Higher Costs Dent De Beers Earnings

RAPAPORT… De Beers’ underlying earnings fell in the first half due to higher costs, even as the company maintained an upbeat forecast for the rest of the year.

“The outlook for 2018 global consumer demand remains positive in most of the main diamond-consuming countries, based on world economic prospects, positive consumer sentiment, and continued investment in marketing,” the miner said Thursday.

Underlying earnings before interest, taxes, depreciation and amortization (EBITDA) dropped 9% to $712 million in the six months ending June 30. EBIT — which includes depreciation and amortization — slid 25% to $412 million. 


The cost of De Beers’ production rose 6% to $67 per carat
due to unfavorable exchange-rate fluctuation, with the South African rand
strengthening 7% during the period. The company’s expenses
are in local currencies, but De Beers reports results in dollars, meaning
that a stronger rand has a negative impact on income.


In addition, for accounting reasons, the group classified a
larger proportion of waste-mining costs as expenses that count against profit,
rather than as assets, it said. Lower trading margins also affected underlying EBITDA,
as the growth in costs outpaced the 4% increase in selling prices to $162 per
carat.


Rough-diamond sales were flat at $2.9 billion, while total
revenue increased 2% to $3.19 billion, including De Beers’ other businesses
such as synthetic-diamond unit Element Six and its retail operations. Sales
volume fell 3% to 17.8 million carats. The company’s average rough-price index,
which monitors the cost of its goods to clients on a like-for-like basis, rose
1.6%, while there was also a shift toward higher-value goods.