De Beers drops big reveal
Discloses diamond valuations for Snap Lake
Walter Strong
Northern News Services
Published Monday, November 17, 2014
NORTHWEST TERRITORIES
In an unusual move, Anglo American plc, the 85 per cent owner of De Beers, held an investor seminar recently that went beyond the normally candid disclosure style De Beers has traditionally taken to its diamond mine production.
A recent aerial shot of the De Beers Canada Inc. and Mountain Province Diamonds Gahcho Kue diamond mine project construction site. The billion dollar project is expected to raise Canada's profile in De Beer's global portfolio of diamond mine properties. - photo courtesy of Mountain Province Diamonds |
In the past, Anglo American has reported De Beers carat production from its Snap Lake and Victor Lake diamond mines in Canada.
What neither Anglo American nor De Beers has reported before is the carat value of that production.
According to information distributed during the Nov. 3 analyst seminar, the Snap Lake diamond mine recovered 1.3 million carats at an average value of USD $186 per carat in 2013.
At a grade of 115 carats per hundred tonnes mined - or 1.15 carats per tonne - Snap Lake out-paces De Beers' other diamond mine in Canada. The Victor Lake mine in northern Ontario returned an average grade of 0.22 carats per tonne for 0.7 million total carats in 2013.
But diamond valuations for those 700,000 carats were a little more than three times higher than at Snap Lake.
Victor Lake diamonds were valued at $560 per carat in 2013, meaning the total value of Victor Lake production was $392 million, compared to $241.8 million out of Snap Lake.
At lower diamond grade per tonne, operations at Victor Lake had to mine and process much more ore to produce those highly-valued carats.
If you're wondering how the profitability of a lower grade, higher carat-value mine compares to a higher grade, lower carat-value diamond mine, you'll be disappointed with the De Beers report.
It seems this is the limit of how far back the company will draw the curtain on specific diamond operations. The bottom line for any of De Beers individual mine operations remains undisclosed, as do operating costs per carat mined. This differs from publicly traded mining companies with their annual and quarterly reports to investors.
But overall, Anglo American reports De Beers to be very profitable.
In 2013, on revenue of $6.3 billion, the De Beers group of companies returned $1 billion in profit, for a 16 per cent operating profit margin. The company generated $600 million free cash flow from operations.
De Beers sits on $4.8 billion in total capital globally, including a $1.1 billion diamond inventory.
With diamond mines in Canada, Botswana, Namibia and South Africa, the bulk of De Beer' revenue comes from rough diamond sales, although the company reported $400 million revenue from the production and sale of synthetic diamonds destine for industrial applications.
Total Canadian diamond production for De Beers in 2013 were relatively small compared to the company's Botswana operations where 22.7 million carats were recovered between four mines, all of which are operated under a 50/50 joint venture with the local government.
Diamond valuations from Botswana production averaged $167.5 per carat over four mines.
After Botswana, De Beers' three diamond mines in South Africa - operated in a 74/26 partnership with Ponahalo Holdings - produced 4.7 million carats. Canada, with two 100 per cent owned De Beers mines was third at two million carats recovered, while De Beers' five mines in Namibia, operated in a 50/50 venture with the government there, produced 1.8 million carats.
The Gahcho Kue diamond mine, currently under development approximately 200 km northeast of Yellowknife, will be the company's third Canadian mine.
A joint venture with Mountain Province Diamonds, the $1.2 billion project is expected to produce 4.3 million carats annually over a mine life of 11 years.
At $1 billion in operating profits, De Beers accounted for up to 15 per cent of Anglo American's 2013 operating profits.
Forty-seven per cent of Anglo American's operating profits last year were tied to iron ore. The metal-making commodity has seen an approximate 40 per cent drop in value this year, which may explain Anglo American's desire to highlight the profitability of its De Beers assets to investors.
While demand for iron ore may be on the decline, the demand for rough diamonds is expected to continue to grow.
Not only is demand expected to grow, but De Beers is anticipating demand to slowly outstrip supply.
The company points to a McKinsey Global Institute report that forecasts world diamond supply to decline by 20 per cent over the next ten years, while demand is projected to grow by more than 50 per cent.
The De Beers group of companies is a syndicate of diamond mining, trading, and manufacturing companies accounting for approximately 40 per cent of global diamond production.
