De Beers on Friday reported a marginal rise in first half year sales, as a result of difficult trading conditions in the rough diamond market. Sales rose 1% to $3.25 million for the period ended June 30, 2006, from $3.22 million in the first six months of last year.
In a statement, De Beers’ Diamond Trading Company (DTC) said that while demand for diamond jewellery in the consumer markets has remained robust, with estimated growth of 3 - 4% on the record levels of 2005, the rough market was facing more difficult trading conditions.
De Beers said the modest increase in sales were the results from the impact on rough diamond demand, higher interest rates, higher gold and platinum prices in retail jewellery, reduced margins across the distribution pipeline, as well as “the increasing need to manage polished inventory levels.”
Net earnings, before a US class action payment and the surplus on sale of a 26% interest in De Beers Consolidated Mines (DBCM) as part of a Black Economic Empowerment transaction in South Africa, fell 1% to $336 million, reflecting tighter margins and increased exploration spending. Underlying earnings were down 14% at $308 million.
The figures were well below analysts expectations. "The results were worse than expected. Analysts will have to pull back their estimates for the full year by 5 - 7%," said Des Kilalea, senior analyst at Nedcor Securities in South Africa.De Beers is owned 45% by public-listed Anglo American.
On the exploration side, De Beers said costs have increased at its Snap Lake and Victor projects in Canada. This was mainly due to higher energy and material costs, technological and construction challenges and the impact of the early closure of the winter road.
Total expenditure to bring these two projects into production on schedule in the fourth quarter of 2007 is CA$2 billion
De Beers significantly increased exploration in the first half of 2006, investing (US)$25 million more than in the same period last year. The projects include the technology used on a Zeppelin in Botswana, and projects in Angola and the Democratic Republic of Congo (DRC).
Sales for 2006 at De Beers LV, the joint venture with LVMH, were “well up” on 2005 in total and on a like-for-like basis, De Beers said. It gave no profit figure.
For the second half, De Beers said it expected conditions in the rough diamond market to remain “challenging”, and constrain growth in second half DTC sales.
However it said, consumer demand growth in the medium term would translate into increased demand for rough diamonds.
In terms of production, despite the closure of a number of South African mines, it said it expected full year production to be up in the low single digits in carats.
