Following is the full text of De Beers Group Managing Director Gary Ralfe's speech to DTC Sightholders at a cocktail party on Tuesday January 11, during the Sight.

 

Ladies and Gentlemen, Good Evening and Welcome to you all, Sightholders and Brokers.

For many years I have addressed you both as Managing Director of DTC and as Managing Director of the De Beers Group of companies.  This year I speak to you as Managing Director of the De Beers Group and Gareth Penny will be speaking to you as the new Managing Director of DTC.

The past year has seen important management changes in DTC.  Not only has Gareth taken over from me as Managing Director but we have also seen the retirement of many esteemed colleagues including Peter Somner, Ian White, Clem Wittenberg and John Finlaison.  Nicky and I proclaim publicly our support and endorsement of the new DTC Exco. Our younger colleagues are bringing fresh vigour to our business but we trust that the change has been seamless, that the DTC continues to fill the mission that it set itself in the year 2000 of being your Supplier of Choice and that, as the marketing arm of the De Beers Group of companies, DTC continues to play a vital role in the De Beers’ leadership of the industry – in matters like 

• Consumer Confidence
• Best Practice Principles
• The promotion of natural diamonds in the face of the long term challenge of synthetics

2004 has been a watershed year and completes what we define as the chapter in our corporate life that started with our Strategic Review in 2000 and the privatisation of 2001.  It is a watershed in many ways.

 

1. It marks the re-organisation of the De Beers Group of Companies.  We now have a clear vision of De Beers SA, the Luxembourg holding company of our group, together with De Beers Group Services, its satellite in South Africa, holding the middle ground as the core of our group.  Then we have the four operating companies :

• Debswana, the world’s leading diamond mining company, our critical partnership with the government of Botswana;
• Namdeb, our valuable partnership with the government of Namibia; which celebrated its 20th anniversary in November
• DBCM, our mining and exploration company in South Africa, now ready to recruit a BE partner in terms of the new Minerals legislation in South Africa;
• DTC, the marketing arm of the De Beers group and the world’s leading supplier of rough gem diamonds.

2004 has also been important in terms of succession planning.  Not only has Gareth replaced me as Managing Director at DTC, but Jonathan Oppenheimer has taken over from me as Managing Director of DBCM.  And at Debswana, Blackie Marole has taken over from Louis Nchindo.  An American, Ed Dowling, has taken over from Gavin Beevers as Group Director of Mining and Exploration.  He, Blackie Marole of Debswana and Inge Zaamwani of Namdeb have all joined the De Beers Exco and are important new players in the team that will continue to lead our company and set an example for the diamond industry.

 

2. I spoke about our critical partnership with GRB.  On 20th December, Nicky and I were in Gaborone to sign the MOU on the renewal of Jwaneng lease for a further period of twenty five years.  I hardly need to remind you that this is the world’s richest diamond mine producing over $1 ½ billion of rough diamonds, 15% of the world’s total supply.  At the same time the lease of Orapa and Letlhakane mines which was due to have expired in 2017 has also been extended by twenty five years to 2029.   Last year Debswana produced a record 31 million carats, again demonstrating that Debswana’s mines are the richest in the world and are capable of further expansion.

 

3. It is three years since we signed the trading agreement with Alrosa but while we waited for the approval of the European Commission we have traded satisfactorily on a “willing buyer, willing seller” basis.  Just before Christmas the new Commissioner for Competition indicated that, subject to a mandatory consultation period, she intended to approve a proposal put by De Beers and Alrosa and, after due process, we expect that this will be made into a formal arrangement with the European Commission.  In terms of this arrangement, DTC will be legally able to purchase $700million of Alrosa Diamonds in 2005, but declining by $75million for every year thereafter.  We regard this as a good outcome and important for the continuing confidence of our industry.

 

4. In our strategic review five years ago we set ourselves the target of legal compliance.  The impending agreement with the E.U. on our contract with Alrosa is the culmination of a long period of scrutiny of our affairs, notably of our distribution arrangements and of the Russian contract.  Another important hurdle this past year was a settlement with the Department of Justice in America.  Although the indictment against us was about industrial diamonds, nevertheless the settlement with the DoJ is an important step and it means that, in terms of American law, there is nothing reprehensible in the way De Beers organises its business.  What we do still have outstanding in America are certain civil actions but we regard these actions as being without merit.  De Beers is in no hurry to start doing business in America; according to our geologists it is not prospective for diamonds and those that wantonly bring litigation against us need to know that De Beers is not prepared to play their game.

 

5. Last year I told you that De Beers had performed financially so well since privatisation that it was able to re-finance the credit that our owners engaged in order to effect the leveraged buyout.  Although legal restrictions make it difficult for us to market other parties’ production we are now in the position financially to seek new business.

 

6.What do I mean by new business?  Well, we hope early this year to secure the approval of our board to the development of a new mine at Snap Lake of NWT of Canada.  We expect the Victor Mine in northern Ontario will come shortly afterwards.  We also signalled recently to the Russian Prime Minister that in addition to our long trading relationship with Russia, De Beers is looking actively to create an exploration, and hopefully mining, role for itself in Russia.

 

7.Supplier of Choice has demonstrated to all of us that with investment in marketing, with great campaigns like three stone diamond jewellery and Nakshatra, DTC and its Sightholders and further downstream partners can continue to grow the market for DJ.  The challenge now is to find more rough diamonds for DTC to meet your growing appetites for larger ITOs.  Part of that has been achieved by the 8% compound increase in carat production due mainly to increased efficiencies registered by the De Beers group for each of the last ten years. Since the millennium much of the additional demand has been met from De Beers’ stockpile.  Just as you all know that it is not financially sensible to run a large stock pile so have we been depleting ours.  We now aspire to De Beers producing more diamonds in order to meet the demand that together we are creating.

 

8.Finally, we are at a watershed because the first period of our new selling arrangements is drawing to a close and already you are assailed with the new client profiles leading to the important selection of DTC Sightholders with effect from July 2005.  Varda has sent you all a very clear letter setting out many important issues. I want to refer to just two of them.

 

The first is the rules that we are laying out for Sight applications in the producer countries of Southern Africa.  Together with your help we want to demonstrate to the governments of these countries our role as allies to help build viable, non-subsidised cutting industries there that under Supplier of Choice can compete with established cutting industries elsewhere.

 

Secondly, we have been concerned for  competition law reasons to introduce appropriate measures to guard against unlawful exchanges of confidential data by those in material competition with DTC Sightholders in the mining of rough diamonds.  I remember some years ago explaining to you that DBLV does not compete against our Sightholders.  In many ways this is the reverse of the medal, to ensure that the IP, such as prices, that we share with our Sightholders is not then passed on to, and used by, other rough diamond suppliers.

 

Ladies and Gentlemen, I have heard silly things about the year after the US Presidential elections always being a bad year economically.  I do not buy that myself.  I can remember one year - Mr Clinton’s first year as President -as being an extremely strong year in America.  Indicators like US interest rates and the Dow Jones would suggest rather that the American economic cycle is still to grow to full maturity.  And the continuing growth of China and India, together with the revival of the Japanese economy, more than compensates for the decline of Euroland.  Whatever the case, I am sure that the leadership of DTC, together with your own entrepreneurship and professionalism, will ensure that the diamond market keeps thriving.

 

We in De Beers have prepared ourselves for what we call the new chapter of our business.  We assure our Sightholders of our support, our leadership and the value that we can bring your businesses.  I wish you all good health and prosperity in the New Year.