Anglo American Annual Report 2012

OPERATING AND FINANCIAL REVIEW DIAMONDSalso has a 51% shareholding in a jointventure in Gahcho Kué, a project in thevicinity of Snap Lake. The project is atan advanced permitting stage. Whenoperational, Gahcho Kué is expectedto produce approximately 4.5 millioncarats per annum over a life of mineof 11 years.De Beers sells rough diamondsthrough two distribution channels:over 90% is sold via long termcontract sales to clients (known asSightholders), with the remainderbeing sold via regular auctions.De Beers is also an equal joint venturepartner in DTC Botswana and inNamibia DTC with the GRB and GRN,respectively. The local companiesfacilitate local sales and beneficiation,and are intermediaries in the globalselling function.As part of its long term contractsales, De Beers sorts and valuesproduction into 14,000 price points.These diamonds are aggregated andsold to Sightholders at one of 10 Sightseach year.De Beers is a global leader in the useof innovative online systems to auctionrough, uncut diamonds to small,mid-tier and large manufacturing,retailing and trading businesses.De Beers participates at the polishedend of the value chain through itsproprietary diamond brand,Forevermark, and, at the retail end,through DBDJ.Diamonds inscribed as Forevermarkprovide consumers with confidencethat their diamonds are beautiful, rareand responsibly sourced. They areavailable in carefully selected,authorised jewellers in the majorconsumer markets around the world.DBDJ’s high-end retail stores arelocated in the most fashionable areasin the world, including New York,Beijing, Hong Kong, London, Paris,Tokyo and Dubai.Element Six is the global leader in thedesign, development and production ofsynthetic diamond supermaterials for arange of applications. It comprises twobusinesses: Technologies which iswholly owned; and Abrasives, in whichDe Beers has a 60% interest (UmicoreSA hold the remaining 40%).In 2012,De Beerscontinued themigration ofits Londonbasedsalesoperations toGaborone,Botswana.INDUSTRY OVERVIEWAround 60% of the world’s diamonds,by value, originate from south andcentral Africa, with significantsources also found in Russia, Australiaand Canada.Most diamonds come from the miningof kimberlite deposits. Anotherimportant source of gem diamonds,however, has been secondary alluvialdeposits formed by the weatheringof primary kimberlites and thesubsequent deposition of releaseddiamonds in rivers and beach gravels.Rough or uncut diamonds arebroadly classified either as gem orindustrial quality, with gem beingoverwhelmingly (>99%) the larger ofthe two markets by value. The primaryworld market for gem diamonds isretail jewellery, where aspects suchas size, colour, shape and clarity havea large impact on valuation.STRATEGYDe Beers’ vision is to unlock the fulleconomic value of its leadershipposition in the diamond industry.De Beers is a demand-driven business,with a clear understanding thatconsumer desire is the overwhelmingsource of value for its diamonds.With growth in demand for diamondsexpected to outstrip productiongrowth in the medium to long term, thecompany aims to maximise the valueof every carat mined, sorted and sold.To achieve this objective, De Beersfocuses on optimising the value of itsmining assets, selling to selectedleading diamantaires and offeringconsumers the integrity andconfidence of its brands.Operating safely, sustainablyand responsiblyDe Beers goes beyond maintainingthe company’s social licence tooperate, to ensure consumers canbe confident in the ethical integrityof De Beers’ diamonds. De Beers’activities in support of sustainabledevelopment are a core part of thecompany’s business model and spanthe diamond pipeline.Upstream, this strategy includesensuring employee safety, healthand well-being; and effectiveenvironmental stewardship. De Beersalso works in partnership with hostgovernments and other stakeholdersto assist in the provision of long termand sustainable economicdevelopment, including support forlocal and indigenous procurement,enterprise development, socialinvestment, and beneficiation.Through beneficiation, De Beerssupports the development ofvalue-adding downstream activitiesin producer countries. In 2012,De Beers continued the migration ofits London-based sales operations toGaborone, Botswana. Agreed in 2011,as part of a 10-year sales agreementbetween De Beers and the GRB for thesorting, valuing and sale of Debswana’sdiamond production, the relocation ofDe Beers’ international aggregationand sales activity will be completed bythe end of 2013. The move will bolsterDe Beers’ long term beneficiationactivities in the region, through helpingestablish southern Africa as a worldleading downstream diamond centre.De Beers also supports initiatives todrive best practice throughout thediamond pipeline. These include theKimberley Process CertificationScheme, an inter-governmentalinitiative that seeks to eliminateconflict diamonds from the globalsupply chain, as well as a bespokeethical, environmental and socialassurance programme that coversmore than 300,000 diamond sectorworkers across the world.FINANCIAL ANDOPERATIONAL OVERVIEWDe Beers’ underlying operating profit(on a 100% basis) fell by $676 millionto $815 million, 45% lower, reflectingthe impact of difficult tradingconditions brought aboutpredominantly by weaker demandand changing product requirementsfrom Sightholders. Anglo American’sshare of underlying operating profitfrom De Beers totalled $496 million, adecrease of 25%, the overall reductionbeing partly offset by Anglo American’shigher shareholding.84 Anglo American plc Annual Report 2012