(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 30.9 million carats (2018: 33.7 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. 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 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 $4.0 billion (2018: $5.4 billion).
(6) Total De Beers EBITDA margin shows Mining EBITDA Margin, which excludes the impact of third-party sales, purchases and trading.
(7) In 2018, includes the acquisition of Peregrine Diamonds Limited for a consideration of $87 million.
(8) Other includes Element Six, downstream, acquisition accounting adjustments and corporate.
Markets
A range of factors created significant challenges for rough diamond demand in 2019: in late 2018, stock market volatility and US-China trade tensions resulted in lower than expected holiday retail sales, which led to higher than anticipated stock levels in the industry’s midstream at the start of 2019. Throughout the course of 2019, the midstream inventory position was under further pressure due to the closure of some US 'bricks and mortar' retail outlets, an increase in online purchasing (where inventory levels are lower), and retailers increasing their stock held on consignment. Tighter financing also affected the midstream’s ability to hold stock, all of which resulted in lower demand for rough diamonds.
In US dollar terms, global consumer demand for diamond jewellery was broadly flat in 2019. This was despite the challenges of increased uncertainty around the economic outlook owing to the continued US-China trade tensions, as well as the impact of the Hong Kong protests and certain macro-economic issues affecting consumer confidence in India. US consumer demand remained reasonably strong, but growth in local currency terms in China and Japan was offset by the strength of the US dollar, while demand from India and the Gulf declined.
Financial and operational overview
Total revenue decreased by 24% to $4.6 billion (2018: $6.1 billion), with rough diamond sales falling by 26% to $4.0 billion (2018: $5.4 billion). This was due to an 8% decrease in consolidated rough diamond sales volumes to 29.2 million carats (2018: 31.7 million carats) and a 20% reduction in average realised price to $137/ct (2018: $171/ct). The reduction in realised price was driven by a 6% decline in the average rough price index and from a lower value mix of diamonds sold, in response to the weaker demand for higher value diamonds.
In response to the challenging midstream trading environment, De Beers offered increased supply flexibility to Sightholders and sold lower value and volume of rough diamonds to the midstream, while increasing marketing expenditure to $178 million (2018: $166 million) to further drive consumer demand for diamond jewellery.
Underlying EBITDA decreased by 55% to $558 million (2018: $1,245 million) owing to lower sales volumes, a lower value sales mix which curtailed mining margins, and the lower rough price index which reduced margins in the trading business. Profitability in the mining business was supported by improved efficiencies and cost savings; so, although there was a 13% decline in production in response to weaker demand, with the business being impacted by mining cost inflation in southern Africa, unit cost increases were limited to 5%.
Operational performance
Mining and manufacturing
Rough diamond production decreased by 13% to 30.8 million carats (2018: 35.3 million carats), primarily driven by a reduction in South Africa. While trading conditions have improved somewhat since the third quarter of the year, production was lower in response to softer rough diamond demand conditions compared with 2018.
In Botswana, production was 4% lower at 23.3 million carats (2018: 24.1 million carats). Production at Jwaneng increased by 5% to 12.5 million carats (2018: 11.9 million carats) as throughput rose to partly offset a 12% decrease at Orapa to 10.8 million carats (2018: 12.2 million carats), owing to a delay in an infrastructure project and expected lower grades.
In Namibia, production decreased by 15% to 1.7 million carats (2018: 2.0 million carats). Output from the marine operation declined by 10% owing to routine planned maintenance for the Mafuta vessel. Production at the land operations decreased by 29% to 0.4 million carats (2018: 0.6 million carats) as a result of placing Elizabeth Bay onto care and maintenance in December 2018. In September 2019, the sale of Elizabeth Bay was announced.
In South Africa, production decreased by 59% to 1.9 million carats (2018: 4.7 million carats) as the mining sequence at the Venetia open pit had a higher waste to ore ratio as it moves into its final years, prior to the transition to underground. Production at Voorspoed ceased following the operation being placed onto care and maintenance in the final quarter of 2018.
In Canada, production decreased by 13% to 3.9 million carats (2018: 4.5 million carats) as Victor reached the end of its life during the second quarter of 2019, resulting in a 55% decrease in output to 0.4 million carats (2018: 0.9 million carats). Gahcho Kué maintained output at 3.5 million carats (2018: 3.5 million carats), with a planned grade reduction offset by strong plant performance.
Brands
In 2019, De Beers continued to invest in its downstream brands to support the long term growth of consumer demand for natural diamonds.
De Beers Jewellers continued to upgrade and expand its retail network during 2019, as well as integrating its online and store presence into an improved combined offering.
Forevermark™ continues to grow its presence and sales worldwide. It is now available in around 2,500 retail outlets globally, with the brand being launched in Italy, Austria and Belgium during 2019. Dedicated Forevermark™-only stores are now operating in China, the US and India.
Operational and market outlook
Preliminary data following the holiday retail season in 2019 indicates that stock levels in the industry’s midstream are returning to a more balanced position following stable consumer demand, especially in the US. However, risks remain to the downside, with further increases in online purchasing causing additional retailer destocking, developments in USChina trade tensions, the coronavirus which originated in China over Chinese New Year, geo-political escalation in the Middle East and the effect those may have on economic growth and consumer sentiment.
2020 production guidance is 32-34 million carats, subject to trading conditions. The higher production is driven by an expected increase in ore from the final open-pit cut at Venetia, supported by a currently anticipated improvement in trading conditions compared with 2019.