De Beers Earnings Slashed 49%, Sales $6.1 Billion (Updated)

It was a tough year for De Beers. Sales and profitability declined sharply, the long time leadership and involvement of the Oppenheimer family ended, and its newly appointed chair Cynthia Carroll, stepped down under pressure from of Anglo American's Board of Directors.

The diamond-mining giant is a company in transition, operating in a difficult economic environment for luxury goods, which explains why rough diamond prices decreased 12 percent during the year.

Global diamond production by the company totaled 27.9 million carats, a 10.8 percent decline from the 31.3 million carats mined in 2011.

The company commented that the decrease in rough diamond sales was largely a result of diminished demand, changing product requirements from Sightholders, and reduced availability of some goods.

In March, De Beers announced its new Sightholder list and began a new three-year Supplier of Choice contract period.

Sales of rough diamonds via Diamdel’s auction platform decreased to $356 million in 2012 from $405 million in 2011 due to subdued buyer activity.

In a market overview, the company noted that after an exceptional first half of 2011, the macroeconomic uncertainty that triggered difficult trading conditions in the fourth quarter of 2011 continued, as expected, into 2012.

Demand for diamond jewelry in the key markets of the U.S., China and Japan grew, albeit at a slower pace than in 2011. This, together with higher polished stock levels, resulted in a decline in polished prices particularly in the third quarter of 2012.

It went on to observe that although rough diamond prices remained broadly stable in the first half of 2012, a combination of weaker polished prices, high levels of cutting centre stock and tightening liquidity in the midstream resulted in a rough diamond price correction during the third quarter.

By the end of 2012 however, rough diamond prices stabilized, reflecting a modest improvement in consumer demand during the holiday sales season in most major diamond jewelry markets.

De Beers expects moderate growth in diamond jewelry demand in 2013, mainly due to better demand from China and India and some upside in the U.S. Trading conditions in other developed markets are likely to be challenging.

De Beers also said the rough diamond-manufacturing sector closed 2012 with high levels of inventory, particularly in the higher-end categories of diamonds, and faces continued pressure in terms of midstream liquidity. In the medium to long term, industry fundamentals are expected to strengthen as diamond production plateaus and demand continues to increase.