Anglo American Plc · LSE:AAL

Anglo American — De Beers — Investor Day (November 2014)

64 slides from Anglo American's investor day presentation, Nov 3, 2014

  1. Slide 1: De Beers Analyst Seminar

    DE BEERS ANALYST SEMINAR 03.11.2014 The De Beers Group of Companies A member of the Anglo American plc group © 2014 De Beers UK Limited. All Rights Reserved

  2. Slide 2: Cautionary Statement

    CAUTIONARY STATEMENT Disclaimer development capabilities, recovery rates and other operational capabilities, the availability This presentation has been prepared by Anglo American plc (“Anglo American”) and comprises of mining and processing equipment, the ability to produce and transport products p

  3. Slide 3: Welcome

    WELCOME Mark Cutifani, Chief Executive, Anglo American and Chairman, De Beers

  4. Slide 4: Agenda

    AGENDA Welcome Mark Cutifani 3.30 – 3.35 Presentation 3.35 – 5.00 • Introduction and investment case Philippe Mellier • Industry overview Bruce Cleaver • Company overview – Structure Philippe Mellier – Upstream Pat Lowery – Projects Pat Lowery – Midstream Bruce Cleaver – Downstream Philippe Mellier

  5. Slide 5: Introduction and Investment Case

    INTRODUCTION AND INVESTMENT CASE Philippe Mellier, Chief Executive, De Beers

  6. Slide 6: Diamond industry value derives from consumers' demand for jewellery

    CONSUMERS’ DESIRE FOR DIAMONDS “IN CONTRAST WITH PRECIOUS METALS AND OTHER NATURAL RESOURCES INDUSTRIES, WHICH RELY ON MULTIPLE SOURCES OF DEMAND, THE DIAMOND INDUSTRY DERIVES PRACTICALLY ALL ITS VALUE FROM CONSUMERS’ DEMAND FOR DIAMOND JEWELLERY.” Source: The Diamond Insight Report 2014 The De Beer

  7. Slide 7: Investment Highlights

    INVESTMENT HIGHLIGHTS Best-in-class mining assets •Positioned favourably on the cost curve, with long life reserve Attractive supply/demand fundamentals •Excellent supply/demand outlook in the industry Positioned favourably on the cost curve (2020 projection) Strong partnerships Ratio of direct cash

  8. Slide 8: De Beers' Strategy Across the Pipeline

    DE BEERS’ STRATEGY ACROSS THE PIPELINE Upstream Midstream Downstream Optimise core business Unique value proposition Demand generation and future growth platform Rough Polished Exploration Jewellery Jewellery Mining distribution manufacturing Consumers and projects manufacturing retail and trading a

  9. Slide 9: Industry Overview

    INDUSTRY OVERVIEW Bruce Cleaver, Executive Head of Strategy, De Beers

  10. Slide 10: Diamonds Are End-Consumer Products

    DIAMONDS ARE END-CONSUMER PRODUCTS: POLISHED GEM DIAMONDS SET IN JEWELLERY ACCOUNT FOR 99% OF DIAMOND VALUE Unlike demand for precious metals the Demand sources for diamonds Same value, only material driver of value for diamonds vs. gold and platinum – 2013 different volume is end-consumer demand fo

  11. Slide 11: Growth in Demand Correlated with Economic Activity

    GROWTH IN DEMAND FOR DIAMONDS IS STRONGLY CORRELATED WITH GROWTH IN ECONOMIC ACTIVITY Polished diamond consumption vs. economic indices (1990 to 2013) Indexed polished diamond consumption Indexed polished diamond consumption vs. indexed real Gross Domestic Product (GDP) for the US vs. indexed real P

  12. Slide 12: US and China Remain Key Markets for Diamond Consumption

    THE US AND CHINA WILL REMAIN THE KEY MARKETS FOR DIAMOND CONSUMPTION FOR THE FORESEEABLE FUTURE 2013A 2018F ROW ROW Total consumer Total consumer 22% 20% demand US$25bn demand US$31bn 40% USA 40% USA Gulf 7% Gulf 8% 4% 6% Japan Japan 9% 8% India 16% 19% India Greater China¹ Greater China¹ Main trend

  13. Slide 13: Projected Growth of Emerging Market Middle Classes

    PROJECTED GROWTH OF MIDDLE CLASSES IN EMERGING MARKETS SHOULD SEE CONTINUED GLOBAL DEMAND GROWTH FOR DIAMONDS Projected growth of middle classes in Number of projected additional middle class 99 emerging markets (% change 2013A-2018F) households in 2018F vs. 2013A (millions) 27 Brazil 27% Russia 49%

  14. Slide 14: 2013 Global Rough Diamond Production

    IN 2013, APPROXIMATELY 146m CARATS (APPROXIMATELY US$18bn IN VALUE) WERE MINED GLOBALLY 2013A rough diamond 2013A rough diamond production by country (carats) production by company (value2) All others Informal/Artisanal Zimbabwe 6% 5% 12% 33% 8% Russia Catoca Angola 25% 6% De Beers Group 6% 33% Zimb

  15. Slide 15: Projected Global Rough Diamond Production – McKinsey Forecasts

    PROJECTED GLOBAL ROUGH DIAMOND PRODUCTION – McKINSEY FORECASTS Million carats New projects Expansions Existing production 180 160 140 120 100 80 60 40 20 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Source: McKinsey & Company, Perspectives on the D

  16. Slide 16: Supply/Demand Curve Based on McKinsey Forecasts

    SUPPLY/DEMAND CURVE BASED ON McKINSEY FORECASTS 180 160 Demand forecast Index base 100 in 2014 140 120 100 80 Production forecast 60 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F Source: McKinsey Global Institute; McKinsey & Company, Perspectives on the Diamond Industry, Septembe

  17. Slide 17: Future Industry Trends

    FUTURE INDUSTRY TRENDS • Diamond production will decline slowly after 2020 • Producer governments will seek increased value chain participation • Technology transforming all stages of the value chain • Shifting needs of new consumers with increased importance of brands and ethical sourcing • Importa

  18. Slide 18: Company Overview: Structure

    COMPANY OVERVIEW Structure Philippe Mellier, Chief Executive, De Beers

  19. Slide 19: Company Overview: Ownership Structure

    COMPANY OVERVIEW Ownership structure Anglo American 85% Government of the Republic of Botswana 15% De Beers Operations Rough diamond sales Brands/retail Exploration Production Mining Supermaterials Debswana Namdeb Element Six Global Auction Sales Forevermark De Beers Global Canada South Africa Diamo

  20. Slide 20: Overview of Operations by Location

    OVERVIEW OF OPERATIONS BY LOCATION Botswana Namibia • Debswana: 50/50 JV with the Government of the Republic of Botswana; • Namdeb Holdings: 50/50 JV with Government of the Republic formed 1969 of Namibia; formed 1994 • Biggest producer in the Group: • Namdeb Holdings owns 100% of Namdeb (land) and

  21. Slide 21: Company Overview: Upstream

    COMPANY OVERVIEW Upstream Pat Lowery, Executive Head of Technical, De Beers

  22. Slide 22: Diamond Mining Operations and Carats Recovered, 2013

    DIAMOND MINING OPERATIONS AND CARATS RECOVERED, 2013 Canada Botswana Namibia South Africa 100% owned Debswana Namdeb Holdings De Beers Consolidated Established 1998 50/50 joint venture 50/50 joint venture Mines (DBCM) with the Government with the Government 74/26 BEE Partnership of the Republic of B

  23. Slide 23: Botswana

    BOTSWANA H1 H2 Total H1 H1 H2 Total H1 Jwaneng 2013 2013 2013 2014 Orapa 2013 2013 2013 2014 Waste (tonnes m) 45.9 58.0 103.9 58.5 Waste (tonnes m) 7.6 9.9 17.5 7.1 Ore mined (tonnes m) 3.5 4.6 8.1 5.0 Ore mined (tonnes m) 8.1 7.3 15.4 9.3 Tonnes treated (tonnes m) 3.4 4.4 7.8 3.9 Tonnes treated (to

  24. Slide 24: Canada

    CANADA H1 H2 Total H1 H1 H2 Total H1 Snap Lake 2013 2013 2013 2014 Victor 2013 2013 2013 2014 Waste (tonnes m) 0.1 0.1 0.2 0.1 Waste (tonnes m) 3.0 4.3 7.3 3.5 Ore mined (tonnes m) 0.5 0.6 1.1 0.5 Ore mined (tonnes m) 1.4 1.5 2.9 1.3 Tonnes treated (tonnes m) 0.5 0.6 1.1 0.5 Tonnes treated (tonnes m

  25. Slide 25: Namibia

    NAMIBIA H1 H2 Total H1 H1 H2 Total H1 Debmarine Namibia 2013 2013 2013 2014 Namdeb 2013 2013 2013 2014 Area mined (square metres) 5.0 5.7 10.7 5.6 Waste (tonnes m) 18.5 14.8 33.3 19.1 1 Carats recovered (carats m) 0.6 0.6 1.2 0.6 Ore mined (tonnes m) 4.8 5.0 9.8 5.4 1 Average price (US$/ct, 100% SSV

  26. Slide 26: South Africa

    SOUTH AFRICA H1 H2 Total H1 Venetia 2013 2013 2013 2014 Waste (tonnes m) 17.4 12.4 29.8 21.7 Ore mined (tonnes m) 1.4 3.5 4.9 2.7 Tonnes treated (tonnes m) 2.7 2.8 5.5 2.9 Carats recovered (Carats m)1 0.9 2.3 3.2 1.4 Average price (US$/ct, 100% SSV)1 194 174 187 156 1 Grade (cpht) 33 82 58 47 • Vene

  27. Slide 27: Operational Improvement Initiative: Jwaneng

    OPERATIONAL IMPROVEMENT INITIATIVE: JWANENG • Sump installed to mitigate unseasonably high rainfall • Rapid and effective recovery from 2012 slope failure • Improvement plan in place from 2013 addressing both ore availability from mining and plant performance • Focussed programme of maintenance and

  28. Slide 28: Operational Improvement Initiative: Orapa

    OPERATIONAL IMPROVEMENT INITIATIVE: ORAPA • Plant 1: – Plant shutdown during 2013 for unplanned maintenance to address structural concerns and other maintenance issues – Plant performance in 2014 showing good improvement back towards 2012 levels • Plant 2: – Improved OPU* performance at Plant 2 driv

  29. Slide 29: Operational Improvement Initiative: Mafuta

    OPERATIONAL IMPROVEMENT INITIATIVE: MAFUTA (DEBMARINE NAMIBIA) Continuous mining trial port) Crawler change- (unplanned return to (Crawler change-out) Main hoist failure Planned in-port out Successes • Significant maturing of the engineering design to provide maximum reliability and availability • O

  30. Slide 30: Exploration

    EXPLORATION Canada India Angola South Africa Botswana 88 licences granted Two licences for Advanced stage 13 licences granted Nine licences granted for 116km2 754km2 awarded of negotiations for 794km2 for 6,204km2 by Ministry in Q3 for new licences 2014; awaiting state government approval The De Bee

  31. Slide 31: Company Overview: Projects

    COMPANY OVERVIEW Projects Pat Lowery, Executive Head of Technical, De Beers

  32. Slide 32: Botswana: Jwaneng Mine – Cut 8

    BOTSWANA: JWANENG MINE – CUT 8 Will extend the life of the open pit to approximately 2031 Background • Waste to be mined: approximately 660 million tonnes • Ore to be mined: 96 million tonnes1 • Carats from ore mined: 112 million carats1 • Average grade of 117 cpht1 • Infrastructure completed in 201

  33. Slide 33: South Africa: Venetia Underground

    SOUTH AFRICA: VENETIA UNDERGROUND The Venetia underground project will extend the life of South Africa’s largest diamond mine to 2044 Background • Ore to be mined: 128 million tonnes1 • Carats from ore mined: 94 million carats1 • Average grade of 73 cpht1 • Mining of the two main ore bodies below th

  34. Slide 34: Canada: Gahcho Kué

    CANADA: GAHCHO KUE Unincorporated JV: De Beers (51%); Mountain Province Diamonds (49%) Located 80km southeast of Snap Lake Background • Ore to be mined: 31 million tonnes1 • Carats from ore mined: 48 million carats1 • Average grade of 154 cpht1 • Life of mine: 11 years1 • De Beers share of capex: ap

  35. Slide 35: Company Overview: Midstream

    COMPANY OVERVIEW Midstream Bruce Cleaver, Executive Head of Strategy, De Beers

  36. Slide 36: Integrated Two-Channel Distribution System

    INTEGRATED TWO-CHANNEL DISTRIBUTION SYSTEM TO SERVE DIFFERENT CUSTOMER TYPES WITH DIFFERING NEEDS Botswana Singapore Global Sightholder Sales Auction Sales • 10 Sights per year • Industry-leading online auction platform • New three-year supply contract • Variety of auction types 2015-18, offering re

  37. Slide 37: Sales Agreements

    SALES AGREEMENTS Botswana • 10 year sales arrangement with Debswana and the Government of the Republic of Botswana (GRB), started in 2011 • Resulted in the transfer of international Sight activities to Gaborone in 2013 • Arrangement introduced for the first time a limited ‘window’ for GRB to purchas

  38. Slide 38: De Beers Rough Diamond Conversion Cycle

    DE BEERS ROUGH DIAMOND CONVERSION CYCLE Mine and Sorting and Aggregation Total Pipeline Process Valuation and Sale 16 – 20 weeks 3 - 5 weeks 8 - 10 weeks 5 weeks Mine Sorting De Beers sales • The time taken from when a rough diamond is extracted from the ground until it is sold to a consumer as set

  39. Slide 39: Benefits of Aggregation

    BENEFITS OF AGGREGATION Volatility in carat delivery by producing country • Smooths out peaks and 100% troughs in mining • More consistent offering 80% for more of the production • Wider range of product 60% Namibia • Mitigates volatility 40% Canada South Africa 20% Botswana Aggregated Mix 0% -20% -

  40. Slide 40: Schematic Flow of Diamonds Around the Group

    SCHEMATIC FLOW OF DIAMONDS AROUND THE GROUP Global Sights (~90%) and Aggregated goods Sights: Auction Sales (~10%) principally Botswana Unaggregated goods De Beers Global Global Sightholder Sightholder Sales Sales 13% GRB1 87% Trading Sightholder DTC Botswana Namibia DTC Sales South Africa 90% SDT2

  41. Slide 41: Seasonality

    SEASONALITY Seasonality of consumer diamond jewellery acquisitions by main market Monthly distribution of diamond jewellery acquisitions in percent 35 30 USA 25 20 15 China 10 India 5 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Engagements Engagements Mother’s USA Valentine’s Day Day Wedding s

  42. Slide 42: Safeguarding Consumer Confidence

    SAFEGUARDING CONSUMER CONFIDENCE • Various companies have the ability to manufacture gem-quality synthetic diamonds utilising different technologies (HPHT and CVD, principally) • Trading in undisclosed or misrepresented gem synthetics risks damage to consumer confidence, so accurate descriptions and

  43. Slide 43: Company Overview: Downstream

    COMPANY OVERVIEW Downstream Philippe Mellier, Chief Executive, De Beers

  44. Slide 44: The Rise of Brands

    THE RISE OF BRANDS US consumers who reported buying a branded diamond engagement ring (%) 36 22 7 2002 2011 2013 Source: The Diamond Insight Report 2014 The De Beers Group of Companies 43

  45. Slide 45: Forevermark

    FOREVERMARK • A diamond brand from De Beers that comes with a promise that the diamonds are beautiful, rare and responsibly sourced • Diamonds 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, Jap

  46. Slide 46: De Beers Jewellers

    DE BEERS JEWELLERS • High-end luxury retail joint venture with LVMH (50/50) Geographic store split as of end of June 2014 • 34 stores in 15 key diamond markets around the world (of which 13 are franchised) Europe • Business focused on Asia and Asian clients outside Asia • Increasing importance of Ch

  47. Slide 47: Element Six

    ELEMENT SIX • World’s leading synthetic diamond US$m FY H1 supermaterials company 2013 2014 • Global leader in design, development Revenue 439 240 and production EBITDA * 63 46 • Over 50 years’ experience (Margin %) (14%) (19%) • Supply ~20,000 unique products to ~5,000 global customers Underlying o

  48. Slide 48: Financial Overview

    FINANCIAL OVERVIEW Gareth Mostyn, Finance Director, De Beers

  49. Slide 49: Group Structure from an Accounting Perspective

    GROUP STRUCTURE FROM AN ACCOUNTING PERSPECTIVE Upstream 100% 100% 19.2% 50% De Beers Canada De Beers Debswana2 Namdeb Holdings3 Consolidated Mines (DBCM)1 Midstream 100% 100% 50% 50% De Beers Global De Beers Auction Sales Partner Diamond Trading Companies3 Sightholder Sales Downstream and Element Si

  50. Slide 50: Financial Overview – FY 2013 and H1 2014

    FINANCIAL OVERVIEW – FY 2013 AND H1 2014 Income statement Balance sheet US$bn H1 H2 FY H1 US$bn FY H1 2013 2013 2013 2014 2013 2014 Revenue 3.3 3.0 6.3 3.8 Fixed Assets and Intangible Assets 4.9 5.1 of which, rough diamonds 3.0 2.8 5.8 3.5 Diamond Inventory 1.1 1.2 Underlying operating profit 0.6 0.

  51. Slide 51: Pricing and Mix

    PRICING AND MIX Strong US demand/midstream restocking drove H1 2014 revenue Index prices up 7% in H1 2014… US$m +15% 160 2013 2014 3,788 155 3,297 +7% 3,018 299 150 Other 252 +2% 266 145 Rough diamond 3,045 3,489 140 2,752 sales 135 130 H1 H2 H1 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 2013 2013 2014 Overa

  52. Slide 52: Strong Production Uplift Supports Higher Sales Volumes

    STRONG PRODUCTION UPLIFT SUPPORTS HIGHER SALES VOLUMES Production up 12% driven by Debswana and South Africa… …with production particularly strong in Q1 vs. prior year Mct 2013 2014 Mct 9.1 7.9 8.5 8.2 7.8 7.5 H1 6.4 10.9 1.6 0.9 14.3 2013 0.9 H2 11.8 3.1 1.1 16.9 +12% 2013 Q1 Q2 Q3 Q4 Q1 Q2 Q3 0.9

  53. Slide 53: Unique Blend of Mining and Trading Earnings Streams

    UNIQUE BLEND OF MINING AND TRADING EARNINGS STREAMS Illustrative cases De Beers earns a margin on the sale of diamonds from Debswana – data is illustrative only its wholly-owned and JV mining operations JV non-consolidated margin De Beers then earns an Trading consolidated margin additional fixed ma

  54. Slide 54: Overview of Operating Margins (FY 2013)

    OVERVIEW OF OPERATING MARGINS (FY 2013) The Group operating margin is a blend of 220 45 mining and trading margins ~40% 200 40 Margin (US$/carat) (left axis) 180 In 2013, the average margin from Mining Cost (US$/carat) (left axis) 35 160 was ~40% (based on De Beers’ Operating margin % (right axis) 3

  55. Slide 55: Overview of Income Statement

    OVERVIEW OF INCOME STATEMENT US$bn H1 H2 FY H1 • De Beers’ revenue is made up of: 2013 2013 2013 2014 – The sale of rough diamonds to clients, mostly Sightholders, Revenue 3.3 3.0 6.3 3.8 from mines that De Beers either wholly owns, controls or Rough diamond sales 3.0 2.8 5.8 3.5 operates in JV with

  56. Slide 56: Overview of Capital Expenditure

    OVERVIEW OF CAPITAL EXPENDITURE Capex overview US$m Stay In Business (SIB) Waste Expansionary GUIDANCE H1 2013 123 116 17 256 FY2014 ~US$700m FY2015 ~US$800-900m H2 2013 131 93 71 295 H1 2014 104 110 106 320 Waste capitalised driven by Venetia Projects are ramping up 9 21 US$m US$m H1 2013 65 16 35

  57. Slide 57: Spotlight on De Beers Group Free Cash Generation

    SPOTLIGHT ON DE BEERS GROUP FREE CASH GENERATION US$m Debswana cash flow 1,298 • Debswana distributes its profits 551 after certain appropriations 625 (including capital expenditure FY 164 2013 and working capital funding 42 requirements) to its shareholders, De Beers and the Government of Botswana

  58. Slide 58: Summary

    SUMMARY Operating profit EBITDA US$m 1,003 US$m 1,451 0 432 +34% H2 663 +25% 765 983 571 788 H1 FY H1 FY H1 2013 2014 2013 2014 Free Cash Flow ROCE 625 26% US$m +47% 0 Pre PPA 22% 331 15% 431 15% 294 Post PPA 13% 11% FY H1 FY H1 Target 2013 2014 2013 2014 (2016) The De Beers Group of Companies 57

  59. Slide 59: Summary

    SUMMARY Philippe Mellier, Chief Executive, De Beers

  60. Slide 60: Investment Highlights

    INVESTMENT HIGHLIGHTS Best-in-class mining assets Positioned favourably on the cost curve (2020 projection) •Positioned favourably on the cost curve, with long life reserve Ratio of direct cash costs to revenue Attractive supply/demand fundamentals •Excellent supply/demand outlook in the industry St

  61. Slide 61: Q&A

    Q&A

  62. Slide 62: Appendix

    APPENDIX

  63. Slide 63: Diamond Resource and Reserve Estimates as at 31 December 2013

    DIAMOND RESOURCE AND RESERVE ESTIMATES AS AT 31 DECEMBER 2013 Selected De Beers Assets INCLUSIVE Diamond Reserve Estimates Diamond Resource Estimates as at 31 December 2013 as at 31 December 2013 Tonnes Carats Grade BCO1 Treated Saleable Recovered BCO LOM years (Mt) (Mc) (cpht) (mm) Tonnes Carats Gr

  64. Slide 64: Diamond Resource and Reserve Estimates: Explanatory Notes

    DIAMOND RESOURCE AND RESERVE ESTIMATES AS AT 31 DECEMBER 2013: EXPLANATORY NOTES Explanatory notes Unless otherwise stated, tonnage is quoted as dry metric tonnes. Estimates of Diamond Reserve tonnes reflect the tonnage to be treated. Reported Diamond Reserves/Resources are based on a Bottom Cut Off

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