The first half of 2018 (H1 2018) presented a dynamic landscape for the global diamond industry, and De Beers Group, a world leader in diamond exploration, mining, and retail, navigated these conditions with a focus on strategic resilience and innovation. Announcing its interim results for this period, De Beers reported a total revenue of US$ 3.2 billion. This figure stood notably “in line” with the revenue recorded for the equivalent period in the previous year, which amounted to US$ 3.1 billion, showcasing a stable top-line performance despite evolving market conditions. This revenue stability underscored the consistent demand for De Beers’ natural diamonds across its diverse sales channels.
However, a closer examination of the Group’s profitability revealed some underlying pressures. The Company reported a 9% decline in its underlying EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) for H1 2018, settling at US$ 712 million, compared to US$ 786 million in H1 2017. De Beers attributed this decrease primarily to a confluence of factors impacting its operational costs and margins. Significant among these were “unit cost increases driven by the impact of unfavourable exchange rate movements,” which translated into higher operational expenses when converting local currency costs back to US dollars. Furthermore, a “higher proportion of waste mining costs having been expensed rather than capitalised” also contributed to the dip in profitability. This accounting adjustment meant that costs associated with removing overburden to access diamond-bearing ore were immediately recognized, rather than spread over a longer period. While these cost pressures were partially “mitigated by higher production” volumes, the positive impact of increased output was not sufficient to fully offset the rising expenses. The Company further noted that EBITDA was “also impacted by the lower trading margins experienced in the period,” indicating a squeeze on the profitability of diamond sales themselves, likely due to competitive pressures or changes in the sales mix towards lower-margin goods.
Rough Diamond Sales and Pricing Dynamics
Despite the challenges in profitability, De Beers successfully maintained robust rough diamond sales, holding steady at US$ 2.9 billion for H1 2018. This consistent sales volume speaks to the enduring appeal and intrinsic value of natural diamonds. Crucially, the average rough diamond price realised by De Beers saw a positive trend, increasing by 4% to US$ 162 per carat, up from US$ 156 per carat in H1 2017. This price appreciation was a complex outcome of several market dynamics.
De Beers elaborated that this increase was primarily driven by “a 1.6% increase in the average rough price index,” reflecting a general strengthening in global rough diamond prices. More significantly, an “improvement in the sales mix” played a pivotal role. This improvement was largely a statistical effect, influenced by the substantial volumes of lower-value goods sold in H1 2017 following the Indian demonetisation programme in late 2016. The Indian demonetisation initiative led to a temporary disruption in demand for certain diamond categories, particularly lower-value items, which impacted De Beers’ sales mix in H1 2017. By H1 2018, with the market having largely absorbed the aftermath of demonetisation, the sales mix normalized, leading to a higher average price per carat when compared year-on-year. This normalization highlighted the underlying strength of demand for a broader range of diamond qualities.
Sales Volumes and Production Mix Shifts
However, if the distorting impact of the Indian demonetisation on H1 2017’s sales mix is excluded, the underlying average value of the production mix was actually lower in H1 2018. This shift was attributed to “a higher proportion of lower value carats delivered from Orapa (Botswana) and GahchoKué (Canada).” Orapa, one of the world’s largest diamond mines, and GahchoKué, a relatively newer high-grade mine, had production profiles in this period that yielded a greater proportion of smaller or lower-quality diamonds, thus impacting the overall average value of the mined output. Consolidated sales volumes across the Group reflected a slight decrease, standing at 17.8 million carats, which was 3% lower compared to the 18.4 million carats sold in H1 2017. This modest reduction in sales volumes, alongside the shift in production mix value, indicates a careful balancing act by De Beers in managing supply to meet global demand and maintain price stability.
Broader Group Performance
Beyond its core diamond mining and sales, the De Beers Group comprises other significant entities. Element Six, a world leader in the design, development, and production of synthetic diamond and supermaterials, delivered a revenue performance in line with the corresponding period in the previous year. This consistent performance underscores its robust position in the industrial materials sector. Additionally, De Beers Jewellers, the Group’s luxury retail arm, saw its results fully consolidated into De Beers’ financial statements. This consolidation followed the strategic acquisition in March 2017 of LVMH’s 50% holding, making De Beers the sole owner of its prestigious retail brand and allowing for greater integration and strategic alignment in its downstream operations. This move was a clear signal of De Beers’ commitment to strengthening its presence in the luxury retail segment and directly connecting with end consumers.
Global Diamond Jewellery Market Trends
De Beers’ insights into the global diamond jewellery market painted a cautiously optimistic picture for H1 2018. Preliminary data indicated a “slight improvement in global consumer demand for diamond jewellery, in US dollar terms,” when compared with the first six months of 2017. This uptick was primarily “driven by growth in the US and China,” two of the world’s largest and most crucial markets for luxury goods. The positive sentiment in these key regions was “further amplified by positive exchange rate movements in China and Japan against the dollar,” which made diamond jewellery more affordable for local consumers in these markets, thereby boosting purchasing power.
Conversely, the “Indian market was softer in dollar terms,” experiencing a period of “prevailing consumer caution.” This softness was a consequence of “both macro-economic factors and regulatory changes affecting the jewellery sector,” which created headwinds for consumer spending on luxury items like diamond jewellery. Despite these regional variations, the overall “midstream sentiment was positive,” building “on the back of strong demand from the US and China in Q4 2017.” The midstream segment, comprising diamond cutters, polishers, and traders, is a crucial barometer for industry health. Favorable conditions meant that “midstream inventory remained within normal levels,” indicating a healthy balance between supply and demand, and a “slight strengthening of polished diamond prices since the start of the year” further supported this positive outlook, signaling renewed confidence among market participants.
Rough Diamond Production Highlights by Region
On the mining front, De Beers’ rough diamond production demonstrated a healthy increase, rising by 8% to 17.5 million carats in H1 2018, compared with 16.1 million carats produced in the same period of the previous year. This significant boost in output was largely attributed to the successful “contribution from the ramp-up of GahchoKué in Canada,” a key new mine reaching full operational capacity. This increased production was also deemed “in line with the expected continuation of strong demand” for rough diamonds, allowing De Beers to meet market needs effectively.
- Botswana (Debswana): Production from Debswana, the joint venture between De Beers and the Government of Botswana, increased substantially by 9% to 12.1 million carats, up from 11.1 million carats in H1 2017. This growth underscores Botswana’s continued importance as the heart of De Beers’ mining operations and a consistent source of high-quality diamonds.
- Namibia (Namdeb Holdings): Namdeb Holdings, De Beers’ partnership with the Government of Namibia, also saw a notable increase in production, rising by 21% to 1.0 million carats from 0.9 million carats in the prior year period. Namibia’s unique marine and alluvial deposits contribute distinct types of diamonds to De Beers’ portfolio.
- South Africa (DBCM): In contrast, De Beers Consolidated Mines (DBCM) in South Africa experienced a production decline of 16%, yielding 2.1 million carats compared to 2.5 million carats in H1 2017. This decrease might reflect operational adjustments, geological challenges, or the natural progression of mine life cycles in the region.
- Canada: Canada emerged as a strong growth driver, witnessing a remarkable production rise of 37% to 2.3 million carats, up from 1.6 million carats in the same period last year. This surge was predominantly “owing to the ramp-up of GahchoKué,” which had entered commercial production in March 2017, alongside other contributing factors from its Canadian operations. GahchoKué represents a significant investment and a vital part of De Beers’ future production strategy.
Expanding Brand Presence and Digital Reach
De Beers Group also actively pursued the expansion and modernization of its brand portfolio during H1 2018. De Beers Jewellers, its luxury retail brand, made strategic moves to broaden its global footprint. This included the opening of new stores in key luxury markets such as Xi’an in China and Kowloon in Hong Kong, signifying a commitment to growth in the lucrative Asian market. Further expanding its reach, the brand launched new franchise partnerships in Russia and Saudi Arabia, tapping into emerging luxury consumer bases. A significant digital milestone occurred in May when De Beers Jewellers launched a new online store in partnership with Farfetch, the global marketplace for the luxury fashion industry. This strategic collaboration enabled the brand to reach a substantially wider and digitally native audience, extending its presence throughout 100 countries and via 10 language-specific sites, thereby revolutionizing its e-commerce capabilities.
De Beers’ globally recognized diamond brand, Forevermark™, continued its impressive growth trajectory. By H1 2018, Forevermark™ diamonds were available in more than 2,300 retail outlets worldwide, underscoring its reputation for rarity, beauty, and responsible sourcing. The brand celebrated its 10th anniversary, a testament to its enduring success, and marked the introduction of its 1,000th retail door in China. To commemorate these milestones and to connect with a new generation of consumers, Forevermark™ launched a pioneering new retail concept: Libert’aime™ by Forevermark. This innovative offering specifically focused on targeting Millennials, incorporating a fresh in-store experience seamlessly integrated with online and social media platforms. By embracing digital engagement and tailoring its approach to younger demographics, Forevermark™ solidified its position as a forward-thinking brand in the diamond industry.
Innovation Driving Industry Transformation
The accounting period also saw De Beers spearheading a number of groundbreaking initiatives aimed at enhancing transparency, ethics, and market segmentation within the diamond value chain.
- Tracr™ Blockchain Platform: A pilot of the first blockchain technology initiative designed to span the entire diamond value chain was actively underway. This revolutionary platform, named Tracr™, is engineered to provide “a single, tamperproof and permanent digital record for every diamond registered on the platform.” The Company explained that Tracr™ is set to “underpin confidence in diamonds and the diamond industry by ensuring that all registered diamonds are conflict-free and natural, while also enhancing efficiency across the sector.” This innovation addresses critical consumer demand for transparency and ethical sourcing, building unparalleled trust in the origin and authenticity of natural diamonds.
- GemFair Initiative: Furthering its commitment to responsible sourcing, De Beers announced the launch of GemFair in April. This pilot programme is dedicated to creating a “secure and transparent route to market for ethically sourced artisanal and small-scale mined (ASM) diamonds.” GemFair aims to empower ASM communities by providing them with access to formal, legitimate markets, thereby improving livelihoods and ensuring that diamonds from these sources meet stringent ethical standards.
- Lightbox Jewelry: In a bold and strategically significant move, De Beers announced the launch of Lightbox Jewelry (Lightbox), a new brand positioned to sell laboratory-grown diamond jewellery in the US market from September 2018. This decision was a direct “response to research undertaken by De Beers that demonstrated consumers see laboratory-grown diamonds as fun, fashion products that serve a very different purpose from natural diamonds, and which should be accessibly priced.” With Lightbox, De Beers aims to “provide a completely new offering in the fashion jewellery category,” clearly segmenting the market between the timeless value and rarity of natural diamonds and the modern, fashion-forward appeal of lab-grown alternatives. This move underscored De Beers’ recognition of evolving consumer preferences and its proactive approach to participating in all segments of the diamond market, while maintaining a clear distinction.
Outlook for 2018 Production
Looking ahead, De Beers Group reaffirmed its production targets for the full year 2018. The Company stated that “forecast diamond production (on a 100% basis, except GahchoKué on an attributable 51% basis) remains unchanged at 34-36 million carats, subject to trading conditions.” This consistent outlook reflected De Beers’ confidence in its operational capabilities and its strategic positioning to meet anticipated global demand for diamonds, while carefully monitoring market dynamics. The Group’s forward-looking strategy, characterized by innovation, market segmentation, and a strong commitment to ethical practices, positions it to continue leading the diamond industry into a new era of transparency and consumer confidence.
News Source : gjepc.org