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De Beers turns to mechanisation

Jun 28 2013 22:32 Tova Cohen and Ari Rabinovitch

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Tel Aviv - Diamond producer De Beers plans to cut costs and use machines more in place of labour, as it strives to become leaner and more flexible in response to a tougher global economic environment, says chief executive Philippe Mellier.

De Beers' owner Anglo American has just changed its own management and is in the middle of a three-month review, the outcome of which will likely include steps to improve the performance of the world’s biggest diamond producer by value.

Mellier and another senior executive, Varda Shine, told Reuters that De Beers was working on a wide range of ideas including a new automatic grading machine, which would “get rid of the human element” in grading diamonds.

It also hopes to introduce a screening machine by the end of the year that can detect synthetic stones among small, or melee, diamonds.

“We currently have a big project that is looking at integrating the mining companies’ processes and systems together with the midstream sorting operations all the way to sales,” said Shine in an interview.

“[We need] to make sure that we are able to become leaner and more flexible because the world is much more volatile today.”

Both executives shied away from saying whether that would add up to consolidation of some of the company’s businesses or worker lay-offs, but they did note that De Beers had four separate units and said the whole process could involve some capital outlays.

Mellier also said he could not comment on the ongoing review by Anglo.

Jewellery

Prices of diamonds slumped after the 2008 financial crash and have still to fully recover, hurting the margins of De Beers and its main competitor, Russia’s Alrosa.

Some players have speculated that the market might gain from investors in markets such as China using dollar-denominated assets as a safe haven, while the Federal Reserve reduces the flood of cheap dollars flowing into the world economy.

A more durable recovery of the US economy may also help the jewellery market, but against that are signs of a slowdown in demand and economic stimulus in China, a key growth market for diamonds in recent years.

Mellier said on balance he believed global demand for diamond jewellery would rise a touch faster this year than last year, outpacing supplies of the precious stones and clearing the way for more investment in the company’s operations.

Production for De Beers, however, would stay in line with last year’s rate of 27.9 million carats, he said.

Consumer demand for diamond jewellery rose 3% last year, but De Beers’ total sales fell 16% to $6.1bn, while core earnings fell 39% to $1.08bn.

De Beers forecast a single-digit rise in rough diamond prices this year, after a 12 percent fall last year. – Reuters


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