De Beers’ sales and diamond output plunge

De Beers, the world’s biggest rough diamond producer by value, was reduced to a shadow of itself during the second quarter as sales dipped to almost nothing and production plunged.

De Beers, which is 85% owned by Anglo American, one of the world’s major diversified resources companies, took a double beating from its major mining operations in Southern Africa, disrupted by the governments’ attempts to curb the spread of Covid-19 and a dearth of diamond buying caused by travel restrictions.

Rough diamond sales plunged to 300,000 carats in the second quarter of its financial year compared to 9-million carats in the same period a year earlier.

Sales generated $56m in the quarter compared to $1.3bn before as De Beers cancelled its third sales event of the year because of travel restrictions that prevented buyers visiting the sales hub in Gaborone, Botswana.

Analysts forecast De Beers would contribute about 2% to Anglo’s full-year earnings before interest, tax. depreciation and amortisation (ebitda), down from 6% from 2019.

Quarterly diamond output dropped by 54% to 3.5-million carats. This brought the interim decline in diamond production to 11.3-million carats, about a third lower than the previous year.

The largest single fall in the quarter was from mines in Botswana, which relies heavily on the diamond export sector for revenue. Output fell by 68% to 1.8-million carats as Botswana locked down the economy in the quarter.

Production restarted at the largest source of diamonds for Anglo, but it warned output would be tempered against lower demand for rough and polished diamonds globally.

“During quarter two, the demand for rough diamonds was significantly affected by a combination of Covid-19 restrictions impacting consumer demand and access to Southern Africa, as well as severely limited midstream cutting and polishing capacity due to lockdowns, particularly in India,” Anglo said.

Anglo American’s second-quarter production update showed the broader ravages of the Covid-19 pandemic at its operations and sales, as well as difficulties in its platinum division.

Anglo said its overall production as measured as a copper equivalent to give one generic output metric, fell by 18% during the quarter to end-June compared to a year ago.

The strong performance at its Minas Rio iron ore mine in Brazil and a record performance at the Collahuasi copper mine in Chile eased the blow from operational disruptions caused by Covid-19 lockdowns at its African and South American operations.

“Building up from a production level of around 60% of total capacity in April, we continue to increase and had reached about 90% of production capacity by the end of June,” said Anglo CEO Mark Cutifani.

Anglo kept its already reduced full-year production forecasts intact, despite the difficulties in the quarter, but it lowered targets for metallurgical and thermal coal operations in Australia, SA and Colombia by a total of 4-million tonnes.

Anglo confirmed it will dispose of its SA thermal coal mines, a decision it has flagged to the market in recent months.

The other division to take a big hit in the quarter and interim period was 80%-owned Anglo American Platinum, where the company’s output in SA was reduced because of Covid-19 disruptions and extended processing difficulties at the converter plant between its smelters and refineries.

Refined platinum production for the quarter dropped by nearly three-quarters to 160,600oz, while palladium fell by two-thirds to 147,400oz.

Amplats, the world’s second-largest source of platinum group metals (PGMs), notified the market in March of the processing difficulties and reduced its full-year platinum output target by 500,000oz.

Amplats retained its annual revised production target of 1.5-million to 1.7-million oz of platinum and up to 1.2-million oz of palladium.

Platinum sales for the interim period fell by nearly 60% to 435,600oz and palladium halved to 383,300oz.

At Kumba Iron Ore, a 70%-held Anglo subsidiary, sales fell by nearly a quarter to 8.1-million tonnes because of disrupted mining as well as rail and port logistics due to the SA lockdown.

seccombea@businesslive.co.za