Where De Beers really makes its money

Rob Bates

In May, executives from Anglo were murmuring that the company overpaid when it acquired De Beers, that it wasn’t delivering the return on capital it hoped. 

But in Anglo’s latest financial results, De Beers posted first-half profits of $765 million, a 34 percent increase over last year. It now generates one-third of its parent’s earnings, making it the largest single contributor to its profits. Headlines proclaimed it the company’s star. With the price of iron ore sinking, De Beers is now “the most attractive business unit within Anglo American,” analysts wrote. All those price increases have paid off (for De Beers, if not for its clients).

But let us not forget why De Beers has become such a star. This week, Royal Bank of Scotland sent out a report on the De Beers results, which made an important point: De Beers makes just about all its profits from mining. We in the trade tend to focus disproportionately on its growing suite of downstream initiatives—the Forevermark, the De Beers retail chain, its lab, and fledgling diamond buyback service. But none of these contribute where it really counts­: the bottom line. In fact, most of them are money losers. (De Beers’ industrial diamond division, E6, is profitable but makes only a small contribution to the bottom line, the RBS analysts said.)

While some tend to look at De Beers as a luxury brand, the report said, that is not the case: “De Beers is a mining company.”

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Source JCK Online

Picture De Beers.