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|
Production volume |
Sales |
Price |
Unit |
Group |
Underlying |
Underlying |
Underlying |
Capex* |
ROCE* |
|
|
’000 cts | ’000 cts(2) | $/ct(3) | $/ct(4) | $m(5) | $m | $m | $m(6) |
|
|
|
De Beers |
35,297 |
31,656 |
171 |
60 |
6,082 |
1,245 |
20% |
694 |
417 |
8% |
|
Prior year |
33,454 |
32,455 |
162 |
63 |
5,841 |
1,435 |
25% |
873 |
273 |
9% |
|
Botswana (Debswana) |
24,132 |
– |
155 |
28 |
– |
495 |
– |
441 |
97 |
– |
|
Prior year |
22,684 |
– |
159 |
28 |
– |
484 |
– |
447 |
86 |
– |
| Namibia (Namdeb Holdings) | 2,008 |
– |
550 |
274 |
– |
176 |
– |
140 |
38 |
– |
|
Prior year |
1,805 |
– |
539 |
257 |
– |
176 |
– |
146 |
33 |
– |
|
South Africa (DBCM) |
4,682 |
– |
109 |
54 |
– |
163 |
– |
58 |
177 |
– |
|
Prior year |
5,208 |
– |
129 |
62 |
– |
267 |
– |
119 |
114 |
– |
|
Canada(7) |
4,475 |
– |
144 |
52 |
– |
231 |
– |
78 |
127 |
– |
|
Prior year |
3,757 |
– |
235 |
57 |
– |
205 |
– |
58 |
(5) |
– |
|
Trading |
– |
– |
– |
– |
– |
413 |
– |
407 |
2 |
– |
|
Prior year |
– |
– |
– |
– |
– |
449 |
– |
443 |
1 |
– |
|
Other(8) |
– |
– |
– |
– |
– |
(233) |
– |
(430) |
(24) |
– |
|
Prior year |
– |
– |
– |
– |
– |
(146) |
– |
(340) |
44 |
– |
(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 exclude pre-commercial production sales volumes from Gahcho Kué. Total sales volumes (100%), which are comparable to production, were 33.7 million carats (2017: 35.1 million carats). Total sales volumes (100%) include pre-commercial production sales volumes from Gahcho Kué and De Beers Group’s JV 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 $5.4 billion (2017: $5.2 billion).
(6) In 2018, includes the acquisition of Peregrine Diamonds Limited for a consideration of $87 million. In 2017, includes pre-commercial production capitalised operating cash inflows from Gahcho Kué.
(7) In 2017, 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 and corporate.
Total revenue increased by 4% to $6.1 billion (2017: $5.8 billion), with rough diamond sales increasing by 4% to $5.4 billion (2017: $5.2 billion), driven by improved overall consumer demand for diamond jewellery and a 1% increase in the average rough diamond price index. The average realised price increased by 6% to $171/carat (2017: $162/carat), reflecting the lower proportion of lower value rough diamonds being sold in the second half, which resulted in a 2% decrease in consolidated sales volumes to 31.7 million carats (2017: 32.5 million carats). Other revenue also increased owing to improved ‘high end’ jewellery sales at De Beers Jewellers (consolidated for a full year in 2018, compared with nine months in 2017), partly offset by a 5% decrease in Element Six revenue due to a reduction in sales to the oil and gas market.
Underlying EBITDA decreased by 13% to $1,245 million (2017: $1,435 million). While unit costs and upstream profit margins were maintained, De Beers undertook incremental expenditure on a number of new initiatives, including the launch of Lightbox Jewelry (Lightbox™), Tracr™ and Gemfair™, as well as increasing expenditure in marketing, exploration and evaluation in Canada and increasing provisions in respect of closure obligations. Margins in the trading business were lower owing to volatile market conditions, and the margin at Element Six decreased as a result of lower sales to the oil and gas market.
Markets
Preliminary data for 2018 indicates an improvement in global consumer demand for diamond jewellery, in US dollar terms. Global growth during the first half of the year was driven by solid US and Chinese consumer demand. However, during the second half, while the US maintained its growth rate, increased political and policy uncertainty and stock exchange volatility led to a general slowdown of demand. Chinese demand also slowed following the escalation in US-China trade tensions, slower economic growth and stock market volatility. In India, the significant depreciation of the rupee reduced local demand in US dollar terms.
The midstream started the year on a positive note due to healthy demand for polished diamonds from US and Chinese retailers. However, in the second half, the low-priced product segment came under considerable pressure due to weak demand and surplus availability, the rapid depreciation of the rupee and a reduction in bank financing in the midstream. This resulted in a surplus of low-priced polished diamonds at the end of the year, leading to lower sales at the start of 2019.
Operational performance
Mining and manufacturing
Rough diamond production increased by 6% to 35.3 million carats (2017: 33.5 million carats), which was in the lower half of the production guidance range of 35-36 million carats.
In Botswana (Debswana), production increased by 6% to 24.1 million carats (2017: 22.7 million carats). Production at Jwaneng was flat, as the effect of processing planned lower grades was offset by a 12% increase in plant throughput. At Orapa, a 13% increase in output was driven by higher plant utilisation and the full effect of the successful restart of the Damtshaa operation.
In Namibia (Namdeb Holdings), production increased by 11% to 2.0 million carats (2017: 1.8 million carats). Production from the marine operation increased by 4%, driven by fewer in-port days for the Mafuta crawler vessel and the adoption of a technology-led approach for optimising the performance of the drill fleet. Production at the land operations increased by 34% to 0.6 million carats (2017: 0.4 million carats) as a result of access to consistently higher grades, despite placing Elizabeth Bay onto care and maintenance in December.
In South Africa (DBCM), production decreased by 10% to 4.7 million carats (2017: 5.2 million carats), owing to a period of suspended production at Venetia following a fatal incident, as well as lower run-of-mine ore grades experienced as the mine approaches the end of the open pit. Output was also affected by the placing of Voorspoed onto care and maintenance in the fourth quarter in preparation for closure.
In Canada, production increased by 19% to 4.5 million carats (2017: 3.8 million carats) due to the full year contribution from Gahcho Kué, which entered commercial production in March 2017, and higher grades at Victor. Victor is due to cease production in the first half of 2019, when the open pit is expected to have been depleted.
Brands
Significant progress was made across the De Beers Group brands in 2018. De Beers Jewellers opened new stores in Hong Kong and in Xi’an, China, and launched new franchise partnerships in Russia and Saudi Arabia. In May, De Beers Jewellers also launched a new online store in partnership with Farfetch, a global marketplace for the luxury industry with a presence in 100 countries.
Forevermark™ is now available in more than 2,400 retail outlets globally. New launches took place in Indonesia, Nepal, Bangladesh, Germany and France, as well as the opening of its first stand-alone store in Africa, in Botswana. In the year the brand celebrated its 10th anniversary, it launched a new retail concept, Libert’aime™, by Forevermark™.
De Beers Group launched a number of new initiatives in 2018. Lightbox™, a laboratory-grown diamond fashion jewellery brand, was launched in the US and recorded its first sales in September. Tracr™, De Beers Group's blockchain project, was announced in January 2018. GemFair™, an industry-wide pilot programme to create a secure and transparent route to market for ethically sourced artisanal and small-scale mined (ASM) diamonds, was launched in April, with the first export of diamonds in December.
Outlook
Although current economic forecasts remain positive, the outlook for 2019 global diamond jewellery consumer demand faces a number of headwinds, including the risk of a potential intensification of US-China trade tensions, the Chinese government’s ability to rebalance economic growth towards consumption, and further exchange rate volatility.
Production in 2019 is expected to be in the range of 31-33 million carats, subject to trading conditions. The lower production is driven by the planned process of exiting from the Venetia open pit, with the underground operation becoming the principal source of ore from 2023. Associated with this, an increased proportion of production in 2019 is expected to come from De Beers Group's joint venture partners, a proportion of which generates a trading margin, which is lower than the mining margin generated from own-mined production.