Anglo American Plc · LSE:AAL
Anglo American — De Beers — Investor Presentation (April 2010)
46 slides from Anglo American's investor presentation, Apr 13, 2010
Slide 1: De Beers Overview
De Beers Overview Anglo American Analyst Presentation 13 April 2010
Slide 2: Agenda
Agenda 1. Industry Overview & De Beers Introduction Gareth Penny (CEO) 2. 2009 Operating & Financial Review Stuart Brown (CFO) 3. 2010 & Beyond Gareth Penny (CEO) 4. Venetia Overview Martin Preece (GM –Venetia Mine) Q&A 2
Slide 3: Diamonds are a luxury product
Diamonds are a luxury product 1. Diamonds are a luxury product with unique attributes which are very distinct from the commodities 2. Whilst also a natural resource, diamonds are the main feature of an end consumer product, as distinct from more fungible commodities 3. From a consumer perspective, d
Slide 4: …in comparison with precious metals
…in comparison with precious metals Demand sources for Diamonds, Gold and Platinum - 2008 1% 1 00% 29% 80% 43% 12% 60% 6% 99 % 40% 30 % 5 8% 20% 23% 0% D ia m o n d s G o ld P la tin u m J e w e lle ry In d u s tria l In v e s tm e n t Au to c a ta ly s t Source: De Beers Group analysis; World Gold
Slide 5: Marketing and distribution is key to driving value
Marketing and distribution is key to driving value Price per carat in 2007 (polished stones) $8,000 Price Diamonds change ’97-’07 6,000 +26% 4,000 Rubies -23% Emeralds 2,000 -38% Sapphires -39% 0 0 10 20 30 40 50 Volume in 2007 (rough carats) Increasing Rarity Note: Data is for the USA – world’s lar
Slide 6: Diamond value chain
Diamond value chain 2008 Diamond Pipeline De Beers as market leader De Beers as participant Share of Share of world world production distribution $14.8bn Retail $70.3bn $14.2bn $19.6bn n.a. CONSUMER De Beers DTC PWP1 $19.1bn 41% 42% Rough Rough Polished Exploration ALROSA Jewellery Jewellery Product
Slide 7: Diamond pipeline profitability
Diamond pipeline profitability Estimated pipeline profitability 20% Size of bubble = Indication of absolute net profit Rough production and distribution Economic Profit Margin 10% and diamond jewellery retail produce the largest profit pools in the pipeline 0% 0 However, in retail: – Profit marg
Slide 8: World Production Growth
World Production Growth 180 Canada (Diavik) 160 Canada 140 (Ekati) 120 Botswana Carats (m) 100 (Jwaneng S. Africa Botswana ) (Venetia) 80 (Orapa) 60 Russia Tanzania Sierra 40 Leone Australia (Argyle) 20 0 1914 1918 1922 1926 1930 1934 1938 1942 1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986
Slide 9: World Diamond Production
World Diamond Production Botswana is the largest producer of rough diamonds globally Gem diamond production by country (volume) Gem diamond production by country (value) All others All others Angola 2% Angola 4% 6% Russia Russia 10% 21% 24% South Africa 8% Canada 9% South Africa 11% DRC 4% Australia
Slide 10: Diamond Production
Diamond Production De Beers share of global gem diamond production is estimated at c.40% by value Gem diamond production (carats) Gem diamond production (value) Other (fragmented) includes: Other (fragmented) includes: Artisanal & Illicit (8%) Artisanal & Illicit (8%) Juniors (25%) Juniors (19%) De
Slide 11: Diamond Cutting and Polishing
Diamond Cutting and Polishing India is the largest cutting centre by value and number of employees Share of Cutting Value by Country USA Beligium Botsw ana 4% Russia 3% 1% 5% South Africa 5% Cutting Centre Workforce Average Manufacturing Cost India 850,000 6-50 China/Thailand 29,000 15-35 Israel 11%
Slide 12: Cutting Centre Debt Levels
Cutting Centre Debt Levels 100 6 Total Debt Service 90 Libor 5 Cost of Debt per month ($mn) 80 70 4 60 LIBOR % 50 3 40 2 30 20 1 10 0 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: DTC Estimates 12
Slide 13: De Beers Activities
De BEERS De Beers Activities n DIAMOND 18 FOREVER
Slide 14: Geographical Locations
Geographical Locations Business locations 14
Slide 15: Diamond exploration challenge
Diamond exploration challenge Diamond exploration results from the last 140 years 5,000 5,000 1,500 1,000 850 500 50 3 0 Kimberlites Diamond- Economic >100B in sampled iferous contained revenue Source: De Beers Exploration data 15
Slide 16: Focused exploration
Focused exploration 2,000km2 18,000km2 6,000km2 9,000km2 900km2 Early Stage (recce-discovery) Advanced Stage (deposit) Total De Beers Exploration Spend ($mm) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 70 66 73 68 77 90 109 108 129 94 46 16
Slide 17: De Beers has an unrivalled resource and reserve base
De Beers has an unrivalled resource and reserve base The SSV Value^ of The De Beers Family of Companies' Resources*, Business Plan and Reserves** Resource* as at 31/12/09 size of bubble = Revenue^ (U$ bn) Business Plan $185bn $76bn Reserve** $36bn $61bn $34bn $17bn $33bn $29.6bn $18bn $5.4bn $18.1bn
Slide 18: Project Pipeline
De BEERS Project Pipeline A DIAMOND IS FOREVER GRAPH 1: INTRINSIC RESOURCE VALUES (Bubble size and number after project name = US$ per Tonne Revenue (FSV)) Orapa C4 & UG, @® 20,000 3 a s 15,000 oO Jw aneng C9, 233 > ND Land, 6 © je Sea, 52 s <= 10,000 g Midw ater, 61 \ Avenetia UG, 117 fd resent Dum
Slide 19: Agenda
Agenda 1. Industry Overview & De Beers Introduction 2. 2009 Operating & Financial Review 3. 2010 & Beyond 4. Venetia Overview 20
Slide 20: Financial Summary
Financial Summary Financial summary 2004 - 2008 Y/e Decem ber - $m 2004 2005 2006 2007 2008 Sales DTC 5,695 6,539 6,150 5,920 5,930 Other 717 732 745 786 768 Total sales 1 6,412 7,271 6,895 6,706 6,698 EBITDA 1,317 1,403 1,232 1,216 1,222 Underlying earnings 652 850 425 483 515 Cash generated by ope
Slide 21: Three factors affecting diamond market in 2009
Three factors affecting diamond market in 2009 Drop in consumer demand Constricted liquidity Inventory overhang 22
Slide 22: Maximise demand opportunities: DTC
Maximise demand opportunities: DTC DTC Sales US dollar millions H1 H2 2009 2008 DTC Sales 1,431 1,809 3,240 5,930 • Protecting diamond equity • Selling flexibility • Liaison with diamond banks and trade to bolster confidence • Increased price and volume of sales as year progressed 23
Slide 23: Produce in line with client demand
Produce in line with client demand Carats recovered: 2009 vs 2008 2009 2008 Variance DBCM 4 797 11 960 Namdeb 929 2 122 Debswana 17 734 32 276 De Beers 1 146 1 640 Canada Carats 000’s 24,600 48,132 (49%) 25
Slide 24: Create operating efficiencies
Create operating efficiencies Global headcount: 2009 vs 2008 2009 2008 Variance Headcount 15,814 20,464 (23)% • Undertook a programme of de-layering and decentralisation • Identified synergies across company • Efficiencies are part of new normal way of operating 26
Slide 25: Income Statement
Income Statement Income Statement (US$ millions) H1 2009 H2 2009 Total 2009 Total 2008 Total sales 1,711 2,129 3,840 6,888 Gross profit 123 204 327 1,363 Gross profit % 7% 10% 9% 20% EBITDA 297 357 654 1,222 Interest 98 127 225 240 Tax 48 77 125 304 Impairment of Canadian mining assets 0 696 696 0 U
Slide 26: Cost Savings
Cost Savings Savings (US$ millions) H1 2009 H2 2009 Total 2009 Total 2008 Savings Production costs 326 399 725 1,224 499 Operating overhead costs 153 249 402 817 415 Capex 86 95 181 403 222 Total 565 743 1,308 2,444 1,136 28
Slide 27: Balance Sheet – Pre-Equity Injection
Balance Sheet – Pre-Equity Injection Balance Sheet (US$ millions) 2009 2008 Fixed assets 2,795 3,100 Shareholder loans 759 248 Other net interest bearing debt 3,200 3,552 Cash (751) (147) Preference Shares 107 107 Bank borrowings 3,844 3,592 Net Current Assets 1,118 1,060 29
Slide 28: Cash Flow
Cash Flow Cash Flow (US$ millions) H1 2009 H2 2009 Total 2009 Total 2008 Cash (consumed by) / available from (31) 257 226 700 operating activities Cash utilised in investing activities 95 96 191 442 Free Cash flow (126) 161 35 258 Less: Financing Activities Dividends (including outside shareholders)
Slide 29: Agenda
Agenda 1. Industry Overview & De Beers Introduction 2. 2009 Operating & Financial Review 3. 2010 & Beyond 4. Venetia Overview 31
Slide 30: De Beers Activities
De BEERS De Beers Activities n DIAMOND 18 FOREVER
Slide 31: 5 Strategic Levers
5 Strategic Levers Secure De Beers leadership position Strategic Lever 1 Strategic Lever 2 Strategic Lever 3 Strategic Lever 4 Strategic Lever 5 Invest in value- Continually identify Invest in and Sustainably Operate, optimise creating and embed cost protect De Beers maximise value for and invest in
Slide 32: Strategic Lever 1
Strategic Lever 1 Sustainably maximise value for rough diamonds Maximise price for production while assisting in the creation of viable downstream industries in producing countries Build upon beneficiation success during new contract period Build upon beneficiation success during new contract period
Slide 33: Strategic Lever 2
Strategic Lever 2 Operate, optimise and invest in superior mines • Progress advanced exploration work in Angola and at Victor (Canada). • Operational cost containment and strategic business plans . • DebTech to progress new technology for the Gahcho Kue feasibility study • Finalise operations review
Slide 34: Strategic Lever 3
Strategic Lever 3 Invest in value-creating downstream opportunities Determine the brand vision and consumer proposition, and agree commercial expansion strategy • Deliver strong growth and margin expansion across abrasive businesses and E6 market share gains. • Successfully commercialise focused por
Slide 35: Strategic lever 4
Strategic leaver 4 Cost efficiencies Cost of production improvement. Focus on cost per ton mine and cost per ton treated Security of product Capital efficiencies and new project build Exploration and rapid deployment plant 37
Slide 36: Safety remains our number 1 priority
Safety remains our number 1 priority Fatalities 0: 2009 vs. 6 in 2008 40 LTIs in 2009 Lost Time Injuries LTIFR:0.2 vs. 66 in 2008 LTIFR:0.19 38
Slide 37: Increasing production in 2010
Increasing production in 2010 Production (Tons and Carats) 98,816 100,000 95,687 94,664 92,740 90,000 84,610 80,000 70,000 60,000 47,012 49,011 51,135 51,113 48,132 Tons treated 50,000 Carats Recovered 40,000 35,110 30,000 24,600 20,000 10,000 - 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 39
Slide 38: De Beers – Industry leader
De Beers – Industry leader Mining Leader Marketer & Distributor Leader Leading Employer Diamond Technology Leader 41
Slide 39: Worldwide 2009 Diamond Jewellery Retail Sales
Worldwide 2009 Diamond Jewellery Retail Sales 2009 Diamond Jewellery Sales Growth % Market DJ Retail Growth % 2009 2008 LC Retail USD PWP USD PWP USA -5% to -7% -7% to -9% -10% Japan -10% to -13% Flat to -4% -5% India +12% to 14% +0.5% to 2.0% +8% China (Shanghai/ Beijing only) +12% to 14% +15% to 1
Slide 40: Growth of emerging markets
Growth of emerging markets China and India promise to be the next engines of growth for the industry Rest of World, Rest of World, 19% 15% USA, 37% USA, 41% Italy, 3.5% Italy, 4% Hong Kong, 2% Hong Kong, 2% Taiwan, 3% Taiwan, 2% India, 7% India, 11% Japan, 11% Japan, 9% Gulf, 8% Gulf, 9% China, 5% C
Slide 41: Creating a market for diamonds in Japan…
Creating a market for diamonds in Japan… Japan market growth (% new brides who receive diamond only engagement rings) 90% 77% 80% 70% 60% 50% 40% 1965 30% A Diamond is Forever 20% 6% 10% 1968 Three months salary intro 0% 1966 1970 1980 1990 2000 Strictly Confidential 45 45
Slide 42: …and more recently in China
…and more recently in China China DER (Diamond Engagement Ring) acquisition rate 70% 62% 59% 60% 50% 45% 39% 40% 38% 33% 30% 23% 20% 18% 15% 13% 10% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Shanghai Beijing Guangzhou Chengdu Dalian 1993 1997 2000 2006 46
Slide 43: World class capabilities to distribute and market our diamonds
World class capabilities to distribute and market our diamonds Big Ideas International International Diamond Diamond Board Board Market Consumer Demand Consumer Demand Confidence 47
Slide 44: Summary (1/2)
Summary (1/2) Diamonds are a luxury product – competing directly with other discretionary items for share of wallet. As such, Marketing is key to driving value The industry pipeline is global in nature and covers exploration, mining, rough diamond distribution, polished manufacturing and wholesa
Slide 45: Summary (2/2)
Summary (2/2) De Beers operates in the most profitable areas of the pipeline and in Exploration, its engine for growth in the upstream segment – with a world class portfolio of mines and an unrivalled resource base Its selective distribution system and marketing activities support diamond jewell
Slide 46: DeBeersGroup.com/ofr2009
DeBeersGroup.com/ofr2009