De Beers, who control 40% of the rough diamond market, reported today an underlying loss of $220 million (£140m). De Beers' largest shareholder, Anglo American, who have a 45% stake in De Beers, reported a loss of $90m. The Oppenheimer family own 40% and the government of Botswana own the remaining 15%.
As a result of this dramatic loss, the board confirmed that it has secured support for a $1billion rights issue from all three shareholders and all three groups have taken part in the cash call and maintained their stakes. Anglo American will invest $450 million in equity. The rights issue will cut net debt to $2bn from the current $3bn.
The sharp fall in consumer demand during 2009 was the principal thorn in De Beers side, provoking a subsequent cut in output form the mines, including a total shut down of its flagship prospect in Botswana.
De Beers commented:
In the consumer markets, we believe global demand for diamond jewellery declined for the full year in the low single digits, although the fourth quarter showed an improved and positive trend on 2008. Demand remained strong in the developing markets of India and China, with US Christmas trading results likely to show the first year-on-year increase since September 2008."
Going forward, De Beers envisages only a gradual recovery from these lows, given the ongoing lack of confidence in the global economy:
"Consumer demand for diamond jewellery is beginning to recover, driven in part by the strength of the developing markets of China and India. However, with the fragility of the world economy and perceived weakness of the global recovery post recession, the company would only expect a gradual increase in production levels, sales and prices."
