Connect with us
Advertisement

De Beers restructures as COVID-19 slashes half year earnings

Diamond mining giant, De Beers Group is embarking on a holistic review of its operations to transform and restructure its business models across the entire value chain, from upstream operations to the way it sells rough diamonds in the midstream and all the way down to how it conducts its retailing downstream, BusinessPost has learned.

According to reports, the long imminent restructuring has been accelerated by the need to respond swiftly to business challenges occasioned by COVID-19 global crisis. The pandemic has adversely impacted De Beers Group and the entire global diamond industry.

These difficulties, which have inhibited our growth over the past several years, have become even more urgent to address. They require us to act now to protect the short-term health of the business while refocusing and reorienting it to realize our long-term potential, said De Beers Group Chief Executive Bruce Cleaver, quoted by Bloomberg last week.

According to these media reports, Cleaver sent a letter to De Beers employees notifying them that COVID-19 pandemic had accelerated the restructuring of the company. COVID-19 has compounded and exacerbated difficulties that already existed in the diamond world, he said.

IMPACT OF COVID-19 ON DE BEERS BUSINESS

The London headquartered diamond mining behemoth released its half year financial results last Thursday; figures depict a sharp decline in both revenue and earnings. All segments of the supply chain were severely impacted by the global lockdown measures introduced in response to the Covid-19 pandemic in the first half of 2020.

After a strong US holiday season at the end of 2019, the rough diamond industry started 2020 positively as the midstream restocked and sentiment improved. However, from February, the Covid-19 outbreak began to have a significant impact on diamond jewellery retail sales and supply chain, with many jewellers suspending all polished purchases and/or delaying payments to their suppliers.

Rough diamond sales were materially affected by lockdowns and travel restrictions, delaying the shipping of rough diamonds into cutting and trading centres and preventing buyers from attending sales events. These resulted in significant decline in total revenue for the business in the first six months of 2020. Total revenue decreased by 54% to $1.2 billion from $2.6 billion registered in the prior half year period ended 30 June 2019.

Rough diamond sales fell drastically to $1.0 billion from $2.3 billion in the prior H1 period ended 30 June 2019. Sales volumes decreased by 45% to 8.5 million carats compared to 15.5 million carats registered in the prior period.

Consequently, De Beers offered Sightholders the option to defer up to 100% of their allocations at the fourth and fifth Sights and held some viewings for Sight 5 outside of Botswana, following the cancellation of the third Sight of 2020 due to Covid-19 related travel restrictions.

The average realised price decreased by 21% to $119/carat from $151/carat driven by a higher proportion of lower value rough diamonds being sold in the first two Sights of the year and an 8% decline in the average rough price index.

Underlying EBITDA decreased to $2 million from $518 million registered last June owing to the impact of the considerably lower sales volumes and the lower rough price index reducing margins in both the mining and the trading businesses. Unit costs were flat compared with the first half of 2019 due to cost-saving measures and favourable exchange rates.

Rough diamond production decreased by 27% to 11.3 million carats from 15.6 million carats last June primarily due to the Covid-19 lockdowns in southern Africa. In Botswana, production was 36% lower at 7.5 million carats against 2019 value of 11.7 million carats. This was driven by a lengthy nationwide lockdown from 2 April to 18 May. Production at Jwaneng fell by 34% to 4.3 million carats from 6.6 million carats due to the shutdown.

Production at Orapa fell by 39% to 3.1 million carats 5.1 million carats due to the lockdown impact, as well as challenges related to commissioning of new plant infrastructure. Operations restarted from mid-May, with production targeted at levels to meet the lower demand.

In Namibia, production increased by 6% to 0.9 million carat from 0.8 million carats, driven by the marine operations as the Mafuta crawler vessel was under planned maintenance in the second quarter of 2019, and supported by the implementation of measures to enable continuity of the fleet while safeguarding the workforce. This increase was offset by a 30% reduction at the land operations to 0.1 million carats following the Covid-19 lockdown.

In South Africa, production increased by 37% at Venetia to 1.3 million carats from 1.0 million carats supported by a significant increase in grade as the final ore from the open pit mined prior to the transition to underground, partially offset by the lockdown.

Canadian production decreased by 23% to 1.6 million carats from 2.1 million carats as Victor reached the end of its life in the first half of 2019. At Gahcho Ku, production decreased by 3% due to Covid-19 measures. Jewellery retail stores were significantly affected by Covid-19, with the majority of De Beers Jewellers (DBJ) stores and Forevermark outlets closed across key markets for a considerable part of the reporting period. Stores have re-opened following the gradual lifting of lockdowns; however De Beers says the risk of another temporary closure remains due to COVID-19 second-wave concerns.

THE TRANSFORMATION

De Beers noted in the interim financial results that the current market outlook is highly uncertain owing to the possibility of a second wave of Covid-19 infections; the ability of fiscal and monetary measures to continue to support employment and businesses in consumer countries; as well as the shape and strength of the global macro-economic recovery.

Significant challenges for rough diamond demand look set to continue in the short term with the ongoing restrictions to travel in southern Africa, as well as the risk of further Covid-19 cases in the Indian cutting centres, the London headquartered diamond miner said.

However the company says in the longer term, the outlook for the diamond sector remains positive, noting that it is accelerating its business transformation from discovery and mining; to how it sells rough diamonds to customers and how consumers purchase diamond jewellery to ensure it retains its prime position as the worlds leading diamond business.

Mark Cutifani Chief Executive Officer of Anglo American PLC, 85 % owners of De Beers Group told investment analysts last week when delivering Anglos interim results that the restructuring of De Beers would range from improving shovel operating productivity at mines such as Orapa in Botswana to its ForeverMark brand through which it sells directly to consumers.

We want to invest in our brands; we want to invest in ForeverMark. We think we can get a fairer value if it gets the right brand, said Cutifani. Furthermore Cutifani said Sightholders, the diamond cutters and polishers who buy unpolished diamonds from De Beers in ten sights or sales meetings a year, are also part of the strategic re-evaluation of De Beers.

We are consulting them as part of the process; an important exercise will be who will get what and how we position ourselves in those conversations. The whole value chain needs to change and evolve to suit the times, said Cutifani.

De Beers has however maintained production guidance at 2527 million carats, subject to continuous review based on the disruptions to operations as a result of Covid-19, as well as the timing and scale of the recovery in demand.

Continue Reading

Business

China’s GDP expands 3% in 2022 despite various pressures

2nd February 2023
China’s Gross Domestic Product (GDP) expanded by 3% year-on-year to 121.02 trillion yuan ($17.93 trillion) in 2022 despite being mired in various growth pressures, according to data from the National Bureau Statistics.

The annual growth rate beat a median economist forecast of 2.8% as polled by Reuters. The country’s fourth-quarter GDP growth of 2.9% also surpassed expectations for a 1.8% increase.

In 2022, the Chinese economy encountered more difficulties and challenges than was expected amid a complex domestic and international situation. However, NBS said economic growth stabilized after various measures were taken to shore up growth.

Industrial output rose 3.6% in 2022 over the previous year, while retail sales slightly shrank by 0.2% data show that fixed-asset investment increased 5.1% over 2021, with a 9.1% hike in manufacturing investment but a 10% fall in property investment.

China created 12.06 million new jobs in urban regions throughout the year, surpassing its annual target of 11 million, and officials have stressed the importance of continuing an employment-first policy in 2023.

Meanwhile, China tourism market is a step closer to robust recovery. Tourism operators are in high spirits because the market saw a good chance of a robust recovery during the Spring Festival holiday amid relaxed COVID-19 travel policies.

On January 27, the last day of the seven-day break, the Ministry of Culture and Tourism published an encouraging performance report of the tourism market. It said that domestic destinations and attractions received 308 million visits, up 23.1% year-on-year. The number is roughly 88.6% of that in 2019, they year before the pandemic hit.

According to the report, tourism-related revenue generated during the seven-day period was about 375.8 billion yuan ($55.41 billion), a year-on-year rise of 30%. The revenue was about 73% of that in 2019, the Ministry said.

Continue Reading

Business

Jewellery manufacturing plant to create over 100 jobs

30th January 2023

The state of the art jewellery manufacturing plant that has been set up by international diamond and cutting company, KGK Diamonds Botswana will create over 100 jobs, of which 89 percent will be localized.

This content is locked

Login To Unlock The Content!

Continue Reading

Business

Investors inject capital into Tsodilo Resources Company

25th January 2023

Local diamond and metal exploration company Tsodilo Resources Limited has negotiated a non-brokered private placement of 2,200, 914 units of the company at a price per unit of 0.20 US Dollars, which will provide gross proceeds to the company in the amount of C$440, 188. 20.

According to a statement from the group, proceeds from the private placement will be used for the betterment of the Xaudum iron formation project in Botswana and general corporate purposes.

The statement says every unit of the company will consist of a common share in the capital of the company and one Common Share purchase warrant of the company.

Each warrant will enable a holder to make a single purchase for the period of 24 months at an amount of $0.20. As per regularity requirements, the group indicates that the common shares and warrants will be subject to a four month plus a day hold period from date of closure.

Tsodilo is exempt from the formal valuation and minority shareholder approval requirements. This is for the reason that the fair market value of the private placement, insofar as it involves the director, is not more than 25% of the company’s market capitalization.

Tsodilo Resources Limited is an international diamond and metals exploration company engaged in the search for economic diamond and metal deposits at its Bosoto Limited and Gcwihaba Resources projects in Botswana.  The company has a 100% stake in Bosoto which holds the BK16 kimberlite project in the Orapa Kimberlite Field (OKF) in Botswana.

Continue Reading