Diamond Giant De Beers’ Profit Doubles

South African diamond giant De Beers said Tuesday that its profit more than doubled last year as the gem market made a sparkling recovery from a five-year slump.

De Beers Consolidated Mines, which controls about 80% of the world’s diamonds, said after-tax profit jumped to $836 million (2.09 billion rand) in 1988 from $416 million (1.04 billion rand) the year before.

“A number of factors combined to enable us to come out with this pleasing result,” De Beers Chairman Julian Ogilvie Thompson told a news conference.

“The results reflect both an increase in sales volumes and higher diamond prices, which were last raised in May, 1988.”

Pretax profit rose 88% to $1.15 billion (2.87 billion rand) and the company lifted its total dividend to 80 U.S. cents (200 South African cents) from 44 U.S. cents (110 South African cents).

The company’s soaring profit followed a report in January by De Beers’ London-based Central Selling Organization that sales of rough gems and industrial diamonds soared 36% to a record $4.17 billion in 1988, confirming a recovery in the diamond market since a deep slump that began in 1981.

“We don’t expect retail diamond sales to grow quite as well this year as in 1988, but indications are that our main markets are continuing to expand,” Ogilvie Thompson said.

De Beers was closely watching whether higher interest rates and the firm dollar would reduce sales, particularly in Japan which accounts for 22% of diamond jewelry sales.

“There was some hesitation in Japan in the latter half of last year, but it’s too early at this point to have firm figures for these markets,” Ogilvie Thompson said.

Stock market analysts said the earnings rise and marked increase in the dividend signaled De Beers’ confidence that the extraordinary boom in the diamond market would continue, though probably at a slightly slower rate.

“The broad picture seems that just about everything went well for them. The profit on the diamond account is restored to boom-time levels,” said John Rogers, a partner at the Johannesburg stockbrokerage firm Edey, Rogers & Co.

“The advance in the dividend particularly indicates that these results are not a flash in the pan,” he added.

Eager buyers pushed up De Beers’ stock price by 60 U.S. cents (1.50 rand) in brisk trading on the Johannesburg Stock Exchange to close at $22.40 (56 rand) after the news.

During the depression in the diamond business from 1981 to 1986, De Beers substantially increased its stockpile of gems and reduced its allocation of rough uncut diamonds to dealers and jewelry manufacturers in Antwerp, Tel Aviv, Bombay, New York and other diamond cutting centers.

The tactic later paid off handsomely as demand slowly recovered in response to the tighter supplies.

“If we felt there was a further hesitancy in the market, we would not hesitate ourselves to reduce our sales again,” said Ogilvie Thompson. “That is our strategy and it is one that works.”