Speaking at an Anglo American investor presentation, De Beers CEO Philippe Mellier revealed the diamond producer would cut more than 1,500 jobs as part of a “cash savings plan”, and also answered recent criticism of the company’s practices.
Although diamond jewellery demand remained robust in 2015, Mellier said a number of challenges leading to abnormally high inventories of polished diamonds had created a “stock crisis” in the midstream sector of the industry.
In response, De Beers downgraded its 2016 production outlook to 26–28 million carats, down from 29 million carats in 2015, and announced a number of changes to operations in Botswana, South Africa.
The company will put its Damtshaa mine and one of the Orapa mine’s production plants into ‘care and maintenance’, while ramping up production at the Jwaneng mine in an attempt to increase the mix of higher and lower-quality diamonds and improve the group’s profitability.
As previously reported by Jeweller, De Beers recently announced its Snap Lake mine in Canada would be placed into a care and maintenance phase as well. The company’s well-known Kimberley Mines operation is also in the process of being sold.
Rapaport criticism
During the presentation, an analyst raised the recent criticism Mellier received from Rapaport Group chairman Martin Rapaport. Last month, Rapaport called for the De Beers CEO’s resignation as well as a 30–50 per cent reduction in rough diamond prices.
In response to the analyst’s calls for reassurance that De Beers was taking steps to mitigate the midstream challenges, Mellier said, “[This] industry is full of rumour and when things are tough like in a crisis like this one obviously you have to blame somebody.
“The midstream as such has been fragile ... so this is a wake-up call. We [De Beers] are mindful that the midstream has to generate profit. As you see, we have opened the gap between polished and rough, and I think there is profit available.”
Mellier said some of the measures De Beers was taking to help the midstream recover profitability included the cutting of rough diamond prices by 15 per cent and providing sightholders with “unprecedented flexibility” to ensure they only purchased what was required.
From next year, De Beers will also increase transparency. “[Starting] with the first sight in 2016, we will communicate after each sight the sales of each sight so that you don’t rely on rumours and you will understand exactly where we are,” Mellier stated.
In addition, Mellier reiterated that De Beers had made a significant investment in diamond marketing in order to stimulate consumer demand in the downstream sector.
Major shareholder restructure
Meanwhile, Anglo American also announced it would consolidate its business portfolio to improve cash flow and increase returns through what it described as a “radical” and “aggressive” restructuring program.
“While we have continued to deliver our business restructuring and performance objectives across the board, the severity of commodity price deterioration requires bolder action,” Anglo American chief executive Mark Cutifani explained.
As part of the program, Anglo American revealed it would reduce assets by 60 per cent, taking its porfolio from six to three businesses – De Beers, Industrial Metals and Bulk Commodities – and resulting in the loss of about 85,000 jobs.
Anglo American claims to be one of the world’s largest mining companies, owning 85 per cent of De Beers. In addition to diamonds, Anglo American produces commodities including iron ore, platinum and copper.
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