De Beers boosted by sanctions imposed on Russian rival

Mining group Anglo American has forecast higher production from its De Beers diamond business as it benefits from sanctions imposed on its main Russian rival Alrosa.

The FTSE 100 miner increased full-year production guidance in diamonds to 32mn to 34mn carats, from 30mn to 33mn carats previously, citing “robust demand” from US customers.

The US imposed sanctions on Russia’s state-controlled diamond company Alrosa following the invasion of Ukraine, with the aim of cutting one of the Kremlin’s sources of revenue.

This has also given De Beers the opportunity to increase its market share.

Analysts reckon demand for non Russian stones is strong thanks to pent up demand from consumers following the pandemic.

This has been reflected in the revenues Anglo has generated at its sales events known in the industry as “sights”. Anglo produces most of its diamonds in Botswana. It also has operations in South African and Namibia.

While slowing global growth and reduced consumer spending could hit sales, Anglo said ongoing sanctions along with decisions by a number of US jewellery businesses to restrict purchases of Russian diamonds, have the “potential to underpin continued robust demand”.

The new production guidance for De Beers was announced in a trading update where Anglo reported a 9 per cent drop in second-quarter output after drought hits its copper mining operations in Chile and it carried out maintenance at its Minas-Rio mine in Brazil.

However, Anglo’s new chief executive Duncan Wanblad said its “production performance” had started to pick up, positioning the company for a stronger second half of the year.

Anglo had a tough start to the year, reporting a 10 per cent drop in production in three months to March due to Covid-related absences and high rainfall in South Africa and Brazil.

The company also increased its cost forecasts by 9 per cent because of rising prices, particularly for diesel, which it uses in the trucks at its sites.

In Thursday’s update, Anglo maintained cost guidance for most of its key assets and said its Quellaveco project in Peru would contribute to copper production in the second half of the year by up to 150,000 tonnes.

However, it warned that its copper mines in Chile continued to face severe drought, with the two years to June 2022 being the driest since records began.

Mining is a highly water intensive activity. In copper production it is used to carry crushed rock through pipelines and also in processing and extraction.

“Anglo American’s reaffirmation of costs for most of its key assets should help provide some comfort for the stock,” said Tyler Broda, an analyst at RBC Capital Markets.

Shares in Anglo were down 1.3 per cent at 2,570p on Thursday and have fallen around 16 per cent this year.

Separately, Polymetal International, which mines gold and silver in Russia and Kazakhstan reported a 36 per cent drop in second quarter.

Due to sanctions imposed on Moscow the company said its Russian operations accumulated 130,000 ounces of gold in the three months to June.

The company expects the gap between production and sales to close in the third quarter as its increases sales to buyers in China and Asia.

Earlier this week, Polymetal said it was considering disposing of its Russian assets to focus on operations in Kazakhstan.

“International sanctions against Russia continue to have a material impact on sales, procurement and logistics,” the company’s chief executive Vitaly Nesis said in a statement.

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