Thursday , June 13 2024

De Beers to Cut 2016 production amid Anglo American overhaul

De Beers expects diamond production to fall to between 26 and 28 million carats in 2016 from 29 million carats this year as the mining giant outlined its view of the ‘stock crisis’ affecting the industry.

The decline in rough and polished diamond prices has stemmed from a build-up of inventory rather than a major drop in consumer demand, De Beers said, despite the company’s estimates that the global polished diamond wholesale market contracted by 1% to 2% in 2015.

“The crisis is not a demand crisis, it’s a stock crisis,” said Philippe Mellier, De Beers chief executive officer, in a presentation to Anglo American analysts last week. “We are mindful that the midstream has to generate profit.”

However, Mellier argued that De Beers has helped open up profit for manufacturers by reducing rough prices more than polished. De Beers reported that rough prices declined 15% in 2015, while it estimated that polished prices fell 8%. The company also reduced supply and enabled greater flexibility for sightholders to help diminish the prevailing large inventory levels, the executive said.

Mellier added that De Beers will increase its own transparency by disclosing its sales volume for each sight from 2016 and provide additional profit and unit-cost analysis in its year-end reporting.

His comments came amid a major restructuring by parent company Anglo American, which will see De Beers become one of three core businesses in the group along with industrial metals and bulk commodities. Anglo American will also move its London office to co-locate with De Beers in 2017.

On its part, De Beers has slashed its costs of production from US$111 per carat in 2014 to US$101 per carat in 2016. Employee numbers will fall significantly, with more than 1 500 job losses across its operations.

De Beers is also capping its exploration budget for 2015 and 2016 at US$35 million and limiting exploration activity to Botswana, South Africa and Canada.

Meanwhile, as the company plans its production programme for next year, Debswana, De Beers’ joint venture with the Botswanan government, has revised its production for 2016 to 20 million carats, which will still account for more than 70% of De Beers total production.

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