De Beers Announces Half-Year Results

July 23, 2004

De Beers Announces Half-Year Results

De Beers reported an increased dollar value in global diamond retail sales for the first half of 2004, and said increases of 7% to 8% in the U.S. market were expected over last year's figures. Japan, another of De Beers' major markets, is also showing signs of recovery. "Japan is up 1%-2% for the first time since the economic bubble burst some six years ago," said Gary Ralfe, De Beers' managing director, "and we are seeing double-digit growth in Asia." At a press conference July 23, he and Nicky Oppenheimer, De Beers' chairman, said they expected the trend to continue through the year following upbeat economic forecasts globally and increased consumer demand for diamonds.

De Beers' marketing arm, the Diamond Trading Co., announced an increase of 2.16% over last year's sales for the first half of 2004, which some analysts describe as lackluster. Hampering De Beers' performance, particularly in South Africa, is the strong rand, officials said. Kimberley, Koffiefontein and Cullinan mines in South Africa are 18%-20% behind in production and operating behind budget due to excessive costs associated with the strong rand. However, other African mines such as the Venetia mine and De Beers' Namdeb operations in Namibia are operating well ahead in the first half. Ralfe noted that De Beers is cognizant of its corporate responsibility to the workers of the mines and noted it was doing everything it could to keep mines running and miners employed while also boosting efficiency. "The second half of 2004 will be a time for production catch-up," Ralfe said, "though of course we have no control over exchange rates."

Sales so far have totaled $2.98 billion and headline earnings for the company, ending June 30, were reported at $4.24 billion. While those figures surpass last year's (at $2.92 billion), some analysts expected sales to be much stronger – in the $3.5 billion range.

Short supply of rough worldwide also led to price increases, which DTC passed on to its Sightholders at an average of 14% over last year's prices. Short supplies of rough coupled with increased global demand have led to greater sales of polished goods at trading centers. Polished prices have risen and the outlook for higher prices at the retail level in the near future remains likely. De Beers officials say the company still controls in excess of 40% of the world's production and point out that they are continuing to develop resources in Canada (its Snap Lake property should be in production by 2007) as well as ongoing relationships with suppliers such as Russia's Alrosa. De Beers says it remains in negotiation with the Angolan government to end an arbitration process, and said they expect a settlement allowing it to return to that country.

Officials were asked about recent mining legislation passed in South Africa to empower black majority Africans in the diamond industry. (The South African government is legislating that increasing quantities of diamonds remain in South Africa to benefit the local diamond-cutting and jewelry-making industries). "Local beneficiation and counteracting unemployment is not new to us, but realistically one also has to look at market forces. Volume is polished most efficiently in India where costs average less than $10 a carat whereas it costs $30 a carat in South Africa or Israel," Ralfe said. "The economics make it a daunting task to shift jobs to South Africa, Namibia and Botswana." De Beers' rival producer, Lev Leviev, recently announced state-of-the-art cutting factories in Namibia, Angola and Botswana to benefit the local diamond industry.

by Robert Weldon, G.G.

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