No gem of a year for Namdeb

26 February 2021 | Business

Production at the land operation decreased by 21%, principally as a result of the Covid-19-related shutdown. – Anglo American

Jo-Maré Duddy – Covid-19’s “profound impact on global diamond supply and demand” left Nemdeb Holdings with an underlying EBITDA of US$113 million for the 12 months ended 31 December 2020, US$8 million or 6.6% less than its previous book-year.

Announcing its financial results yesterday, Anglo American said last year marked “difficult market conditions” for its subsidiary De Beers. De Beers owns 50% of Namdeb Holdings, while the Namibian government has the rest.

EBITDA stands for earnings before interest, taxes, depreciation and amortisation and is regarded as a gauge for a company’s profitability. At yesterday’s exchange rate, Namdeb’s underlying EBITDA for 2020 equalled about N$1.66 billion.

The local mining giant contributed about 27% to De Beers total underlying EBITDA of US$417 million, which slumped by around 25% on an annual basis.

Anglo attributed the drop to the onset of the Covid-19 pandemic and measures taken by governments in response.

“Reduced demand from jewellery retailers due to store closures, combined with the closure of diamond cutting and polishing factories in India from April to June, led to a substantial reduction in rough diamond purchases in the first six months. In response, De Beers reduced production and offered significantly increased flexibility to customers,” Anglo said.

PRODUCTION, PRICE

Namdeb’s total production decreased by 300 000 carats or 15% to 1.4 million carats, “primarily due to the suspension of marine mining during part of the third quarter in response to lower demand”. Production at Namdeb’s land operation decreased by 21%, principally as a result of the Covid-19-related shutdown, Anglo said.

De Beers’ average realised price last year decreased by 3% to US$133 per carat. Namdeb’s average realised price was US$492 or N$7 232 per carat. Compared to 2019, Namdeb’s price in US dollars fell by nearly 8%.

Despite the decline, Namdeb’s price still outshone the rest of De Beers’ subsidiaries by far. Botswana’s diamonds on average fetched US$124 per carat, followed by US$99 for diamonds mined in South Africa and US$58 for those produced in Canada.

However, Namdeb’s unit costs were drastically higher than those of the other countries. For the past financial year, Namdeb mined at a unit cost of US$272 per compared to US$53 (South Africa), US$36 (Canada) and US$35 (Botswana).

CAPITAL INVESTMENT

Namdeb’s capital expenditure for 2020 was US$77 million or more than N$1.1 billion, up 40% from 2019.

Namdeb started contruction on a new marine mining vessel – the AMV3 at a total investment of about N$3 billion – in 2019.

According to Anglo, the project is progressing on schedule. The vessel platform is expected in Cape Town in the third quarter of this year for the fitting of the mining and plant equipment. The vessel will be commissioned in 2022.

The new vessel will add 500 000 carats “of some of the highest value diamonds in the portfolio” to De Beers’ annual production, Anglo said.

This will contribute to an expected growth boost in diamond mining in Namibia. According to the Bank of Namibia’s (BoN) Economic Outlook in December, the growth forecast for the sector in 2020 was -14.7%, following -17.7% in 2019. The BoN expects growth of 2.8% in 2021, follwed by 16.9% in 2022.

At current prices, diamond mining is projected to pump nearly N$8.3 billion into the Namibian economy by 2022, an estimated N$1.5 billion more than this year.

Cirrus Securities shares the BoN’s optimism, expecting diamond output to improve this year. However, the analysts in their Economic Outlook 2021 added that a steady recovery in diamond prices was needed.

Cirrus projected a contraction of 12.9% for 2020, followed by growth of 13.9% this year. The analsysts’ growth forecast for the short term is: 9.1% (2022), 4.4% (2023) and 2.3% (2024).

OUTLOOK

Anglo said recent consumer demand trends have been positive in key markets. “Industry inventories are in a healthier position, providing the potential for a continued recovery in rough diamond demand during 2021, subject to the ongoing impact of Covid-19.”

The group expects consumer desirability for natural diamonds to remain high over the medium to long term despite the economic impact of the pandemic and increasing supply of lab-grown diamonds.

In the longer term, Anglo said, the impact of Covid-19 accelerated the transformation that was already underway across the industry and which was expected to continue at pace.

“This includes more efficient inventory management, increased online purchasing, and a growing consumer desire for products with demonstrable ethical and sustainability credentials, including an enhanced appreciation for the natural world.”

Anglo said the long-term outlook for the sector remained positive as “De Beers continues to focus on its business transformation to support the continued growth of its own business and the wider diamond value chain”.

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