De Beers problems: 
Falling diamond supplies knocks De Beers 

by Allan Seccombe  Posted: Fri, 27 Jul 2007 found at miningmx.com

DE BEERS, the world’s largest producer of rough diamonds, expects prices for its products to increase but its ability to fully meet rising demand will be curtailed by the availability of stones, the company said on Friday.

“We have seen improvements in the rough diamond market in the second quarter of 2007, following the correction in rough diamond prices in the second half of 2006. Rough diamond demand is currently good, prices have been rising, and while the second half should improve on first half sales trends, full year sales by the DTC will continue to be constrained by availability,” De Beers said.

“In the medium term, the positive supply/demand forecast should lead to continued growth in rough diamond prices which will, together with increased production as our four new mines come fully on stream, drive growth in revenues and earnings for the Group,” it said.

Under a now overturned ruling by the European Commission, sales of rough diamonds by Russia’s Alrosa to De Beers had been steadily falling. Alrosa, however, took the matter up with the courts in Luxembourg and the Commission’s ruling was overturned.

De Beers, which is 45% owned by Anglo American, said on Friday it would continue to purchase diamonds according to the schedule laid out under the Commission’s ruling and would study the judgement before deciding how to proceed.

"We are examining the full judgment of the court and we'll need to see what the reaction of the Commission is, whether it will reconsider its position or appeal. It's far too early to give an indication of what that impact will be," managing director Gareth Penny said.

De Beers’ internal diamond output was up two percent to 25.3 million carats in the interim period. Full year production would be similar to that of 2006 when 51 million carats were produced, he said.

De Beers has four projects to bring in a fresh stream of rough diamonds worth $700m, more than replacing the loss of the Alrosa supply. The range of of quality and colours of those diamonds would range from exceptional stones to more run-of-mine production, he said. De Beers was unlikely to take advantage of the overturned Commission decision to resume buying diamonds from Alrosa, Chaim Even-Zohar, a diamond consultant, told Reuters.

"De Beers is not interested any more in getting maximum carats, De Beers is not interested in dealing with goods on a marginal basis," he said. "I don't think that De Beers is going to buy from Alrosa, the return of being a dealer is not that big."

Snap Lake mine in Canada will begin production from September this year, while Victor, also in Canada, will start from June next year.

The Voorspoed mine in South Africa will be commissioned in June 2009, and its marine mining vessel operating off that country’s west coast has started operations. It is planned to generate 4.5 million carats in production over its 30-year life.

De Beers is strongly focussed on finding new targets in Democratic Republic of Congo and Angola.

In Angola, De Beers has found 56 kimberlites and is drilling 16 of those. In he DRC, it is importing two large-diameter drills for its exploration programme there, said MD Gareth Penny.

De Beers and its joint venture partner African Diamonds will apply for a mining licence for the AK6 kimberlite in Botswana by September this year, he said. De Beers sourced a significant portion of its rough diamonds from the world's second largest producer, Alrosa, but the European Commission ruled that the relationship must be terminated. The Court overturned that decision.

De Beers, 45 percent owned by mining group Anglo American Plc, declined to comment on the European court decision, saying it needed time to study the judgment.