8th Feb 2008 07:31
Anglo American PLC08 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 theyear ended 31 December 2007 of US$483 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 underlyingearnings of US$239 million for the year ended 31 December 2007 from itsinvestment in De Beers, as reconciled in the table below: US$ 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 indistributions from De Beers, consisting of a US$23 million final dividend onordinary shares relating to FY 2006, a US$18m interim dividend on ordinaryshares relating to FY 2007, US$9 million dividends representing the secondpayment on preference shares for 2006 and a further interim dividend of US$9million on preference shares for 2007. On 31 December 2007, DBSA redeemed 25% of the preference shares in issue, takingthe total redemption to 81% of the original issue, and on that date AA plcreceived US$44 million, representing 6% of its original US$701 millionpreference share interest. AA plc now holds US$131 million of preference sharesin DBSA. 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, 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 Africanmining operations offset the impact of slightly lower sales which wereconstrained by supply to the Diamond Trading Company (DTC). Reflecting strong confidence in the long-term fundamentals of the diamondmarket, 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, theVoorspoed 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 +14EBITDA 1 216 1 232 (1)Cash available from operating activities 844 809 +4Capital 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 extensiveexploration 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 worldmarket conditions. The economic conditions in the US could continue to impactconsumer diamond jewellery sales through the first half particularly at thelower end. Nevertheless, we expect strong demand from China, India and theMiddle East to sustain pricing for larger and better quality diamonds. On production, while the Group has budgeted to produce at similar levels to2007, energy issues in southern Africa could present operational challenges.Southern African management are focused firstly on accelerating the ongoingenergy conservation programmes against which DBCM has been making good progresstoward a target of a 15 percent reduction by 2012. In addition, management isputting in place contingency plans that will make the most effective use of theavailable energy between the different operations. Early indications are thateven if the power supply is maintained at 90% levels there will be an impact onthe overall group. However below this level the impact on production will besignificant and could be in excess of 10 percent. The De Beers Canada managementteam is fully focused on bringing the two new mines into full production in 2008and towards making a positive contribution to the Group's cash flow. At the sametime, current exchange rates necessitate continued management focus on improvingeconomic returns, including mine planning, overhead costs, diamond pricing, andexploiting additional kimberlites around Victor. For the Group, this environment will require a continued focus on costcontainment on the mines and cost reduction, in general. Looking beyond 2008, the Group is confident about the diamond marketfundamentals. With strong growth in the emerging markets of China, India andRussia, demand growth should exceed growth in new supply with the opportunityfor future price growth. In this environment, De Beers continues to focus ontransforming itself to ensure it remains the leading company in an increasinglycompetitive diamond industry. With a market share of around 40 percent, thestrategy is focused on finding and developing the new mines of the future,assisting our Government partners in achieving their aspirations for local valueaddition, finding new efficient ways to operate the global Group and developinginnovative marketing initiatives such as De Beers Diamond Jewellers and theFOREVERMARK, 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 626Diamond sales (Note 1)Non diamond sales 414 404Total sales 6 836 7 030Cost of sales 5 461 5 598Gross profit 1 375 1 432Deduct:Exploration, research and development 288 299Sorting and marketing 339 328Group technical services and corporate overheads 408 386Operating profit (Note 2) 340 419Add:Trade investment and other non-operating income 608 605Income before finance charges and taxation 948 1 024Deduct:Net finance charges (Note 3) 154 140Income before taxation 794 884Taxation 308 361Income after taxation 486 523 Attributable to outside shareholders in subsidiaries (Note 4) 92 74Own earnings 394 449 Share of retained income of joint ventures 42 4Net 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 21Net gains on non-hedge derivative financial instruments, after taxation and minority interests 17 (40) Underlying earnings 483 425EBITDA 1 216 1 232Ordinary distributions in respect of: 2006 - Repayment of share premium 473 - Interim 150 - Final 502007 - 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 532Outside shareholders' interests (Note 4) 379 302Total shareholders' interests 3 392 3 834Net interest bearing debt (Notes 3 & 9) 4 057 2 944Other liabilities 1 653 1 487 9 102 8 265 Fixed assets 7 090 6 394Investments and loans 127 94Diamond inventories and other assets 1 885 1 777 9 102 8 265Exchange 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 752Financing 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 toUS$5,920 million (2006: US$6,150 million). 2. 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. 3. Preference share capital is included in net interestbearing debt. Preference dividends, amounting to US$21 million (2006: US$32million) are included in finance charges. 4. 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. 5. Legal costs incurred in respect of the class action settlementagreement amounted to US$10 million. In terms of an amended class action settlement agreementconcluded in the prior year, a further US$45 million was paid into escrow in2006 pending conclusion of the settlement process. Legal costs incurred in2006 in respect of the settlement amounted to US$12 million. 6. De Beers has made a provision for impairment in respect of themines that it is building in Canada. This non-cash valuation adjustment againstfixed assets has been necessitated by the strengthening of the Canadian Dollarversus the US Dollar, the increase in long-term fuel costs and labour costs, andincreased construction costs at the Snap Lake Mine. 7. On 16 April 2007, De Beers concluded an agreement of sale inrespect of its 50% interest in Gope Exploration Company which resulted in aprofit of US$17 million. 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. 8. 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. 9. Cash has been offset against interest bearing debt. 10. On 22 November 2007 agreement was signed for the disposal ofCullinan Mine to the Petra Diamonds Cullinan Consortium for R1.030 billion. Thebalance sheet includes assets amounting to US$218 million and liabilitiesamounting to US$61 million in respect of this sale. Any gain or loss on thissale 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 Companyand where you can view available b-roll 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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