Namdeb sparkles in De Beers' basket

Namdeb Holdings produced 2.327 million carats of diamonds last year, 190 000 carats or nearly 8.9% more than in 2022.

The increase in production was primarily driven by a full year of production from the Benguela Gem vessel, commissioned in March 2022, and the ongoing ramp-up and expansion of the mining area at the land operations, Anglo American said yesterday.

Anglo is the holding company of De Beers, which owns half of Namdeb Holdings. The remaining 50% of Namdeb belongs to the Namibian government.

Anglo’s annual results for the 12 months ended 31 December 2023 show Namdeb contributed about 7.3% of De Beers total production of 31.865 million carats. In 2022, Namdeb’s contribution was about 6.7%.



Expensive

Namibian gems by far fetched the highest price in the De Beers’ basket.

Namdeb’s diamonds realised an average price of US$515 per carat – about N$9 764 per carat – compared to De Beers’ average price US$147 per carat. In 2022, the average price for a Namdeb carat was US$599.

Namdeb’s unit cost, however, was high compared to the rest of De Beers’ diamond mines in Botswana, South Africa and Canada. De Beers’ average unit cost last year was US$71 per carat, while that of Namdeb was US$246 per carat. In 2022, Namdeb’s average unit cost was US$293 per carat.

The underlying Ebitda of Namdeb last year was US$159 million, about N$3 billion. Underlying Ebitda means earnings before interest, tax, depreciation and amortisation, and is an indication of profitability.



Tough year

De Beers’ overall underlying Ebitda decreased to US$72 million (2022: US$1.417 billion) as a result of significantly lower sales volumes, coupled with a lower average realised price. This was impacted by both the mix of products sold and a lower average rough price index, which negatively impacted margins in the trading business.

After strong demand in 2021 and 2022, global rough diamond demand fell significantly in 2023, Anglo said.

“With polished diamond inventories rising and increases in inflation and interest rates, jewellery retailers took a cautious approach to purchasing new stock.

“US consumer demand for natural diamonds was impacted by macroeconomic challenges as well as rising supply of lab-grown diamonds. However, while sales of lab-grown diamonds to consumers increased, wholesale lab-grown prices continued to fall sharply, supporting further differentiation from natural diamonds,” Anglo said.

In China, economic challenges led to low consumer confidence, which led to marginal consumer demand contraction from the subdued levels seen in 2022. In contrast, consumer confidence and demand growth in India were robust in 2023, especially towards the end of the year, the mining giant continued.



Writedown

Anglo wrote down De Beers by US$1.6 billion (N$30.3 billion), bringing its recoverable carrying value to US$7.6 billion.

This writedown was mostly related to goodwill, with the group also reporting that total rough diamond sales volumes decreased by 19% to 24.7 million carats, while prices fell by a quarter.

However, production picked up overall, with the company boosted by the contribution from its Quellaveco mine in Peru.

"2023 saw us increase production by 2% and contain the effect of high inflation on our costs, while facing a cyclical downturn in PGMs and diamonds," Anglo CEO Duncan Wanblad said in the results.

"Against that backdrop, we are reducing annual run rate costs by US$1 billion and capital spend by US$1.6 billion over the next three years, while also cutting out unprofitable volumes."

"This value over volume mindset represents our biggest margin lever to enhance returns. We are systematically reviewing our assets and will take further actions as needed to ensure their competitiveness."

Anglo, valued at about R560 billion on the JSE, has recently indicated that De Beers could cut production.



Outlook

Industry conditions are expected to remain challenging in the short term, but the long-term outlook is favourable, Anglo said.

“Midstream and retail demand stabilised towards the end of 2023, but inventories of rough diamonds reportedly grew at producers globally. Over the course of 2024, assuming a measured approach from producers to the release of upstream inventory, the high midstream inventory levels seen in 2023 are expected to decline as retailers replenish their stocks.”

Anglo expects limited consumer demand growth and ongoing retailer caution are ahead of an anticipated return to growth into 2025.

“The ongoing focus on diamond provenance—especially given the expected introduction of Russian diamond import restrictions by G7 nations—has the potential to reinforce demand for De Beers’ rough diamonds, supported by the blockchain Tracr platform. The global supply of rough diamonds is anticipated to continue to decline owing to the maturity of major mines and limited new discoveries,” Anglo said.



Lab-grown diamonds

The wholesale prices of lab-grown diamonds are falling sharply, leading to financial challenges at some leading lab-grown diamond producers, Anglo said.

“These price declines are expected to lead to further substantial reductions in retail prices, with De Beers’ Lightbox brand testing significantly lower prices for its products.

“This will further reinforce consumers’ understanding of the fundamental differences between lab-grown and natural diamond jewelry,” Anglo added. – Additional reporting by Fin24