De Beers underlying earnings jumped 74 percent year on year to $923 million in 2014, according to Anglo American’s share in the diamond company, as growth was driven by higher rough diamond prices and lower operating costs.
“For this type of performance we needed the market and the diamond market was pretty good in 2014,” said Philippe Mellier, CEO of De Beers (pictured). “We saw that the second part of the year was weaker and the selling season around Christmas was slightly lower than expected, but the U.S. performed very strongly overall. China was a bit on the low side, while India has started to pick up again after a challenging two years.”
Mellier noted that the diamond market was robust until around September, after which demand weakened due to a lack of liquidity in the diamond pipeline. He added that similar weak conditions continue in early 2015 but the company expects the market to rebound in the second quarter of the year.
De Beers is 85 percent owned by Anglo American and 15 percent by the Botswana government.
Sales & prices
Anglo American’s share of De Beers revenue rose 11 percent to $7.11 billion in 2014, while rough diamond sales increased 12 percent to $6.5 billion. The remaining $614 million was generated mainly by the company’s Element Six industrial diamond business, as well as some consulting revenue and the De Beers Forevermark brand. Forevermark increased its retail presence by 20 percent to more than 1,500 retail outlets, while its laboratories graded 50 percent more diamonds than the previous year, Mellier stated.
[two_third]Bruce Cleaver, De Beers executive head of strategic and corporate affairs, explained that revenue growth was driven by higher volume of sales and better prices. The company’s average rough price index increased 5 percent although realized prices remained flat at $198 per carat due to a marginally lower product mix.
The company noted some softness in rough prices toward the end of 2014 and in early 2015 and estimated that polished prices ended 2014 broadly in line with where they started the year.[/two_third][one_third_last]
“Revenue growth was driven by higher volume of sales and better prices.”
The volume of sales on a 100 percent basis, increased 15 percent to 34.4 million carats, while Anglo American’s share of sales grew 12 percent to 32.73 million carats. During the year, De Beers supplied more goods to the Botswana government for its own independent sales program, which was launched in late 2013 by Okavango Diamond Company.
Production growth & costs
De Beers production rose 5 percent to 32.6 million carats during the year and the company expects production to stay in the range of 32 million to 34 million carats in 2015. De Beers has mining divisions in Botswana, which accounts for about two-thirds of its total production, as well as in Canada, Namibia and South Africa.