Note the many weasel words. ----This article copy and paste from the
Sunday Times SA.
De Beers reported strong earnings on Friday, but Jonathan
Oppenheimer will have little time for reflection on what his father,
chairman Nicky Oppenheimer, described as a "very pleasing"
performance. For although the world's biggest diamond producer
posted a 12.8% increase in headline earnings to R424-million for the
six months to June 30, the strong rand - which reached a five-year
high against the dollar this week - pushed all but two of its seven
South African mines into the red.
Jonathan Oppenheimer took over as head of De Beers' local operations
at the beginning of the month.
He was not at the results presentation, which was hosted in London,
but group MD Gary Ralfe summed up his predicament: "Of course we are
concerned about our South African operations, whose cash flows -
apart from Venetia and Finsch - are negative at the moment. "But we
need to balance De Beers' responsibility as a long-term employer and
being a good corporate citizen with our quest to keep our mines in
operation through increased efficiencies. I wish Jonathan luck in
squaring this difficult circle."
Ralfe's comments raise the spectre of job losses, but he was loath
to comment on the issue other than to say that De Beers would look
at voluntary redundancies first. The company employs around 25 000
people world-wide, about 10 000 of whom are in South Africa. He said
that higher prices for rough, or uncut, diamonds - which have risen
around 10% this year - provided some breathing space, but warned
that any mine closures were irreversible.
"Once a mine is closed that is the end of the road. We won't see
them opening again, but we are doing all we can to ensure their
survival," he added. Mines in the red are the older ones such as
Koffiefontein, Kimberley underground, The Oaks, Cullinan and the
On a brighter note, Ralfe pointed out that De Beers had recently
commissioned its Combined Treatment Plant in Kimberley to reprocess
old dumps. The plant was "going like a Boeing" and was on track to
produce two million carats this year, "the biggest volumes since the
early 20th century".
Ralfe and Nicky Oppenheimer also drew attention to the settlement of
a long-standing price-fixing case against the company in the US. The
case related to a 1994 charge in connection with industrial diamonds
in 1991 and 1992.
In its settlement, announced earlier this month, De Beers agreed to
plead guilty and pay a fine of $10-million.
"This watershed decision by the Ohio court is very important to us
as our legal interpretation is that we are now compliant in all
jurisdictions where we conduct our business," Ralfe said. "Our
supplier-of-choice strategy is recognized by the European Commission
and we believe behind this settlement is an implicit recognition by
the US Department of Justice of the way we are doing business."
The strategy, officially implemented last year, led De Beers to
abandon its 60-year-old cartel policy of trying to stabilize supply
and demand of gemstones and concentrate on mining and marketing. On
the production front, group output was 19.3 million carats - below a
target of 22.3 million carats. This was due to a breakdown at the
Jwaneng mine plant in Botswana, but Ralfe said that production had
been restored to target levels since the beginning of July.
The lower Botswana output, which accounts for the lion's share of De
Beers' output, was largely offset by a 33% increase in Namibian
production and a 16% increase in South African diamonds, Ralfe said,
without providing specific numbers.
Ralfe was optimistic about the outlook for the rest of the year,
noting that jewellery sales in the US - the world's biggest diamond
jewellery market - grew 7% year-on-year. This is the best figure
Sales in Japan were up a more modest "percent or two", but Ralfe
said this was the first time in 10 years that the world's
second-biggest diamond market had shown growth.
Double-digit diamond jewellery growth was recorded in China, while
sales were also good in the Middle East.
The group will pay $250-million in dividends on August 2. The chief
beneficiary is Anglo American, which owns 45% of De Beers. Anglo
said De Beers' earnings would contribute $217-million to its
earnings, which are to be announced on August 5.
For a more sober assessment of De Beers read The Economist July
17 2004, Special Report, page 60 *the Diamond Cartel*