January 16, 2009 / 11:00 AM / 9 years ago

De Beers to cut output, jobs on weak demand

LONDON/JOHANNESBURG (Reuters) - De Beers, the world’s top diamond producer, will cut production, capital spending and jobs this year as the global recession hits demand for luxury goods, officials said on Friday.

<p>The logo of the world's top diamond producer De Beers is seen on their boutique in Beverly Hills, California, August 5, 2008. REUTERS/Fred Prouser</p>

“In the first half of 2009, we will reduce production across our mining portfolio and adjust that as we go based on client demand,” Director of Communications David Prager told Reuters in an interview.

“Suffice to say, the reduction in production will be significant,” spokeswoman Lynette Gould said in an email.

De Beers, 45 percent owned by mining group Anglo American Plc, will also cut capital expenditure and exploration, but has no plans to shut down any mines, Prager added.

Consultation on job losses has begun at mines in Botswana, South Africa, Namibia and Canada as well at the head office in London, Prager added.

The job cuts in South Africa would be less than 1,000 out of a total work force of 3,500, Gould added.

Sales of diamond jewellery during the key holiday season fell in line with expectations, Prager said. “Most sectors are experiencing a decline in sales ... luxury products, diamonds included, are not immune.”

RESILIENT DIAMONDS

Prices for De Beers “rough” or unpolished diamonds slid in the second half of 2008 back to where they started the year, he added, without giving figures.

In August, before the full force of the global downturn hit, De Beers said that prices had gained about 16 percent so far during the year due to strong demand.

That would imply the pullback was much less than reports of declines of 50 percent in prices of rough diamonds sold outside the Diamond Trading Company (DTC), De Beers’ marketing arm.

The volume of diamonds at upcoming DTC sales events -- “sights” -- would be smaller than last year after a “significantly smaller” sight in December, Prager said.

The DTC hosts 10 week-long sights during the year at which it markets diamonds to “sightholders”, a group of tightly screened clients.

Despite the weak market conditions, diamonds had a special niche in the luxury goods sector with strong fundamentals.

“There is a base level of demand through which diamonds will not fall. People still get engaged, get married, have anniversaries. That is a key factor for resiliency,” he said.

The moves being taken by De Beers and others in the diamond sector to cut output would likely intensify a future shortage of diamonds already forecast, Prager said.

“It is likely there will be a shortfall created in the medium term ... there are fewer diamond reserves and no major mines have been discovered in the last decade.”

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