De Beers Group 2012 Annual.pdf

7/21/2019 De Beers Group 2012 Annual.pdf

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Operating andFINANCIAL REVIEW

2012

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About this report

This report relates to the performanceof De Beers sa and is designed to be readalongside our Report to Society 2012,to be released later this year.

These reports form part of our annualreporting cycle and together cover thefinancial and sustainability performanceof the De Beers Group of Companies.

Both reports adhere to Global ReportingInitiative Sustainability ReportingGuidelines and form part of ourCommunication on Progress to theUnited Nations Global Compact.

www.debeersgroup.com

For more information and to download this document,please visit www.debeersgroup.com.

Acknowledgements

De Beers UK Limited 2013. All rights reserved. De BeersUK Limited is a company incorporated in England andWales with registered number 2054170 and registeredoffice 17 Charterhouse Street, London EC1N 6RA.De Beers, A Diamond is Forever, DTC, andForevermark are used under licence by De BeersUK Limited.

Prepared and produced by the De Beers Groupof Companies in partnership with Salterbaxter.Designed by Salterbaxterwww.salterbaxter.com


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01

Operating and Financial Review 2012

Contents

02 Our company 04 Introduction fromthe Chairman

05 CEO statement 08 Exploration

10 Production 19 Rough diamond sales 21 Brands 23 Financial highlights

24 Governance and risk 26 Sustainability 27 The Board andexecutive management


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De Beers was established in 1888. It is the worlds leading diamond company,with unrivalled expertise in the exploration, mining and marketing of diamonds.

Our company

A global business

Our mining entities and their operations

n Countries in which De Beershas mining operations.

Countries in which De Beersconducts exploration, miningand rough diamond sales,and operates downstreamvalue-creating businesses.

1

23

4

A

B

1 CanadaMINING, CANADA

100% owned. Established 1998.

Tonnes treated 000 3,967

Carats recovered 000 1,560

A Snap LakeB Victor

2 BotswanaDEBSWANA

50/50 joint venture with the

Government of the Republic

of Botswana. Established 1969.



C DamtshaaD Orapa

E LetlhakaneF Jwaneng

3 NamibiaNAMDEB HOLDINGS

50/50 joint venture with the

Government of the Republic

of Namibia, on land and sea.

Established 1994.



G Atlantic 1H Alluvial

Contractors

I Elizabeth BayJ Mining Area 1K Orange River

4 South AfricaMINING, SOUTH AFRICADE BEERS CONSOLIDATEDMINES DBCM

74/26 (BEE partner Ponahalo

Holdings). Established 1888.


Carats recovered 000 4,432L VenetiaM Kimberley

N VoorspoedO Namaqualand

G

H

I

J

K

CD

E

F

L

N

M

O


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Operating and Financial Review 2012 Our company

Together with our joint venture partners, De Beers mines for diamondsacross Botswana, Canada, Namibia and South Africa. As part of thecompanys operating philosophy, the people of De Beers arecommitted to living up to diamonds by making a lasting contribution

to the communities in which they live and work. In the countries inwhich we have mining operations, this means carrying out profitablebusiness, while at the same time helping governments achieve theiraspirations of turning natural resources into shared national wealth.

De Beers and the global diamond value chain

Company structure

ExplorationModern exploration uses highlysophisticated technologiesto determine the economicviability of deposits. De Beersexploration business currentlyfocuses on Angola, Botswana,Canada, India and South Africa.

ProductionDe Beers has both under-ground and open-pit mines.We commercially mine alluvialstones using onshore extractiontechniques and specialisedships. Through Element Six(E6), our synthetic diamondsupermaterials business, wesupply tool and applicationmanufacturers across a diverserange of global markets.

Rough diamond salesDe Beers sorts and sells roughdiamonds to independentcustomers known asSightholders through our roughdiamond sales operations:Global Sightholder Sales,NDTC and DTCB. Sightholderstrade rough diamonds, andcut and polish diamondsprior to the manufacture of

jewellery. We also sell roughdiamonds to Sightholders andnon-Sightholders, through ourAuction Sales business.

Cutting, polishing andmanufacturingCutting and polishing ofdiamonds, and the manufactureof diamond jewellery, take placearound the world, and areconcentrated in the followingmajor centres: Antwerp,Botswana, China, India, Namibia,New York, South Africa and

Tel Aviv. De Beers DiamondJewellers (DBDJ) has its own

jewellery design anddevelopment capacity.

BrandsWe are involved in diamondretail through De BeersDiamond Jewellers,an independently managedretail joint venture, andForevermark, our proprietarydiamond brand.

0301 02 04 05

Shareholders and corporate structure

ProductionExploration

Mining Supermaterials

Rough Diamond Sales Brands

De Beers across the diamond pipeline

CanadaExploration1 South Africa(De BeersConsolidatedMines)74%

GlobalSightholderSales

SightholderSales,South Africa

Namibia DTC(NDTC)

50%

DTC Botswana(DTCB)

50%

Auction Sales Forevermark De BeersDiamondJewellers(DBDJ)50%

DebswanaDiamondCompany

50%

NamdebHoldings

50%

De BeersMarineNamibia(Debmarine

Namibia)

NamdebDiamondCorporation

Element Six (E6)

Technologies

100%Abrasives 60%

Shareholders Owned and controlled subsidiaries and divisions Joint ventures and independently- managed subsidiaries

1Exploration is undertaken througha number of wholly owned and jointventure subsidiaries of De Beers

DB Investments (Lux)

De Beers Group of Companies

Government of the Republic of Botswana 15%Anglo American plc group 85%


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De Beers continues to invest in its leadership position and steeritself towards long-term growth.

Introduction from the Chairman

We are now several years on from the global financial crisis of

2008/2009 that shook the diamond industry. As the dust has

settled, it has become increasingly clear that decades of a relatively

stable diamond industry have given way to one that can change

dramatically from year-to-year, and even from Sight-to-Sight.

This new dynamic will shape the industry for decades to come,

and De Beers is focused on identifying emerging risks, capturing

and creating new opportunities, and ensuring that volatility

doesnt necessarily mean instability.

During 2012, challenging trading conditions in the rough andpolished diamond sectors impacted on diamond prices and ledto a 16 percent decrease in De Beers overall sales to US$6.1 billion

(2011: US$7.3 billion). Despite the short-term market difficulty, thecompany continued to position itself for long-term growth bystrengthening its balance sheet and investing in its leadershipposition across the diamond pipeline.

The long-term market opportunity for diamonds is clear. Withproduction expected to plateau over the long-term, and demandcontinuing to rise driven primarily by growth in China De Beersis focused on maximising the value and life of its resource whileexpanding its reach into new markets.

During 2012, De Beers progressed with several sizeable projects toboth extend the life of its largest mines and add new production toits future portfolio. The Jwaneng Mine Cut-8 Project in Botswana, theVenetia Mine Underground Project in South Africa, and the GahchoKu Project in Canada, will together add approximately 240 millioncarats to De Beers production over the coming decades and createlong-term employment opportunities.

De Beers is also focused on securing long-term access to supply,a core part of which is understanding the aspirations of producerpartners and putting those aspirations at the heart of the businessstrategy. In particular in Botswana, which accounts for approximatelytwo-thirds of De Beers annual production, the migration of thecompanys London-based sales activities to Gaborone is on trackfor completion by the end of 2013.

The migration is a significant commercial and logistical feat, and is oneof the biggest undertakings in the history of De Beers. By the time thefirst Sight takes place in Botswana at the end of 2013, the Governmentand people of Botswana will be taking a more active role in addingvalue to, and deriving value from, their precious natural resource.The economic opportunities presented by the migration, includingthe procurement of ancillary services, local skills development andthe contribution to government revenues, make this an excitingmoment for Botswana. De Beers is committed to working with all

stakeholders to ensure the citizens of Botswana have the opportunityto fully benefit from the opportunities created.

In August, Anglo American completed the acquisition of a 40 percentshareholding in De Beers from the Oppenheimer family, therebyincreasing Anglo Americans shareholding in De Beers to 85 percent.The integration of De Beers into Anglo American provides thecompany with the resources, capital and technical excellence neededto optimise a finite resource and deliver large-scale projects to bringnew production on-line for the future.

The integration process, which is largely focused on the efficientassimilation of services and processes, has made significant progressand is nearing completion. With all Board approvals now received, all

material issues relating to the integration should be concluded by theend of the first quarter of 2013.

2013 marks De Beers 125th anniversary. Throughout its history,De Beers model has been built on strong and mutually beneficialpartnerships. It is these partnerships that will continue to propel thebusiness forward. In Botswana and Namibia, De Beers mines in equalpartnership with the governments of those countries, and in SouthAfrica, with its 26 percent BEE partner Ponahalo Holdings. In themidstream, De Beers works in partnership with its Sightholders, theworlds leading diamantaires, to add value to its diamonds. Andfurther downstream, De Beers partners with leading retailers throughForevermark, and with the worlds pre-eminent luxury retailer, LVMH

Mot Hennessy Louis Vuitton SA, in De Beers Diamond Jewellers.

As De Beers looks toward a future of opportunity, the company willdraw on the strength and support of Anglo American to maximise itsleadership position and deliver value for its partners no matter whatpart of the diamond pipeline they participate in.

Cynthia Carroll

Cynthia CarrollChairman,De Beers Group


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De Beers generates strong cash flow, continues to lower debt andexpands project base despite challenging trading conditions.

CEO statement

While 2012 saw a continuation of the challenging trading

conditions that began during the fourth quarter of 2011,

De Beers continued to position itself for growth by

strengthening its balance sheet and progressing several large

scale projects.

2012 was an historic year for De Beers. Anglo Americans acquisition ofa majority shareholding in De Beers opened up further opportunitiesfor us as we integrate key areas of our operations. While De Beersended its long association with the Oppenheimer family who gaveso much to our business, integration with Anglo American will enable

us to draw on the skill, resource and expertise of one of the worldsleading mining companies.

Safety

The safety of our employees is our priority, and we will toleratenothing less than zero harm. While we have made important progressin driving a safety culture, De Beers sadly experienced three fatalitiesin 2012 (2011: seven). One of these incidents, a slope failure atDebswanas Jwaneng Mine, resulted in a seven-week suspension ofpit operations to allow for a comprehensive geotechnical review toensure it was safe for operations to recommence. Diamonds representcommitments that last a lifetime, but no diamond is ever worth a life.In 2011, I called for a full review of our safety culture. While I ampleased to report an improvement in our safety per formance, with

the lost-time injury frequency rate (LTIFR) falling to 0.13 (2011: 0.15), myteam and I are committed to pushing for further improvements acrossthe organisation.

Performance indicators12 11 11/12

Total tonnes treated 52,340 50,247 4%

Total carats removed 27,875 31,328 -11%

LTIFR* 0.13 0.15 0.02

LTISR 1.90 4.53 2.63

* Lost time injury frequency rate Lost time injury severity rate

Financial indicators (US$m)12 11* Variance %

Total sales 6,074 7,262 -16

EBITDA 1,075 1,763 -39

Operating profit 815 1,491 -42

Free cash flow 697 816 -15

Net interest bearingdebt (excludingshareholders loans)

722 1,177 -39

* Comparatives have been restated on a pro-forma basis followingchanges in accounting policy for joint ventures and employee

benefits.

Free cash flow

US$697 million(December 2011 US$816m)

Third-party debt

US$722 million(December 2011: US$1,177m)

Third-party gearing

14.1%(December 2011: 22.3%)

Philippe MellierCEO,De Beers Group

The processing plant at DBCMs Venetia Mine.


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Operating and Financial Review 2012 CEO statement

Market overview

The global economic volatility that began to impact the diamondmarket in the fourth quarter of 2011, continued to be felt throughout2012. Consumer demand withstood market pressures relatively wellwith demand for diamond jewellery in the key markets of the US,China and Japan growing, albeit at a slower pace than in 2011. Furtherupstream, rough diamond prices remained level during the first half of2012. By the second half of the year, weaker polished prices, highlevels of cutting centre stock and tightening liquidity in the midstreamcombined to reduce demand for rough diamonds, and trigger arough diamond price correction during the third quarter. By the end

of 2012, however, rough diamond prices stabilised, reflecting amodest improvement in consumer demand during the holiday salesseason in most major diamond jewellery markets.

Performance

After an exceptional performance in 2011, in which we posted29 percent price growth, De Beers rough diamond prices decreased12 percent between 1 January and 31 December 2012, in line withpolished diamond prices. This price decrease, reflecting diminisheddemand, changing product requirements from Sightholders andreduced availability of some goods, resulted in a 15 percent decreasein rough diamond sales to US$5.5 billion in 2012 (2011: US$6.5 billion).

Despite these challenging market conditions, De Beers continued to

be highly cash generative, with free cash flow of US$697 million (2011:US$816 million). De Beers also continued to significantly reduce its netdebt, which now stands at US$722 million (excluding shareholderloans) (2011: US$1.18 billion).

Production

In light of prevailing diamond market trends, the companys statedstrategy of producing to demand was maintained during 2012.De Beers recovered 27.9 million carats from our operations inBotswana, Canada, Namibia and South Africa (2011: 31.3 million carats).Producing in accordance with demand allowed the operations tocontinue the focus on maintenance and waste stripping backlogsintroduced in 2011. The sale of Finsch Mine, which contributed 0.9million carats in 2011, impacted year-on-year production totals.Production was also impacted by operational challenges, includingthe slope failure at Jwaneng Mine in the middle of the year.

Projects and exploration

The long-term fundamentals of the diamond industry remain strong,and De Beers continues to invest in all parts of the diamond pipelineto position the business for future growth.

In Botswana, construction of the infrastructure at the JwanengMine Cut-8 project was completed. Cut-8 will allow access toapproximately 95 million carats of mainly high quality diamonds inapproximately 80 milion tonnes mined1, and extend the life of theworlds richest diamond mine to at least 2028.

As part of our 10-year sales agreement with the Government of theRepublic of Botswana, De Beers successfully relocated its aggregation,

quality assurance and Sight preparation functions to Botswana aheadof schedule. Migration will continue throughout 2013, and by the endof the year, De Beers will sell its worldwide production to internationalSightholders from its new facilities in Gaborone.

In South Africa, the Venetia Mine Underground Project was approvedby the De Beers and Anglo American Boards. The environmentalpermitting process was completed during 2012, and final outstandingregulatory clearances were obtained in February 2013. The project,which will commence during 2013, will extend the life of SouthAfricas largest diamond mine beyond 20402. The project life of minecontains an estimated 96 million carats in approximately 130 milliontonnes mined3.

In Canada, the Environmental Impact Review documentation for theGahcho Ku Project, in which we have a 51 percent interest, has beensubmitted for review, and the Review Panel is expected to issue adecision report in 2013. The Gahcho Ku life of mine is 11 years andcontains an estimated 48 million carats in approximately 31 milliontonnes mined4.

De Beers increased expenditure on exploration in 2012 to US$59million (2011: US$46 million), supporting work programmes in Angola,Botswana, Canada, India and South Africa to secure longer-termsupply for the business. In October, we expanded our explorationfootprint in Canada, signing an Option and Subscription Agreementwith Peregrine Diamonds Ltd, in respect of early stage work on the

Chidliak Project on Baffin Island.

Tanker on the winter road heading to Snap Lake Mine.

1 This estimate of carats contains Indicated (24%) and Inferred (76%) Resources. Notall Inferred Resources may be upgraded to reserves, even after additional drilling.Further details appear in the 2012 Anglo American Plc Annual Report.

2 The current mining rights expire in 2038; Venetia Mine will apply to extend themining rights at the appropriate time in the future.


4 Details appear in the 2012 Anglo American Plc Annual Report.


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Operating and Financial Review 2012 CEO statement

Brands

Brands are increasingly important in consumer diamond markets, andDe Beers continues to invest in its two downstream businesses.Forevermark continued to grow strongly in 2012, particularly in thecore markets of China, Japan, India and the US. With launches inCanada and the UAE during the year, Forevermark is now available inmore than 900 retail partners in 12 markets. De Beers DiamondJewellers (DBDJ) continued to focus on expanding its store network inChina, a market of significant opportunity for high-end jewellerybrands. New stores were opened in Shanghai and Nanjing, givingDBDJ five outlets in China with an additional store scheduled to open

in 2013. DBDJ currently has 43 stores in leading diamond consumermarkets around the world.

Outlook

De Beers expects moderate growth in diamond jewellery demand in2013. This will be supported primarily by a more positive pictureemerging from China and India compared to 2012. Some upside ispossible in the US, while trading conditions in other developedmarkets are likely to be challenging. The rough diamondmanufacturing sector closed 2012 with high levels of inventory,particularly in the higher-end categories of diamonds, and facescontinued pressure in terms of midstream liquidity. In the medium tolong term, industry fundamentals are expected to strengthen asdiamond production plateaus and demand continues to increase.

Philippe Mellier

Fig. 1

Consumer demand forecasts, 2012and 2017 (US$ PWP*)

Note: These figures provide estimates and forecasts of the size and growth of maindiamond consumer markets based on pipeline and consumer researchcommissioned by De Beers. 2012 results are preliminary.

*Polished Wholesale Price

USA 34%

China/Hong Kong 17%

India 14%

Japan 7%

Gulf 9%

Rest of world 19%

2017 F

USA 37%

China/Hong Kong 13%

India 9%Japan 10%

Gulf 8%

Rest of world 22%

2012

Onboard the Debmar Atlantic mining vessel at nightfall.


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ExplorationDe Beers is currently exploring for diamonds in Angola,

Botswana, Canada, India and South Africa. Centralised laboratoryand technical services for diamond exploration are located in South Africa.

Operating highlights

In 2012, De Beers spent US$59 million (including US$9 million onmarine and gold exploration which were managed under separatejoint venture agreements) on exploration work programmes overground holdings peaking at 16,195km2(2011: US$46 million over16,484 km2).1A further US$11 million was spent in Angola on theresource evaluation of two kimberlite pipes that comprise theMulepe-1 deposit. Exploration also provided specialist services andsupport to resource extension programmes for the Jwaneng and

Orapa Mines (Botswana) and Victor Mine (Canada).

Angola:Drill testing for diamond grade in the Lunda Northeastconcession, was completed on 14 of the 22 priority pipes with resultsexpected early in 2013. The concessions seven-year term expired inAugust 2012. Negotiations are underway for a Mineral InvestmentContract under the more favourable terms and conditions set out inthe new Angolan Mining Law, which came into force in late 2011. Theconceptual study for the Mulepe-1 kimberlite was completed inNovember but indications suggest a stand-alone deposit isuneconomic under current assumptions.

Botswana:Drill testing of the Orapa satellite pipes in the minelease areas was concluded on behalf of Debswana. Early stagereconnaissance geophysics and drilling continued in the Kang, Leralaand Palapye prospecting licences, with no new discoveries made.

Canada:Core drilling was completed for microdiamond samples onthe two Alpha satellite pipes at Victor Mine, and reconnaissancesampling was carried out over target areas in Quebec and Ontario.Exploration assisted the De Beers/Mountain Province joint ventureGahcho Ku Project, interpreting data from the airborne gravitysurvey. Following agreement with Peregrine Diamonds Ltd, De Beershas retained rights to enter a joint venture in 2013 on the ChidliakProject on Baffin Island and technical due diligence has begun on the61-kimberlite cluster.

As early and advanced-stageprojects progressed, 11 newdiscoveries increased ourportfolio to 169 kimberlites.In Angola, new mining lawsproduced improved investmentconditions and advanced the

prospect for profitable futurediamond production.

Charles SkinnerHead of Exploration

1This figure has been restated to reflect peak ground holdings area in 2011, ratherthan the year-end figure, which has been reported as a standard in previous years.

The Superintendent of Environmental Assessment and Permitting for the

Gahcho Ku Project (right) explains its features at a Community Hearing.


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Operating and Financial Review 2012 Exploration

India: Early-stage geological modelling, terrain mapping andreconnaissance sampling continued in 2012. In the Mahabubnagarlicence area, further discoveries brought the portfolio to 22kimberlites, and testing of priority pipes for diamond potential isunderway. The Mahabubnagar reconnaissance permit period expiredduring the year, however, application is underway for the prospectinglicence and a number of other reconnaissance permit applicationsremain pending.

South Africa:Ground geophysical surveys were completed in theFinsch area, and targets selected for drill testing. South Africa remainshighly prospective and specialist reviews of the historical databasescontinued in 2012. Several of the De Beers prospecting licenceapplications are pending.

ECOHS overview

In 2012, Exploration worked 1.5 million man hours (2011: 1.4 million)and traversed more than a million kilometres by road, often indifficult and remote areas. Five lost-time injuries (LTIs) were reported,taking the LTIFR to 0.64 (2011: 0.12). An improved safety culture

encouraged increased reporting, with incidents rising from 192 (2011)to 528 (2012) of which nine were high potential.

Outlook

De Beers remains focused on exploration projects with the potentialto deliver carat production within three to five years, and on buildinga strong discovery pipeline at the early stage. In Botswana, South Africaand India, technical reviews of the databases, licence applications andreconnaissance phase work will take priority. De Beers has retainedrights to enter a joint venture in 2013 with Peregrine Diamonds Ltdon the Chidliak cluster in Canada and, in the interim, is conductingassessments of pipe sizes and microdiamond grades of thekimberlites discovered. In Angola, new mineral legislation, improvinginvestment conditions and high prospective potential, offer De Beersnew and promising opportunities for exploration concessions.

Ground holdings as at 31 Dec (km2)Venture km2

12km2

11

Variation

Angola 0 3,017 -100%

Botswana 7,804 7,655 2%

Canada 170 248 -31%

India 0 2,128 -100%

South Africa 455 325 40%

Geophysical Survey in Angola.


LTIFR 0.64 0.15 0.49

LTISR 0.31 1.03 -0.72

Explorationexpenditure (US$m)

59.0 46.0 16.0


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Production

Tony Guthrie

CEO, Mining, Canada

In Canada, De Beers operates Snap Lake Mine in the Northwest

Territories and Victor Mine in northern Ontario. De Beers is a joint

venture partner with Mountain Province Diamonds on the

Gahcho Ku Project, Northwest Territories, which is currently

in the permitting phase. De Beers also has an option agreement

with Peregrine Diamonds Ltd on the Chidliak Project on Baffin Island

in northern Canada.


De Beers recovered 1.56 million carats in Canada in 2012 (2011: 1.66million). Of the total carat recovery, Victor Mine delivered 0.69 million(2011: 0.78 million) and Snap Lake Mine produced 0.87 million (2011:0.88 million). In all, 3.97 million tonnes of ore were treated (2011: 3.55

million). Victor Mine treated 3.05 million tonnes (2011: 2.73 million).Snap Lake Mine treated 0.92 million tonnes (2011: 0.81 million).Decreased carat production reflected the dual impact of a lowerthan expected ore grade and challenging water managementissues at Snap Lake Mine.

Victor Mine:Production was steady at Victor Mine in 2012. Apreliminary desktop assessment indicated that more work wouldbe required in order to improve the economics of the identifieddiamond-bearing kimberlites adjacent to current operations.Accordingly, the business is pursuing an aggressive cost managementplan and started a scoping study to investigate ways to enable themining of the identified kimberlites adjacent to Victor and thusextend Victor Mines forecast life to beyond 2018.

Snap Lake Mine:Production was hindered by surface andunderground water issues, requiring additional capital investment and

management focus in early 2012. In addition, carat recovery decreasedmarginally from the previous year due to higher than expected oredilution and lower than expected ore grade. Intensified mining andtreating redressed some of the production issues. Preliminaryinvestigations commenced to develop asset optimisationopportunities for execution during 2013.

Although De Beers was successful in handling the spring melt,underground flows at Snap Lake Mine hampered productivity.De Beers strives to continually improve water management and towork within the discharge parameters of the water licence. Snap LakeMine received a new eight-year water licence in 2012.

Gahcho Ku Project:Following the finalisation of the feasibility study

in 2010, Gahcho Ku has received De Beers Board approval, subject tosatisfactory completion of the permitting process and receipt ofcertain regulatory clearances. The Environmental Impact Statementwas updated in April, and the final phase of the Environmental ImpactReview by the Mackenzie Valley Environmental Impact Review Boardis underway. Public hearings in Yellowknife and in local Aboriginalcommunities were held in December, and the review panel isscheduled to file its recommendation for Federal Ministerial Approvalin 2013.

In 2012, our focus wasto improve the operationalperformance of our key miningassets in Canada, and pursueextensions and growthopportunities that fit withthe existing portfolio.

2012 production statistics (000)Mines Tonnes

treatedCarats

recovered

Snap Lake 918 870

Victor 3,049 690

Total 3,967 1,560

Canada


LTIFR 0.24 0.19 0.05

LTISR 0.23 1.03 -0.80

Mining licence area (ha) 7,236 7,236 0.00

Tonnes treated (000s) 3,967 3,545 422

Carats recovered (000s) 1,560 1,660 -100


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Operating and Financial Review 2012 Production

ECOHS overview

De Beers retained its record in Canada since it began mining inthe country in 2008, reporting no loss of life incidents for the fifthconsecutive year. Snap Lake Mine recorded three LTIs; Victor Mine one;and Gahcho Ku none. The LTIFR was 0.24 (2011: 0.19), mainly due tofirst-quarter injuries at Snap Lake. By the end of the year, Snap LakeMine had operated 1.3 million hours, or 290 days, without any LTIs.Victor Mine suffered one injury in August, following 3.0 millionLTI-free hours, and finished the year with over 390,000 more LTI-freehours. Risk-based interventions, training and a strong reportingculture focused on near hit reporting, remain a core part of the

safety strategy.

Exploration, the corporate office, Snap Lake and Victor Minesmaintained OHSAS18001 certification. All Canada operations remainedISO14001 certified.

De Beers corporate social investment activities in Canadaare focused on education, the arts, community developmentinitiatives, and health projects, either directly or through ImpactBenefit Agreements.

Outlook

De Beers will continue to focus on safe and profitable operations,projects and exploration activities in Canada. Analysis of extension

options at Victor Mine will continue, along with the optimisation ofassets both at Snap Lake and Victor Mines. 2013 is expected to be alandmark year for the Gahcho Ku Project as it plans to move from thepermitting phase toward construction and production. The workprogramme and investment review for the Chidliak Project areexpected by December 2013. These activities will together enhancethe companys industry leadership in Canada.

www.canada.debeersgroup.com

Underground pumping station, Snap Lake Mine.


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Phillip Barton,CEO, DBCM

We are on course to secure thefuture of De Beers presencein South Africa by makinga significant investmentin Venetia Underground,improving efficiency,maximising our assets and

identifying new opportunities.Our robust business modelwill drive sustainableoperations beyond 2038.

In South Africa, De Beers operates through De Beers Consolidated

Mines (DBCM), a 74/26 Black Economic Empowerment (BEE)

partnership with Ponahalo Holdings. DBCM manages Venetia Mine,

Voorspoed Mine and the Kimberley tailings dumps, and is in the

process of selling Namaqualand Mines and the Rooipoort Mining

Right to consortiums with strong BEE credentials.


In 2012, De Beers recovered 4.43 million carats in South Africa (2011:5.44 million). The reduced output was partly the result of the sale ofFinsch Mine in September 2011, which contributed 0.94 million caratsduring 2011. De Beers mined 57 million tonnes of waste and ore in2012 (2011: 49 million tonnes) and treated 14 million tonnes (2011: 16million tonnes). Revised mining plans and the application of timelyprojects to accelerate production successfully improved waste-stripping rates. However, production was nonetheless impacted byan industry-wide technical skills shortage and an unreliable supplyof earthmoving equipment at Voorspoed and Venetia. An initiativeundertaken with suppliers to boost the efficient use of such

equipment resulted in incremental increases in output.

Although production was unaffected by the labour unrestexperienced in other South African mining sectors, DBCMmanagement closely monitored events and communicated withemployees to ensure stability was maintained. DBCM and the NationalUnion of Mineworkers signed a two-year wage agreement in August2011. Consequently, the company suffered no direct impact from thewildcat strikes and subsequent violent clashes. In addition, theretention of skilled supervisory and managerial employees a keyrisk for the business, improved significantly during 2012.

The Board of De Beers sa approved the Venetia Underground Project

in July, following completion and assurance of the feasibility study inthe first half of the year. The Venetia Environmental ImpactAssessment was approved in July and the Department of MineralResources (DMR) sanctioned the companys amended EnvironmentalManagement Plan in October. Final regulatory clearances wereobtained in February 2013. The approximately US$2 billion capexinvestment will convert the open-pit mine into an undergroundventure and extend the life of mine beyond 20405.

In 2012, the asset package for the purchase of Namaqualand Minesby Emerald Panther Investments (EPI) was adjusted to enhance itsaffordability. Under the new agreement, DBCM will retainresponsibility for continued rehabilitation work in the Buffels MarineMining Rights area. EPI will acquire the balance of the Namaqualand

Mines mining and prospecting rights along with the associatedenvironmental rehabilitation liabilities. As with the sale of Finsch Mineto an empowerment consortium in 2011, the sale supports De Beersstrategy in South Africa to divest of late-life mines in order to releasecapital for other sustainable, long-term investments.

The Peace in Africamining vessel charter arrangement with De BeersMarine Namibia (Debmarine Namibia) ended in November, and thevessel was subsequently sold to Debmarine Namibia.

De Beers continues to view South Africa as prospective, and registeredthree prospecting rights in the Northern Cape, which were grantedduring the year. De Beers continues to fast track programmes

dependent on the granting of exploration rights.

ECOHS overview

De Beers recorded 11 LTIs in 2012 (2011: six) and a LTIFR of 0.22 (2011:0.10) in South Africa. No loss of life incidents occurred. During theyear the company introduced a more robust health and safety datacollection system and strengthened the reporting culture in line withits uncompromising commitment to Zero Harm. Since implementationof the Safety Risk Management Programme in 2010, 5,677 employeeshave been trained.

South Africa

5 The current mining rights expire in 2038; Venetia Mine will apply to extend themining rights at the appropriate time in the future.


15/3213

Waste conveyor distribution house on top of the tailings dump, Venetia Mine.


All active operations retained the ISO14001 certification and no majorenvironmental incidents were reported. OHSAS18001 certification wasalso retained across DBCM mines. The management of our employeehealth and surveillance remains effective, with no occupationaldisease recorded for 2012.

The Namaqualand towns of Kleinzee and Koingnaas were proclaimedin 2012, having been closed mining towns since 1929 and 1970,respectively. Handover of the municipal services to the relevant localauthorities remains on track for 2013.

In June 2012, De Beers Zimele, the business enterprise initiativeestablished in 2009 to support small enterprise and job creation,launched the Venetia Mine Hub. De Beers Zimele now includes fivebusiness hubs in communities close to De Beers operations, aiming tofund and create 3,000 local jobs in start-up small, medium and microbusinesses by 2015. To date, 1,240 jobs have been created.

DBCMs corporate social investment programme covers a range of

community, educational and environmental projects. Investment ismade with due consideration of the needs and priorities of the localcommunity, following extensive engagement with the community,NGOs and local government. The three primary focus areas areeducation, health and community strengthening.

DBCMs HIV and Aids treatment programmes remain relatively staticwith a total of 265 members, of whom 56 percent were previouslyemployees. In 2012, 25 new patients joined the programmes andfour people resigned.

Outlook

In 2013, DBCMs Secure our Future strategy will focus on four areas:

people, operations, continuous business improvement and assetoptimisation. The sale of Namaqualand Mines will complete aprogramme of rationalisation and ensure that investment isconcentrated on sustainable operations.



treatedCarats

recovered

Venetia 5,618 3,066

Voorspoed 2,797 611

Namaqualand (production suspended) 0 0

Kimberley 5,276 755

Total 13,691 4,432


LTIFR 0.22 0.10 0.12

LTISR 5.06 2.60 2.46

Mining licence area (ha) 1,005,730 1,005,730 0

Tonnes treated (000s) 13,691 15,525 -1,834

Carats recovered (000s) 4,432 5,443 -1,011


16/3214


Botswana

Jim GowansCEO, Debswana Diamond Company

We have made good progress in2012, continuing Debswanastransformation journey to acost-efficient and agile miningcompany. Following a slopefailure at Jwaneng Mine,we reviewed our procedures

and recommitted ourselvesto a Zero Harm culture.

In Botswana, De Beers operates through Debswana, a 50/50 joint

venture partnership between the Government of the Republic of

Botswana and De Beers. Debswana operates the Jwaneng, Orapa,

Letlhakane, and Damtshaa diamond mines and the Morupule Coal

Mine, the sole operating coal mine in Botswana.


Debswana recovered 20.22 million carats in 2012, down 2.67 millioncarats on the previous year (2011: 22.89 million). The company treated

21.87 million tonnes (2011: 22.89 million). The reduced carat yield wasin part due to ore grade challenges in the treatment plants and delaysin production due to a slope failure in June.

During the year, Debswana bolstered its asset management plan toimprove the availability of physical assets, minimise risk and identifycost efficiencies. The benefits are expected to come on streamin 2013.

Jwaneng Mine: On 29th June, a slope failure at Jwaneng Minetragically claimed the life of an employee. The company suspendedmining from the pit for seven weeks to ensure the safety of ouremployees, and allow the Botswana Department of Mines to conductformal investigations. Debswana immediately instigated its own

technical studies to understand the root causes of the incident andassess various mining recovery options. All initial recommendationsfrom internal and external investigations into safety procedures, slopemonitoring processes and skills competency have been implemented.

During the suspension of pit operations, production was sustainedfrom surface ore, albeit at a lower rate. Jwaneng recovered 8.17 millioncarats, 23 percent less than in the prior year (2011: 10.64 million). Thiswas mainly as a result of the slope failure.

Debswana completed the Jwaneng Cut-8 infrastructure project onschedule, including the establishment and handover of workshops forearth-moving equipment. During 2012, 57 million tonnes of wastewere moved (2011: 31 million tonnes). Cut-8 will provide access toapproximately 95 million carats of mainly high quality diamonds inapproximately 80 million tonnes mined6, and extend the life of the

worlds richest diamond mine to at least 2028. Execution of theModular Tailings Treatment plant commenced during 2012 withprocurement of long lead items. Construction will continue through2013. The Jwaneng Resource Extension Project is progressing, albeitslightly behind schedule due to the operational challenges atJwaneng.

Orapa, Letlhakane and Damtshaa Mines (OLDM):The OLDMcomplex produced 12.04 million carats during the year (2011: 12.25million). Ore tonnes mined amounted to 16.7 million (2011: 16.2million). Carat production includes 0.19 million carats from DamtshaaMine which was on care and maintenance during 2011. Despite theloss of earthmoving equipment due to fire, the mine plan was wellexecuted. Resource extension projects for the Orapa, Letlhakane and

Damtshaa Mines continued throughout the year and are on plan.

Morupule Coal Mine:Following the successful completion of theCoal Mine Expansion Project during the year, a three-month technicalcompletion test began in November. Production from the extendedmine will supply thermal coal to the new Morupule B power station.The project, which started in 2010, has increased Botswanas coalmining capacity from one million tonnes to 3.2 million tonnes a year.


treatedCarats

recovered

Orapa Mine 12,251 11,089

Letlhakane Mine 2,220 764

Damtshaa Mine 1,387 191

Jwaneng Mine 6,015 8,172

Total 21,873 20,216


LTIFR 0.09 0.19 -0.10

LTISR 2.06 10.15 -8.09

Mining licence area (ha) 41,273 41,276 -3.00

Tonnes treated (000s) 21,873 22,889 -1,016

Carats recovered (000s) 20,216 22,890 2,674



17/3215


Haul trucks at Orapa Mine.

It supports the countrys objective to generate sufficient electricityfor its own needs.

Debswana made progress with a three-year strategy, launched in2011, to transform the business into a more cost-efficient and agilemining organisation. The companys objective is to achieve globalmining benchmark performance standards in all production andsupport areas by the end of 2013, and consistently deliver superiorshareholder value.

In 2012, initiatives were focused on improving performance in mining,

treatment, maintenance and the supply chain. Achievements includedimplementation of a process to track production performance atshorter intervals so that deviations can be addressed rapidly, and asystem to ensure that contractors deliver optimum value.

ECOHS overview

The year proved to be challenging with regard to safety. Regrettably,two loss of life incidents occurred in 2012 (2011: one). In March, anemployee was struck by lightning at Jwaneng Mine. In June, a slopefailure, also at Jwaneng Mine, resulted in the death of an employee.

Debswana has an uncompromising stance on safety any injury isunacceptable. All the mines run initiatives to marshall employeesbehind a common culture of Zero Harm. A rigorous process is

deployed to rapidly report and investigate every incident, identifyingroot causes, initiating remedial action and disseminating learnings. In2012, the LTIFR was 0.09 (2011: 0.19). A total of 11 LTIs were recorded(2011: 13). The reduction of lost time injuries through engagement,training and culture change remains a priority. All mining operationsretained their OHSAS18001 and ISO14001 certification in 2012.

Debswanas corporate social investment programmes includessocial, economic and environmental projects, spanning healthcare,community enrichment, arts and culture, entrepreneurship,education, sports development and eco-tourism. Debswana is thecountrys largest private sector employer. Of the total workforce, over95 percent of employees are Botswana citizens.

Outlook

Debswana will focus on implementing its enhanced assetmanagement plan and a business-wide culture of safe, highperformance. Improved waste stripping and the efficient use ofmachinery and equipment will position the company to respondto any upturn in demand.

www.debswana.com


18/3216


Inge Zaamwani-KamwiCEO, Namdeb DiamondCorporation

Our strategy to streamlineproduction and chartunexploited potential, bothon land and at sea, positionsthe business for the future.

In Namibia, De Beers operates through Namdeb Holdings (Pty)

Limited, a 50/50 joint venture between the Government of the

Republic of Namibia and De Beers. The core business is diamond

exploration and mining along the south-western coast and inlandareas of the Karas Region. Land operations are conducted by

Namdeb Diamond Corporation (Proprietary) Ltd (Namdeb) and

marine operations by De Beers Marine Namibia (Debmarine

Namibia). Both are wholly owned subsidiaries of Namdeb Holdings.


In 2012, Namdeb Holdings recovered 1.67 million carats (2011: 1.34million) and treated 12.8 million tonnes of ore from 1.57 million hectaresunder licence (2011: 8.29 million tonnes under 1.57 million hectares).Debmarine Namibia produced a record 1.1 million carats from 10kmof ocean floor (2011: 0.99 million carats from 8.1km2), despite adverseweather conditions at sea. Namdeb produced 0.56 million carats (2011:0.35 million carats).

Construction of the Red Area Complex at Southern Coastal Minesstarted in 2012. The complex is a state-of-the-art recovery and sortingfacility and is expected to come on stream in the second half of 2013,replacing Mining Area 1s existing plant. The complex will deliver moresecure and efficient processing of all land and marine production.

Land operations:Elizabeth Bay Mine restarted operations in January,but experienced a delay in commissioning, in part due to technicalchallenges. The resulting lapse in production was offset by increasedoutput from the Southern Coastal and Orange River Mines.

Work continued on other extension projects, which are set to boost

the life of conventional land operations to at least 2023. The US$34million Sendelingsdrif Mine Project proceeded to plan. Sendelingsdrifis expected to replace production from Daberas Mine toward the endof 2013; from 2014 the mine will produce an estimated 45,000 caratsannually from approximately 3.5 million tonnes mined, extending theOrange River operations to at least 20207.

Namdebs commitment to sustainable post-mine land use wasspearheaded in 2012 with the commencement of building work on agovernment-approved asbestos disposal facility at Southern CoastalMines. The project combines bunker construction and land filling tosafely remove the asbestos generated during the demolition of oldredundant infrastructure. The facility remains on track for completionin 2013.

Namdeb has developed systems and techniques to accelerate beachaccretion, or the formation of areas of coastal sediment, in a bid togain ground beyond current limitations. Programmes using the

Beachcomber dredge and floating treatment plant in SouthernCoastal Mines also progressed well.

Marine operations:The strong production performance by DebmarineNamibia was mainly due to efficiency improvements, new mining tools,and the early commissioning and ramp-up of the Grand Banksvessel,which was remobilised during the year following an extended lay-up.

The sampling vessel, Coral Sea, continued to identify resources thatwill fulfil the marine mining plan for at least two years. Coral Seawillcontinue sampling in 2013 to ensure sustainable growth in reserves andmine plan levels. The chartered vessel, Explorer, successfully tested anew sampling tool for use in coarse gravel and will again be charteredfor 150 days in 2013 to conduct exploration sampling across Atlantic 1.

In 2012, Peace In Africawas acquired from De Beers at a cost ofUS$79 million. Capacity enhancements to the Peace In Africaand theDebmar Atlanticwill be implemented during 2013 to target currentlyun-mineable areas within Atlantic 1. The revision of the fleetmaintenance strategy is in progress, in line with industry best practiceasset management principles.

Both land and marine operations negotiated two-year wageagreements with the Mineworkers Union of Namibia in 2012.

2012 production statistics (000)Mines Tonnestreated Caratsrecovered

Alluvial Contractors N/A 22

Elizabeth Bay 1,672 210

Mining Area 1 6,959 252

Orange River 4,178 76

Atlantic 1 N/A 1,107

Total 12,809 1,667


LTIFR 0.20 0.17 0.03

LTISR 5.06 5.31 -0.25

Mining licence area (ha) 1,578,908 1,578,908 0

Tonnes treated (000s) 12,809 8,288 4,521

Carats recovered (000s) 1,667 1,335 332

Namibia

7 The mining licence expires in 2020. Further details appear in the 2012 AngloAmerican Plc Annual Report.


19/3217


The Debmar Atlantic mining vessel, moored off the Namibia coastline.

Project 2050, a land mining plan initiated in 2010, sets a course forlong-term profitable diamond production in Namibia. Followingseveral years of planning and investment, both land and marineoperations now have a good understanding of the unexploited orebodies within licence areas. Namdeb Holdings operates an innovativeoff-shore probe drilling system to explore marine sites adjacent toland-based activities, and continues to research advanced equipmentfor both on- and off-shore operations.

ECOHS overview

Tragically, one loss of life incident occurred at Southern Coastal Mines

following a vehicle accident in March. Vehicle accidents are NamdebHoldings number one safety risk, with eight recorded in 2012 (2011:seven). During the year, a reinforced safety improvement plan waslaunched and employees attended Safety Risk Management training.Five LTIs were recorded (2011: four). The LTIFR rose to 0.20 (2011: 0.17).All operations retained OHSAS18001 and ISO14001 certification.

Namdeb Holdings HIV and Aids management programme continuedin 2012. Since 2004, employees and their partners have had accessto free anti-retroviral therapy. HIV and Aids prevalence surveys areconducted on-site every two years, in addition to regular screeningfor early identification of chronic and acute illness.

Namdeb Holdings corporate social investment programme supports

education, sustainable tourism and national heritage projects.

In 2012, Namdeb Holdings facilitated the proclamation ofOranjemund, a formerly closed town, wholly managed by Namdeband established in 1936 for employees to live near the mining area.A town council was elected and in 2013 Namdeb Holdings willcontinue to support the development of infrastructure andmunicipal services.

Outlook

In the coming year, Debmarine Namibia will look to increaseoperational efficiencies through the advancement of explorationsampling and the implementation of new resource models and

technological improvements to mining tools and technical systems.Namdeb will continue to focus on maturing the 2050 vision throughongoing exploration, sampling, beach accretion and developmentof technologies to mine the mid-water. As land and marine extensionprojects gather momentum, the company is confident it willsecure capital for future development and return long-termshareholder value.



20/3218


Element Six

Cyrus Jilla

CEO, Element Six

Element Six (E6) supermaterial solutions are used in applications

such as cutting, grinding, drilling, shearing and polishing, while the

extreme properties of synthetic diamond beyond hardness are

already opening up new applications in a wide array of industries

such as optics, power transmission, water treatment, semi-

conductors and sensors.


While performance varied across E6s four divisions, overall salesdeclined marginally in 2012, reflecting weaker demand and volatility ina number of key end-user industries (including automotive, personalelectronics and photovoltaic). In response, E6 focused on costcontainment and made significant progress against strategic

objectives: the business continued to develop geographic reach,manufacturing excellence, product innovation and a culture ofbehavioural-based employee safety. Progress in 2012 focused on aplatform of capabilities and growth opportunities that position E6well for the future.

In 2012, E6 opened its first US manufacturing facility in Silicon Valley,Santa Clara, from which new commercial applications for chemicalvapour deposition (CVD) technology will be produced. It alsosuccessfully brought to market a new diamond-tipped roadmaintenance pick (D-Power), which extends the life of standardpicks more than 40 times and provides numerous further benefits tocustomers.

The business also continued to build its share in a number of keyregions, most notably North America and Asia. At the end of the year,E6 acquired Schlumbergers Megadiamond cutting tools business,strengthening its leadership in precision machining.

Construction of the worlds largest diamond supermaterials researchand development facility in Oxford, UK, began in May. The GlobalInnovation Centre on schedule to open in 2013 will provide aworld-class research environment for E6 scientists, engineers andtechnicians, as well as create over 50 new jobs.

In the UK, E6 won the prestigious 2012 Queens Award for Enterprise inInnovation for its partnership with the British audio brand Bowers &Wilkins. The award recognised the commercial development of asynthetic diamond tweeter dome used in the Bowers & WilkinsDiamond 800 Series range of speakers.

LEAN and Six Sigma methodologies were further implementedglobally to encourage manufacturing excellence at lower cost. Themulti-year programme increased oil and gas yields and manufacturingvelocity, as well as providing significant improvements to E6s singlecrystal production process in 2012.

ECOHS overview

E6 recorded an LTIFR of 0.23 in 2012 (2011: 0.42). LTIs dropped for thefourth consecutive year to a record low of six (2011: 12). This followsthe implementation of a new safety culture in 2008 that instigatedsystematic safety trainings, established safety best practices andemployee empowerment, as well as ubiquitous reporting across theGroup. E6 aspires to Zero Harm and will maintain a critical focus on

health and safety through 2013 to keep the momentum going.

There were no major environmental issues in 2012. All main operationshold ISO18001 certification and most are ISO14001 certified.

Outlook

The supermaterials landscape is expected to remain challenging in2013 due to uncertain end-market conditions. In this contextmanagement is taking measures to further optimise operations aswell as reduce costs without jeopardising strategic priorities. E6 isconfident that its investments and leadership in innovation, productportfolio, manufacturing and world-class customer service position itwell for future growth.

www.e6.com

Road-milling drum equipped with E6 diamond-tipped DPower road picks.

2012 was a challenging year,with trading slowing sharply inthe second half. E6 focused oncost reductions while deliveringa record year for safety andmaking strong progress onstrategic priorities.


21/3219

Rough diamond sales


Global Sightholder Sales

Varda ShineExecutive Vice President,Global Sightholder Sales

De Beers is the worlds largest supplier of rough diamonds,

by value. With activities in sorting, valuing, sales and diamondbeneficiation, it operates in the UK and South Africa, and through

50/50 joint ventures with the Governments of the Republics

of Botswana and Namibia, respectively.


Global sales were US$5.5 billion in 2012 (2011: US$6.5 billion).The decrease in sales was a result of diminished demand andchanging product requirements from Sightholders, as well as reducedavailability of some goods. Against a backdrop of macroeconomicuncertainty, the industry was impacted by constrained liquidity in themidstream, high cutting centre inventories and changing retailerstocking patterns.

Of total global sales, US$1.1 billion was sold in-country (2011: US$1.2billion). This was in line with De Beers beneficiation commitments toproducer governments, which recognise the need to create sharedvalue from diamonds through sustainable partnerships.

Botswana is a prime example of how long-term partnerships cancreate mutual value. The strength of the partnership betweenDe Beers and the Government of the Republic of Botswana wasreaffirmed through the signing of a 10-year agreement in September2011 for the purchase of Debswanas production. The agreementunderpins Botswanas strategy to build a sustainable downstreamdiamond economy and secures De Beers continued access to thelargest supply of diamonds in the world.

As part of the milestone agreement, De Beers agreed to transfer itsLondon-based rough diamond sales activity, including professionals,skills, equipment and technology, from London to Gaborone by theend of 2013.

In 2012, as part of the relocation, De Beers successfully transferred itsaggregation, quality assurance and Sight preparation functions toBotswana, two months ahead of schedule. The business remains ontrack to complete migration by the end of 2013. Thereafter, all sales tointernational Sightholders, and domestic Botswana Sightholders, willbe carried out in Gaborone.

In March, De Beers began a new three-year Supplier of Choicecontract period, and introduced an updated allocations andreplanning process. The updated process will see customersdemonstrated demand have more influence on their allocations of

rough diamond supply during the contract period.

ECOHS overview

Global Sightholder Sales UK operations maintained ISO14001 andOHSAS18001 certification in 2012. Global Sightholder Sales in SouthAfrica retained ISO14001 certification and is working towardOHSAS18001 certification. Once OHSAS18001 has been obtainedat DTC Botswana (DTCB) and Namibia DTC, attention will turn toachieving ISO14001. There were three LTI incidents at DTCB in 2012,but none of the other entities in the Global Sightholder Sales networkreported any LTIs in the year under review.

Outlook

The rough diamond manufacturing sector closed 2012 with

reportedly high levels of inventory, particularly in the higher-endcategories of diamonds, and faces continued pressure in terms ofliquidity. In the medium to long term, industry fundamentals areexpected to strengthen as diamond production plateaus anddemand continues to increase. De Beers expects moderate growth indiamond jewellery demand in 2013. This will be supported primarilyby a more positive picture emerging from China. Some upside ispossible in the US, while trading conditions in other markets are likelyto be challenging. De Beers will complete the migration of its London-based sales activities to Botswana by the end of the year, supportingthe transformation of Botswana into a leading diamond centre andbringing broader benefits to the southern Africa region.


We continued to evolve ourrough diamond distributionstrategy, while delivering thefirst phases of the migration ofour London-based salesactivities to Botswana.

A senior sorter inspects diamonds at Harry Oppenheimer House, Kimberley.


22/3220

Operating and Financial Review 2012 Rough Diamond Sales

Auction Sales

Neil VenturaSenior Vice President,Auction Sales

De Beers is a market leader in rough diamond spot sales.

Competitive sales involve small, medium and large manufacturing,

retail and trade business buyers worldwide, optimising an

industry-first online auction capability. De Beers Auction Sales

is headquartered in Antwerp, with additional offices in Tel Aviv,

Hong Kong and Dubai.


Following exceptional demand for rough diamonds in 2011, andrecord revenues for Auction Sales, sustained growth proved morechallenging in 2012. Demand improved steadily in the first quarter,with India-based buyers accounting for the most robust growth. Thistrend cooled over the year, however, mainly due to global economic

uncertainty. Auction Sales achieved revenues of US$356 million in2012 (2011: US$405 million), down 12 percent. The decrease in saleswas as a result of subdued buyer activity.

De Beers ran 151 online auctions in 2012 (2011: 134) and presented3,807 lots for sale (2011: 2,614). Lots featured rough diamonds spanningthe full product range in terms of size, colour, quality and shape.Auctions attracted bids from 331 business buyers (2011: 281), with 235discrete winners emerging (2011: 182).

De Beers pioneered online international auctions of rough diamondsin January 2008 when it introduced auction sales in addition totraditional direct sales. Since then, it has secured bids from 504

different companies, of which 357 have been successful.

Competition in the provision of short-term rough diamond buyingopportunities is intensifying as more players adopt the auction salesand pricing approach. De Beers strategy is to build further capabilityand add value for customers in existing and new markets.

In 2012, the business scaled back its trading activities following the2011 expansion of customer viewing facilities in Antwerp, Israel andHong Kong and the opening of a new office in Dubai. With astrengthened global team also in place, Auction Sales is wellequipped to support customers with timely information, salescompletions and follow through. These developments position the

business well to capture spot sale prices that better reflect short-termglobal supply and demand.

Cost management was an important focus in 2012. Even so, planningwent ahead on a number of strategic initiatives to strengthen thebusiness in 2013 and beyond.

ECOHS overview

Auction Sales reported no LTIs in 2012 (2011: 0).

Outlook

Macroeconomic challenges continue to unsettle demand for roughdiamond products. However, a strong pipeline of innovation such asenhancements to the sales mix and improved buyer support should

bear fruit in 2013, and buoy demand for De Beers products. Theoutlook, though cautious, remains optimistic.

www.diamdel.com

Rough diamonds being prepared for Auction Sales viewings.

Following a year of recordresults and expansion in 2011,we moderated our tradingactivities in 2012 in lightof subdued buyer demand,and pursued plans to boostperformance in the years to come.


23/3221


BrandsForevermark

Stephen LussierCEO, Forevermark

Forevermark is the proprietary diamond brand, and the principal

consumer marketing arm, of the De Beers Group of Companies.

Available through authorised jewellers around the world, each

Forevermark diamond is inscribed with the brand icon and a

unique identification number providing evidence that it has met

the brands high standards of quality and provenance. The

patented inscription technology was developed by the De Beers

research and development team.


Forevermark strengthened its footing in core markets in 2012. The

number of stores licensed to retail Forevermark diamonds grew by40 percent to over 900 higher-end jewellers worldwide. The brandexpanded its presence in the existing core markets of China andJapan, cemented its entry to the US and India, and launched intotwo new licensee markets: Canada and the United Arab Emirates.

The licensee model continued to support entry into new markets,with appointment of the Middle Easts leading international jewellerDamas as exclusive Authorised Forevermark Jeweller in the UAE. InCanada, 28 jewellers were selected as the first retailers to carryForevermark diamonds.

The Forevermark Diamond Institute in Antwerp responded to growingglobal consumer demand by significantly increasing its inscription andgrading capacity. Extended production areas facilitated a rapid lif t ingrading (51 percent) and inscription outputs (33 percent). TheForevermark Diamond Institute continues to invest in research anddevelopment, enabling it to detect all synthetic and treated gems,and delivering on the promise of a fully natural diamond.

Forevermarks promise that each diamond is beautiful, rare andresponsibly sourced was brought to life publicly through anintegrated PR, advertising, online marketing and in-storemerchandising campaign. Designed to build consumer affinity, themessaging focused on the promise behind each Forevermarkdiamond and the significant promise moments in consumers lives.Forevermarks first TV advertisements were aired in India and the US,helping to increase consumer awareness by nearly 25 percent in India,with visits to www.forevermarkdiamonds.com in the US increasingmore than tenfold between October and December 2012.

ECOHS overviewDe Beers commitment to the communities and countries in which itmines is exemplified by Forevermark, which accredits only diamondsfrom sources that adhere to the brands high business, social andenvironmental standards. Less than one percent of the worldsdiamonds are eligible for the Forevermark programme. EveryForevermark diamond is crafted by a select diamantaire, whoundergoes annual third-party independent audits. Collectionsare exclusively available through carefully selected authorisedForevermark jewellers, which are also required to comply withthe brands standards.

In 2012, Forevermark again maintained ISO18001 certification andreported zero LTIs.

Outlook

Forevermark will continue to build brand awareness and consumerdemand while expanding to more cities, particularly in China, Indiaand the US. The successful licensee model is forecast to open doors inseveral new markets, raising the brands availability by approximately25 percent globally in 2013.

www.forevermark.com

The Forevermark inscription, unique to each Forevermark diamond.

Consumers place great faith inour promise that eachForevermark diamond signifiesbeauty, rarity and responsiblesourcing. The brands standardsof quality and integrity helpeddifferentiate our growing presence

in established and new markets.


24/3222

Operating and Financial Review 2012 Brands

De Beers Diamond Jewellers

Franois Delage

CEO, De BeersDiamond Jewellers

After a year of strong growthin 2011, we consolidated ourglobal presence, successfullylaunched a new high jewellerycollection, and continued tobuild the brands image asthe Jeweller of Light.

De Beers Diamond Jewellers (DBDJ) is an independently managed

50/50 joint venture partnership between De Beers and LVMH Mot

Hennessy Louis Vuitton SA. The global DBDJ network consists of

43 stores across 13 countries.


DBDJ strengthened a growing presence in continental China in 2012with its first store openings in Shanghai and Nanjing. The company iswell placed to meet strong demand for luxury diamond jewellery inChina following inaugural store launches in Beijing, Dalian and Tianjinduring 2011.

The brand renovated and repositioned stores to better engage with

the market, including the companys assets at Shinjuku Isetan in Tokyoand Harrods in London. DBDJ closed stores on Rodeo Drive (Los Angeles)and at Royal Exchange (London), as well as its franchised outlet in Kiev(Ukraine). The network now numbers 14 stores in East Asia, 10 acrossthe US, nine in Japan, seven in Europe and three in the Middle East.

The brand continued to communicate its international reputation forexpertise, old traditions and a contemporary creative vision. DBDJunveiled Imaginary Nature, a new high jewellery collection of eightunique pieces inspired by the natural world. In addition, the existinglines of Aura, Adonis Rose, Azulea and Enchanted Lotus remainedpopular and proved strong sellers in 2012.

In the UK, DBDJ created the diamond-studded Talisman Crown incelebration of The Queens Diamond Jubilee. The crown features amix of 974 rough and polished diamonds and a 73 carat diamondcenterpiece. It was exhibited at Harrods before touring DBDJ storesin London, Beijing, Shanghai, Hong Kong and New York.

DBDJ creates designs that express the natural beauty and timelessquality of the diamond, and is strategically positioned as The Jewellerof Light. The company commissioned London-based designer RolfSachs to create a store window concept encapsulating the brandsimage for the 2012 festive season. Titled Breathing Light, the displayfeatured in stores globally after making its debut in London.

ECOHS overview

DBDJ received full certification to Responsible Jewellery Council (RJC)standards in January 2012. RJC certification enables DBDJ todemonstrate this commitment at a time when more consumers

demand assurance of the integrity of the supply chain.

Outlook

DBDJ will continue to deploy select store openings, relevantmarketing and targeted customer promotion to build future growth.New franchise stores will open in Azerbaijan, Malaysia and Canada inearly 2013. An ongoing priority is to maximise returns from existingstores and closely manage inventories, costs and working capital. Thecompanys strategy is to become the definitive diamond jewellerydestination, both for solitaires and image collections, while growingits credentials in High Jewellery.

www.debeers.co.uk

Imaginary Nature, the new High Jewellery collection by De Beers.


25/3223


Financial and production highlights

2012 snapshotFor the year ended31 December

31 December 2012US$m

31 December 2011*US$m

Variance%

Total sales 6,074 7,262 -16EBITDA 1,075 1,763 -39Operating profit 815 1,491 -45Underlying earnings** 506 993 -49Free cash flow 697 816 -15Net interest bearing debt (excluding shareholders loans) 722 1,177 -39

* Comparatives have been restated following changes in accounting policy for joint ventures and employee benefits.** Underlying earnings is profit for the financial year attributable to equity shareholders of the Company before special items and remeasurements.

Production statistics31 December 2012

Tonnes (000)31 December 2011

Tonnes (000)

Total tonnes treated 52,340 50,247South Africa 13,691 15,525 Kimberley Mines and Contractors 5,276 4,834 Venetia Mine 5,618 5,189 Voorspoed Mine 2,797 2,434 Finsch Mine 3,068

Namaqualand Mines and Contractors

Namibia 12,809 8,288

Land 12,809 8,288Sea N/A N/A

Botswana 21,873 22,889Jwaneng Mine 6,015 6,537Orapa Mine 12,251 13,250Letlhakane Mine 2,220 3,102Damtshaa Mine 1,387

Canada 3,967 3,545Snap Lake Mine 918 814Victor Mine 3,049 2,731

31 December 2012Carats (000)

31 December 2011Carats (000)

Carats recovered 27,875 31,328South Africa 4,432 5,443

Kimberley Mines and Contractors 755 778

Venetia Mine 3,066 3,147

Voorspoed Mine 611 580

Finsch Mine 938

Namaqualand Mines and Contractors Namibia 1,667 1,335

Land 560 345

Sea 1,107 990

Botswana 20,216 22,890

Jwaneng Mine 8,172 10,641Orapa Mine 11,089 11,158

Letlhakane Mine 764 1,091Damtshaa Mine 191

Canada 1,560 1,660

Snap Lake Mine 870 881

Victor Mine 690 779


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De Beers Socit Anonyme (the Company, or De Beers) was formallyincorporated in the Grand Duchy of Luxembourg in November 2000.

It is the holding company of all De Beers Group operations.

Governance and risk

The Company is managed and controlled from its head office in

Luxembourg where the Board and Executive Committee meet to

attend to the business of the Group. Its commercial activities are

carried out by a number of subsidiaries, investments and joint

ventures, which it finances in different parts of the world. Together,

these subsidiaries, investments and joint ventures constitute the

De Beers Group of Companies.

Taxes and royalties to governments are paid by each of the differentsubsidiaries and joint ventures in a manner consistent with therequirements of the jurisdiction in which they operate. De Beers

prepares annual independently audited statutory accounts of boththe Company and the Group in accordance with InternationalFinancial Reporting Standards. These are lodged with the Registre duCommerce and other authorities in Luxembourg, as well as being sentto each of the shareholders directly. These accounts are submitted tothe Annual General Meeting of shareholders of the Company, held inMarch each year.

Appointment of Board members

The Articles of Incorporation relate to the legal establishment andregistration of De Beers as a joint stock corporation in Luxembourg. Asthe legal constitutional instrument, it allows for a minimum of threeand a maximum of 20 directors.

The shareholders are responsible for the appointment and removal ofdirectors in accordance with the provisions of the ShareholdersAgreement and the Articles of Incorporation.

The shareholder groups of Anglo American plc and the Governmentof the Republic of Botswana are entitled to nominate four and twopersons respectively, for appointment to the Board. Accordingly,six directors, all of whom are non-executive directors, including thecurrent Chairman, have been appointed as directors after theirnomination as such by the shareholders.

Additional directors may be appointed by the shareholders bymajority consent or majority vote at the Annual General Meeting of

shareholders, up to the maximum of 20 directors. Two non-executivedirectors have been appointed to the Board in this manner.

Composition and independence

As of 31 December 2012, the De Beers Board consisted of 11 directors.Of them, eight are non-executive directors and three serve inexecutive capacity and are members of the Executive Committee.

The role of Chairman, a non-executive director, is quite distinct fromthat of the Chief Executive Officer.

During 2012, Nicky and Jonathan Oppenheimer, Mark Berry, BaronDavid de Rothschild and James Teeger resigned from the Board. BrianBeamish and Peter Whitcutt joined the Board on 28 September 2012.

Mr J S Iita, representing the Government of the Republic of Namibia(GRN), also resigned as a member of the Board with effect f rom26 November 2012. The GRN, acting under the provisions of theDiamond Sorting, Valuing, Sales and Marketing Agreement dated18 May 2011 between the GRN, the company and other parties,

Fitter operators working on a pump bearing assembly, Voorspoed Mine.


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Operating and Financial Review 2012 Governance and risk

The DTCB building, Gaborone.

nominated Mr K Kahuure as a director of the Company and he wasappointed as such by the Board with effect from 27 November 2012.

Structures under the Board

In 2008, the Board adopted a Board Charter which, among otherthings, sets out the mandate of the Board and those powers reservedto it. The Board is responsible for the Groups system of governanceand is ultimately accountable for the strategic direction of thebusiness and all activities across the Group. This includes setting riskmanagement policy, reviewing the effectiveness of risk managementprocesses, recommending enhancements and ensuring effective

succession planning.

It also provides oversight of, and consultation to, the different businessentities across the De Beers Group of Companies on governancestructures and on the identification, appointment and training ofdirectors. The De Beers Board is supported in its decision-making bysix committees: the Executive Committee, the Audit Committee, theECOHS Committee, the Investment Committee, the RemunerationCommittee and the Treasury Committee.

Although not an official committee under the Board, the PrinciplesCommittee provides further review and scrutiny on the extent towhich the De Beers Group of Companies contributes to sustainabledevelopment and operates in conformance with its principles.

Risk management

The shareholders and Board recognise that engaging risk is at thecore of the business. The Board reviews reputation and sustainabilityperformance and risks on, at least, an annual basis in line with theformal risk review process.

Detail on these risks is presented in the introductory statement of theChairman and performance review of the Chief Executive Officer, aswell as in our Report to Society 2012, which will be published in May

2013. De Beers is governed by a risk framework through which risksare proactively identified, engaged and managed. This includestaking advantage of opportunities and protecting capital, talentmanagement, income and assets by mitigating the adverseimpacts of risk.

The shareholders and Boardrecognise that engaging riskis at the core of the business.The Board reviews reputationand sustainability performanceand risks on, at least, an

annual basis in line with theformal risks review process.


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Operating in a responsible and sustainable manner requires a balancebetween delivering good financial returns, and addressing the risks that

may affect the sustainability of the business and societies in which we work.

Sustainability

Contributing to sustainable development

Our understanding of sustainability is shaped by the societalimperatives of our partner governments and communities. Thisincludes helping to define the role of business in contributing to avision of an ever more prosperous Africa, and supporting sustainablepartnerships in Canada. We aim to maximise our contribution tosustainable development through beneficiation activities to supportdownstream diamond sector activity in producer countries,community social investment, and local enterprise generationthrough preferential procurement.

Our approach to sustainability is focused on managing and mitigatingthose risks that can affect our commercial interests by impacting onour access to supply or undermining consumer confidence indiamonds. These risks relate primarily to: ensuring our social licenceto operate, conflict diamonds, social and environmental conditionsin mining and cutting and polishing operations, the use of diamondsby criminal syndicates, and issues around product integrity.

Managing sustainability risks

We prioritise and categorise sustainability risks into five key areas:economics, ethics, employees, communities and environment.Extensive stakeholder engagement processes help us to assess therelevance and materiality of each risk and to develop appropriatemanagement responses.

Ongoing stakeholder engagement is one element of a broadersustainability management framework, which also includes thePrinciples Committee, the Environment, Community, OccupationalHealth and Safety (ECOHS) Committee (at Board level) and localECOHS functions (operating at business and community level). ThePrinciples Committee is a management committee that providesguidance and oversight to the Executive Committee and BusinessUnit CEOs to ensure that the De Beers Group of Companies engagesproactively with sustainability issues and related long-term risks. TheECOHS Committee and associated peer groups act in the same way,providing strategic direction and assurance on ECOHS disciplines tothe business units.

Our Best Practice Principles Assurance Programme (BPPs) also drivessustainability per formance by providing a comprehensive third-partyverified assurance programme to ensure the effective management ofkey risks. The BPPs outline strict requirements regarding complianceto the Kimberley Process and associated System of Warranties. Theyalso set out clear minimum standards of performance against a rangeof other criteria including social, environmental, labour, and healthand safety standards, and product integrity requirements includingthe disclosure of synthetics, treatments and simulants. All entitieswithin the De Beers Group of Companies, as well as all Sightholdersand significant contractors, are required to comply with the BPPs.

Annual Report to Society

More information on our sustainability approach can be found in ouraward-winning annual Report to Society, which can be accessed atwww.debeersgroup.com/sustainability. The 2012 Report to Societywill be available online and for order in hard copy from May 2013.

Extensive stakeholderengagement processes helpus to assess the materialityof sustainability issuesand to manage themappropriately.

White rhinos at Orapa Game Park Makgadikgadi, which became part of the

Diamond Route in March 2012.


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The Board andexecutive management

Philippe Mellier BMEng, MBABorn in 1955, Philippe Mellier was appointedto the Board on 19 July 2011, following hisappointment as Chief Executive Officerof De Beers in May 2011. Mr Mellier holdsdirectorships across the Group, includingDe Beers Consolidated Mines ProprietaryLimited, De Beers Diamond Jewellers Limited,Debswana Diamond Company (Proprietary)Limited and Namdeb Holdings (Proprietary)Limited. He chairs Element Six SA and ElementSix Abrasives SA as well as the De BeersExecutive and Investment Committees,and is a member of the ECOHS Committee.

Ren Mdori PhD

Born in 1957, Ren Mdori was appointed to theBoard of De Beers on 7 February 2007, by theAnglo American shareholder. He is the FinanceDirector of Anglo American plc, and a director ofAnglo American Platinum , DB Investments andPetrofac Limited.

Brian Beamish BSc (Mechanical Engineering)

Born in 1956, Brian Beamish is Group Director,Mining and Technology at Anglo American plc.He was appointed as non-executive directorto the Board of De Beers on 28 September2012 by the Anglo American shareholder.He is also a director of DB Investments. He isa member of the Anglo American Safety andSustainable Development and InvestmentCommittees. Mr Beamish has more than 35years of mining industry experience in various

commodities and geographies and spentover 20 years at Anglo American Platinum,including four years as executive directorof operations, between 1996 and 1999.

Bruce Cleaver BSc Applied Maths, LL.B

Born in 1965, Bruce Cleaver was appointedto the Board on 23 July 2008. Mr Cleaver isExecutive Head, Strategy and Corporate Affairsfor the Group, and is currently responsible forstrategy, commercial and legal matters as wellas Exploration. He holds directorships withinthe Group, including De Beers Consolidated

Mines Proprietary Limited and NamdebHoldings (Proprietary) Limited, and serves onthe Executive, Investment and TreasuryCommittees.

Cynthia Carroll MSc, MBA

ChairmanBorn in 1956, Cynthia Carroll is Chief Executiveof Anglo American plc. She was appointed tothe Board of De Beers on 1 March 2007 by theAnglo American shareholder, and becameChairman on 28 September 2012. Currently sheis Board Chairman of Anglo American Platinum,a member of the Board of BP plc. and a directorof DB Investments.

Gareth Mostyn BA (Hons), ACA

Born in 1972, Gareth Mostyn was appointedto the Board on 8 February 2012. A qualifiedChartered Accountant, Mr Mostyn joinedDe Beers as the Chief Financial Officer inJanuary 2012. Mr Mostyn is also a directorof De Beers Consolidated Mines ProprietaryLimited, Debswana Diamond Corporation(Proprietary) Limited, Element Six SA,Element Six Abrasives SA and De BeersDiamond Jewellers Limited, and serveson the Executive, Investment and TreasuryCommittees.


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Operating and Financial Review 2012 The Board and executive management

Peter Whitcutt BCom (Hons), CA (SA), MBA

Born in 1965, Peter Whitcutt is Group Director,Strategy and Business Development at AngloAmerican plc. He was appointed as non-executive director to the Board of De Beers on28 September 2012 by the Anglo Americanshareholder. He is the Chairman of the De BeersAudit Committee and a member of theInvestment Committee. He is also a directorof DB Investments. He joined Anglo Americanin 1990 within the corporate finance divisionand worked on the merger of Minorco withAnglo American, the listing of Anglo Americanin 1999 and the subsequent unwinding of thecross holding with De Beers. Mr Whitcutt wasappointed group head of finance in 2003, CFOof Base Metals in August 2008 and to his presentposition in October 2009.

Solomon Sekwakwa BA, MA

Born in 1960, Solomon Sekwakwa wasappointed to the Board on 4 February 2009by the Government of the Republic of Botswanashareholder group. Mr Sekwakwa is thePermanent Secretary, Ministry of Financeand Development Planning, Governmentof the Republic of Botswana. He serves on

the Investment Committee, and is a directorof DB Investments and Debswana DiamondCorporation (Proprietary) Limited. Mr Sekwakwais also a director of the Bank of Botswana andthe Botswana Development Corporation.

Barend Petersen B Compt (Hons), CA (SA)

Born in 1960, Barend Petersen was appointedto the Board on 6 February 2008, elected bymajority consent of shareholders at the AGM.He is the Executive Chairman of De

Documents

De Beers Group 2012 Annual.pdf