2005 de beers group annual review
TRANSCRIPT
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DeBeersgroupannualreview2005
Partnership in action
every step of the way
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01 De Beers at a glance
02 Purpose, vision and values
04 The essence of partnership06 DBsa board and group structure
08 Corporate governance
12 De Beers in 2005
16 Chairmans statement
24 Financial summary
30 Managing directors review
42 Partnership in technology
development
46 Prospecting activities worldwide
Contents50 Debswana
56 Namdeb
62 De Beers Consolidated Mines68 Black Economic Empowerment
70 Williamson
76 De Beers Canada
82 The Diamond Trading Company
88 Production statistics
90 Corporate responsibility
98 Environment
108 Acronyms
Contact details
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De Beers at a glance
Unlocking the full economic value ofleadership across the diamond pipeline
De Beers and its partner companies employ more than 21 000 people in 25 countries. This includes a
multinational professional exploration team of about 170 earth scientists on five continents and in 12 countries.
At any one time, the company has about 60 joint venture exploration agreements with companies in many parts
of the world.
De Beers is the largest diamond mining company in the world today, producing over 40% of global gem
diamonds from our mines in Africa, as well as sorting and selling the majority of the worlds rough diamonds.
We have 15 mines across Africa and new mines coming on stream in Canada. Many of these mines are joint
ventures with partner governments, building on over a century of expertise in every form of mining.
The Diamond Trading Company (DTC) sorts and values diamonds into more than 14 000 different categories
and prepares them for sale to its 93 sightholders (clients) who are world leading diamantaires and carefully
chosen for their diamond and marketing expertise. The DTC also spends US$180 million driving demand for
diamond jewellery in the worlds biggest markets.
Our recent joint venture with LVMH has taken the De Beers name to the High Street with De Beers jewellery
stores in the US, Japan, UK, France and Dubai.
New projects in the pipeline
Approval for the development of a mine at Snap Lake in Canada. Production is scheduled to begin in late
2007.
Also in Canada, C$1 billion has been earmarked for the Victor project, scheduled for production in 2008.
In South Africa, US$177 million has been approved by the board for the Voorspoed project.
US$115 million has been approved for the South African Sea Areas marine mining project.
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Purpose, vision and valuesWe are on a journey of significant change at De Beers. We are a great company, we mine a very special
product, our people are passionate about delivery and our growth prospects are good. However, the
world around us continues to present challenges. Our success in overcoming these challenges over the
next five years will define our future. We will need to adapt. Our old ways of working will not be sufficient
for us to win in the new environment. We need new goals, new strategies and new organisational
models. And, we need a vision and a purpose to guide this change.
Gareth Penny, MD of De Beers from 2006
Dreams, diamonds and the De Beers family of companies
The world of diamonds is all about making dreams come true. Geologists dream about finding the next big
mine, nations dream about the jobs and wealth that diamonds can bring, shareholders dream of superior
returns, employees starting their first day at work dream of a successful career and young couples dream about
the diamonds that will symbolise their love and commitment.
Our Purpose
In the De Beers family of companies, we have one purpose.
We are driven to turn diamond dreamsinto lasting reality.
Our VisionWe also have big dreams for the De Beers family. Our ambitiousgrowth vision is focused on:
Unlocking the full economic value of our leadership position
across the diamond pipeline.
Making it a reality by maximising the potential of our globalpartnerships, the skills and commitment of our people and the
magic and emotional value of our product.
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Our Values
In everything we do, we strive to reflect the unique qualities of our
product. We call this Living up to Diamonds.
It means we will
Be Passionate
We will be exhilarated by the product we sell, the
challenges we face and the opportunities we create.
Pull Together
Being united in purpose and action, we will turn the
diversity of our people, skills and experience into an
unparalleled source of strength.
Build Trust
We will always listen first, and then act with openness,
honesty and integrity so that our relationships flourish.
Show We Care
The people whose lives we touch, their communities andnations and the environment we share, all matter deeply
to us. We will always think through the consequences of
what we do so that our contribution to the world is real,
lasting and makes us proud.
Shape the Future
We will find new ways. We will set demanding targets and
take both tough decisions and considered risks to
achieve them. We will insist on executional excellence
and reward those who deliver.
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The essenceof partnershipPartnership in action, every step of the way
De Beers is focused on unlocking the power of partnership actively and demonstratively. Through our
partnerships, diamonds have brought great benefit to entire countries and with the realisation of diamond
dreams in Africa, North America and other new areas of exploration and marketing focus, will continue to do so.
We will make this a reality by maximising the potential of our global partnerships, the skills and commitment of
our people and the magic and emotional value of our product.
These partnerships extend across our entire value chain. Our productive partnerships begin with cutting edge
exploration in the remotest regions of our planet and extend to our operations through our drive to reduce the
time it takes to bring new mines into production. This focus on partnership is further enhanced via the
adjacencies and communities in which we operate and in the client focus we bring to our sightholders in
securing the perfect niche for diamond products.
In our endeavours we are driven by our values living up to diamonds! Our purpose is to turn diamond
dreams into lasting reality. The De Beers family will strive to reflect the unique qualities of our product in
everything we do. This intent is embodied in our new mission, vision and values; in the Diamond Best Practice
Principles applied to every facet of our business and through our involvement in several initiatives around the
globe, many of which are undertaken in partnerships involving civil society, organisations and governments.
The De Beers 2005 Review is a reflection of our partnerships in action.
Nicky Oppenheimer Gary RalfeChairman Managing director
Nicky Oppenheimer and Minister of Minerals and Energy Lindiwe Hendricks at the signing,
on 8 November 2005, of a Memorandum of Understanding for the sale of 26% of De Beers Consolidated
Mines Holdings Limited (DBCM) to a new empowerment vehicle, Ponahalo.
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DBsa board andgroup structure
Debswana
(Botswana)
50%
Namdeb
(Namibia)
50%
Williamson
(Tanzania)
75%
De Beers
Consolidated
Mines*
(South Africa)
74%
Diamond Trading
Company
(United Kingdom)
100%
Government of Botswana 15% Central Holdings Group 40% Anglo American Group 45%
De Beers sa (Lux)
DB Investments (Lux) 100%
*Ponahalo Investments acquired a 26% indirect interest in DBCM on 18 April 2006.
DBsa board membersFrom left to right, top to bottom
Nicky Oppenheimer (Chairman)
Gary Ralfe1(outgoing managing director)
Gareth Penny(incoming managing director)
Dr Mark Berry
Stuart Brown2
Robin Crawford
Baron David de Rothschild2
Ollie de Sousa OliveiraDr Ed Dowling2
David Hathorn
Joseph lita
Sir Chips Keswick
Julian Ogilvie Thompson
Anthony Oppenheimer
Jonathan Oppenheimer2
Dr Akolang Tombale
Tony Trahar
Serwalo Tumelo
1Gary Ralfe retired as managing director on
28 February 2006.2Appointed by the shareholders with effect
5 April 2006.
Executive committeeWith effect 1 March 2006
Gareth Penny (Chairman)
Stuart Brown
Bruce Cleaver
Ollie de Sousa Oliveira
Dr Ed Dowling
Debbie Farnaby
Stephen Lussier
Blackie MaroleDavid Noko
Jonathan Oppenheimer
Nicky Oppenheimer
Varda Shine
Leon Smith
Inge Zaamwani
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Corporate governance
Underpinning the way in which we run ourmines and do business
The board of De Beers supports the principles of openness, integrity, responsibility and accountability. It also
continuously endeavours to ensure that the groups policies on corporate governance meet current best practice.
The group follows, to the extent that they are applicable, the principles and recommendations set out in the Code
of Corporate Practices and Conduct contained in the King Report on Corporate Governance for South Africa 2002.
Board and committee structures
The board is responsible for the groups system of corporate governance and is ultimately accountable for its
activities. Currently, the board comprises 18 directors of whom six serve in an executive capacity. All directors
have unrestricted access to all company information, records, documents and property. Non-executive directors
derive no benefits from the company for their services as directors other than their fees.
The board meets every quarter and more frequently, if required. Where a director is based in another country
and not able to attend personally, video- or teleconferencing facilities are used to include that director in the
relevant proceedings.
In addition, De Beers and its holding company, DB Investments (DBI), are party to a shareholders agreement
which governs the shareholders relationship and also sets out, inter alia, matters relating to the directors
and management of De Beers, committees of the De Beers board, and matters reserved specifically for either
the shareholders or the De Beers board.
De Beers and DBI are also party to a management contract with Central Holdings Limited and Central
Management Services Limited (CMSL), in terms of which both DBI and De Beers appointed CMSL to assist in
the strategic development of the De Beers group and, in particular, to assist in the appointment of the senior
executives and management of the group.
Executive committeeChaired by Gareth Penny, the executive committee meets regularly and is responsible to the board for
implementing the policies and strategies of the group. It deals with all executive business of the company not
specifically reserved for the board or shareholders, and prioritises the allocation of capital and technical and
human resources. It also reviews biannually the major risk areas of each business unit.
Audit committeeThis committee monitors the adequacy of the financial information reported to shareholders, internal controls,
accounting policies and financial reporting, and provides a forum for communication between the board and
the external and internal auditors.
Safety, health and environment committeeThis committee monitors and reviews the groups safety, health and environmental policies, guidelines and
operating practices, as well as compliance by the operations with all relevant international standards and
relevant local laws in SHE matters.
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The group strives to conduct its business with due regard for economic, social, cultural and environmental
concerns. A comprehensive policy focuses on the health and safety of the groups employees and the well-
being of the communities surrounding its mines.
The groups mining and related activities face complex environmental challenges. Through its environmental
policy the group is committed to addressing environmental risks and impacts.
Remuneration committeeThis committee approves remuneration for the executive directors to ensure that rewards and incentives are
linked to both individual and group performance.
Investment committeeDuring the year the board established an investment committee to manage the process of investment capital
approval and/or allocation within the group. This committee aims to ensure that investments, divestments and
financing proposals increase shareholder value and meet the companys financial and strategic criteria.
Members of the committee comprise representatives of the shareholders and nominees of the management
company, CMSL.
Accountability and control
Internal controlsThe directors are responsible for the groups system of internal controls and for regularly reviewing its
effectiveness. The principal aim of the system of internal controls is to manage business risks that are
significant to the fulfilment of De Beers business objectives with a view to enhancing over time the value of the
shareholders investment and safeguarding the groups assets.
Although no system of internal controls can provide absolute assurance that business risks will be fully
mitigated, the internal control systems have been designed to meet the groups particular needs and the risks
to which it is exposed.
Left: Water management at The Oaks Mine, where all water is drawn from boreholes
and recycling is maximised before returning to the plant. Right: A set of tools developed to embed our
values and help us Live up to Diamonds in everything we do.
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Corporate governancecontinued
Risk management
Both the shareholders and the board recognise that engaging risk is at the core of De Beers business and that
risk taking is a choice in the pursuit of objectives. A risk framework where risks are proactively identified and
managed governs the De Beers group and its operations. This includes identifying and taking advantage of
opportunities as well as protecting intellectual capital, income and assets by mitigating adverse impacts of risk.
The focus of risk management is on identifying, assessing, managing and monitoring all known forms of risk
across the group. Management is involved in a continuous process of enhancing its risk control procedures to
improve the mechanisms for identifying and monitoring risks. These risks encompass such areas as consumer
markets, skills and people risks, technology, stakeholder, commercial, social, environmental, corporatereputation, compliance with regulation and legislation, professional liability and the general operating, financial
and treasury risks.
Monitoring process
The effectiveness of the internal control systems, including the potential impact of changes in the operating and
business environments, is monitored through regular management reviews, reviews and testing by internal
auditors, and testing of certain aspects of the internal financial control systems by the independent auditors
during the course of their statutory examinations. Control self-assessment also takes place, with a
representation letter on compliance being signed annually by the managers of each major business unit.
Code of business conduct and ethics
The group is committed to a policy of fair dealing and integrity in the conduct of its business. To this end, the
De Beers Code of Business Conduct and Ethics requires employees throughout the group to maintain the
highest ethical standards in ensuring that business practices are conducted in a manner that, in all reasonable
circumstances, is beyond reproach.
Employment equity
De Beers is committed to creating a workplace in which hardworking people can develop rewarding careers at all
levels, regardless of their background, race, or gender. The groups employment practices and policies emphasise
equal opportunity for all, and seek to identify, develop and reward employees who demonstrate good performance.
The employment equity policies of De Beers Consolidated Mines (DBCM) provide for bursary schemes and
academic support programmes, input-based targets, training, development and mentoring programmes, as well
as innovative technical and management career development processes. These policies also aim to create an
inclusive organisational culture in which all employees feel comfortable and accepted.
Where appropriate, employment equity is implemented in consultation with employee representative bodies. An
employment equity/affirmative action agreement exists between DBCM and the National Union of Mineworkers.
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In Botswana and Namibia, localisation strategies, determined and monitored through legislation, are well
established and provide similar citizen development and workplace activities and initiatives.
Employee participation
The group supports a system of employee participation in addressing issues which affect them and encourages
employees and their representatives to participate in communication, and consultative and negotiating structures.
Regular briefing sessions inform all employees about the companys operations and on other matters of interest.
Grievance procedures and other structures are in place with a view to speedily identifying conflict and its
effective resolution.
Detailed information about De Beers corporate governance is available on our website.
Audit SHE Remuneratcommittee committee committee
Sir Chips Keswick (Chairman) Robin Crawford (Chairman) Sir Chips Keswick (Chairman)
Robin Crawford Dr Mark Berry Nicky Oppenheimer
David Hathorn Alex Hathorn (co-opted) Julian Ogilvie Thompson
Julian Ogilvie Thompson Anthony Oppenheimer Tony Trahar
Julian Ogilvie Thompson
Dr Akolang Tombale
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De Beers in 2005
6 March 17 June 10 August 7 September
6 March
De Beers displays a selection of rough diamonds from two of its Canadian projects at the Prospectors and
Developers Association of Canada Convention (PDAC) in Toronto.
780 carats from the Snap Lake project, including a diamond of 50 carats
240 carats from the Victor project in Northern Ontario remarkable for their colour and clarity
23 March
Announcement of the De Beers group syndicated multi-currency revolving credit facility of US$3 billion.
8 April
DBCM confirms that it is operating under difficult circumstances with five of its seven operations operating at a
loss. Initiatives include a Business Model Review, which considered a variety of structural changes to DBCM
that will improve efficiencies, and is aimed at ensuring the viability of operations at R5 to the Dollar.
10 May
De Beers board gives approval for the construction and financing of a mine at Snap Lake in Canada.
18 May
Strategic Leadership Forum in Vereeniging, South Africa announcement of Gary Ralfes retirement, in 2006,
as managing director and Gareth Pennys appointment as his successor.
25 May
Williamson Diamonds in Tanzania is granted a Special Mining Licence by the Minister of Energy and Minerals.
This secures the companys tenure over an area of about 30 square kilometres for a 25-year period.
27 May
Endiama and De Beers conclude an exploration and mining agreement in Angola.
9 June
The DTC completes client selection and announces a significant increase in the number of empowered clients
for the new contract supply period (2005 2008). The total number of South African customers will increase
from 14 to 19.
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10 June
The announcement of a C$1.5 million expansion to the Kimberlite Career and Technical Centre, starting in July.
The project was spearheaded by De Beers Canada, the government of the Northwest Territories, a number of
business partners and Yellowknife Catholic Schools.
17 June
The exploration contract with Endiama, Angola, is formally signed.
21 June
No more under-a-tree classrooms at several Limpopo schools. Limpopo Education MEC Dr Aron Motsoaledi and
DBCM MD Jonathan Oppenheimer officially launch the Rural Schools programme, an R8 million groundbreaking
partnership between DBCM and the Limpopo Education Department.
28 June
President Pohamba officially opens the offices of Diamdel in Namibia. The President is hosted by Chairman
Nicky Oppenheimer, MD Gary Ralfe and Diamdel Namibias area manager Paulus Shituna, who is a Namibian
national.
5 JulyCompanies from a cross-section of the diamond and gold jewellery business form the Council for Responsible
Jewellery Practices a not-for-profit organisation. De Beers is one of 14 founding members from different parts of
the supply chain, from mine to retail. Council members are committed to promoting responsible business
practices in a transparent and accountable manner throughout the industry.
15 July
Wati Ventures and De Beers Botswana sign a joint venture agreement and the joint venture company, Debwat,
has its first board meeting on 8 September.
10 AugustThe Elizabeth Bay Liberation project is officially inaugurated by the President of Namibia, Hifikepunye
Pohamba.
15 August
DBCM ceases underground production in Kimberley. Underground mining began in 1889. Surface operations
(tailings dump retreatment) continue.
7 September
De Beers Group Exploration launches the Diamonds for Developmentairship in Cape Town. The project will
assist exploration activities in southern Africa and the airship is currently being deployed in Botswana.
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De Beers in 2005continued
28 September 27 October 3 November 8 November
8 September
DBCM announces that it is considering the disposal of its mining operations at Koffiefontein Mine through a
formal sale process and calls for expressions of interest. The announcement to close the mine is made on
20 January 2006, following unsuccessful sale attempts. The mine was discovered in 1870.
27 September
DTC announces roll-out of the Forevermarkto new markets for 2006. Following the success of the Forevermark
pilot in Hong Kong, the DTC announces that it is developing plans to launch in Japan, China, India and the Gulf
by the end of 2006.
28 September
De Beers wins an international HIV/Aids award. The company is honoured for its workplace response to
HIV/Aids counselling and testing by the Global Business Coalition on HIV/Aids at its Annual Awards for
Business Excellence Gala in Washington.
Photo by Chris Greenberg, Getty Images for the Global Business Coalition
29 September
The DBCM transformation process takes a step forward with the announcement that David Noko will succeed
Jonathan Oppenheimer as MD of DBCM.
6 October
De Beers Angola Prospecting (Debap) and De Beers Angola Investments announce the appointment of General
Antonio Dos Santos Franca Ndalu as non-executive chairman of Debap.
12 October
De Beers urges the South African Parliamentary Portfolio Committee on Minerals and Energy to consider
amendments to the Diamond Amendment Bill at the public hearings held in Cape Town.
26 October
Construction starts on the new Diamond Trading Company Botswana building in Gaborone. It is expected to be
operational in early 2008.
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27 October
De Beers Canada announces that final provincial environmental approval has been received for the
development of the Victor project in Northern Ontario. Federal environmental approval was given to the project
in August 2005.
3 November
A revolutionary ore transport system, costing about R128 million, is launched at Finsch Mine. De Beers has
been a trailblazer in the implementation of automated ore transportation in South Africa and the system is a
world first in underground mining ore transportation.
4 November
The Attawapiskat First Nation and De Beers Canada sign an Impact Benefit Agreement for Ontarios first
diamond mine at Victor. In addition, De Beers Canada and Yellowknives Dene First Nation conclude an Impact
Benefit Agreement for the Snap Lake project on 14 November.
8 November
De Beers and Ponahalo announce that they have signed a Memorandum of Understanding relating to the
proposed sale of a 26% equity interest in DBCM to Ponahalo, a broad-based black economic empowerment
company. Ponahalo will be jointly owned by Ponahalo Investment Holdings and De Beers employees andpensioners.
9 November
Miba and De Beers sign a joint venture agreement. The Miba joint venture Memorandum of Understanding was
approved by the Economics and Finance commission of the Democratic Republic of Congo on 4 October and
by the Cabinet of the DRC government on 28 October.
23 November
It is announced that Chris Sivertsen will be Namdebs first Namibian GM, effective February 2006.
29 November
De Beers Canada files an application for the permits required to construct and operate a mine at Gahcho Ku.
The Gahcho Ku project is a joint venture between De Beers Canada (51%), Mountain Province Diamonds Inc.
(44%) and Camphor Ventures (5%).
30 November
Agreement is reached, and a preliminary approval order issued, to settle the majority of civil class action suits
filed against De Beers in the United States. This settlement does not involve any admission of liability on the
part of De Beers and brings an end to a number of outstanding disputes.
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Chairmans statement
The year was largely dedicated to reshapingmajor elements within the group into a fittingand efficient launch pad for future growth andincreased profitability
This past year has seen the great family of companies that make up the De Beers group transform as itprepares for the next exciting chapter in its development as a stand-alone, privately owned enterprise dedicated
to the growth and expansion which will ensure its continued leadership of the diamond world.
Key developments in this transition towards Chapter 2 included the turnaround in the fortunes of De Beers
Consolidated Mines (DBCM), the redesign of our South African operations, and the fulfilment of a bold black
economic empowerment (BEE) plan for DBCM. The latter step is widely welcomed for its innovative breadth
and reach, which, we believe, makes it a model for others to follow.
The year was largely dedicated to reshaping major elements within the group into a fitting and efficient launch
pad for future growth and increased profitability. 2005 was also marked by a number of important milestones.
It says much for the energy and dedication of all who work for De Beers that, during a period of radical
restructuring, the Diamond Trading Company could nevertheless achieve record sales, that DBCM could
achieve exceptional production figures, the lowest injury frequency rate in its history, and that the group as a
whole could reach a record production of 49 million carats.
DBCM turnaround impressive
What makes the DBCM results all the more remarkable is that, at the beginning of 2005, five out of its seven
South African operations were unprofitable. By the years end, after some very difficult decisions taken by the
management team led by Jonathan Oppenheimer, four out of six were profitable. This was obviously not
achieved without pain especially the closure of Koffiefontein and the underground operations of Kimberley
Mines, which have for more than a century been the historic heart of De Beers. Closing any mine, however old,
is a traumatic event but diamonds are a finite resource and both mines were long past their working life.
However, it is pleasing that the Combined Treatment Plant in Kimberley will ensure that diamonds continue to
be produced from our heartland for many years to come. The closures, and a business-wide review, led to a
20% cut in the DBCM workforce. The heaviest cuts were at management level. DBCM continues to work closely
with the unions to minimise the social impact of the redundancies, including innovative plans to reinvigorate
Kimberleys tourist economy. With the introduction of a gain-sharing incentive scheme throughout the
operations, cooperation with the mining unions and minimal disruption, excellent production and safety
statistics were achieved. Regrettably, Kimberley Mines recorded a fatality during 2005. Our goal is zero
accidents and the group accident frequency decreased by 43%, the severity rate decreased by 71% and the
fatality rate reduced by 75% compared to 2004.
As part of our corporate restructuring, De Beers Group Services our services arm was split from the South
African mining operations as DBCM prepared for our groundbreaking BEE transaction with Ponahalo. This deal
not only exceeds the governments BEE requirements as set out in the Mining Charter, but also achieves the
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goal we set ourselves to create a company that will truly reflect the non-racial ideals of the government and
all the citizens of the new South Africa. Our aim was to spread the benefits of empowerment as widely as
possible and that, I think, we have achieved. At the same time, DBCM itself, now led by David Noko, the first
black managing director in its history, is set to anticipate by three years the government target of 40%
historically disadvantaged South African (HDSA) representation in management by 2009.
The BEE transaction also represents, in the most tangible way possible, De Beers commitment to the concept
of partnership not only with its clients, and its mining partners but, above all, with all the countries and the
communities in which it operates. It is a concept that lies at the very heart of our corporate philosophy, born of
the conviction that the diamond, the product we mine and sell, imposes on us all an absolute requirement to
live up to the values it exemplifies. It is a belief that unites all who work for the large De Beers family around theworld and will be one of the main drivers of success as we embark on the next exciting chapter in our history.
Project abundance bodes well
On the production side there can have been few periods in our long history when the group has been
committed to so many projects in so many different parts of the world. In South Africa, for example, we believe
that after 20 years of research we have discovered a way of profitably mining the sea areas off the South
African coast and have committed US$115 million to equipping a ship for this purpose. Subject to the granting
of a mining licence, the first marine diamond project in South Africa will come into production in 2007. A furtherUS$177 million will again subject to the necessary mining licence be committed to reopening the
Voorspoed mine, last worked in 1909. These new projects will be an important counterbalance to the
necessary closure of Koffiefontein and the Kimberley underground operations.
Left: Nicky Oppenheimer. Right: Workers at the cone crusher at Namaqualand Mines Buffels Marine
Complex process plant.
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Chairmans statementcontinued
In Canada, where we believe De Beers now has better assets than any other mining company, we will be
investing C$1.9 billion to bring Snap Lake and Victor into production and we have also filed an application to
construct and operate a mine at Gahcho Ku.
Evidence of our determination to find and develop new sources of supply was the US$113 million spent by
De Beers Group Exploration around the world in 2005. More than 60% of this investment was allocated to Africa
and new exploration agreements were signed in Angola and the Democratic Republic of the Congo (DRC). At
the same time, the scientific innovation that has always been the hallmark of De Beers could be seen in a
number of new exploration techniques.
We have also in the past year entered into 30 new joint ventures, bringing the total to 60 around the world,including agreements with Endiama in Angola, Miba in the DRC, with the government of the Central African
Republic and with companies both public and private in Botswana, India, South Africa, Brazil and Canada.
One of the most promising of these is the joint venture with African Diamonds plc covering an area near Orapa.
We have also set ourselves a new and challenging target: to halve the time it typically takes from the discovery
of a new and viable prospect to bringing a mine into production. This is central to our drive not only to expand
supply, but also to achieve cost and asset efficiencies, improve productivity and increase the return on capital.
Innovative solutions to ongoing challenges
The innovation and expertise that have always been key factors in De Beers continued leadership of the
diamond world are also being deployed to our existing operations. In Namdeb, where marine production
exceeded the value of carats mined on land for the first time, the fleet is being upgraded and important
dredging experiments are being conducted to drive down operating costs. By doing so we will reduce the cut-
off grade at which marine diamonds can be mined, thus ensuring that this resource will continue to contribute
to Namibias sustainable development for many years to come. Debswana achieved a record production in
2005 and we are investing in a new recovery plant, which will recover significantly more diamonds from the
same ore currently being treated. These are only a few examples of the investment, particularly in research and
development, to ensure that, wherever diamonds are found in the world, De Beers will remain the miner of
choice.
Innovation has also been the hallmark of the Diamond Trading Company (DTC) in its threefold quest: to
generate value-added services for our clients, to drive worldwide demand for diamonds and to maintain
consumer confidence in diamonds. The success of our investment in marketing can already be seen in the
sustained growth of the worlds largest diamond jewellery market, the United States. India saw double-digit
growth for the third year in a row, and the vibrant, developing markets of China and the Gulf States hold the key
to a major expansion in the worldwide demand for diamonds.
While the DTC in London will continue to concentrate on maintaining our unrivalled diamond expertise on
marketing, on consumer confidence issues and on servicing our clients, the decision to move its aggregation
facility to Botswana will more than meet our objective of shortening the diamond pipeline from mine to finger. It
will also provide additional diamond employment and is important proof of our ability to identify with the aims
and aspirations of the producer countries.
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Chairmans statementcontinued
Good global citizen
The cornerstone of De Beers guardianship of diamond values remains its Diamond Best Practice Principles.
Currently being implemented across both De Beers and our sightholder operations, and independently audited
by SGS, the principles provide an effective framework for ensuring that high standards and consumer
confidence are maintained in our diamonds.
The reputation of the group as a good global citizen is of great importance and this is why it has sought legal
compliance with all the jurisdictions in which it may operate or have business interests. Thus, 2005 saw
significant progress towards achieving this both in the United States and in the EU, where a ruling on our sales
contract with the Russian diamond producer, Alrosa, was finally achieved.
Our adherence to the principles of good citizenship also found expression in our commitment to the United
Nations Global Compact which requires signatories to respect UN principles on human rights, labour practices,
environmental protection and anti-corruption. The group is already a signatory to the Extractive Industries
Transparency Initiative and to the World Economic Forum Partnering against Corruption.
These commitments reflect a belief which has been at the core of our corporate philosophy: no De Beers
operation anywhere in the world can be an island, sufficient unto itself; it is the product of a mutually beneficial
partnership with its host community and nation. Our continuing success owes much to the enduring
relationships we have built with those communities and in 2005 we sought to reinforce that commitment by
publishing the De Beers Community Policy.
This is a distillation of the many guidelines and operating practices developed and refined over the years to
ensure that our relationships with our neighbours are characterised by mutual respect and understanding. It
also underwrites our absolute respect for the rights and interests of the people among whom we live and work,
and our willingness to work with them to achieve shared goals.
Corporate responsibility diverse, collaborative and admired
It is no accident therefore that De Beers contribution to corporate responsibility, including programmesdeveloped in partnership with local communities, now ranks among the highest in the world and exceeds the
internationally recognised benchmark of one percent of pre-tax profits.
A highlight of the year came in September 2005 when De Beers role in the fight against HIV/Aids was accorded
international recognition when it received the Global Business Coalition (GBC) Business Excellence Award for
its highly successful Voluntary Counselling and Testing programme. This programme is available throughout its
southern African operations to all employees and their partners, contractors and, where possible, to members
of the wider community. De Beers has been an active member of the GBC since 2002. This worldwide
organisation aims to coordinate and encourage a private sector response to the Aids pandemic.
De Beers has also become a member of the Global Health Council, a voice for action in addressing the worlds
most critical health issues. In 2005 we announced the launch of the De Beers African Health Scholars
Programme aimed at strengthening African public health infrastructure at the Johns Hopkins Bloomberg
School of Public Health in the USA.
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A further noteworthy development was the launch of a joint venture between the De Beers Fund and the
US-based charity Jewelers for Children to extend the Isibindi model of care for children made vulnerable or
orphaned by Aids. Isibindi has been implemented by the National Association of Child Care Workers and the
local Department of Social Development in Galeshewe, Northern Cape. It is just one of the 22 projects
supported by the De Beers Fund in South Africa in the year under review.
In Botswana two major De Beers programmes dealing with education, community-based natural resources
management, income generation and heritage will be rolled out in 2006. This will be done in partnership with
the Kuru Family of Organisations, the largest non-governmental organisation in Botswana, which deals primarily
with the rights of the San.
A C$1.5 million expansion to the Kimberlite Career and Technical Centre has been spearheaded by De Beers
Canada, the government of the Northwest Territories, a number of business partners and Yellowknife Catholic
Schools.
These are but a few examples of corporate responsibility initiatives as widespread and diverse as our mining
activities.
Shaping the future
During 2005 De Beers held its inaugural Strategic Leadership Forum (SLF), comprising senior leaders from
De Beers and its partner companies. The theme of the SLF was growth, delivery and partnership. The new
initiative is focusing on De Beers purpose, vision and values. It will seek to provide an integrated overview of
organisational efficiency and the way in which we plan to organise the company to deliver our Chapter 2 goals.
As the baton of leadership now passes to a new generation and the De Beers group embarks on another
challenging and exciting chapter in its long history, it will continue to be guided by the best of the past and byits central philosophy that if diamonds are to be forever, they must also be a force for good wherever they are
found, mined and sold.
Left: Nicky Oppenheimer and Gary Ralfe a partnership which has extended over many years. They
are seen (left) with Anthony Oppenheimer and former Prime Minister of Namibia Hage Geingob on a
DTC Tour in 1992. Right: Nicky Oppenheimer, Chairman of De Beers, and Gary Ralfe, managing
director of De Beers, at the launch of the new DTC identity and Forevermark, July 2000.
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A tribute to Gary Ralfe
If 2005 was a year of transition in many ways, 2006 will see a changing of the guard in leadership positions,
with Gareth Penny taking over from Gary Ralfe as managing director of the group. David Noko assumes the
role as managing director of DBCM from Jonathan Oppenheimer who, in addition to his new role in the
Chairmans Office, becomes chairman of De Beers Canada and of the DTC.
A special tribute is due to Gary Ralfe with whom I have worked in close partnership for almost my entire
professional life. Garys energy, drive, dedication and, above all, his loyalty to the company and the values for
which it stands, have been essential ingredients in its continuing success. His unflagging search for innovation
and continuous improvement in the way we organise our business, his role in guiding the restructuring of
De Beers, its conversion from a supply- to a demand-driven business, and in the privatisation of the company,
were all invaluable. This sentiment applies to me personally, as much as to the company and to the diamond
industry as a whole. He has been largely responsible for a historic chapter in the development of De Beers and
his imprint will be evident for many years to come.
I am delighted that Gary will be remaining on the DBsa board so his extensive knowledge will not be lost to the
group. Other board changes have seen Paddy Kell retire as chief financial officer and be succeeded by Stuart
Brown, while Ed Dowling and Jonathan Oppenheimer have also joined the board. I am particularly pleased that
Baron David de Rothschild has agreed to join the DBsa board as a non-executive director; this re-establishes a
close link between De Beers and the Rothschilds, which has existed for well over 100 years.
Paddy Kell retires
I would like to express my heartfelt gratitude to Paddy Kell who has so skilfully guided the financial fortunes of
De Beers through the eventful years of our organisational separation from Anglo American in 1998 and the
eventual privatisation of the company in 2001.
Our thanks are also due to Glenn Turner who, as legal director, played a key role in our settlement with the US
Department of Justice and in achieving legal compliance in the US and the EU.
Nicky Oppenheimer30 April 2006
Chairmans statementcontinued
The search for new De Beers diamond mine prospects in southern Africa got a major lift with the arrival
in August of the Diamonds for Developmentairship in Cape Town. De Beers, Bell Geophysics and
Zeppelin Luftschifftechnik (ZLT) have signed a two-year agreement to operate and pilot the ZLT airship
for De Beers in the southern African region.
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Financial summary
Headline earnings before class action payment were
US$824 million, 26% higher than in 2004.
After adjusting for deferred tax gain, headline earnings, before
class action payment, were 4% higher than in 2004.
EBITDA was 6% higher than in 2004.
DTC sales were a record US$6 539 million, 15% higher than in 2004.
Group-wide production was 49 million carats, an increase of 4%
over 2004.
Results for the year ended 31 December 2005 directors comment
ResultsOwn earnings at US$782 million were 26% higher than in 2004, as were headline earnings at US$824 million
before the payment of US$250 million in terms of a class action settlement agreement. The increase was mostly
derived from a specific deferred tax gain of US$148 million. Without this benefit own earnings would have been
2% higher than in 2004 and headline earnings 4% higher. DTC sales at a record US$6 539 million were 15%
2001 2002 2003 2004 2005
38 696 836 40 227 340 43 946 857 47 012 045 49 010 201
Diamonds recovered(carats)
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higher than in 2004, but without the favourable impact of the stockpile releases that took place in 2004,
diamond account margins were lower. In addition, the current year was adversely affected by mark-to-market
differences on hedges and the mine closure costs referred to below.
Operating cash flow fell to US$723 million, before the payment of US$250 million in terms of a class action
settlement agreement, from US$985 million in 2004, mainly as a result of an increase in working capital
requirements during 2005.
Distributions of US$600 million were made to shareholders during the year, including US$200 million paid in
April 2005 in respect of the final dividend for 2004. The final distribution in respect of 2005 of US$250 million was
brought forward to December 2005 to facilitate the black economic empowerment transaction referred to below.
Production
Group production for the year, inclusive of our joint ventures in Namibia and Botswana, was 49.0 million carats,
an increase of 4% over 2004. Debswana produced a record 31.9 million carats, an increase of 2% over 2004.
Namdebs production of 1.8 million carats was 5% lower than in 2004. De Beers South African mines produced
a total of 15.2 million carats, an increase of 1.4 million carats (10%) on 2004. DBCM initiated and completed the
closure of its lossmaking underground operations in Kimberley and Koffiefontein resulting in impairments and
provisions for retrenchments amounting to US$48 million. De Beers has implemented reskilling programmes for
those employees who have been retrenched.
Sales and marketing
Growth in retail sales of diamond jewellery for the full year were in the 6% range. Regional analysis indicates
growth in all areas with the exception of Europe. The US had a satisfactory Christmas with overall annual
growth in line with the world trend. The high-end independents and internet retailers outperformed the market.
Japan and the rest of Asia-Pacific grew in low single digits, with China doing better after the poor first half of the
year. On the other hand, in Asia-Arabia there has been growth in double digits.
During the year, the DTC raised its rough diamond prices on two occasions, the cumulative effect of which was
that sales by the DTC in 2005 were at prices, on average, 9.5% higher than in 2004. For most of the year,
demand for rough diamonds from the cutting centres was strong. In addition, the DTC successfully launched a
suite of Value Added Services to clients.
Right: Diamond classification on one of the diamond sorting floors in Orapa House, Botswana.
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Financial summarycontinued
Projects
During the course of 2005, De Beers announced the approval for the Snap Lake project in Canada with full
production to be achieved by the third quarter of 2008. The board also approved C$982 million for the Victor
project. The required environmental approval was received in October 2005 and full production will be achieved
by the third quarter of 2009.
In South Africa, the De Beers board approved US$177 million for the Voorspoed mining project on
30 November 2005 subject to the granting of the required mining licence. On 8 February 2006 US$115 million
was approved for the South African Sea Areas marine mining project.
Significant empowerment milestone
De Beers and Ponahalo Investment Holdings signed a Memorandum of Understanding relating to the proposed
sale of a 26% indirect equity interest in DBCM to Ponahalo, a broad-based black economic empowerment
company. Ponahalo will be jointly owned by Ponahalo Investment Holdings and De Beers employees and
pensioners. Significant progress has been made on the transaction and the sale is likely to be completed by
the middle of 2006 once a due diligence process has been completed and appropriate funding has been
arranged.
US settlement
Agreement has been reached, and a preliminary approval order issued, to settle the majority of civil class
action suits filed against De Beers in the United States. This settlement does not involve any admission ofliability on the part of De Beers and will, when concluded, bring to an end a number of outstanding class
actions. US$250 million has been paid into escrow pending conclusion of the settlement process.
Outlook
Demand for rough diamonds continues to be steady. However, stocks of both rough and polished in the cutting
centres were relatively high at the beginning of the new year as were aggregate debt levels. As a result, DTC
clients were happy to see a relatively modest January Sight, preferring to spread their ITO (Intention to Offer)
allocation much more evenly over the first half. However, the 2006 outlook remains positive, with market growth
expected to be similar to 2005 in line with expectations for global economic growth.
Management changes
Gary Ralfe and Paddy Kell, after eight years of service as managing director and finance director respectively of
De Beers, retired at the end of February 2006. Gary has assumed a role as a non-executive director on the
DBsa board. We are grateful for their enormous contribution to the De Beers group. Gary has been succeeded
by Gareth Penny and Paddy by Stuart Brown.
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Consolidated income statement
For the year ended 31 December 2005
Abridged
US Dollar millions
2005 2004
Diamond sales
DTC 6 539 5 695
Other 513 512
Joint venture and other income 906 836
7 958 7 043
Deduct:
Cost of sales 5 906 5 026
Sorting and marketing 484 543
Exploration, research and development (Note 1) 242 239
Group services and corporate overheads (Note 2) 140 80
Net diamond account 1 186 1 155
Deduct:
Net finance charges (Note 3) 101 83
Costs related to reorganisation and restructuring 19 39
Income before taxation 1 066 1 033
Taxation (Note 4) 283 386
Income after taxation 783 647
Attributable to outside shareholders in subsidiaries 1 26
Own earnings 782 621
Share of retained income of joint ventures 22 21
Total earnings 804 642
Amortisation of goodwill (Note 5) 144
Net earnings before class action payment 804 498
Payment in terms of class action settlement agreement (Note 6) 250
Net earnings 554 498
Headline earnings reconciliation
Net earnings before class action payment 804 498
Adjusted for:
Amortisation of goodwill (Note 5) 144
Amortisation of intangible fixed assets 31
Surplus on realisation of fixed assets less provisions (14) (21)
Mine impairment and retrenchment costs 48
Taxation and minority interests (14)
Headline earnings before class action payment 824 652
Payment in terms of class action settlement agreement (Note 6) 250
Headline earnings 574 652
EBITDA 1 393 1 317
Ordinary distributions in respect of:
2003 Final 150
2004 Interim 250
2004 Final 200
2005 Interim 150
2004 Final (including a partial repayment of share premium) 250
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Consolidated balance sheet
At 31 December 2005
Abridged
US Dollar millions
2005 2004
Ordinary shareholders interests 3 597 3 801
Outside shareholders interests 104 132
Total shareholders interests 3 701 3 933
Net interest-bearing debt (Notes 3 and 7) 2 362 1 588
Other liabilities 1 729 1 776
7 792 7 297
Fixed and intangible assets 5 790 5 360
Investments and loans 66 81
Diamond stocks and other assets 1 936 1 856
7 792 7 297
Exchange rates Rand = US$
average 6.39 6.43
year end 6.36 5.74
Financial summarycontinued
Cash flow information
For the year ended 31 December 2005
US Dollar millions
2005 2004
Cash available from operating activities 473 985
Investing activities
Fixed assets stay-in-business 248 356
Fixed assets expansion 370 60
Investments 21
639 416
Financing activities
Preference share capital redeemed 214 214
(Increase) decrease in debt (645) 92
Ordinary distributions 600 410
169 716
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Notes and comments
1. The costs of feasibility studies to prove the viability of mineral resources, previously included in cost of sales,
have now been included with exploration, research and development. The prior year has been restated
accordingly.
2. The incorporation of De Beers Group Services earlier this year has led to improved cost accountability, resulting
in certain costs being identified as group service costs which were previously included in cost of sales and
sorting and marketing.
3. Preference share capital is included in net interest-bearing debt. Preference dividends, amounting to US$54 million
(2004: US$75 million), are included in finance charges.
On 30 June 2005, the company took advantage, for the second time, of an early redemption clause attaching to
its 10% preference shares in issue and redeemed the maximum permissible amount of US$214 million, or 25% of
the total originally in issue.
4. Following on from the approval of the Victor project, the value of the groups accumulated tax losses has been
brought to account as a deferred tax asset, which has had the effect of reducing the current years tax chargeby US$148 million.
5. In accordance with International Financial Reporting Standard 3 (Business Combinations), with effect from
1 January 2005 it is no longer permissible to amortise goodwill arising on consolidation. The standard does not
permit the restatement of the prior year, which includes amortisation of goodwill amounting to US$144 million.
6. In terms of a class action settlement agreement dated 8 November 2005, US$250 million was paid into escrow
on 9 December 2005 pending conclusion of the settlement process attaching thereto.
7. The US$2.5 billion revolving credit facility was replaced on 31 March 2005 with a US$3 billion multicurrency
revolving facility, on more favourable terms, split into two equal tranches with tenors of five and seven years.
Cash has been offset against interest-bearing debt.
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Managing directorsreviewIn the context of De Beers evolution, 2005will be seen as a year of transition; transitionfrom what we have called Chapter 1 in the
companys recent history to Chapter 2Chapter 1 started with the re-establishment in 1998 of De Beers as a company independent of Anglo American
Corporation and with its own management. Chapter 1 included the seminal change in the business model from
controlling supply to driving demand, as well as the privatisation of the company in 2001. Between 2001 and
2004 shareholders set management the target of reducing debt incurred by the buy-out.
Chapter 2 relates to the period 2005 2009 which we see as one of growth and expansion, with important new
financial goals set for management in terms of EBITDA, ROCE and enterprise value.
Although 2005 is a transition year between Chapter 1 and Chapter 2, it has nevertheless been dynamic in manydifferent ways. De Beers Consolidated Mines (DBCM) has been re-engineered, its underground operations in
Kimberley and Koffiefontein have been closed and four of its six mines are now operating profitably. The
restructuring of our South African operations was successfully concluded in April 2005 and this paved the way for
the announcement later in the year of a black economic empowerment (BEE) deal for 26% of the equity of DBCM.
Important new exploration partnerships have been negotiated in Angola and the Democratic Republic of
Congo. There has been growing understanding, dialogue and alignment with the governments of southern
Africa regarding downstream beneficiation and job creation.
The long quest for legal compliance has culminated in a settlement with the European Commission on the
trading agreement with Alrosa of Russia; and with a provisional settlement of all of the outstanding civil litigation
in the United States of America.
New mining developments in both Canada and South Africa have been approved by the board. Another
refinancing took place, giving De Beers access to greater, longer and cheaper bank credit. The new business
model of driving demand with its central platform of Supplier of Choice was again validated by record sales by
the Diamond Trading Company (DTC), increased retail consumption of diamond jewellery and significant rough
diamond price increases.
At the same time a new De Beers leadership team has been put into position, the culmination of which is
Gareth Penny taking over from me in 2006 as managing director of De Beers. Important work has been
undertaken in redefining the purpose, vision and values of the De Beers family of companies and in examining
organisational effectiveness with a view to instilling best practices across the group.
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Financial results
As the financial section of this report explains, there are a great number of exceptional items that make it
difficult to directly compare our 2005 results with those of 2004. Certainly, management cannot claim that the
results are as good as the headline growth of 26% seems to indicate. After stripping away the major
exceptionals, headline growth is a much more modest 4% and EBITDA 6%. In mitigation, however, these
results would have been better had it not been for the closure costs of DBCMs underground operations and a
big mark-to-market provision on foreign exchange. Management is proud that the EBITDA result outperformed
the target of US$1 350 million set by the shareholders.
We have now concluded the first of the five years that should be leading us to the stated financial targets forChapter 2 by the year 2009, which are:
EBITDA US$2 000 million;
ROCE 20%; and
EV of US$12 000 million.
See page 108 for definitions.
New leadership
A significantly different leadership team will be working alongside Gareth Penny. David Noko is the first black
managing director in DBCMs 118-year history. Varda Shine, who is Israeli-born, has become the first female
managing director of the DTC. They join Blackie Marole of Debswana and Inge Zaamwani of Namdeb as the
managing directors of De Beers operating companies.
Gary Ralfe, managing director.
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Managing directors reviewcontinued
Other changes include Stuart Brown taking over the reins from Paddy Kell as finance director, Bruce Cleaver
succeeding Glenn Turner as legal and commercial director, and Leon Smith replacing Craig Mudge as human
resources director. Finally, Stephen Lussier, who for 10 years was responsible for the DTCs highly successful
marketing campaigns, has joined the executive committee in the new role of corporate and external affairs
director a clear indication of the growing importance of reputation management and consumer confidence.
After his successful leadership of the transformation of DBCM, Jonathan Oppenheimer joins his father in the
Chairmans Office.
During 2005, the human resources department led the inaugural De Beers Organisational and Capability review.
This will now be an annual process that allows the De Beers executive to participate in reviewing theorganisations capability and that of its people to deliver on organisational goals. This has resulted in a more
formalised talent management process.
Historic BEE transaction
On 8 November 2005, DBsa and Ponahalo Investment Holdings (Pty) Limited announced the entering into of a
Memorandum of Understanding for a groundbreaking broad-based empowerment transaction wiith respect to
the sale of 26% of DBCM. This announcement followed many months of reorganisation which was necessary to
make possible the black empowerment of the South African-based mining entity. The reorganisation involved the
untangling of more than a century of interwoven practices and processes in order to build a financial record of
the services delivered to DBCM and its cost structures, which ultimately resulted in the separation of the mining
entity (DBCM) from the service providing company, De Beers Group Services.
Ponahalo is owned 50% by De Beers South African-based employees and pensioners and 50% by a
consortium of business and broad-based groupings. Ponahalo will utilise R10 million (escalating at 5% per
annum) of its dividend income each year, or more than R100 million in aggregate over the first 10 years,
pre-debt service, to make other investments in South Africa. Ponahalo will set aside R5 million each year, or
R50 million in aggregate over the first 10 years, pre-debt service, which will flow directly through to trusts for the
benefit of disadvantaged women, people with disabilities and communities around DBCM mines.
Producer partners
Open, mutually beneficial relationships with the governments of all the countries in which De Beers operates
underpin the way in which we conduct business.
Throughout the development of South Africas new diamond legislation, government has demonstrated its
openness to frank and honest dialogue with De Beers and the wider diamond industry. We will continue to work
with the South African government to ensure that the new Diamond Act achieves its objectives.
In Botswana, the stage has been set for a new era of partnership. De Beers and the Botswana government are
finalising the Jwaneng lease agreement, a road map for beneficiation, and planning to transfer the aggregation
activities which presently take place in London to a new sorting facility under construction in Gaborone.
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The review of our agreements with the government of Namibia continues in a constructive and open manner
with both sides sharing their visions of the future role of diamonds in the nations economy.
In mid-2005 Williamson Diamonds Limited, our joint venture with the government of the Republic of Tanzania,
was issued a Special Mining Licence, so securing the companys land tenure for a 25-year period.
Looking to new areas of operation, 2005 saw the establishment of Endeb, a joint venture between De Beers
and the state diamond company, Endiama. In addition, several joint venture agreements were concluded which
will contribute to foreign direct investment in the Democratic Republic of Congo.
Moving towards full compliance
Russian trade agreement
As a business with operations and customers in a number of European Union (EU) countries, it is essential that
we operate in accordance with applicable laws governing EU businesses. After scrutinising the relationship with
our Russian trading partner, Alrosa, and following its acceptance of renewed commitments made by us, the
European Commission has ruled that the DTC may continue to purchase rough diamonds from Alrosa until the
end of 2008, at which time the trading relationship will come to an end.
Preliminary approval of US class action settlement
A landmark development in November 2005 was the settlement agreement reached between De Beers and four
of the classes of plaintiffs who have brought actions against us, allegedly for breach of US anti-trust and related
laws. The settlement represents one more step in De Beers policy of addressing the legal issues it encounters
even where it does not actually operate in the jurisdiction in question. The agreement, which expressly provides
for no admission of wrongdoing on the part of De Beers, received preliminary approval from the relevant US
court in November. There now follows the standard, lengthy period of consideration by the court of the terms ofthe settlement reached, culminating in a final decision, hopefully, by the close of 2006 or early 2007. Third
parties may make submissions during part of this period. De Beers took the view that settlement of these four
actions (which represent the bulk of all the class actions) was commercially acceptable to avoid the time, cost,
The No. 1 treatment plant at Orapa Mine taken at dusk.
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Managing directors reviewcontinued
distraction and uncertainties of litigating in the US. Other cases remain outstanding. De Beers continues to
consider how best to address any issues that may arise. Subsequent to year end, De Beers reached agreement
to settle all remaining class actions on the same basis.
Improved safety results at group operations
While safety continues to be the highest priority on our operations, it is with sadness and regret that I record the
death of Clement Mooki at Kimberley Mines and Benjamin Maide in the Central African Republic in 2005 andBaagi Medupe at Letlhakane Mine in 2006. Our thoughts are with their families.
We aim to eliminate all fatalities and to reduce the amount of lost-time injuries by 10% per year through to 2010.
This initiative got off to a good start in 2005, with the lost-time injury frequency rate (LTIFR) reduced by 12%; the
severity rate reduced by 63%; and the fatality rate reduced by 80% compared to 2004. Behaviour-based safety
systems have been implemented at some mines and these have begun to bear fruit.
Production
The groups mines produced a total of 49 million carats in 2005, an increase of 4% over 2004.
Botswana: Debswana
Debswana once again produced a record 31.9 million carats, a 2% increase over 2004. This increase was
mainly due to operational efficiency improvements at Jwaneng.
Namibia: Namdeb
Namdeb produced 1.8 million carats, including a record 976 890 carats from the sea. However, this was an
overall 5% decrease over 2004 due to operational problems at land operations.
South Africa: De Beers Consolidated Mines
DBCM produced 15.2 million carats, a 10% increase over 2004, mainly attributable to production at Venetia. In
spite of the difficulties faced at some of DBCMs older and more marginal operations, DBCM made significant
progress in returning its mines to profitability.
Tanzania: Williamson Diamonds Limited
Although 2005 saw the second-highest level of treatment since the return of the mine to De Beers management
in 1994, diamond recovery dropped 33% to 190 384 carats as a direct result of a fall in grade. Plant
enhancements have been identified to increase the treatment volume of the higher grade in-pit material.
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Group Mining and Exploration
Planning for success
The Group Mining and Exploration business unit underwent a strategic review and restructure during 2005. As a
result of this work, a number of decisions have been taken to accelerate progress on high-value projects and to
withdraw from some low-value ones. Effective management of high-value projects is key to executing oursupply strategy. A record number of projects are being managed under a new framework, including Snap Lake,
Victor, Gahcho Ku, Voorspoed, Finsch plant upgrade, Venetia ramp-up and Orapa 3.
Improving the performance of existing operations represents the best opportunity to increase revenue and
decrease costs. This strategy has begun to deliver impressive results. The streamlined execution of projects
and a renewed focus on talent management will enable the group to both increase the yield of existing mines
and bring new resources into production more effectively.
Projects update
De Beers announced the approval for the Snap Lake project in Canada with production scheduled to
commence in the last quarter of 2007. The board further earmarked C$982 million for the Victor project subjectto environmental approval. The required environmental approval was received in October 2005 and production
is scheduled to commence in the third quarter of 2008. De Beers has also filed an application to construct and
operate a mine at Gahcho Ku, subject to board approval. The De Beers board approved US$177 million for
the Voorspoed mining project in South Africa, subject to the granting of required mining licences, and
US$115 million for the implementation of the South African Sea Areas (SASA) marine mining project.
Developing marine operations
The continued development of marine mining technology has led to increased efficiency of the mining fleet
operated by De Beers Marine Namibia. A record 976 890 carats were produced from the sea, surpassing
Namibian land production for the first time. A NPV-driven mine plan has been developed to optimise use of the
mining fleet.
The feasibility study for the SASA marine mining project was completed in 2005. Pending the issuing of the
mining licence, this project should proceed to implementation in 2006, culminating in full production in 2007.
This will be the first marine diamond project in South Africa.
Venetia Mine diamond recovery plant.
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Delivering the Miner of Choice value proposition
The groups operations require differentiating technical services to increase their cost-effectiveness and value.
With this objective in mind, we undertook a number of equipment and process optimisation studies. The
improvement in the operation of a number of Dense Medium Separation Plants has resulted in increased
diamond recovery and plant utilisation. The R&D unit continues to push the boundaries of what is considered to
be the most efficient diamond exploration, mining and recovery machines.
ExplorationResources directed to highly prospective areas
De Beers Group Exploration invested US$113 million in diamond exploration globally during 2005, discovering
34 new kimberlites in Africa, Canada, India and Australia. Over 60% of exploration resources were committed to
Africa. A comprehensive model of potential diamond supply opportunities for De Beers was compiled which,
combined with recent successes in gaining access to highly prospective areas, has identified exciting new
exploration possibilities.
New technologies deployed
Significant investment was made in geophysical technologies to make new discoveries quickly and cost-
effectively. One of these, the Bell/Zeppelin Airborne Gravity System was conceptualised in late 2004 anddeployed in late 2005. Early results have surpassed expectations.
Progress through partnerships and joint ventures
During the year a number of new joint venture agreements were concluded. Numerous additional partnership
and value adding farm-out opportunities were initiated in Africa, Brazil, Australia and Canada.
Botswanas Orapa area has been a focus. The evaluation of the AK06 resource by Boteti Exploration, a joint
venture with African Diamonds plc, shows promise and the assessment of other kimberlites continues in terms
of joint venture agreements with African Diamonds plc, Firestone Diamonds and Wati Ventures.
Driving demand for diamonds
Retail diamond sales continued to grow
Global growth of diamond sales at polished wholesale price (PWP) in US Dollars for 2005 was 6%. The markets
showing most growth in 2005 were the Gulf and India. The US, the largest diamond retail market (representing
approximately 50% of the total worldwide diamond jewellery market), also exhibited solid growth, despite
soaring oil prices and the impact of Hurricane Katrina.
For most of the year, demand for rough diamonds from the cutting centres was strong. Sales by the DTC, the
marketing arm of De Beers, were a record US$6 539 million, 15% higher than in 2004. In addition, the DTClaunched a range of Value Added Services to clients.
During 2005, the DTC raised its rough diamond prices on two occasions, the cumulative effect of which was
that sales by the DTC in 2005 were at prices, on average, 9.5% higher than in 2004.
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Consumer and trade confidence is critical to our future
Maintaining trade and consumer confidence in diamonds is at the heart of the industrys long-term
sustainability. The physical integrity and emotional values of diamonds depend on the absolute trust of
consumers, and such trust we know can only be achieved if consumers have complete confidence in the
professional and ethical standards as well as the technical skills of the gem diamond industry. The challenges
are many from business practices, to social and environmental issues, to imitation products.
Disclosure and detection of synthetics
All synthetics are detectable. For two decades the DTC Research and Development facility in Maidenhead has
been developing equipment to detect synthetics quickly and easily. To date, more than 100 DiamondSure
instruments have been sold to laboratories, trade bodies and sightholders. DiamondView has been sold to the
leading laboratories.
Full Disclosure is an industry requirement with regard to synthetics, simulants and treatments. Our policies in
this regard have been endorsed by the World Jewellery Federation, The World Federation of Diamond Bourses,
the International Diamond Manufacturers Association, and the evolving Council for Responsible Jewellery
Practices.
Forevermarkas a mark of trust
The DTC Forevermarkis a mark of trust that gives the trade and consumers peace of mind when purchasing a
diamond. It is an inscription and unique individual identification number, invisible to the naked eye, on the table
facet of the diamond. The mark represents our promise of forever to consumers, providing the ultimate trail of
assurance from discovery to sale. A Forevermarkeddiamond is guaranteed to be sourced to the highest ethical
standards and to be natural and untreated.
Both sightholders and retailers involved in the Hong Kong pilot programme have provided positive feedback. In
late 2005 new Hong Kong partners were added and in 2006 the DTC will be selecting partners in four new
major markets Japan, China, India and the Gulf. On the operational front, the first overseas marking facility willopen in Antwerp in early 2007. This will more than double the current marking capability.
Diamond polishing is a unique skill taught at the Diamond Hub, Cullinan Diamond Mine.
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Diamond Best Practices Principles
Diamond Best Practice Principles is the De Beers ethical policy covering all aspects of corporate, social and
environmental activity. All De Beers group corporate entities must comply and adherence is a condition of supply
for sightholders. In 2005, De Beers group companies and sightholders submitted their self-assessments, which
were reviewed by an independent business partner. The need for the industry to demonstrate responsible
business practices is now well understood as a key component ofThe Diamond Dream.
The Council for Responsible Jewellery Practices (CRJP) has incorporated an industry baseline regarding ethical
policies. By the end of 2005, the CRJP had admitted 28 members from across the diamond industry. This is an
essential initiative from mine to retail for companies in the diamond and gold jewellery supply chain to
demonstrate compliance with a common ethical, social and environmental code. Such a code will avoid the
duplication of effort that will arise from a multitude of similar, corporate-led initiatives.
Living up to diamonds
In 2005, we published a booklet called Living Up to Diamonds, which highlights some of our corporate social
investment (CSI) activities in southern Africa. Nelson Mandela, who wrote the foreword, stated: I congratulate
De Beers for the way it continues to demonstrate its credentials as a good corporate citizen in so many areas of
concern. De Beers with its partner companies in Botswana, Namibia and Tanzania, and its operations in
Canada and elsewhere is a fine example of responsible business, making a real and lasting contribution to
the people in the countries and communities where it operates.
Our partnership approach with communities, through bodies at operation level and at the De Beers Fund level,
is not just philanthropy; it is sustainable CSI. Each project is developed in partnership with, and often led by,
the people it is intended to benefit.
Independently managed investments
During 2005 our independently managed retail joint venture with LVMH Mot Hennessy Louis Vuitton,
De Beers LV, experienced 61% growth in sales. An additional five stores were opened worldwide in New York,
Beverly Hills, Paris, London and Osaka.
The Los Angeles store opened on World Aids Day on 1 December 2005 and announced that it would donate
10% of its December sales to three Aids charities. It received a message of support from Nelson Mandela,
whose Childrens Fund was one of the recipients of the donation.
Plans for 2006 include more stores in existing and new geographies, funded by both the JV and franchise
partners. New collections will also be launched to maintain the growth in existing stores.
While De Beers LV has not recorded the instant results that we had anticipated, we appreciate it does take timeto establish new retail brands in the market place. Good progress is now being made, with the first stores to be
opened (Old Bond Street and Japanese Boutiques) exceeding their break even with the expectation that all
stores opened more than a year ago will do so in 2006. Both partners remain committed and confident in the
joint venture in which De Beers has so far invested US$120 million.
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Element Six
In 2005, the Element Six group increased its sales revenue by 21% as a result of growth across all of its
businesses. A sizeable contribution came from Syndrill whose business was driven by increased market share
in oil and gas drilling as a result of substantial improvements, together with the strong performance of the oil
drilling market. The group sought to further expand its production capability and cost-competitiveness by
starting construction of a Chinese plant and acquiring a majority share in a Ukrainian plant. Investment in
research and development remained high to ensure that new competitive industrial diamond products were
brought to market rapidly.
However, despite the increase of 21% in sales revenue, Element Six did not contribute significantly to De Beers
overall results in 2005. This was due to pressure on margins caused by continuing price erosion and
expenditure arising from a restructuring that took place in the distribution channels of Element Six.
Challenges and opportunities
Since De Beers re-established itself with a separate corporate identity from Anglo American eight years ago, we
have seen extraordinary transformation. We believe that the transformation of our business model, privatisation and
restructuring of the organisation have modernised De Beers and equipped it better to face the challenges ahead.
The continuing success of De Beers is underpinned by the perennial love affair of American consumers with
diamonds and their responsiveness to the DTCs marketing initiatives, together called the American diamond
dream. This is matched by a modest resurgence in Japanese consumption and strong growth in the new
economies of China, India and the Gulf States. The challenge, which De Beers must manage carefully, is
synthetic stones. Global legal compliance, reputation management and our consumer confidence campaigns
all have a role in meeting this challenge.
De Beers looks set for the foreseeable future to continue to produce about 40% by value of the worlds roughdiamonds. The major pits of Jwaneng, Orapa and Venetia are the backbone of our productive capacity. One of
the stated aims of Chapter 2 is to find more profitable carats; be it through enhanced asset utilisation on
existing mines, new mining projects, in the new deposits that we hope to find in Central Africa, or through a
new strategic partnership with Alrosa. Between growing demand for diamond jewellery and expanding our
Trucks on the way to collect a load at Jwaneng Mine.
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production of profitable carats, De Beers will sustain and enhance its core business, which is the mining and
marketing of rough gem diamonds. I believe that the new management team has the vision and vigour to look
for growth in the so-called adjacencies like DBLV and Element Six. I believe also that with the reinvigoration that
comes with youth and fresh blood, both vital for continuing performance in any company, De Beers will address
deficiencies in organisation and leadership.
When the BEE deal in DBCM has been completed the new DBCM will be a role model for South Africa. This
should put De Beers in a better position to face up to the political dynamics of South Africa where the company
must continue to address fundamental problems of poverty and unemployment as an ally of government. Likewise,
our partnerships with the governments of Botswana and of Namibia must be responsive to national aspirations.
As I leave my executive responsibility at De Beers I express great confidence in its future and in its leadership
by Nicky Oppenheimer as its wise and experienced Chairman, and Gareth Penny as a new and dynamic
managing director, and in the versatile and cosmopolitan team that he has gathered around him.
Personal note
It w