Diamonds are tanking. De Beers to Borrow $500 Million as Demand Declines (Update4)
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By Ron Derby
Feb. 20 (Bloomberg) -- De Beers, the world’s largest diamond company, plans to borrow $500 million from Anglo American Plc and other shareholders to “withstand any shocks” after gem demand fell more than 50 percent.
The loan is “prudent” in the current economic environment, said Finance Director Stuart Brown on a conference call from London today.
Jewelry sales are plunging as the global slowdown forces even the wealthiest consumers to curb spending on luxury goods. New York-based Tiffany & Co., the world’s second-largest luxury- jewelry retailer, said last month holiday sales declined 21 percent. Switzerland’s Cie. Financiere Richemont SA, the maker of Van Cleef & Arpels jewelry, said in January it saw “no cause for optimism” amid the “toughest” market conditions in 20 years.
The loan “is indicative of the problem in the diamond industry at the moment,” Brock Salier, a mining analyst at Ambrian Partners Ltd. in London, said in an interview. “If you are unable to sell production, it leaves you with a cash hole,’ said Salier, who estimates diamond prices fell at least 50 percent in “recent” months and demand declined even more.
De Beers, which is based in Johannesburg, said Jan. 20 it would cut the amount of rough gems, or diamonds that aren’t cut or polished, offered to clients by about 50 percent until April.
Anglo, based in London owns 45 percent of De Beers. The Oppenheimer family owns 40 percent and Botswana the rest.
‘Challenging’ Conditions
“De Beers might not need a further cash injection” following the loan, Anglo’s Chief Financial Officer Rene Medori said in a conference call today.
Trading conditions are expected to be “challenging” throughout 2009, Gareth Penny, De Beers’s managing director, said on the diamond company’s own conference call.
De Beers may defer or delay projects to ensure a “sustainable business” this year, he said. “We’ll continue to closely monitor demand from customers.”
Potential job cuts are still being discussed with labor unions, he added.
Diamond demand may pick up in the fourth quarter of 2010, and that will only happen “if we are lucky,” Chaim Even-Zohar, principal at industry consultant Tacy Ltd., said in a telephone interview Feb. 18. There is a “problem of oversupply” in the diamond market, he said.
Sales Gain
De Beers said today sales rose to $6.89 billion in 2008 from $6.84 billion a year earlier, after an increase in average diamond prices. Net Income was $90 million, compared with a loss of $521 million, it said in an e-mailed statement.
De Beers produced 48.1 million carats, compared with 51.1 million carats in 2007. Production in Botswana fell to 32.3 million carats, from 33.6 million, and Namibian output slipped to 2.1 million carats, from 2.2 million carats. South African output fell to 12 million carats, from 15 million carats. Canadian production was 1.6 million carats, up from 81,000 carats.
The U.S. accounts for about half of diamond purchases. Global retail demand may drop 15 percent between last November and October this year, according to Even-Zohar. He forecast a 22 percent decline in North America and a plunge of as much as 63 percent in rough-diamond demand. |
