Anglo American (LON: AAL) disclosed on Thursday its deliberation over another round of diamond production cuts amidst persistent market difficulties, complicating its efforts to divest its De Beers unit as part of a sweeping corporate overhaul
The company unveiled its restructuring plans in May following a successful rejection of a $49 billion takeover bid from BHP (ASX: BHP), the world's largest mining company. This strategy entails selling or divesting its 85% stake in De Beers, the globe's foremost diamond producer by value, to pivot towards copper, iron ore, and the UK's Woodsmith fertilizer project.
In April, Anglo American revised down its full-year diamond production guidance to between 26 million and 29 million carats. While maintaining this target for De Beers, the company also disclosed intentions to explore further production reductions.
"The anticipated market recovery has yet to materialize significantly, compounded by weak demand from China, competition from lab-created gems, and consumer spending pressures exacerbated by inflation," stated a company spokesperson.
This move follows a 10% reduction in production already implemented, resulting in a 15% year-on-year decline in second-quarter output to 6.4 million carats, as reported during Thursday's second-quarter earnings release. Conversely, production for other commodities exceeded analyst expectations.
CEO Duncan Wanblad highlighted challenging diamond trading conditions in the second quarter, notably due to subdued Chinese consumer demand.
"With elevated inventory levels in the midstream and an anticipated prolonged recovery period, we are actively assessing strategies with our partners to further curtail production, aiming to optimize working capital and preserve cash," Wanblad added.
Anglo American remains committed to waiting for a favorable diamond market upturn before committing to significant strategic adjustments, asserting that De Beers should command a valuation reflecting its esteemed legacy asset status.
