The Group's share of operating profit from De Beers rose by 5% to $508 million.
De Beers' sales for 2008 at $6,888 million (attributable $3,096 million) were marginally above the previous year (2007: $6,836 million (attributable $3,076 million)), though below expectation owing to the impact of the global economic downturn. Over the first nine months, the DTC, which represented 86% of De Beers' total sales, achieved record sales as buoyant demand for diamonds translated into increased prices. Fourth quarter sales slowed as a result of the downturn and the consequent liquidity squeeze in the key global cutting centres. Net interest bearing debt fell to $3.55 billion (2007: $4.06 billion) as a result of the benefits of a stronger dollar, the repayment of debt and shareholder support.
In light of the weak outlook for diamond sales, the shareholders of De Beers have agreed to provide loans to De Beers, proportionate to their shareholdings, totalling $500 million in 2009. Anglo American holds a 45% interest in De Beers and will therefore provide a loan of up to $225 million. De Beers is an associate company of Anglo American and its debt is therefore not consolidated on to Anglo American's balance sheet.
(unless otherwise stated)
|Share of associate's operating profit||508||484|
|Group's aggregate investment in De Beers||1,623||1,802|
|Share of Group operating profit||5%||5%|
Global retail sales showed steady growth during the first half of 2008 driven principally by the emerging markets of China, India and the Middle East. However, in 2008, the all important holiday period took place amidst significant weakness in US economic sentiment, with American consumers, the world's major diamond purchasers, cutting back sharply on spending. The luxury goods sector appears to have been particularly impacted, with jewellery retailers in the US reporting double digit year on year declines over the traditional key buying season between Thanksgiving and Christmas. As a result, it is estimated that global diamond retail sales were down, in the low single digits, for the year as a whole.
During the year, De Beers produced 48.1 million carats (2007: 51.1 million carats). Production from Debswana was 32.3 million carats (2007: 33.6 million carats), Namdeb yielded 2.1 million carats (2007: 2.2 million carats), while the output from South African operations fell to 12.0 million carats (2007: 15.0 million carats). The new Canadian operations at Snap Lake and Victor produced 1.6 million carats (2007: 81,000 carats).
Element Six recorded total annual sales of almost $500 million for the year and growth of 25% as a result of the inclusion of a full year's trading in respect of E6 Hard Materials (Barat Carbide), acquired in 2007, as well as organic growth.
De Beers has made an impairment to goodwill of $176 million ($79 million attributable) as well as having an $82 million charge ($37 million attributable) in relation to restructuring and retrenchment as a result of current trading conditions.
For the first time in its history, De Beers opened three new mines in one year. In Canada, Victor mine in northern Ontario was completed and commissioned eight months ahead of schedule, while Snap Lake mine in the Northwest Territories commenced commercial production in early 2008 with both mines achieving full production in the second half of the year. De Beers' Voorspoed mine in South Africa was officially opened in November and is expected to produce 8.3 million carats at an average value of $120 per carat over the next 12 to 16 years.
The global economic crisis is having a significant impact on sales of retail diamond jewellery, liquidity and demand for rough diamonds in the cutting centres. This, in turn, has resulted in a reduction in sales of rough diamonds by the DTC. Trading conditions are expected to remain challenging throughout 2009. De Beers has taken steps to significantly reduce production levels, costs and capital expenditure across all operations. These actions, together with the business restructuring initiatives already completed, including the disposal of the marginal Cullinan and Williamson mines, have positioned De Beers to weather this tough economic environment.
Recent market research from the US and China confirms that consumers' desire for diamonds remains strong. As economic conditions improve, emerging demand, coupled with the decline in long term diamond supply, is expected to form a positive foundation for future increases in diamond prices.