JOHANNESBURG (miningweekly.com) – Diamond mining giant De Beers on Friday said that, despite a challenging first half, it still achieved a solid operating performance.
However, its underlying earnings before interest and taxes (Ebit) decreased by 25% to $576-million for the six months ended June, compared with $765-million in the first half of the prior year.

This was primarily owing to softer rough diamond demand, resulting in weaker revenue, which was partly offset by lower operating costs and favourable exchange rates. Unit costs declined by almost 10% in comparison to 2014, with the effects of inflation being more than offset by foreign exchange benefits and cost control.

Total sales decreased by 21% to $3-billion, with rough diamond sales decreasing by 21% to $2.7-billion. Lower rough diamond revenue reflected a 27% reduction in consolidated sales volumes to 13.3-million carats, while average realised diamond prices increased by 7% to $206/ct, owing to the sale of a stronger product mix, despite a 4% lower average rough price index for the period.

CEO Philippe Mellier said the “okay” performance saw the company trim down on production, tightening its overheads, working on its costs and trying to reduce the impact on profit.

De Beers had used operational flexibility at some mines to make marginal adjustments to production plans.

The diamond miner saw a continuation of the market weakness of late 2014 during the first six months of 2015, resulting in a 25% underlying Ebit decrease. In response to these market conditions, the business had revised production guidance for 2015 to 29-million to 31-million carats, while continuing to focus on its operational metrics.

It also reduced its unit costs by 10% in dollar terms in the six months under review.

Mellier, meanwhile, gave an update on De Beers’ expectations for the various regions during the second half of the year.

“In the US, by far the biggest market in the world, with more than 40%, we are cautiously optimistic.

“The first quarter was weak, mainly owing to climatic conditions on the [US’s] East coast – it was really cold. The second quarter and the third quarter look like [they might be] pretty good quarters and we anticipate a pretty good selling season,” he said, adding that the company would have a strong marketing campaign at its Forevermark brand.

In this regard, De Beers opened a $10-million facility in Surat, in India, which would provide greater grading and inscription capacity, while its investment in microjet technology developer Synova would enable its customers to access better technology to increase efficiency.

Mellier added that the company saw weakened growth in China, with Chinese buyers moving away from Hong Kong, to Japan, Europe and South Korea. “It is difficult for us to track the Chinese buyers,” he added.

However, he expected the Chinese buyers to buy more diamonds this year than they did last year. “India is still a bit weak and most of the other markets are impacted by the strong US dollar,” Mellier pointed out.