DIAMONDS BRIEFING 30 November 2012 PROGRAMME
Sandwich lunch 12.30-13.00 6th floor dining room
Investor & Analyst presentation 13.00-15.00 6th floor boardroom
15.00-16.00 De Beers Diamond tour
Christmas drinks 16.00-17.30 6th floor
2 CAUTIONARY STATEMENT
Disclaimer: This presentation has been prepared by Anglo American plc (“Anglo American”) and comprises the written materials/slides for a presentation concerning Anglo American. By attending this presentation and/or reviewing the slides you agree to be bound by the following conditions.
This presentation is for information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy shares in Anglo American. Further, it does not constitute a recommendation by Anglo American or any other party to sell or buy shares in Anglo American or any other securities. All written or oral forward-looking statements attributable to Anglo American or persons acting on their behalf are qualified in their entirety by these cautionary statements.
Forward-Looking Statements
This presentation includes forward-looking statements. All statements other than statements of historical facts included in this presentation, including, without limitation, those regarding Anglo American’s financial position, business and acquisition strategy, plans and objectives of management for future operations (including development plans and objectives relating to Anglo American’s products, production forecasts and reserve and resource positions), are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Anglo American, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
Such forward-looking statements are based on numerous assumptions regarding Anglo American’s present and future business strategies and the environment in which Anglo American will operate in the future. Important factors that could cause Anglo American’s actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others, levels of actual production during any period, levels of global demand and commodity market prices, mineral resource exploration and development capabilities, recovery rates and other operational capabilities, the availability of mining and processing equipment, the ability to produce and transport products profitably, the impact of foreign currency exchange rates on market prices and operating costs, the availability of sufficient credit, the effects of inflation, political uncertainty and economic conditions in relevant areas of the world, the actions of competitors, activities by governmental authorities such as changes in taxation or safety, health, environmental or other types of regulation in the countries where Anglo American operates, conflicts over land and resource ownership rights and such other risk factors identified in Anglo American’s most recent Annual Report. Forward-looking statements should, therefore, be construed in light of such risk factors and undue reliance should not be placed on forward-looking statements. These forward-looking statements speak only as of the date of this presentation. Anglo American expressly disclaims any obligation or undertaking (except as required by applicable law, the City Code on Takeovers and Mergers (the “Takeover Code”), the UK Listing Rules, the Disclosure and Transparency Rules of the Financial Services Authority, the Listings Requirements of the securities exchange of the JSE Limited in South Africa, the SWX Swiss Exchange, the Botswana Stock Exchange and the Namibian Stock Exchange and any other applicable regulations) to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in Anglo American’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Nothing in this presentation should be interpreted to mean that future earnings per share of Anglo American will necessarily match or exceed its historical published earnings per share.
Certain statistical and other information about Anglo American included in this presentation is sourced from publicly available third party sources. As such it presents the views of those third parties, but may not necessarily correspond to the views held by Anglo American.
No Investment Advice
This presentation has been prepared without reference to your particular investment objectives, financial situation, taxation position and particular needs. It is important that you view this presentation in its entirety. If you are in any doubt in relation to these matters, you should consult your stockbroker, bank manager, solicitor, accountant, taxation adviser or other independent financial adviser (where applicable, as authorised under the Financial Services and Markets Act 2000 in the UK, or in South Africa, under the Financial Advisory and Intermediary Services Act 37 of 2002.).
3 DE BEERS – STRONG FIT WITH ANGLO AMERICAN STRATEGY
Focus on Attractive Products Asset Quality Filter
Highly Attractive Industry Fundamentals The World’s Leading Diamond Company
. Robust demand growth led by the emerging consumer . The biggest producer in the most profitable part of the middle class in developing economies – particularly industry value chain China and India . Global portfolio of high quality assets and unrivalled – China and India could account for half of global resource and reserve base demand by 2025 (up from 12% in 2008) – Part ownership of the industry’s flagship mines . Rough diamond supply structurally constrained, with no – Cost leadership; c. 70% of De Beers production is on material new production expected in the near future the lower end of the cost curve – declining output from ageing mines, peak global . World-class diamond expertise and leading technology production reached in 2006 across all parts of the value chain – few discoveries of major new deposits during the – leading sorting, distribution and marketing past two decades capabilities via supplier of choice model . Consequently, a structural supply demand gap is – unrivalled global diamond exploration expertise expected to emerge throughout this decade . Iconic luxury brand heritage - proven ability to generate – rough diamond production unable to keep pace with consumer demand and build end-market confidence new demand
4 THE INTEGRATION OF DE BEERS AND ANGLO AMERICAN HAS BEEN FOCUSED ON…
Maintaining business momentum
• Limited change to De Beers' management structure • Support for major De Beers strategic initiatives • Emphasis on maintaining De Beers' unique brand
Identifying and developing key areas of value
• Align De Beers more closely with Anglo American’s technical operational model • Capture the scale benefits of the broader Anglo American Group • Centralise certain corporate functions within Anglo American • Enhance De Beers reporting systems and standards
Strengthening relationships
• Deepen collaborative relationships with De Beers’ key partners • Build close management cohesion • Unlock additional benefits for De Beers employees
5 De Beers & the Diamond Market
London: 30 November 2012
London Agenda
Overview: Diamonds & De Beers Philippe Mellier CEO Mining & Exploration Bruce Cleaver Executive Head, Strategy & Corporate Affairs Sales Varda Shine Executive Vice President, Global Sightholder Sales Marketing Stephen Lussier Executive Vice President, Marketing Technology Philippe Mellier CEO Financial overview Gareth Mostyn CFO Summary & Outlook Philippe Mellier CEO Questions & Answers
7 Diamonds & De Beers
Philippe Mellier
London Diamonds are unique
Demand Sources for Diamonds v. Gold and Platinum - 2011 Differing values
$500,000
$500,000
$500,000
Source: De Beers analysis; World Gold Council Gold Demand Trends FY2011, Feb 2012; Johnson Matthey Platinum charts 2011.
9 US is the top diamond jewellery market, with China and India expected to increase their share of diamond demand
Consumer Demand Forecasts (Nominal Polished Sales)
2011 ~ USD23bn 2016F ~USD31bn
Turkey RoW 2% RoW Turkey 19% Hong Kong 15% 2% Hong Kong USA 2% USA 2% 37% Taiwan 35% Taiwan 2% 2% +35% Gulf Gulf 9% 8% Japan 7% Japan 10% China India 10% India China 10% 13% 15%
10 Source: De Beers Emergence of middle class and strength of luxury sector should continue to support demand for diamonds going forward
Global Growth of Middle Classes in emerging markets1 Worldwide personal luxury goods market evolution (2010 to 2015) (2010-2014F, €bn) Indonesia Mins of people +55 ∆ 2010-2015 Russia +32 Brazil China +21 CAGR 2011E‐14F +142 +7‐9% Turkey +15 Mexico 235‐240 India +09 +180 216‐218 South Africa 201‐203 +05 191 173 +8‐10% Global Growth of Middle Classes in emerging markets1 (2010 to 2015) +7‐8% Brazil Russia % change 44% 35% Turkey 2010-2015 34% +6‐7% South +10% Africa China 29% 83% Mexico 25% India Indonesia 97% 115%
2010 2011E 2012F2 2013F2 2014F2
Note 1: Middle-class households are those with annual income >USD5,000 in China, India and Indonesia and exceeding $10,000 in the other countries. Note 2: At constant exchange rates 11 Source: De Beers analysis from BCG report Winning in Emerging-Market Cities, Sep 2010; Altagamma Oct ‘12 Macro-economic forecasts are supportive of growth in polished diamond demand over the short to medium term
Global Consumer Polished Demand Growth (nominal) (2012-15)
Global Polished Diamond Demand Growth 7.0%
6.0%
5.0% Growth
4.0% %
3.0% Year ‐ on ‐ 2.0% Year 1.0%
0.0% 2012f 2013f 2014f 2015f
12 Source: De Beers Long-term view: Production to recede gradually from pre-crisis levels after 2017
Global production in carats
180 Rough diamond industry now requires investment in new projects 160 even to maintain production. In the next few years, additional 140 production from Gahcho Kue, Argyle and Petra mines likely to bring 120 production back to (but not above) pre-downturn levels. 100
m cts 80
60
40
20
0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Baseline production Committed projects Probable projects
Source: De Beers. All non-De Beers forecasts based on publicly available sources 13 A structural supply deficit should continue to provide the industry with price upside
Supply Demand Gap (smoothed from 2014)
180
160 Consumer Demand (nominal) 140
120
100 Supply @ constant prices 80
60 2011A 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F
14 Source: De Beers De Beers strategy is focused on sustainably capturing the maximum value of each carat mined by the Group
Rough Polished Exploration Jewellery Jewellery Mining Distribution Manufacturing Consumers & Projects Manufacturing Retail & Trading & Trading
15 De Beers strategy is focused on sustainably capturing the maximum value of each carat mined by the Group
Rough Polished Exploration Jewellery Jewellery Mining Distribution Manufacturing Consumers & Projects Manufacturing Retail & Trading & Trading
16 De Beers strategy is focused on sustainably capturing the maximum value of each carat mined by the Group
Upstream Commercial Downstream Optimised Core Business Unique Value Demand Generation and Future Proposition Growth Platform
Rough Polished Exploration Jewellery Jewellery Mining Distribution Manufacturing Consumers & Projects Manufacturing Retail & Trading & Trading
Exploration Mining: Distribution: Downstream: and Projects: • Flexible • Build the smartest • Support consumer • In-house operations to distribution system preference for diamonds exploration (in maximise value to maximise the in main consumer conjunction with through the value of each rough markets through Anglo American) demand cycle carat branded propositions • Accelerated • Asset • Consumer and trade exploration project optimisation intelligence decision making across operations • Understanding (with Anglo downstream in support American team of rough diamond value support) maximisation
Technology & Innovation, Talent & Leadership
17 De Beers participates in the exploration, mining, distribution and retail segments of the diamond pipeline
De Beers across the diamond pipeline
Jewellery Rough Polished Retail Exploration Jewellery Mining Distribution Manufacturing (including Consumers & Projects Manufacturing & Trading & Trading Diamond brands)
Group Exploration Global Sightholder De Beers Diamond Debswana | 50% (with Anglo American) Sales | 100% Jewellers | 50%
DebTech Namdeb | 50% DTC Botswana | 50% Forevermark | 100%
South Africa | 74% DTC Namibia | 50%
Canada | 100% Auction Sales | 100%
• Leading producer of rough diamonds, based on a • Leading distribution and marketing capabilities via highly attractive long life asset base supplier of choice model • Unrivalled global diamond exploration expertise • Proven ability to generate consumer demand and build end-market confidence • Proven sorting, valuing and distribution capabilities • Iconic luxury brand heritage
18 Philippe Mellier CEO, De Beers Group
Bruce Cleaver Pat Lowery Varda Shine Stephen Lussier Strategy, Business Cyrus Jilla Technical Global Sightholder Sales Marketing Development & Element Six Corporate Affairs
Tony Guthrie Neil Ventura Gareth Mostyn Canada Mining Auction Sales Finance
Philip Barton Athene van Mazijk South Africa Mining Human Resources
Jim Gowans Debswana
Inge Zaamwani Namdeb Holdings
Upstream Midstream Downstream Support Element Six
19 The world’s leading diamond company with a global footprint
Mines Exploration Corporate/Sales Offices Auction Sales Element Six De Beers Diamond Jewellers Forevermark
20 Mining & Exploration
Bruce Cleaver Diamond exploration challenge: finding economic diamond mines is difficult
Global discovery of ~7000 kimberlites has Ore grade in equivalent: ppm concentration resulted in only 7 ‘Tier 1’1 mines
Diamond exploration results from the last 140 years (as of 2011) Polymetallic 7 000 mines 6 800
1000 1 000
$3000/ct 500 (Letseng)
60 $38/ct 7 (Marange) 0 Kimberlites Diamond- Economic Tier 11 sampled iferous
Note 1. Over $20bn reserves. 7 finds are: Jwaneng, Orapa, Economic deposits vary significantly with wide ranges of: Grades: Udachnaya, Venetia, Catoca, Premier, Mir Kimberlites: 3 to 550cpht; Alluvials: 0.5 to 1,000cpht Volumes: ~1Mt – 1150Mt Revenues: ~$20/ct – $3000/ct
22 Source: De Beers analysis from publically available information Exploration activity has been focused on five countries since 2009
De Beers exploration spend by country, 2009 - 2011 De Beers exploration is active in both operating and non-operating countries
$,m 50 46 47 46
40
30
20
10
0 2009 2010 2011 Non‐Operating Country Canada India Support & lab services Angola South Africa Botswana Other
23 Competitive advantage in diamond mining
● Strong safety record – will benefit from integration with Anglo American ● World’s leading producer by value, with the largest reserve base, providing scale and sustainable future production ● Well positioned project portfolio for the long-term, with a geographically diverse development plan – Jwaneng cut 8 (Botswana) – Venetia underground (South Africa) – Gahcho Kué (Canada) ● Reshaped mining portfolio in South Africa with a focus on mines that provide a superior level of return ● World leading diamond expertise ● Cost savings implemented during the downturn maintained ● Proprietary diamond technology
24 World’s leading producer by value, with the largest reserve base, providing scale and sustainable future production
Supply Share in USD (2010-2011) Est. 2011 Supply Value Share
Est. Total Sales 2010 2011 (USD bn)
De Beers 5.1 6.5 Artisana/ Other Informal 15% 1 9% ALROSA 3.3 4.3 De Beers 34% Rio Tinto 0.7 0.7 Zimbabwe BHP Billiton 1.0 0.9 4% SODIAM 1.0 1.2 Harry Winston Harry Winston 0.3 0.3 1%
Zimbabwe 0.3 0.7 SODIAM ALROSA 6% 22% Artisanal/Informal 1.4 1.8 BHP Billiton Other 2.2 2.9 5% Rio Tinto Total Production 15.1 19.2 4%
Note: May not add up due to rounding. Note 1: Sales from Russian production only. Excludes sales to the Gokhran. 25 Sources: De Beers estimates; third-party data from publicly available company sources. 20% highest value carats account for almost 75% of total De Beers value of rough diamonds
Value v. Volume of Diamonds (De Beers Actual 2011 Sales)
100% Top 5% of carats = 47% 90% of value
80% Top 50% of carats = 92% of value 70% Bottom 20% of carats = 1% 60% of value 50%
40%
30% Proportion of Total 2011 Sales Value 2011 Total of Proportion 20%
10%
0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Proportion of Carats Sold
Note: Data includes Drilling & Boart plus Large Stones & Exceptional Stones (i.e. the full range of De Beers sales). 26 Source: De Beers, March 2012 Production overview
2010 2011 H1 2012 ● Production in line with Sightholder demand Carats Mine Holding Carats Carats Recovered ● Reduced production in Q4 2011 and Recovered (mill) Recovered (mill) (mill) throughout 2012, focusing on waste- stripping and maintenance, and Jwaneng 50% 11.5 10.6 4.8 positioning mines for market upturn Orapa 50% 9.5 11.2 5.0
Venetia 74% 4.3 3.1 1.0
Others 7.7 6.4 2.6
Total* 33.0 31.3 13.4
27 *Includes other discontinued and sold operations More than 70% of De Beers production is located on the lower half of the cost curve
Higher margin assets Snap lake Cost/revenue Damtshaa Namdeb operations Orapa Venetia Gahcho Kue (project) Jwaneng
Cumulative revenue
28 Source: De Beers Debswana
● 50/50 JV with the Government of the Republic of Botswana Milestones – 1955 - The search for diamonds in Botswana began in the Tuli Block in 1955. Three small alluvial diamonds were found along the Motloutse river – 1969 - Following the discovery of Orapa, Debswana was formed – 1982 - Jwaneng commences production and folded into Debswana ● Four open-pit mines: Jwaneng, Orapa, Letlhakane and Damtshaa mines ● Harmonised pre-tax 80.8/19.2 profit share (all mines) 2006 Master Agreement ● Produced 22.9 million carats in 2011, and is the largest producer in the Group
29 Jwaneng Mine
● Discovered by De Beers geologists in 1972. 2010 2011 H1 2012 Jwaneng is an open pit mine, using traditional truck Waste (tonnes and shovel methods, located 160km west of 43.8 50.8 38.6 Gaborone millions) Ore mined (tonnes 6.7 6.7 3.2 ● Comprises four known ore bodies (three large pipes millions) Tonnes treated and one small pipe), over approx 54ha and is the 8.2 6.5 3.2 largest producer of diamonds in the world, by value (tonnes millions) Carats recovered ● Mining operations currently focused on the three 11.5 10.6 4.8 (Carats millions) larges pipes, North, Central and South ● Employs approximately 1700 people (excluding contractors) ● The mine is ISO14001 and OSHAS 18001 certified ● Current life of mine to 2028 (including cut 8)
30 Jwaneng Mine - Cut 8 project and mining operations will extend the life of the open pit from 2017 to 2028
Background Cut‐8 plan ● Cut 8 Waste to be mined: 660 Million tons ● Cut 8 ore to be mined: 91 Million tons ● Cut 8 carats from ore mined: 102 Million carats ● Infrastructure capital cost: P3.5bn (approximately $450m) ● First ore to plant in 2016 Progress to date ● Infrastructure project completed below budget (2010-2012) ● Fleet largely procured ● Mining of waste commenced in 2010 ● Mining of waste done by JV contract mining team Majwe ● Waste mined to date – 112 Mt.
31 Orapa Regime
● First discovered in 1966, the Orapa Regime 2010 2011 H1 2012 (cluster) consists of Orapa, Letlhakane and Waste (tonnes Damtshaa Mines, which are open-pit operations 17.8 13.1 6.9 using traditional truck and shovel methods, and millions) Ore mined (tonnes clustered in a radius of under 25km in the Central 15.2 16.2 7.6 District of Botswana millions) Tonnes treated 16.2 16.3 7.9 ● It comprises one large pipe divided into two volcanic (tonnes millions) conduits that have coalesced at surface over and Carats recovered 10.7 12.2 5.5 area of approximately 117ha (Carats millions) ● Mining operations are currently taking place in cut 2, with cut 3 to follow ● Orapa Regime currently employs approximately 2500 people ● The mine is ISO14001 and OSHAS 18001 certified ● Current life of mine to 2033
32 South Africa
● 74% (De Beers) / 26% (BEE partner Ponahalo Holdings) ● Milestones: – 1888: De Beers Consolidated Mines created – 2006: Ground-breaking BEE deal with Ponahalo Holdings – 2006-2010: Portfolio significantly reshaped ● Three mining operations: open-pit mines of Venetia and Voorspoed, and a tailings resource recovery operation at Kimberley ● Produced 5.4 million carats in 2011
33 Venetia Mine
● Discovered in 1980, the Venetia kimberlite cluster 2010 2011 H1 2012 lies 90km west of Musina, in the Limpopo province ● It comprises 15 known bodies (13 pipes and two Waste (tonnes millions) 24.5 29.0 19.4 dykes), outcrops over an area of approximately 4ha Ore mined (tonnes 4.3 5.0 2.6 and is the largest producer of diamonds in South millions) Africa Tonnes treated (tonnes 4.0 5.2 2.7 ● Mining operations are focused on the three largest millions) Carats recovered pipes, K1, K2 and K3 4.3 3.1 1.0 (Carats millions) ● Venetia Mine currently employs approximately 1200 people ● The mine is ISO14001 and OSHAS 18001 certified ● Current life of mine to 2043 (including Venetia underground)
34 Venetia underground
● Venetia underground project will extend the life of South ● Solution considers two vertical shafts (Service and Africa’s largest diamond mine until at least 2043, yielding Production) to 1040 metres approximately 111 million carats ● Sub Level Caving (SLC) mining method, producing on ● Mining two main ore bodies below the current open pit cut average 6 million tons per annum and 4.4 million carats per (Cut 4) from circa 2021 annum ● Start up capital is R 12.4 bn in 2012 money terms (R 19.9 bn ● The Environmental Authorisation (EA) was issued on 13 July in nominal terms) 2012, while the EMP was approved on 1 October 2012
Service ● Final regulatory approvals imminent shaft Production South shaft RAP North West East 0m
150m – K3 300m –K2 Pit Bottom Pit Bottom
450m – K1 Pit Bottom 550m – Twin access K2 K1 Main Prod W/S Modified SLC 725m – Twin access SLC
900m - Twin access 925m – Truck loop 960m - Loading level Crushers 990m - pump station Pump station, 1040m - # bottom dams, settler & Launder
35 Namdeb Holdings
● 50/50 JV with Government of the Republic of Namibia, and owns 100% of Namdeb (land) and Debmarine Namibia (sea) licences to 2020 ● The marine mining operations operate off the coast of Namibia in water depths of 80-130m ● The alluvial land operations are conducted along the south-western coast and inland areas of the Karas Region and between the coastal towns of Oranjemund and Lüderitz ● In 2011 marine produced 990,000 carats, and land- based operations produced 346,000 carats ● The marine fleet consists of five vertical mining and one horizontal mining vessel plus chartered vessels for exploration and geo-survey operations ● Upgrades to two vessels in 2013 aimed at increasing mining rates
36 Canada
● 100% De Beers owned ● Two mining operations: Snap Lake mine (underground mine) in the Northwest Territories (NWT) and Victor mine (open pit mine) in northern Ontario ● Produced 1.7 million carats in 2011 ● Gahcho Kué, De Beers (51%) JV with Mountain Province Diamonds (49%), located 80 km southeast of Snap Lake mine – Feasibility study approved in June 2011 – Mine life 11 years – De Beers share of capex is approx $350 million – Permitting at an advanced stage ● Annual average production: 4.5 million carats ● Chidliak diamond deposit on Baffin Island in Nunavut – Due diligence for advanced exploration completed – De Beers retains an option to partner with Peregrine Diamonds Ltd until end 2013
37 Midstream
Varda Shine
38 Our customers operate across the globe, with most industry cutting and polishing in India
39 There are many activities in the mid and down stream and our customers are involved in most areas
Jewellery Rough Cutting & Polished Jewellery Preparing Manu- Retail Primary Model Dealing Polishing Wholesale Wholesale facturing
Dealers
Dealers / Preparers
Dealers / C&P
Dealers / C&P / JM
C&Ps
C&P / JM
C&P / JM / Retail
Retailers
40 Competitive advantage in rough diamond distribution
● World’s largest distributor of rough diamonds, with activities in sorting, valuing, sales and diamond beneficiation ● Scale and mix of resource allows for aggregation of goods and enables long-term supply contracts ● Beneficiation is a core part of the De Beers business model, providing value and strengthening relationships with our producer partners ● World class diamond expertise ● Proprietary diamond technology
41 Integrated two-channel distribution system to serve different customer types with differing needs
GLOBAL SIGHTHOLDER AUCTION SALES SALES Three year contract Wide customer base 76 Sightholders – 571 registered Regular, planned DYNAMISM auction participants supply Equal opportunity to Intellectual Property purchase – but no benefits guarantee of supply
42 The 2 channels provide a long-term and a spot proposition
Global Sightholder Sales Auction Sales ~90% of Sales ~10% of Sales 76 Sightholders 571 Registered Auction Participants Both Sightholders and non-Sightholders Sightholders are chosen based on their ability to add value to the rough Limited entry criteria •Compliance criteria •Declaration of Best Practice Principles compliance •Relative performance criteria •Anti-Money Laundering /Know-Your-Customer compliance •Beneficiation criteria checking Each Sightholder is given an “Intention to Offer” (ITO) in particular boxes •Three 12 month ITOs within a three year contract The auctions are a “spot” proposition •12-month expectation of the supply level in each box •Auction lots are generally parts of boxes •Sightholders can express a “preferred delivery schedule” •Different types of auctions used, dependent on desired (PDS) for when they would like their allocation delivered results (e.g. closed English, Multi-unit auctions) •Global Sightholder Sales matches this PDS with expected production delivery to create a Sight Plan
Prices are determined by buyers from across the global markets in a competitive and anonymous online negotiation Prices set at Standard Selling Value (SSV) •The result is the market price for our products •SSV is the price at which we can capture and drive long term optimal value for the product
43 Botswana sales agreement
● 10 year sales agreement was signed in 2011 (effective 1 January 2011) ● Requires the transfer of all of De Beers functions which relate directly to the sale of Debswana diamonds to Botswana by the end of 2013 ● If achieved, De Beers will receive financial benefit in the form of increased margin received in the 100% owned Global Sightholder Sales ● The agreement introduces a purchase entitlement or “sales window” offered to the GRB, initially equivalent to 10% of Debswana production on a run of mine basis and growing to 15% by 2016
44 Flow of goods through Botswana
Global Sightholders
100% SSV
Local DBUK / DBGSS GRB Window Sightholders 85-90% of goods at 94- 100% SSV 95% SSV
100% SSV 10-15% of goods at 94- DTCB 95% SSV
90% SSV
Debswana
45 Flow of goods through Namibia
Global Sightholders
100% SSV
DBUK / DBGSS Local Sightholders
95% SSV 100% SSV
100% SSV NDTC
90% SSV
Namdeb
46 Flow of goods through South Africa
Global Sightholders
100% SSV
DBUK / DBGSS Local Sightholders
95% SSV 100% SSV 100% SSV
DTC SA SDT
90% SSV
100% SSV DBCM
47 Downstream
Stephen Lussier
48 Strong downstream expertise & track record in creating demand will unlock further value
De Beers has a track record of creating demand for diamonds in different countries
% of first time brides who receive a diamond only engagement ring
USA … … Japan … … and now China 50 years 30 years 16 years CAGR: 4.2% CAGR: 9.5% CAGR: 23.9%
Peak Peak (%) (%) (%)
80% 77% ?
31%
10% 5%
1940 1990 1965 1995 1994 2010 Peak year
49 Source: De Beers De Beers Diamond Jewellers
● Independently managed 50/50 retail joint venture with Louis Vuitton Moët Hennessy LVMH ● 44 stores in leading diamond consumer markets around the world ● Business split roughly between USA, Japan, Europe and Asia ● 2011/2012 expansion in mainland China ● Focus on driving productivity of existing stores
De Beers Diamond Jewellers –Business Shifting East
50 Forevermark
● The diamond brand from the De Beers Group of Companies that come with a promise that they are beautiful, rare and responsibly sourced ● Diamonds that meet Forevermark’s standards are inscribed with the Forevermark icon and a unique identification number (both are invisible to the naked eye) ● Launched in the core markets of China, Japan, Hong Kong in 2009 and India and the US in 2011 – Over 900 retail partners in 12 markets – 583,000 diamonds inscribed to date – 172,000 diamonds graded to date ● Strong growth in 2012 (35-45% up YTD) – Reinforces our view that branded diamonds command a premium ● Primary mechanism for De Beers diamond marketing, re-enforcing the emotional symbolism of diamonds and addressing synthetic and ethical risks ● Provides deeper insight into polished / retail markets
51 Technology
Philippe Mellier
52 World-class technology
● Proprietary technology provides De Beers with competitive advantage across the diamond pipeline ● ‘Sea walker’ used to extract diamonds from along the surf zone ● State of the art technology to mine diamonds from the sea bed ● Machine based colour and clarity sorting providing accuracy, consistency, objectivity of measurement and cost reduction ● Sophisticated equipment to detect natural diamonds from synthetic and treated diamonds underpins the integrity and value of natural diamonds ● Patented inscription technology for Forevermark diamonds
53 Element Six
● World’s leading synthetic diamond supermaterials company ● Element Six Abrasives SA (~60% owned by De Beers, ~40% owned by Umicore) - solutions for abrasive applications including cutting, grinding, drilling, shearing, polishing ● Element Six SA (100% owned by De Beers) – utilises the extreme properties of synthetic diamond in new applications including optics, thermal management, environmental sensors and water treatment and even high end speaker technology (received Queen’s Award for Enterprise in Innovation) ● 2,500 employees worldwide and sales of ~$500 million ● Supply ~3,000 global customers ● Manufactures synthetic diamond from carbon using high pressure high temperature (HPHT) synthesis and chemical vapour deposition (CVD)
54 Financials
Gareth Mostyn Financials
● During H1, total sales decreased 14 percent to Total Sales ($ billion) US$3.3 billion (2011: US$3.9 billion) 8.0 ● Sales of rough diamonds in H1 were US$3.1 billion 7.0 (2011: 3.5 billion) 6.0 Half 2 ● After strong Q1-Q3 in 2011, the final quarter of last 5.0 Half 1 year and 2012, have been characterised by weaker 4.0 3.0 demand and changing product requirements from 2.0 Sightholders 1.0 ● Q3 this year saw a further softening in demand and 0.0 price, albeit with slightly firmer conditions in Q4 2010 2011 H1 2012 Sales Analysis ($ billion)
8.0
7.0
6.0 Other
5.0 Element Six
4.0 Auction sales
3.0 Global Sightholder Sales
2.0
1.0
- FY 2010 FY 2011 H1 2012
56 Financials
● During H1, production totalled 13.4 million carats Production (cts millions) 10
(H1 2011: 15.5 million carats) 9 ● In light of prevailing market conditions that began in 8 7 Q4 2011, operations continued to focus on South Africa 6 Namibia
maintenance and waste stripping, positioning De 5 Canada 4 Beers for the future Botswana 3 Discontinued Operations ● Slope failure resulted in approx 1.5m carats of 2 production deferred from H2 production 1 0 ● Rough diamond price index remained relatively Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 stable during H1 despite challenging trading 2010 2011 2012 conditions ● A price adjustment occurred in Q3, with a Diamond price index subsequent stabilisation ‐5% 0% ● Realised prices also reflect slight shift to lower +34% quality product mix than prior year +8%
+19%
H2 2009 H1 2010 H2 2010 H1 2011 H2 2011 H1 2012
57 Summary & Outlook
Philippe Mellier In 2012, total market likely to be up in low to mid single digits
Growth by Market (USD Polished Sales Growth)
Market 2012 8m 2012F Overview of H1, Forecast of H2, (world share) 2011A E* Base 2012 2012 USA (37%)8%4%4% • Despite a considerable • General anticipation of China (10%) 25% 10% 11% slowdown in China, absolute slightly improved performance in H2 due to India (10%) 9% ‐3% ‐1% growth rates likely to have remained highest in this the traditionally strong autumn and Q4 range of Japan (10%)8%7%7%market festivals (Diwali, Golden ROW (33%) 10% ‐1% ‐1% • After a reasonable Q1 in the Week and Christmas) Total World 10% 3% 4% US, the market softened in • In China, there was Q2 anticipation that government actions would *Estimate based on public retailer results only, not comprehensive market data Note: All numbers are rounded. All figures are approximate • H1 was unsettled for India boost consumer confidence with jewellery retailer and spending in China in H2 strikes and low consumer but there has probably been confidence in the face of a sharper slowdown than expected high inflation, slower • India likely to remain growth and weakening subdued, as it continues to Rupee face challenges of low • However larger public growth combined with high inflation and a weak INR retailers reported positive • Total market likely to be up results in low to mid single digits
59 Summary
● Diamonds are not a commodity ● Growing consumer demand for diamond jewellery, driven by China and India, coupled with flat production in the short to medium term, will result in a structural supply deficit that should yield price upside for the industry ● De Beers strategy is focused on sustainably capturing the maximum value of each carat mined by the Group, focusing on customer needs ● Strong management team in place ● Diamond industry leadership: exploration, mining, distribution, marketing, technology – World’s leading producer by value, with the largest reserve base, providing scale and sustainable future production – Scale and mix of resource allows for aggregation of goods and enables long-term supply contracts – Iconic brand and proven ability to build consumer markets – Proprietary technology provides competitive advantage across the pipeline
60 debeersgroup.com Appendices Production output by operation
2010 2011 H1 2012 Mine Holding Carats Recovered (‘000)
Jwaneng 50% 11,470 10,641 4,816
Orapa 50% 10,749 12,248 5,479
Venetia 74% 4,287 3,146 1,037
Voorspoed 74% 732 580 247
Kimberley 74% 823 778 354
Snap Lake 100% 926 882 381
Victor 100% 826 779 358
Namdeb 50% 402 346 252
DBMN 50% 980 990 526
Finsch 74% 1,583 936 -
Total 32,998 31,326 13,451
63 Voorspoed Mine
● Open pit mine located in Free State Province, 2010 2011 H1 2012 mined using traditional truck and shovel methods ● Every employee has completed secondary school Waste (tonnes ‘000) 7 609 10 877 5 502 Ore mined (tonnes and at least 25% of technical and mining jobs are 2 976 2 293 1 298 held by women; 36% of the total mine complement ‘000) Tonnes treated is female 3 016 2 434 1 257 (tonnes ‘000) ● Voorspoed Mine currently employs approximately Carats recovered 732 580 247 400 people directly (Carats ‘000) ● The mine is ISO14001 and OSHAS 18001 certified ● Current life of mine to 2021
64 Snap Lake Mine
● Snap Lake Mine is Canada’s first completely 2010 2011 H1 2012 underground diamond mine and De Beers’ first mine outside Africa Waste (tonnes ‘000) 223 213 60 Ore mined (tonnes ● It is located 220 km northeast of Yellowknife in the 855 808 405 NWT ‘000) Tonnes treated 869 813 411 ● Ore body is a 2.5 m thick dyke that dips an average (tonnes ‘000) of 12 – 15 degrees from the NW shore down under Carats recovered 926 882 381 the lake (Carats ‘000) ● Snap Lake Mine currently employs approximately 500 people directly ● The mine is ISO14001 and OSHAS 18001 certified ● Current life of mine to 2030
65 Victor Mine
● Victor Mine is an open pit mine, and Ontario’s first 2010 2011 H1 2012 diamond mine ● It is located in James Bay Lowlands 90 km west of Waste (tonnes ‘000) 6 952 6 618 2 690 Ore mined (tonnes Attawapiskat 2 660 2 844 1 640 ‘000) ● Victor is one of 18 kimberlites, 16 of which are Tonnes treated 2 733 2 731 1 524 diamondiferous (tonnes ‘000) Carats recovered ● Victor Mine currently employs approximately 400 826 779 358 (Carats ‘000) people directly ● The mine is ISO14001 and OSHAS 18001 certified ● Current life of mine to 2018
66