Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

De Beers diamond division becoming Anglo American's crown jewel

Published 13/02/2015, 20:02
© Reuters. The logo of diamond merchant De Beers is seen on the front of their boutique on Rodeo Drive, home to boutiques of major designers in Beverly Hills
AAL
-
HG
-
AMSJ
-

By Silvia Antonioli

LONDON (Reuters) - Diamond company De Beers, once a niche business for global miner Anglo American (L:AAL), is rapidly rising to become the jewel in its crown - with a brighter outlook than many of its metals.

The division's profit leapt by more than a third in 2014 at the same time as its parent company Anglo saw earnings drop by about a quarter, hammered by a dive in prices of metals such as iron, copper and coal.

It overtook copper last year to become the second-largest contributor to group profit, fast closing the gap with the flagship iron ore business.

De Beers increased production in 2014 to capitalise on diamond prices having risen over the previous five years, and at the same time managed to marginally lower production costs at its mines in southern Africa and Canada.

Profit at the division, which sells its diamonds in dollars, was also boosted by the decline of southern African and Canadian currencies against the U.S. unit.

Global polished diamond sales rose an estimated 4 percent to about $26 billion (17 billion pounds) last year, according to De Beers, and its Chief Financial Officer Gareth Mostyn expects the figure to rise by 3-4 percent in 2015.

"The fact that we performed well in 2014, a year that has been difficult for many of Anglo's other businesses because of (weak) commodity prices really is a testament to the diversified business model that Anglo has," he told Reuters in an interview.

"I hope those other commodities start to do better," he said. "We are focussed on continuing to deliver the current performance."

'INDIGESTION'

De Beers hit a 2016 profitability target set by the group's Chief Executive Mark Cutifani - of a 15 percent return on capital employed - two years early, and way before some other divisions.

The chief executive of platinum unit Amplats (J:AMSJ) for example said last week that it would take it at least three years to hit the target.

"De Beers is rapidly developing into the company's flagship business unit, in second place for 2014 behind the iron ore and manganese division that in light of weaker iron ore prices will see further reduction whilst De Beers should continue to deliver strong earnings," Investec analysts said in a note.

The rise has been dramatic.

In 2013, De Beers accounted for 15 percent of group underlying earnings before interest and tax (EBIT) and the iron ore business 47 percent. But last year the diamond division's share rose to 28 percent of the group's $5 billion EBIT, while iron ore fell to 40 percent.

Diamond prices, having risen in previous years, weakened a little at the end of 2014 and earlier this year. Mostyn blamed this on a temporary supply glut and more moderate demand growth in China. Pro-democracy protests in Hong Kong in October and November also contributed to slow retail sales to locals and Chinese tourists, he said.

He said he was cautiously optimistic that prices would firm up again this year.

© Reuters. The logo of diamond merchant De Beers is seen on the front of their boutique on Rodeo Drive, home to boutiques of major designers in Beverly Hills

"There has been a bit of indigestion in the system for a short time, a lot of diamond coming through to the market all together towards the end of the year, but we still think the fundamentals for this year are strong."

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.