LONDON, Feb 13 (Reuters) - Diamond company De Beers, once a niche business for global miner Anglo American, is rapidly rising to become the jewel in its crown - with a brighter outlook than many of its metals.
The division’s profit leapt by more than a third in 2014 at the same time as its parent company Anglo saw earnings drop by about a quarter, hammered by a dive in prices of metals such as iron, copper and coal.
It overtook copper last year to become the second-largest contributor to group profit, fast closing the gap with the flagship iron ore business.
De Beers increased production in 2014 to capitalise on diamond prices having risen over the previous five years, and at the same time managed to marginally lower production costs at its mines in southern Africa and Canada.
Profit at the division, which sells its diamonds in dollars, was also boosted by the decline of southern African and Canadian currencies against the U.S. unit.
Global polished diamond sales rose an estimated 4 percent to about $26 billion last year, according to De Beers, and its Chief Financial Officer Gareth Mostyn expects the figure to rise by 3-4 percent in 2015.
“The fact that we performed well in 2014, a year that has been difficult for many of Anglo’s other businesses because of (weak) commodity prices really is a testament to the diversified business model that Anglo has,” he told Reuters in an interview.
“I hope those other commodities start to do better,” he said. “We are focused on continuing to deliver the current performance.”
De Beers hit a 2016 profitability target set by the group’s Chief Executive Mark Cutifani - of a 15 percent return on capital employed - two years early, and way before some other divisions.
The chief executive of platinum unit Amplats for example said last week that it would take it at least three years to hit the target.
“De Beers is rapidly developing into the company’s flagship business unit, in second place for 2014 behind the iron ore and manganese division that in light of weaker iron ore prices will see further reduction whilst De Beers should continue to deliver strong earnings,” Investec analysts said in a note.
The rise has been dramatic.
In 2013, De Beers accounted for 15 percent of group underlying earnings before interest and tax (EBIT) and the iron ore business 47 percent. But last year the diamond division’s share rose to 28 percent of the group’s $5 billion EBIT, while iron ore fell to 40 percent.
Diamond prices, having risen in previous years, weakened a little at the end of 2014 and earlier this year. Mostyn blamed this on a temporary supply glut and more moderate demand growth in China. Pro-democracy protests in Hong Kong in October and November also contributed to slow retail sales to locals and Chinese tourists, he said.
He said he was cautiously optimistic that prices would firm up again this year.
“There has been a bit of indigestion in the system for a short time, a lot of diamond coming through to the market all together towards the end of the year, but we still think the fundamentals for this year are strong.” (Editing by Pravin Char)