ANGLO American said its 85%-owned De Beers may cut diamond production further owing to a deterioration in second quarter market conditions.
“Trading conditions became more challenging in the second quarter as Chinese consumer demand remained subdued,” said Duncan Wanblad, CEO of Anglo in the firm’s second quarter production update on Thursday in which copper output also fell quarter-on-quarter.
“With higher than normal levels of inventory remaining in the midstream and an expectation for a protracted recovery, we are therefore actively assessing options with our partners to further reduce production to manage our working capital and preserve cash,” Wanblad added.
In April, De Beers chopped its rough diamond production forecast for 2024 by 10% dropping it to between 26 and 29 million carats from the previous estimate of 29 to 32 million carats. Morgan Stanley described the diamond market in a report in June as being in “a downward spiral”.
Anglo said today De Beers sold 6.4 million carats in the second quarter down from 6.9 million carats in the first quarter. The goods were sold at a flat average price in the first half of the year at $164 per carat (2023: $163/c).
Wanblad said the group now expected a “protracted” recovery in market conditions despite showing signs of improvement in the first quarter.
While guidance remained unchanged – for the time being – Anglo said it was “actively assessing options with our partners to further reduce production to manage our working capital and preserve cash”.
Production from Botswana, with whom Anglo is in a joint venture and which comprises most of total production, fell 19% to 4.7 million carats in the quarter. This was driven by “short-term changes in plant feed mix at Jwaneng to process existing surface stockpiles,” said Anglo.
The prospect of another production cut at De Beers highlights the potential difficulties Anglo may encounter in terms of selling the business “for value”, as it seeks to simplify the group. Wanblad said today the group remained committed to the restructuring, unveiled in May, saying he hoped it would be “substantively” complete by the end of 2025.
He made specific mention of steelmaking coal, Anglo’s Australian assets, saying the group was working “at pace” to restructure.
As part of these plans, Anglo is also unbundling its 79.2% stake in Johannesburg listed Anglo American Platinum which today said basic earnings for the six months ended June would be between 15% and 25% lower year-on-year owing to significant declines in palladium and rhodium prices particularly.
Second quarter copper production of 196,000 tons was 6% down on the first quarter’s output but on an interm basis production was 2% higher year-on-year.
Anglo needs a strong performance from its copper division after last year ‘resetting’ production guidance, calculated by Bank of America analysts at some 200,000 tons to mid-point output of 760,000 tons and 720,000 tons in 2024 and 2025.
At Kumba Iron Ore, in which Anglo has a 70% stake (and which it intends to keep in terms of its restructuring) a retraction in iron ore prices and continued rail and port problems would see interim basic earnings fall between 24% and 29% year-on-year.
Read More: De Beers to cut output again as diamond prices flatline