Mellier Confident Anglo American Committed to Keeping De Beers

In a wide-ranging press briefing in Tel Aviv. De Beers Chief Executive Officer Philippe Mellier and Executive Vice President of De Beers Global Sightholder Sales, Varda Shine provided information relating to major elements of the company's activities. They also answered questions, although were careful to avoid any references to production or financial figures since the media meeting was held a month before the financial results for the first half of 2013 were to be published on July 26.

In a week when Rio Tinto announced that it had decided to retain its diamond assets after an internal review that lasted more than a year and media speculation regarding potential buyers, Mellier said he was fully confident that parent company Anglo American did not have any plans to sell the veteran diamond producer.
Mellier told reporters that De Beers was "not in this type of context". He said that owners Anglo American regarded the De Beers diamond assets as important. "From day one, the new Anglo American CEO Mark Cutifani has said that diamonds remains a core business of the company,” Mellier said. He also said that a new chairman for De Beers would be selected at a board meeting in July. “Our next board meeting is three weeks from now and it will be the responsibility of our board to elect a new chairman at that meeting,” Mellier said at the June 25 meeting.

The company has not appointed a replacement chairman for Cynthia Carroll who stepped down as CEO of parent company Anglo American last April. Carroll held the position of De Beers chairman from September 2012. Anglo American bought the Oppenheimer family's 40 percent stake in De Beers for $5.2 billion in 2011, and owns 85 percent of the miner, while the government of Botswana owns the other 15 percent.

He added that Anglo American had recently changed its own management and is in the middle of a three-month review, the outcome of which will likely include steps to improve the performance of De Beers, which is the world's biggest diamond producer by value.

Mellier said that De Beers was working on a wide range of ideas including a new automatic grading machine, which would "get rid of the human element" in grading diamonds. "We have a big project that is looking at integrating the mining companies processes and systems together with the midstream sorting operations all the way to sales," Shine said. "We must ensure that we are able to become leaner and more flexible because the world is much more volatile today."

Neither Mellier nor Shine would comment on whether that would mean consolidation of some of De Beers' business units or worker redundancies, but they did say that De Beers has four separate divisions and said the whole process could involve some capital expenditure.
The De Beers delegation to Israel led by Mellier and Shine also included the DTC's Executive Director of Sales and Client Services, Mahiar Borhanjoo, and representatives from DTC Botswana and DTC Namibia. Shine said the representatives from Southern Africa had been included since it was crucial for them to get a fuller understanding of the global diamond business. In Israel, they were seeing how technology and innovation, via a visit to Sarin Technologies facilities, among other things, was changing the face of the diamond trade.

Asked about the mood among sightholders given complaints about the high cost of rough, and producer insensitivity to industry concerns about high rough and relatively low polished diamond prices, Mellier said that he had identified an improved state of mind following the meetings. He added that business at the JCK Show Las Vegas was an improvement on what had been seen at the 2012 event. Furthermore, reports were coming in, although still not providing an overall picture, that the June Hong Kong show had also been positive. This year has started out better than at the same stage of 2012, Mellier said.

Mellier forecast that global demand for diamond jewelry would rise a little more this year than in 2012, outpacing supply of the precious stones and ensuring more investment in De Beers' operations. "We believe that the market for diamond jewelry is going to grow a bit more than last year," Mellier said.
Speaking on the subject of synthetic diamonds, Mellier said that De Beers is completing work on an automatic screening machine for melee diamonds. He explained that since diamonds are naturally screened due to their high value, but smaller synthetic diamonds could more easily enter the natural diamond market.
Regarding the vacuum created by De Beers' decision to stop generic marketing of diamonds, Mellier said the miner would be happy to be part of a worldwide generic promotion campaign. However, despite his calls for the industry to come together to create such a program, other companies had not shown huge interest in doing so. However, they are naturally more than happy for De Beers to pay for it, he added.

Mellier said this was part of the same issue where De Beers no longer considered itself the "custodian" of the diamond industry. "We are by value the biggest seller of rough diamonds with more than one-third of global production but we are no longer the overwhelming force."
With the company's announcement regarding its financial results for the first half of 2013 in July, including production figures, Mellier said he was not able to comment on specific financial figures but that production in 2013 was expected to be similar to that of 2012 at around 28 million carats.

Finally, speaking about the De Beers Forevermark brand, he said it is now being sold in 1,000 outlets across the world, including 350 in the United States, alone.
He also said that De Beers plans to retain its ranking as the world's largest supplier of diamonds by value by extending the life of its current mines and continuing its exploration of new kimberlites, added Mellier in his overview of the company's upstream activities, which he described repeatedly as "the investment for the future."

According to Mellier, De Beers is now entering the final stages of obtaining permits for its Gahcho Kué joint venture with Mountain Province in Canada's Northwest Territories. Mine construction there will begin within a year or so, said Mellier, and the life of the mine is estimated at 11 years, with a potential of producing 48 million carats.

"We are not standing still," Mellier commented, as he discussed progress at the company's Chidliak joint venture with Peregrine on Baffin Island; the Cut-8 project at Jwaneng in Botswana, which will extend the life of the mine until 2028; and the $2 billion Venetia underground project, aimed at extending the life of the mine in South Africa until 2040.

A slope failure at Jwaneng in June 2012 caused huge disruptions in production and the life of a miner as the company was about to clear around 1 million tonnes of ore from the main ore body. He reported that production started again in mid-June at the Venetia mine’s main K1 pipe after severe flooding in February. The Venetia mine has three pipes and while De Beers carried on mining of the K2 and K3 pipes after the flood, the largest remains under water.

“Just a week ago we started mining again at the bottom of the pit, at K1, so normal production is going to resume at Venetia and the shortfalls that we had there are going to vanish pretty quickly,” Mellier said. “So two incidents that were creating shortfalls in our assortments that the situation is now gradually coming back to normal and will give better predictability to our sightholders.”

Meanwhile, Shine said the company was also focusing on the transfer of its operations to Botswana, with it expected to be completed in September to October. The first sight is due to take place in Gaborone in November.

While Mellier talked about on the upstream and downstream levels of the diamond pipeline, Shine focused on the mid-stream. "If I want to define the mid-stream, it is very much about change," she said, while discussing the company's challenges of responding to market volatility, uncertainty, complexity and ambiguity, especially regarding transparency.