De Beers Results
Anglo American PLC
08 February 2008
News Release
8 February 2008
Anglo American plc notification: De Beers Societe Anonyme results 2007
De Beers Societe Anonyme ("DBSA") today reported underlying earnings for the
year ended 31 December 2007 of US$483 million.
Anglo American plc ("AA plc") arrives at its underlying earnings in respect of
De Beers by accounting for the interests arising from the ordinary shares and
the 10% preference shares it holds. AA plc will therefore report underlying
earnings of US$239 million for the year ended 31 December 2007 from its
investment in De Beers, as reconciled in the table below:
US$ million Year ended
31.12.2007
• De Beers underlying earnings (100%) 483
• Difference in IAS 19 accounting policy 13
• De Beers underlying earnings - AA plc basis (100%) 496
• AA plc's 45% ordinary share interest 223
• Income from preference shares 16
• AA plc underlying earnings 239
In the year ended 31 December 2007, AA plc received a total of US$59 million in
distributions from De Beers, consisting of a US$23 million final dividend on
ordinary shares relating to FY 2006, a US$18m interim dividend on ordinary
shares relating to FY 2007, US$9 million dividends representing the second
payment on preference shares for 2006 and a further interim dividend of US$9
million on preference shares for 2007.
On 31 December 2007, DBSA redeemed 25% of the preference shares in issue, taking
the total redemption to 81% of the original issue, and on that date AA plc
received US$44 million, representing 6% of its original US$701 million
preference share interest. AA plc now holds US$131 million of preference shares
in DBSA.
Underlying Earnings
Underlying Earnings is net profit attributable to equity shareholders, adjusted
for the effect of special items and remeasurements, and any related tax and
minority interests. Special items are those items of financial performance which
are material by nature or amount and should therefore be separately presented.
These principally relate to impairment and significant closure costs,
exceptional legal provisions and profit or loss on disposals. Remeasurements
include (i) adjustments to ensure that the unrealised gains or losses on
non-hedge derivative instruments are recorded in underlying earnings in the same
period as the underlying transaction against which these instruments provide an
economic, but not formally designated, hedge and (ii) foreign currency gains and
losses arising on the retranslation of dollar denominated De Beers preference
shares held by a rand functional currency subsidiary of the Group.
The above figures are unaudited.
De Beers Societe Anonyme
(Incorporated under the laws of Luxembourg)
Friday, 8 February 2008
RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2007
DIRECTORS' COMMENT
As underlying earnings rise, De Beers shapes its future
Underlying earnings increased 14 percent to US$483 million (2006 US$425 million)
while EBITDA remained steady as effective cost management at the Group's African
mining operations offset the impact of slightly lower sales which were
constrained by supply to the Diamond Trading Company (DTC).
Reflecting strong confidence in the long-term fundamentals of the diamond
market, the Group invested US$1.12 billion in expansion capital during the year,
principally for construction at the Snap Lake and Victor mines in Canada, the
Voorspoed mine and SASA offshore mining vessel in South Africa.
Financial Summary - Full year
US Dollar millions
2007 2006 % Change
Total sales 6 836 7 030 (3)
Underlying earnings 483 425 +14
EBITDA 1 216 1 232 (1)
Cash available from operating activities 844 809 +4
Capital expenditure - expansion 1 120 949 +18
2007 Production
o In 2007, De Beers produced 51.1 million carats, maintaining the
record production achieved in 2006.
o Debswana, the joint venture between De Beers and the Government of
Botswana, remains the Group's major producer contributing 33.6
million carats.
o In South Africa, De Beers Consolidated Mines (DBCM) increased
production to 15 million carats, mainly due to improvements made to
the diamond recovery process at Venetia mine where carats recovered
increased by nine percent.
o Production from off-shore operations in Namibia increased,
resulting in Namdeb, the joint venture with the Namibian
Government, increasing production by four percent to 2.2 million
carats.
Future Production Prospects
The Group has the following projects in the pipeline and an extensive
exploration programme:
o Snap Lake in Canada's Northwest Territories started production in
late 2007. The mine is currently being commissioned with the
achievement of full production expected in 2008. It will then be
expected to produce approximately 1.6 million carats annually.
o By mid-2008, Canada's Victor mine is planned to commence production
and once fully commissioned, it will produce 600,000 carats of high
quality diamonds per year.
o In mid-2007, the mining vessel "Peace in Africa" began operations
off the South African Atlantic coastline. It is expected to
produce approximately 0.2 million carats per annum.
o The Voorspoed mine in the Free State in South Africa is scheduled
to commence production in Q4 2008. Voorspoed is expected to
produce 0.7 million carats annually.
o Boteti Exploration Company, the joint venture between De Beers,
African Diamonds Plc and Wati Ventures, has filed for a mining
licence for AK06, a kimberlite in the Orapa region of Botswana.
AK06 has an estimated reserve of 11.1 million carats.
o The advanced exploration project at Gahcho Kue, in Canada's
Northwest Territories, also moved forward, completing successful
winter and summer drill programmes, and has commenced the
environmental permitting process.
o During 2007 De Beers committed US$126 million to an extensive
exploration programme with significant investment in the Democratic
Republic of Congo (DRC) and early and advanced programmes in
place, particularly in Angola, Botswana and South Africa. In the
DRC and Angola, in particular, the team is focusing on optimising
ground holdings in order to move projects into advanced stages as
quickly as possible. De Beers identified 45 new kimberlites in
2007, and our 2008 drilling and evaluation programme will focus on
these high potential targets.
o In 2008, the Group aims to maintain production capacity at 2007
levels with new production of over 1.5 million carats from the
Group's Canadian mines offsetting the impact of the sale of the
Group's operations at Cullinan and Kimberley in South Africa.
o DBCM was informed by the South African Department of Minerals and
Energy (DME) that it has granted a New Order Mining Right in
respect of the Venetia mine on 4 February 2008, to be executed in
March. DBCM has already been granted New Order Mining Rights for
Voorspoed and Cullinan and conversions for Namaqualand, Kimberley
and Finsch mines are being processed by the DME.
Demand
o Demand for rough diamonds from the Diamond Trading Company (DTC)
remained healthy throughout the year. Following the weakening in
the rough diamond market towards the end of 2006, which led to
downward price adjustments, improving market conditions allowed
prices to be increased from Q2 2007 onwards.
o Consumer sales of diamond jewellery are likely to have increased by
around three percent for the year as a whole. Strong sales growth
in China, India and the Middle East were in part offset by a
disappointing Christmas season in the US market as American
consumers reined in spending amid financial concerns and a
worsening economic environment.
Business Restructuring
o De Beers sold its 50 percent stake in Gope Exploration Company
(Pty) Ltd to the Gem Diamond Mining Company Ltd for US$17 million.
o The Koffiefontein mine in South Africa was sold to Petra Diamonds
Ltd (Petra) in July 2007 for ZAR82 million (US$12 million). Petra
also reached agreement with De Beers to purchase the Kimberley
Underground Mines.
o In November agreement was reached to sell Cullinan Diamond mine as
a going concern to a Petra led BEE consortium with foreign
investors for ZAR1.03 billion (US$150 million). In December, DBCM
was granted the conversion of the old order mining right for
Cullinan and it is expected that the sale will be completed by
mid-2008.
o With the significant increase in the values of the Canadian Dollar
vs the US Dollar, fuel, labour and capital costs due to
construction challenges at Snap Lake, the directors believe that
it is prudent to make an impairment against the value of the
Group's Canadian assets of US$965 million. The highly experienced
Canadian management team is focusing on improving the long-term
economics of these operations given the impact of the continuing
strength of the Canadian Dollar.
o Namibia Diamond Trading Company (NDTC) and Diamond Trading Company
Botswana (DTCB) have been established. The new entities, both
50/50 joint ventures with their respective Governments, will sort
and value local diamond production and perform local sales and
marketing activities in support of local value addition and the
development of sustainable downstream diamond industries in
Namibia and Botswana. They will support a total of 27 companies
who will purchase diamonds for manufacturing in Botswana and
Namibia, resulting in the shift of some De Beers activities from
London to southern Africa.
o With the establishment of the State Diamond Trader (SDT) in South
Africa, De Beers has made its management, technical expertise and
assets available to the DME for three years to facilitate the
start up of the SDT. De Beers, like all other South African
diamond producers, will be selling up to 10 percent of its
production to the SDT.
Investing in independently managed businesses
o During 2007 our independently managed retail joint venture with
Louis Vuitton Moet Hennesy (LVMH), De Beers Diamond Jewellers
(DBDJ), developed strongly with a 44 percent growth in sales
through the wholly-owned retail network and the establishment of
new franchise agreements. Eight new stores were opened in 2007 in
the US, Japan, Dubai and Korea, bringing the total to 23 stores
worldwide. 2008 will see further expansion including among others,
new stores in the US, Hong Kong, Russia, the Middle East and a
flagship in Tokyo.
o In 2007, Element Six further enhanced its hard material portfolio
by successfully completing the acquisition of Barat Carbide in
Germany. With this step Element Six acquired significant materials
competence in carbide as well as market channels and application
know-how in mining, road construction and wear parts. With sales of
well above US$100 million, Barat Carbide is a significant addition
to the Element Six group resulting in total sales for 2008 of over
US$500 million for the combined entities.
Regulatory Compliance
o In the US, preliminary agreement was reached in March 2006 with all
of the plaintiffs, which resolved all outstanding class actions in
the USA and settlement funds were paid into an escrow account
pending conclusion of the settlement process. The matter is
proceeding according to the timetable of the Court and De Beers
anticipates that a Fairness Hearing will take place during the
first half of 2008.
o The Court of First Instance in Luxembourg announced in July 2007
that it had annulled the European Commission's decision to accept
commitments offered by De Beers to cease all purchase of rough
diamonds from Alrosa from 1 January 2009. De Beers will continue to
purchase goods from Alrosa, up to the agreed levels and within the
proposed timeframe set out in prior commitments
o The De Beers Report to Stakeholders published details of the
Group's performance against a wide range of issues identified by
relevant stakeholders covering economics, ethics, employees,
communities, and the environment. The Report was given an A+ rating
from the GRI (Global Reporting Initiative) and received a
prestigious award in the ACCA South Africa Sustainability Reporting
Awards. In addition, the United Nations Global Compact (UNGP)
found De Beers' Communication on Progress to be of 'outstanding'
quality, a further demonstration that De Beers has achieved the
highest level of reporting and transparency.
Board Changes
o Julian Ogilvie Thompson and Robin Crawford retired at the end of
the February De Beers sa board meeting. We are extremely grateful
for their enormous contribution to De Beers over a combined board
service period of some 60 years. They will be replaced by Barend
Petersen, a director of DBCM and Ponahalo, who will become a member
of the Audit and ECoHS committees, and James Teeger, CEO of E
Oppenheimer and Son, who will also join the Audit Committee.
Outlook
The outlook for 2008 is tempered by a high level of uncertainty over world
market conditions. The economic conditions in the US could continue to impact
consumer diamond jewellery sales through the first half particularly at the
lower end. Nevertheless, we expect strong demand from China, India and the
Middle East to sustain pricing for larger and better quality diamonds.
On production, while the Group has budgeted to produce at similar levels to
2007, energy issues in southern Africa could present operational challenges.
Southern African management are focused firstly on accelerating the ongoing
energy conservation programmes against which DBCM has been making good progress
toward a target of a 15 percent reduction by 2012. In addition, management is
putting in place contingency plans that will make the most effective use of the
available energy between the different operations. Early indications are that
even if the power supply is maintained at 90% levels there will be an impact on
the overall group. However below this level the impact on production will be
significant and could be in excess of 10 percent. The De Beers Canada management
team is fully focused on bringing the two new mines into full production in 2008
and towards making a positive contribution to the Group's cash flow. At the same
time, current exchange rates necessitate continued management focus on improving
economic returns, including mine planning, overhead costs, diamond pricing, and
exploiting additional kimberlites around Victor.
For the Group, this environment will require a continued focus on cost
containment on the mines and cost reduction, in general.
Looking beyond 2008, the Group is confident about the diamond market
fundamentals. With strong growth in the emerging markets of China, India and
Russia, demand growth should exceed growth in new supply with the opportunity
for future price growth. In this environment, De Beers continues to focus on
transforming itself to ensure it remains the leading company in an increasingly
competitive diamond industry. With a market share of around 40 percent, the
strategy is focused on finding and developing the new mines of the future,
assisting our Government partners in achieving their aspirations for local value
addition, finding new efficient ways to operate the global Group and developing
innovative marketing initiatives such as De Beers Diamond Jewellers and the
FOREVERMARK, to drive demand and create new revenue streams.
De Beers announces results as follows:
De Beers Societe Anonyme
Consolidated Income Statement
for the year ended 31 December 2007
(Abridged)
US Dollar millions
Year to Year to 31
31 December 2007 December 2006
6 422 6 626
Diamond sales (Note 1)
Non diamond sales 414 404
Total sales 6 836 7 030
Cost of sales 5 461 5 598
Gross profit 1 375 1 432
Deduct:
Exploration, research and development 288 299
Sorting and marketing 339 328
Group technical services and corporate overheads 408 386
Operating profit (Note 2) 340 419
Add:
Trade investment and other non-operating income 608 605
Income before finance charges and taxation 948 1 024
Deduct:
Net finance charges (Note 3) 154 140
Income before taxation 794 884
Taxation 308 361
Income after taxation 486 523
Attributable to outside shareholders in subsidiaries (Note 4) 92 74
Own earnings 394 449
Share of retained income of joint ventures 42 4
Net earnings before special items 436 453
Costs/payment in terms of class action settlement agreement (Note (10) (57)
5)
Impairment in respect of Canadian mining assets (note 6) (965)
Surplus in respect of exploration interests (Note 7) 18 105
Surplus in respect of the sale of 26 percent of DBCM (Note 4) 229
Net earnings (521) 730
Underlying earnings reconciliation (Note 8)
Net earnings before special items 436 453
Adjusted for :
Surplus on realisation of fixed assets less provisions (8) (9)
Mine impairment and retrenchment costs 38 21
Net gains on non-hedge derivative financial instruments, after
taxation and minority interests 17 (40)
Underlying earnings 483 425
EBITDA 1 216 1 232
Ordinary distributions in respect of:
2006 - Repayment of share premium 473
- Interim 150
- Final 50
2007 - Interim 39
- Final 100
De Beers Societe Anonyme
Consolidated Balance Sheet
31 December 2007
(Abridged)
US Dollar millions
31 December 2007 31 December 2006
Ordinary shareholders' interests 3 013 3 532
Outside shareholders' interests (Note 4) 379 302
Total shareholders' interests 3 392 3 834
Net interest bearing debt (Notes 3 & 9) 4 057 2 944
Other liabilities 1 653 1 487
9 102 8 265
Fixed assets 7 090 6 394
Investments and loans 127 94
Diamond inventories and other assets 1 885 1 777
9 102 8 265
Exchange rates US$ = Rand
- average 7.02 6.72
- period end 6.76 6.99
Cash flow information
for the year ended 31 December 2007
Cash available from operating activities 844 809
Investing activities
Fixed assets - stay-in-business 383 245
- expansion 1 120 949
Investments (Note 4) 109 (442)
1 612 752
Financing activities
Preference share capital redeemed 54 214
Share premium redeemed 473
Increase in long- and short-term debt (858) (1 089)
Ordinary distributions 125 173
(679) (229)
De Beers Societe Anonyme
31 December 2007
Notes and Comments
1. Sales of natural rough diamonds for the year amounted to
US$5,920 million (2006: US$6,150 million).
2. Following a review of reporting formats, the income
statement has been changed such that the previously disclosed "diamond account"
has been replaced with the more generally accepted convention of "operating
profit". Comparatives have been restated accordingly.
3. Preference share capital is included in net interest
bearing debt. Preference dividends, amounting to US$21 million (2006: US$32
million) are included in finance charges.
4. In April 2006 De Beers concluded a broad based Black Economic
Empowerment (BEE) transaction which resulted in 26 percent of De Beers
Consolidated Mines Limited being sold to the Ponahalo Consortium for R3.7
billion. This resulted in a profit of US$229 million in the consolidated income
statement. As a result of the sale transaction, US$473 million was returned to
the shareholders through a repayment of capital. The sale process involved,
inter alia, the arrangement of incremental financing of US$640 million in
revolving and term facilities and facilitation by De Beers in the form of
guarantees amounting to approximately US$130 million.
5. Legal costs incurred in respect of the class action settlement
agreement amounted to US$10 million.
In terms of an amended class action settlement agreement
concluded in the prior year, a further US$45 million was paid into escrow in
2006 pending conclusion of the settlement process. Legal costs incurred in
2006 in respect of the settlement amounted to US$12 million.
6. De Beers has made a provision for impairment in respect of the
mines that it is building in Canada. This non-cash valuation adjustment against
fixed assets has been necessitated by the strengthening of the Canadian Dollar
versus the US Dollar, the increase in long-term fuel costs and labour costs, and
increased construction costs at the Snap Lake Mine.
7. On 16 April 2007, De Beers concluded an agreement of sale in
respect of its 50% interest in Gope Exploration Company which resulted in a
profit of US$17 million.
In the prior year, De Beers Canada concluded the sale of its 42 per cent
participating interest in the Fort a La Corne Joint Venture to Shore Gold Inc
for C$180 million (US$155 million), of which tax amounting to US$50 million was
attributable.
8. Underlying earnings comprise net earnings attributable to
shareholders adjusted for the effect of any special items and re-measurements,
less any tax and minority interests. Special items include closure costs,
exceptional legal provisions and profits and losses on disposals of assets.
Re-measurements are recorded in underlying earnings in the same period as the
underlying transaction against which these instruments provide an economic, but
not formally designated, hedge.
9. Cash has been offset against interest bearing debt.
10. On 22 November 2007 agreement was signed for the disposal of
Cullinan Mine to the Petra Diamonds Cullinan Consortium for R1.030 billion. The
balance sheet includes assets amounting to US$218 million and liabilities
amounting to US$61 million in respect of this sale. Any gain or loss on this
sale will be recognised once all conditions precedent have been fulfilled.
Contacts:
De Beers London:
Lynette Gould +44 20 7 430 3509/+44 (0) 7740 393260
De Beers South Africa
Tom Tweedy +27 11 374 7173/+27 83 308 0083
De Beers Botswana
Chipo Morapedi +267 361 5205/+267 7132 1889
Visit the official De Beers group website for more information on the Company
and where you can view available b-roll and download a selection of images -
www.debeersgroup.com .
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