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ROUGH DIAMONDS

DE BEERS REPORTS DISAPPOINTING EARNINGS FOR 2019



De Beers reported its earnings for 2019, which are at the lowest ebb since a majority shareholding in the company was purchased by the miner Anglo American Corporation bought it in 2012.

According to the company report, earnings before interest, tax and other items, or EBIDTA, were don 55 percent to $558 million. That is considerably of the record $1.8 billion that company registered just six years ago, in 2014.

De Beers, which currently is the world’s second largest diamond producing company after Alrosa, Beers, reduced its supply by 13 percent in 2019. Its total output was 31 million carats, down from 35 million in 2018 carats.

But Bruce Cleaver, De Beers CEO, put a brave face on the company’s performance last year. “I’m actually very proud about what De Beers did in 2019,” he said. “It was not an easy year. We led an industry. We spent a lot of time speaking to customers, to bankers and to retailers to give them confidence that De Beers thinks there’s a great future here.”

Anglo American acquired a majority shareholding in De Beers eight years back. Already a minority shareholder, the company paid $5.2 billion for Oppenheimer family’s 40 percent stake.

TOTAL REVENUES DOWN BY MORE THAN A QUARTER

There were number of reasons cited for the lower profitability. One of them was lower average prices for its diamonds, which fell about 20 percent. This led to a total decline in revenue of 24 percent, to stand at $4.6 billion.

But, as the Bloomberg news agency reported, the problem isn’t a lack of customers, but issues deeper in the supply chain. “In short: mining companies have dug up too many diamonds.

 The oversupply has driven prices down and squeezed the low-profile middlemen that cut, polish and trade gems before they’re sold to retailers and jewelers,” it stated.

The polished diamond markets, which in general were buoyant, nonetheless were grappling with problems that were relatively new or unexpected. One was the growing popularity of the laboratory-grown diamonds, although 2019 saw a growing gap between the asking price between them and natural goods, as consumers appeared to differentiate better between the two product categories. 

De Beers CEO Bruce Cleaver: “It was not an easy year. We led an industry. We spent a lot of time speaking to customers, to bankers and to retailers to give them confidence that De Beers thinks there’s a great future here.”

Hong Kong, which traditionally has served as the gateway to China and many of the other Southeast Asian markets was also in a state of flux for much of the year as well as an oversupply in the pipeline, largely because of the protest movement that has dominated life in the city.

In its report, De Beers also cited the trade tension between the United States and China, and the continuing consolidation of the U.S. jewelry retail trade, which once again reported more store closings.  The difficulty of the midstream to to obtain bank financing, was also a problem.

 

Some of the issues that came to the fore in 2019 are considered to be systemic, rather than temporary, and De Beers is reportedly considering a set of structural moves, including reviewing the way it sells diamonds and reducing its number of sightholders.

Anglo American CEO Mark Cutifani: “We’re seeing much better sentiment from our customers,” he said. “It will bounce back.”

CHINA COULD STILL TIP THE CARDS

Sill, Mark Cutifani, the Anglo American’s CEO, expressed his confidence that the diamond market would recover. “We’re seeing much better sentiment from our customers,” he said. “It will bounce back.”

But he added a caveat, pointing to a situation that had not yet existed during the 2019 reporting period and that is the coronavirus In China.

“There aren’t as many people walking around jewelry shops in China,’ Cutifani stated, as quoted by Bloomberg. “In Hong Kong, there are virtually none. “It’ll be a couple of months before we have a better picture.”