Showing posts with label de b. Show all posts
Showing posts with label de b. Show all posts

Sunday 16 June 2024

De Beers plans return to marketing roots as split from Anglo American looms

De Beers plans return to marketing roots as split from Anglo American looms

De Beers, which created the global market for diamond engagement rings through its “A Diamond is Forever” campaign, is shifting back to its marketing roots as its parent company Anglo American (LSE: AAL) moves to sell it off.

Its new ‘Origins’ strategy is part of a wider pivot back towards natural diamonds, announced on May 31. The move makes sense because marketing has always set the diamond sector apart from other mineral industries and the industry risks losing its way if it becomes focused only on mining and turns away from the demand creation side, New York City-based diamond analyst Paul Zimnisky told The Northern Miner.

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“Marketing is what moves the needle,” he said. “You can throw money at the problem, you can create demand if the products are marketed properly. You have to look at it as a luxury product, not as a commodity.”

In announcing the divestiture of De Beers on May 14, Anglo said the move would give both companies “a new level of strategic flexibility to maximize value” for Anglo American and the government of Botswana, which each hold 85% and 15% stakes, respectively, in the diamond company. The Botswana government also indicated on June 10 that it wants to increase its interest in De Beers. High capital needs and declining diamond supply present further challenges in the diamond sector, analysts say.

Anglo’s announcement of its De Beers plans, as well as plans to sell off its South Africa-based Anglo American Platinum (JSE: AMS) and its steelmaking coal assets was triggered by BHP’s (ASX: BHP) unsuccessful, multi-billion-dollar acquisition bid in mid-May.

‘Growing desire’
De Beers is also suspending its Element Six lab-grown diamonds (LGD) subsidiary for jewelry to focus instead on synthetic diamond technology for industrial applications, it said in May. Production for the Lightbox LGD brand will stop in a few months, De Beers CEO Al Cook said in a June 13 interview with diamond news site Rapaport.

“The outlook for natural diamonds is compelling,” Cook said in a news release, adding that the company’s new approach will involve “growing desire for natural diamonds through the reinvigoration of category marketing, embracing new approaches that maximize reach and impact.”

Cook explained to Rapaport the need to tell better diamond stories is greater now that “there are more diamonds above the surface of the Earth than below the surface. Every year, diamond mines are closing.”

De Beers first entered the synthetic diamond jewelry market in 2018. In setting up a solid difference between mined and lab-grown diamonds, the company initially offered Lightbox jewelry for up to 80% less than its competitors’ prices.

Slowing sales, production
The stronger emphasis on marketing also comes as De Beers grapples with lower sales, with Cycle 4 rough diamond sales, at $380 million this year, down by 20% from last year’s Cycle 4 period of $479 million, the company reported on May 23. The Cycle 4 period approximately covers two weeks in May. Cook said the sales were due to the seasonally slower second quarter and less trading in India during the elections.

Production declined 8% to 31.9 million carats in 2023, from 34.6 million carats in 2022. First quarter output this year, at 6.8 million carats, was down 23% from the year-earlier figure of 8.9 million carats.

The wider industry is also facing the challenge of lower demand, especially in the United States and China. Amid the slow demand, De Beers cut the price of 0.75-carat stones by 4% to 6% at this year’s fourth trading session, according to a May 7 report from Rapaport. In the first sale of the year, the company cut prices by about 10%.

The issue of declining production could be expensive for De Beers to deal with, BMO Capital Markets diamonds analyst Raj Ray implied.

“From mining business point of view, not having a parent company like Anglo American backing De Beers could have some serious implications for diamond supply going forward,” he said.

Rough diamond supply has dropped to around 120 million carats from 150 million carats in 2017-2018, Ray said. It’s expected to drop even more in the next four to five years.

Amid the supply constraints, De Beers has invested $1 billion in expanding the life of its flagship Jwaneng mine in Botswana, and $2.3 billion to move underground the Venetia mine in South Africa.

“The next 12 to 24 months don’t look great for the rough diamond industry,” Ray said. “Anyone looking at De Beers will have to acknowledge (that). There’s huge capital investments that are needed over the next few years across mines to be able to maintain supply, forget about growing supply.”

But despite that hurdle, Ray and Zimnisky both see De Beers maintaining its 30% share of the global diamond market.

“They’ll continue to be the pre-eminent producer in the world,” Ray said. “Anyone who will buy (De Beers) will continue to fund its projects. I don’t see any significant drop in production from the De Beers portfolio.”

Going solo?
Once De Beers formally leaves Anglo as part of the company’s restructuring, which CEO Duncan Wanblad has said could take 18 to 24 months to complete, the diamond miner will face the prospect of being purchased or going alone.

Zimnisky said either option has its own difficulties.

“This is something Anglo has wanted for a while,” he said. “They wanted Anglo to become more of a pure play copper producer, or a green infrastructure buildout commodity producer hoping it would lead to a higher valuation for the company. That said, De Beers is a complicated business and not easy to sell. It has (the) Debswana joint venture, which is the crown jewel of the company.”

Ray agrees that few potential buyers would have interest in a company like De Beers whose business requires massive capital investments. An IPO is also unlikely, he said.

“There’s little interest in the diamond sector from an equity perspective. I don’t see how in a potential IPO there’s enough interest in a new diamond story,” he said. “This has to be a private sale or consortium that needs to come in and take a longer-term view of the diamond sector. There could be growth expected in the retail segment. That’s where I think anyone taking a look at De Beers would see the value.”

Both analysts also see the De Beers sale having minimal impact on the junior exploration sector for diamonds.

“In order to stimulate exploration across the industry you would have to see a notable diamond price recovery,” Zimnisky said. “Prices have been flat for almost a decade now.”

Source: DCLA

Tuesday 23 April 2024

De Beers’ diamond output drops after slow recovery triggers production cut

De Beers’ diamond output drops after slow recovery triggers production cut

Diamond output for De Beers slumped 23 per cent in the first quarter, as production was cut in response to a slow recovery in demand amid a pullback in luxury spending and the proliferation of lab-grown equivalents.

De Beers was the only unit of Anglo American to adjust its full-year production forecast on Tuesday, reducing its guided range to 26mn to 29mn carats of output, from 29mn to 32mn, and lifting expected average costs to $90 per carat, from $80.

Anglo American said the diamond market was suffering from a price rout caused by excess piles of inventory, something that De Beers has previously acknowledged is partly down to lab-grown diamonds cannibalising demand for mined stones.

“Ongoing uncertainty around economic growth prospects has led to a continued cautious purchasing approach” by its customers, Anglo American said. “The recovery in rough diamond demand is expected to be gradual through the rest of the year,” it added.

De Beers said a nascent recovery had begun in the first quarter, buoyed by improved demand for diamond jewellery around Christmas and new year in the US.

Diamond producers including De Beers’ arch-rival, Russia’s Alrosa, tried to curb the flow of gemstones into the market in the second half of last year. The Indian government even put on a voluntary import moratorium on rough stones in the final quarter to protect its polishers and cutters.

Despite those continued efforts into this year, demand, prices and the market recovery remains sluggish, Anglo said, requiring further action to be taken to reduce supply.

Anglo American chief executive Duncan Wanblad has been under pressure to improve performance since a production downgrade in December sent shares tumbling, although it has been aided by higher commodity prices, especially for copper.

Wanblad has said that “nothing is off the table” when it comes to asset sales or other options to restructure units, of which De Beers and the platinum group metals division are the most troubled.

“We are progressing through our asset review to optimise value by simplifying and improving the overall quality of the portfolio,” he said in a statement in the first-quarter production update on Tuesday.

Shares in Anglo American dropped 1.7 per cent in early trading in London and remain about a third lower than they were at the start of 2023.

Besides diamonds, the London-based company managed to maintain its guidance across its other commodities such as copper, iron ore and steelmaking coal.

Copper output jumped 11 per cent to 198,100 tonnes, helped by record throughput at its Quellaveco mine in Peru and higher grades at its Chilean mines Collahuasi and El Soldado.

South Africa, where Anglo American has iron ore, steelmaking coal and platinum mines, has become an increasing drag on production because of crippling problems in the logistics and power sector. Rail constraints resulted in a 2 per cent drop in output at Kumba Iron Ore.


Source: DCLA

Tuesday 15 November 2022

The Evolution of De Beers’ Strategy


A portrayal of De Beers’ operations past and present.
A portrayal of De Beers’ operations past and present.

Bruce Cleaver reflects on the changes that took effect in the six years he headed the diamond company.

RAPAPORT… Bruce Cleaver had a very focused “to do” list when he took over as De Beers CEO in July 2016. Having previously worked on strategy and business development at the company, as well as at parent Anglo American, he recognized De Beers’ need to evolve, and to protect it from the increasing volatility evident in the global economy and diamond market.

“I wanted to build a more sustainable business; one that was less prone to economic cycles,” Cleaver stresses in an interview with Rapaport News. “I wanted to ensure we’d never get caught in the position we had in 2008 when we hit a very serious downturn and our balance sheet was very stretched.”

Bruce Cleaver

He never imagined those goals would be challenged by a global pandemic and a war in Ukraine that has brought sanctions on Russian diamonds — approximately one-third of global rough supply. These aren’t events you predict in your risk analysis, he notes.

In contrast to 2008, when De Beers had to take on more debt to weather the financial crisis, the company emerged from Covid-19 stronger than before, and it may even have benefited from the limitations on Russia-based Alrosa — its biggest competitor. The $491 million in underlying earnings it reported in the first six months of 2022 was its best half-year profit since 2011, and the $3.54 billion in revenue its highest since 2014 (see graph).

But Cleaver looks beyond the financials as he reflects on his tenure at the helm of the world’s largest diamond company. His six-and-a-half-year stint brought a significant transformation to De Beers’ structure, brand positioning, messaging, and relationships, all of which he believes demonstrate transparency and a willingness to change that were not always evident at the company.

Call to collaborate

His first public statement after being appointed to the position called for greater cooperation and partnerships within the trade. He actively sought to ease the tension that often stood between De Beers and sightholders and at times its government partners, he admits.

“It was important for us to show people we would change, listen more and collaborate more,” he reflects. “I do feel there is much more trust now than before, and a sense of working toward a common goal — that we can agree to disagree in a more friendly way.”

Central to achieving that was the refurbishment of the sightholder application process, which he concedes had previously been complicated and intimidating. The current system further demonstrates De Beers’ willingness to be more open and transparent, Cleaver insists. It’s a complicated task, he adds, considering the company distributes some 33 million carats a year and must set criteria to award goods to certain people and not to others.

The sheer volume of De Beers’ production means the company is unlikely to shift away from the sight system any time soon. However, it did tweak its distribution at the beginning of 2022 to provide more bespoke supply by classifying sightholders according to their business type: manufacturer, dealer, or retailer. The move was seen as an attempt to reduce the flipping of boxes on the secondary market and to bring more efficiency to the supply chain.

Special stones to sell

There has been speculation that the Botswana government — a 15% shareholder in De Beers and a joint venture partner in its mining and selling distribution businesses — is pressuring the miner to sell its specials through the parastatal Okavango Diamond Company, in vertically integrated deals with manufacturers. The two are currently negotiating a new 10-year supply deal and the renewal of De Beers’ mining licenses in the southern African country.

Structuring supply in such a way would see the company (and government) take a share of profit from the sale of the resulting polished. Smaller companies have struck similar partnerships, such as Lucara Diamond Corp.’s agreement to sell its 10.8-carat-plus rough through manufacturer HB Antwerp.

Cleaver notes the deeper considerations with which De Beers must contend. “It’s a whole different ball game selling 33 million carats a year than 50,000 carats. We have an offering that we must sort, value, sell, trace and track on a completely different scale,” he points out. “You have to be much more sophisticated, more thoughtful and have a much stronger balance sheet.”

That’s not to say the company is set in its ways, particularly regarding how it sells specials. Last year, it partnered with sightholder Diacore to buy an exceptional 39.35-carat blue rough stone from Petra Diamonds for $40.2 million and share in the profit from the polished. The De Beers Blue, the 15.10-carat, fancy-vivid-blue polished that resulted from that rough, fetched $58.7 million at Sotheby’s Hong Kong. The two companies also teamed up to buy five blue rough diamonds from Petra in 2020, with the resulting polished stones expected to garner over $70 million at Sotheby’s in November (after press time) and December.

“It’s not difficult as a seller of a small volume of goods to find one buyer who will buy one particular stone at a significant premium to the market — that happens to us all the time,” he adds. “We just don’t publicize it.”

Tech at play

Technology has been the central tool to improve the way De Beers sells rough, Cleaver underlines. He teases that the company will introduce various innovations in the next 12 to 18 months that will be “game changers in how we continue to sell in this evolving market,” but he declined to reveal further information about these developments.

Data is also playing a much more important role in enabling De Beers, and others, to make more rapid decisions than before — and that data-centric strategy is being driven by technology, he notes.

In fact, technology is influencing change across all De Beers business units, Cleaver says. That includes at its mining operations, where it is tackling the challenge to “mine more gently,” using less water and energy to be more environmentally friendly. He also highlights the Tracr program — De Beers’ blockchain-driven traceability platform — which is gaining traction and will enable companies to show the provenance of their De Beers supply.

Building forever

That all feeds into the strong focus on sustainability that De Beers has adopted in recent years and the need to show one’s diamond is ethically sourced. While Cleaver recognized the need to talk about sustainability early in his tenure as CEO, the rapidness with which the subject became a focal point for brands surprised even him.

“I wanted to make sustainability a bigger issue, but I don’t think I realized at the beginning just how important it is,” he admits. “Now ‘Building Forever’ is an absolutely key part of everything we do.”

Building Forever outlines 12 goals De Beers has set to achieve by 2030, encompassing four areas it has identified to make a meaningful impact.

Those are leading ethical practices, partnering for thriving communities, protecting the natural world, and accelerating equal opportunity. “These are vitally important not only to our business, but also to our employees, partners and communities across all facets of our operations,” the company emphasizes on its website.

The program gradually emerged as the core message of the De Beers brand, taking its cues from the rising awareness among millennials and Gen-Zers on issues such as carbon neutrality, climate change, and social upliftment. The program is what distinguishes De Beers, and it provides an opportunity to maximize the value of the brand that was not apparent five years ago, Cleaver says.

Cleaning the mess

The evolution of that message paralleled Cleaver’s advocating for more brands across the industry as well as cleaning up and strengthening the De Beers brand. Key to that development was taking full ownership of its name in early 2017, when it bought the 50% of De Beers Diamond Jewellers (DBDJ) that was owned by LVMH.

“It always felt messy having the De Beers name co-owned by someone else,” he observes. “I’m very pleased we’ve been able to unify the brands into one master brand.”

The company sought to leverage its strong name recognition as much as possible. Most notably that played out at retail with the LVMH deal and subsequently renaming the retail operation De Beers Jewellers (DBJ). It also rebranded Forevermark as De Beers Forevermark, and the strategy extended beyond its retail operations to align the whole group into one “De Beers” corporate identity with a common goal.

“I wanted to define a more holistic business strategy: to run the company as one business rather than three separate silos,” Cleaver shares. “I think we’ve been pretty successful in achieving that.”

Staying brilliant

De Beers previously had a more vertical structure, split between the pillars of mining, rough sales and its retail brands. Over the past half decade, it has morphed into a more integrated end-to-end business with every employee, regardless of which area of the company they work, having the same stated purpose: to “make life brilliant,” Cleaver explains.

As such, the outgoing CEO carefully defines De Beers as a “natural-diamond company” with an integrated structure that encompasses exploration, mining, rough sales, and retail brands. Lightbox, the company’s lab-grown business, is considered an “adjacency” that doesn’t fit into the core business model, he insists.

With that structure in place, Cleaver is confident the company can double-down on innovation – as he claims it did with Tracr and Lightbox — strengthen its relationships with the trade and government, and in doing so, lead the industry on big issues such as sustainability. He hopes to continue to influence that path in his new role as cochairman, through which he will take an active role in engaging with external stakeholders.

“It’s important that De Beers pushes agendas and ideas that might be surprising they came from a big organization,” Cleaver discloses. “But when you look at some of the sustainability work done by retailers and sightholders today, it’s fantastic, and I think that we did have some small influence on that — that was all deliberate.”

The industry will continue to evolve because the world will continue to change quickly, he continues. “I’ve tried hard to always think about what the next trend or the next move should be — and why shouldn’t it be us who makes them? We recognize that when De Beers talks, people do listen,” he concludes. 

Source: DCLA

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