De Beers Group CFO Sarah Kuijlaars
JOHANNESBURG (miningweekly.com) – It is great to see such a healthy demand for this great industry, De Beers Group CFO Sarah Kuijlaars said after posting a set of stunning financial results for the world’s leading diamond company by value.
Underlying 2021 earnings before taxes, depreciation and amortisation soared to $1 100-million from $417-million in 2020 and unit costs remained broadly flat at $58/ct compared with $57/ct in 2020. (Also watch attached Creamer Media video.)
“It’s a really proud day to report this strong set of results and it's worth putting them in context – a year ago when we spoke, I was reporting on behalf of a loss-making business. It's a really strong turnaround,” Kuijlaars recalled during our Teams interview.
Total revenue increased to $5.6-billion, rough diamond production rose 29% to 32.3-million carats, and capital expenditure increased by 48% to $565-million from $381-million in 2020.
De Beers’ branded diamond jewellery from De Beers Jewellers and De Beers Forevermark both achieved double digit retail growth year-on-year. In August, the diamond company announced the ‘One De Beers’ approach and its focus on establishing De Beers as a ‘purpose-led’ brand. De Beers has now launched its new brand campaign built around a widening interpretation of the phrase ‘I do’, a time-honoured expression of intent.
“Going forward, we're seeing continued robust demand. Clearly, we won't have the same growth rates as we've seen in the past because 2021 was obviously above 2020, but also above 2019. But we're confident that the natural diamonds have got enduring meaning with consumers, and that will continue into the future,” said an upbeat Kuijlaars, who was speaking shortly after outgoing Anglo American CEO Mark Cutifani recalled during an early morning media conference that “in the early days of Covid, we couldn’t sell a diamond. Today, it’s pretty clear there’s been a lack of exploration across the globe and the world is now short of diamonds – a rare product has become a lot rarer”.
In the last 14 months, there has been a 30% increase in diamond prices, with the market moving even quicker than was anticipated.
“We’re really pleased and excited about what the future holds for De Beers,” said Cutifani during his swansong media briefing covered by Mining Weekly.
"Natural diamonds are absolutely unique and they have this really enduring connection with people that we love," said Kuijlaars.
In South Africa, production increased by 41% to 5.3-million carats; in Botswana, production was 35% higher at 22.3-million carats; in Namibia, production was broadly in line at 1.5-million carats; and in Canada, production was marginally lower at 3.2-million carats.
The execution of Venetia Underground, in South Africa, and Jwaneng Cut-9 expansion project, in Botswana, continued to progress, and the mine life extension of the Namibian land operations was approved during the year. The new AMV3 vessel for Namibia, now named the Benguela Gem – the largest and most advanced diamond recovery vessel ever built – arrived in Cape Town in September to complete preparations for its commissioning in this quarter.
Mining Weekly: What will be the key drivers of demand going forward?
Kuijlaars: We're well aware that as people come out from the pandemic there continues to be a significant proportion that do have money in their pocket, and are making choices about how to spend that disposable income, and have chosen and continue to choose diamonds and diamond jewellery. We're aware that obviously during the pandemic, there was less international travel. This will come back, but also pre-pandemic, significant consumers chose to buy their diamonds when they were travelling into Europe or New York. So we've seen the consumer choices adapt, and I think they'll continue to adapt going forward.
De Beers Group rough diamond production totalled 32.3-million carats in 2021. Do you foresee a production increase this year?
The 32.3-million carats was really an outstanding delivery by all our units. Again, it's worth reflecting that this was during Covid time. We've had to adapt day in, day out, and ensuring that everyone that turns up in our mines is safe and can deliver their work safely. Also, at the beginning of 2021, there were very heavy rains in South Africa, which led to a pretty slow start in our production. Going forward, we want to really build on that delivery and our guidance is in the same sort of bracket as those 33-million carats.
Supply is continuing to look shy. Is this what contributed to 2021’s higher prices?
We’re all aware that it’s a balance between supply and demand and if we look back in history, of course, there used to be a considerable contribution from the Argyle mine in Australia, which is now shut down. We're seeing supply on a flattish trajectory going forward and I think we and other people in the industry are then really focused on how to ensure that that demand and demand growth is really sustainable.
Is supply stress poised to continue for quite a time?
Obviously we're focusing on our production and we're really focusing on how we can ensure operational excellence across all our mines, really ensuring that every mine has got very stable production and that we manage to produce safely day in, day out.
How much capital will the De Beers Group be spending in 2022 and beyond, and is that growth capital or replacement capital?
In 2021 we stepped up our capex on 2020. We spent $565-million, and looking forward, we’re absolutely ensuring that we invest across the value chain. The biggest chunks of that are indeed in the capital-intensive parts of the business. We've got Venetia Underground, which is really reaching a critical phase and will be going on stream in early 2023. The next 12 months is really critical for Venetia Underground. But also in Botswana in our joint venture, Debswana, really important investments extending the life of the Jwaneng mine there. Those are the two principal ones, but we're also investing across the value chain. We're investing more in exploration, also investing more in our brand and consumer markets and then, of course, the whole digital backbone, to which we continue to give a lot of attention.
The production contributions of Botswana, South Africa and Namibia were up or in line in 2021. What are your thoughts around the yields from these jurisdictions?
We work in partnerships with the governments in those various countries, and it’s a really long-term partnership. We continue to work with our partners to ensure that we deliver sustainably, which supports the De Beers growth story, but absolutely provides really important jobs to the communities and obviously very healthy tax flow to those governments. It’s that message of sustainability. This is a long-term business. We invest in a mine for decades, and that will be the continuing trend going forwards.
Canada’s output was flat. Is that likely to change?
Gahcho Kué had a tough year in 2021 and actually shut down because of Covid restrictions. It's obviously a smaller contribution to the broader portfolio, but a very important one, and we're really ensuring that the best of the De Beers and the Anglo technical knowledge is passed to that mine to get the best out of them in the coming years.
What return is De Beers Group getting for the $200-million a year it is spending on diamond marketing?
We significantly ramped up our marketing spending in 2021. It's important to remember that some of that is supporting De Beers, and we introduced the De Beers Masterbrand – De Beers Jewellers, Forevermark and some of the marketing campaigns for that – ‘I do’ – connecting with the consumer of today. We're also investing significant marketing dollars into the industry through our relationship with the Natural Diamond Council. Both those legs of marketing will continue, and when you talk about return, it comes back to how can we continue to generate a healthy revenue that supports all parts of the value chain.
What is it that makes genuine gem diamonds continue to sparkle and live up to the long-standing ‘diamonds are forever’ slogan?
Natural diamonds are absolutely unique and they have this really enduring connection with people that we love. It's great to see how the pent-up demand for weddings is coming through. In addition to those traditional uses of natural diamond, we're seeing much more consumer demand on omni-channels and also through self-gifting or self-purchasing. It's great to see such a healthy demand for this great industry.