Gareth Penny,
Managing Director,
De Beers
 
London, England — MININGREVIEW.COM — 11 February 2010 – Diamond giant De Beers “’ the largest diamond mining company in the world “’ is cautious about recovery in hard-hit luxury goods markets and will only ramp up production slowly after swinging to an annual loss and raising $1 billion from shareholders to cut debt.

In a statement issued here, the group “’ 45% owned by miner Anglo American “’ said rough or unpolished diamond prices had shown a strong rebound since the depths of the global recession, but the future was uncertain after it had slashed output by half last year.

“With the fragility of the world economy and perceived weakness of the global recovery post recession, the company would only expect a gradual increase in production levels, sales and prices,” the statement added.

“Rather than just trying to take output straight back up to a level the trade may not be ready for, we are planning to increase production systematically,” managing director Gareth Penny told a conference call. “We do think it will take a couple of years before the whole thing normalises.”

“Rough diamond prices at the January sight sales event rose ‘fairly significantly’ with volumes five times the levels of a year ago, and further gains were expected this month,” Penny added.

“2010 has started on quite a strong note, and the main reason for that is that Christmas has been better than expected," Penny said.

Anglo and two other shareholders confirmed they will pump more cash into the company after it was forced to shut mines last year during the downturn.

The group said in December that Anglo, South Africa’s Oppenheimer family with a 40% stake and the Botswana government with the remaining 15%, had agreed to a rights issue of up to US$1 billion (R7.5 billion) to cut debt. All the proceeds would be used to cut the group’s net debt to around US$2 billion (R15 billion) from the current US$3 billion (R22.5 billion), finance director Stuart Brown told the conference call.

The group, which controls around 40% of the rough diamond market, said banks had granted credit approval for the refinancing of a US$1.5 billion (R11.25 billion) facility after months of negotiations. Brown declined to give details of the terms, but said interest rates were at market levels.

Although Penny was cautious about the near term, he said the medium and long-term outlook was strong due to limited supply and buoyant demand growth in Asian markets. This growth could challenge the dominance of the United States, which accounted for about half of global diamond jewellery sales.

“The Chinese market is growing very rapidly “’ that’s clearly an area of extraordinary growth and it’s been growing right throughout this whole crisis,” he added.“If you take India and China together, you’re looking at a market that we think will not be significantly less than the United States in five year’s time."