Debswana Diamond Co., which operates the world’s biggest mine for the gems by value, is trimming output at a tailings-treatment plant in Botswana as it sees weak demand for the stones persisting in the first half.
The company, a joint venture between the country and Anglo American Plc’s De Beers unit, has “leveraged down” production at the Jwaneng mine’s tailings plant by “a notch,” Debswana Managing Director Balisi Bonyongo said in an interview in Gaborone, the capital of the world’s largest diamond producer. Its other operations are “running flat out,” with output going according to plan, he said.
Rough-diamond prices dropped 6.9 percent in the last three months of 2014, the biggest quarterly decline in more than two years, and weakened a further 1.2 percent in the first three months of 2015 as banks tightened credit, forcing traders, cutters and polishers to sell more inventories.
“In cutting and polishing, we’re also seeing a squeeze in margins because rough prices have gone ahead of polished,” he told reporters. “This has congested the midstream and because of that, the market has softened.”
Debswana, which operates four diamond mines, started processing tailings at Jwaneng last year and estimates the dump can yield as many as 900,000 carats annually for about 20 years. The first stones from the plant were recovered last November.
Bonyongo doesn’t see a repeat of 2008, when Debswana closed all of its four operations that December as the global recession reduced spending on luxury goods including jewelry.
“We have built flexibility and agility into our operations and can reduce production without closing down,” he told reporters. “We have a robust balance sheet and can run this business without shutting. We are comfortable that we have enough resources and connected resources with banks.”
De Beers said last month the outlook for diamond jewelry growth in 2015 is positive across all the main markets after sales rose 3 percent to $81 billion last year.
“Our partners say the market could improve in the second half and our job is to respond,” he said. Our assets must be ready to ramp up, from our fixed assets to our trucks. When we reduce production, we have to be able to come back up quickly.’’
At Debswana, output will range from 23 million carats to 26 million carats annually until about 2028, the company said in a presentation. It produced 24.2 million carats last year, Bonyongo said. Production peaked at 34.3 million carats in 2006, according to the nation’s Department of Mines. Tons mined by the company in the first quarter rose 6 percent from a year earlier, Bonyongo said.
“We expected U.S. sales to improve given positive consumer confidence and the fact that unemployment was falling,” Bonyongo said. “The global volatility in the world market causing this slowdown is part of what we work with in this industry and we must adjust to it,” he said.