The Diamond Market. Keep exploring! James Allan Botswana July 2006

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1 The Diamond Market Keep exploring! James Allan Botswana July

2 Contents Diamonds still a girls best friend Last years conclusion The market in the early 2000s Cutting Centre Debt What is driving the market? Supply and Demand Conclusion

3 Conclusion(2005) Current market growth is likely to be sustainable Cutting centre debt.ok for now Can growth in China and India offset a slowdown in the US? Market deficit to be offset by price increases Consumer confidence remains key to growth

4 The Diamond Pipeline Consumer Research, Advertising, Promotions & Publicity Prospecting Mining CSO Cutting centres Polished Market Jewellery Manufacture Retail Consumers Trade Liaison and Market Surveys

5 Diamond Pipeline ($m) Exploration Mine Costs Mine Production Polished Wholesale Market Value

6 The Opportunity Gap - Key Marketing Insight in 2000 Diamond jewellery outperformed by other luxury goods - and GDP CAGR 1980 = 100 Luxury goods GDP* Diamonds (Polished Wholesale Prices)

7 Driving Growth World Retail Sales (USD) 4.0% % % 8.5% 6.3% 2.6% 0% 0% Source: DTC

8 Retail Sales of Diamond Jewellery 2005 ($68bn) (+6.3%) 16 % 6% 6% 6% 51% USA Japan Europe Asia-Pacific Asia-Arabia Others 15 %

9 Polished Prices Index

10 De Beers -diamond stocks to 2004 (Estimated from 2001) $000 s

11 Cutting Centre Debt

12 US Fed Funds Rate

13 Cost of debt to Rough Turnover Ratio

14 Indian debt as % of total cutting centre debt

15 Has the SoC Strategy been solely responsible for the market growth? Increased ad-spend has no doubt played a role But what are the underlying fundamentals Remember economists don t understand the fundamental drivers of an economy as they do not understand sex.

16 The Baby Boom US Births by era Million Parent of of Babyboomers Baby-boomers Born before 1931 preview Boom Preview Boom Baby Boomers Baby-boomers Gen-X Echo Boom

17 US Consumers Increases/Decreases by Age ( ) Percent 70 Projected % Change in Consumers by Age Under Under Over Over Age

18 Jewellery Expenditures by Age $ Per Capita $ Boomers - today to Under & over Age James Age Allan & Associates

19 Jewellery Expenditures by income $ 250 Per Capita Boomers - today to <$ 15K $ 15-30K $ 30-40K $ 40-50K $ 50-70K >$ 70K Income Age

20 US Diamond Jewellery Expenditure by Age (000 s) Adult Womens Market $ Boomers - today to 2010 Under & over Age Age

21 The Jewellery Boom Baby Boomers entering high income bracket Inheriting more High disposable income Jewellery spend to rise sharply

22 The Jewellery Boom BOOMERS TO GIVE US JEWELLERY SALES DRAMATIC GROWTH

23 USA 3 STONE JEWELLERY

24 3 Stone Ring Sales +11% 2005

25 Right Hand Ring advertising +15% in 2005

26 US Jewellery: Share by Occasion

27 US Jewellery Sales Growth of 7% in 2005 Still underperforming luxury goods (+12.6%) Slower growth predicted in 2006 Major drivers: married women, high income households and heavy owners Right hand ring and 3 stone ring showing superior growth Consumer confidence is still high (particularly in high income households)

28 Market Growth India

29 CHINA DIAMOND WEDDING RING

30 China Diamond Wedding Ring Acquisition in China Now Exceeds that of More Mature Markets Acquisition of DCJ amongst recently married women 80% 66% 36% 44% 45% 50% 51% 56% 57% 56% Chengdu DCJ '03 Thai DCJ '04 Guangzhou DCJ '03 Japan DER '03 Korea DCJ '02 HK DAS '02 Taiwan DCJ '04 Dalian DCJ '03 Shanghai DCJ '03 Beijing DCJ '03 Source: DAS/DCJ

31 Chasing the Petro Dollar

32 Diamond Production in 2005 (JA estimates) Other South Africa Canada $800m $1560m $1400m Australia $600m Total $1200m $10.7bn $2810m Botswana Angola Russia $1700m $620m Namibia

33 Mine Supply ( 000cts) (000) carats 150, , , , , , , , , , ,

34 Mine Supply ($/ct) $/ct

35 Mine Supply ($m) 12,000 11,000 10,000 9,000 8,000 7,000 6,

36 Mine Supply 2010 Production 2010 ($11.5bn) South Africa 19% 10% 14% Botswana Namibia Russia 2% 10% 15% 5% 24% Angola Australia Canada Other

37 Challenge Growing/meeting demand $ m per annum? Maintaining Growth 10% 0%

38 Supply/demand deficit Demand growth to $4-5bn? Supply growth to $1.5bn? Canada $950m (Snap Lake, Victor, Diavik, Jericho) Botswana $250m (Jwaneng, Orapa and AK6!) South Africa $150m (Venetia) Angola and other >$200m? Deficit 20-30% of current supply>prices

39 Market Deficit to $bn S A B o t s w a n a 0 3% 4% 5% 6% 7% Market Growth (Annual)

40 Market deficit SA>Diamond Amendment Bill >$400m Quest for carats De Beers drilling 55 kimberlites in Angola in 2006 Shorten mine development pipeline to <10 years DRC Botswana

41 Synthetics- A threat to the industry Combat the synthetic threat on several fronts Detection Disclosure Differentiation

42 Global Overview Rough diamond prices up 35% since 2002 De Beers prices up, 2% in Feb 2006>poorly timed Carat production decline of 2.5% per annum to 2010 Argyle production to halve by 2010 But growth in value of 1.5% per annum to 2010 Demand growth 5-6% per annum? Upward pressure on rough prices Less carats to cut and polish! Indian cutting centre will be under pressure to take bigger stones

43 Rough Diamond Price Increases Since 2002 SourceJA Presentation to World Diamond Conference Perth $1500/ct <$20/ct Percent $75/ct Middle Orange River Market Average Indian Goods

44 Conclusion Strong appetite coupled with greed leads to indigestion current slow down Cutting centre debt becoming a problem US. China, India, Middle East growth is strong Market deficit to be offset by price increases Consumer confidence remains key to growth

45 Questions? Corporate finance and advisory (office) (mobile) 45

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