De Beers Group reported its preliminary 2019 financial results today (Feb.20), confirming the already well-documented declines experienced across the global rough diamond trade in 2019. The average price earned per carat and a decline in sales volumes were the obvious and main culprits, but these were just the visible results of a whole raft of challenges the world's most famous miner faced last year - along with the rest of the industry - starting with the oversupply of polished in the manufacturing and midstream segments. This, coupled with tighter financing, also affected the midstream’s ability to hold stock, all of which resulted in lower demand for rough.
The miner noted that due to several difficult challenges faced in 2019, "we took a range of bold actions that helped to underpin a return to a more stable environment. These included trimming our 2019 production guidance in accordance with market demand; providing unprecedented flexibility to Sightholders and Accredited Buyers; and adjusting rough diamond prices. We also increased our marketing investment to US$178 million – the highest its been in 10 years – to help drive consumer demand." They also assert that the long-term outlook for global diamond demand remains positive, with significant growth prospects in emerging markets and opportunities to further grow new segments in existing markets.
Indeed, "preliminary data following the holiday retail season in 2019 indicates that stock levels in the industry’s midstream are returning to a more balanced position following stable consumer demand, especially in the US," and they anticipate an improvement in trading conditions compared with 2019. "However," they acknowledge, "risks remain to the downside, with further increases in online purchasing causing additional retailer destocking, developments in US-China trade tensions, the coronavirus which originated in China over Chinese New Year, geo-political escalation in the Middle East and the effect those may have on economic growth and consumer sentiment."
De Beers' total revenue decreased by 24% to $4.6 billion (2018: $6.1 billion), with rough diamond sales falling by 26% to $4.0 billion (2018: $5.4 billion). This was due to an 8% decrease in consolidated rough diamond sales volumes to 29.2 million carats (2018: 31.7 million carats) and a 20% reduction in average realised price to $137 per carat (2018: $171/ct). The miner said that the reduction in realised price was driven by a 6% decline in the average rough price index and from a lower value mix of diamonds sold, which they attributed to weaker demand for higher value diamonds.
Underlying EBITDA decreased by 55% to $558 million (2018: $1,245 million) owing to lower sales volumes, a lower value sales mix which curtailed mining margins, and the lower rough price index which reduced margins in the trading business. Profitability in the mining business was supported by improved efficiencies and cost savings; so, although there was a 13% decline in production in response to weaker demand, with the business being impacted by mining cost inflation in southern Africa, unit cost increases were limited to 5%.
Rough diamond production decreased by 13% to 30.8 million carats (2018: 35.3 million carats), primarily driven by a reduction in South Africa. While trading conditions have improved somewhat since the third quarter of the year, production was lower in response to softer rough diamond demand conditions compared with 2018. De Beers' 2020 production guidance is 32-34 million carats, subject to trading conditions. The higher production is driven by an expected increase in ore from the final open-pit cut at Venetia, supported by a currently anticipated improvement in trading conditions compared with 2019.