Diamond Industry:

an overview

James AllanApril2010

2

Contents

Diamond industry in perspective

Who are the producers

Production profile

Last two years> what happened?

Market capitalisation for the juniors (2008 to 20101)

Supply demand forecast to 2020

Leverage off the diamond market

Conclusion

3

Diamond production in perspective ($bn)

126

99

74

50

27

14

112

80

73

29

10

9

0 20 40 60 80 100 120 140

Copper

Aluminium

Gold

Nickel

Platinum (3PGE)

Diamonds

20092008

4

44%

24%

9%

5%

2%

0%

16%

De BeersAlrosaRio TintoBHP BillitonGem DiamondsPetra DiamondsOthers

Concentration of production by value (2008)

4 producers Control 82% of supply

5

Share of global diamond production (140 million carats) 2008

10%

20%

1%

13%

4%20%

8%

22%

2% South Africa

Botswana

Namibia

Russia

Angola

Australia

Canada

DRC

Lesotho

Tanzania

Sierra Leone

Zimbabwe

Other

6

Share of global diamond production

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2005

2009

2015

$m

Zimbabwe

Tanzania

Sierra Leone

Lesotho

Australia

DRC

Namibia

Angola

South Africa

Canada

Russia

Botswana

7

Cutting centre debt levels

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

$m

8

The last two years…..market

Early 2008> Positive market >Diamond shortage leading to rising diamond prices…

September 2008>Collapse of Lehman Brothers

September 2008>Credit tightened in financial market

October 2008>Credit lines withdrawn for diamantaires

October- December 2008>Collapse in diamond prices

Polished Prices

9

The last two years…..producer response

“Old De Beers” would have bought up diamonds and stockpiled

“New De Beers” cut production by 90% in Q1 2009>reduced supply to the market (Economics 101)

Increased production from Q2

Sales 1H 2009 down 68%

2009 sales lowest since 1986

0

1000

2000

3000

4000

5000

6000

7000

8000

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

De Beers Sales 1980-2009

10

Concentration of production 2009

Others21%

Petra Diamonds

1%

BHP Billiton7%

Gem Diamonds

2%

Rio Tinto7%

Alrosa31%

De Beers31%

11

Cutting centre debt levels – stocks and debt down

0

2000

4000

6000

8000

10000

12000

14000

1600019

80

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

$bn

12

Retail Sales of Diamond Jewellery 2008 ($65bn) (-10%)

51%

15%

6%

6%

6%

16%USA

Japan

Europe

Asia-Pacific

Asia-Arabia

Others

13

Diamond Content 2008

43%

12%8%

8%

15%

14%USA

Japan

Europe

Asia-Pacific

Asia-Arabia

Others

14

Diamond Content 2009 (-3%)

38%

13%10%

15%

20%

4%

USA

Japan

Europe

Asia-Pacific

Asia-Arabia

Others

15

Estimates for growth/(decline) in diamond jewellery consumption in 2009

63.0

2.8

12.5

9.5

6.0

8.5

23.6

Value ($bn)2009

100%

4%

17%

13%

9%

13%

44%

Marketshare

100%

4%

20%

15%

10%

13%

37%

Market Share

64.5-7.9%70Total

2.7-5%2.8Others

10.94%10.5Asia-Arabia

8.34%8.0Asia-Pacific

6.0-5%6.4Europe

8.5-5%8.9Japan

28.1-16%33.4United States

Value ($bn) 2008

Growth (Decline)

Value ($bn) 2007Region

16

Prices recover strongly in post recessionary periodsDTC Rough Price Index vs. US Recessions

17

Investment Opportunities

Top tier2

ndtier

Third 16

18

AH Diamond index - Junior Producers

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

30-M

ar-0

7

30-M

ay-0

7

30-J

ul-0

7

30-S

ep-0

7

30-N

ov-0

7

30-J

an-0

8

30-M

ar-0

8

30-M

ay-0

8

30-J

ul-0

8

30-S

ep-0

8

30-N

ov-0

8

30-J

an-0

9

30-M

ar-0

9

30-M

ay-0

9

30-J

ul-0

9

30-S

ep-0

9

30-N

ov-0

9

30-J

an-1

0

30-M

ar-1

0

19

AGL, Diamond Index & J153

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

07/0

3/30

07/0

5/30

07/0

7/30

07/0

9/30

07/1

1/30

08/0

1/30

08/0

3/30

08/0

5/30

08/0

7/30

08/0

9/30

08/1

1/30

09/0

1/30

09/0

3/30

09/0

5/30

09/0

7/30

09/0

9/30

09/1

1/30

10/0

1/30

10/0

3/30

Anglo American(AGL)

JSE Platinum Index(J153)

AH Diamond Index

20

Market Cap. Top Ten Diamond Companies (March 2008) ($4bn)

Updated on 18/07/2008

0

200

400

600

800

1,000

1,200

1,400

Gem

Dia

mon

ds L

td

Har

ry W

inst

on

Sho

re G

old

Pet

raD

iam

onds

Ltd

Nam

akw

aD

iam

Mou

ntai

nP

rovi

nce

Dia

mon

ds

Arc

hon

Min

eral

s

Tran

s H

exG

roup

Pan

gea

Dia

mon

dfie

lds

Plc

Fire

ston

eD

iam

onds

Plc

$m

21

Market Cap. Top Ten Diamond Companies (March 2009) ($1.1bn)

Updated on 08/06/2009

0

50

100

150

200

250

300

350

400

450

Har

ry W

inst

on

Gem

Dia

mon

dsLt

d

Pet

ra D

iam

onds

Ltd

Mou

ntai

nP

rovi

nce

Dia

mon

ds

Sho

re G

old

Nam

akw

a D

iam

Pang

eaD

iam

ondf

ield

sP

lc

Arc

hon

Min

eral

s

Fire

ston

eD

iam

onds

Plc

Per

egrin

eD

iam

onds

$m

22

Market Cap. Top Ten Diamond Companies (April 2010) ($2.5bn)

Updated on 21/04/2010

0

100

200

300

400

500

600

700

800

900H

arry

Win

ston

Gem

Dia

mon

ds L

td

Pet

ra D

iam

onds

Ltd

Per

egrin

e D

iam

onds

Sho

re G

old

Sto

rnow

ay D

iam

ond

Cor

p

Mou

ntai

n P

rovi

nce

Dia

mon

ds

Vaa

ldia

m R

esou

rces

Nor

th A

ustra

lian

Dia

mon

ds

$m

23

Diamond market conclusion

Cutting centre debt

De Beers’ production/sales in 2010 (60-70% capacity)

Supply restricted

Prices

Shares have lagged recovery in other commodity companies

Diamonds typically late cycle recovery

24

Diamond market – Longer term view

Start with global growth forecasts

Intensity of consumption

Combine with population growth forecasts

Long term view of diamond consumption

25

% of Chinese women acquiring diamond engagement rings

36%

44% 45%50% 51%

56% 57% 56%

66%

80%

20%

30%

40%

50%

60%

70%

80%

90%

100%C

heng

duD

CJ'

03

Thai

DC

J'04

Gua

ngzh

ou

DC

J' 0

3

Japa

n D

ER

'03

Kor

ea D

CJ

'02

KH

DA

S '0

2

Taiw

an D

CJ

'04

Dal

ian

DC

J'0

3

Sha

ngha

i D

CJ'

03

Bei

jing

DC

J'03

26

Economic growth forecasts

8.09 4654 085Asia-Arabia

8.522 3279 082Asia-Pacific

220 63916 580Europe

-0.14 0074 390Japan

319 73914 341USA

CAGR %2020 ($bn)2009 ($bn)

World Bank

27

Regional GDP and intensity of diamond jewellery consumption (2020)

3.62434660594651.433Asia-Arabia

2.0264413057223271.71Asia-Pacific

0.314741527206390.497Europe

2.994123231540070.124Japan

2.01164057716197390.342USA

Intensity of consumptio

n

DJ/capita

($)

Diamond Jewellery

consumption ($bn) ("DJ")

GDP/capita

GDP($bn)

Population (bn)2020

28

Diamond Jewellery Retail Market

2005

Japan14%

Europe10%

Asia-Pacific10%

Asia-Arabia13%

Others4%

USA49%

2010

Japan12%

Europe9%

Asia-Pacific15%

Others4%

Asia-Arabia18%

USA42%

2020

Japan8%Europe

5%

Asia-Pacific32%

Others3%

Asia-Arabia25%

USA27%

29

Diamond supply – Longer term view

Mine by mine production forecast (carats)

Overlay with constant $ price

Resulting deficit feeds into price increases

Overlay with pipeline stocks

Results in price index feedback to

Increased supply

Iterative process

30

No new material sources supply – World Production

Botswana (Jwaneng)

Australia(Argyle)

South Africa(Venetia)

Canada(Ekati)

Canada(Diavik)

Car

ats

(m)

Source: De Beers

31

Pipeline Stocks as a % of Global Demand

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%19

98

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

32

Diamond Pricing Index

0.00

0.50

1.00

1.50

2.00

2.5020

01

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

33

Supply and Demand Indexed (2000)

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

DemandIndexedSupply

34

Conclusion on diamond prices

De Beers managing production increases to “match” demand

De Beers production 66% capacity in 2010 and 80% from 2011 result in …

Rising prices

“Prices will rise” – Stuart Brown (De Beers’ FD)

AH estimates prices will return to 2008 level by end 2010

Prices should double by 2020

Average of 7% per annum price increase

35

Leverage in Diamond Market

Growing production profile

Rising prices

Contain costs

Grow margin?

Value added downstream e.g.

• Harry Winston/Diavik

• Gem/Tiffany (Ellendale production only)

• Rockwell/Steinmetz

• Namakwa Diamonds

36

Conclusion

De Beers still manage the market for rough diamonds

Over-exuberance in 2008 led to high debt levels and subsequent crash

Market is recovering

Diamond prices likely to rise to 2008 levels by 2011

Long term outlook for prices +7% per annum

Diamond shares are late cycle bloomers (should outperform in 2010/2011)

Companies need to leverage off the diamond market