LONDON (Reuters) - De Beers, the world's top diamond producer, posted a dip in 2007 diamond sales on Friday, but forecast a rebound this year amid a tight market that was expected to keep prices buoyant.
By Eric Onstad
LONDON (Reuters) - De Beers, the world's top diamond producer, posted a dip in 2007 diamond sales on Friday, but forecast a rebound this year amid a tight market that was expected to keep prices buoyant.
"We are in an environment where the rough diamond market is strong," Managing Director Gareth Penny told a conference call.
"With anticipated rises in rough diamond prices we would expect overall (2008) sales to be higher."
!ADVERTISEMENT!He cautioned, however, that a rebound in the group's natural rough diamond sales -- which fell 3.7 percent to $5.9 billion in 2007 -- could hinge on the U.S. economy and a power crisis in South Africa.
A steep downturn in the United States, the world's biggest diamond jewelry market, could dampen sales there for cheaper products, but healthy demand was set to continue in China, India and the Middle East.
"We put up prices several times through the back end of last year and again earlier this year. This has largely been driven by supply/demand -- there is just a shortage of rough in the market," Penny said.
De Beers 2007 diamond production was flat at 51 million carats and a steady result was also seen this year, he added.
Rough diamond sales by the group's marketing arm -- the Diamond Trading Company -- dipped largely due to an anti-trust deal with the European Union to phase out distribution of gems from Russian state diamond miner Alrosa.
DTC is due to sell $400 million of Alrosa diamonds in 2008, down $100 million from last year.
HIGHER COSTS
De Beers earnings before interest, taxes, depreciation and amortization (EBITDA) dipped by 1 percent to $1.2 billion.
"Production and sales (were) in line, it was costs that were higher than expected," Citigroup said in a research note, adding that it had forecast that EBITDA would rise to $1.4 billion.
De Beers contribution to underlying earnings of mining group Anglo American <AAL.L>, which holds a 45-percent stake in the group, rose 5.3 percent to $239 million.
De Beers said it took an impairment of $965 million on its Canadian assets due to a stronger Canadian currency and higher fuel, labor and capital costs.
That shaved off nearly a third of the carrying value of the group's new mines in Canada's Arctic region to around $2 billion, Finance Director Stuart Brown told a presentation.
The impairment also caused the bottom line to sink to a net loss of $521 million versus a profit of $730 million in 2006.
De Beers said it was confident, however, of the long-term future of the Snap Lake and Victor mine projects, which were due to start producing later this year.
The company warned that electricity supply problems in South Africa could hit output there. The government has said it would seek to maintain power at 90 percent of normal levels, but if it dipped below this, problems could be serious, De Beers said.
"Below this (90 percent) level the impact on production will be significant and could be in excess of 10 percent," De Beers said in a statement.
South Africa has been hit by a power crisis that has blacked out homes, brought traffic to a standstill and halted mines for five days in the world's top platinum producer.
(Reporting by Eric Onstad; Editing by Anshuman Daga)
