De Beers Q4 Output Falls 15% on Soft Demand, 2019 Avg. Diamond Prices Down 20%

Mining and Exploration
23/01/2020 10:15

De Beers Group Q4 rough diamond production decreased by 15 percent to 7.8 million carats from 9.1 carats a year earlier, driven by lower production levels in South Africa and Botswana, the company announced this morning. They commented, "While trading conditions have improved since Q3 2019, production was reduced in response to softer rough diamond demand conditions experienced in the year." Full-year diamond output fell 13% to 30.8 million carats from 35.3 million carats in 2018. The miner sold 8% fewer rough stones last year, yet their overall sales declined 25% due to a 20% decline in the average price per carat.

Production in Botswana, where De Beers obtains the majority of its rough diamonds, was down 7% to 5.9 million carats. Output at the Orapa mine decreased 29% due to a delay in an infrastructure project and expected lower grades. The decline at Orapa was partially offset by a 21% increase at the Jwaneng mine, driven by planned increases in both tonnes treated and grade. Output in South Africa declined the most in Q4 - 65% - due to lower volumes of ore mined at the Venetia mine as it approaches the transition from open pit to underground. Voorspoed production ended in Q4 2018 when it was placed onto care and maintenance in preparation for closure. Q4 output in South Africa was only 400,000 carats.

De Beers' Q4 output in Canada was more stable, falling 3% to 1.0 million carats, primarily due to the closure of the Victor mine, which reached the end of its life in Q2 2019. Gahcho Kué production increased 28% to 1.0 million carats due to strong plant performance. Finally, production in Namibia fell 10% to a half-million carats, driven by Debmarine Namibia where output fell 9% fewer to 400,000 carats due to routine vessel maintenance in Q4 2019. 

De Beers' production guidance for 2020 remains unchanged at 32-34 million carats, "subject to trading conditions." The miner's higher production projection is based on expected improvements in trading conditions compared with 2019, and is driven by an expected increase in production from the Venetia mine in South Africa.

Sales

De Beers' volume of rough diamond sales in Q4 2019 totaled 7.0 million carats from two sales cycles, earning $825 million, as compared to 9.9 million carats from three sales cycles in Q4 2018, from which they earned $1.47 billion. For the full year, De Beers sold 8% fewer carats than in 2018, falling to 30.9 million carats (29.2 million carats on a consolidated basis) from 33.7 million carats (31.7 million carats on a consolidated basis) in 2018. They commented that in 2019, "overall demand for rough diamonds was lower as a result of challenges in the midstream, with higher polished inventories and caution due to macro-economic uncertainty."

While the volume of carats sold fell 8%, the value of De Beers rough-diamond sales declined 25% on the year, to $4.04 billion from $5.39 billion in 2018. The more significant decline in sales is attributable to the 20% decline in the average price per carat, which fell to $137 per carat from $171 per carat in 2018. De Beers attributed tumbling prices to a weaker product mix in the form of a higher proportion of lower value rough diamonds sold, and a 6% lower rough diamond index.