De Beers diamond profit tumbles

LONDON – De Beers, the world’s top diamond producer, said demand should pick up in the second half meaning it will not need more shareholder loans, when reporting tough markets had all but wiped out first-half profit.

De Beers, 45 percent-owned by mining group Anglo American Plc, said demand was still subdued in the huge US market that accounts for half of all diamond jewellery sales but was holding up in the emerging economies of China and India.The firm, which controls about 40 per cent of the rough diamond market, posted a 99 per cent fall in first-half net profit to US$3 million on Friday.’The trading conditions in the first half of this year were extraordinarily difficult… (but) the bounce-back you started to see in Q2, I think will you will see continue on through Q3,’ Managing Director Gareth Penny told reporters.The global luxury goods market has been hit hard by the global downturn as consumers feel uncomfortable splashing out on designer watches and handbags, but De Beers said couples were not cutting back on wedding and engagement rings.China and India, which make up around a fifth of the global market, could grow to a third of worldwide sales in 5-6 years, Penny said.Shares in Anglo – which has shunned a ‘merger of equals’ proposal by rival Xstrata – fell 0,6 per cent to 1,926 pence, with the mining sector down 0,9 per cent.’We think the De Beers news is neutral for Anglo. The results are not as bad as some had feared,’ Liberum Capital said in a note.De Beers is a small part of Anglo, contributing five per cent of the diversified group’s operating profit in the past two years.NO FURTHER SHAREHOLDER LOANSPenny said De Beers would not need further cash from Anglo and other shareholders – South Africa’s Oppenheimer family with 40 percent and Botswana with 15 per cent.Shareholders in De Beers gave it an interest-free loan of US$500 million in the first half, which has not been spent but was being used as a buffer, he said.’I think we’re happy that we’ve got that headroom. The shareholders put it in on the basis that it’s staying in the company, certainly for the foreseeable future.’The group had net debt of US$4,06 billion at end-June, giving a gearing level of 40 per cent, and cash of US$622 million.De Beers said it expected to conclude talks with banks in the second half on the renewal of a US$1,5 billion term loan facility expiring in March 2010.De Beers dipped into inventories to maintain sales as unpolished diamond sales slid 57 per cent to US$1,4 billion while production fell much more by 73 per cent to 6.6 million carats.De Beers – with mines in Botswana, South Africa, Namibia and Canada – cut overall costs by more than 50 per cent and reduced its global workforce by 4 700, or 23 per cent.-Nampa-Reuters