De Beers Overview Anglo American Analyst Presentation 13 April - - PowerPoint PPT Presentation

De Beers Overview Anglo American Analyst Presentation

13 April 2010

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Agenda

• 1. Industry Overview & De Beers Introduction

Gareth Penny

(CEO)

• 2. 2009 Operating & Financial Review

Stuart Brown

(CFO)

• 3. 2010 & Beyond

Gareth Penny

(CEO)

• 4. Venetia Overview

Martin Preece

(GM –Venetia Mine)

Q&A

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Diamonds are a luxury product

1. Diamonds are a luxury product with unique attributes which are very distinct from the commodities 2. Whilst also a natural resource, diamonds are the main feature of an end consumer product, as distinct from more fungible commodities 3. From a consumer perspective, diamonds have both emotional and physical attributes which influence purchase behaviour 4. Diamond jewellery competes with other discretionary services and products for the share of consumers wallet 5. Because of their aspirational and discretionary nature, diamonds are more vulnerable to reputation threats than other raw materials

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…in comparison with precious metals

Source: De Beers Group analysis; World Gold Council Gold Demand Trends, February 2009; Angloplat 2008 Annual Report, page 20.

99% 58% 23% 12% 30% 29% 6% 1% 43% 0% 20% 40% 60% 80% 100%

Diam onds G old Platinum Jew ellery Industrial Investm ent Autocatalyst

Demand sources for Diamonds, Gold and Platinum - 2008

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No te : Data is fo r the USA – wo rld’ s larg e st g e msto ne marke t; Pric e s are fo r 1-c arat sto ne s So urc e : U S Ge o lo gic al Surve y; T he Guide (Pric e s); DT C (vo lume )

I ncreasing Rarity

Sapphires Rubies Emeralds

Diam onds

Marketing and distribution is key to driving value

Price change ’97-’07

2,000 4,000 6,000

$8,000

10 20 30 40 50

Price per carat in 2007 (polished stones)

• 23%

Volume in 2007 (rough carats)

+ 26%

• 39%
• 38%

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Diamond value chain

Overview of the diamond industry 24

2008 Diamond Pipeline

Rough Production Share of world production Share of world distribution Polished Manufacturing & Dealing Jewellery Manufacturing Jewellery Retail De Beers Other DTC Other

CONSUMER

Exploration 41% 59% 42% 58%

ALROSA

Rough Distribution & Dealing

Description

• Finding new

deposits of diamondiferous kimberlites that can be mined economically

• Carats recovered

through mining

• Rough Distributor –

selling rough diamonds purchased from primary source

• Rough Dealer – trades

diamonds purchased from rough distributors

• r other rough dealers
• Cutting and

polishing rough diamonds ready for inclusion into jewellery

• Crafting

jewellery which incorporates polished diamonds

• Selling

diamond jewellery to end consumers

Note 1: PWP is the price of a polished diamond at Cutting Centre before any additional mark-ups. It denotes the diamond content of a piece of diamond jewellery sold at retail. Source: DB Group Strategy estimates.

$14.8bn $14.2bn $19.6bn Retail $70.3bn PWP1 $19.1bn n.a. De Beers as market leader De Beers as participant

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Diamond pipeline profitability

Source DB estimates 2007

Rough production and distribution

and diamond jewellery retail produce the largest profit pools in the pipeline

However, in retail:

– Profit margins are variable (reflecting different business models and risks) – Profit pool is shared by a highly fragmented base (est. 250,000+ retailers globally)

Estimated pipeline profitability

Range of EP Margin

• 20%
• 10%

0% 10% 20% Economic Profit Margin Rough Production and Distribution DJ Retailing DJ Manufacturing & Distribution Polished Manufacturing & Dealing Rough Dealing

Size of bubble = Indication of absolute net profit

• N. of Companies

100s 50s 1,000s 10,000s >250,000

Degree of segment fragmentation

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World Production Growth

20 40 60 80 100 120 140 160 180 1914 1918 1922 1926 1930 1934 1938 1942 1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 Carats (m) Sierra Leone Tanzania Russia Botswana (Orapa) Botswana (Jwaneng ) Australia (Argyle)

• S. Africa

(Venetia) Canada (Ekati) Canada (Diavik)

No new material production is expected to come online in the near future

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World Diamond Production

Russia 21% DRC 4% Botswana 28% Australia 3% Canada 19% Angola 10% South Africa 11% All others 4% Russia 24% DRC 21% Botswana 21% Australia 9% Canada 9% Angola 6% All others 2% South Africa 8%

Gem diamond production by country (value) Gem diamond production by country (volume) Total 150mcts Total US$14.8bn

Botswana is the largest producer of rough diamonds globally

Sources: Kimberley Process 2008 Statistics; De Beers Group Strategy

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Diamond Production

Source: De Beers estimates 2008 De Beers 33% Harry Winston 2% BHP 2% Rio Tinto 14% Alrosa 16% Other (highly fragmented) 33% De Beers 40% BHP 4% Rio Tinto 6% Alrosa 19% Other (highly fragmented) 27% Harry Winston 4%

Other (fragmented) includes: Artisanal & Illicit (8%) Juniors (25%) Other (fragmented) includes: Artisanal & Illicit (8%) Juniors (19%) Gem diamond production (value) Gem diamond production (carats)

1 1

• The five largest producers contribute over two-thirds of global diamond production
• De Beers and Alrosa contribute c.60% of global production by value

Total 150mcts Total US$14.8bn

De Beers share of global gem diamond production is estimated at c.40% by value

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Diamond Cutting and Polishing

India 58% Thailand/China etc 13% Israel 11% South Africa 5% Russia 5% Beligium 3% USA 4% Botsw ana 1% 50 2,000 I srael 75 1,000 Belgium 75 1,800 South Africa 15-35 29,000 China/ Thailand 6-50 850,000 I ndia Average Manufacturing Cost Workforce Cutting Centre 50 2,000 I srael 75 1,000 Belgium 75 1,800 South Africa 15-35 29,000 China/ Thailand 6-50 850,000 I ndia Average Manufacturing Cost Workforce Cutting Centre

India is the largest cutting centre by value and number of employees

Share of Cutting Value by Country

Source: De Beers 2008 Estimates

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Cutting Centre Debt Levels

Source: DTC Estimates 10 20 30 40 50 60 70 80 90 100

2003 2004 2005 2006 2007 2008 2009 2010 2011

Cost of Debt per month ($mn)

1 2 3 4 5 6

LIBOR %

Total Debt Service Libor

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De Beers Activities

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Geographical Locations

Business locations

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Diamond exploration challenge

500 1,000 1,500 5,000

Diamond exploration results from the last 140 years

Kim berlites sam pled 5,000 Diam ond- iferous 850 Econom ic 50 > 100B in contained revenue 3

Source: De Beers Exploration data

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Focused exploration

Advanced Stage (deposit) Early Stage (recce-discovery)

18,000km2 2,000km2 6,000km2 900km2 9,000km2

Total De Beers Exploration Spend ($mm)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 70 66 73 68 77 90 109 108 129 94 46

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De Beers has an unrivalled resource and reserve base

The SSV Value^ of The De Beers Family of Companies' Resources*, Business Plan and Reserves** as at 31/12/09

size of bubble = Revenue^ (U$ bn) NM Damtshaa Namdeb Marine Kimberley SASA Voor- spoed Jwaneng Letlhakane Orapa Snap Lake Victor Namdeb Land Finsch Venetia FoC Gahcho Kue ^ using Business Plan Average $/¢ @ June 2008 DTC Price Book for Life of Mine absent time value effects * Resource ¢ x Business Plan average $/¢ ** Reserve ¢ x Business Plan average $/¢ $185bn $76bn $36bn $61bn $34bn $17bn $33bn $18bn $10bn $10.8bn $5.9bn $0.1bn $20bn $6bn $5bn $29.6bn $5.4bn $0.4bn $3.3bn $2.5bn $2.1bn $1.6bn $1.1bn $0bn $2.0bn $0.9bn $0.5bn Business Plan Reserve** Resource* $5.4bn $18.1bn $3.2bn $0.9bn

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Project Pipeline

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Agenda

1. Industry Overview & De Beers Introduction 2. 2009 Operating & Financial Review 3. 2010 & Beyond 4. Venetia Overview

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Financial Summary

Y/e December - $m 2004 2005 2006 2007 2008 Sales DTC 5,695 6,539 6,150 5,920 5,930 Other 717 732 745 786 768 Total sales1 6,412 7,271 6,895 6,706 6,698 EBITDA 1,317 1,403 1,232 1,216 1,222 Underlying earnings 652 850 425 483 515 Cash generated by operating activities 985 472 809 844 700 Capital expenditure 416 638 752 1,612 442 Total assets2 6,258 6,846 7,599 8,381 7,093 Shareholders' interests 3,933 3,701 3,834 3,392 2,628 Gross debt Third party 1,339 2,175 3,037 4,075 3,622 Shareholder preference shares 642 428 214 161 107 Shareholder loans

• 248

Cash 393 241 307 179 177 Net debt 1,588 2,362 2,944 4,057 3,800

Financial summary 2004 - 2008

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Constricted liquidity Constricted liquidity Drop in consumer demand Drop in consumer demand Inventory overhang Inventory overhang

Three factors affecting diamond market in 2009

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Maximise demand opportunities: DTC

DTC Sales

US dollar millions

H1 H2 2009 2008 DTC Sales 1,431 1,809 3,240 5,930

• Protecting diamond equity
• Selling flexibility
• Liaison with diamond banks and trade to

bolster confidence

• Increased price and volume of sales as

year progressed

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Produce in line with client demand

Carats recovered: 2009 vs 2008

2009 2008 Variance

DBCM 4 797 11 960 Debswana 17 734 32 276 Namdeb 929 2 122 De Beers Canada 1 146 1 640 Carats 000’s 24,600 48,132 (49%)

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Create operating efficiencies

Global headcount: 2009 vs 2008

2009 2008 Variance

Headcount 15,814 20,464 (23)%

• Undertook a programme of de-layering

and decentralisation

• Identified synergies across company
• Efficiencies are part of new normal way
• f operating

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Income Statement

Income Statement (US$ millions) H1 2009 H2 2009 Total 2009 Total 2008 Total sales 1,711 2,129 3,840 6,888 Gross profit 123 204 327 1,363 Gross profit % 7% 10% 9% 20% EBITDA 297 357 654 1,222 Interest 98 127 225 240 Tax 48 77 125 304 696 696 Underlying (loss) earnings (164) (56) (220) 515 Impairment of Canadian mining assets

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Cost Savings

H1 2009 H2 2009 Total 2009 Total 2008 Savings Production costs 326 399 725 1,224 499 Operating overhead costs 153 249 402 817 415 Capex 86 95 181 403 222 565 743 1,308 2,444 1,136 Savings (US$ millions) Total

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Balance Sheet – Pre-Equity Injection

Balance Sheet (US$ millions) 2009 2008 Fixed assets 2,795 3,100 Shareholder loans 759 248 Other net interest bearing debt 3,200 3,552 Cash (751) (147) Preference Shares 107 107 Bank borrowings 3,844 3,592 1,118 1,060 Net Current Assets

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Cash Flow

Cash Flow (US$ millions) H1 2009 H2 2009 Total 2009 Total 2008 (31) 257 226 700 Cash utilised in investing activities 95 96 191 442 Free Cash flow (126) 161 35 258 Less: Financing Activities 74 31 105 358 Cash flow (200) 130 (70) (100) Shareholder Loans 553 553 264 Non cash movements (forex) (130) (1) (131) 341 223 129 352 505 Cash (consumed by) / available from

• perating activities

Dividends (including outside shareholders) Decrease in net interest bearing debt

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Agenda

• 1. Industry Overview & De Beers Introduction
• 2. 2009 Operating & Financial Review
• 3. 2010 & Beyond
• 4. Venetia Overview

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De Beers Activities

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5 Strategic Levers

Secure De Beers Secure De Beers leadership position

Strategic Lever 1 Strategic Lever 1 Strategic Lever 2 Strategic Lever 2 Strategic Lever 3 Strategic Lever 3 Strategic Lever 4 Strategic Lever 4 Strategic Lever 5 Strategic Lever 5 Sustainably maximise value for rough diamonds Operate, optimise and invest in superior mines Invest in value- creating downstream

• pportunities

Continually identify and embed cost and efficiency gains Invest in and protect De Beers FoC reputation and diamond equity

Sales Build relationships Costs Protect reputation EBITDA Drive org effectiveness Free Cash Flow Communicate effectively with all stakeholders Retain / attract best talent

Safety of our people & security of our product

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Strategic Lever 1 Strategic Lever 1

Sustainably maximise value for rough diamonds

Maximise price for production while assisting in the creation of viable downstream industries in producing countries Build upon beneficiation success during new contract period Build upon beneficiation success during new contract period Maximise current opportunities in selling to non-Sightholder community and explore new opportunities

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Strategic Lever 2 Strategic Lever 2

Operate, optimise and invest in superior mines

• Progress advanced exploration work in Angola and at Victor (Canada).
• Operational cost containment and strategic business plans .
• DebTech to progress new technology for the Gahcho Kue feasibility study
• Finalise operations review across Debswana and ensure Cut 8 is

delivered on time and below budget Maximise value of land and sea operations Achieve the new mining plan for Snap Lake, while optimising current resource and completing resource extension project at Victor

• Enhance cash flow, especially at Venetia Mine.
• Agree solution with the State Diamond Trader
• Optimise Voorspoed ramp up
• Identify assets for disposal/sale

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Strategic Lever 3 Strategic Lever 3

Invest in value-creating downstream opportunities

Determine the brand vision and consumer proposition, and agree commercial expansion strategy

• Deliver strong growth and margin expansion across abrasive

businesses and E6 market share gains.

• Successfully commercialise focused portfolio of unique new

Technologies for diamonds Drive Organisational upgrade and focus on new collections, pricing, and retail performance / store productivity

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Strategic leaver 4 Strategic leaver 4

Cost efficiencies

Cost of production improvement. Focus on cost per ton mine and cost per ton treated Security of product Capital efficiencies and new project build Exploration and rapid deployment plant

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Safety remains our number 1 priority

Fatalities Lost Time Injuries

40 LTIs in 2009

LTIFR:0.2

vs. 66 in 2008 LTIFR:0.19 0: 2009 vs. 6 in 2008

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Increasing production in 2010

Production (Tons and Carats)

98,816 95,687 94,664 92,740 84,610 35,110 24,600 48,132 51,113 51,135 49,011 47,012

• 10,000

20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E Tons treated Carats Recovered

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De Beers – Industry leader

Mining Leader Mining Leader Marketer & Distributor Leader Marketer & Distributor Leader Leading Employer Leading Employer Diamond Technology Leader Diamond Technology Leader

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Worldwide 2009 Diamond Jewellery Retail Sales

2009 Diamond Je we lle r y Sale s Gr

• wth %

Source: De Beers commissioned studies; Group Strategy analysis

Ove rall re sult slightly abo ve De Be e rs’ o wn fo re c asts due to be tte r than e xpe c te d pe rfo rmanc e s in China and I ndia + favo urable e xc hang e rate s in Japan (and E uro pe ) US marke t re sults re fle c t the impac t o f the wo rst e c o no mic re c e ssio n e xpe rie nc e d sinc e the e nd o f WWI I – but re sults impro ve d ste adily thro ug ho ut the ye ar Market DJ Retail Growth % 2009 2008 LC Retail USD PWP USD PWP USA

• 5% to -7%
• 7% to -9%
• 10%

Japan

• 10% to -13%

Flat to -4%

• 5%

India +12% to 14% +0.5% to 2.0% +8% China (Shanghai/ Beijing only) +12% to 14% +15% to 17% +19% (China) World Growth Trend

• 3.0% - -4.0%
• 3.5%

Total Estimated World PWP

• Approx. $18bn
• Approx. $19bn

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Growth of emerging markets

China and India promise to be the next engines

• f growth for the industry

2008 2016

Taiwan, 2% Rest of World, 19% Italy, 4% India, 7% Japan, 11% China, 5% Gulf, 8% USA, 41% Hong Kong, 2% Taiwan, 3% Rest of World, 15% Italy, 3.5% India, 11% Japan, 9% China, 9% Gulf, 9% USA, 37% Hong Kong, 2%

Source: De Beers Estimates Note: Excludes currency effects

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Strictly Confidential 45

Creating a market for diamonds in Japan…

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Japan market growth (% new brides who receive diamond only engagement rings) 1966 1970 1980 1990 2000

6% 77%

1965 A Diamond is Forever 1968 Three months salary intro

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…and more recently in China

0% 0% 0% 0% 0% 33% 0% 13% 0% 0% 59% 45% 23% 0% 0% 62% 39% 18% 15% 38% 0% 10% 20% 30% 40% 50% 60% 70% Shanghai Beijing Guangzhou Chengdu Dalian 1993 1997 2000 2006

China DER (Diamond Engagement Ring) acquisition rate

47 International Diamond Board International International Diamond Board Diamond Board

World class capabilities to distribute and market our diamonds

Market Market Demand Demand Consumer Demand Consumer Demand Consumer Consumer Confidence Confidence Big Ideas Big Ideas

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Summary (1/2)

Diamonds are a luxury product – competing directly with

• ther discretionary items for share of wallet. As such,

Marketing is key to driving value The industry pipeline is global in nature and covers exploration, mining, rough diamond distribution, polished manufacturing and wholesale, jewellery manufacturing and wholesale and jewellery retail The largest profit pools in the industry are at rough diamond production and distribution, and at diamond jewellery retail Rough production and distribution has been the most attractive segment in normal times given the relative concentration of this upstream segment compared to the high fragmentation of retail No material new production is expected in the near future Botswana and Russia are the largest diamond producers by value; De Beers Group and Alrosa the largest companies India is the largest cutting centre by value and number of employees

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Summary (2/2)

De Beers operates in the most profitable areas of the pipeline and in Exploration, its engine for growth in the upstream segment – with a world class portfolio of mines and an unrivalled resource base Its selective distribution system and marketing activities support diamond jewellery demand and equity From Q4 2008, simultaneous shocks in liquidity, consumer demand and high polished inventory affected rough demand and prices De Beers reacted promptly to the crisis by implementing aggressive production and cost cutting, capital reduction and

• ther measures to ensure sustainable future growth

De Beers strategy aims at securing De Beers leadership position in future

DeBeersGroup.com/ofr2009