De Beers began to recover

De Beers, which can account from its interests for around 40% a year of the world's rough diamonds, has emerged from 2010 as not seen for at least a decade. It has been a rough few years. During the general financial markets crisis of 2008, few commodity prices were battered as badly as rough diamonds.

De Beers's rough diamond sales via its Diamond Trading Company (DTC), which had been around the USD 6bn mark during each of 2006, 2007, and even 2008, collapsed to USD 3.2bn in 2009. De Beers's free cash flow (operating cash flow, less capital expenditure), fell to a precipitously low USD 45m in 2009.

Free cash flow for 2010 was close to USD 1bn, on DTC sales booming back, to USD 5.1bn. The recovery was assisted by heavily pared cutting across-the-board. This includes "soft" investment, such as exploration, and research and development, all areas that may be considered vital to ensuring longer term success.

Various assets have been sold off: with less of everything, including far less net debt than the USD 4.1bn seen at the end of 2007, De Beers is generating returns at a rate it has been unable to achieve for years.

De Beers was selling as many as 50m carats a year in 2007; in 2009, that number was halved. During 2010, 33m carats were sold, a number that could rise in the medium term to around 40m carats. Group production today comes from Botswana, South Africa, Canada, and Namibia.

The biggest new project is at Botswana's Jwaneng, the richest diamond mine yet known. Planned new projects to continue the mining at Jwaneng until 2025 are set to cost around USD 3bn, and should continue to underpin De Beers's competitive position that was evidently reestablished during 2010.

Possible new mines are tipped to be found in Botswana and Canada, and also Angola, a notoriously difficult environment for miners, but also one of the few countries likely to yield up a truly significant new diamond deposit.

De Beers has reported from Angola the Mulepe-1 project, in the form of three large adjacent kimberlites discovered in 2007. The combined size is estimated at a minimum of 20 hectares, with 20m to 40m of sand cover. Preliminary results are "encouraging" says De Beers, which is proceeding to resource phase drilling and conceptual studies. De Beers is also reporting some interesting results from India, where diamonds have been mined from time to time over the centuries.

De Beers

USD m	2010	2009	2008	2007	2006
Free cash flow
Operating cash flow	1,160	226	700	844	809
Capital expenditure	-204	-181	-403	-1,503	-1,194
Free cash flow	956	45	297	-659	-385
Net debt	-1,762	-3,200	-3,552	-4,057	-2,994

This information is obtained from miningspot.com