De Beers managing director, Gareth Penny, to DTC sightholders in London on January 16, 2008.

Dear Friends and Colleagues,

2007 saw all of us working hard and preparing for the challenging and exciting year that lies ahead of us.

At De Beers, our focus has fallen on several points along the diamond value chain – exploration, mining and the way we carry out our rough diamond sales.

In 2007, we made further improvements in our quest to find and deliver new deposits of rough diamonds, from North America to central Africa, whilst ensuring that our existing operations continue to provide world-class supplies in an efficient and financially sustainable way.

Charles Skinner, De Beers’ Head of Exploration has brought renewed vigor to our efforts and leads a team that has successfully developed efficiencies through dedicated professionalism and outstanding innovation.

Our exploration activities are truly global and include projects in Angola, the Democratic Republic of Congo (DRC), Botswana, South Africa, Namibia, Canada, India and Russia.

As we look forward to opening several new mines this year, we have also sold on some of our operations that, although commercially viable, no longer fit with the business model we seek to deploy in the coming years, based on profitable production growth in the longer term.

Snap Lake and Victor, our two mines in Canada, along with the re-opening of the Voorspoed mine and the working of seabed deposits in South Africa are well-placed to deliver not only new supplies, but also the desired commercial results and objectives we have set ourselves.

An ambition to achieve profitable growth is of course not exclusive to De Beers. Many mining and extractive companies – those that want to succeed and prosper – are preparing themselves in a similar way and, like us, are aware of the need to keep pace in a swiftly changing world.

As India and China, for example, continue to register outstanding economic growth, their additional demand for finite supplies of natural resources have resulted in higher and higher prices – from oil and gas, to copper and gold.

However, as we in the mining industry are consumers of many of these resources ourselves, the cost of mining has never been so high. The expense of building infrastructure and keeping a mine operational – safely and efficiently – has soared over the last two years.

It is perhaps too easy to point to factors such as these and add, for good measure, exchange rate fluctuations to excuse poor performance or difficult trading conditions.

The truth, of course, is that challenging conditions have always existed – and will continue to do so.

What we are preparing our company for is to be able to rise up to these challenges and – whatever the conditions – provide profitability and efficiency to our shareholders and our clients, and a stable, safe and rewarding place to work for our employees. We will achieve this by increasing the value and integrity of diamonds, particularly those produced De Beers.

As we have all discovered over the last few years, such preparation does not come without disruption and discomfort. Sacrifices have been made along all sections of the value chain and we are aware and sensitive to the impact that these changes have had on colleagues and you, our valued clients.

Changes will continue this year. As Varda will explain, we have also been preparing to relocate our sorting and aggregation activities to southern Africa. As we look further down the value chain, all of these efforts come to naught, however, if we do not continue to instill confidence in the consumer and uphold and protect the reputation of diamonds. We have successfully presented our case that diamonds do and should aspire to the highest human values such as commitment and self-esteem. Through our collective involvement in the World Diamond Council, we have been forefront in providing solutions that now see diamonds as one of the most monitored and audited natural resources in the world.

Government leaders, not least amongst the G8 group of nations, are seeking our advice on how to provide assurance and security in the distribution of other valuable resources.

Together, we successfully overcame the significant risks we faced following the release of the film ‘Blood Diamond’. Through such initiatives as the establishment of a first-class website to educate consumers and retailers we went further than just defending the integrity of diamonds, we promoted and expanded on the significant and lasting benefits that diamonds bring millions, many of them in developing economies.

Last year’s Kimberley Process plenary in Brussels was perhaps the first to have concluded with a feeling amongst all those who participated that the Certification Scheme – this unique collaboration between business, governments and civil society – had reached a point of maturity and we have now achieved the basis on which to improve and refine a system that is today respected and held up as an example for others to follow. We have done the right thing and are, at last, beginning to reap the dividends.

Having said that, it would be foolish to sit on our laurels. To do so would be to jeopardize the enormous amount of work and resources we have all invested in this essential endeavour. Although we may have effectively contained many of the risks we face in this area, those risks will never be far away.

Complacency is now our greatest enemy.

An effective and credible Kimberley Process is central to the strategy of securing and promoting the value of diamonds, maintaining consumer confidence and it is, therefore, in the interests of all of us to remain vigilant and involved.

No other organization is better placed than the World Diamond Council to help us achieve this and, as I salute their achievements, I look forward to them making such changes in 2008 as are necessary to secure sustainable funding and continue the WDC’s invaluable work over the coming years.

I am confident that our preparations for facing the challenges that lie before us and keeping pace with, or ahead of an increasingly changing and competitive business environment, are on track. Yes, there will continue to be some uncomfortable moments and hard decisions to make, but I am equally confident that eventually the rewards will exceed the various sacrifices we have all had to make.

I would like to conclude by assuring you of our determination to significantly improve upon our position as the world’s most efficient miner and distributor of rough diamonds. Not only do we – and I speak on behalf of all my colleagues across the De Beers family of companies – seek to ‘live up to diamonds’, we strive to demonstrate our passion for them and ensure that all of us, privileged to work with this unique and beautiful product, can both add value and benefit from our collective, continual hard work and success.

Thank you.

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