* Swings to $220 million underlying loss, vs $515 mln profit
* Confirms $1 bln rights issue, $1.5 bln facility refinance
* Cautious about outlook, output to rise only slightly
* Rough diamond prices rebounding after downturn
(Adds conference call, analyst comment, Anglo shares)
By Eric Onstad
LONDON, Feb 11 (Reuters) - Top diamond producer De Beers is cautious about recovery in hard-hit luxury goods markets and will only slowly ramp up production after swinging to an annual loss and raising $1 billion from shareholders to cut debt.
The group, 45 percent owned by miner Anglo American (AAL.L), said on Thursday rough or unpolished diamond prices had shown a strong rebound since the depths of the global recession, but the future was uncertain after its slashed output by half last year.
"With the fragility of the world economy and perceived weakness of the global recovery post recession, the company would only expect a gradual increase in production levels, sales and prices," a statement said.
"Rather than just trying to take it (output) straight back up to a level the trade may not be ready for, we are planning to increase production systematically. We do think it will take a couple of years before the whole thing normalises," Managing Director Gareth Penny told a conference call.
Rough diamond prices at the January "sight" sales event rose "fairly significantly" with volumes five times the levels of a year ago and further gains were expected this month, he added.
"2010 has started on quite a strong note. The main reason for that is Christmas has been better than expected," Penny said.
CUT DEBT TO $2 BLN
Anglo and two other shareholders confirmed they will pump more cash into the company after it was forced to shut mines last year during the downturn.
The group said in December that Anglo, South Africa's Oppenheimer family with a 40 percent stake and the Botswana government with the remaining 15 percent had agreed to a rights issue of up to $1 billion to cut debt. [ID:nGEE5B022K]
All the proceeds would be used to cut the group's net debt to around $2 billion from the current $3 billion, Finance Director Stuart Brown told the conference call.
The group, which controls around 40 percent of the rough diamond market, said on Thursday banks had granted credit approval for the refinancing of a $1.5 billion facility after months of negotiations. Brown declined to give details of the terms, but said interest rates were at market levels.
Profits were hit after the group slashed output in early 2009 and its biggest unit in Botswana shut down completely for several months when consumers shied away from buying luxury goods during the downturn.
Although Penny was cautious about the near term, he said the medium and long-term outlook was strong due to limited supply and buoyant demand growth in Asian markets that could challenge the dominance of the United States, which accounts for about half of global diamond jewellery sales.
"The Chinese market is growing very rapidly... that's clearly an area of extraordinary growth and it's been growing right throughout this whole crisis," he said.
"If you take India and China together, you're looking at a market that in five year's time we think will not be significantly less than the United States."
De Beers moved to an underlying loss of $220 million in 2009 after underlying net profit of $515 million in 2008 while rough diamond sales tumbled 46 percent to $3.2 billion.
"The underlying results themselves are poor... but are better than we expected with EBITDA coming in at $654 million, 30 percent ahead of our estimates," said Liberum Capital in a note.
Anglo shares were up 2.9 percent to 2397 pence by 0943 GMT, largely in line with the UK mining index .FTNMX1770.
Production slid 49 percent to 24.6 million carats and Penny said 2010 output was likely to rise to the "30s" of millions.
Anglo said it would report an underlying loss of $90 million from its holding in De Beers. De Beers is a small part of Anglo, contributing about 5 percent of the group's operating profit in the past two years. (Reporting by Eric Onstad; Editing by Mike Nesbit)