CORPORATE PARTICIPANTS
Stephen Lussier
De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
Nicky Oppenheimer
De Beers Consolidated Mines Limited - Chairman
Stuart Brown
De Beers Consolidated Mines Limited - Finance Director
Gareth Penny
De Beers Consolidated Mines Limited - Managing Director
CONFERENCE CALL PARTICIPANTS
Tim Clarke
Deutsche Securities - Analyst
Martin Creamer
Mining Weekly - Analyst
Des Kilalea
Royal Bank of Canada - Analyst
Ross Gardiner
JP Morgan - Analyst
PRESENTATION
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
Good morning to those here in Johannesburg and to those in London and on the web. Before we go on, can I just have confirmation we have -- that we have communication with those on the web? Was that a yes? That's good. (inaudible) at the back if that's the case.
My name's Stephen Lussier. I'm the Executive Director for External and Corporate Affairs for De Beers. I will be walking us through the next 45 minutes or so. It's a relatively straightforward format. As you've seen before, we open with about 25 minutes of presentations in total, and three speakers, Nicky Oppenheimer, Financial Director, Stuart Brown, and the Managing Director of De Beers, Gareth Penny. Following that we'll have about 20 minutes for questions, both from the audience here in Johannesburg as well as those listening in over the web line.
So first I introduce Nicky Oppenheimer who will offer a few overall comments on 2007.
Nicky Oppenheimer - De Beers Consolidated Mines Limited - Chairman
Right, ladies and gentlemen. Welcome to this results meeting. It's always a pleasure to have [those] and have the opportunity to interact with all of you. I can assure you that it wasn't a deliberate plot to have it on the same day as President Mbeki is opening parliament.
And if we can move on, I will make just some general comments before Stuart and Gareth will talk in more details.
As you will see, sales are down some 3%. That's pretty much in line with what we forecast and is mostly affected by lower availability from Russia. And against that we're very pleased that underlying earnings of some 14% ahead of the figure where they were last year.
Capital expenditure, as you see, up at a high of $1.12b. And this is expansion capital. And we're particularly pleased about that because it means we have had the opportunity to invest in our future because De Beers' future and growth in the future has to be investing in new mines. And that's what one is seeing there.
As you will see, the impact of this substantial capital expansion program is that our debt bearing -- our interest-bearing debt levels have gone up to a very high figure of just over $4b, in a sense we're in the eye of the storm there, you might say, because of the four projects that are taking most of our money at the moment, Snap Lake is in the process of being commissioned. It is producing diamonds and it is ramping up.
SASA, the Peace in Africa, our mining vessel, mining off the Northern Cape coast is also ramping up. And the two other projects where we're spending substantial money is Victor in Canada and Voorspoed here in South Africa, both ahead of schedule but are obviously consuming a very substantial amount of money.
You will see that dividends for the year at $139m. And in regard to the dividends, the shareholders have taken the decision that against the high debt levels they will reinvest the final dividend of $100m back into the Company in the form of a loan. And I think a proper indication of our share, speaking with my shareholder hat on for a second, of our confidence in the Company and its future.
Just a few other comments to be made. We're very pleased with the Venetia new order mining license that has been issued to us. And we expect that to be signed off in March. And it's pleasing that the conversion for us from old and new in our other mines is proceeding smoothly and we'd expect those to come through in due course.
Stuart will talk in more detail about the Canadian impairment. I think this is absolutely the right thing to do from an accounting point of view, as long as it doesn't impact the bottom line of De Beers. And by the bottom line I always refer to the free cash flow as the bottom line.
And what has happened there is obviously, as we had reported previously, there was a capital overrun at Snap Lake and with the very heated nature of the natural resource business the construction costs have been going up, and obviously the impact of the fuel price in those far northern environments (inaudible) impact.
Then over and above that, the very substantial move of the Canadian dollar has had a great impact. So then the right thing to do is to take this impairment. But I'd like to look to the future and what I think is exciting is that there's no doubt that De Beers in Canada has the greatest Arctic mining team, the best Arctic mining team available and that under Jim Gowans they're doing a great job in the commissioning and ramping up of Snap Lake.
And, as I said earlier, the Victor project is well ahead of schedule. We will hope to see diamonds from there by the end of the year. Certainly in next year our Canadian operations will be contributing cash, with the free cash flow of De Beers, and I think it's tremendously encouraging (inaudible).
South African energy issues is something that is impacting all of us. And by all of us I don't just mean the mining industry. Every single person in South Africa is impacted by the energy issues that we are seeing. And I think it seems to me that this is not a time for blame and, very importantly, not a time for (inaudible) for all of us Southern Africans to come together to help resolve those matters. And Gareth will talk in a little bit more detail about that.
We're going to move on to Living Up To Diamonds, the partnership seems to me very important for the future here in Southern Africa. Next year it seems -- I think it's the way forward in the world at large. And it's tremendous to see the creation of DTC Botswana and the Namibian DTC and the DTC here in South Africa and the way they are extending the partnership between De Beers and the producer countries here in Southern Africa, and also the [coastal] operation that has surrounded the setting up of the State Diamond Trader.
In 2009, some $1b worth of diamonds will be sold through (inaudible) in Southern Africa. And I think what's great is that it's quite clear that De Beers and the diamond industry as a whole is at the forefront of beneficiation, which is so important. Once again, we are setting the trend down there, [satisfying].
On the sale of assets, as you will have seen during the year, we sold the [Coffefontaine]. Typically underground dumps and, most recently, (inaudible) mine. As you see on the slide here, we see this as a very satisfactory win, win, win situation. We believe it's a winning situation. For junior miners who are able to take on assets which De Beers can no longer operate in a way which gives us a satisfactory return. And we think it's a win for De Beers. And we also think it's a win for the government because we're ensuring that those mines continue, employment continues and production continues.
And then onto safety, this is a tremendously important issue. And it was always my firm belief that when a company is operating safely, it's operating promptly and operating efficiently. Very sadly during 2007, De Beers had one fatality on the Wiliamson diamond mind in Tanzania. But it's produced some other figures which are really extraordinary. You will see here the LTIFR rate of 0.18, which is a tremendously great achievement and something much to be celebrated.
And not only that, the Oaks Mine has gone six years and not had a single loss time injury. At the Fitch Mine we now have over 11 -- sorry, over 6m fatal-free shifts, which is the equivalent of 11 years of operations. I think those are tremendously encouraging and shows that safety is at the forefront of De Beers mines. And, as I said earlier, if we're operating safely, we're operating efficiently (inaudible).
I'd now like to hand over to Stuart Brown who will take you through the figures in the greater detail.
Stuart Brown - De Beers Consolidated Mines Limited - Finance Director
Thank you, Nicky. Ladies and gents, straight into the income statement. As Nicky mentioned, Group sales slightly down about 3%, primarily due to the lower Russian goods available. And while on the Group sales, I'd just like to touch on an element a bit, during the year that 10% of organic growth which was very satisfactory, and it also benefited by the critical acquisition of Barat Carbide which is a company based in Germany, and we had one quarter's worth of consolidation of those results.
On a full-year basis, Element Six is now a very substantial company in the [hard materials] industry and I think this is a really good opportunity in that environment.
While overall gross profit was down on a volume basis, we're very pleased that we managed to maintain the margin of 20%. And I put two production statistics up there, one's on DBCM, under David's leadership, and I think there were significant improvements on cost fund issue year on year of some 11%. And also Debswana picked up those as well, at 3%, under Blackie's leadership in Botswana.
And I think if you take the environment in Southern Africa with high wage inflation at the moment, strong material cost push inflation, high fuel prices, we're particularly good in keeping our costs under control and driving through continuous business improvement. I think there's been a strong emphasis there on the [mines]. And that's starting to come through on the income statement and gross profit line.
And in particular we're starting to see the benefits of all the restructuring we've done in South Africa in De Beers Mines. Nicky was talking about the disposal and sales of these operations which obviously [time costs] for us, whether we've got a win, win situation for the purchasing and then we can turn those operations [down] their cost structures. I'm particularly pleased about those.
Obviously the challenges continued in 2008. And last year on underlying earnings, as Nicky mentioned, a 14% increase. And I think that's been largely driven by some tax efficiencies where we've been able to affect those benefits. And a larger share of retained income from our joint venture partners compared to last year.
Finally, on the income statement, if I can briefly touch on trade investment income. This is mainly made up of our diluted (inaudible) from our joint venture partners. So on a year-on-year basis, very flat and, as we expected, particularly for 2006. If you take the environment that we're operating in, I think that's pretty good.
Exploration showed a significant reduction compared to 2006, and this is mainly as a result of no longer repeating all those establishment costs that we picked up when we first got back into Angola and DRC. So we are seeing the expansion drop down on those exploration costs. However, we remain committed to discovery and that's where we're going to grow the business, through discovery. And Gareth will spend more time on those in his presentation.
Moving onto the impairments, this shows you the Canadian dollar compared to the U.S. dollar over a six-year period. We've obviously had a lot of talk about this. And it's been something we've been thinking about over the last six months. And in accordance with an [integrated variation] methodology, impairments and reviews are now conducted on a producer country basis, whereas previously it was the Group as a single cash-generating unit.
This has been necessitated by a change in the distribution network environment. We now have local distribution of diamonds in every single producer country. And this is what caused us to rethink our proposal of an impairment policy. We've always had an impairment policy, but this [stems] as a change.
Looking at this now, if we take in the last 12 months, the Canadian dollar is the high at 1.18 and a low at 0.91. So you've got CAD0.91 to U.S.$1. And that's focused our minds. We have looked at our long-term projections around cost in Canada. We've told you about frequency of our reported capital overrun. And our long-term view on fuel and labor prices and we'll keep this market in Canada. And we think it's very prudent to take the impairment charge of $965m.
It's also a point -- Nicky did point it out that towards the middle of this year our cash flows will reverse. Our cash outflow will become cash inflow towards the end of the year. And in 2009, if everything goes to plan, we will have substantial cash inflows.
Turning to the balance sheet, there aren't too many areas of focus there. Obviously fixed assets continue to grow with our continued investment in assets. However, this [policy] tempered by the impairment that we've written down, as you know. And interest-bearing debt, as Nicky said, has grown by $1.1b. And that's primarily due to, again, the continued investments in the four major projects that are now turning to production in 2008, and we'll give you some detail later this year.
Net [inflow] of cash remains a priority for us in De Beers, so we continue to focus on that. And that's all the (inaudible) some of our debt is denominated in Canadian dollars, but converting them into U.S. dollar also has an effect on increasing the U.S. dollar [debt].
I'm pleased to announce, and Nicky did say that our gearing ratio moves up dramatically, considering we're taking impairment into account. But the confidence the shareholders have shown by reinvesting in the final dividend gives us great confidence in the industry as we move forward.
Now moving to the cash flow statements. There's been an increase in cash generated from operations, with $35m, very positive there. How we spend the money, how we spend it on fixed assets - stay in business as we increase our share of the (inaudible) equipment and stay in business capital. Primarily in Venetia we've done that. Expansion capital, I think we've covered enough of that. And investments represents the Barat Carbine acquisition, as well as the sales for our diamond sourcing [volume] that we're just nearing transition and will be opening next month in Botswana. I think that's very good.
The cost containment on all the operations is just starting to come through to income statement, administration costs and restructuring. And the outlook there is to further reduce those on the income statement.
And I think in summary, a very satisfactory year for De Beers, and (inaudible) cash in particular. And I think that considering we started of the year with price -- find prices lower than we budgeted. So I think a really satisfactory year.
That's all I have to say. Thank you. Gareth?
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
While Gareth is coming up, I just want to ask those on the web who haven't refreshed their slides, I understand we've lost some content. Refresh and you'll pick up the presentation live.
Gareth Penny - De Beers Consolidated Mines Limited - Managing Director
Stephen, thank you, and Nicky and Stuart. I would like to give you an overview of De Beers' operations during 2007. And I would particularly like to focus on the production performance. I'd like to talk a little bit about the future projects, the way in which we are monitoring our sales and distribution, and then look at demand opportunities and challenges and also, as part of that, the outlook for 2008.
So if we turn first to our focus on profitable production growth, I think a very satisfactory year within De Beers Group. You will have seen that at 51.1m carats we are on a par with 2006 and, just to remind you, that was a record production year. So pleasing results. And if you look across really all parts of the operations, I think satisfactory performances.
DBCM up at 15m carats from 14.6 last year. Namibia at 2.2m carats, up from 2.1 last year. And Debswana at 33.6, that last year was 34m carats that was record production. And, of course, for the first time, 81,000 carats of Canadian production that will be building rapidly through the course of 2008.
And then just as Nicky has mentioned, we take a lot of pride in our safety [procedure]. You will see that the 0.18 [spot prime] injuries, we believe this is a record for De Beers in its history, the lowest level of injuries that we've had in the Company comparing to 0.12 this time last year.
And if we think about 2008, we are anticipating similar levels of production, leaving aside the power issue which I'll come onto in a little while. So we moved from production to new projects, and I want to talk a little bit about Snap and Victor to start with. These are currently being commissioned, Snap Lake, and will be in full production during 2008.
It is expected to produce, as you can see from the slide, 24.6m carats over 20 years. The construction of the process plant, facilities, service building and related infrastructure was completed in 2007, and there remains some underground construction to be completed in [the first part] of this year.
With regards to Victor, we're actually well ahead of schedule there, and anticipate producing 6.2m carats over the next 12 years. There is quite a lot of upside, and I'll come to that in a minute. The Victor team should be commended for the speed at which it's moved forward, to the extent that is it is likely that production there will be advanced by up to six months. And they've done this without compromising safety or environmental issues.
As Nicky has said, we have an exceptionally strong team in place in Canada, with considerably smooth operating launch of the -- in the Arctic. And this team is looking at number of measures to improve the economics of these operations. We're striving for greater energy efficiency, we're reevaluating the cost structures there, and probably most importantly, we're looking to lower the dilution of non-diamond [excess] material and thereby increase production yield through the plants.
But what we're also doing, as you see from this slide, is evaluating the kimberlites, in particular around Victor. And we're encouraged by the fact that we've found a number of new kimberlites surrounding the Victor site which we believe we may be able to bring into production in later years. We're doing the drilling work on those at the moment and have more information on those at a point in the future.
Similarly, with Snap, we're looking at ways in which we can extend the reserves and the resources of that operation to move beyond the 20-year life because we also believe that is possible. Obviously both of those will have an important long-term impact on those particular projects. But I think we're confident about them. We have a strong team in place. And we believe by ensuring that there is appropriate value for now we're doing the right thing for the future.
Staying with new projects, and moving to Southern Africa, as you know, we launched last year the South African Sea Areas project, the Peace in Africa, which we anticipate to produce -- we anticipate producing something like 4.5m carats over 30 years. This is, in fact, the largest drill ship that De Beers has ever built. And we believe it's, in fact, the largest mining drill ship in the world. So really quite an accomplishment.
Voorspoed mine, under construction currently. Likely to reach full production in June 2009, and we expect 8.3m carats over 13 years.
And then eventually to Botswana, the Boteti Exploration Company, a JV between De Beers and African Diamonds PLC Wati Ventures has now filed a mining license application for AK06. This we estimate to have a reserve of something like 11.1m carats.
Then turning onto exploration, we said before that we are focusing our efforts on a smaller range of countries, and moving through the phases more quickly. You see in the slide the drill rig at (inaudible) in Angola. We have got in situ bulk [contracts] with Angola now and we will shortly have in the DRC as well. Last year we found something like [45] kimberlites and we are in the process of moving some of those rapidly from early to advanced stages of exploration.
From the supply side of our business, the demand side, you will have seen that DTC sales at $5.92b were a little down on last year. And as both Nicky and Stuart have explained, this was primarily as a result of the lower Russian intake that we had, $500m. And just to remind those of you here with me that this year it will be $400m so we anticipate a further $100m reduction in our relative intake through in the quarters 2008.
In the early part of last year, as Stuart mentioned, diamond prices were under some pressure. But really from the middle of the year they rose pretty rapidly, rough diamond prices to the extent that, by today, as we sit here, compared to the middle of last year, we're up something like 7.5%. And those prices -- rough price pressure continues. And we'll have to watch that and see how that position unfolds in the face of the U.S. market.
And that really brings me onto continued growth in consumer sales. We estimate that for the year as a whole, overall diamond jewelry sales will have grown by something like 20%. In the year, that figure was around 2, our current estimate. The balance of the world, and particularly China, India and the Gulf, we have seen strong sales. That's excluding Japan where positions have been difficult and there's probably been a slight decline.
But overall for the year, clearly the concern was the U.S. market over Christmas, and sales there were disappointing, particularly for some of the majors. Having said that, the high end independents [in certain instances] showed reasonable results. And clearly with subprime and the other issues pervading in America, this is going to be something that we'll be watching carefully during the course of 2008.
I want to say a word or two about the transformation that is going on in the Diamond Trading Company, the sales of the De Beers Group, where the plans that we talked to you about before are now being turned into action. DTC is transforming itself into local DTCs in Botswana, Namibia, South Africa, and really reflecting the flexibility that we are bringing into the business and the alignment with national priorities.
We have a new client list which we communicated to our stakeholders at the end of last year, and that will continue -- will be implemented with effect from the beginning of the second quarter. We also took a decision to create a separate division, De Beers Group Marketing, which is focused on building the FOREVERMARK. And we're encouraged so far by the results from the pilot project where we've sold something like 83,000 stones, and HKD1b. We believe that the time is now right to convert this pilot into a more substantial part of the De Beers business. And we will be completing a business plan early in 2008 with a view to implementing that before the end of the year.
In terms of associated companies, we've been encouraged by the growth of De Beers Diamond Jewelry. This was growing in terms of our own stores, as opposed to some of the franchise stores that we have as well, by 44% during 2007. We added eight new stores to bring a total of 23 globally. And I think what is the key thing is this is a very balanced business now, with 24% of the business in the U.K., 26% in Japan, and 30% in the U.S., so really developing a very international footprint.
The Talisman collection, in particular, has done extremely well. And as you see on the slide, we launched a new watch collection and, again, we are pleased with the early results. We see 2008 and '09 as years of strong growth, and we plan to more or less double the amount of stores that we have currently in terms of outlets through the course of this and next year.
The Element Six, 18% growth in sales. Stuart has already mentioned the acquisition of Barat Carbide. And this is now becoming quite a substantial business for De Beers, and this year we anticipate a combined turnover with the introduction of Barat Carbide of around U.S.$0.5b.
I finally wanted to just touch on reputational issues and transparency, and explain the particular views that we use within the Company (inaudible), operating and behaving in a way that is in line with the very values of the product that we sell. We have put out an extensive report to stakeholders which you will find on our web which gives considerable detail to different aspects of De Beers' operations, its value and its commitment to society. And I would encourage that as background.
I did want to touch on one regulatory issue which has been topical [we think]. That is the U.S. class action. As I think you're aware, preliminary agreement was reached in March with the (inaudible), March 2006. And funds were paid at that stage into an escrow account in conclusion of the settlement process, impending settlement process. The latter is now proceeding according to the timetable given out by the Court, and the De Beers anticipates a [clearance] hearing will occur in the first half of 2008.
This is really just by way of conclusion, Nicky has touched on the South African power challenges. These obviously have had an effect on the business. We were managing 80% of our total demand for electricity which has now increased to 90%. Clearly at 90% there is going to be some impact on our production. We're currently estimating how we can be able to manage that in terms of power saving initiatives and being able to allocate power to the most important parts of our operations.
If that dips below 90%, it's clearly going to have an impact. It could be 10% or more of our production. So that is something, as Nicky has said, that we will be working very closely with all parties involved in trying to find a satisfactory outcome.
We see delivery through partnership as very much De Beers' business model. This year, and I said, we plan to achieve our production targets in line with last year. We're bringing four new mines into production, to advance the exploration projects that I described, and to make sure that we are proactive and nimble in our sales strategy to drive new revenue streams through the (inaudible) De Beers Diamond Jewelers and Element Six and the FOREVERMARK. And, importantly, particularly in vertical operating positions which we are likely to take this year, the situation in the U.S. and elsewhere, to make sure we are seeing operational efficiency and effectiveness right across the operation. And that is the key priority for us in 2008.
That concludes what I have to say. And I'd like to hand back to Stephen.
QUESTION AND ANSWER
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
Thank you, Nicky, Stuart and Gareth. We'd now like to start 20 minutes of questions which we'll take both from Johannesburg and around the world. I say this every year, and no-one ever takes any notice, but anyway, I'll say it again, try to stick to one question please. We can always come back to you again if we have time, and try to make that question not have five parts to it as well. For those who don't get a chance to ask their questions, obviously, our press office will be happy to take any other questions and we will get back to you with answers as well. Shall we will start here in Johannesburg. Yes please.
Tim Clarke - Deutsche Securities - Analyst
Thanks Tim Clarke from Deutsche Securities, just one question from us. Could we just revisit, Gareth, actually the goals that you set at the beginning of this stage, particularly in relation to EBITDA and return on capital?
And there has clearly been a lot of restructuring happening, we've had mines sold (inaudible) etc., the restructuring charges (inaudible) etc. I was wondering if you could give us an idea of how you are doing with that process, and if those goals remain in place and if the outcome has (inaudible)?
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
Gareth
Gareth Penny - De Beers Consolidated Mines Limited - Managing Director
Tim thank you. Just to remind those who are not familiar, the goal we set was $2b of EBITDA by 2009 or by the end of 2009. What you will see from the figures here is that we are at $1.2b so quite some way to go. This next year should show quite a considerable uplift of Canada, because obviously bringing those operations in line is going to pull that up significantly. And through 2008 and 2009 we will make considerable progress towards that $2b target.
With the cost restructuring and so on we've probably got some gaps there that we need to find ways of addressing. But we haven't changed the goal of $2b.
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
Stuart can I pass it over to you?
Stuart Brown - De Beers Consolidated Mines Limited - Finance Director
Sure. Return on capital has dropped in terms of (inaudible) impairment in Canada has taken an effect on that and the lower returns of the pricing scenarios that we are in now. But we still remain committed to increasing return on capital. But originally we had 20% as a target and that won't be achieved given the current state of the balance sheet and the value of that.
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
Thank you. Could we take a question from the web if there are any on line?
Operator
There are currently no questions from the conference call.
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
Good opportunity here in Johannesburg then. Yes, we have a microphone placed in the (inaudible). Can we go here first and then we will come to you next (inaudible).
Unidentified Audience Participant
Question for Stuart really on tax. Stuart you guided (inaudible) last year that pricing was (inaudible) for that (inaudible). The difference between last years tax rate and the full year rate (inaudible) a lot (inaudible) half year was 30% and the full year is not 40%. (Inaudible) little bit and then give us the guidance [on tax] for the year 2008 please?
Stuart Brown - De Beers Consolidated Mines Limited - Finance Director
Tax for 2008 is going to be still around 40%.
Unidentified Audience Participant
The first half versus (inaudible).
Stuart Brown - De Beers Consolidated Mines Limited - Finance Director
The first half of this year is when we had -- we've done some tax restructuring and moving costs around the Group, just because its better decision making moving them from the center to the operation. And that had a benefit and that was really realized in the first half of the year.
Second half of the year we've not seen that benefit, it was almost a one off benefit that we got in the first half year. And that's what we accounted for. So I think in 2008 we will see roughly the same levels of taxation.
And a lot of our expenditures I have explained before. Some of our expenditure enjoys no tax cover our [current] investment and exploration. And clearly the higher that figure is it impacts on the overall tax rate, and we do look to bring that down.
Martin Creamer - Mining Weekly - Analyst
Hello [Martin Creamer] Mining Weekly. Unfortunately this a two part question, but they are related. I just wondered if (inaudible) 90% possible reduction as a result of the power crisis indicates. My calculation for Southern Africa would be about 5,000 carats can I take it as that?
And also what impact will this have socially, and I refer here to jobs, will you be cutting jobs?
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
Gareth I think the question is for you.
Gareth Penny - De Beers Consolidated Mines Limited - Managing Director
Martin firstly let me be clear that if we get 90% plus power we feel it will have clearly some, but a limited impact on the business. What I was quite specific [saying] if it goes below that it will start to mount up. Clearly the issue is going to be the extent to which it only impacts on South Africa, or that it goes in particularly into Botswana, because as you know the majority of our carats are coming from Botswana. So if the 10% [earnings] affected the South African operations we've got 15m carats in South Africa which is significantly less than the 90m you might be looking at about 1.5m carats because that would be that figure.
But [David] and his team are working hard to find ways to address that. 9m carats are coming from Venetia, so half the -- well over half the production. And if we can maintain operations there successfully then again that impact will be significantly mitigated.
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
Are there any more questions here in Johannesburg? Yes. Microphone in the first row please.
Unidentified Audience Participant
One question about the DTC. You said the transformation of DTC now to Botswana, Namibia, South Africa. Does it mean that you will scrub London, or does it mean that London will continue and what is the percentage then, what do you have in mind of London of Botswana, Namibia and South Africa? Thank you.
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
Maybe Gareth.
Gareth Penny - De Beers Consolidated Mines Limited - Managing Director
No we don't plan to as you put it, scrub London. What we are doing is relocating the activities that we think best take place in Southern Africa. And for us to be doing sorting in London is firstly, we don't think, cost effective to relocate that activity into Southern Africa it achieves economies and it creates alignment between us and our Southern African partners. So there are economic benefits for De Beers. There is also a shortening of the pipeline, because clearly you are brining that activity closer to the major sources of production. And so we think we can get efficiencies as well.
What we will be continuing to do in London are the things that are appropriately situated there, international marketing, consumer research, gem detection type activities. More if you like the consumer facing type activities particularly that focus on the markets of the U.S. and of Asia. Plus certain other ancillary service support functions that would take place there.
Unidentified Audience Participant
And do we have (inaudible) in mind, how many diamonds in Namibia, how many in Botswana all the production there?
Gareth Penny - De Beers Consolidated Mines Limited - Managing Director
Well the -- as now the different countries in Southern Africa would mine and fully sort their own production. So every southern African country would have its own sorting capabilities. As it does, we are enhancing those in terms of training and technology. And once completely and fully sorted those diamonds would then be mixed together, what we call aggregated in the central facility in Botswana. That activity is currently taking place in London.
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
Thank you. I'd like to go back and see if there are any questions on the web yet.
Operator
We have one question from Des Kilalea of the Royal Bank of Canada. Please go ahead.
Des Kilalea - Royal Bank of Canada - Analyst
Thanks. I wonder if you could -- if Stuart could maybe give us the [carrying] value of the Canadian assets or the Canadian investments now? I just want to get an idea of what that $960m odd write down represents as a percent of total.
Stuart Brown - De Beers Consolidated Mines Limited - Finance Director
Current, Des thank you, the current carrying values is slightly under $2b.
Des Kilalea - Royal Bank of Canada - Analyst
That's U.S. is it?
Stuart Brown - De Beers Consolidated Mines Limited - Finance Director
That will be U.S. dollars post the impairment yes.
Des Kilalea - Royal Bank of Canada - Analyst
Thanks very much.
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
Are there any other questions from the web, or shall we go back to South Africa? Anybody in the queue.
Operator
There is currently no one else in the queue.
Ross Gardiner - JP Morgan - Analyst
Ross Gardiner from JP Morgan. I was going to ask that very similar question. But (inaudible) is that Snap Lake is $2b or Canada is $2b.
Stuart Brown - De Beers Consolidated Mines Limited - Finance Director
Ross its Canada. We've changed the impairment our methodology as produced the country basis. So we look at all the portfolio of assets in that.
Ross Gardiner - JP Morgan - Analyst
(Inaudible).
Stuart Brown - De Beers Consolidated Mines Limited - Finance Director
No.
Ross Gardiner - JP Morgan - Analyst
Maybe I could ask the question I was -- another question then, was all the (inaudible) mines. The impression I've got, and I've not been obviously in the business (inaudible) but the reaction to the [asking] prices from a marked business point of view seems muted, let me put it that way accepting of the 90%. What is happening as far as the [logging] and things to make sure that the, first of all, the 90% is not reached.
And then secondly is that you've got lots of new projects coming on not only in the diamond industry (inaudible), but we heard a multiple of projects coming on. [Are you going] to make sure that 90% doesn't go [over] because it's been given to another industry.
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
Do you want to [start] perhaps about efforts for the (inaudible) mines as well.
Nicky Oppenheimer - De Beers Consolidated Mines Limited - Chairman
Well maybe I can just start. I think the reaction from the mining industry has been far from muted. And the chamber of mines in which David plays an active role have been very much involved in talking to the Government. And this is, as I said in my thing is, a hugely important impact on the country as a whole and the growth of the country as a whole. And so all of us will have to be involved in doing what we can, the very fact of the matter is there is a power shortage at the moment. And we have to try and find ways of making certain that the economies, the various elements of the economies in South Africa operate within that constraint.
And as Gareth said that is not an easy thing to do immediately to come up with neat answers about what we can do or what the impact will be. De Beers itself has been on a task of reducing power consumption for some time. Our achievements which we though were pretty good single digit reduction in power consumption, obviously this is a very different scaled problem to what our plan was over a number of years.
But this is a very serious problem for all of us in South Africa, and Southern Africa as Gareth said if it does extend into our neighboring countries.
Gareth Penny - De Beers Consolidated Mines Limited - Managing Director
I think Ross, Nicky has covered the main points. Before this we had been looking at ways to reduce power anyway. And so DBCM on a year on year basis 4% I think is below what it was before. The reason it's a complex issue is it obviously depends on to the extent to which we can redirect the power. And the more we can maintain this in particular at Venetia and Finsch the less impact it will have on the overall situation.
Equally or perhaps more importantly is that if our Botswana operations are not affected. And, you know, at the moment given the national importance of diamonds to Botswana, I think the Government there will make every effort to make sure that power is maintained on the Debswana mines. And you only have to look at the statistics I put up that 33m 34m carats of the 50m odd carats are coming from Botswana.
So we are looking at this in the [round]. David and his colleagues in the [chamber] and together with his management team in South Africa are taking these things into consideration and coming up with a plan that will be designed to address the situation as it moves forward.
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
I think we have time for a couple of more questions. Any more in Johannesburg?
Unidentified Audience Participant
(Inaudible) Financial Times. You talked about the specter of subprime I am just wondering how much you've seen in growth in Asia and other emerging markets expand to the point that it could mitigate a possible downturn in the U.S. economy? That's the first.
And the second is the (inaudible) business still (inaudible) establish what's (inaudible) market.
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
Gareth.
Gareth Penny - De Beers Consolidated Mines Limited - Managing Director
The percentage of the business as diamond retail in the U.S. is still around 50%. China and India in particular are the two biggest growth markets and they have been growing at double digit growth for some years. And a considerable amount of our time and effort is being devoted to building demand, particularly in China.
In the short term given the importance of America the downturn in the economy there subprime and the like will have an impact in terms of the overall world retail figure. Over time the importance of these other markets as they grow will reach a stage where, I think, one is looking at a much more balanced consumer retail position than is the case right now. But I think it would be disingenuous to say that a downturn in America at the moment is still not of considerable concern given the impact that this could have in the medium term on the diamond business.
And having said that given the supply/demand equation where there is very little new supply and we still average growth rates around the world of 5% and more. And this last year will be a bit below that. But over the last number of years. So gap between supply and demand is widening. And the result of that is that you've seen continued upward price pressure in particularly in the [rough] markets. We are seeing that right now.
And I think I probably need to make a point as well, that thinking about diamonds as one entity would be incorrect, because the higher end the larger better quality stones, and even the smaller, finely made, high quality, good color stones are becoming increasingly sought after. And there you've seen much, much greater price rises than you may have seen as an average across the category, and that we don't see change in either.
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
Do we have one more -- any more questions on the web, I'd like to go back and then I will come back with one question here in Johannesburg before we close.
Operator
We have a follow up question from Des Kilalea of the Royal Bank of Canada. Please go ahead.
Des Kilalea - Royal Bank of Canada - Analyst
Thanks could I against rules just put two quickly. The first is could you comment on why you are not going to try and take more rough from Russia given that the EU did rule against the EU ruling seems to have been overturned.
And then could you just talk about the economics of the retail business, what contribution it made? Thanks
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
Des maybe -- Can I take the first question and then Stuart perhaps the second question. We had come to an agreement with the European Commission in terms of the phasing out of the Alrosa production 500m last year 400m this year and then in 2009 we wouldn't take further production.
I think it's important to say that the issue in terms of the finding of the Court First Instance De Beers was not a participant then. This was between Alrosa and the Commission where it as taken before the Court of First Instance. The Court of First Instance found that the prohibition on De Beers and Alrosa doing business was, in their words, what they call manifestly disproportionate. And the Commission in turn have said they will challenge this ruling.
So that's [basically] it's not concluded. At the moment we are working through the previous commitments that we had made. But clearly if some different decision is made by the Commission in response to the finding of the Court of First Instance we will have to look at that and take it into consideration Nicky.
Nicky Oppenheimer - De Beers Consolidated Mines Limited - Chairman
Absolutely.
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
Now if I may this is the Board Director of De Beers [diamond jewels] perhaps I am best place to answer [the later]. As we said last year the sales of De Beers diamond jewels is perhaps $100m and what the growth was (inaudible) with pretty ambitious plans. And the stores are looking very good in terms of profitability especially as we look over the next couple of years I think we will see De Beers diamond jewels begin to make a contribution as well to the bottom line of De Beer.
Thanks could we take one more question from Johannesburg please?
Unidentified Audience Participant
Perhaps a further question. When you guys around the DTC and moving of operations in countries particularly to Botswana that is -- I can see the need there it's just a lower cost etc, but is there a revenue impact? Is there going to be (inaudible) or earnings negative change? Or do you expect it to be neutral (inaudible)?
Stuart Brown - De Beers Consolidated Mines Limited - Finance Director
We've done the analysis and its going to be a positive impact. Obviously with the restructuring costs going down in London and establishing in Botswana is going to be negative in the short term, but in the long term it's got a positive effect on earnings.
Stephen Lussier - De Beers Consolidated Mines Limited - Director of External and Corporate Affairs
Thank you very much. I'd like to thank all those participating both here in Johannesburg and on the web. At the end of the day if you have more questions the press office details are in the materials, please feel free to address any questions you have and we will get back to you today. Thank you very much and goodbye.
