As the world economy slows, De Beers cancels its third sale
Diamond miners are under pressure from the Covid-19 pandemic, which is curtailing sales, hammering revenue and forcing change
Diamond companies around the world are being forced to change the way in which they do business as the global Covid-19 pandemic cripples sales, drying up revenue and forcing miners to find new ways to sell diamonds.
With the global pandemic forcing lockdowns, where people are forced to stay at home, the sale of luxury items such as diamond jewellery has slowed.
De Beers, the largest source of rough diamonds by value, said on Monday it had cancelled its third sale of the year because of the Covid-19 pandemic and travel restrictions, prompting it to seek alternative ways to get diamonds to its clients.
De Beers, which is 85% owned by Anglo American and 15% held by the Botswana government, hosts 10 sales events a year in Gaborone, where it aggregates, sorts and hosts about 80 handpicked clients.
There were nearly 725,000 confirmed cases of the virus around the world and more than 34,000 deaths as of Monday morning, according to the Johns Hopkins University coronavirus resource centre.
Botswana's government, like many others around the world, has restricted movement into and out of the landlocked country, which means De Beers’ clients cannot access their diamonds at the sales events the company calls sights.
“Due to the public health restrictions on the movement of people and product in Botswana, SA and India, which prohibit customers from travelling and prevent the shipment of goods to customers’ international operations, De Beers Group will not hold its third sight of 2020,” the company said on Monday.
In March, De Beers said its second sale of the year achieved revenue of $351m. This was compared to the $551m realised in the first sale of the year and $496m in the same period a year earlier.
CEO Bruce Cleaver said earlier in March that the Covid-19 pandemic was the reason for the decline and that the company was flexible around deferring diamond purchases — not something De Beers was known for in the past.
“De Beers Group is enabling sightholders to defer 100% of their sight 3 allocations to later in the year, and will continue to seek innovative ways to meet sightholders’ rough diamond supply needs in the coming weeks,” the company said on Monday.
Anglo American said on Friday that work at De Beers’ $2bn underground mining project at Venetia in Limpopo SA had slowed, with three-quarters of the workforce sent home.
Anglo did not mention De Beers' diamond mines in Botswana, Canada and Namibia, but noted more generally in its Friday statement that outside SA, where the government has ordered a national shutdown, that its mines were unaffected.
Russia's Alrosa adapts sales strategy
Russian diamond miner Alrosa, the world's largest as measured by output, said on March 26 that its operations in Yakutia and the Arkhangelsk region were continuing unabated.
Like De Beers, the company said it was introducing flexibility into the way in which it sells its diamonds.
In March, Alrosa “reduced the limit of mandatory buyout to 50% of contracted volumes with an opportunity to delay buying of up to 10% until the end of May.
It also started a special online auction of diamonds larger than 10.8 carats, which will close on April 6, because of the restrictions on global travel, said CEO Sergey Ivanov.
London-listed Petra Diamonds, the largest producer of SA diamonds next to De Beers, has scaled back production, which put its plans to restructure debt and focus on generating as much cash as possible under pressure.
It has a $650m bond maturing in May 2022. Petra has appointed Rothschild & Co and Ashurst as its financial and legal advisers respectively, to help manage the matter.
Its plans for a seven-day sale of its diamonds were cut to four days and during that time Petra noted “severely depressed and opportunistic bidding for its goods, particularly in the larger size and higher quality, greater value categories.” It sold three-quarters of the diamonds on offer.
“These goods saw price decreases of about 24% on a like-for-like basis in comparison to pricing achieved at the February 2020 sales cycle. The remaining goods were exported to Antwerp and will be offered for sale when market conditions allow.”
Petra said it had scaled down its underground mines to “operate at a minimum level in order to maintain the underground block caves”.
“Upon completion of the lockdown period, it will be possible to ramp the operations back up to steady state production levels within a relatively short time frame,” it said on Friday.
At Petra's open-pit Williamson mine in a remote part of Tanzania, operations continued unabated, but the company warned: “In light of the depressed market environment, the mine’s liquidity position is being closely monitored, as constraints may impact its ability to continue to operate.”