Anglo american de beers seminar – 3 november 2014
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- Bruce Cleaver
- Philippe Mellier
- Gareth Mostyn
- Mark Cutifani
Pat Lowery Afternoon everybody. I’m going to try to achieve four things this afternoon. One is a recap of geography of our operations, provide you with some detail of the more critical De Beers assets, share with you some of the operational performance initiatives that we have been undertaking of recent, and then have a look at three of the key projects that we are currently undertaking. Just to recap, the Canadian operations are 100% owned. Snap Lake in the Northwest Territories and Victor mine in Ontario. In Botswana, a 50/50 JV with the GRB, we have four operations there, Jwaneng, Orapa, Letlhakane and Damtshaa. In Namibia, a fairly unique operation. For techno buffs in the room it will be the most interesting part of the discussion. 50/50 shareholding with GRN. And very interestingly Elizabeth Bay in the north on the land, right the way down to the Orange River, and then the marine operations offshore which I will talk to in some detail later on. If you can just picture in your mind the Orange River and the geography of Southern Africa, all of these diamonds according to our exploration geologists emanated from the Witwatersrand area which was probably 1.5km higher in altitude than it is today. All of that material ended up in the west coast off Namibia. And this is a natural sorting environment which has created a larger, higher-quality deposit in the southern region and natural progression of finer diamonds up into Elizabeth Bay. That material we see on the land today is actually wind-blown and water-blown onto land over many thousands of years. In South Africa the partnership is as Philippe described. There are three operations, Venetia, Voorspoed and the Kimberley mines. To provide you with a little bit more detail, Jwaneng is definitely the jewel in the crown, probably the richest diamond mine in the world by value, a tier-one operating mine with typical shovel and truck method. It’s a very large operation with a strike of about 3km. The average price is at $249 a carat. There are three pipes in Jwaneng and a grade of 124 carats per 100 tonnes. The current life of mine at Jwaneng is 2031. That includes the Cut-8 project which we are busy with at the moment. I will describe that in more detail later. And there are tailings treatment opportunities at the main treatment plant that is currently under commissioning as we speak. Orapa, similarly, consists of three mines, Orapa, Letlhakane and Damtshaa. Another tier-one operation. It is not three independent pipes at Orapa. There are two which are two volcanic conduits which came up simultaneously. A very significant area of 117 hectares. The current life of mine there is at 2030. Our Canadian operations. Snap Lake, I think it is only fair to describe Snap Lake as complex. It is not your typical open pit operation. It is a basaltic intrusion of the kimberlite which runs around underneath the Snap Lake. It is not easy mining by any stretch of the imagination. It is one area where in collaboration with Anglo over the past couple of years we have been able to bring in some really solid mining expertise to get on top of dilution and turn around operations at Snap Lake. A significant underground operation, 220km north-east of Yellowknife in the North-Western Territories of Canada. And I can recommend to you, if you really want to get cold, February is the best time to visit. Philippe and I went up there. It was minus 52 degree centigrade. It is a really interesting place. The current life of mine there is 2028. Victor is also a nice little gem of an operation. Unfortunately a short mine life, only to 2018. As you can see there a very healthy average price per carat at $560 per carat with a relatively low grade. De Beers Marine Namibia is where all the techno buffs would be very interested. We have a fleet of five mining vessels offshore Namibia supported by exploration vessels and other support services. An inferred resource of one million square kilometres in the Atlantic 1 concession. As you can envision that’s a very large area. If you can picture a vessel about 175 metres long supported on 2km long anchor trains. The mining is done by moving the anchors. Beneath the vessel sits a 250 ton tank, crawler-driven suction device which is pulling the material off the 35m deep bed of the ocean, pumping it up onto this vessel, and it is a completely self-contained diamond plant. The residue goes back over the side and back from whence it came. So it is a very, very interesting part of the business. Exceptionally high pricing. All of these diamonds that have moved over the years down the Orange River and ended up either in the ocean or on land, obviously any weaknesses have been removed by nature. So they are typically very nice quality stones. Very low grade, but we will talk about the operational improvements we have been able to achieve there just now. On the land-based operations, again very high quality diamonds just under $600 per carat. You can see on the slide. But again very low grade and very patchy in the way it has been...as I described earlier it is wind-deposited and sea-deposited, so it is alluvial mining at its best. Lots of overburden to be stripped. But once you find the bedrock with the pockets of diamonds in them they are extremely valuable. South Africa, again as Philippe described. Venetia is the jewel in the crown in South Africa. An average price there of $156 a carat. 47 cpht. Before I get asked the question why there was such a jump between H1 2013 and H2 2013 you would have heard of the flooding that we had towards the back side of 2012 in the Venetia pit. That prevented access into the higher grade areas of the mine, which we then caught up in H2. So it was balanced out for the 12 months. At 90km west of Messina, for those of you who are familiar with South Africa, and just over 3 million carats in 2013. Current life of mine to 2044. As Philippe mentioned we are busy taking Venetia underground. We should start producing from our underground operations in 2021. And I will describe in a little bit more detail the Venetia underground project shortly. I think one of the key things to bring across to you in this presentation is that following getting together with Anglo there has been a very significant matching of technical talent. The technical sustainability group that Mark and Tony O’Neil have put together has yielded significant benefits. You heard Mark in his introduction talk about the new operating model. This is some of the work that we’ve been doing at Jwaneng. I just wanted to very briefly explaining one of these control charts. Knowing Mark I think you’re going to see these control charts quite frequently in the coming months and years. Typically what you see there is a statistical chart. I can’t unfortunately show everybody simultaneously. This chart would show in the early part a huge variation in the tonnes treated through the Jwaneng plant. You can see it is very inconsistent. What we are aiming for here is consistent delivery from the mine and stability of operation of the treatment plant so that we’re getting the maximum value out of the current assets that we have within the company. We analyse exactly where the areas are of constraint or bottleneck. This lower period at the bottom is where we have stopped the operation now to perform maintenance or typically to change our whole crusher circuit. And then we re-start. Where you see the red circles that is showing you that a change in behaviour, a change in activity, a change in process, has given you a marked increased in your output. When you get a solid red dot it means you’ve been achieving that consistently for at least five measurement periods and you’re busy entrenching the capability in the new operation. Over and above the trend it is quite clear. What we are seeing at Jwaneng is we’ve not only been able to improve the throughput through the Jwaneng plant somewhere around 10%, but typical the stoppages that we are getting are more routine and more planned. So the blue dots at the bottom are now showing the system under significant improvement in control. A similar thing at Orapa. We were advised last year that Orapa one plant had to be taken off line for a considerable period of time for maintenance. That plant has recovered very nicely. At plant two we are focussing on maintenance and consistency of material coming out of the pit, and also seeing a considering improvement in the performance of the Orapa plant. If clarity of improvement is difficult to see on these graphs, here it is very clear. This is what we have been doing on the underground crawlers. In 2010, which is the left-hand side of the graph, we were moving about 400 cubic metres of material per hour through the crawler system. And through various technical innovations – we have a very small team based in Cape Town and R&D centre that work hand in hand with our colleagues in Namibia who operate the vessels – they have been able to improve throughput through the crawlers from 400 cubic metres per hour to 1,200 cubic metres per hour over three to four years. It has had a significant impact on production. We are now actually in the situation where the process pant is the bottleneck rather than the mining system. We are working very hard now to eliminate that. Exploration. No technical presentation would be complete without some mention of exploration. A very important part of our future, as you saw from Bruce’s supply graph. We spend approximately $50 million a year on exploration. De Beers has a long history of global diamond exploration, so we are able to be quite selective in terms of where we do explore. We’re in five regions at the moment. Canada, specifically around the Ontario area. India, where it has been quite difficult to get licenses. We have recently been issued with two licenses in India which we are going to start work on shortly. Angola, a very prospective area in the world. We are in advanced stages of negotiations with the Angolan authorities in terms of licenses. South Africa and Botswana. Some time on the projects. Jwaneng Cut-8 is increasing the life of the Jwaneng operation to 2031. For the mining people in the room, when we are talking about a cut it is not actually stripping off material to yield ore. You can imagine the kimberlite pipes are actually cylinders in the ground. What we have to do is mine downwards and get a route for the trucks down into the system. So it is more about opening up than it is about stripping off. We still use the same terminology but for very different reasons. In Cut-8 we have some 660 million tonnes of material to move. That will give us 96 million tonnes of ore and allow us to produce an additional 112 million carats from Jwaneng at an average grade of 117 carats per 100 tonnes. The infrastructure is built in at a cost of $400 million. So that is money already spent on trucks, shovels and various other pieces of equipment to be able to achieve this. The first ore will come out of the Jwaneng pit as a result of Cut-8 in 2017. We have a JV running the mine for us between a local Botswana company and an Australian company called Leighton Mining. They have formed a JV called Majwe. And we are about 46% complete on moving the material. South Africa, the Venetia underground project is extending the life of Venetia mine to 2044. We have about 128 million tonnes there to mine which will yield 94 million carats at an average rate of 73 carats per 100 tonnes. We should be going underground or will be going underground in 2021. And we will continue mining to 2044. Expansion capital around $2 billion. We are putting down two vertical shafts that we are going to start sinking shortly. We are putting in a decline to allow more rapid contact with the material. We have got two sub-level caves that we are going to be putting down there. The decline is 285m advanced. The collars, the gantry and other equipment for starting to sink the shafts is in place and we should start pre-sink in January 2015. It is around 12% complete. Gahcho Kué, the largest new diamond mine being built in the world. It is 80km away from Snap Lake so it is not going to be that much warmer, I would hazard a guess. I think with the experience gleaned from the complexities of Snap Lake and Victor we are well positioned to derive maximum value from this project. This is a JV between Mountain Province and De Beers, 51% De Beers and 49% Mountain Province. We will mine about 31 million tonnes. A relatively short life of mine of 11 years, but at very good return on the back of 48 million carats, 154 carats per 100 tonnes. The first production will be in H2 2016. In terms of progress to date all of the permitting and everything we need to get the mine up and running is in place. And we are looking forward to the first really big new diamond mine within the next couple of years. Bruce Cleaver So continuing the journey through the De Beers operations, the next piece is on the midstream. This is the section that I will show you later that deals with the purchase by De Beers of the diamonds from all of our operations and the sale of De Beers of these rough diamonds to the world’s leading diamanteers we have a sophisticated, integrated two-channel distribution system which serves both different customer types with differing needs as well as our own overall needs. So the bulk of our business and the absolute core of our distribution system is our business called Global Sightholder Sales. That’s the old DTC. And that is the business through which we distribute about 90% of what we sell on long-term contracts to Sightholders. Sightholders are 70 or 80 of the world’s leading diamantaires, hand-selected to be the best people for us to sell our goods on long-term contract to. We sell goods ten times a year, so-called sights, in Botswana mostly. I will touch on that a little bit later. But pretty much all of the Sights now happen in Botswana, part of the move that Philippe spoke about earlier. And we have substantially beefed up a number of the criteria around admission for sightholder status in the course of this year while we are implementing the next contractual phase. That has had a significant amount of financial governance introduced into it, and a significant amount more transparency required from our sightholders in order to qualify as sightholders. Many of you would have heard and know about the ongoing liquidity issues in the midstream. This is one way where we think we can help to address that a little bit by making sightholders more bankable. We have also introduced a system where accredited buyers who are not Sightholders have the opportunity to purchase goods that sightholders may not purchase at a particular time. The other part of our business is what we call auction sales, which is based in Singapore where the Anglo American commercial hub is. This is an industry-leading online auction platform that we established in 2008 which uses a variety of sophisticated auction techniques auctioning not just single units but multi units to a whole lot of other customers who are both sightholders and not sightholders. Up to 400 different customers come to our auctions. This is a spot market much more than a long-term market. The role of auction sales is really twofold. The one is to test spot market prices, and we have been extremely successful in doing that. And secondly, to allow new entrants and smaller players to get into the diamond business. We have a system that is advanced enough to allow over time participants in the auction sales who are successful to migrate to sightholder status. So these two sides of the business work very closely together on both price discovery and developing new customers in the market. We have also introduced recently in the auction sales side auctioning forward contract sales. That is an example again of the industry-leading innovation that goes on in the auction sales business. Philippe touched a little bit on sales agreements. We purchase the output of just about all of the mines from our joint venture partners as well as our controlled companies under long-term sales agreements. The principle one is Botswana where we entered into a ten year sales agreement with the government in 2011. That was the agreement, as Philippe mentioned, that resulted in the transfer of the old DTC from London to Gaborone in 2013. You have also heard that this agreement introduced for the first time a limited window allowing the GRB to purchase 10%, rising to and capped at 15%, of Botswana’s run of mine production. That number is currently at 13%, rising by 1% per year. That is also for price discovery purposes. The agreement also contained continued commitment on our side to support local beneficiation, which we have been involved in for many years. Namibia, the other producer in partnership with the government, we have a seven year sales agreement with Namdeb Holdings and the government. That expired at the end of last year. It was extended on a temporary basis and we are in fairly advanced negotiations with the government of Namibia for a new sales agreement at this point. In South Africa we have a long-term sales agreement, but as I said the businesses there are controlled, and Canada is wholly-owned. It is also worth spending a second or two on rough diamond conversion and also some of the seasonality of both rough and polished sales. You will see when Gareth talks later that there is usually a distinction between production and sales in any one half in De Beers, and there is a reason for it. This slide touches on the rough diamond conversion cycle, and it shows you that it can take 16 to 20 weeks before the ore comes out the ground at the mine, has been processed at the mine, has been sorted and valued and then been aggregated by De Beers and sold in these sights which take place every five weeks. So the pipeline of when a diamond comes out of the mine until the day in which it is sold to a client in De Beers Global Sightholder Sales is 16 to 20 weeks. And then obviously you’ve got to add the period that that rough then gets turned into polished jewellery to see the full extent of this. So it takes about nine months on average from the time the rough comes out the ground until it gets in the store. That I think is important to bear in mind as you think about our production in different halves going forward. I touched on aggregation. One of the absolute core advantages of being in the De Beers group is what we call aggregation. What we do with aggregation is we put together a mix or blend of all the rough diamonds from our producers around the world once we’ve bought them. And we mix them into bespoke boxes for our sightholders. We have found over time – and our clients have certainly agreed with us – is that this has a significant benefit in that it smoothes out the peaks and troughs in mining and produces a much more consistent mix of goods for sightholders who are planning their business on what they can turn the polished into and how quickly they can do it. So you will be aware that there can be volatility in things like carat delivery based on where a mine is in its life, and carat quality because you don’t get the same quality of carats out of different pipes for example. This simple graph tries to show that. Each of these lines that are not dotted represents some of the volatility in carat production by volume in a particular year. And the dotted line, which is the aggregated mix, shows you that in general the aggregated mix produces a more consistent and a more balanced mix for clients. So we find sightholders are particularly interested in this, and we think it is one of the particular value-adds than we have over and above others. The next slide is unfortunately quite a busy slide, but if you bear with me I will take you through it is a little detail. It shows schematically how a diamond goes in the group from once a diamond is produced until it is sold. Gareth will touch on the financial and accounting consequences of this. If you look at the bottom below the bottom line there are our four producer companies, Debswana, Namdeb Holdings, DBCM and Canada. In each of the countries other than Canada there is an intermediate company, which in Botswana and Namibia is a joint venture. These businesses are generally sorting and valuing businesses owned 50/50. In Debswana’s case 100% of the output is sold to DTC Botswana for sorting and valuing. That business is owned 50/50 by De Beers and the government. 87% of that is sold by DTC Botswana to De Beers Global Sightholder Sales. 13% goes off to the window. In Namibia, Namdeb Holdings, which owns both land and sea, sells 100% of its output to Namibia DTC, also a 50/50 JV, which sells 100% of its output to Global Sightholder Sales. South Africa, a similar arrangement. DBCM sells 90% of its output to Sightholder Sales South Africa. That’s a wholly-controlled business. Ponahalo is 26% of that. 10% is required to be sold under the South African diamond legislation to the State Diamond Trader. Canada sells 100% of its output to De Beers. This is where aggregation takes place. So Global Sightholder Sales now aggregates these goods, mixes them, blends them etc. and then sells them in Sights. The principle Sights are in Botswana where the Sightholders would come to the sight ten times a year and purchase the goods in boxes. The goods are sold to them in the format, the quantities and qualities that they have asked for when they put in applications for goods in a sight period. In Namibia we do sell in Namibia a small amount of unaggregated Namibian goods at the request of the government and a small amount of aggregated goods. So we do have local sales taking place in Namibia. And similarly in South Africa we sell a small portion of unaggregated goods and aggregated goods in South Africa. And this is part of our commitment to ensure that local beneficiation in these two counties can succeed. In many senses these are at the margin in that they are smallish volumes and goods, but obviously important for beneficiation there. The principle sales are by De Beers Global Sightholder Sales in Botswana. There is a requirement to sell some goods in Canada. We actually do sell a very small amount in Canada, but it is a very small amount. The bulk of the Canadian goods are also sold in Botswana in the international sights. I mentioned earlier seasonality, and the importance of sales, and sometimes the difference in production and sales of rough. Remember that they then get turned to polished. This is a slide about seasonality of consumer demand in our main markets in polished diamond jewellery. We can immediately see from the slide that there is quite a lot of seasonality in the market. We put our three main markets here, the US, India and China. The US is the big blue line. Polished diamonds are generally sold to consumers at particular times. So in America times like Valentines Day, Mother’s Day, the wedding season, which is summer, but by far the most important season in America up to 30% of all of American purchases are made in the period between Thanksgiving and New Year. That is why we are so focussed on America in the last quarter and in particular in the last month. At the end of this Philippe will show you our latest advertisement in America now. It is all about making sure that demand is at an optimum in that period. You will appreciate that this period of Christmas in America, if successful, will set the tone for the following year because that will create considerable liquidity back down the pipeline if ultimately polished consumers have bought polished jewellery in the quantities that we would expect. A lot of diamonds are sold by the diamanteers to retailers on credit. All that gets repaid. The money flows through the system, and so the cycle starts again. So this is our most important period and it is one we are very focussed on. You will see in our other two main markets, India and China, also there are issues of seasonality, but not quite as pronounced. There are big events and seasons in India, which is the wedding season in the first half of the year, and Diwali, around about now. China has two golden weeks, Chinese Valentines Day and Chinese New Year. So there is quite a nice blend of seasonality across our main markets. But the American market after Thanksgiving is particularly important. I will just wrap up by talking about synthetics. It would be remiss of us not to. Synthetics as you know can represent a considerable threat to us. There are various companies out there that do have the ability to manufacture these gem-quality synthetic diamonds using different technologies, mostly high pressure high temperature or chemical vapour deposition. Our position has been and remains that we have no issues with people selling disclosed gem synthetics. But we have a real issue with people selling undisclosed gem synthetics. Our research indicates that consumers would much prefer to buy a natural diamond made in the earth 4 billion years ago than a manufactured diamond. A lot of our advertising and research is built around ensuring that differential. So we have no issues with people who sell gem synthetics disclosed. Our issue is with people who sell gem synthetics undisclosed. We have invested a very considerable amount of money, more than $60 million, developing detection machinery which allows us to detect with almost 100% accuracy gem synthetics in the pipeline. We have deployed these with the assistance of our sightholders and most of the major bourses and law enforcement around the world to maintain the requirement that gem synthetics are sold as disclosed. The latest piece for us with this machine here which is known as the AMS or automated melee screening device. There was a bit of a rumpus towards the end of last year about whether potentially very small pieces of diamonds, melee diamonds as we call them, were finding their way into the pipeline undisclosed. And we didn’t have a machine that could detect diamonds of below a certain size, so we manufactured this machine. This was done in conjunction with our colleagues at Element Six who are already industry leaders in this technology. I am going to ask Philippe to talk a little bit about the downstream and Element Six and then Gareth will do the finances. Philippe Mellier Thank you Bruce. I would like to focus a few minutes on the downstream. I just wanted to repeat what I said before. Consumer desire for diamond jewellery is the only true source of value in the diamond industry, and this is clearly very important to understand. So the first thing I would like to focus on is the rise of brands. We can see on the left-hand side in 2014 the demand for branded diamonds in the US – which is as Bruce said the biggest market for diamonds – has been growing exponentially. And now around 36% of diamonds sold in the US are branded diamonds. It is very important to understand that. We think that branded diamond jewellery is an attractive approach because it is commanding a higher margin. And the Far East especially, which is the fastest-growing market, is really focussing on brands. So it is very important that we focus on creating branded diamonds. In the past there was not much success in creating a successful brand in the diamond world. Forevermark, which we will talk about a bit later, is clearly becoming more and more successful. De Beers was very successful in the last 100 years. A Diamond is Forever was a very successful tag line, and has been voted the most successful tag line of the 20th century, all brands included, not only in the diamond business. But today things have been changing and we are evolving with the latest trends. So we are focussing today on Forevermark. Forevermark is a diamond brand. It is not a jewellery brand. And it is replacing today the generic effort we made for many years under the tag A Diamond is Forever. It is a proprietary marketing programme which takes into account the fact that we are no longer an 80% player in the marketplace but a 33% share player. So we are focussing on our own proprietary brand. This brand started in 2008. When I joined the company in 2011 we had around 100 stores, mainly in the Far East and Japan and China. Since then the number of stores has grown exponentially. Today we will be closing 2014 with around 1,500 doors in 34 markets. And I’m very happy to discuss that with you later, but we are going to launch the Forevermark brand in the UK, so I’m sure we’re going to expect a lot of visits from you there. We have now reached the famous critical number of one million diamonds which have been inscribed since the beginning of the Forevermark brand. So 1,500 stores in 34 countries and one million diamonds being inscribed. So clearly it is for us the biggest vehicle to communicate the diamond dream in the downstream market at the retail level. So a very successful programme. I think today we are among the top three brands in the world. And clearly our aim is to become the most desirable and most well-known diamond brand in the world with Forevermark. De Beers Diamond Jewellery is an independently managed JV with LVMH. It is really this business which enables us to capitalise on the iconic De Beers brand name associated with A Diamond is Forever. This brand is now being sold in around 35 stores around the world. It is really focussing on the top-end part of the business. The biggest business is in solitaires and high jewellery, but we are also working on developing the design collection, and this is what we are doing these days with the new launch of diamond watches we are doing right now. So we are clearly trying with the De Beers brand to capture the growing demand for the top-end luxury diamond jewellery. And, mostly focussing on the Far East, mainly in China, Hong Kong and Japan. We are fully behind it with our partners LVMH, and this is steadily growing. I would like to remind you that it is not a big operation. We focus on high-end, so it is not for the main street retailers. I would like to say a few words about Element Six. It is not a downstream jewellery business. As Bruce was saying, we are focussing here on man-made synthetic diamonds. But it is an important part of the group and it has a huge future potential because these products are aimed at the industry at large. This is close to a $500 million business and has been growing very steadily, and its contribution to our bottom line is now quite substantial. We have in Element Six two businesses, the abrasive business and the technology business. You can see the application of abrasives and technology on the slide here. And we are covering the full scope of industries in terms of precision grinding and cutting applications. We can go from the basic wood application up to the latest technologies to cut solar panels or screens for telephones and these types of things. Through our technology division we are creating with the carbon vapour deposition technology an application for the top-end of high-tech products in the world. We are working with top electronic manufacturers, top-end military applications in the future for very high electronics which are based on diamond wafers. So this has a lot of potential. We have put here in the middle an example of tools which have been created only for evaluation purposes. To cut through extremely strong composite material you need very hard material so we have developed this new series of tools which are very successful. We are also one of the key providers for the oil & gas industry through partnership and we are at the top end of technology for the drilling in oil & gas. So Element Six is not very well known but has a lot of potential. And the fact that we are working together between Element Six and the De Beers Research Centre is enabling us to make sure that we can be at the top end of technology for high pressure high temperature production so that we can detect any manmade diamond which could potentially enter the pipeline in the future. This is very important to safeguard and protect the diamond dream. So just a few words about Element Six, because it is not very well known but it is very important in our business. Now I would like to ask Gareth to talk about the financials because I am pretty sure you have been waiting for this part of the presentation. And Gareth is going to go through that right now. Thank you. Gareth Mostyn Good afternoon everybody. Merci Philippe. My young boys are convinced that the only reason I worked for Rene for three or four years at Anglo American, and the last three years at De Beers for Philippe, is that I can just about understand French accents. Children can be quite perceptive. I am going to take you through some numbers. Before I do I’m going to come back to the group overview. My colleagues have already talked through all the constituent parts of our group. I would just like to touch on how we account for those different parts of the group. The upstream part of the business we fully consolidate our Canadian and South African operations. Although we have a BEE partner in South Africa, Ponahalo, that owned 26% of DBCM, the South African mining company, we fully consolidate with no minority interest because of the financial arrangements around the Ponahalo joint venture. For Debswana the master agreement gives us a 19.2% economic interest on a pre-tax basis. Although Debswana paid full tax and royalties in Botswana we proportionately consolidate our 19.2% of the pre-tax profits with no tax and royalties on our income statement to reflect the underlying economics of the master agreement. With Namdeb Holdings, a more typical joint venture, we proportionately consolidate 50% including tax and royalties. For the midstream we fully consolidate our sightholder sales business in Botswana and our auction sales business in Singapore. That’s the Singaporean flag I hope. And we proportionately consolidate our 50% interest in the Namibian and Botswana partner diamond trading companies in the midstream. And finally on the bottom line you have the downstream business. As you have heard from Philippe the De Beers Jewellers business is 50% owned and we equity account for that business. We fully consolidate Element Six but provide for the 40% minority interest in the abrasives business, which is by far the majority of that Element Six business. Touching on a financial overview before getting into a little bit more detail. In 2013 we saw sales grow by 4% year on year to $6.3 billion of which $5.8 billion were sales of rough diamonds. In the first half of this year sales both on a total basis and in rough diamonds grew by 15% with rough diamond sales at $3.5 billion. It is very typical in our business for the first half of the year to see a stronger selling performance than the second half due to some of the demand cycle reasons that Bruce was explaining to you just now. That reflects through into the margins as well. you can see that overall in 2013 we had a 16% operating profit margin and a 23% EBITDA margin with stronger margins in the first half of the year reflecting stronger sales performance and stronger pricing trends. The first half of 2014 was as you know a particularly strong performance and margins were about 2% ahead of the equivalent period in 2013. The underlying earnings figure as you see here is shown as reported in Anglo American’s results, so therefore after the 15% minority for the government of Botswana. Free cash flow at the bottom of the page. You heard Philippe in his introduction talk about the fact that over the last 18 months we’ve generated over $1 billion of free cash flow. I will touch on that in a little more detail in a few slides’ time. Turning to the balance sheet on the right-hand side of the page, our overall attributable capital employed incorporates a step-up to include the purchase price allocation or PPA – you will see it referred to a lot of times in these slides – following the acquisition of the additional 40% interest by Anglo in 2012. Inclusive of that PPA impact the return on capital employed was 11% in 2013 and grew to 13% in the year to the end of June. If you exclude that PPA adjustment from both the balance sheet and the income statement the base business saw a return on capital employed roughly double that, so 26% at the end of June. There is an inventory figure which we show there which includes the diamonds held for sorting and selling in our midstream business, goods owned by the mining companies awaiting processing, sorting and valuation, and also a relatively small amount of finished goods for our Element Six inventory. Let me dig into sales in a little bit more detail. I’ve already said that this first half of this year we saw a 15% growth in our sales, both rough diamond sales and total group sales. The Element Six business had sales of $240 million in the first half of the year, 10% year on year growth, showing very strong growth in the first half of this year. In the bottom left-hand corner of this page we dig into the rough diamond sales volumes. After selling about 30 million carats in 2013, in the first half of this year we sold approximately 19 million carats. That includes sales to the Government of Botswana’s selling arm that Bruce was talking about earlier. Because the sales to that business is made through the 50/50 joint venture in Botswana, DTCB, we only recognise 50% of the sales in our consolidated sales figure. Hence the 18.1 million carats you see on the slide is what we consolidate. The 19 million is the gross figure if you include 100% of the sales through that Government of Botswana selling window. Over to the right-hand side of the page we have some price analysis. You can see in 2013 overall about a 2% increase in our own internal rough diamond price index with stronger pricing growth in the first half of the year and then some softening in the second half. Again a fairly typical cyclical trend. In the first half of this year a very strong selling performance with our average rough price index up 7%. The average price index that we saw over the full six months was about 4% higher than the average last year. When you look at the bottom right-hand side again in the first half of this year our average realised selling price was about 3% lower. So although the index had gone up by 4% we saw a softening in the mix that we were selling relative to what we sold last year. Nothing of concern for our business this year. It is down to some market characteristics we saw during 2013. Some weakness in the Indian market reduced demand for a period of time for some of the lower-end goods, hence pushing up the average selling price that we experienced last year. The production mix coming out of Venetia at the moment is slightly lower than it was last year with an impact on our average price of about 1% to 2%. The production figures you will already be familiar with having been announced in previous results and quarterly production reports. Last year we produced 31.2 million carats. In the first half of this year a production of 16 million carats was 12% up on the first half of last year with production improvements across all of our mining businesses. For the full year we are expecting production of about 32 million carats. And we are currently expecting slightly higher production into 2015 of 32 million to 34 million carats subject to market demand. On the bottom right again you have another graph which shows some of the typical sales seasonality that we see through the year. In both the first half of last year and this year you can see that we sold more carats than we produced. And again it is following that typical seasonal trend that Bruce was talking to you about earlier on. You can see in the second half of last year we produced 2.5 million carats more than we sold. That was more than offset in the first half of this year where sales were about 3 million carats higher than what the production was. We have a unique blend of mining and trading in the business. Bruce took you through a fiercely complicated slide which he has tried to explain to me many times about the flow of goods from our mining businesses and through the different midstream entities that we have. Because of the way that we consolidate our joint ventures, we proportionately consolidate our joint ventures in mining and trading in Botswana and Namibia, our margins only reflect a portion of the margins from those businesses. If we take Debswana as an example we only consolidate 19.2% of the pre-tax and pre-royalty profits made by Debswana. Whereas with DBCM in South Africa we fully consolidate the mining profits. Similarly the middle bar is the local midstream trading business. Now in Botswana and Namibia we will consolidate half of that. In South Africa we will fully consolidate. Clearly the final portion is our ultimate selling business in Botswana and Singapore, 100% owned, selling an aggregated mix of all of our production. And so we consolidate all of that. So when you look at the final bars on the right-hand side, the consolidated margin, what it can mean is because of the way the results are consolidated the apparent final margin isn’t really representative of the underlying mining margin in all cases. So let me put some numbers on that. Focussing on our 2013 results, I first of all take our consolidated share of our four mining businesses. In 2013 they accounted for $0.9 billion of operating profit at an average margin of about 40%. As I say that represents our consolidated share, not an aggregate of all four of those businesses. The midstream or the trading part of the business is more of a fixed margin business with the cost price that that midstream business is paying linked very much to the ultimate selling price that is set out in our price book. In 2013 that midstream trading business generated an average margin of about 6%. So that was operating profit of nearly $350 million from that part of the business. And in the first half of this year the midstream margin was a couple of percent higher than that, reflecting some of the positive pricing momentum that we saw in the first half of the year. And that range of 6% to 8% is fairly typical in that midstream trading business. And when you blend together the mining and the trading and also bring in the other parts of the portfolio, including the amortisation of the purchase price allocation adjustment, that is what brings you to the overall profit margin of 16%. As I said that number in the first half of this year was about 20% higher than in the first half of 2013. It is worth me at this point saying that we won’t be disclosing mine by mine cost information. Apart from some commercial sensitivities we also have confidentiality restrictions with our joint venture partners. When I show you the overall mining picture we won’t be unpacking the mine by mine costs. Let me turn to an overview of our income statement. In the revenue in the top half of the page I’ve already touched on you will see there is a very small amount of ancillary revenue shown in the other line. Looking at the cost base, predominantly it is around production costs, which include Element Six manufacturing costs as well as mining costs, and then the purchases of diamonds. So that is the cost to our trading business of buying the production that we don’t consolidate, effectively buying the diamonds from our joint venture partners. On the production cost figure that you see there about 20% of that is Element Six manufacturing costs, the balance being mining costs, with labour being the biggest portion at about 40% and fuel and power around 20%. You will see a different element to our overall income statement. The purchase of diamonds is the biggest single line item in our income statement. Last year just over $3 billion. That is effectively linked to the ultimate selling price and is denominated in dollars. As that cost line moves with the revenue line it effectively means that the pricing movement that we see is somewhat reduced in terms of its impact on our overall profitability. As a result we estimate that other things being equal a 1% movement in price is about a $30 million impact on our operating profit. The depreciation and amortisation charge that you see includes the impact of purchase price allocation amortisation which was about $150 million in the full year 2013 and about half of that in the first half of this year. And again worth reiterating, because of the way we consolidate Debswana, accounting for no tax or royalty charge, it means that the apparent effective tax rate for our business is relatively low, lower than it would otherwise be in the mid-20s. Moving on to capital expenditure. Last year our total capital expenditure was $550 million with $250 million of stay in business capex, $200 million in capitalised waste and the balance in expansion project spend, largely the ramping up the Venetia underground project. In the first half of 2014 the capex figure was up to $320 million, and we expect a figure of around $700 million for this year, largely driven by the ramping up of spend on Venetia underground and Gahcho Kué. Both of those projects have been through the full appraisal and approval process and have full board approval. We expect capex for 2015 of between $800 million and $900 million largely due to the increase of project capex on those projects that Pat was explaining to you earlier on. And for the next two to three years we see the stay in business and waste capitalisation running at similar levels before the levels of waste movement come down at Venetia and Cut-8. They decline in around 2017 or 2018. Also worth saying that on the capex side these figures include our proportional share in Debswana and in Namdeb Holdings. Philippe talked about the overall free cash flow for the last 18 months being just over $1 billion. You can see how that comes together here after the capex spend and after the tax payments. Again that tax payment is relatively low because we don’t account for the very significant tax payments in Debswana. If I touch on Debswana cash flow, and you see that on the right-hand side of the page, clearly this is a very significant cash flow for De Beers. Debswana distributes its cash profits after allowing for certain appropriations like capital expenditure and working capital requirements, and then distributes those cash profits to shareholders. We at De Beers receive our 19.2% share through dividends. The government receives is 80.8% share through dividends, tax and royalties. Debswana funds its own capital expenditure and its own working capital from its normal operating cash flows and then pays out the rest as dividends. Typically ten times per year. And you can see the figure there. In 2013 our dividend receipts from Debswana were about $400 million, and in the first half of this year it was about $300 million. To summarise on the numbers, the first half of this year saw exceptionally strong performance on the back of price increases and very full volume sales. Profit was up 34% and EBITDA up 25%. EBITDA nearly $1 billion for the first half alone. You have heard that our business is typically geared towards the first half, and you can see that from the size of the bars from 2013. Cash flow has been strong. We saw a 47% improvement in first half cash flow. And De Beers contributed in 2013 an attributable ROCE of 11%. That increased to 13% for the first half of this year. And we as a management team and all of our colleagues are absolutely focussed on that target of 15% in 2016. Mark doesn’t need to keep reminding us, but he does. And with that I will hand over to Philippe. Philippe Mellier Thank you. I think we have seen today that we are today with an enviable portfolio of mining assets and we will continue to develop and improve these assets, and we are working on the new ones like Gahcho Kué. As Gareth has just said, we are on track to meet the 2016 ROCE target of 15% and we will focus on doing even more thereafter when Gahcho Kué comes on-stream. In fact, we have a positive outlook long into the future. You have seen the view that from within the industry there are extremely favourable supply and demand dynamics in the medium- to longer-term, given the lack of new discoveries of diamond deposits and rapidly growing demand from middle classes in emerging markets, not emerging markets of today, but also the ones for tomorrow, as I said before, like the Philippines or Indonesia. I hope that we have also been able to give you the sense of the importance we place on our partnerships with diamond-producing countries, mainly in Southern Africa, but also in Canada, and how we are undertaking activities that no other company in the industry can match in order to strengthen this outstanding relationship which we have been nursing for many years before us. We have also given you some insight on how our huge experience and depth of expertise in the selling of diamonds is supporting our success in both the midstream and downstream elements of the value chain and also the Element Six contribution with the whole industry outside the diamond industry. And you have seen De Beers as a clear leader, a recognised leader in its industry, represents an important differentiator for Anglo American as it offers excellent exposure to late cycle consumer demand. All in all, we believe that De Beers is a very strong business with a very strong team with an outstanding medium- and long-term outlook. But this is what I wanted to say as a final highlight, to conclude, I would like to share with you the latest advert we are going to launch for the end of the year US sales campaign. We have always been at the very top end of emotional advertising for diamonds with A Diamond is Forever and now with Forevermark. So let's have a look now at the latest edition of what is going to be on-screen in a few weeks from now. [Plays video]. We are launching Forevermark in the UK a few weeks from now so this is the right time. . So I think now we would like to call back Mark on stage for the conclusion. Thank you. Mark Cutifani I think it was appropriate that I spoke about the reaffirmation of our values after that. What's interesting is, as part of the marketing strategy, and Philippe and the guys have given a very good overview of the key elements of the business, for those that understand some of the sensitivities, we’re not able to talk to all parts but certainly from our point of view I think this is the most we've given out as part of this conversation. I did want to make an observation though, as part of the training programme for Anglo American executives we were taken through New York, through A&A, on separate days which culminated in us walking down 47th Street looking at the second-hand market for diamonds. It's quite an interesting experience and the time taken by the team, and you’ll understand the market in its various elements and guises, very important in terms of the strategy and how we think about the future and positioning ourselves in terms of the future and I think that’s very important and certainly something that’s very hard to describe in the short time that we have here today. And from my point of view it's a significant of the value-add that the guys can create in terms of the business. The second point, the three charts that Pat showed about what we’re doing within the business and those three charts all showed improvement, somewhere between 10% and 20% and that’s without a lick of capital. That’s basically looking at the spending on intellectual capital in improving the business and we see a lot more potential in terms of improving the business, even to the point where Philippe was telling me last week that they have implemented their operating model or are in the process of implementing the operating model in Forevermark and I think we’re up 20% already in terms of the efficiencies. And so there's a very strong focus on the running of the business well, to continue to improve our margins and give our services more flexibility in terms of the markets that we’re operating within. With that we think carefully about the market and our positioning in the market and we think very carefully about volume, quality, price and the trade-offs therein to ensure that we’re delivering value for the long term and I have to say in our industry at the moment there are certain groups operating in commodities that can't say that. From our point of view it is about making sure that we protect the value proposition and manage those things we can manage, we manage them well, and there's certainly a lot more improvement that we can see ourselves delivering. As an overview, again supporting Philippe and the team, we have a business that has strong markets under metals, quality world-class assets with improving potential, a unique industry structure witness favourable supply dynamics in particular, and we’re not about to replicate, as I said, other behaviour in markets where we do have these types of advantages. We are cautious about growth and quality opportunities but certainly from our point of view the development of Gahcho Kué and the quality opportunities and life extensions available through Jwaneng, Orapa and Venetia give us again a very, certainly differentiate position in the market, with a strong technical and financial focus that supports the strong marketing focus and business positioning focus that really is about how we look at margins and improving our returns. That investment in intellectual capital is something that we’re looking at right across the group and there are certainly many things we can learn from the De Beers teams and we’re also transferring in terms of the technical aspects across the group, particularly in our projection. I think that’s a real win-win for the group and don't underestimate what we've learnt as a group from the De Beers team as part of that process. So we’re building on each other’s strengths and that’s what's making, I think Anglo American a very different proposition in terms of where we’re going compared to where we've been. And so for us we’re very excited to be part of the De Beers story and for Philippe and the team they’ve made a real contribution to the Anglo American group and I think that’s what the position we think is quite unique in terms of the industry and where we’re going and in particular the nature of our portfolio. It positions us very uniquely in this business and I think the De Beers story is a very simple example of how we see a different business, how it creates value across the group and how we’re positioning the business on a broader basis. So with that, Paul, I think I’ll hand over to yourself. Directory: content -> dam dam -> Resolution dam -> American bar association adopted by the house of delegates dam -> Chevrolet – the Story of a Global Brand A. 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