27th Jul 2007 08:00
Anglo American PLC27 July 2007 News Release 27 July 2007 Anglo American plc notification: De Beers Societe Anonyme interim results 2007 De Beers Societe Anonyme ("DBSA") today reported underlying earnings for the sixmonths ended 30 June 2007 of US$324 million. Anglo American plc ("AA plc") arrives at its underlying earnings in respect ofDe Beers by accounting for the interests arising from the ordinary shares andthe 10% preference shares it holds. AA plc will therefore report underlying earnings of US$156 million for the sixmonths ended 30 June 2007 from its investment in De Beers, as reconciled in thetable below: US$ million 6 months ended 30.6.2007• De Beers underlying earnings (100%) 324• Difference in IAS 19 accounting policy 2• De Beers underlying earnings - AA plc basis (100%) 326• AA plc's 45% ordinary share interest 147• Income from preference shares 9• AA plc underlying earnings 156 In the six months ended 30 June 2007, AA plc received a total of US$32 millionin distributions from De Beers, consisting of a US$23 million final dividend onordinary shares relating to FY 2006, and a US$9 million dividend representingthe second payment on preference shares for 2006. Underlying Earnings Underlying Earnings is net profit attributable to equity shareholders, adjustedfor the effect of special items and remeasurements, and any related tax andminority interests. Special items are those items of financial performance whichare 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. Remeasurementsinclude (i) adjustments to ensure that the unrealised gains or losses onnon-hedge derivative instruments are recorded in underlying earnings in the sameperiod as the underlying transaction against which these instruments provide aneconomic, but not formally designated, hedge and (ii) foreign currency gains andlosses arising on the retranslation of dollar denominated De Beers preferenceshares 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 27 July 2007 INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007 DIRECTORS' COMMENTS DE BEERS ON TRACK FOR FUTURE GROWTH MARKET CONDITIONS STRENGTHENING During the first half of 2007, De Beers continued to put in place thefoundations for future growth. Specific activities included a refocusing ofexploration activities, a strategic review of existing mining assets, continuedinvestment in a US$2 billion new mine building programme, and the establishmentof new sales and marketing operations in southern Africa. In advance of thisnew production coming on stream, Group sales at US$3 402 million have, asexpected, been impacted by reduced supply to the Diamond Trading Company (DTC),and by the price correction in the rough diamond market in the second half of2006. Consumer demand for diamond jewellery remains healthy, and tradingconditions and prices in the rough diamond market have been improving throughthe period. • Underlying earnings at US$324 million (2006: US$308 million) haveincreased by five per cent largely due to the favourable impact of a reductionin net finance charges and a tax credit. • Total Sales at US$3 402 million (2006: US$3 660 million) have reducedby seven per cent as a result of a US$265 million reduction in sales from theDTC. • Cash available from operating activities at US$522 million (2006:US$353 million) has increased by 48 per cent mainly due to favourable workingcapital movements. Financial Summary - 6 months to 30 June 2007 US Dollar millions 2007 2006 % Change 6 months to 30 June 6 months to 30 JuneTotal Sales 3 402 3 660 -7Underlying Earnings 324 308 +5Cash available fromoperating activities 522 353 +48Capital - expansion 554 394 +41Gearing 39.7% 35.1% Continuing the transformation - H1 2007 Operational Highlights Significant progress has been made across the business from exploration tomarketing. Exploration • De Beers has significantly stepped up exploration in the DemocraticRepublic of the Congo, where we have substantial and highly prospective groundholdings. • In Angola, we have ground holdings of approximately 12,000 sq kms. Toaccelerate the exploration process, we have constructed a new bulk samplingplant, on site in Lucapa, and a macro diamond laboratory in Luanda. • In Botswana, the De Beers African Diamonds Wati joint venture willshortly complete the work required to submit a mining licence application forthe AK6 project to the Botswana Ministry of Minerals, Energy and WaterResources, within the prescribed period. • In Canada, De Beers' Gahcho Kue project, a joint venture with MountainProvince in the Northwest Territories (NWT) in Canada, will complete a furtherdrilling programme this summer to extract 100 carats from the North Lobe of 5034for evaluation purposes. The project is currently undergoing an EnvironmentalImpact Review under the auspices of the Makenzie Valley Environmental ImpactReview Board. • In May, De Beers and Xstrata announced the sale of their joint stakein Gope Exploration Company (Gope) in Botswana to the Gem Diamond Mining Companyfor a total of US$34 million (of which approximately US$17 million accrued to DeBeers). Gope had not been active in exploration since 2003. Building New Mines During the first half of 2007 De Beers continued to develop four major newmining projects: • In Canada, construction of the Snap Lake mine in NWT is nearingcompletion, and production is forecast to commence at the end of the thirdquarter of 2007. At Victor, in Ontario, a successful winter road campaigndelivered required materials, equipment and fuel to the site. Construction is ontarget for an accelerated start-up date at the end of the second quarter of2008. • Following the award of the mining licence for the Voorspoed mine, inSouth Africa, in the third quarter of 2006, construction commenced at the end of2006, and is progressing satisfactorily. The project construction phase isscheduled for completion by June 2008, and we anticipate full commissioning atthe end of June 2009. • During June, Peace in Africa, De Beers' newest marine diamond miningvessel, commenced operations off the west coast of South Africa. Once it reachesfull production, the vessel is expected to yield approximately 4.5 millioncarats over its estimated operating life of 30 years. Group Production Production increased by 2% to 25.3 million carats from 24.7 million carats inthe corresponding period last year. All mining companies showed growth on 2006. Mining Asset Review De Beers continues to review all of its assets to ensure a fit with ourlong-term strategic goals. In addition to the sale of Gope Exploration Companyin Botswana, we are actively pursuing opportunities for the following mines: • Cullinan - we have received a number of binding offers from biddersand these are in the process of being evaluated. • Kimberley Underground and Tailings - both transactions are proceedingin accordance with the original timetable, and it is anticipated that these willbe concluded in 2007. • Namaqualand - the proposed merger of the West Coast operations ofAlexkor and DBCM's Namaqualand Mines into a new, stand-alone diamond miningcompany was also announced in February. We expect discussions on theconsolidation of the West Coast properties can now begin. • Koffiefontein - the sale to Petra Diamonds was finalised in July 2007. Sales, Distribution and Marketing De Beers is fully committed to implementing agreements with Government partnerswhich will lead to greater beneficiation of diamonds in producer countries. • Following our commitments to the Government of Botswana regarding theestablishment of DTC Botswana (DTCB), De Beers anticipates completingconstruction of the new, state-of-the-art DTCB building towards year end. DTCBwill be fully operational by early 2008, with the goal of achieving sales ofUS$550 million per annum for local manufacturing in Botswana by the end of thedecade. • In January, an agreement between De Beers and the Government ofNamibia was announced that secures the sale of Namdeb's production until 2013.It included the establishment of Namibia Diamond Trading Company (NDTC) - a 50:50 joint venture diamond marketing company responsible for the valuing, sorting,selling and marketing of Namdeb's production. The first sale to NDTC clientsis expected to take place, on schedule, in October, with the goal of achievinglocal sales of up to US$300 million per annum by 2009. • In line with the announcement made by the President of the Republic ofSouth Africa on 9 February, and the Minister of Minerals and Energy, in her address to Parliament on 28 May,discussions are well advanced in terms of the announced agreement for De Beers to provide expertise relating tothe operation of the State Diamond Trader. • In June De Beers announced its intention to restructure the Diamdeloperations around the world. Diamdel will continue to purchase rough diamondsfrom the DTC for sale to non-Sightholders. • The DTC has completed a consultation process with clients inpreparation for the new Sightholder contract period which will take effect from2008 to 2011. Client selection will take place in the second half of 2007. Further Growth Opportunities • Worldwide sales at De Beers Diamond Jewellers are 39 per cent higherthan the corresponding period last year, and the company is on track to exceedthe target of opening 15 new stores in 2007, doubling the existing storenetwork. New store locations will include Moscow, Hong Kong and furtherexpansion across the United States. • Element Six (E6) delivered top line growth of nine per cent, withmaterials for cutting tools being the best performer with over 20 per centgrowth. E6 Abrasives (a joint venture with Umicore) is in the process ofcompleting the acquisition of Barat Carbide (awaiting regulatory approval). Thiswill add complementary material competence and marketing channels to theexisting business. Regulatory, Compliance and Reputation • In the United States, preliminary agreement was reached in March 2006which resolved all actions, and funds paid into an escrow account pendingconclusion of the settlement process. The matter is proceeding according to thetimetable of the Court and De Beers anticipates the Fairness Hearing will occurin the first half of 2008. • The European Commission announced in January that, after a thoroughand detailed examination of the DTC's sales and business practices, it haddecided to reject all outstanding complaints brought against the DTC in respectof the Sales and Marketing policy and the Russian Trade Agreement. • The Court of First Instance (CFI) in Luxembourg announced on 11 Julythat it annulled the European Commission's decision to accept commitmentsoffered by De Beers to cease all purchases of rough diamonds from Alrosa from 1January 2009. De Beers will continue to purchase goods from Alrosa, up to theagreed levels set out in the proposed commitments, as it analyses the fulljudgment to determine the implications for the Group going forward. • The summary Report to Stakeholders 2006 was published this month whichdetails the Group's performance against a wide range of issues identified byrelevant stakeholders covering economics, ethics, employees, communities, andthe environment. The full Report to Stakeholders was given an A+ rating fromthe GRI (Global Reporting Initiative) and, earlier this month, received aprestigious award in the ACCA South Africa Sustainability Reporting Awards. Outlook for H2 2007 Expectations remain positive for consumer demand for diamond jewellery for theremainder of the year. While there has been some weakness in the lower end/massmarket in the USA, the high end remains strong and other growth markets, such asChina and India, robust. We continue to forecast growth in diamond jewellerydemand in the four to five per cent range for the full year. We have also seenimprovements in the rough diamond market in the second quarter of 2007,following the correction in rough diamond prices in the second half of 2006.Rough diamond demand is currently good, prices have been rising, and while thesecond half should improve on first half sales trends, full year sales by theDTC will continue to be constrained by availability. In the medium term, the positive supply/demand forecast should lead to continuedgrowth in rough diamond prices which will, together with increased production asour four new mines come fully on stream, drive growth in revenues and earningsfor the Group. De Beers announces interim results as follows: De Beers Societe Anonyme Consolidated Income Statement for the half-year ended 30 June 2007 (Abridged) US Dollar millions 6 Months to 30 6 Months to 30 12 Months to 31 June 2007 June 2006 December 2006 Diamond sales -DTC 2 987 3 252 6 150 -Other 224 188 476Non diamond sales 191 220 404Total sales 3 402 3 660 7 030Cost of sales 2 739 2 862 5 598Gross profit 663 798 1 432Deduct:Exploration, research and development 114 132 299Sorting and marketing 129 122 328Group technical services and corporate overheads (note 1) 183 184 386Operating profit (Note 1) 237 360 419Add:Trade investment and other non operating income 280 264 605Income before finance charges and taxation 517 624 1 024Deduct:Net finance charges (Note 2) 50 60 140Income before taxation 467 564 884Taxation 139 224 361Income after taxation 328 340 523 Attributable to outside shareholders in subsidiaries (Note 3) 46 24 74 Own earnings 282 316 449 Share of retained income of joint ventures 45 20 4Net earnings before special items 327 336 453 Surplus in respect of the sale of 26per cent of DBCM (Note 3) 229 229 Surplus in respect of exploration interests (Note 4) 29 105 Costs/payment in terms of class action settlement agreement (6) (45) (57)(Note 5) Net earnings 350 520 730 Underlying earnings reconciliation (Note 6) Net earnings before special items 327 336 453Adjusted for : Surplus on realisation of fixed assets less provisions (5) (9)Mine impairment and retrenchment costs 21Net gains on non-hedge derivative financial instruments,after taxation and minority interests (3) (23) (40) Underlying earnings 324 308 425EBITDA 632 748 1 232Ordinary distributions in respect of: 2006 - Repayment of share premium 473 473 - Interim 150 150 - Final 502007 - Interim 39 De Beers Societe Anonyme Consolidated Balance Sheet 30 June 2007 (Abridged) US Dollar millions 30 June 2007 30 June 2006 31 December 2006 Ordinary shareholders' interests 3 869 3 515 3 532Outside shareholders' interests (Note 3) 328 282 302Total shareholders' interests 4 197 3 797 3 834Net interest bearing debt (Notes 2 & 7) 3 319 2 482 2 944Other liabilities 1 361 1 431 1 487 8 877 7 710 8 265 Fixed assets 7 163 5 928 6 394Investments and loans 115 89 94Diamond inventories and other assets 1 599 1 693 1 777 8 877 7 710 8 265Exchange rates US$ = Rand- average 7.14 6.14 6.72- period end 7.18 6.82 6.99 Cash flow information for the half-year ended 30 June 2007 Cash available from operating activities 522 353 809Investing activitiesFixed assets - stay-in-business 164 97 245 - expansion 554 394 949Investments (Note 3) 25 (484) (442) 743 7 752 Financing activities Preference share capital redeemed 214 214Share premium redeemed 473 473Increase in long- and short-term debt (263) (579) (1 089)Ordinary distributions 62 173 (201) 108 (229) De Beers Societe Anonyme 30 June 2007 Notes and Comments 1. Following a review of reporting formats, the incomestatement has been changed such that the previously disclosed "diamond account"has been replaced with the more generally accepted convention of "operatingprofit". Comparatives have been restated accordingly. In addition to this, in line with workplace accountability initiatives and as aresult of the implementation of an ERP system, there has been an improvement incost accountability. This has resulted in technical support costs, which werepreviously split between cost of sales and sorting and marketing, beingidentified as group service costs. 2. Preference share capital is included in net interestbearing debt. Preference dividends, amounting to US$11 million (2006: US$22 million) are included in finance charges. 3. In April 2006 De Beers concluded a broad based Black EconomicEmpowerment (BEE) transaction which resulted in 26 percent of De BeersConsolidated Mines Limited being sold to the Ponahalo Consortium for R3.7billion. This resulted in a profit of US$229 million in the consolidated incomestatement. As a result of the sale transaction, US$473 million was returned tothe shareholders through a repayment of capital. The sale process involved,inter alia, the arrangement of incremental financing of US$640 million inrevolving and term facilities and facilitation by De Beers in the form ofguarantees amounting to approximately US$130 million. 4. On 16 April, De Beers concluded the agreement of sale in respectof its interest in Gope Exploration Company which resulted in a profit of US$17million. In addition, shares in other exploration joint venture interests havebeen adjusted to reflect fair valuations thereof. In the prior year, De Beers Canada concluded the sale of its 42 per centparticipating interest in the Fort a La Corne Joint Venture to Shore Gold Incfor C$180 million (US$155 million), of which tax amounting to US$50 million wasattributable. 5. In the six months to 30 June 2007 legal costs incurred in respectof the class action settlement agreement amounted to US$6 million. In terms of an amended class action settlement agreementconcluded in the prior year, a further US$45 million was paid into escrow lastyear pending conclusion of the settlement process. Legal costs incurred in theprior year in respect of the settlement amounted to US$12 million. 6. Underlying earnings comprise net earnings attributable toshareholders 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 theunderlying transaction against which these instruments provide an economic, butnot formally designated, hedge. 7. Cash has been offset against interest bearing debt. Contacts: De Beers London:David Prager +44 20 7 430 3729/+44 7894 886078 De Beers South AfricaTom Tweedy +27 11 374 7173/+27 83 308 0083 De Beers BotswanaChipo Morapedi +267 361 5205/+267 7132 1889 Visit the official De Beers group website for more information on the Companyand where you can view and download a selection of images - www.debeersgroup.com. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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