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De Beers Bets its Future on Origins

The De Beers roadshow has begun. CEO Al Cook on Friday outlined a new strategy that will see the company streamline its mining operations and double-down on its retail, midstream and marketing activities. The changes are significant and necessary.


The presentation at JCK Las Vegas came two weeks after Anglo American announced plans to “divest or demerge” from De Beers, and the day after BHP Billiton confirmed it will no longer pursue its acquisition of Anglo. On the surface, therefore, the strategy is aimed at raising the value of De Beers so that Anglo can woo potential bidders for the diamond unit. On a deeper level, the company’s survival is at stake, and arguably the future of the industry.


(See my video on the pending De Beers sale here).

The five-year strategy, named “Origins,” outlines a route back to profitability. Cook set a target for earnings before interest, taxation, depreciation, and amortization (EBITDA) to exceed $1.5 billion by 2028. That’s compared to EBITDA of just $72,000 last year.

Based on De Beers published data.

Growth will mainly be driven by “projects and streamlining,” and partly by an expected price increase of 3% to 5% annually, De Beers projected in its presentation (which can be seen here). The streamlining includes an annual cost saving of $100 million and the disposal of non-diamond assets, deferments of non-core projects and the disposal of non-strategic equity holdings. 


Profit Over Volume


Perhaps the most telling line in the presentation came under the company’s plan for midstream integration, to “reduce rough diamond inventory through production cuts and new sales.” It has built up a significant inventory as demand slowed in the past 18 months.


Production will focus on “high return major projects.” Those include the Venetia mine in South Africa which recently transitioned to underground operations, the Jwaneng mine’s Cut 9 and underground expansions, Cut 3 at Orapa, and marine mining off the coast of Namibia.


Significantly, De Beers appears to be scaling back its operations in Canada. It has paused a planned underground expansion at the Ghacho Kué mine, as well as the Chidliak development project and exploration in the country.


It is unclear what “new sales” means. Cook said the company plans to subcontract manufacturing of its rough and sell the polished as part of its traceability program, Rapaport reported. De Beers recommitted to the sightholder model in which it sells predetermined volumes to a select group of clients 10 times a year. The presentation hinted at new contracts with sightholders that are in the works.


That said, De Beers will have less supply to distribute to sightholders given its new deal with the Botswana government. That agreement stipulates that the parastatal Okavango Diamond Company will raise its portion of Debswana (local Botswana) production from 25% to 50% over the next decade. Those goods would otherwise have gone to De Beers.


Take Gahcho Kué and the Namibia land operations out of the portfolio and it further reduces the volume of rough that will be available to sightholders in the long term. Those assets added a combined 3.3 million carats to De Beers’ offering in 2023. Its exploration program in Angola will arguably sustain production levels in the future, but that’s at least a decade away, in the best-case scenario. In the meantime, it can dip into inventory if there is a shortfall.


Still, the result is that the exclusive club of De Beers clients may well become even more select. The new De Beers is clearly focused on efficiencies and profitability rather than pushing as much volume to as many sightholders as it can. How far it has come from the infamous supply practices of the 1900s.


Marketing Push

The company is looking to build on its marketing successes of the last century. Cook emphasized plans to “reset category marketing,” largely through partnerships with major retailers in the US and China. It has programs in place with Signet Jewelers and Chow Tai Fook, the largest jewelers in those respective regions.

De Beers CEO Al Cook.


Beyond that, the company is doubling down on its branding, particularly its high-end De Beers Jewellers retail operation, which last week announced plans for a new flagship store in Paris in 2025. Forevermark will focus on India, which De Beers predicts will this year become the second largest diamond consuming country. ‘Origin Story’ is its third brand, which enables retailers to tap into the De Beers story behind their diamonds.


As for lab grown, De Beers seemingly hasn’t completely shelved the Lightbox experiment. But it is emphasizing the value of natural diamonds and predicts a clearer bifurcation between the two products. De Beers estimates that $4.5 billion worth of lab grown sales in the US took $7 billion away from the natural diamond market in 2023. By 2030, it expects that cannibalization to decline to $1 billion. 


The category marketing and branding push will help facilitate segmentation between natural and lab grown. De Beers also unveiled a new diamond verification instrument to be used in retail stores that will help consumers understand the differences between the two products. Meanwhile, Element Six will focus on the use of synthetics for technological solutions and will suspend production of lab-grown diamonds for jewelry. Its facility in Oregon, which opened in late 2020 and was designed to manufacture 200,000 carats of lab-grown rough per year, will now be converted to a US technology hub.


It all makes for a somewhat damning reflection of the previous management’s approach, but it also highlights the extent to which the market for natural diamonds came down last year.


Natural Roots


Global demand as measured by polished wholesale prices fell 9% to $25.2 billion in 2023, De Beers estimated. The decline was due to the encroachment of lab grown, the slowdown in engagements (bridal) that resulted from Covid-19, and the sluggish economic recovery in China, the company explained.


In addition to those factors, De Beers – and the diamond industry – lost value in the longer term as the company shelved its generic marketing in favor of an ineffective retail branding program (Forevermark), gave a de facto endorsement of lab grown through Lightbox, and pushed too much rough to the midstream which resulted in the perpetual bloating of polished inventories.


From an outsider’s perspective, the new strategy aims to reverse the consequences of those schemes. It’s a realization that the diamond dream which De Beers touted over the last decade was not entrenched in the reality of evolving market conditions. 


That’s what Origins will hopefully achieve; adapt De Beers to today’s market requirements, build a platform from which it can grow, while driving demand for natural diamonds. De Beers can only effectively do that as a more agile and flexible entity.


Cook therefore had no choice but to make some radical changes, irrespective of Anglo’s intentions. Attention will now turn to execution of the strategy and whether he can sell his vision to investors. Potential buyers will be looking for restored value in the company, and the industry, as the aptly named Origins program returns De Beers to its roots as the champion for natural diamonds.

Image credits: (De Beers)  

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