By  on July 28, 2008

LONDON — Net profits at De Beers SA fell 9.7 percent during the six months to June to $316 million, compared with earnings of $350 million in the same period last year.

De Beers said the profit decline was largely due to an increase in the tax rate this year compared with the previous year, and one-off charges associated with its class-action settlement agreement in the U.S. Underlying earnings during the period, which stripped out the effect of tax and one-off items, rose 8 percent to $350 million, from $324 million.

Sales rose 10 percent in the six months to June 30 to $3.74 billion, from $3.4 billion in the same period last year. De Beers said the rise in sales was thanks to an increase in demand for rough diamonds from its Diamond Trading Company clients, which has enabled the company to raise the prices of rough diamonds. Of total sales, $3.3 billion came from rough diamonds, while the remainder were industrial diamonds and supplies of rough diamonds to non-site holders through the group’s subsidiary Diamdel.

De Beers said it had also seen high double-digit sales growth at De Beers Diamond Jewelers, the joint venture with LVMH Moët Hennessy Louis Vuitton. The increase was driven by demand for higher-end and bridal diamond jewelry and store openings in cities including Dallas and Tokyo, in the Ginza district. The company added that it aims to have around 50 stores open by the end of 2008. Sales at De Beers Diamond Jewelers are not included in the figures De Beers SA reports.

Despite the rise in sales, and what the company described as a “robust” demand for high-end diamonds, Gareth Penny, managing director of De Beers, said the firm is taking a cautious view of the second half in light of a dip in demand for less valuable diamonds in the U.S. “We are obviously living in uncertain times, and that requires a more cautious outlook,” said Penny during a conference call. “Mass market retail jewelry sales have been impacted by economic issues, particularly in the U.S. While there has been strong growth in China, India, Russia and the Middle East, [that] has helped to mitigate, the overall retail market is likely to remain challenging for the mass market end of the business.”

Diamond production at De Beers fell 4.1 percent during the period to 24.2 million carats, due to factors including power cuts in South Africa during the fourth quarter, plans to cease production at some of its smaller mining companies and adverse weather conditions at its Venetia mine in South Africa. The company said it plans to open three diamond mines during the course of 2008 — The Snap Lake and Victor mines in Canada later this month and the Voorspoed mine in South Africa, which will open in November. De Beers chairman Nicky Oppenheimer described these openings as “a record for De Beers.”

“The world’s an uncertain place at the moment, and to be able to produce the first half we have is really very encouraging,” said Oppenheimer. “We certainly don’t see any sign of demand for the better quality goods declining. The fact that we’re building new mines emphasizes De Beers’ commitment to the future.”

De Beers will also launch its Forevermark diamond brand in Hong Kong and China in the fourth quarter and in South Africa, Japan, India and Taiwan in the first half of 2009. “We believe that there is immense potential behind this brand,” said Penny.

Natural resources conglomerate Anglo American plc owns 45 percent of De Beers SA, while 40 percent is owned by the Oppenheimer family and 15 percent by the Botswana government.

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