Anglo American announces preliminary financial results for 2016

 Anglo American announces preliminary financial results for 2016Anglo American has announced its preliminary financial results for 2016. The sales of rough diamonds were encouraging rising 37 percent to $5.6 billion. This also helped revenues rise 30 percent to $6.1 billion (2015: $4.7 billion).

The increase was attributable to 50 percent increase in consolidated sales volumes to 30.0 million carats (2015: 19.9 million carats), partly offset by a 10 percent decrease in the average realised rough diamond price to $187/carat (2015: $207/carat), reflecting the 13 percent lower average rough price index, offset to some extent by an improved sales mix.

Underlying EBITDA increased by 42 percent to $1,406 million due to higher revenues from stronger rough diamond demand, which led to reduced inventory levels, reflecting improved trading conditions compared with those experienced in the second half of 2015. Results also benefited from cost-saving programmes, portfolio changes and the impact of favourable exchange rates. Unit costs decreased by 19% from $83/carat to $67/carat.

Sustained diamond jewellery demand growth in the US and marginally positive growth for the full year in China (in local currency, though declining slightly in US dollars) contrasted with weakening demand in the other main diamond markets including in India where there was a month-long jewellers’ strike in March and the government’s surprise demonetisation programme which started in November. For the full year, global consumer demand, in US dollars, is estimated to be in line with 2015. Additional marketing in the US, China, India and Japan in the final quarter of the year, the main selling season, had a positive impact.

Producers destocked during 2016, as sentiment in the midstream improved and rough and polished inventories normalised, supported by a series of initiatives put in place by De Beers, starting in the second half of 2015. These included lowering rough prices, providing flexibility to Sightholders for their purchase arrangements and increased marketing activity to drive consumer demand.

Rough diamond production decreased by 5 percent to 27.3 million carats reflecting the decision, taken in 2015, to reduce production in response to prevailing trading conditions. Debswana production stood close to previous year at 20.5 million carats, Jwaneng’s production increased by 23 percent and production at Orapa dropped 20 percent. By year end, 85 percent of the 500 million tonnes (Mt) of waste stripping required to expose the ore had been mined at Jwaneng Cut-8. The first Cut-8 ore to the processing plant remains scheduled for the first half of 2017, with Cut-8 becoming the main source of ore from 2018. Damtshaa (a satellite operation of Orapa) was placed onto temporary care and maintenance from 1 January 2016.

Production at Namdeb Holdings decreased by 11 percent to 1.6 million carats. In South Africa, production declined by 9 percent to 4.2 million carats (2015: 4.7 million carats), mainly due to the early completion of the sale of Kimberley Mines in January 2016, partly offset by an increase of 12 percent at Venetia owing to the processing of higher grades. Construction of the Venetia Underground mine continues to progress, with the underground operation expected to become the mine’s principal source of ore from 2023.

In Canada, production declined by 45 percent to 1.0 million carats owing to Snap Lake being placed onto care and maintenance in December 2015. Production at Victor decreased by 7 percent to 0.6 million carats. Development of the Gahcho Kué project was completed on schedule, with the ramp-up to commercial production expected to be reached during the first quarter of 2017.

Owing to continuing depressed markets in key industrial sectors (principally oil and gas), Element Six, the industrial diamonds business, experienced a challenging year. The reduction in contribution arising from lower sales has been largely offset through a comprehensive cost-reduction programme.

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