Anglo Americanplc Annual Report2007
Anglo American plc 20 Carlton House Terrace Our strategy in action: London SW1Y 5AN England Tel +44 (0)20 7968 8888 • Engage Fax +44 (0)20 7968 8500 Registered number 3564138
www.angloamerican.co.uk • Integrate • Perform • Grow
Annual Report 2007
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Anglo American aims to become the leading global mining company
We are committed to delivering operational excellence in a safe and responsible way, adding value for shareholders, customers, employees and the communities in which we operate
About Anglo American 58 Governance
01 Highlights of the year 58 The Board 02 Our locations 60 Executive Committee 02 Our operations 61 Directors’ report 04 Chairman’s statement 65 Corporate governance 06 Chief executive’s statement 70 Remuneration report 10 Our strategy in action 83 Independent remuneration report review 84 Statement of directors’ responsibilities 14 Operating and fi nancial review 85 Financial statements 15 Group overview 15 The Group 86 Independent auditors’ report 15 The businesses 87 Principal statements 17 Key performance indicators (KPIs) 91 Notes to fi nancial statements 18 Performance against KPIs 25 Resources 27 Group fi nancial performance 136 Other information 31 Business unit overview 136 Ore Reserves and Mineral 31 Platinum Resources estimates 35 Diamonds 158 Production statistics 38 Base Metals 163 Exchange rates and commodity prices 43 Ferrous Metals 164 Key fi nancial data Printed on Revive 50:50 Silk and Revive 100 46 Coal 166 Summary by business segment 51 Industrial Minerals Uncoated paper. Revive 50:50 Silk is made from 167 Reconciliations of reported earnings pre and post consumer waste and virgin wood fi bre, 54 Discontinued operations 168 The business – an overview Revive 100 Uncoated is made from 100% de-inked post consumer waste. Both have been independently 55 Principal risks and uncertainties 170 Shareholder information certifi ed in accordance with the FSC (Forest Front cover: This year’s cover features the Stewardship Council). 171 Other Anglo American publications faces of 90 of our 100,000 employees who are helping to shape Anglo American’s future Printed at St Ives Westerham Press Ltd, ISO14001, success. See page 172 for the names of FSC certifi ed and CarbonNeutral® those employees featured on our cover Designed by Addison Corporate Marketing Ltd
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Highlights of the year
Operating profi t Underlying earnings Earnings per share $10.1bn $5.8bn $4.40
• Record total Group operating profi t of $10.1 billion, with operating profi t from core operations up 12% to $8.9 billion • Strong performances from Base Metals, Platinum, Ferrous Metals and Industrial Minerals • Uplifting our unique portfolio and driving signifi cant growth
$)6)$%.$3 0%2 3(!2% 5.$%2,9).' %!2.).'3 0%2 3(!2% 53 CENTS 53 3PECIAL &INAL )NTERIM
Total Group includes both continuing and discontinued operations. Underlying earnings represents total Group underlying earnings unless otherwise stated. Basis of calculation of underlying earnings is set out in note 12 to the fi nancial statements. Operating profi t represents total Group operating profi t and includes share of associates’ operating profi t (before share of associates’ tax and fi nance charges) and is before special items and remeasurements unless otherwise stated.
Operations considered core to the Group are Base Metals, Platinum, Ferrous Metals’ core businesses (Kumba Iron Ore, Scaw Metals, Samancor and Minas-Rio), Coal and Diamonds.
Throughout this report 2003 is presented under UK GAAP. 2004, 2005, 2006 and 2007 results are presented under IFRS. Unless otherwise stated ‘$’ and ‘dollar’ denote US dollars.
Anglo American plc Annual Report 2007 | 01
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Our locations
North America South America Europe
Our operations Precious Base
Platinum Diamonds Base Metals
Business profi le Business profi le Business profi le • The world’s leading primary producer • De Beers accounts for about 40% • Comprises primarily copper, nickel, of platinum, accounting for around by value of global rough diamond zinc and niobium operations 37% of the world’s newly mined production • Operates in South America, southern platinum output • The world’s largest supplier and Africa and Ireland marketer of gem diamonds • Copebrás produces phosphate fertilisers
Products and uses Products and uses Products and uses • Primarily used in jewellery • About 30% of mined diamonds by • Copper is used mainly in wire and cable, and autocatalysts weight are suitable for use in jewellery as well as in brass, tubing and pipes • Also used in chemical, electrical, • Some natural stones are used for industrial • Zinc is chiefl y employed in galvanising electronic, glass and petroleum purposes such as cutting, drilling and other • Nickel is mostly used in the production industries and medical applications applications of stainless steel
Financial highlights(1) Financial highlights(1)(3) Financial highlights(1)(2) 12 months 12 months 12 months 12 months 12 months 12 months $ million 31 Dec 2007 31 Dec 2006 $ million 31 Dec 2007 31 Dec 2006 $ million 31 Dec 2007 31 Dec 2006 Operating profi t 2,697 2,398 Share of associate’s Operating profi t 4,338 3,897 EBITDA 3,155 2,845 operating profi t 484 463 EBITDA 4,683 4,255 Net operating assets 9,234 7,078 EBITDA 587 541 Net operating assets 4,989 4,599 Capital expenditure 1,479 923 Group’s aggregate investment Capital expenditure 610 315 Share of Group operating in De Beers 1,802 2,062 Share of Group operating profi t (%) 28% 27% Share of Group operating profi t (%) 45% 44% Share of Group net profi t (%) 5% 5% Share of Group net operating assets (%) 35% 33% operating assets (%) 19% 22% (1) Share of Group operating profi t and share of Group net operating assets for both 2007 and 2006 is based on continuing operations and therefore excludes the contribution of Mondi and AngloGold Ashanti. (2) In 2007, Copebrás and Yang Quarry were reclassifi ed from Industrial Minerals to Base Metals and Coal respectively to align with internal management reporting. As such, the comparative data has been reclassifi ed. (3) De Beers is an independently managed associate of the Group.
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About Anglo American
Africa Asia and Australasia Key Corporate and representative offi ces
See right Operations and New expansions projects Platinum
See below Diamonds Base Metals Ferrous Metals Coal Industrial Minerals
Regions in which exploration is currently under way
As one of the major diversifi ed mining groups, Anglo American’s exploration activities cover many parts of the globe. In its constant search for minerals, Anglo American is currently prospecting in 25 countries. In addition to its focus on areas surrounding its existing mining operations, Anglo American is now looking at relatively unexplored new frontiers, including in the Arctic region through an arc stretching from Alaska to the Russian far east. During 2007, $283 million was spent on exploration – $77 million on base metals, $36 million on platinum, $32 million on coal, $12 million on ferrous metals and $126 million by De Beers.
Bulk
Ferrous Metals Coal Industrial Minerals
Business profi le Business profi le Business profi le • Operations are mainly in South Africa, • Anglo Coal is one of the world’s • Tarmac is the No. 1 UK producer of South America, Canada and Australia largest private sector coal producers aggregates and asphalt and a leading • Businesses produce iron ore, manganese and exporters producer of ready-mixed concrete and steel products for the mining and • Its operations are in South Africa, Australia, • Its operations are primarily in the UK, infrastructure sectors Colombia, Venezuela and Canada continental Europe and the Middle East
Products and uses Products and uses Products and uses • Iron ore is the basic raw material used in • About 40% of all electricity generated • Tarmac is involved in the production of steel production globally is powered by coal crushed rock, sand, gravel, concrete and • Manganese is a key component in steelmaking • Around 70% of the world’s steel industry mortar, lime, cement and concrete products • Steel products serve the construction, railway, uses coal and it is an important fuel for power generation, mining, cement, marine and other industries offshore oil industries
Financial highlights(1) Financial highlights(1)(2) Financial highlights(1)(2) 12 months 12 months 12 months 12 months 12 months 12 months $ million 31 Dec 2007 31 Dec 2006 $ million 31 Dec 2007 31 Dec 2006 $ million 31 Dec 2007 31 Dec 2006 Operating profi t 1,432 1,360 Operating profi t 614 862 Operating profi t 474 317 EBITDA 1,561 1,560 EBITDA 882 1,082 EBITDA 732 539 Net operating assets 3,987 2,796 Net operating assets 3,984 2,870 Net operating assets 4,509 4,185 Capital expenditure 471 582 Capital expenditure 1,052 782 Capital expenditure 274 279 Share of Group operating Share of Group operating Share of Group operating profi t (%) 15% 15% profi t (%) 6% 10% profi t (%) 5% 4% Share of Group net Share of Group net Share of Group net operating assets (%) 15% 13% operating assets (%) 15% 13% operating assets (%) 17% 20%
Anglo American plc Annual Report 2007 | 03
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Chairman’s statement
“During 2007, Anglo American made great progress in becoming a focused mining company and showed it is prepared to pursue new business opportunities more aggressively in order to seek out and unlock value”
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About Anglo American see also p14 p61 Operating and fi nancial review Directors’ report
Anglo American delivered another exceptional Benefi ts to communities Energy and water challenges fi nancial performance in 2007. We made signifi cant progress in achieving our strategic Throughout the world we are seeking to Last year will be seen as the year when objective of becoming a focused mining group, increase the benefi cial development impacts of electricity supplies began to move noticeably principally through the demerger of Mondi, our operations. I would highlight two strands of out of balance with demand in a number the decision to sell Tarmac, our construction work. Firstly, our Socio-Economic Assessment of important countries where we operate, materials business, and the further reduction Toolbox (SEAT) process which progressed to including South Africa, Chile and Brazil. The in our holdings in AngloGold Ashanti and an updated version in 2007. This improves the ability to resolve these shortfalls is constrained Tongaat-Hulett. This greater focus provided a understanding of people in our operations of the by the high costs of construction and limited strong platform for the Group to move into a needs and priorities of their local communities availability of key capital goods. Thus, a key more expansionary mode where value creating and enables them to make a greater contribution objective is to achieve a step-change in our opportunities exist. to local development. Secondly, we are seeking energy effi ciency. This will, in turn, contribute Given the greater homogeneity between to replicate the success of our South African to our environmental objective of reducing our our mining businesses, important steps are enterprise development unit, Anglo Zimele. carbon footprint – alongside abatement projects being taken to realise the benefi ts of a This is already being achieved in Chile where such as using methane in electricity generation ‘One Anglo’ approach in relation to our microfi nance initiative helped over or carbon capture and storage in Australia; procurement, support services, talent and 900 business people to get established last co-investment in the FutureGen project in the knowledge management. year. During 2008, we hope to establish a US; and taking forward Clean Development 2007 was another disappointing year for similar initiative in Brazil. Mechanism projects. safety, with 40 fatalities – a reduction of only However, if companies are to have a Water shortages have become more four over the prior year. The Board strongly continuing incentive to invest and to develop pronounced in a number of important mining endorsed the much higher profi le on safety deposits in riskier jurisdictions, all stakeholders countries. This requires us to innovate. In adopted by our new chief executive. need to recall the cyclical nature of our business South Africa, for example, it has led to the Cynthia Carroll has succeeded in communicating and the current intense cost pressures facing establishment of the Emalahleni water that ‘business as usual’ is not an acceptable the industry. Benefi t sharing models have to treatment plant which converts waste mine approach in the face of the deaths and injuries refl ect periods of market weakness as well water into water suitable for domestic and occurring at some of our operations. There may as the good times. industrial uses. We also need to improve be some loss of production in the short term, The current commodity cycle has been the effi ciency of our production processes. but this is a sacrifi ce well worth making if it driven by both strong demand and limited An example of this is our Los Bronces expansion produces a safety performance based upon a supply. Demand has been strong against a project in Chile where we will reduce our use culture of care and respect for our workforce backdrop of synchronised expansion across the of fresh water by some 40% per tonne of and contractors. Moreover, we believe that major economies and has been fuelled by rapid copper produced. safe operations generally excel in terms of urbanisation in China. effi ciency and productivity. There were signs Signifi cant supply constraints include over- Board and employees of improvement in the second half of the year, heating in the supply chain and the fact that but it is too early to say if this is sustainable. projects are typically taking longer to secure the In regard to Board membership, I would like to necessary consents. But a crucial learning is the note the departure of Tony Trahar who stepped Changing global economy role that sustainable development concepts will down as chief executive in March; David Hathorn, play as we bring new operations to account. chief executive of Mondi; Simon Thompson, The growth of China, India and other emerging Thus, we fi nd ourselves giving increasing executive director of Anglo American plc; and of markets is transforming the balance of power attention to skills, energy security and climate Bobby Godsell, who retired last year as chief in the world economy at an unprecedented rate. change, water shortages and the legacy in a executive of AngloGold Ashanti and who is This will involve the emergence of more number of countries of under-investment in stepping down from our Board after many years’ customers and competitors as well as potential critical infrastructure. service to the Group in both executive and non- partners from these countries. Given our In response to skills shortages, we are executive roles. Ralph Alexander also retired as a well-established presence in China and our investing strongly in scholarships, bursaries non-executive director as a result of other work commitment to develop projects there, we are and internships, pre-employment training and commitments. I would like to record our thanks to well placed to build from this platform. in raising the educational attainments of some each of them. As part of the process of refreshing High commodity prices have sharpened of our existing workforce to enable them the Board, I am pleased that Sir CK Chow has the competition between stakeholders – to progress. For the longer term, the Anglo agreed to submit himself for election as a director governments, communities, unions, suppliers – American-funded Epoch and Optima trusts have at the AGM. to secure a bigger share of the current market identifi ed the teaching of maths and science in In closing, I would like to thank our employees upside. We have seen changes in the fi scal South African schools as a priority – resulting for their work in delivering a further set of regime of a number of countries to refl ect this. in an annual injection of approximately impressive results and in contributing to the As part of our empowerment transactions $5 million of additional funds. countries and communities where we work. ■ in South Africa we have sought to encourage equity participation by local communities and employees. Sir Mark Moody-Stuart Chairman
Anglo American plc Annual Report 2007 | 05
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Chief executive’s statement
“ 2007 was a year of change for our business – one in which we continued to deliver strong returns for shareholders while also streamlining our business and laying the foundations for greater effi ciency gains, as well as stronger growth into the future”
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About Anglo American 2007 highlights $12bn 15% Projects under development Increase in fi nal dividend
Record fi nancial performance During the year, we made good strategic EXPANDING OUR ASSET BASE progress. In May, we disposed of our remaining During 2007, we were active in In my fi rst year as chief executive, I am pleased 29% holding in Highveld Steel and Vanadium, identifying and acquiring major new to report a record fi nancial performance by and, in June, the unbundling of Hulamin from projects, particularly copper and iron Anglo American. We achieved our highest ever Tongaat-Hulett was completed. ore, to deliver signifi cant volume operating profi t of $10.1 billion and underlying Mondi, our paper and packaging business, growth over the next decade earnings of $5.8 billion, with continued strong was demerged in early July and established cash generation. Once again, we are announcing as a dual-listed company on the London and 0/4%.4)!, 6/,5-% '2/74( an increased fi nal dividend – 86 US cents per Johannesburg stock exchanges. In line with our share, up 15% on 2006. intention to ultimately exit AngloGold Ashanti, #OPPER The strength of our performance was due to we reduced our holding to 16.6%, realising in 4ONNES PER ANNUM MILLION improved production volumes of ferrous metals, excess of $2.9 billion. copper and zinc, an increased focus on In August, we announced plans to sell operational discipline and a continuation of the Tarmac. Tarmac has a leading position in the supportive trading environment. During 2007, UK construction materials industry, and is well high prices were realised for most of the Group’s positioned in certain key markets in continental commodities, although these benefi ts were Europe and the Middle East. Tarmac had a partially offset by adverse currency movements, very strong operational performance in 2007, supply-side constraints and ongoing pressure with a number of its business improvement on costs across the mining sector. initiatives starting to make a signifi cant impact. It is expected that the performance of Tarmac New approach to safety will continue to underpin a competitive sale process; however, it has been decided 2007 marked a turning point in our approach to not to launch the marketing phase of the safety. Our past and current number of sale process until current credit market fatalities and injuries is simply unacceptable. conditions improve. I strongly believe that optimally run businesses We also made progress during 2007 in • Potential copper output have good safety records. meeting the employment equity and black of 1.6 Mtpa by 2016 We have launched a series of new economic empowerment requirements of the initiatives to drive consistent safety messages South African Mining Charter, including and practices across our business. groundbreaking equity participation We have shown that we are prepared to do arrangements in Anglo Platinum’s assets. what is necessary to meet this challenge head In February 2008, the South African on by shutting down mine shafts where safety Department of Minerals and Energy confi rmed performance has not been up to standard, to it would award Anglo American with all its new )RON ORE retrain affected employees and to conduct a order mining rights, subject to completion of 4ONNES PER ANNUM MILLION thorough investigation of operating conditions. outstanding documentation, by 31 March 2008. Signifi cant progress was made between the This is a landmark achievement for the Group fi rst and second halves of the year and I expect and for the many black empowered businesses
our operations to build upon this momentum with which we are partnered. in 2008. Expanding our asset base Delivering our strategic objectives During 2007, we were active in identifying and acquiring major new projects, particularly I have been very clear about my ambition for copper and iron ore, to deliver signifi cant
Anglo American – our goal is to become the volume growth over the next decade. leading global mining company. The Group has a tremendous project The year under review has seen a pipeline, one of the strongest in the sector, combination of strategic restructuring and a building on our unique portfolio of existing period of building from a position of strength, assets and delivering considerable organic including the identifi cation and execution of growth potential. We have a number of major • Potential iron ore output opportunities to drive new growth and value. projects under development, involving of 150 Mtpa by 2017 The restructuring of Anglo American is investment of some $12 billion across all our almost complete and it is now that we can focus businesses. In addition, we have a further on the operational improvements that will be $29 billion of projects under consideration. delivered by our asset optimisation programme 2008 will also see our planned expansions and the cultural change that we are implementing delivering signifi cant new production in iron across the Group. ore and coal.
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Chief executive’s statement
“ In 2007, we made Several projects were approved in Anglo diamonds in October and plans to produce considerable progress Platinum during the year, in particular the approximately 1.6 million carats per annum. towards achieving our aim $279 million expansion at the base metals In Botswana, De Beers is reviewing a number refi nery, the $139 million Townlands ore of development opportunities. of becoming a signifi cant replacement project and the $188 million Turning to acquisitions, we made player in the global Mainstream inert grind projects. The $692 million considerable progress towards achieving our aim seaborne iron ore trade” PPRust North expansion project is in progress of becoming a signifi cant player in the global and will mill an additional 600,000 tonnes of seaborne iron ore trade. In July, we purchased a ore per month. 49% stake in the MMX Minas-Rio iron ore Anglo Coal has approved expansion project in Brazil for an effective price of programmes in both South Africa and Australia. $1.15 billion, plus a potential payment of The recently approved $505 million, 6.6 million up to $600 million if certain criteria are met. tonnes per annum (Mtpa) Zondagsfontein Furthermore, in January 2008, Anglo American project will form an important component of announced that it was in exclusive discussions plans to increase Anglo Coal’s South African with MMX’s majority shareholder to acquire production by 50% to around the 90 Mtpa control of the Minas-Rio project and the Amapá level by 2015. iron ore mine for approximately $5.5 billion if In November we announced the approval of we acquire 100% of the interest held by MMX the $1.7 billion expansion of Los Bronces in Chile. in these assets. First production is scheduled for 2011 and will In April, we announced the acquisition of increase copper production to an initial level the Michiquillay copper project in northern Peru exceeding 400,000 tpa, making Los Bronces one for $403 million. Michiquillay is one of the of the ten largest copper mines in the world. Also largest undeveloped copper deposits in the in Chile, a two phase expansion at Collahuasi is world. This is our second major investment in being considered. In Brazil, the Barro Alto project is Peru where the feasibility study for the on schedule to boost the Group’s nickel output, Quellaveco copper deposit in the south of the with fi rst production due in 2010. country is at an advanced stage. At Kumba Iron Ore, the commissioning In July, we acquired a 50% stake in the of the $754 million, 13 Mtpa Sishen Expansion Pebble copper project in Alaska for a staged Project commenced during the year, with ramp cash investment of $1.4 billion. The key assets up to full production anticipated in 2009. of the project, which is co-owned by Northern In Canada’s Northwest Territories, Dynasty Minerals, are its open pit Pebble West Below: Round-the-clock operations at Kumba’s Sishen open pit, which yielded De Beers’ Snap Lake, the country’s only deposit and the deeper and higher grade Pebble about 30 million tonnes of iron ore in 2007 underground diamond mine, delivered its fi rst East deposit. The Pebble resources rank among
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About Anglo American 2007 highlights next section: How Anglo American’s ambition to become the % leading mining company 71 is being realised Participation rate for HIV/AIDS VCT
the world’s most important accumulations of Sustainable development “ In spite of the cost copper, gold and molybdenum. pressures, we achieved In both Peru and Alaska, a key priority is I am proud to say that we continue to be a to build supportive relationships with local sector leader in terms of our approach to $380 million in cost communities, consistent with our policy of sustainable development. We are seeking savings, synergies, developing and operating projects to the highest to play our part in addressing the challenges effi ciencies and standards and to promote truly sustainable of climate change by improving our energy procurement” development. effi ciency, reducing our greenhouse gas Close to year end we announced the emissions, contributing to the development acquisition of a 70% interest, for $620 million, of clean coal technologies and through our in the Foxleigh coal mine in Australia, which involvement in public-policy discussions. adjoins our German Creek and Lake Lindsay Our internationally recognised Outlook operations. Socio-Economic Assessment Toolbox (SEAT) We are also widening our horizons continues to help us understand the The global economic outlook for 2008 is clouded geographically. In an exciting recent development, perspectives and concerns of the communities by uncertainty. While it seems clear that US Anglo American and China Development close to our operations. This year we have made economic activity will be weaker in 2008 than Bank have entered into a Memorandum of a three-yearly SEAT assessment mandatory for in recent years, it is less clear how economic Understanding (MOU). Anglo American is all our major operations. growth will be affected in the rest of the world, actively looking for further projects in China and We are gaining ground in the fi ght against especially in those emerging markets whose the MOU represents a long term commitment HIV and AIDS with our successful voluntary growth has been largely responsible for the strong from both parties to establish a strategic counselling and testing (VCT) and treatment demand that has underpinned commodity prices. relationship to identify and develop a pipeline of programme. At a number of our collieries in South In South Africa, electrical power supply mining projects in China, Africa and elsewhere. Africa, the VCT participation rate exceeds 90%, problems are causing disruption to mining while the overall Group fi gure continues to climb operations across the country. At present, it is Driving operational excellence and had reached 71% by the end of 2007. diffi cult to accurately forecast the medium term Important progress was also made this year in impact of power shortages on Anglo American’s The mining industry continues to experience developing a new framework of occupational business. We are working with Eskom and signifi cant cost pressures across the supply health policies called The Anglo Occupational the South African government to implement chain, including freight, transportation, fuel and Health Way. solutions. consumables. In spite of the cost pressures, we In 2007, we were an active voice in the Global commodity demand remains strong achieved $380 million in cost savings, synergies, development and promotion of the Extractive and seems likely to remain so throughout 2008. effi ciencies and procurement, and we managed Industries Transparency Initiative (EITI), which Commodity supply worldwide continues to be to contain our growth in cash costs to 4% supports improved governance in resource-rich constrained by skills shortages, rising capital above infl ation. countries, representing the mining sector on the and operating costs, longer permitting processes Above and beyond these cost-saving EITI’s board. and strong exchange rates in many of the activities, we are bringing greater rigour to our We were also involved in other multi- countries where key operations are located. operating platform by introducing a value based stakeholder initiatives, including the Voluntary Industry inventories are therefore likely to management (VBM) methodology across all our Principles on Security and Human Rights and remain low and continue to underpin prices. businesses. A pilot project has been completed the Investment Climate Facility for Africa. We The medium to long term secular trend of in Anglo Coal and we are now rolling VBM out continue to be involved in and to give our full strong commodity demand growth – embracing, into the other businesses. In addition, an asset support to the UN Global Compact. We report as it does, the industrialisation and urbanisation optimisation initiative will maximise operational on progress implementing the principles in our of developing nations, especially China and effi ciencies at site level and allow us to benchmark Report to Society in accordance with the India – will continue to support prices over our performance and spread best practices. externally verifi ed Global Reporting Initiative. a longer time horizon. We have carried out a comprehensive We have made clear our commitment to As a result, signifi cant new mining review to defi ne the best approach for delivering regular engagement with NGOs at a local, investments will be needed to satisfy that key business support functions and, as a result, national and international level. We signed demand. Anglo American is well placed to we have decided to establish three shared association agreements with Fauna and Flora benefi t from this favourable backdrop as services centres providing common accounting International on biodiversity issues and with the Group continues to realise its exciting and employee services, located in existing CARE International on development challenges. growth prospects. ■ offi ces in Asia Pacifi c, Latin America and South Africa. We have also launched a centralised procurement programme to maximise the benefi ts of being a global operator. Initial projections indicate that we shall achieve $1 billion worth of procurement and shared services savings Cynthia Carroll in the next three years. Chief executive
Anglo American plc Annual Report 2007 | 09
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Integration People The increasing technological sophistication As Anglo American continues to extend its of mining, combined with a serious skills reach across the globe and diversifi es its mining shortage in the current competitive market, asset base, the organisation is being reshaped has further underlined the importance we to ensure we are able to meet the sustained already attach to retaining our talent through demand for the commodities we mine. appropriate reward, talent development and A high degree of decentralisation through people management activities. autonomous business units is making way for a Several Group-wide One Anglo initiatives new ‘One Anglo’ approach. This concept allows have provided impetus in these areas. The for greater sharing of talent, expertise and introduction of a broad banding system knowledge across the Group and, as a result, throughout the businesses underpins our move our culture is changing as we move towards towards more consistent and competitive becoming a single, integrated organisation. regional reward strategies and a common One Anglo involves consistently applying a performance management process. It has also common framework of values and standards; been a key enabler for the introduction of an putting the structures in place to foster greater improved talent tracking system, an integrated knowledge-sharing; and leveraging our scale internal and external vacancy management through shared services. system, and the development of Group-wide people information and shared services Safety systems. Nowhere is this integrated concept more Our global leadership development portfolio important than in our approach to safety. has been extended during the year and going The safety of all our employees is paramount. forward there will be an increased focus on Our vision of ‘zero harm’, which was endorsed common standards in terms of curriculum and in 2007 by all our businesses and their delivery for all our management development leadership teams, is based on three clear programmes across the Group. principles: all injuries are preventable; all necessary steps must be taken to learn from Shared services incidents in order to prevent reoccurrence; and Applying common policies, processes and common, simple non-negotiable standards must systems, as well as creating a One Anglo be consistently applied. mindset among our employees, will also Key to realising this vision is The Anglo Safety be delivered through our shared services Way, a global framework of risk management initiative. systems and standards, which is being rolled We will create three shared services centres out across the business. This is being supported based in existing offi ces in Asia Pacifi c, Latin by greater communication and cross-fertilisation America (serving the whole of the Americas) of ideas and experiences around safety within and and South Africa (serving Africa and Europe). between the Group’s businesses, as well as other The centres will provide common accounting organisations in mining and related industries. and employee services.
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About Anglo American
In-house technological capability augmented by strategic partnerships
In contrast to many mining industry peers, Anglo American for many years has been distinguished by its formidable in-house technical capacity, with the aim of maintaining a technological edge and, in doing so, enhancing shareholder value. Based on two main internal units, Technical and Research, and enhanced by a range of partnered technologies, the Group has become an industry standard-setter in fi nding, extracting and refi ning minerals. For example, advanced airborne electromagnetic techniques and superconducting quantum interference devices have identifi ed prospective mineral deposits; in partnership with external specialists, a new solvent-extraction and electro-winning process was developed to yield zinc ore; while robot laboratories (right) at Anglo Platinum’s concentrators and smelters have greatly reduced assay-assessment time.
Performance units. This initiative seeks to identify the full cost countries such as China, while also potential of each operation and put programmes continuing to develop small and medium sized As part of our strategy to become the leading in place to manage actual performance towards entrepreneurs close to existing operations. global mining company, Anglo American has this goal. This has involved a rigorous, bottom- In recent years, many parts of the mining disposed of a number of non-core assets and is up analysis of our assets and operations industry supply chain have been operating at focusing on ensuring that its assets have and their subsequent benchmarking against or close to full capacity, resulting in constraints economies of scale, long lives, are in the lowest our peers to bring our operations up to the and delays for equipment and services. We are quartile in terms of costs and have the potential highest level. mitigating these issues by developing clear to give the Group critical mass in each of our plans and engaging more effectively with our commodities. Supply chain effi ciencies suppliers. For example, we are entering Today, Anglo American is centred around Taking an integrated global approach to innovative longer term supply arrangements three core commodity categories – precious procurement while maximising effi ciencies with suppliers to secure tyres for our existing (with our unique platinum and diamond assets), through the supply chain are other ways we operations and new projects. base and bulk. are looking to drive performance. We are now progressing into the second We have made major improvements with phase of our strategy, where we are seeking progressively more demanding effi ciency to maximise the value we derive from each of targets. In 2007, the Group achieved supply our assets. chain effi ciencies of almost $200 million. We are working closely with our suppliers to Asset optimisation eliminate waste from all areas of our supply We are identifying, and seeking to close, any chain by developing a detailed understanding value gaps between the performance of our of cost drivers, standardising requirements and operations and the industry’s best in class. leveraging economies of scale across the Group. To this effect, a major asset optimisation In addition, we are optimising our sourcing programme is under way across our business footprint by increasing purchasing from lower
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Our strategy in action continued
Diversity: key to success
As mining technologies become more sophisticated and skills shortages are fuelled by boom conditions in the industry, we are constantly looking at alternative ways of meeting the resourcing needs of our expanding business. Through our investment in our bursary and trainee programmes, we have attracted over 4,000 individuals into our early career pipeline, some drawn from local communities and others from further afi eld. A key element of our future success will rest on how well we attract, retain and reward women – who are still represented in only modest numbers. Anglo American is aiming to steadily increase the proportion of women throughout its ranks like geologist Dania Tristá (right) from our Mantos Blancos operation in Chile.
Growth In Base Metals, the $1.5 billion Barro Alto expansion in Brazil is making good progress Anglo American has one of the strongest and and, when fully on stream in 2011, will boost highest quality project pipelines in world mining, Anglo American’s total attributable nickel which will deliver substantial volume growth. production to an average of around Currently under development are projects 100,000 tonnes a year. spanning a number of countries, totalling Los Bronces’ $1.7 billion expansion in Chile $12 billion. Further out, and encompassing will almost double annual copper production at South Africa, Chile, Peru, Brazil, Alaska and the mine to an initial production level exceeding Canada, are an additional $29 billion of projects 400,000 tonnes per annum, making it one under consideration. of the ten largest copper mines in the world Anglo Platinum has a major expansion on completion of the expansion in 2011. and replacement programme that will deliver In Ferrous Metals, Kumba Iron Ore’s progressively rising quantities of refi ned $754 million Sishen Expansion Project produced platinum, as well as other platinum group fi rst commercial output in 2007 and is metals and nickel, through to 2015. anticipated to ramp up to design capacity in 2009. Coal is involved in a number of projects. De Beers has two projects, both in Canada, In South Africa, the $505 million Zondagsfontein and with a collective cost of around $2 billion, project, to deliver 6.6 million tonnes of coal at various stages of development. Snap Lake, annually from 2010, has been given the De Beers’ fi rst mine in the country, produced its go-ahead. In Australia, Dawson and Lake fi rst diamonds in October and is ramping up to Lindsay will add an additional 9.7 Mtpa at full output later this year. A second mine, Victor, full production. is planned to enter production by mid-2008.
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About Anglo American
next section: How the Group and its subsidiaries performed in 2007, including business unit and fi nancial reviews
Acquisitions and new investing in social and physical infrastructure – “ Through our asset business relationships and careful management of social and optimisation programme, Complementing Anglo American’s programme environmental impacts, we seek to develop we are identifying, and of organic growth, the Group is building its positive outcomes as a result of our presence. position in a number of key commodities, in Leading community engagement initiatives seeking to close, any particular copper and iron ore, through strategic is our Socio-Economic Assessment Toolbox value gaps between value enhancing acquisitions. (SEAT). Anglo American is also an active the performance of The aim of becoming a signifi cant player member of the UN Global Compact, the our operations and the in the highly consolidated iron ore industry, Extractive Industries Transparency Initiative with its high barriers to entry, has been boosted and the round table on the Voluntary Principles industry’s best in class” by the acquisition of 49% in the advanced on Security and Human Rights. We are also MMX Minas-Rio project in Brazil. Phase 1 of the working to be a force for development through mine is expected to cost $3.46 billion, with total the Investment Climate Facility for Africa, projected output of 26.5 million tonnes of Business Action for Africa, the International iron ore per annum by the end of the decade. Council for Mining & Metals and the World The Minas-Rio project, the Amapá mine and Business Council for Sustainable Development. the expansions at Kumba’s Sishen mine will In addition, Anglo American has taken steps contribute towards the goal of lifting the towards building a corporate partnership with Group’s annual iron ore output to 150 million the environmental NGO Fauna and Flora tonnes by 2017. International (FFI). Anglo American and FFI The Group increased its copper profi le with intend to work together to craft a Biodiversity its successful tender for the Michiquillay project Performance Standard that will govern the in Peru and by becoming a 50% partner, approach to diversity management throughout with Northern Dynasty, in the copper-gold- the Group’s operations. molybdenum Pebble project in Alaska for a staged cash investment of $1.425 billion. If Our energy partnerships approval is secured for Quellaveco in Peru, these Anglo American is broadening its range of three projects, combined with the Los Bronces relationships in the energy fi eld. These are and Collahuasi expansions, could see the Group’s helping to create the potential for the Group to attributable copper production rising to around expand into downstream areas closely related 1.6 million tonnes a year by 2016. to its core business. Through such relationships, The acquisition of a 70% stake in the risk can be shared and there is the mutual Foxleigh coal mine in Australia for $620 million opportunity of accessing each other’s will further support our coal ambitions. complementary resources, including markets, Recently, Anglo American and China technologies and capital. Development Bank entered into a Memorandum Anglo American is involved with various of Understanding (MOU). The MOU represents parties in a number of energy ventures, a long term mutual commitment to establish including the commercialisation of fuel cell a partnership to identify and develop mining technology, the capture and commercial sale projects in China, Africa and other parts of of methane from its coal mines, as well as the world. in researching integrated carbon capture and storage projects. The Group is a member of the Engagement FutureGen Industrial Alliance, which consists of major energy and mining companies working in Partnerships for a more partnership with the US Department of Energy sustainable future (DOE) to design, construct and operate the At Anglo American, we believe that the pursuit world’s fi rst ‘near zero emissions’ coal-fuelled of sustainable development goes hand in hand power generation plant. Although in January with best business practice. By our responsible 2008, the DOE announced an intention to custodianship of valuable resource endowments, establish an alternative programme, the Alliance which often include scarce water supplies, and intends to continue to work with the US our insistence on good governance, we hope Administration, Congress and other stakeholders to demonstrate to host governments and to advance the project. Anglo American has communities that resources, when developed also formed a Clean Coal Energy Alliance to wisely, can be of widespread ongoing benefi t develop the Monash brown coal to liquids to their countries. project in Australia. In China, Anglo American, Through fi nding ways to maximise local the Shaanxi Coalfi eld Geological Bureau and economic linkages and benefi ts – for example, Shell are jointly looking at ways to develop, employing a majority of local people, including downstream applications, a coal establishing supply chain initiatives and resource of more than 600 million tonnes. ■
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Basis of disclosure Forward looking statements
This operating and fi nancial review (OFR) This OFR contains certain forward looking describes the main trends and factors statements with respect to the fi nancial underlying the development, performance condition, results, operations and businesses and position of Anglo American plc (the Group) of the Group. These statements and forecasts during the year ended 31 December 2007, involve risk and uncertainty because they relate as well as those likely to affect our future to events and depend on circumstances that development, performance and position. occur in the future. There are a number of factors It has been prepared in line with the guidance that could cause actual results or developments provided in the reporting statement on the to differ materially from those expressed or operating and fi nancial review issued by the UK implied by these forward looking statements. Accounting Standards Board in January 2006.
Section contents
15 Group overview 38 Base Metals 15 The Group 38 Business overview 38 Industry overview 15 The businesses 39 Strategy and growth 15 Precious 40 Financial overview 16 Base 16 Bulk 43 Ferrous Metals 43 Business overview 17 Key performance indicators (KPIs) 44 Industry overview 44 Strategy and growth 18 Performance against KPIs 45 Financial overview 18 Safety 18 People 46 Coal 20 Asset optimisation 46 Business overview 20 New capital investment 47 Industry overview 23 Sustainable development 48 Strategy and growth 48 Financial overview 25 Resources 51 Industrial Minerals 27 Group fi nancial performance 51 Business overview 51 Industry overview 31 Business unit overview 52 Strategy and growth 31 Platinum 53 Financial overview 31 Business overview 32 Industry overview 54 Discontinued operations 32 Strategy and growth 54 AngloGold Ashanti 33 Financial overview 54 Paper and Packaging
35 Diamonds 55 Principal risks and uncertainties 35 Business overview 35 Industry overview 35 Strategy and growth 36 Financial overview
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Group overview
The Group The businesses 5.$%2,9).' %!2.).'3 "Y REGION Anglo American is a global leader in !MERICAS mining focused on adding value for Precious 3OUTH !FRICA shareholders, customers, employees %UROPE and the communities in which it operates. Platinum 2EST OF 7ORLD Anglo Platinum mines, processes and refi nes The Group has a range of high quality, the entire range of platinum group metals core mining businesses with balanced (platinum, palladium, rhodium, ruthenium, participation across precious, base and iridium and osmium) and is the world’s largest bulk commodities. primary producer of platinum, accounting for some 37% of global supply. Anglo Platinum has The fi ve core mining businesses are the largest platinum reserves in the world, as Platinum, Diamonds, Base Metals, well as extensive resource capabilities and the Iron Ore (Ferrous Metals) and Coal. ability to grow production in line with projected demand for the foreseeable future. The industry The Group is geographically diverse, outlook for platinum is positive, supported in with an operating footprint spanning particular by autocatalyst and Chinese jewellery 45 countries. demand, and industrial growth. All of Anglo Platinum’s current operations are located in South Africa. Further details on Anglo Platinum’s 5.$%2,9).' %!2.).'3 strategy, the demand drivers behind the "Y BUSINESS UNIT MILLION 0LATINUM business and fi nancial results for the year $IAMONDS can be found on pages 31 to 34 of the OFR. "ASE -ETALS &ERROUS