Diamond Sales Falling, De Beers to keep Prices High

De Beers mothballs diamond mines as sales slide

By Tom Burgis in Gaborone reporting for the Financial Times

Published: February 23 2009 02:00 | Last updated: February 23 2009 02:00

The world's biggest and most valuable diamond mines have been mothballed since the start of the year when De Beers put its Botswana production on hold as sales of the stones slumped.

The mines, source of half of the group's supply of rough diamonds and nearly a quarter of the world's by value, sold no diamonds in November and "very little" in the subsequent two months, Sheila Khama, chief executive of De Beers' Botswana business, said.

"Debswana [De Beers' mining joint venture with Botswana] hasn't produced all year this year," Ms Khama told the Financial Times. "Why produce what you can't sell?"

The production suspension comes as the credit rating of Botswana is put under pressure from declining diamond revenues.

Global sales of the precious stones, which trade through auction houses and private placements rather than commodity markets, have fallen to a standstill. The US, which normally consumes as much of half of any year's diamonds, is in recession. Diamond cutters, the industry's middlemen, are weighed down with debt and stock they cannot shift to retailers.

Ms Khama could not say when Debswana's four mines - which include Jwaneng, the world's richest by value, and Orapa, the biggest by volume - would restart production. She said the challenge was to retain the "agility" to start up once demand returned.

Ms Khama said: "We think 2009 will be a very difficult year. We think, just based on historic trends, it might turn in 2010. We are saying cut costs because we don't know where the next penny is going to come from."

The mines, the country's largest private-sector employers, had not yet cut their 6,300 staff, Ms Khama said. However, workers at Botswana's downstream operations had had their hours cut.

The southern African country of 1.8m people depends on diamonds for four-fifths of the foreign exchange it earns and about a third of gross domestic product.

Baledzi Gaolathe, finance minister, said in his budget speech this month that diamond revenue would plunge by half this year, with prices down 15 per cent and production in the country down just over a third. In 2007, Debswana's revenues were P102bn, about £9bn-£10bn at today's exchange rate.

Last week, Standard and Poor's, the credit rating agency, warned that it might downgrade its opinion of Botswana's creditworthiness in light of the turmoil in the diamond market.

Copyright The Financial Times Limited 2009