Anglo American plc · LSE:AAL

Anglo American — De Beers — Investor Presentation (September 2004)

67 slides from Anglo American's investor presentation, Sep 23, 2004

  1. Slide 1: De Beers Seminar to Anglo American Analysts

    De Beers Seminar to Anglo American Analysts Copyright De 23rdBeers September 2004 2004

  2. Slide 2: Agenda

    Agenda • Welcome by Nicky Oppenheimer, Chairman • Introduction by Gary Ralfe, Managing Director • Paddy Kell, Finance Director • Gareth Penny, Managing Director, DTC Copyright De Beers 2004 • Gary Ralfe, Managing Director • Q&A • Advertising Commercials

  3. Slide 3: De Beers Group of companies

    De Beers Group of companies Debswana Central Holdings Anglo American Group Group Group 11% 89% Central Investments (DBI) Lux 10% 45% 45% DB Investments (Lux) 100% De Beers sa (Lux) Copyright De Beers 100% 100% 2004 De Beers De Beers Centenary Consolidated Mines (Swtizerland) (South Africa) 50% 50% 1

  4. Slide 4: De Beers & the Diamond Industry

    De Beers & the Diamond Industry Size of the Diamond Business 2003 De Beers Other + = $9.1 World Production of Rough ($bn) Group Producers $3.6 $5.5 De Beers Other + = $10.1 World Supply of Rough ($bn) Group Producers $5.6 $4.5 Copyright De Beers 2004 Polished Equivalent of Supply ($bn) $16.1 Global

  5. Slide 5: Change in business model

    Change in business model Custodianship to Leadership Supply Control Driving Demand Growth Utilising key assets: – Mystique of the natural diamond – Producer partnerships – Diamond knowledge and expertise – “De Beers” brand potential Copyright De Beers 2004 With full legal compliance Supplier of De B

  6. Slide 6: Privatisation - 2001

    Privatisation - 2001 Dedicated diamond mining and marketing business Since delisting we have: – Liberated $2.06 billion from stocks – Generated operating cash flow of $4.5 billion – Reduced net gearing level from 57% to 21% – Copyright De Beers Repaid $4.5bn acquisition facility ahead of schedule 20

  7. Slide 7: Primary strategic levers

    Primary strategic levers Profitability Sustainability 1. Demand growth 5. Producer proposition 2. Profitable production growth 6. Synthetics response Copyright 3. Creating DetheBeers 20047. Organisation effectiveness value through DTC 4. Cost and working capital efficiencies

  8. Slide 8: Paddy Kell, Finance Director

    Paddy Kell Copyright De Beers Finance Director 2004 De Beers

  9. Slide 9: Agenda

    Agenda • Results for 6 months ended 30 Jun 2004 • Trends: • EBITDA • ROCE • ROE • Copyright De Beers Cash flow / debt 2004 • Costs •

  10. Slide 10: Results June 2004

    Results 30 June 2004 • DTC sales $2,983m ( 2.2%) • Headline earnings $424m ( 12.8%) • Net debt $1,169m ( $593m) Copyright De Beers 2004 • Operating cash flow $870m

  11. Slide 11: Headline earnings June 2003 - 2004

    Headline earnings June 2003 - 2004 650 600 550 89 112 9 500 63 450 424 107 24 US$ M 400 376 350 82 300 Copyright De Beers 68 2004 250 200 Headline Currency Price & Trade Sorting and Financing Tax JV's Other Headline June 2003 volume investment marketing June 2004 & other income

  12. Slide 12: EBITDA

    EBITDA NFO/GMR Privatisation appointed 2000 1800 1600 1400 1200 US$ M 1000 800 600 400 Copyright De Beers 2004 200 0 Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Jun- Dec- Jun- 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2003 2004 Total Diamond business only June

  13. Slide 13: ROCE

    ROCE 25.0% 20.0% 15.0% 10.0% 5.0% Copyright De Beers 2004 0.0% Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Jun- Dec- Jun- 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2003 2004 Total Diamond business only Diamond business (June) Based on headline earnings

  14. Slide 14: ROE

    ROE 25.0% 20.0% 15.0% 10.0% Copyright De Beers 2004 5.0% 0.0% Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Jun- Dec- Jun- 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2003 2004 Total Diamond business only June Based on headline earnings

  15. Slide 15: Operating cash flow

    Operating cash flow 2500 2000 1500 US$ M 1000 500 Copyright De Beers 2004 0 -500 Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Jun- Dec- Jun- 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2003 2004 Total Diamond business only Diamond business (June)

  16. Slide 16: Net Debt

    Net Debt 4500 4000 4008 3500 3290 3000 US$ M 2500 2572 2000 1500 Copyright De Beers 1783 2004 1762 1169 1000 500 0 Dec 2001 Jun 2002 Dec 2002 Jun 2003 Dec 2003 Jun 2004 Dec 2004

  17. Slide 17: Net working capital

    Net working capital 6000 5000 4000 US$ M 3000 2000 Copyright De Beers 2004 1000 0 Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Jun- Dec- Jun- 94 95 96 97 98 99 00 01 02 03 03 04 December June Including diamond stocks

  18. Slide 18: Cash costs

    Cash costs 1,700 1500est 1,500 1292 1,300 1,100 995 878 US$ M 900 700 500 Copyright De Beers 2004 300 100 (100) 2001 2002 2003 2004F Production costs Sorting, selling & marketing Exploration & research Corporate

  19. Slide 19: Increasing carat production…

    Increasing carat production… SOUTH AFRICAN, DEBSWANA & NAMDEB OPERATIONS - DIAMOND RECOVERY 50 Millions 0.3 45 0.2 1.9 1.5 0.2 40 0.2 1.3 1.4 35 30 29.6 30.4 Carats 25 28.4 26.4 20 15 Copyright De Beers 2004 10 11.9 13.4 5 10.7 10.4 - 2001 2002 2003 2004 Forecast (Aug) DBCM Debswana Namdeb Williamso

  20. Slide 20: …together with more waste tons mined...

    …together with more waste tons mined... SOUTH AFRICAN, DEBSWANA & NAMDEB OPERATIONS - WASTE TONS MINED 180 Millions 1.0 160 24.4 - - 140 33.6 - 31.5 120 25.5 Waste Tons Mined 66.4 100 62.1 80 60.4 54.2 60 Copyright De Beers 2004 40 83.9 60.9 51.0 52.2 20 - 2001 2002 2003 2004 Forecast (Aug) DBCM Deb

  21. Slide 21: …resulting in increased mining costs

    …resulting in increased mining costs SOUTH AFRICAN, DEBSWANA & NAMDEB OPERATIONS - WASTE TONS MINED vs US$ CASH COST PER TON 180,000,000 16 160,000,000 14 140,000,000 US$ cash cost per Ton Treated 12 $11.56 120,000,000 Waste Tons Mined 10 100,000,000 8 80,000,000 $7.53 6 Copyright De Beers 60,000,00

  22. Slide 22: Finance focus

    Finance focus • Risk management, governance • Cost of capital • Copyright Cash De future flows and Beerscapital funding 2004

  23. Slide 23: De Beers WACC (real)

    De Beers WACC (real) • Before privatisation: 10.4% • Immediately after : 8.2% • End Copyright De2003: Beers9.4% 2004 • End 2004: 9.8% • Optimum target: 6.7%

  24. Slide 24: Finance focus

    Finance focus • Risk management, governance • Cost of capital • Copyright Cash De future flows and Beerscapital funding 2004

  25. Slide 25: De Beers Sales and Marketing

    De Beers Sales and Marketing Gareth Penny Copyright Managing De Beers Director 2004 Diamond Trading Company

  26. Slide 26: De Beers' 1999 Strategic Plan

    De Beers’ 1999 Strategic Plan Driving Supplier of De Beers’ Effective demand Choice Brand Organisation Copyright De Beers 2004

  27. Slide 27: Driving Demand

    Driving Demand % Growth in World Nominal DJ Sales (CAGR) 4.0% 3.0 3.6 2.0 Copyright De Beers 1.0 2004 0.0 -0.2 -1.0 94-98 99-03

  28. Slide 28: The rate of growth in World diamond jewellery sales is increasing

    The rate of growth in World diamond jewellery sales is increasing (% growth US$ PWP) % change 10% 8% 6% Copyright De Beers 2004 3% 0% 2002 2003 H1 2004

  29. Slide 29: Estimated H1 world retail markets up +5.5% in LC and +8% in PWP

    Estimated H1 world retail markets up +5.5% in LC and +8% in PWP LC Retail Sales Growth Est. H1 2004 USA 7 Italy -4 Germany -3 France 6 UK 8 Japan 1 Copyright Taiwan De Beers 17 2.5 2004 Thailand 5 China 6 Gulf 7 India 12 Turkey 19 WORLD 5.5 +8.0% PWP

  30. Slide 30: H1 DJ sales growth encouraging with cautiously optimistic outlook

    H1 DJ sales growth encouraging with cautiously optimistic outlook • Rough markets still strong – Rough imports up from Jan-Jul ‘04 v. same period ‘03 – Premiums on DTC goods have come down • Polished market – Polished exports up +21% from Jan-Jul ’04 v. same period ‘03 – Stocks down -17% from July ‘

  31. Slide 31: 2004 New Initiatives

    2004 New Initiatives USA Japan India China Copyright De Beers 2004

  32. Slide 32: De Beers built two thirds of the US Market

    De Beers built two thirds of the US Market New Occasions New Products New Segments Copyright De Beers 2004 Copyright De Beers 2004

  33. Slide 33: Driving Incremental Sales

    Driving Incremental Sales USA: Three Stone Jewellery Sales Retail Sales 3500 3000 2500 $m Copyright De Beers 2000 2004 1500 1000 500 0 1999 2000 2001 2002 2003

  34. Slide 34: Right Hand Ring advertising is a huge hit in 2004

    Right Hand Ring advertising is a huge hit in 2004 Copyright De Beers 2004

  35. Slide 35: 2004 New Initiatives

    2004 New Initiatives USA Japan India China Copyright De Beers 2004

  36. Slide 36: Highly visible presence in-store

    Highly visible presence in-store Copyright De Beers 2004

  37. Slide 37: 3-stone Diamond Jewellery growing rapidly

    3-stone Diamond Jewellery growing rapidly Value Share and Growth Trend (12mmt) 80 70 60 50 40 (%) 30 20 10 Copyright De Beers 3.4 3.5 3.5 3.5 3.5 3.3 3.4 3.4 3.4 3.5 3.4 3.3 3.4 3.4 3.5 3.5 3.6 3.7 3.8 3.8 3.9 4 4.3 4.7 5 5.2 5.5 5.9 2004 0 Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec-

  38. Slide 38: 2004 New Initiatives

    2004 New Initiatives USA Japan India China Copyright De Beers 2004

  39. Slide 39: Nakshatra Flagship

    Nakshatra Flagship • Nakshatra (Constellation) revitalised floral jewellery • Launched October 2000 Copyright De Beers 2004 • Sales over $100m in 3 years. No. 1 brand in India • Awarded status

  40. Slide 40: Aishwarya Rai – Brand ambassadress

    Aishwarya Rai – Brand ambassadress Copyright De Beers 2004

  41. Slide 41: 2004 New Initiatives

    2004 New Initiatives USA Japan India China Copyright De Beers 2004

  42. Slide 42: The DWR cultural imperative has been quickly adopted in China's major cities

    The DWR cultural imperative has been quickly adopted in China’s major cities DLJ acquisition amongst all recently married women 84% 73% 66% 54% 1997 43% 2000 33% Copyright De Beers 2004 2002 21% 13% Shanghai Beijing Guangzhou Source: China DWR 1997; China DCJ 2000, China DCJ 2002

  43. Slide 43: 1999 Strategic Plan

    1999 Strategic Plan Driving Supplier of De Beers’ Effective demand Choice Brand Organisation Copyright De Beers 2004

  44. Slide 44: Driving demand through efficient Channels for Trilogy

    Driving demand through efficient Channels for Trilogy DTC Three Most Strong and Major Major Consumer Six Clients Manufacturers Retailers Campaign Copyright De Beers 2004

  45. Slide 45: Supplier of Choice

    Supplier of Choice Copyright De Beers 2004

  46. Slide 46: What Has Been Achieved….

    What Has Been Achieved…. Pre Post SOC SOC • Commodity focus • Consumer dreams and needs focused • Little product differentiation • Product differentiation • Low investment in marketing • Higher investment in marketing • Few brands • Some recognised brands • Luxury goods beating us • Diamonds closing

  47. Slide 47: Major Competitors

    Major Competitors • Luxury travel • Luxury watches • Hi-Tech equipment • Luxury leather Copyright goods De Beers 2004 • Luxury fashion

  48. Slide 48: Areas of focus: Conflict Diamonds

    Areas of focus: Conflict Diamonds Copyright De Beers 2004

  49. Slide 49: Area of focus: Synthetics!

    Area of focus : Synthetics! Firms currently producing synthetics: •Apollo •Gemesis Copyright De Beers 2004

  50. Slide 50: Current workstreams

    Current workstreams • Enhance Consumer Confidence • Trade education • Diamond promotion • Detection technology • Promoting Copyright Debest Disclosure Beers 2004 practice • Vigilance • Maintaining perspective

  51. Slide 51: Our Strategic Objectives

    Our Strategic Objectives We will be focussed on: 1. Driving consumer demand 2. Maintaining consumer confidence 3. “Supplier of Choice” 4. “Purchaser of Choice” 5. Copyright Detalents The skills and Beersof our employees 2004 6. Providing exceptional value to our shareholders

  52. Slide 52: Gary Ralfe

    Gary Ralfe Copyright Managing De Beers Director 2004 De Beers

  53. Slide 53: Mining and Exploration: Historic Performance

    Mining and Exploration Historic Performance DE BEERS GROUP Total Diamond production (1995 - 2003) 50,000 + 9% 45,000 +9% CAGR 7% 40,000 D iam o n d s R ecovered (C arats 000's) 35,000 30,000 25,000 Copyright De Beers 2004 20,000 15,000 10,000 5,000 - 1995 1996 1997 1998 1999 2000 2001 2002 2003

  54. Slide 54: Mining and Exploration: 2004 Production issues

    Mining and Exploration 2004 Production issues Diamonds recovered 2003 2004 August 2004 Annual Annual Year-end Actual Budget Budget YTD Actual YTD Variance Forecast Million Million Million Million Budget v Million Carats Carats Carats Carats Actual YTD Carats DBCM 11.9 14.2 9.1 8.5 -7.2% 13.4 Namdeb

  55. Slide 55: Continuing to Drive Supply: Production Forecast

    Continuing to Drive Supply Beyond 2004 - Production Forecast Supply Growth 2004 - 2009 54 In the project pipeline Projects under review 52 Base Case Carats recovered - Million 50 48 Copyright De Beers 2004 46 44 42 2004 2005 2006 2007 2008 2009

  56. Slide 56: Continuing to Drive Supply: Current Projects

    Continuing to Drive Supply Beyond 2004 - Current Projects • Major Planned Expenditure (Base Case) Total additional Production Full Estimated production1 commences prod. capex2 $m Elizabeth Bay Upgrade 2m carats 2004 2004 62 Finsch Block 4 17m carats 2004 2006 302 BB1E Cullinan 5m carats 2004 2007 30

  57. Slide 57: Continuing to Drive Supply: Projects under review

    Continuing to Drive Supply Beyond 2004 - Current Projects • Projects under review: Total additional Production Full Estimated production1 commences prod. capex2 $m Finsch Plant Upgrade 2m carats 2006 2007 90 Victor 6m carats 2008 2008 625 C-Cut Cullinan 115m carats 2009 2012-14 1291 Finsch Block 5 1

  58. Slide 58: Continuing to Drive Supply

    Continuing to Drive Supply In the project pipeline – South Africa • Voorspoed (production from 2007) • Venetia – Underground (2015) – Satellite pipes – Copyright Botswana: Deat existing multiple projects Beers mines 2004 – Canada • Gahcho Kué (production from 2012)

  59. Slide 59: Continuing to Drive Supply: Advanced Exploration Projects

    Continuing to Drive Supply Advanced Exploration Projects Canada o Attawapiskat Satellites o Forte a la Corne JV o Knife Lake JV o Hardy Lake JV o Rockinghorse JV Russia o GribCopyright De Beers 2004 Botswana o Jwaneng DK7 o Orapa Satellites Guinea, Gabon, Zimbabwe, South Africa, Brazil

  60. Slide 60: Supply side challenges

    Mining and Exploration Supply side challenges • Jwaneng Lease Renewal • Rand strength - impact on marginal mines • Working stock levels Copyright De Beers 2004 • De Beers market share • Alrosa contract

  61. Slide 61: New Organisation

    New Organisation DBsa Nicky Oppenheimer DBsa De Beers Group Services Gary Ralfe Gary Ralfe Strategy Group& CFD Business Development Director Ollie Oliveira Ollie Oliveira Debswana Namdeb DTC DBCM Group CFO Group CFO Jonathan Paddy Kell Louis Nchindo Inge Zaamwani Gareth Penny Paddy Kell Oppenheimer

  62. Slide 62: External Relations

    External Relations • USA – DoJ settlement – Civil litigation • Angola – Arbitration settlement • Russia Copyright De Beers 2004 – Alrosa trade agreement

  63. Slide 63: External Relations

    External Relations • RSA – Transformation and Black Economic Empowerment transaction – Diamond Amendment Bill • Botswana – Jwaneng Lease Renewal • Namibia – Copyright De Beers 2004 Renewal of sales agreement

  64. Slide 64: Adjacent Businesses

    Adjacent Businesses • Element 6  Sales H1 2004 up 20% compared to H1 2003 to $121m  Net earnings H1 2004 more than tripled compared to H1 2003 from $4.5m to $14.6m due to efficiency improvements • De Beers LV  Copyright De Beers Total sales 2004 YTD $10.5m (+4% > budget) 2004  New Chief Executiv

  65. Slide 65: Primary strategic levers

    Primary strategic levers Profitability Sustainability 1. Demand growth 5. Producer proposition 2. Profitable production growth 6. Synthetics response Copyright 3. Creating DetheBeers 20047. Organisation effectiveness value through DTC 4. Cost and working capital efficiencies

  66. Slide 66: Strategic Goal

    Strategic Goal Maintain the leadership position of the De Beers Group of Companies and deliver sustainable returns on capital in line with this position. Copyright De Beers 2004

  67. Slide 67: Q & A SESSION

    Q & A SESSION Copyright De Beers 2004

De Beers — Investor Presentation (September 2004) on 6ix