Anglo American plc notification: De Beers Société Anonyme interim results 2007

Transcription

1 News Release 27 July 2007 Anglo American plc notification: De Beers Société Anonyme interim results 2007 De Beers Société Anonyme ( DBSA ) today reported underlying earnings for the six months ended 30 June 2007 of US$324 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$156 million for the six months ended 30 June 2007 from its investment in De Beers, as reconciled in the table below: 6 months US$ million ended 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 million in distributions from De Beers, consisting of a US$23 million final dividend on ordinary shares relating to FY 2006, and a US$9 million dividend representing the second payment on preference shares for 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. Anglo American plc 20 Carlton House Terrace London SW1Y 5AN United Kingdom Tel 44 (0) Fax 44 (0) corporate_affairs@angloamerican.co.uk Registered office as above. Incorporated in England and Wales under the Companies Act Registered Number

2 De Beers Société 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 the foundations for future growth. Specific activities included a refocusing of exploration activities, a strategic review of existing mining assets, continued investment in a US$2 billion new mine building programme, and the establishment of new sales and marketing operations in southern Africa. In advance of this new production coming on stream, Group sales at US$3 402 million have, as expected, 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 of Consumer demand for diamond jewellery remains healthy, and trading conditions and prices in the rough diamond market have been improving through the period. Underlying earnings at US$324 million (2006: US$308 million) have increased by five per cent largely due to the favourable impact of a reduction in net finance charges and a tax credit. Total Sales at US$3 402 million (2006: US$3 660 million) have reduced by seven per cent as a result of a US$265 million reduction in sales from the DTC. Cash available from operating activities at US$522 million (2006: US$353 million) has increased by 48 per cent mainly due to favourable working capital movements. Financial Summary 6 months to 30 June 2007 US Dollar millions months to 30 June months to 30 June % Change Total Sales Underlying Earnings Cash available from operating activities Capital expansion Gearing 39.7% 35.1% Continuing the transformation - H Operational Highlights Significant progress has been made across the business from exploration to marketing. Exploration De Beers has significantly stepped up exploration in the Democratic Republic of the Congo, where we have substantial and highly prospective ground holdings. In Angola, we have ground holdings of approximately 12,000 sq kms. To accelerate the exploration process, we have constructed a new bulk sampling plant, on site in Lucapa, and a macro diamond laboratory in Luanda. In Botswana, the De Beers African Diamonds Wati joint venture will shortly complete the work required to submit a mining licence application for the AK6 project to the Botswana Ministry of

3 Minerals, Energy and Water Resources, within the prescribed period. In Canada, De Beers Gahcho Kué project, a joint venture with Mountain Province in the Northwest Territories (NWT) in Canada, will complete a further drilling programme this summer to extract 100 carats from the North Lobe of 5034 for evaluation purposes. The project is currently undergoing an Environmental Impact Review under the auspices of the Makenzie Valley Environmental Impact Review Board. In May, De Beers and Xstrata announced the sale of their joint stake in Gope Exploration Company (Gope) in Botswana to the Gem Diamond Mining Company for a total of US$34 million (of which approximately US$17 million accrued to De Beers). Gope had not been active in exploration since Building New Mines During the first half of 2007 De Beers continued to develop four major new mining projects: In Canada, construction of the Snap Lake mine in NWT is nearing completion, and production is forecast to commence at the end of the third quarter of At Victor, in Ontario, a successful winter road campaign delivered required materials, equipment and fuel to the site. Construction is on target for an accelerated start-up date at the end of the second quarter of Following the award of the mining licence for the Voorspoed mine, in South Africa, in the third quarter of 2006, construction commenced at the end of 2006, and is progressing satisfactorily. The project construction phase is scheduled for completion by June 2008, and we anticipate full commissioning at the end of June During June, Peace in Africa, De Beers newest marine diamond mining vessel, commenced operations off the west coast of South Africa. Once it reaches full production, the vessel is expected to yield approximately 4.5 million carats over its estimated operating life of 30 years. Group Production Production increased by 2% to 25.3 million carats from 24.7 million carats in the corresponding period last year. All mining companies showed growth on Mining Asset Review De Beers continues to review all of its assets to ensure a fit with our long-term strategic goals. In addition to the sale of Gope Exploration Company in Botswana, we are actively pursuing opportunities for the following mines: Cullinan - we have received a number of binding offers from bidders and these are in the process of being evaluated. Kimberley Underground and Tailings - both transactions are proceeding in accordance with the original timetable, and it is anticipated that these will be concluded in Namaqualand - the proposed merger of the West Coast operations of Alexkor and DBCM s Namaqualand Mines into a new, stand-alone diamond mining company was also announced in February. We expect discussions on the consolidation of the West Coast properties can now begin. Koffiefontein the sale to Petra Diamonds was finalised in July Sales, Distribution and Marketing De Beers is fully committed to implementing agreements with Government partners which will lead to greater beneficiation of diamonds in producer countries. Following our commitments to the Government of Botswana regarding the establishment of DTC Botswana (DTCB), De Beers anticipates completing construction of the new, state-of-theart DTCB building towards year end. DTCB will be fully operational by early 2008, with the goal of achieving sales of US$550 million per annum for local manufacturing in Botswana by the end of the decade.

4 In January, an agreement between De Beers and the Government of Namibia was announced that secures the sale of Namdeb s production until 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 clients is expected to take place, on schedule, in October, with the goal of achieving local sales of up to US$300 million per annum by In line with the announcement made by the President of the Republic of South 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 to the operation of the State Diamond Trader. In June De Beers announced its intention to restructure the Diamdel operations around the world. Diamdel will continue to purchase rough diamonds from the DTC for sale to non- Sightholders. The DTC has completed a consultation process with clients in preparation for the new Sightholder contract period which will take effect from 2008 to Client selection will take place in the second half of Further Growth Opportunities Worldwide sales at De Beers Diamond Jewellers are 39 per cent higher than the corresponding period last year, and the company is on track to exceed the target of opening 15 new stores in 2007, doubling the existing store network. New store locations will include Moscow, Hong Kong and further expansion across the United States. Element Six (E6) delivered top line growth of nine per cent, with materials for cutting tools being the best performer with over 20 per cent growth. E6 Abrasives (a joint venture with Umicore) is in the process of completing the acquisition of Barat Carbide (awaiting regulatory approval). This will add complementary material competence and marketing channels to the existing business. Regulatory, Compliance and Reputation In the United States, preliminary agreement was reached in March 2006 which resolved all actions, and funds 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 the Fairness Hearing will occur in the first half of The European Commission announced in January that, after a thorough and detailed examination of the DTC s sales and business practices, it had decided to reject all outstanding complaints brought against the DTC in respect of the Sales and Marketing policy and the Russian Trade Agreement. The Court of First Instance (CFI) in Luxembourg announced on 11 July that it annulled the European Commission s decision to accept commitments offered by De Beers to cease all purchases of rough diamonds from Alrosa from 1 January De Beers will continue to purchase goods from Alrosa, up to the agreed levels set out in the proposed commitments, as it analyses the full judgment to determine the implications for the Group going forward. The summary Report to Stakeholders 2006 was published this month which details the Group s performance against a wide range of issues identified by relevant stakeholders covering economics, ethics, employees, communities, and the environment. The full Report to Stakeholders was given an A+ rating from the GRI (Global Reporting Initiative) and, earlier this month, received a prestigious award in the ACCA South Africa Sustainability Reporting Awards. Outlook for H Expectations remain positive for consumer demand for diamond jewellery for the remainder of the year. While there has been some weakness in the lower end/mass market in the USA, the high end remains strong and other growth markets, such as China and India, robust. We continue to forecast growth in diamond jewellery demand in the four to five per cent range for the full year. We have also seen improvements in the rough diamond market in the second quarter of 2007, following the correction in rough diamond prices in the second half of Rough diamond demand is

5 currently good, prices have been rising, and while the second half should improve on first half sales trends, full year sales by the DTC will continue to be constrained by availability. In the medium term, the positive supply/demand forecast should lead to continued growth in rough diamond prices which will, together with increased production as our four new mines come fully on stream, drive growth in revenues and earnings for the Group. De Beers announces interim results as follows:

6 De Beers Société Anonyme Consolidated Income Statement for the half-year ended 30 June 2007 (Abridged) US Dollar millions 6 Months to 30 June Months to 30 June Months to 31 December 2006 Diamond sales -DTC Other Non diamond sales Total sales Cost of sales Gross profit Deduct: Exploration, research and development Sorting and marketing Group technical services and corporate overheads (note 1) Operating profit (Note 1) Add: Trade investment and other non operating income Income before finance charges and taxation Deduct: Net finance charges (Note 2) Income before taxation Taxation Income after taxation Attributable to outside shareholders in subsidiaries (Note 3) Own earnings Share of retained income of joint ventures Net earnings before special items Surplus in respect of the sale of 26per cent of DBCM (Note 3) Surplus in respect of exploration interests (Note 4) Costs/payment in terms of class action settlement agreement (Note 5) (6) (45) (57) Net earnings Underlying earnings reconciliation (Note 6) Net earnings before special items Adjusted for : Surplus on realisation of fixed assets less provisions (5) (9) Mine impairment and retrenchment costs 21 Net gains on non-hedge derivative financial instruments, after taxation and minority interests (3) (23) (40) Underlying earnings EBITDA Ordinary distributions in respect of: 2006 Repayment of share premium Interim Final Interim 39

7 De Beers Société Anonyme Consolidated Balance Sheet 30 June 2007 (Abridged) US Dollar millions 30 June June December 2006 Ordinary shareholders interests Outside shareholders interests (Note 3) Total shareholders interests Net interest bearing debt (Notes 2 & 7) Other liabilities Fixed assets Investments and loans Diamond inventories and other assets Exchange rates US$ = Rand - average period end Cash flow information for the half-year ended 30 June 2007 Cash available from operating activities Investing activities Fixed assets stay-in-business expansion Investments (Note 3) 25 (484) (442) Financing activities Preference share capital redeemed Share premium redeemed Increase in long- and short-term debt (263) (579) (1 089) Ordinary distributions (201) 108 (229)

8 De Beers Société Anonyme 30 June 2007 Notes and Comments 1. 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. In addition to this, in line with workplace accountability initiatives and as a result of the implementation of an ERP system, there has been an improvement in cost accountability. This has resulted in technical support costs, which were previously split between cost of sales and sorting and marketing, being identified as group service costs. 2. Preference share capital is included in net interest bearing 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 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. 4. On 16 April, De Beers concluded the agreement of sale in respect of its interest in Gope Exploration Company which resulted in a profit of US$17 million. In addition, shares in other exploration joint venture interests have been adjusted to reflect fair valuations thereof. 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. 5. In the six months to 30 June 2007 legal costs incurred in respect of the class action settlement agreement amounted to US$6 million. In terms of an amended class action settlement agreement concluded in the prior year, a further US$45 million was paid into escrow last year pending conclusion of the settlement process. Legal costs incurred in the prior year in respect of the settlement amounted to US$12 million. 6. 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. 7. Cash has been offset against interest bearing debt. Contacts: De Beers London: David Prager / De Beers South Africa Tom Tweedy / De Beers Botswana Chipo Morapedi / Visit the official De Beers group website for more information on the Company and where you can view and download a selection of images -