and the Government of Botswana, remained the Group's major producer, contributing 33.6 million carats. In South Africa, De Beers Consolidated Mines (DBCM) increased production to 15 million carats, mainly due to improvements made to the diamond-recovery process at the Venetia mine, where carats recovered by 9 percent.

The Group said they anticipate similar levels of production in 2008, but will be facing energy issues in southern Africa, which could present operational challenges. DBCM has been making good progress toward a 15 percent energy reduction rate in 2012, and overall management is making effective use of the available energy between the different operations.

Another accomplishment the Group reported included its low Lost Time Frequency Rate of 0.18 within its family of companies.

The De Beers Group invested $1.12 billion in expansion capital this year, principally for its four projects in the pipeline including the Snap Lake and Victor mines in Canada, the Voorspoed mine and SASA offshore mining vessel in South Africa.

At Snap Lake in Canada's Northwest Territories, production began in late 2007 and is expected to achieve full production by 2008, producing about 1.6 million carats annually. Canada's Victor mine, which is ahead of schedule, is slated to begin production in mid 2008 and, once commissioned, will produce 600,000 carats of high-quality diamonds per year. The mining vessel Peace in Africa began operations off the South African Atlantic coastline and is expected to produce approximately 0.2 million carats per year. Last, the Voorspoed mine in the Free State in South Africa is scheduled to begin production in the fourth quarter of 2008, and is projected to produce 0.7 million carats annually.

For exploration, the De Beers group says it's focusing its efforts on a smaller range of categories with Angola as its top priority.

The De Beers Group said its 2008 outlook remains positive but is tempered by a high level of uncertainty over world market conditions. Although U.S. economic conditions could impact consumer diamond-jewelry sales through the first half of the year, particularly in the lower end, it anticipates a strong demand from China, India and the Middle East to sustain pricing for larger and better-quality diamonds.

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