De Beers Overview Anglo American Analyst Presentation
De Beers Overview Anglo American Analyst Presentation
De Beers Overview Anglo American Analyst Presentation
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<strong>De</strong> <strong>Beers</strong> <strong>Overview</strong><br />
<strong>Anglo</strong> <strong>American</strong> <strong>Analyst</strong> <strong>Presentation</strong><br />
13 April 2010
Agenda<br />
1. Industry <strong>Overview</strong> & <strong>De</strong> <strong>Beers</strong> Introduction Gareth Penny<br />
(CEO)<br />
2. 2009 Operating & Financial Review Stuart Brown<br />
(CFO)<br />
3. 2010 & Beyond Gareth Penny<br />
(CEO)<br />
4. Venetia <strong>Overview</strong> Martin Preece<br />
(GM –Venetia Mine)<br />
Q&A<br />
2
Diamonds are a luxury product<br />
1. Diamonds are a luxury product with unique attributes<br />
which are very distinct from the commodities<br />
2. Whilst also a natural resource, diamonds are the<br />
main feature of an end consumer product, as distinct<br />
from more fungible commodities<br />
3. From a consumer perspective, diamonds have both<br />
emotional and physical attributes which influence<br />
purchase behaviour<br />
4. Diamond jewellery competes with other discretionary<br />
services and products for the share of consumers<br />
wallet<br />
5. Because of their aspirational and discretionary nature,<br />
diamonds are more vulnerable to reputation threats<br />
than other raw materials<br />
3
…in comparison with precious metals<br />
<strong>De</strong>mand sources for Diamonds, Gold and Platinum - 2008<br />
100%<br />
1%<br />
80%<br />
29%<br />
43%<br />
60%<br />
99%<br />
12%<br />
6%<br />
40%<br />
58%<br />
30%<br />
20%<br />
23%<br />
0%<br />
Diamonds Gold Platinum<br />
Jewellery Industrial Investment Autocatalyst<br />
Source: <strong>De</strong> <strong>Beers</strong> Group analysis; World Gold Council Gold <strong>De</strong>mand Trends, February 2009; <strong>Anglo</strong>plat 2008 Annual Report, page 20.<br />
4
Marketing and distribution is key to driving<br />
value<br />
Price per carat in 2007 (polished stones)<br />
$8,000<br />
6,000<br />
Diamonds<br />
+26%<br />
Price<br />
change<br />
’97-’07<br />
4,000<br />
2,000<br />
Rubies<br />
-38%<br />
-23%<br />
Emeralds<br />
Sapphires<br />
-39%<br />
0<br />
0 10 20 30 40 50<br />
Volume in 2007 (rough carats)<br />
Increasing Rarity<br />
Note: Data is for the USA – world’s largest gemstone market; Prices are for 1-carat stones<br />
Source: US Geological Survey; The Guide (Prices); DTC (volume)<br />
5
Diamond value chain<br />
<strong>De</strong> <strong>Beers</strong> as market leader<br />
2008 Diamond Pipeline<br />
<strong>De</strong> <strong>Beers</strong> as participant<br />
Exploration<br />
<strong>De</strong>scription<br />
• Finding new<br />
deposits of<br />
diamondiferous<br />
kimberlites that<br />
can be mined<br />
economically<br />
Rough<br />
Production<br />
Share of<br />
world<br />
production<br />
Share of<br />
world<br />
distribution<br />
$14.8bn $14.2bn $19.6bn<br />
<strong>De</strong> <strong>Beers</strong> DTC<br />
41%<br />
Other<br />
59%<br />
• Carats recovered<br />
through mining<br />
ALROSA<br />
42%<br />
Other<br />
58%<br />
Rough<br />
Distribution<br />
& <strong>De</strong>aling<br />
• Rough Distributor –<br />
selling rough diamonds<br />
purchased from primary<br />
source<br />
• Rough <strong>De</strong>aler – trades<br />
diamonds purchased<br />
from rough distributors<br />
or other rough dealers<br />
Polished<br />
Manufacturing<br />
& <strong>De</strong>aling<br />
• Cutting and<br />
polishing rough<br />
diamonds ready<br />
for inclusion into<br />
jewellery<br />
n.a.<br />
Jewellery<br />
Manufacturing<br />
• Crafting<br />
jewellery<br />
which<br />
incorporates<br />
polished<br />
diamonds<br />
Retail $70.3bn<br />
PWP 1 $19.1bn<br />
Jewellery<br />
Retail<br />
• Selling<br />
diamond<br />
jewellery to<br />
end<br />
consumers<br />
CONSUMER<br />
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<br />
diamond jewellery sold at retail. Source: DB Group Strategy estimates.<br />
24<br />
<strong>Overview</strong> of the diamond industry<br />
6
Diamond pipeline profitability<br />
Estimated pipeline profitability<br />
20%<br />
Size of bubble = Indication of absolute net profit<br />
Economic Profit Margin<br />
10%<br />
0%<br />
-10%<br />
0<br />
• Rough production and distribution<br />
and diamond jewellery retail<br />
produce the largest profit pools in<br />
the pipeline<br />
• However, in retail:<br />
– Profit margins are variable<br />
(reflecting different business<br />
models and risks)<br />
-20%<br />
Rough<br />
Production and<br />
Distribution<br />
Rough<br />
<strong>De</strong>aling<br />
Polished<br />
Manufacturing<br />
& <strong>De</strong>aling<br />
DJ<br />
Manufacturing &<br />
Distribution<br />
DJ<br />
Retailing<br />
– Profit pool is shared by a highly<br />
fragmented base (est.<br />
250,000+ retailers globally)<br />
N. of Companies 100s 50s 1,000s 10,000s >250,000<br />
Range of EP Margin<br />
<strong>De</strong>gree of segment fragmentation<br />
Source DB estimates 2007<br />
7
World Production Growth<br />
180<br />
160<br />
140<br />
Canada<br />
(Ekati)<br />
Canada<br />
(Diavik)<br />
120<br />
Carats (m)<br />
100<br />
80<br />
Botswana<br />
(Orapa)<br />
Botswana<br />
(Jwaneng<br />
)<br />
S. Africa<br />
(Venetia)<br />
60<br />
Tanzania<br />
Russia<br />
40<br />
20<br />
Sierra<br />
Leone<br />
Australia<br />
(Argyle)<br />
0<br />
1914<br />
1918<br />
1922<br />
1926<br />
1930<br />
1934<br />
1938<br />
1942<br />
1946<br />
1950<br />
1954<br />
1958<br />
1962<br />
1966<br />
1970<br />
1974<br />
1978<br />
1982<br />
1986<br />
1990<br />
1994<br />
1998<br />
2002<br />
2006<br />
2010<br />
2014<br />
2018<br />
No new material production is expected to come online in the near future<br />
8
World Diamond Production<br />
Botswana is the largest producer of rough diamonds globally<br />
Gem diamond production by country (volume)<br />
Gem diamond production by country (value)<br />
South Africa<br />
8%<br />
Angola<br />
6%<br />
All others<br />
2%<br />
Rus sia<br />
24%<br />
Angola<br />
10%<br />
All others<br />
4%<br />
Russ ia<br />
21%<br />
Canada<br />
9%<br />
South Africa<br />
11%<br />
DRC<br />
4%<br />
Australia<br />
9%<br />
DRC<br />
21%<br />
Canada<br />
19%<br />
Bots w ana<br />
21%<br />
Australia<br />
3%<br />
Botsw ana<br />
28%<br />
Total 150mcts<br />
Total US$14.8bn<br />
Sources: Kimberley Process 2008 Statistics; <strong>De</strong> <strong>Beers</strong> Group Strategy<br />
9
Diamond Production<br />
<strong>De</strong> <strong>Beers</strong> share of global gem diamond production is estimated at c.40% by value<br />
Gem diamond production (carats)<br />
Gem diamond production (value)<br />
Other (fragmented) includes:<br />
Artisanal & Illicit (8%)<br />
Juniors (25%)<br />
Other (fragmented) includes:<br />
Artisanal & Illicit (8%)<br />
Juniors (19%)<br />
Other<br />
(highly<br />
fragmented)<br />
33%<br />
<strong>De</strong> Be ers<br />
33%<br />
Other<br />
(highly<br />
fragmented)<br />
27%<br />
<strong>De</strong> Bee rs<br />
40%<br />
1<br />
Alrosa<br />
16%<br />
Rio Tinto<br />
14%<br />
Harry<br />
Winston<br />
2%<br />
BHP<br />
2%<br />
1<br />
Alrosa<br />
19%<br />
Rio Tinto<br />
6%<br />
BHP<br />
4%<br />
Harry<br />
Winston<br />
4%<br />
Total 150mcts<br />
Total US$14.8bn<br />
•The five largest producers contribute over two-thirds of global diamond production<br />
•<strong>De</strong> <strong>Beers</strong> and Alrosa contribute c.60% of global production by value<br />
Source: <strong>De</strong> <strong>Beers</strong> estimates 2008<br />
10
Diamond Cutting and Polishing<br />
India is the largest cutting centre by value and number of employees<br />
Share of Cutting Value by Country<br />
Beligium<br />
Russia 3%<br />
5%<br />
South Africa<br />
5%<br />
USA<br />
4%<br />
Botsw ana<br />
1%<br />
Cutting Centre<br />
Workforce<br />
Average<br />
Manufacturing Cost<br />
India<br />
850,000<br />
6-50<br />
Israel<br />
11%<br />
China/Thailand<br />
Israel<br />
South Africa<br />
29,000<br />
2,000<br />
1,800<br />
15-35<br />
50<br />
75<br />
Belgium<br />
1,000<br />
75<br />
India<br />
58%<br />
Thailand/China etc<br />
13%<br />
Source: <strong>De</strong> <strong>Beers</strong> 2008 Estimates<br />
11
6<br />
5<br />
4<br />
LIBOR %<br />
3<br />
2<br />
2011<br />
Cutting Centre <strong>De</strong>bt Levels<br />
12<br />
100<br />
90<br />
80<br />
70<br />
60<br />
50<br />
40<br />
30<br />
20<br />
10<br />
0<br />
2003<br />
2004<br />
2005<br />
2006<br />
2007<br />
2008<br />
2009<br />
2010<br />
Total <strong>De</strong>bt Service<br />
Libor<br />
Cost of <strong>De</strong>bt per month ($mn)<br />
Source: DTC Estimates<br />
1<br />
0
<strong>De</strong> <strong>Beers</strong> Activities<br />
13
Geographical Locations<br />
Business locations<br />
14
Diamond exploration challenge<br />
Diamond exploration results from<br />
the last 140 years<br />
5,000<br />
5,000<br />
1,500<br />
1,000<br />
850<br />
500<br />
0<br />
Kimberlites<br />
sampled<br />
Diamondiferous<br />
50<br />
3<br />
Economic >100B in<br />
contained revenue<br />
Source: <strong>De</strong> <strong>Beers</strong> Exploration data<br />
15
Focused exploration<br />
2,000km 2 6,000km 2 900km 2 9,000km 2<br />
18,000km 2<br />
Early Stage (recce-discovery)<br />
Advanced Stage (deposit)<br />
Total <strong>De</strong> <strong>Beers</strong> Exploration Spend ($mm)<br />
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009<br />
70 66 73 68 77 90 109 108 129 94 46<br />
16
<strong>De</strong> <strong>Beers</strong> has an unrivalled resource and reserve base<br />
$185bn<br />
$76bn<br />
$36bn<br />
$61bn<br />
$34bn<br />
$17bn<br />
The SSV Value^ of The <strong>De</strong> <strong>Beers</strong> Family of Companies'<br />
Resources*, Business Plan and Reserves**<br />
as at 31/12/09<br />
size of bubble = Revenue^ (U$ bn)<br />
$33bn<br />
$18bn<br />
$10bn<br />
$10.8bn<br />
$5.9bn<br />
$0.1bn<br />
$20bn<br />
$6bn<br />
$5bn<br />
$29.6bn<br />
$5.4bn<br />
$0.4bn<br />
$3.3bn<br />
$2.5bn<br />
$2.1bn<br />
$1.6bn<br />
$1.1bn<br />
$0bn<br />
$2.0bn<br />
$0.9bn<br />
$0.5bn<br />
Letlhakane<br />
$18.1bn<br />
$3.2bn<br />
$0.9bn<br />
Finsch<br />
Resource*<br />
Business Plan<br />
Reserve**<br />
SASA<br />
$5.4bn<br />
Jwaneng<br />
Orapa<br />
Snap<br />
Lake<br />
Venetia<br />
Namdeb<br />
Marine<br />
Victor<br />
Voorspoed<br />
Damtshaa<br />
Namdeb<br />
Land<br />
Kimberley<br />
NM<br />
Gahcho<br />
Kue<br />
FoC<br />
^ using Business Plan Average $/¢ @ June 2008 DTC Price Book for Life of Mine absent time value effects<br />
* Resource ¢ x Business Plan average $/¢<br />
** Reserve ¢ x Business Plan average $/¢<br />
18
Project Pipeline<br />
19
Agenda<br />
1. Industry <strong>Overview</strong> & <strong>De</strong> <strong>Beers</strong> Introduction<br />
2. 2009 Operating & Financial Review<br />
3. 2010 & Beyond<br />
4. Venetia <strong>Overview</strong><br />
20
Financial Summary<br />
Financial summary 2004 - 2008<br />
Y/e <strong>De</strong>cember - $m 2004 2005 2006 2007 2008<br />
Sales<br />
DTC 5,695 6,539 6,150 5,920 5,930<br />
Other 717 732 745 786 768<br />
Total sales 1 6,412 7,271 6,895 6,706 6,698<br />
EBITDA 1,317 1,403 1,232 1,216 1,222<br />
Underlying earnings 652 850 425 483 515<br />
Cash generated by operating activities 985 472 809 844 700<br />
Capital expenditure 416 638 752 1,612 442<br />
Total assets 2 6,258 6,846 7,599 8,381 7,093<br />
Shareholders' interests 3,933 3,701 3,834 3,392 2,628<br />
Gross debt<br />
Third party 1,339 2,175 3,037 4,075 3,622<br />
Shareholder preference shares 642 428 214 161 107<br />
Shareholder loans - - - - 248<br />
Cash 393 241 307 179 177<br />
Net debt 1,588 2,362 2,944 4,057 3,800<br />
21
Three factors affecting diamond market in 2009<br />
Drop in consumer demand<br />
Constricted liquidity<br />
Inventory overhang<br />
22
Maximise demand opportunities: DTC<br />
DTC Sales<br />
US dollar millions<br />
H1 H2 2009 2008<br />
DTC Sales 1,431 1,809 3,240 5,930<br />
• Protecting diamond equity<br />
• Selling flexibility<br />
• Liaison with diamond banks and trade to<br />
bolster confidence<br />
• Increased price and volume of sales as<br />
year progressed<br />
23
Produce in line with client demand<br />
Carats recovered: 2009 vs 2008<br />
2009 2008 Variance<br />
DBCM 4 797 11 960<br />
Namdeb 929 2 122<br />
<strong>De</strong>bswana 17 734 32 276<br />
<strong>De</strong> <strong>Beers</strong><br />
Canada<br />
1 146 1 640<br />
Carats 000’s 24,600 48,132 (49%)<br />
25
Create operating efficiencies<br />
Global headcount: 2009 vs 2008<br />
2009 2008 Variance<br />
Headcount 15,814 20,464 (23)%<br />
• Undertook a programme of de-layering<br />
and decentralisation<br />
• Identified synergies across company<br />
• Efficiencies are part of new normal way<br />
of operating<br />
26
Income Statement<br />
Income Statement (US$ millions)<br />
H1 2009 H2 2009 Total 2009 Total 2008<br />
Total sales 1,711 2,129 3,840 6,888<br />
Gross profit 123 204 327 1,363<br />
Gross profit % 7% 10% 9% 20%<br />
EBITDA 297 357 654 1,222<br />
Interest 98 127 225 240<br />
Tax 48 77 125 304<br />
Impairment of Canadian mining assets<br />
0 696 696 0<br />
Underlying (loss) earnings (164) (56) (220) 515<br />
27
Cost Savings<br />
Savings (US$ millions)<br />
H1 2009 H2 2009 Total 2009 Total 2008 Savings<br />
Production costs 326 399 725 1,224 499<br />
Operating overhead costs 153 249 402 817 415<br />
Capex 86 95 181 403 222<br />
Total<br />
565 743 1,308 2,444 1,136<br />
28
Balance Sheet – Pre-Equity Injection<br />
Balance Sheet (US$ millions)<br />
2009 2008<br />
Fixed assets 2,795 3,100<br />
Shareholder loans 759 248<br />
Other net interest bearing debt 3,200 3,552<br />
Cash (751) (147)<br />
Preference Shares 107 107<br />
Bank borrowings 3,844 3,592<br />
Net Current Assets<br />
1,118 1,060<br />
29
Cash Flow<br />
Cash Flow (US$ millions)<br />
Cash (consumed by) / available from<br />
operating activities<br />
H1 2009 H2 2009 Total 2009 Total 2008<br />
(31) 257 226 700<br />
Cash utilised in investing activities 95 96 191 442<br />
Free Cash flow (126) 161 35 258<br />
Less: Financing Activities<br />
Dividends (including outside shareholders)<br />
74 31 105 358<br />
Cash flow (200) 130 (70) (100)<br />
Shareholder Loans 553 0 553 264<br />
Non cash movements (forex) (130) (1) (131) 341<br />
<strong>De</strong>crease in net interest bearing debt<br />
223 129 352 505<br />
30
Agenda<br />
1. Industry <strong>Overview</strong> & <strong>De</strong> <strong>Beers</strong> Introduction<br />
2. 2009 Operating & Financial Review<br />
3. 2010 & Beyond<br />
4. Venetia <strong>Overview</strong><br />
31
<strong>De</strong> <strong>Beers</strong> Activities<br />
32
5 Strategic Levers<br />
Secure <strong>De</strong> <strong>Beers</strong> leadership position<br />
Strategic Lever 1 Strategic Lever 2 Strategic Lever 3 Strategic Lever 4 Strategic Lever 5<br />
Sustainably<br />
maximise value for<br />
rough diamonds<br />
Operate, optimise<br />
and invest in<br />
superior mines<br />
Invest in valuecreating<br />
downstream<br />
opportunities<br />
Continually identify<br />
and embed cost<br />
and efficiency<br />
gains<br />
Invest in and<br />
protect <strong>De</strong> <strong>Beers</strong><br />
FoC reputation and<br />
diamond equity<br />
Sales<br />
Build relationships<br />
Costs<br />
Protect reputation<br />
EBITDA<br />
Free Cash Flow<br />
Drive org effectiveness<br />
Communicate<br />
effectively with all<br />
stakeholders<br />
Retain / attract best<br />
talent<br />
Safety of our people & security of our product<br />
33
Strategic Lever 1<br />
Sustainably maximise value for rough diamonds<br />
Maximise price for production while assisting in the creation of viable<br />
downstream industries in producing countries<br />
Build upon beneficiation success during new contract period<br />
Build upon beneficiation success during new contract period<br />
Maximise current opportunities in selling to non-Sightholder community<br />
and explore new opportunities<br />
34
Strategic Lever 2<br />
Operate, optimise and invest in superior mines<br />
• Progress advanced exploration work in Angola and at Victor (Canada).<br />
• Operational cost containment and strategic business plans .<br />
• <strong>De</strong>bTech to progress new technology for the Gahcho Kue feasibility study<br />
• Finalise operations review across <strong>De</strong>bswana and ensure Cut 8 is<br />
delivered on time and below budget<br />
Maximise value of land and sea operations<br />
Achieve the new mining plan for Snap Lake, while optimising current<br />
resource and completing resource extension project at Victor<br />
• Enhance cash flow, especially at Venetia Mine.<br />
• Agree solution with the State Diamond Trader<br />
• Optimise Voorspoed ramp up<br />
• Identify assets for disposal/sale<br />
35
Strategic Lever 3<br />
Invest in value-creating downstream opportunities<br />
<strong>De</strong>termine the brand vision and consumer proposition, and agree<br />
commercial expansion strategy<br />
• <strong>De</strong>liver strong growth and margin expansion across abrasive<br />
businesses and E6 market share gains.<br />
• Successfully commercialise focused portfolio of unique new<br />
Technologies for diamonds<br />
Drive Organisational upgrade and focus on new collections, pricing, and<br />
retail performance / store productivity<br />
36
Strategic leaver 4<br />
Cost efficiencies<br />
Cost of production improvement. Focus on cost per ton mine and cost<br />
per ton treated<br />
Security of product<br />
Capital efficiencies and new project build<br />
Exploration and rapid deployment plant<br />
37
Safety remains our number 1 priority<br />
Fatalities<br />
0: 2009<br />
vs.<br />
6 in 2008<br />
Lost Time Injuries<br />
40 LTIs in 2009<br />
LTIFR:0.2<br />
vs.<br />
66 in 2008<br />
LTIFR:0.19<br />
38
Increasing production in 2010<br />
Production (Tons and Carats)<br />
100,000<br />
98,816<br />
95,687 94,664<br />
92,740<br />
90,000<br />
84,610<br />
80,000<br />
70,000<br />
60,000<br />
50,000<br />
47,012<br />
49,011<br />
51,135<br />
51,113<br />
48,132<br />
Tons treated<br />
Carats Recovered<br />
40,000<br />
35,110<br />
30,000<br />
24,600<br />
20,000<br />
10,000<br />
-<br />
2004 2005 2006 2007 2008 2009 2010E 2011E 2012E<br />
39
<strong>De</strong> <strong>Beers</strong> – Industry leader<br />
Mining Leader<br />
Leading Employer<br />
Marketer & Distributor Leader<br />
Diamond Technology Leader<br />
41
Worldwide 2009 Diamond Jewellery Retail Sales<br />
2009 Diamond Jewellery Sales Growth %<br />
Market DJ Retail Growth %<br />
2009 2008<br />
LC Retail USD PWP USD PWP<br />
USA -5% to -7% -7% to -9% -10%<br />
Japan -10% to -13% Flat to -4% -5%<br />
India +12% to 14% +0.5% to 2.0% +8%<br />
China (Shanghai/ Beijing only) +12% to 14% +15% to 17% +19% (China)<br />
World Growth Trend -3.0% - -4.0% -3.5%<br />
Total Estimated World PWP Approx. $18bn Approx. $19bn<br />
Overall result slightly above <strong>De</strong> <strong>Beers</strong>’ own forecasts due to better than expected<br />
performances in China and India + favourable exchange rates in Japan (and Europe)<br />
US market results reflect the impact of the worst economic recession experienced since<br />
the end of WWII – but results improved steadily throughout the year<br />
Source: <strong>De</strong> <strong>Beers</strong> commissioned studies; Group Strategy analysis<br />
43
Growth of emerging markets<br />
China and India promise to be the next engines<br />
of growth for the industry<br />
Rest of World,<br />
19%<br />
USA, 41%<br />
Rest of World,<br />
15%<br />
USA, 37%<br />
Italy, 3.5%<br />
Italy, 4%<br />
Hong Kong, 2%<br />
Hong Kong, 2%<br />
Taiwan, 3%<br />
Taiwan, 2%<br />
India, 7%<br />
India, 11%<br />
Japan, 11%<br />
China, 5%<br />
Gulf, 8%<br />
Japan, 9%<br />
China, 9%<br />
Gulf, 9%<br />
2008 2016<br />
Source: <strong>De</strong> <strong>Beers</strong> Estimates<br />
Note: Excludes currency effects<br />
44
Creating a market for diamonds in Japan…<br />
Japan market growth (% new brides who receive diamond only engagement rings)<br />
90%<br />
80%<br />
77%<br />
70%<br />
60%<br />
50%<br />
40%<br />
30%<br />
20%<br />
10%<br />
1965<br />
A Diamond<br />
is Forever<br />
6%<br />
1968 Three months salary intro<br />
0%<br />
1966 1970 1980 1990 2000<br />
45<br />
Strictly Confidential 45
…and more recently in China<br />
China DER (Diamond Engagement Ring) acquisition rate<br />
70%<br />
60%<br />
59%<br />
62%<br />
50%<br />
45%<br />
40%<br />
38%<br />
39%<br />
33%<br />
30%<br />
23%<br />
20%<br />
13%<br />
18%<br />
15%<br />
10%<br />
0%<br />
0% 0% 0%<br />
0% 0% 0% 0% 0% 0% 0%<br />
Shanghai Beijing Guangzhou Chengdu Dalian<br />
1993 1997 2000 2006<br />
46
World class capabilities to distribute and market our<br />
diamonds<br />
Big Ideas<br />
Market<br />
<strong>De</strong>mand<br />
International<br />
Diamond Board<br />
Consumer <strong>De</strong>mand<br />
Consumer<br />
Confidence<br />
47
Summary (1/2)<br />
• Diamonds are a luxury product – competing directly with<br />
other discretionary items for share of wallet. As such,<br />
Marketing is key to driving value<br />
• The industry pipeline is global in nature and covers<br />
exploration, mining, rough diamond distribution, polished<br />
manufacturing and wholesale, jewellery manufacturing and<br />
wholesale and jewellery retail<br />
• The largest profit pools in the industry are at rough diamond<br />
production and distribution, and at diamond jewellery retail<br />
• Rough production and distribution has been the most<br />
attractive segment in normal times given the relative<br />
concentration of this upstream segment compared to the<br />
high fragmentation of retail<br />
• No material new production is expected in the near future<br />
• Botswana and Russia are the largest diamond producers by<br />
value; <strong>De</strong> <strong>Beers</strong> Group and Alrosa the largest companies<br />
• India is the largest cutting centre by value and number of<br />
employees<br />
48
Summary (2/2)<br />
• <strong>De</strong> <strong>Beers</strong> operates in the most profitable areas of the<br />
pipeline and in Exploration, its engine for growth in the<br />
upstream segment – with a world class portfolio of mines<br />
and an unrivalled resource base<br />
• Its selective distribution system and marketing activities<br />
support diamond jewellery demand and equity<br />
• From Q4 2008, simultaneous shocks in liquidity, consumer<br />
demand and high polished inventory affected rough demand<br />
and prices<br />
• <strong>De</strong> <strong>Beers</strong> reacted promptly to the crisis by implementing<br />
aggressive production and cost cutting, capital reduction and<br />
other measures to ensure sustainable future growth<br />
• <strong>De</strong> <strong>Beers</strong> strategy aims at securing <strong>De</strong> <strong>Beers</strong> leadership<br />
position in future<br />
49
<strong>De</strong><strong>Beers</strong>Group.com/ofr2009