De Beers tries to restore confidence

DE BEERS, the South African diamond producer, yesterday launched a damage-control exercise to restore market confidence following its dividend-cut warning earlier this week.

Julian Ogilvie Thompson, chairman, said De Beers had not misled the market about the outlook for diamonds and that its Central Selling Organisation (CSO) retained firm control over the market.

De Beers markets 80 per cent of the world's rough diamonds and operates a buffer stock to hold prices stable.

The company's share price plummeted on Tuesday after a surprise announcement of falling earnings, the predicted final dividend cut and a resumption of diamond quotas for the first time since the 1980s recession.

Only three months ago, De Beers gave an upbeat summary of prospects for the diamond market.

Mr Ogilvie Thompson said yesterday that allegations that De Beers had lost credibility by misleading the market about the prospects for the diamond market were unfair and ill-founded.

Problems affecting diamond supply and demand first became evident to De Beers in July, he said. The situation was aggravated by the 'sudden and unprecedented explosion' in the supply of illicit Angolan diamonds.

Analysts said the statement came months too late. Stephen Oke of Smith New Court in London said: 'As a damage-limitation exercise, I'm not quite sure how this statement will really help. I think we should have been warned earlier, and let down gently.'

De Beers' shares fell a further dollars 0.90 to dollars 16.06 yesterday, compared with dollars 21.75 before Tuesday's announcement.

De Beers yesterday opened a new mine in northern Transvaal which it expects to become South Africa's biggest source of diamonds. The Venetia open-cast mine cost dollars 400m and will reach full production in December.