Better-quality diamonds still in demand in subprime-hit US, says Oppenheimer

FOCUSING ON THE CHALLENGES From left De Beers chairperson Nicky Oppenheimer, De Beers MD Gareth Penny and De Beers finance director Stuart Brown

By: Martin Creamer Published: 15 Feb 08 found at miningweekly.co.za

DE BEERS Demand for better-quality diamonds is continuing in the subprime-impacted US, says De Beers chairperson Nicky Oppenheimer on the impact of the US subprime crisis on diamond sales in the important US market.

But, because of the “disproportionate” volume of “lower-quality, cheaper diamonds” sold there, the subprime crisis is “obviously a worry”, Oppenheimer says in an exclusive Mining Weekly interview.

“America remains about 50% of the diamond jewellery worldwide offtake and, in that 50%, America has a disproportionate element of the somewhat lower-quality, cheaper diamonds, so that’s a real worry there.

“The balance is the better-quality diamonds which seem to be remaining in demand and that’s obviously helped by the very strong growing demand in Asia,” he adds.

On the impact of volatile local and global currencies on De Beers, Oppenheimer makes the point that currency volatility is invariably an issue: “The great volatility we see is always damaging to business. “The dramatic strengthening of the Canadian dollar has had a great impact on our business there”, but, conversely, the weakening of the South African rand has assisted De Beers Consolidated Mines (DBCM), which sells the diamonds it produces in US dollars.
“But overall, as any business, we like things to remain steady. “Volatility is not good for us,” he says.

De Beers finance director Stuart Brown cites the Can-adian dollar’s strengthening against the US dollar, capital project overruns and the long-term view of Canadian fuel and labour prices as the background to De Beers’ decision to take impairment charges of $965-million on to its balance sheet.

De Beers’ net interest-bearing debt has grown by $1,1-billion to more than $4-billion, mainly owing to investment in new projects that are scheduled to begin producing this year, which prompted shareholders to reinvest the final dividend of $100-million back into the company.

On the plus side, De Beers expects to produce 24,6-million carats at Snap Lake, in Canada, in the next 20 years, and 6,2-million carats at Victor, also in Canada, in the next 12 years.

DBCM MD David Noko tells Mining Weekly that he is hoping to mitigate the impact of the power crisis on DBCM’s South African output.

While a 10% impact on production is expected, Noko says that DBCM is budgeting to produce 12,7-million carats for 2008, compared with 15-million carats in 2007, a lower expectation not as a consequence of the power crisis, but rather as a result of having sold off several operations.

Noko does not expect the power crisis to slow the construction of the new Voorspoed mine nor the South African Sea Areas marine-mining diamond project, which has enough onboard power of its own to “light up the whole of Cape Town”.

The company produced a total of 51,1-million carats in 2007 and a similar level of diamond output is expected this year.

De Beers group MD Gareth Penny says the Diamond Trading Company (DTC) is transforming itself into local DTCs in Botswana, Namibia and South Africa in alignment with national priorities.

Penny says that eight new De Beers Diamond Jewellers stores were introduced last year to create a total of 23 globally and a new watch collection is going to be launched.

“We plan to double the number of stores through the course of this year,” Penny says.

related article:

Subprime diamond trade business hit eyes India, China