De Beers's Diamond Sales Predicted to Rise 5.4%

January 31, 2005

De Beers' Diamond Sales Predicted to Rise 5.4%

Eight analysts surveyed by Bloomberg News say that De Beers' 2004 sales will probably rise to a record $5.82 billion, beating the company's 2000 peak by $150 million. Growing jewelry demand in the U.S. and Asia allowed De Beers to boost diamond prices three times in 2004, by a total of 20%. The company will announce its official sales numbers this week on Feb 3.

The 5.4% sales increase was predicted from the median estimate of the eight analysts. Their estimates for De Beers' sales ranged from $5.5 billion to $6.14 billion, based on the survey. De Beers' executives weren't available to comment, said Lynnette Hori, the company's London-based spokeswoman.

Since 2000, De Beers has encouraged its sightholder clients to spend more on advertising to increase consumer demand for diamonds. It also formed a venture with Paris-based LVMH Moet Hennessy Louis Vuitton SA, which runs De Beers-branded stores in London, Tokyo and New York (opening summer 2005). De Beers decided to focus on building demand after its previous plan of buying up rivals' gems left it with a $4.9 billion stockpile that depressed prices.

Global Expansion

De Beers' sales last year rose against the backdrop of a global economy that grew its fastest in almost three decades. The U.S., which accounts for half of the $56 billion diamond-jewelry market, expanded 4.4%, the most since 1999, the Commerce Department said Jan. 28. China's economy, the world's seventh-largest, grew more than 9%.

Sales in the $150 billion luxury-goods industry may rise 10% this year, up from as much as 7% in 2004, estimates Goldman Sachs Group. Tiffany & Co., the largest U.S. luxury-jewelry retailer, said Jan. 7 that sales surged 12% in the previous two months as customers snapped up diamond rings and watches.

Diamond prices have climbed 40% since 2002, said Anwar Wagner, who researches mining stocks in Cape Town for Old Mutual Asset Managers, South Africa's biggest money managers.

More Coming

De Beers this month increased prices again, by 3%, at the first of the 10 sales it holds each year for its sightholders, who cut, polish and sell stones to jewelers.

The Oppenheimers, South Africa's richest family and the founders of Anglo American, the world's second- largest mining company, own 45% of De Beers, with Anglo American holding an equal percentage. Botswana's government holds the final 10%. De Beers mines about half of the world's diamonds, getting about two-thirds of them from its Debswana joint venture with the Botswana government.

De Beers' diamond production rose an estimated 2.7% to 45.2 million carats last year, it said on Sept. 23. Debswana produced a record 30.9 million carats and output from the Kimberley mine in South Africa was about 2 million carats, the most since 1912, the company estimated.

New Sources of Supply

De Beers is looking to boost its own supply of stones as European Union competition regulators question its arrangement to buy gems from Russia's state-controlled Alrosa, the world's second-largest producer. De Beers on Dec. 20 offered to cut purchases from Alrosa by two-thirds to $275 million a year to win EU approval.

De Beers may build new mines in Canada and possibly Russia as South African output falls. Five of the company's seven mines in the country are unprofitable. The South African rand's doubling against the dollar in the past three years has cut profit for mining companies that pay most costs in local currency and sell metals and gems for dollars.

De Beers just began a review of its money-losing mines that may lead to job cuts. The Venetia mine, however, which accounts for half the company's production in South Africa, is profitable. To add to De Beers' challenges, the South African government also has proposed imposing new taxes and export duties on gems.

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