De Beers, the world's largest diamond producer, returned to a profit in 2010 as production rose 34 percent and diamond prices recovered to pre-crisis levels, although it remains cautious about the market this year.

It posted net earnings after one-off items of $598 million, compared with a net loss of $220 million in 2009, after recovering a better-than-anticipated 33 million carats as average diamond prices rose 27 percent. De Beers had targeted production of about 30 million to 31 million carats for 2010.

The price of rough diamonds has recovered strongly as confidence returned to most parts of the diamond pipeline, the company said. Notwithstanding this, the industry is not back to pre-recessionary levels in terms of production or sales and a high degree of global uncertainty remains.

De Beers said on Friday it plans to increase production to 38 million carats this year and approach full production of around 40 million in 2012.

De Beers is 45 percent owned by mining group Anglo American, 40 percent by South Africa's Oppenheimer family and 15 percent by the Botswana government.

Anglo American, which is due to report its full-year earnings on February 18, said it will post underlying earnings of $302 million for the year from its investment in De Beers.

Credit Suisse said the contribution was slightly ahead of its forecast of $296 million.

Shares in Anglo were up 1.1 percent in London compared with a 0.5 percent increase in British mining stocks.

POSITIVE GROWTH

While the directors remain cautious about the diamond market in 2011, continued positive growth is expected, albeit at a lower rate, De Beers said.

After a better than expected Christmas retail season, the U.S. market is expected to continue its recovery and the exceptional growth seen in China and India is expected to be sustained, it added.

The United States is the world's biggest market for diamond jewellery with about 40 percent of the world total, while China and India are the fastest growing countries in terms of diamond jewellery consumption.

Chief Commercial Officer Bruce Cleaver, one of the group's acting chief executives, said the Chinese and Indian diamond markets delivered growth of 25 and 31 percent respectively for the year, while U.S. demand rose 7 percent in 2010.

De Beers said it had a very good start to the year from the Diamond Trading Company (DTC) sightholders auction. The sightholders are specially screened clients guaranteed a supply of De Beers diamonds.

The group said it expects to make an announcement soon on the appointment of a new chief executive after its previous CEO's surprise departure in July, but did not make any comments about any possible change in its structure.

It has dampened speculation of a flotation in July and De Beers Chairman Nicky Oppenheimer told Reuters last month the Oppenheimer family is not keen to sell its 40 percent stake in De Beers.

Credit Suisse said in a note on Friday that consolidating its stake would allow Anglo American to benefit from the bullish, supply constrained fundamentals of diamonds. It estimates the full value of De Beers at about $9 billion to $11 billion.

De Beers expects to produce about 100 million carats from the Cut-8 expansion project at Jwaneng equivalent to about $15 billion over the life of the mine. The expansion project, the largest ever investment in Botswana, will extend the mine's life to at least 2025.

The company said the sale process for its Namaqualand mine is taking longer than expected and is expected to be concluded this year. It had previously said it expected to complete the sale of the South African mine in the first half of 2011.