CAPE TOWN (Reuters) – Diamond producer De Beers warned it expected to feel the impact of uncertain markets for months to come after investors and buyers took cover in the second half, but 2011 profits rose by more than a fifth thanks to a bumper start to the year.
De Beers, which vies with Russia’s Alrosa for the title of the world’s largest diamond producer, said demand for the gems would continue to grow in 2012 thanks to Chinese and U.S. consumers, though at a lower pace after a bumper 2011, with many of its own rough diamond buyers still cautious.
“I don’t believe we will see a major crash, but there is certainly a lot of uncertainty,” said Chief Executive Philippe Mellier, a mechanical engineer who took the reins at De Beers last year after a lengthy search by the company to fill the top job.
“On the other hand, all luxury goods appear to be holding very well, and as a result the luxury goods companies are showing there is still strong demand… This is very positive for the diamond industry, which is positioned at the very top end of luxury goods.”
LVMH, the world’s biggest luxury goods group, earlier this month shrugged off concerns over the global economy with a forecast-beating rise in profit and a dividend hike.
De Beers saw production hit by strikes, contractor worries and heavy rainfall in the first half and maintenance in the second, but said it did not expect to increase output in 2012, focusing instead on repairs and waste clearance as it awaited improved demand from key clients, known as sightholders.
As a result, production at the diamond giant, 45-percent owned by miner Anglo American, is likely to remain stable this year at close to 2011 levels, when output dipped around 5 percent year-on-year to 31.3 million carats.
“We see the sightholders nervous and a bit cautious, which is why we will carry on what we are currently doing in the mines, which is to strip the waste and clear the backlog of maintenance we have,” Mellier said. “We are going to be ready for any ramp up of demand from our sightholders.”
He said it was difficult to predict when that point would come, though De Beers expects to prioritise maintenance for at least “several months” into 2012.
In its first full set of earnings since Anglo American agreed in November to take majority control of the diamond miner by buying out the Oppenheimer family stake, De Beers said earnings before interest, tax, depreciation and amortisation (EBITDA) totalled $1.7 billion, up 21 percent.
Underlying earnings rose 62 percent to $968 million.
The diamond miner, which controls more than a third of the global rough diamond market, said sales of rough diamonds by its Diamond Trading Company (DTC) were up 27 percent at $6.5 billion — its second-highest annual level to date.
Prices for rough diamonds jumped in the first half to well above pre-crisis levels but fell sharply in the last five months of the year as markets tumbled, prompting a drop despite the dearth of new mines, low inventories and rising Asian demand that have been lifting diamond prices.
Over the full year, De Beers said DTC prices, which can outperform in a volatile market due to the nature of contracts and type of stones, increased 29 percent from January to December, largely thanks to a boom in the first half when lower production combined with increased investor interest.
Overall rough diamond prices are expected to have increased 11 to 13 percent over the full year.
Diamonds represented roughly 5 percent of Anglo’s earnings in 2010, but that could rise to as much as a fifth of earnings by 2013, according to some analysts’ estimates, as a result of shifts including the acquisition of the Oppenheimer stake.
Anglo said the contribution to its underlying earnings from its De Beers stake totalled $443 million in 2011, up from $302 million a year earlier.