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Another Big Year for De Beers

De Beers Group was in the news this week. 85% shareholder Anglo American published its fourth quarter and full year production report this week, which gave us a gentle reminder as to the declines experienced in the diamond market in 2023. Here are the key De Beers numbers:

- Sales volume -19% to 27.4 million carats;

- Production -8% to 31.9 million carats;

- Average price -25% to $156 per carat, reflecting "a larger proportion of lower value rough sold and 6% decline in average rough price index."

Production exceeded sales by 4.5 million carats, representing a build up of inventory at the company, mainly accumulated during 4Q when manufacturers scaled back on rough purchases. Will that continue? It may, at least in the first half considering January's sight was 19% below last year.

De Beers is hedging its bets, planning 2024 production of 29 million to 32 million carats - somewhat in line with last year, but it also has around 4.5 million carats sitting in its vaults. "De Beers will assess options to reduce production in response to prevailing market conditions," Anglo American said.

Looking at the inventory build-up one must also consider De Beers recent deal with the Government of Botswana, which also owns a 15% stake in De Beers. The government, through Okavango Diamond Company, will gain larger volumes of local production by Debswana Diamond Company (the De Beers-Government mining joint venture). Okavango's share will rise from 25% to 30% this year and eventually to 50% over the next decade.

While De Beers typically does not like to hold inventory, it is also planning for that scenario in which it will have access to fewer diamonds in Botswana.

It is no coincidence that the company is investing in Angola, arguably the most prospective diamond mining country today. CEO Al Cook signed an MOU with Angola's mining parastatal Endiama this week to advance alluvial mining in the country and enhance social development there.

It seems that De Beers is broadening its horizons as it has to reduce its reliance on Botswana. That will mean fewer diamonds for De Beers in the coming years at which point those 'carats in the safe' might come handy. Regardless, the numbers weren't great, and reflected the state of the diamond market in 2023.

All that is putting pressure on the company among its shareholders, with Anglo "assessing [De Beers] carrying value." That's a tinkering of financials that reflects the subsidiary's value on Anglo's balance sheet.

It will take a change in the market's fortunes and an effort by De Beers to compensate for its lower available production to raise that value. This year may be (another) defining one for the company.

Image credit: De Beers.

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