De Beers diamonds show excellent returns

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Desie Heita

Windhoek-De Beers has reiterated its commitment to the beneficiation of Namibian diamonds, as the group turned in positive results for the 2016 financial year and looks forward to new projects, including the commissioning of the SS Nujoma, the group’s new technologically advanced sampling ship.

“The results are very good and considerably better than 2015,” commented group chief executive officer Bruce Cleaver to New Era from London yesterday on the US$6.1 billion (about N$80.3 billion) in revenue for the year 2016 compared to US$4.7 billion (about N$61.2 billion) in 2015.

Although sales of rough diamonds increased year on year by 37 percent, the average price of diamonds did decrease by about 10 percent in 2016.

Local diamond production declined in 2016, with Namdeb Holdings producing nearly 1.6 million carats in 2016 compared to 1.8 million carats produced in 2015.
“Yet, operationally and financially we had a very good year 2016, much better than 2015,” explained Cleaver.

Namdeb Holdings’ operating performance for the year was slightly good for 2016, with the underlying earnings before interest, tax, depreciation and amortisation increasing to US$184 million (about N$2.4 billion) from US$147 million (N$1.94 billion) in the previous year.

The De Beer group’s underlying earnings increased nearly 42 percent to US$1.4 billion (N$18.5 billion) from US$990 million (N$13.1 billion) in 2015.

The group’s good numbers were a result of high revenue from stronger rough diamond demand, which led to reduced inventory levels, reflecting improved trading conditions compared to those experienced in the second half of 2015.

However the 11 percent decline in carat production at Namdeb Holdings was because of reduced output at Debmarine Namibia, where one of the vessels has been undergoing extensive scheduled maintenance. Further, Namdeb’s land-based operations are producing diamonds with lower carat grades.

Cleaver notes that there were some particular challenges in Namdeb’s land-based operations in the last quarter of last year, which required management to go and rethink the mine plan and to rethink to some extent the mining method.

“That is more a reason why you have seen a decline in land-based operations in 2016,” he said, adding confidently that De Beers remains certain the land-based operations would continue for many years to come. The fact that the Atlantic Ocean continues to present more opportunities for diamond mining, thanks to evolving technology, says Cleaver, does not mean that land-based operations have come to an end, and would continue to function provided that the group employs innovations in the manner in mining land-based diamonds.

Cleaver also reaffirmed De Beers’ commitment to the beneficiation of Namibian diamonds, and points at the recently concluded diamond sales agreement with the government as one of the “longest sales agreements ever concluded between the parties”.

Signed in May 2016, the agreement between the Namibian government and De Beers group, which is now part of Anglo American, is a 10-year sales agreement for the sorting, valuing and sale of Namdeb Holdings’ diamonds.

“Beneficiation is not something that is new,” says Cleaver while highlighting that the sales agreement does articulate that aspect very well. “Every single diamond that Namibia produces, which is economically capable of being cut and polished in Namibia, would be offered for cutting and polishing in Namibia,” he says.

The beneficiation process demands that diamonds that are capable economically of being cut and polished in the country, in which they were produced, should be cut and polished in the country they were produced.

Cleaver emphasises that De Beers has been encouraging its sight holders to set up factories in Botswana and Namibia.

He nevertheless highlights that one of the challenges with beneficiation is that it is not possible to cut and polish every diamond produced in the country, because the cost of labour of cutting and polishing is so much cheaper in other countries which have established diamond cutting and polishing industries, such as India, where the workforce is also well experienced.

Yet, all diamonds economically viable for cutting and polishing in Namibia would be offered for cutting and polishing locally, he says.

Going forward, Cleaver says, De Beers remains cautiously optimistic for 2017, given the anticipated policy development in the US, the group’s main market for diamonds. The US accounts for 45 percent of world diamond sales. The demonetisation process that started in India has not yet played out fully, casting uncertainty over that market, while China is also being observed for its economic performance in the months to come.

Meanwhile, Cleaver says Debmarine Namibia’s new sampling vessel SS Nujoma has been completed three months ahead of schedule and within budget. Sea trials commenced in November last year and the vessel is expected to become operational during 2017.

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