De Beers Overview
Anglo American Analyst Presentation13 April 2010
2
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
3
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
4
…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%
D iam o n d s G o ld P la tin u m
J e w e lle ry In d u s tr ia l In v e s tm e n t Au to c a ta ly s t
Demand sources for Diamonds, Gold and Platinum - 2008
5
Note: Data is for the USA – world’s largest gemstone market; Prices are for 1-carat stonesSource: US Geological Survey; The Guide (Prices); DTC (volume)
Increasing Rarity
Sapphires
RubiesEmeralds
Diamonds
Marketing and distribution is key to driving value
Price change ’97-’07
0
2,000
4,000
6,000
$8,000
0 10 20 30 40 50
Price per carat in 2007 (polished stones)
-23%
Volume in 2007 (rough carats)
+26%
-39%
-38%
6
Diamond value chain
Overview of the diamond industry24
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
CO
NSU
MER
Exploration41%
59%
42%
58%
ALROSARough
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 or 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 $19.1bnn.a.
De Beers as market leader De Beers as participant
7
Diamond pipeline profitability
Source DB estimates 2007
Rough production and distribution and diamond jewellery retail produce the largest profit pools in the pipelineHowever, 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%
0
Econ
omic
Pro
fit M
argi
n
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
8
World Production Growth
0
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
Car
ats
(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
9
World Diamond Production
Russia21%
DRC4%
Botswana28%
Australia3%
Canada19%
Angola10%
South Africa11%
All others4%
Russia24%
DRC21%
Botswana21%
Australia9%
Canada9%
Angola6%
All others2%
South Africa8%
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
10
Diamond Production
Source: De Beers estimates 2008
De Beers33%
Harry Winston
2%
BHP2%Rio Tinto
14%
Alrosa16%
Other (highly
fragmented)33%
De Beers40%
BHP4%
Rio Tinto6%
Alrosa19%
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$14.8bn
De Beers share of global gem diamond production is estimated at c.40% by value
11
Diamond Cutting and Polishing
India58%
Thailand/China etc13%
Israel11%
South Africa5%
Russia5%
Beligium3%
USA4%
Botsw ana1%
502,000Israel
751,000Belgium
751,800South Africa
15-3529,000China/Thailand
6-50850,000India
Average Manufacturing Cost
WorkforceCutting Centre
502,000Israel
751,000Belgium
751,800South Africa
15-3529,000China/Thailand
6-50850,000India
Average Manufacturing Cost
WorkforceCutting Centre
India is the largest cutting centre by value and number of employees
Share of Cutting Value by Country
Source: De Beers 2008 Estimates
12
Cutting Centre Debt Levels
Source: DTC Estimates
0
10
20
30
40
50
60
70
80
90
10020
03
2004
2005
2006
2007
2008
2009
2010
2011
Cos
t of D
ebt p
er m
onth
($m
n)
0
1
2
3
4
5
6
LIB
OR
%
Total Debt ServiceLibor
13
De Beers Activities
14
Geographical Locations
Business locations
15
Diamond exploration challenge
0
500
1,000
1,500
5,000
Diamond exploration results fromthe last 140 years
Kimberlitessampled
5,000
Diamond-iferous
850
Economic
50
>100B incontained revenue
3
Source: De Beers Exploration data
16
Focused exploration
Advanced Stage (deposit)
Early Stage (recce-discovery)
18,000km2
2,000km2
6,000km2
900km2
9,000km2
Total De Beers Exploration Spend ($mm)1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
70 66 73 68 77 90 109 108 129 94 46
18
De Beers has an unrivalled resource and reserve base
The SSV Value^ of The De Beers Family of Companies' Resources*, Business Plan and Reserves**
as at 31/12/09size of bubble = Revenue^ (U$ bn)
NMDamtshaaNamdebMarine
Kimberley
SASA
Voor- spoed
Jwaneng
Letlhakane
Orapa Snap Lake
Victor NamdebLand
Finsch
Venetia
FoC
GahchoKue
^ 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
19
Project Pipeline
20
Agenda
1. Industry Overview & De Beers Introduction
2. 2009 Operating & Financial Review
3. 2010 & Beyond
4. Venetia Overview
21
Financial Summary
Y/e December - $m 2004 2005 2006 2007 2008
SalesDTC 5,695 6,539 6,150 5,920 5,930Other 717 732 745 786 768
Total sales1 6,412 7,271 6,895 6,706 6,698
EBITDA 1,317 1,403 1,232 1,216 1,222Underlying earnings 652 850 425 483 515Cash generated by operating activities 985 472 809 844 700Capital expenditure 416 638 752 1,612 442Total assets2 6,258 6,846 7,599 8,381 7,093Shareholders' interests 3,933 3,701 3,834 3,392 2,628
Gross debtThird party 1,339 2,175 3,037 4,075 3,622Shareholder preference shares 642 428 214 161 107Shareholder loans - - - - 248Cash 393 241 307 179 177
Net debt 1,588 2,362 2,944 4,057 3,800
Financial summary 2004 - 2008
22
Constricted liquidityConstricted liquidity
Drop in consumer demandDrop in consumer demand
Inventory overhangInventory overhang
Three factors affecting diamond market in 2009
23
Maximise demand opportunities: DTC
DTC SalesUS dollar millions
H1 H2 2009 2008DTC Sales 1,431 1,809 3,240 5,930
• Protecting diamond equity
• Selling flexibility
• Liaison with diamond banks and trade to bolster confidence
• Increased price and volume of sales as year progressed
25
Produce in line with client demand
Carats recovered: 2009 vs 20082009 2008 Variance
DBCM 4 797 11 960
Debswana 17 734 32 276Namdeb 929 2 122
De Beers Canada 1 146 1 640
Carats 000’s 24,600 48,132 (49%)
26
Create operating efficiencies
Global headcount: 2009 vs 20082009 2008 Variance
Headcount 15,814 20,464 (23)%
• Undertook a programme of de-layering and decentralisation
• Identified synergies across company• Efficiencies are part of new normal way
of operating
27
Income Statement
Income Statement (US$ 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
0 696 696 0
Underlying (loss) earnings (164) (56) (220) 515
Impairment of Canadian mining assets
28
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
29
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 1,060Net Current Assets
30
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 Activities74 31 105 358
Cash flow (200) 130 (70) (100)
Shareholder Loans 553 0 553 264
Non cash movements (forex) (130) (1) (131) 341
223 129 352 505
Cash (consumed by) / available from operating activities
Dividends (including outside shareholders)
Decrease in net interest bearing debt
31
Agenda
1. Industry Overview & De Beers Introduction
2. 2009 Operating & Financial Review
3. 2010 & Beyond
4. Venetia Overview
32
De Beers Activities
33
5 Strategic Levers
Secure De Beers Secure De Beers leadership position
Strategic Lever 1Strategic Lever 1 Strategic Lever 2Strategic Lever 2 Strategic Lever 3Strategic Lever 3 Strategic Lever 4Strategic Lever 4 Strategic Lever 5Strategic Lever 5
Sustainably maximise value for
rough diamonds
Operate, optimise and invest in
superior mines
Invest in value-creating
downstream opportunities
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 FlowCommunicate
effectively with all stakeholders
Retain / attract best talent
Safety of our people & security of our product
34
Strategic Lever 1Strategic Lever 1Sustainably 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
35
Strategic Lever 2Strategic Lever 2Operate, 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
36
Strategic Lever 3Strategic Lever 3Invest 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
37
Strategic leaver 4Strategic leaver 4Cost 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
38
Safety remains our number 1 priority
Fatalities
Lost Time Injuries40 LTIs in 2009
LTIFR:0.2vs.
66 in 2008 LTIFR:0.19
0: 2009vs.
6 in 2008
39
Increasing production in 2010
Production (Tons and Carats)
98,81695,687 94,664
92,740
84,610
35,110
24,600
48,13251,11351,13549,01147,012
-
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 treatedCarats Recovered
41
De Beers – Industry leader
Mining LeaderMining Leader Marketer & Distributor LeaderMarketer & Distributor LeaderLeading EmployerLeading Employer Diamond Technology LeaderDiamond Technology Leader
43
Worldwide 2009 Diamond Jewellery Retail Sales
2009 Diamond Jewellery Sales Growth %
Source: De Beers commissioned studies; Group Strategy analysis
Overall result slightly above De Beers’ own forecasts due to better than expected performances in China and India + favourable exchange rates in Japan (and Europe)
US market results reflect the impact of the worst economic recession experienced since the end of WWII – but results improved steadily throughout the year
Market DJ Retail Growth %
2009 2008
LC Retail USD PWP USD PWPUSA -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
4444
Growth of emerging markets
China and India promise to be the next engines of 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
45Strictly 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
46
…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 BoardInternational International Diamond BoardDiamond Board
World class capabilities to distribute and market our diamonds
Market Market DemandDemand Consumer DemandConsumer Demand
Consumer Consumer ConfidenceConfidence
Big IdeasBig Ideas
48
Summary (1/2)
Diamonds are a luxury product – competing directly with other 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
49
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 other measures to ensure sustainable future growth
De Beers strategy aims at securing De Beers leadership position in future
DeBeersGroup.com/ofr2009
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