De Beers Forecasts 6% Retail Growth for 2005

July 26, 2005

De Beers Forecasts 6% Retail Growth for 2005

De Beers SA announced its interim results for the six months ended June 30, noting diamond sales rose 8% to $3.2 billion in the first half, and says sales will at least match that in the second half. De Beers is currently forecasting global growth of 6% in retail demand for the full year due to the level and quality of diamond marketing activity as well as regional macro-economic strength. The local currency value of global diamond jewelry sales is estimated to be higher by 5% than the equivalent period in 2004.

The company estimated demand for diamond jewelry in the U.S. was up 6% in the first half of 2005 over the same period last year. Larger chains and high-end independents have shown the strongest results and polished prices have started to edge up at the consumer level, De Beers said.

Throughout the first half, demand for rough diamonds from the cutting centers was strong, said De Beers. Sales by the Diamond Trading Co. for the first six months totaled $3.2 billion, 8% higher than the equivalent period in 2004. The DTC, De Beers' sales and marketing arm, raised its rough diamond prices on two occasions.

De Beers Group rough diamond production for the period was 23.7 million carats, an increase of 23% over the same period in 2004. As a result of the increased production, stock levels have risen by about $400 million compared with June 2004.

De Beers also has announced the approval of C$636 million for the Snap Lake project in Canada with construction scheduled to start in 2006. Further expansion projects in Canada and Southern Africa are under evaluation. De Beers also reached agreement with Endiama, the Angolan state mining company, for the establishment of a joint venture for the exploration of diamonds in Angola.

On the regulatory front, in early June the European Commission published a notice indicating its intention to accept the commitments offered by De Beers and Alrosa in relation to the Alrosa trade agreement and allowed a 30 day period for public comment. The EC is now considering any third party comments received.

In a live conference-call presentation on July 25, Managing Director Gary Ralfe said political changes in southern Africa, such as local beneficiation programs, would have an impact on the way the company does business. Unfavorable exchange rate levels are also affecting the business going forward, he said. The rand's 80 percent gain against the dollar since the end of the 2001 has made five out of De Beers' seven mines in South Africa unprofitable, announced Jonathan Oppenheimer, head of the company's mines in the country, on July 15.

Ralfe added to that statement when he told Reuters the company's Kimberley mines would close by the end of 2005. Retreatment, to look for diamonds left behind in tailings, will continue at Kimberley. The company's Koffiefontein mine faces closure or sale in 2005 and its Oaks mine may close or be sold by year 2007, said Ralfe.

But De Beers still hopes to increase earnings due to growing markets such as India, China and the Gulf region. The company doesn't plan to raise prices again until at least November, said Ralfe.

by Peggy Jo Donahue

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