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DeBeers Group: Interim financial results for 2022

Press Release

28 Jul 2022

Financial and operational metrics (1)

Production
volume
Sales
volume
Price Unit
cost*
Group
revenue*
Underlying
EBITDA*
EBITDA
margin*(6)
Underlying
EBIT*
Capex* ROCE*
’000
cts
’000
cts(2)
$/ct(3) $/ct(4) $m(5) $m $m $m
De Beers 16,884 15,329 213 59 3,595 944 53  % 718 250 11  %
Prior period 15,409   19,161 135 59 2,900 610 42 % 377 205 6  %
Botswana 11,705 n/a 189 32 n/a 333 n/a 295 31 n/a
Prior period 10,687 131 35 226 203 29
Namibia 1,016 n/a 632 292 n/a 93 n/a 78 19 n/a
Prior period 676 578 374 43 25 23
South Africa 2,916 n/a 147 39 n/a 227 n/a 162 169 n/a
Prior period 2,437 107 48 113 34 122
Canada 1,247 n/a 97 60 n/a 2 n/a (25) 19 n/a
Prior period 1,609 55 42 35 5 17
Trading n/a n/a n/a n/a n/a 401 12  % 398 1 n/a
Prior period 279 11 % 276 1
Other(7) n/a n/a n/a n/a n/a (112) n/a (190) 11 n/a
Prior period (86) (166) 13

(1)  Prepared on a consolidated accounting basis, except for production, which is stated on a 100% basis except for the Gahcho Kué joint operation in Canada, which is on an attributable 51% basis.

(2)  Total sales volumes on a 100% basis were 17.3 million carats (30 June 2021: 20.8 million carats). Total sales volumes (100%) include De Beers Group’s joint arrangement partners’ 50% proportionate share of sales to entities outside De Beers Group from Diamond Trading Company Botswana and Namibia Diamond Trading Company.

(3)  Pricing for the mining business units is based on 100% selling value post-aggregation of goods. Realised price includes the price impact of the sale of non-equity product and, as a result, is not directly comparable to the unit cost.

(4)  Unit cost is based on consolidated production and operating costs, excluding depreciation and operating special items, divided by carats recovered.

(5)  Includes rough diamond sales of $3.3 billion (30 June 2021: $2.6 billion).

(6)  Total De Beers EBITDA margin shows mining EBITDA margin on an equity basis, which excludes the impact of non-mining activities, third‑party sales, purchases, trading downstream and corporate.

(7)  Other includes Element Six, Brands and consumer markets, and corporate.

Markets

Following a continued strong recovery in consumer demand for diamond jewellery over the holiday season at the end of 2021, the year began with healthy demand and inventory conditions throughout the diamond pipeline as retailers restocked in the first two months of the year – with polished diamond prices rising on the back of the strong trading environment.

The onset of the Russia-Ukraine war initially affected industry sentiment negatively as diamond businesses sought to understand the potential impact on supply and demand from both consumer self-sanctioning in western markets and subsequent formal sanctions.

Nonetheless, despite the impact of the war and associated sanctions, as well as the recovering demand for luxury travel, consumer demand for diamond jewellery in the key US market has continued to post positive growth on the record levels of demand seen in 2021. Polished prices subsequently started to rise again in the second quarter, especially in the smaller diamond sizes (of which Russia produces a large share) but softened slightly in June from higher inventory levels and increased economic uncertainty. The overall improvement in prices was despite the recovery in Chinese consumer demand for diamond jewellery seen at the start of the year being impacted in the second quarter by the latest wave of Covid-19 and subsequent lockdowns in major Chinese cities.

Demand for De Beers’ rough diamonds remained robust throughout the first half of the year, supported by strong US consumer demand for diamond jewellery, tightness in global rough diamond supply and De Beers’ focus on enhanced provenance assurance for its rough diamonds through its blockchain-backed TracrTM technology platform.

Financial and operational overview

Total revenue increased to $3.6 billion (30 June 2021: $2.9 billion), with rough diamond sales rising to $3.3 billion (30 June 2021: $2.6 billion), as the midstream replenished their stocks following strong consumer demand over the holiday season. Rough diamond sales volumes totalled 15.3 million carats (30 June 2021: 19.2 million carats),with the prior period benefiting from very strong demand recovery following the impact of Covid-19 in 2020. The average realised price rose by 58% to $213/ct (30 June 2021: $135/ct), driven by a larger proportion of higher value rough diamonds sold, as well as growth in the De Beers rough diamond price index. The rough price index increased by 28% compared with the same period in the prior year, reflecting positive consumer demand for diamond jewellery as well as tightness in inventories across the diamond value chain.

Underlying EBITDA increased by 55% to $944 million (30 June 2021: $610 million), reflecting the recovery in sales. Unit costs were flat at $59/ct (30 June 2021: $59/ct) as the benefit of higher production was offset by rising inflation and input costs.

Capital expenditure increased by 22% to $250 million (30 June 2021: $205 million), largely due to a ramp-up in the Venetia Underground project, ahead of first production in 2023.

Operational performance

Mining

Rough diamond production increased by 10% to 16.9 million carats (30 June 2021: 15.4 million carats), reflecting a strong operational performance and higher planned levels of production to meet continued strong demand for rough diamonds, while the first quarter of 2021 was affected by particularly high rainfall in Botswana and at Venetia.

In Botswana, production increased by 10% to 11.7 million carats (30 June 2021: 10.7 million carats) owing to increased processing at both Orapa and Jwaneng, as well as planned higher grade at Orapa. The Government of the Republic of Botswana and De Beers Group have extended their existing agreement for the sale of Debswana’s rough diamond production by 12 months until 30 June 2023. Following further positive progress towards a new agreement being made in the first half of 2022, the two parties have agreed to the one-year extension to enable the finalisation of the ongoing discussions.

Namibia production increased by 50% to 1.0 million carats (30 June 2021: 0.7 million carats) primarily due to continued strong performance from the new diamond recovery vessel, the Benguela Gem, in the first quarter of 2022.

South Africa production increased by 20% to 2.9 million carats (30 June 2021: 2.4 million carats) due to the treatment of higher grade ore from the final cut of the open pit at Venetia.

Production in Canada decreased by 22% to 1.2 million carats (30 June 2021: 1.6 million carats), primarily as a result of treating lower grade ore and Covid-19 related absenteeism.

Brands and consumer markets

The strong recovery in US consumer demand for diamond jewellery was reflected in continued growth in De Beers’ branded diamond jewellery from De Beers Jewellers and De Beers Forevermark. As diamond provenance and traceability become increasingly important, De Beers continues to invest in its unique ability to provide source assurance for its diamonds at scale, underpinned by the TracrTM blockchain platform. This proprietary technology provides an immutable record of a diamond’s provenance, underpinning confidence in natural diamonds.

Operational and market outlook

Consumer desire for natural diamonds continues to be robust in key consumer markets. However, a deterioration in global macro-economic conditions and significant inflation in the key markets could result in reduced consumer spending impacting demand for diamond jewellery. Despite this, the combination of ongoing sanctions against Russia, decisions from a number of US-based jewellery businesses to apply their own restrictions on purchases of Russian diamonds, and continued development of provenance initiatives has the potential to underpin continued demand for De Beers’ rough diamonds in the medium to longer term.

Meanwhile, the longer term evolution of the diamond value chain continues, including a sustained focus on inventory balance, the efficient distribution of diamonds throughout the pipeline, increased online purchasing, and a greater focus on the provenance and sustainability credentials of companies and their products. Despite the near term challenges and uncertainties, the long term outlook for diamond jewellery demand remains positive, while the global supply of rough diamonds is expected to slightly decline owing to the lack of recent discoveries.

Full year production guidance for 2022 is 32–34 million carats (100% basis), subject to trading conditions and the extent of further Covid-19 related disruptions. Full year unit cost guidance for 2022 is c.$65/ct.

IBF4

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