World number-one rough diamond miner De Beers sees a third consecutive year of earnings growth in 2004 on the back of good global growth, De Beers MD Gary Ralfe said on Thursday.
The key countries where De Beers sees growth are the major diamond consuming markets of the United States and Japan as well as major developing markets such as China and India.
During 2004 De Beers sees a 7% increase in its diamond output, after increasing output by 9% in 2003 from 2002.
Demand for rough diamonds continued to be strong in January, and as a result the Diamond Trading Company (DTC) increased its rough diamond prices at the first site of the year by 3%, after increasing prices by a total of 10% in 2003.
“The macro-economic outlook for the next two to three years is better than over the past two to three years. We are quietly confident, not complacent,” Ralfe said during a conference call on Thursday.
“The key arbiter of our business is the consumer appetite for diamonds and trade buying of diamonds. Rough diamond markets continue to be strong. Christmas sales were good and the pipeline has been cleared and needs to be restocked,” Ralfe added.
During the 2003 year De Beers’s diamond stock and other assets declined to $1,745-billion by the end of the December 2003, from $2,355 billion at the end of December 2002.
“There is scope for further reductions in our diamond stocks,” Ralfe said.
Earlier, De Beers reported $5,518-billion in sales at the DTC for the year to December 2003, up 7% from $5,154-billion in the previous financial year.
Headline earnings at $676-million were 17,6% higher than for 2002.
De Beers is 45% held by Anglo American (Anglo) and De Beers will contribute $386-million to Anglo’s headline earnings for the year ended December 31 2003.
The group partly attributed the growth in its earnings to its “Supplier of Choice” scheme, which has resulted in a turnaround in its fortunes.
In the 1990s the growth in diamond jewellery matched the growth in global gross domestic product (GDP) on only one occasion, while in the opening period of the 21st century, since the advent of “Supplier of Choice”, this growth has matched GDP on three out of four years.
De Beers positioning SA operations for empowerment
Ahead of the promulgation of South Africa’s new mining legislation, De Beers is restructuring its local operations.
The South African mining empowerment charter, which will form part of the Minerals and Petroleum Development Act, requires that 15% of South Africa’s mining industry be held by empowerment concerns within five years of the Act’s promulgation and 26% within 10 years.
As part of that process, De Beers on Thursday announced management changes with effect from July 1 2004, that will see Jonathan Oppenheimer appointed MD of De Beers Consolidated Mines (DBCM) and Gareth Penny MD of the DTC.
Ralfe, who previously held both roles, will remain MD of the De Beers Group of Companies.
De Beers has christened its empowerment programme the “rainbow project” and the group got approval to proceed with its implementation at the end of 2003.
“DBCM will be disaggregated from the De Beers Group of Companies,” Ralfe said.
DBCM will house just De Beers’s mining assets in South Africa to be in the right shape for empowerment transactions, he added.
Growth in China demand modest in 2003
In 2003, the growth of diamond jewellery in China, the world’s fastest-growing economy, was a modest 1% to 2%, Ralfe said.
The key reason for this level of growth was the severe acute respiratory syndrome (Sars) virus, which knocked demand in the world’s most populous country, he added.
The effects of Sars knocked demand for diamond jewellery sideways in the first half of 2003.
“Much of the slack [in China] was taken up in the second half,” Ralf added.
Together, China, Hong Kong and Taiwan form the third-largest diamond consuming region after the US and Japan.
At present, the US accounts for more than 50% of the world’s diamond jewellery sales.
“China remains enticing for us all … when I was in Beijing, I was staggered by the growth in the demand for jewellery and the increased sophistication,” Ralfe said.
For the first time in about 10 years, Japanese demand for diamond jewellery increased.
In yen terms diamond jewellery sales in Japan rose 4%, while in US dollar terms it climbed 7% in 2003.
“Three-stone diamond jewellery was launched in September,” Ralfe said. — I-Net Bridge