De Beers reports that its total revenue increased by 30 percent to $6.1 billion in 2016, driven by higher rough diamond sales which increased by 37 percent to $5.6 billion.
The miner said this was attributable to a 50 percent increase in consolidated sales volumes to 30.0 million carats compared with 19.9 million carats in 2015. This was partly offset by a 10 percent decrease in the average realized rough diamond price to $187 per carat from $207 per carat in the year before, reflecting the 13 percent lower average rough price index, offset to some extent by an improved sales mix.
Sustained diamond jewelry demand growth in the US and marginally positive growth for the full year in China (in local currency, though declining slightly in US dollars) contrasted with weakening demand in the other main diamond markets. In India, a month-long jewelers’ strike in March and the government’s surprise demonetization program which started in November, had a considerable negative impact on demand, the firm said in a statement.
"Macro-economic conditions underpinning consumer demand for diamonds remain broadly stable in aggregate, with the US expected to continue to be the main driver of global growth in 2017. The extent of global growth will, however, be dependent upon a number of macro-economic factors, including the new administration in the US, the strength of the US dollar impacting consumer demand, economic performance in China, the effects of Indian demonetization, and sentiment following the main US and Chinese New Year retail season.
"With midstream stocks having returned to more typical levels in 2016, rough diamond demand is expected to normalize in 2017, reflecting underlying consumer and retail demand. While producers continue destocking, forecast diamond production (on a 100 percent basis, except Gahcho Kué on an attributable 51 percent basis) for 2017 is expected to be in the range of 31-33 million carats, subject to trading conditions."
In other comments, the miner said:
For the full year, global consumer demand, in US dollars, is estimated to be in line with 2015. Additional marketing in the US, China, India and Japan in the final quarter of the year, the main selling season, had a positive impact.
Producers destocked during 2016, as sentiment in the midstream improved and rough and polished inventories normalized, supported by a series of initiatives put in place by De Beers, starting in the second half of 2015. These included lowering rough prices, providing flexibility to Sightholders for their purchase arrangements and increased marketing activity to drive consumer demand.
Rough diamond production decreased by 5 percent to 27.3 million carats from 28.7 million carats in 2015, reflecting the decision, taken in 2015, to reduce production in response to prevailing trading conditions.
Debswana maintained production at close to the previous year’s levels, with output of 20.5 million carats (2015: 20.4 million carats). Jwaneng’s production increased by 23 percent; driven by higher tonnes treated, largely offset by Orapa, where production was 20 percent lower. By year end, 85 percent of the 500 million tonnes (Mt) of waste stripping required to expose the ore had been mined at Jwaneng Cut-8. The first Cut-8 ore to the processing plant remains scheduled for the first half of 2017, with Cut-8 becoming the main source of ore from 2018.
Production at Namdeb Holdings decreased by 11 percent to 1.6 million carats (2015: 1.8 million carats), with reduced output at Debmarine Namibia (as a result of the Mafuta vessel undergoing extended planned in-port maintenance) and lower grades at Namdeb’s land operations. Debmarine Namibia’s new sampling vessel, the SS Nujoma, was completed three months ahead of schedule and within budget, and sea trials commenced in November. The vessel is expected to become operational during 2017.
In South Africa, production declined by 9 percent to 4.2 million carats (2015: 4.7 million carats), mainly due to the early completion of the sale of Kimberley Mines in January 2016, partly offset by an increase of 12 percent at Venetia owing to the processing of higher grades. Construction of the Venetia Underground mine continues to progress, with the underground operation expected to become the mine’s principal source of ore from 2023.
In Canada, production declined by 45 percent to 1.0 million carats (2015: 1.9 million carats) owing to Snap Lake being placed onto care and maintenance in December 2015. In July 2016, approval was granted to flood the underground workings, which will reduce the costs of care and maintenance while preserving the long term viability of the orebody. Following conclusion of an unsuccessful process to gauge interest in an acquisition of Snap Lake, flooding commenced in January 2017. Production at Victor decreased by 7 percent to 0.6 million carats. Development of the Gahcho Kué project was completed on schedule, with the ramp-up to commercial production expected to be reached during the first quarter of 2017.
Owing to continuing depressed markets in key industrial sectors (principally oil and gas), Element Six, the industrial diamonds business, experienced a challenging year. The reduction in contribution arising from lower sales has been largely offset through a comprehensive cost-reduction program.
The Forevermark diamond brand continues to expand its retailer network and is available in 2,010 outlets (a 14 percent increase) in 25 markets, including the new markets of Hungary, Thailand and now South Korea. In June 2016, Forevermark launched the Black Label collection (an innovative collection of fancy-shape diamonds) and, in the final quarter of the year, launched a US national television campaign featuring the Ever Us two-stone diamond collection.
In the first half of 2016, De Beers also invested in category marketing campaigns to stimulate diamond jewelry demand during key gifting periods in both China and Hong Kong, as well as India (the latter in partnership with the Gem & Jewellery Export Promotion Council, commencing in the second half of 2016). In the third quarter, The Diamond Producers Association, co-funded by De Beers and other leading producers, launched “Real is Rare”, a new marketing platform targeting millennial consumers in the US.
De Beers Diamond Jewellers (a joint venture between LVMH Moët Hennessy Louis Vuitton and De Beers) maintained its focus on fast-growing markets, with 34 stores in 17 key consumer markets around the world.
The significant growth in mainland China sales helped to offset the impact of lower Chinese tourist levels in France and Hong Kong, while the highlight of the year was the successful relocation in November of the New York flagship store to a new location on Madison Avenue, completing the repositioning of the brand in the US.