Financial and operational metrics(1)
|
|
|
Production
volume |
Sales
volume |
Price
|
Unit
cost* |
Revenue*
|
Underlying
EBITDA* |
Underlying
EBITDA
margin
|
Underlying
EBIT* |
Capex*
|
ROCE(9)*
|
|
’000
carats
|
’000
carats(2)
|
$/ct(3)
|
$/ct(4)
|
$m(5)
|
$m
|
|
$m
|
$m(6)
|
|
De Beers
|
17,495
|
17,845
|
162
|
67
|
3,192
|
712
|
22%
|
412
|
156
|
8%
|
Prior period
|
16,142
|
18,434
|
156
|
63
|
3,131
|
786
|
25%
|
548
|
74
|
11%
|
Botswana (Debswana)
|
12,087
|
–
|
155
|
31
|
–
|
263
|
–
|
234
|
34
|
–
|
Prior period
|
11,124
|
–
|
165
|
26
|
–
|
272
|
–
|
256
|
36
|
–
|
Namibia
(Namdeb Holdings)
|
1,044
|
–
|
545
|
272
|
–
|
90
|
–
|
73
|
19
|
–
|
Prior period
|
863
|
–
|
568
|
237
|
–
|
105
|
–
|
92
|
8
|
–
|
South Africa (DBCM)
|
2,111
|
–
|
106
|
73
|
–
|
71
|
–
|
2
|
66
|
–
|
Prior period
|
2,511
|
–
|
133
|
64
|
–
|
127
|
–
|
54
|
48
|
–
|
Canada(7)
|
2,253
|
–
|
157
|
51
|
–
|
126
|
–
|
52
|
17
|
–
|
Prior period
|
1,644
|
–
|
435
|
67
|
–
|
69
|
–
|
25
|
(28)
|
–
|
Trading
|
–
|
–
|
–
|
–
|
–
|
253
|
–
|
249
|
0
|
–
|
Prior period
|
–
|
–
|
–
|
–
|
–
|
281
|
–
|
278
|
2
|
–
|
Other(8)
|
–
|
–
|
–
|
–
|
–
|
(91)
|
–
|
(198)
|
20
|
–
|
Prior period
|
–
|
–
|
–
|
–
|
–
|
(68)
|
–
|
(157)
|
8
|
–
|
Financial and operational overview
Underlying EBITDA decreased by 9% to $712 million (H1 2017: $786 million) owing to unit cost increases driven by the impact of unfavourable exchange rate movements and a higher proportion of waste mining costs having been expensed rather than capitalised, mitigated by higher production. EBITDA was also impacted by the lower trading margins experienced in the period.
Total revenue of $3.2 billion was in line with the corresponding period last year (H1 2017: $3.1 billion), while rough diamond sales were maintained at $2.9 billion. The average realised rough diamond price increased by 4% to $162/carat (H1 2017: $156/carat) due to a 1.6% increase in the average rough price index and an improvement in the sales mix, driven by the substantial volumes of lower value goods sold in H1 2017, following the Indian demonetisation programme in late 2016. Excluding this impact, the average value of the production mix was lower in H1 2018 as a higher proportion of lower value carats was delivered from Orapa (Botswana) and Gahcho Kué (Canada). Consolidated sales volumes of 17.8 million carats were 3% lower (H1 2017: 18.4 million carats).
Other revenue includes Element Six, where revenue was in line with the corresponding period last year, and De Beers Jewellers, the results of which have been consolidated following the acquisition in March 2017 of LVMH’s 50% holding.
Markets
Preliminary data indicates a slight improvement in global consumer demand for diamond jewellery, in US dollar terms, compared with the first six months of 2017. This was driven by growth in the US and China, and was further amplified by positive exchange rate movements in China and Japan against the dollar. The Indian market was softer in dollar terms, with prevailing consumer caution, resulting from both macro-economic factors and regulatory changes affecting the jewellery sector.
Midstream sentiment was positive on the back of strong demand from the US and China in Q4 2017, and conditions overall remain favourable, with midstream inventory within normal levels and a slight strengthening of polished diamond prices since the start of the year.
Operating performance
Mining and manufacturing
Rough diamond production increased by 8% to 17.5 million carats (H1 2017: 16.1 million carats), including the contribution from the ramp-up of Gahcho Kué in Canada and in line with the expected continuation of strong demand.
In Botswana (Debswana), production increased by 9% to 12.1 million carats (H1 2017: 11.1 million carats) in response to stronger market conditions. Production at Jwaneng was 2% higher owing to a 10% increase in plant throughput. At Orapa, a 16% rise in output was driven by the continued ramp-up of Plant 1, the successful restart of the Damtshaa operation and commissioning of the Letlhakane tailings plant. In June 2017, Jwaneng processed its first ore from Cut-8, which is now the mine’s main source of ore.
In Namibia (Namdeb Holdings), production increased by 21% to 1.0 million carats (H1 2017: 0.9 million carats). Production from the marine operation was 2% higher following improved availability of the Mafuta crawler vessel and technology-led optimisation of the drill fleet. In addition production at the land operations increased by 99% to 0.3 million carats (H1 2017: 0.2 million carats), driven by access to consistently higher grades.
In South Africa (DBCM), production declined by 16% to 2.1 million carats (H1 2017: 2.5 million carats). The reduction was primarily due to a period of suspended production at Venetia following a fatal incident, as well as geotechnical issues at Voorspoed restricting access to the resource. Construction continues on the Venetia Underground Project, which is expected to become the mine’s principal source of production from 2023.
In Canada, production increased by 37% to 2.3 million carats (H1 2017: 1.6 million carats) owing to the ramp-up of Gahcho Kué, which entered commercial production in March 2017, as well as slightly improved grades at the mine. Higher grades were also achieved at Victor, where output increased by 16% to 0.4 million carats. Victor, which has been operating successfully since 2008, is due to close within the next 12 months when the open pit is expected to have been depleted. The closure of Snap Lake, which is currently on extended care and maintenance, is progressing, with flooding having been completed and, thereby minimising holding costs.
Brands
De Beers Jewellers opened new stores at Xi’an in China and at Kowloon in Hong Kong, and launched new franchise partnerships in Russia and Saudi Arabia. In May, De Beers Jewellers launched a new online store in partnership with Farfetch, the global marketplace for the luxury fashion industry, selling its fine diamond jewellery to a new audience, shipping throughout 100 countries and via 10 language sites.
Forevermark™ is now available in more than 2,300 retail outlets and in April launched a new partnership in Indonesia, its 26th market. In May, the brand celebrated its 10th anniversary, and the introduction of its 1,000th door in China, with the launch of a new retail concept, Libert’aime™ by Forevermark, incorporating an innovative in-store offering with online and social media platforms, specifically focused on targeting Millennials.
De Beers also launched a number of new initiatives including a pilot of the first blockchain technology initiative to span the diamond value chain. The platform, called Tracr™, will provide a single, tamperproof and permanent digital record for every diamond registered on the platform. TracrTM will also underpin confidence in diamonds and the diamond industry by ensuring that all registered diamonds are conflict-free and natural, while also enhancing efficiency across the sector.
In April, De Beers announced the launch of GemFair, a pilot programme to create a secure and transparent route to market for ethically sourced artisanal and small-scale mined (ASM) diamonds. GemFair will use dedicated technology to record ASM production at mine sites that meet demonstrable ethical standards, with the aim of purchasing rough diamonds from approved locations. This will help to improve working conditions and livelihoods for those working in the sector. If successful, the technology used in GemFair will be integrated with the TracrTM blockchain platform.
In May, De Beers announced the launch of Lightbox Jewelry (Lightbox) that will begin selling a brand of laboratory-grown diamond jewellery in the US from September 2018, offering consumers highquality, fashion jewellery designs at lower prices than existing laboratory-grown diamond offerings. Lightbox was launched in response to research undertaken by De Beers that demonstrated consumers see laboratory-grown diamonds as fun, fashion products that serve a very different purpose from natural diamonds, and which should be accessibly priced. As such, Lightbox will provide a completely new offering in the fashion jewellery category. To support Lightbox, De Beers is investing a total of $94 million over four years in a new production facility near Portland, Oregon, which will utilise Element Six’s operational expertise in laboratory-grown diamonds. Once fully operational, the plant will be capable of producing approximately 500,000 rough carats of laboratory-grown diamonds a year.
Outlook
The outlook for 2018 global consumer demand remains positive in most of the main diamondconsuming countries, based on world economic prospects, positive consumer sentiment and continued investment in marketing.
For 2018, forecast diamond production (on a 100% basis, except Gahcho Kué on an attributable 51% basis) remains unchanged at 34-36 million carats, subject to trading conditions.
(1) Prepared on a consolidated accounting basis, except for production, which is stated on a 100% basis except for the Gahcho Kué joint venture in Canada, which is on an attributable 51% basis.
(2) Consolidated sales volumes (H1 2018: 17.8 million carats; H1 2017: 18.4 million carats) exclude pre-commercial production sales volumes from Gahcho Kué. Total sales volumes (100%), which are comparable to production, were 18.8 million carats (H1 2017: 20.0 million carats). Total sales volumes (100%) include pre-commercial production sales volumes from Gahcho Kué and De Beers’ JV partners’ 50% proportionate share of sales to entities outside De Beers from the Diamond Trading Company Botswana and the Namibia Diamond Trading Company.
(3) Pricing for the mining business units is based on 100% selling value post-aggregation of goods. The De Beers realised price includes the price impact of the sale of non-equity product and, as a result, is not directly comparable to the De Beers unit costs, which relate to equity production only.
(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 $2.9 billion (H1 2017: $2.9 billion).
(6) Includes pre-commercial production capitalised operating cash inflows from Gahcho Kué.
(7) In 2017, for Canada, price excludes Gahcho Kué contribution from sales related to pre-commercial production, which were capitalised in the first half of 2017. Unit costs include Gahcho Kué contribution following achievement of commercial production on 2 March 2017.
(8) Other includes Element Six, downstream, acquisition accounting adjustments, projects and corporate.
(9) Underlying EBIT used in the calculation of De Beers’ ROCE is based on the prior 12 months, rather than the annualised H1 performance, owing to the seasonality of sales and underlying EBIT profile of De Beers.