De Beers to be profitable amid cost cuts

LONDON (Reuters) - Top diamond producer De Beers will achieve a positive interim and full-year bottom line despite slashing output by 90 percent in the first quarter, an official said on Thursday 9 July.


Rough diamonds are displayed at the Botswana Diamond Valuing Company in Gaborone - Photo: REUTERS/Juda Ngweny

The diamond market, hammered by the global downturn, is slowly improving but De Beers is pushing forward with a plan to slash 2009 operating and capital costs by $1.5 billion, David Prager, director of communications, told Reuters.

"We've definitely seen signs of recovery in the market, but we're talking about first half numbers and it's certainly no surprise that at least the first quarter of the first half was historically difficult," he said in a telephone interview.

"It won't be negative... clearly there'll be a drop, but I don't think it will be dramatic... maybe some people will even be surprised because it's better than they thought.

"The company will be profitable this year and obviously that's critically important".

The firm, which controls about 40 percent of the rough diamond market, expects operating costs to slide by 47 percent this year and has already cut staff numbers in London by a quarter to 300 in the first quarter, Prager said.

The heavy cost cutting would leave the group -- 45 percent owned by mining group Anglo American Plc -- in a strong position for the future as recovery takes hold.

CHINA DEMAND STRONG

Demand is stronger in China than elsewhere and interest is ramping back up in the key U.S. market, which accounts for around half of global diamond jewellery sales.

"Obviously things aren't back to normal and people are still cautious, but we're certainly not in the place we were even in March," he said.

Sales of engagement and wedding rings have held up during the downturn and research has shown that people are delaying, not cancelling other diamond purchases, Prager added.

"We expect to see in the second half a further return in demand, and then moving into 2010, more of a return to normal trading conditions. All the signs point to a progressive recovery."

De Beers sells to specially selected clients -- "sightholders" -- at 10 week-long sales events during the year and the last three have show a sharp rebound, Prager said.

The total turnover at the "sights" in March/April, May and June was triple the level of those in December, January and February.

The increased demand may also spur a further rise in output in the second half after the heavy cuts early in the year that saw the group's Debswana unit in Botswana shut down completely, cutting first quarter output by 91 percent.

Botswana is back in production and the Namibian mines restarted this month, Prager said.

Full year output was forecast to fall 50 percent, but he declined to provide a figure for the first half.

Prager confirmed that De Beers was in talks on renewing its $1.5 billion loan facility due March 2010 and that it had agreed a waiver on loan covenants.

Reuters Loan Pricing Corp quoted a banking source as saying on Wednesday 8 July that De Beers had secured a waiver on $3 billion of its existing loans at the end of last week.

"Those discussions are going on now and they're going well... They hope to have the bigger news, about the loan discussion outcome, later in the year, within a few months."

By Eric Onstad

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