De Beers Posts FY07 Loss Of $521 Mln; Underlying Earnings Up 14%; Anglo American Earns US$239 Mln From De Beers Stake [AAUK]

2/8/2008 7:20:07 AM Friday, London-based resources giant Anglo American Plc (AAUK, AAL.L), which owns 45% stake in De Beers SA, said that De Beers reported a loss in the full-year 2007, hurt mainly by impairment charge. On an underlying basis, De Beers' annual earnings increased 14%. Anglo American noted that it will report underlying earnings of US$239 million for the year from its investment in De Beers.

For the year ended on December 31, 2007, De Beers posted a net loss of $521 million compared to a profit of $730 for the previous year. Net earnings before special items declined to $436 million from $453 million in the previous year.

Annual underlying earnings increased 14% to US$483 million from US$425 million in 2006. However, EBITDA remained steady as effective cost management at the Group's African mining operations offset the impact of slightly lower sales that were constrained by supply to its marketing arm, the Diamond Trading Company.

Total sales reached $6.836 billion, a 3% decline over $7.030 billion in the prior year. Diamond sales were $6.422 billion, compared to 6.626 billion a year ago, while its annual production was flat at 51.1 million carats. The company cautioned that high level of uncertainty over world markets, particularly the economic conditions in the U.S. could continue to impact consumer diamond jewellery sales through the first half of 2008.

Hurt by a significant rise in values of the Canadian Dollar against the US Dollar, fuel, labor and capital costs owing to the construction challenges at Snap Lake in Canada, the company took a US$965 million impairment charge in the year.

Moving forward, De Beers said that a steep recession in the U.S., the world's biggest diamond jewellery market, could dampen the sales there, but it expects strong demand from china, India and Middle East.

In 2008, the Group targets to maintain production capacity at prior year levels with new production of over 1.5 million carats from its Canadian mines offsetting the impact of the sale of the Group's operations at Cullinan and Kimberley in South Africa.

Snap Lake, which started production in late 2007, is currently being commissioned with the achievement of full production expected in 2008. After fully commissioned, it is expected to produce nearly 1.6 million carats annually. Canada's Victor mine is expected to start production by mid-2008, once fully commissioned, it will produce 600,000 carats of high quality diamonds per year, the company said.

Looking beyond 2008, the Group is confident about the diamond market fundamentals. The company believes that demand will exceed supply with the opportunity for future price growth on strong growth in the emerging markets of China, India and Russia.