Iron Ore and Manganese

STRATEGIC REPORT IRON ORE AND MANGANESE

Norman Paulo KEY Mbazima Castellari- Open cut IRON ORE AND CEO – Porchia Kumba CEO – Iron Other MANGANESE Iron Ore Ore Brazil

SOUTH AFRICA 1 KUMBA IRON ORE – 3 KUMBA IRON ORE – 5 SAMANCOR 6 SAMANCOR SISHEN MINE THABAZIMBI MINE MANGANESE – MANGANESE – 51.5% effective 51.5% effective HOTAZEL METALLOYS ownership ownership 29% ownership 40% ownership Sishen mine, located in Thabazimbi mine is (BHP Billiton owns (BHP Billiton owns the Northern Cape located in the Limpopo 44% and has 60% and has province, produces a province and produced management control. management control) leading quality lump ore 1.1 Mt of iron ore in 2014. Empowerment partners With four large 3 and also a premium ﬁ ne Reserve life: 9 years own 27%) electric furnaces, ore. Sishen produced Wessels is an Metalloys produces 15 4 KUMBA IRON ORE 16 35.5 Mt of iron ore in 2014. underground mine of high-carbon and Reserve life: 16 years PORT OPERATIONS hydro-thermally enriched medium-carbon 1 2 Sishen and Kolomela manganese of a high ferromanganese. 2 KUMBA IRON ORE – mines are serviced by a grade. Mamatwan is an KOLOMELA MINE dedicated iron ore rail link, opencast operation. 51.5% effective which transports iron ore The ore lends itself to ownership to domestic customers technologically advanced 14 Kolomela mine is situated and to Saldanha Bay beneﬁ ciation processes. close to Sishen mine and where it is shipped to Wessels reserve life: produced 11.6 Mt of iron export markets. The 46 years ore in 2014. rail and port operations Mamatwan reserve Reserve life: 21 years are owned and operated life: 17 years by the state owned entity Transnet.

BRAZIL 1 MINAS-RIO AUSTRALIA 1 GROOTE EYLANDT 100% ownership MINING COMPANY The Minas-Rio operation (GEMCO) is located in the states 40% ownership of Minas Gerais and (BHP Billiton owns Rio de Janeiro and 1 60% and has includes an open pit management control) mine and a beneﬁ ciation The mining operation at plant in Minas Gerais, GEMCO extracts high producing direct grade manganese reduction and blast ore and accounts for more furnace pellet feeds. than 15% of the world’s The iron ore produced high grade ore production. is transported to the port Approximately 70% of its 1 in Rio de Janeiro state production is exported. 2 through a 529 km Reserve life: 12 years pipeline. The mine produced 0.7 Mt (wet 2 TASMANIAN basis) of iron ore in 2014. 2 ELECTRO Reserve life: 45 years METALLURGICAL COMPANY (TEMCO) 2 FERROPORT 40% ownership 50% ownership (BHP Billiton owns Ferroport owns and 60% and has operates the iron ore management control) handling and shipping TEMCO is a ferro-alloy facilities at the port of Açu, smelter and remains which is currently under the only manganese construction (formerly ferro-alloy plant in referred to as LLX Australia. It produces Minas-Rio). high carbon ferromanganese, silicomanganese and sinter.

48 Anglo American plc Strategic Report 2014 Key performance indicators Production Sales Price ($/ Revenue Underlying Underlying (1) (2) volume (Mt) volume (Mt) tonne) ($m) EBITDA ($m) EBIT ($m) Capex ($m) ROCE Segment n/a n/a n/a 5,176 2,286 1,957 2,685 10% Prior year n/a n/a n/a 6,517 3,390 3,119 2,518 19% Kumba Iron Ore 48.2 45.3 91 4,388 2,162 1,911 763 60%

Prior year 42.4 43.7 125 5,643 3,266 3,047 655 99% report Strategic Iron Ore Brazil 0.7 0.2 n/a n/a (29) (34) 1,922 (1)% Prior year – – n/a n/a (27) (31) 1,863 (1)% Samancor n/a n/a n/a 788 251 178 n/a 22% Prior year n/a n/a n/a 874 258 210 n/a 23% Projects and Corporate n/a n/a n/a n/a (98) (98) n/a n/a Prior year n/a n/a n/a n/a (107) (107) n/a n/a

(1) Iron Ore Brazil production is Mt (wet basis). (2) Prices for Kumba Iron Ore (Kumba) are the average realised export basket price.

FINANCIAL AND OPERATING OVERVIEW Samancor Underlying EBIT decreased by 15% to $178 million, driven Kumba by lower ore prices, offset to some extent by higher sales Underlying EBIT decreased by 37% to $1.9 billion volumes and cost control. (2013: $3.0 billion), mainly attributable to the signifi cant decline in the iron ore benchmark price, which declined 28% to an average of $97/tonne. In 2014, Kumba took steps MARKETS to address its cost base and to establish a robust continuous Iron ore improvement programme that builds off the implementation 2014 2013 of Anglo American’s Operating Model. Total operating Average market prices costs decreased by 4%. Despite the 14% increase in waste (IODEX 62% Fe CFR China spot price – 97 135 mining, a 12% weakening of the South African rand against $/tonne)(1) Average realised prices the US dollar, and benefi ts from the Operating Model, more 91 125 than offset this headwind. (Kumba export – $/tonne) Export sales increased by 4% to 40.5 Mt (2013: 39.1 Mt) (1) Different products are priced against a number of different indices in the market. IODEX 62% has been used in this instance as a generic industry benchmark against as a result of higher iron ore production which increased by which to compare average realised prices. 14% to 48.2 Mt (2013: 42.4 Mt). Kumba rebuilt stock on the back of the higher production. Total fi nished product stocks Demand for seaborne iron ore grew 6.7% (2013: 7.0%), increased to 6.5 Mt as at 31 December 2014 compared or 79 Mt; however this was more than offset by seaborne with 2.9 Mt at 31 December 2013. supply which increased by 14.2%, or 167 Mt, on an equivalent basis. The result was a 28% decline in the Iron Ore Brazil average iron ore price, which reached $72 per tonne First ore on ship was achieved on 25 October 2014, ahead of (Platts 62% benchmark) at the end of the year. Kumba’s schedule and with total project capital expenditure expected achieved sales benefi ted from the inclusion of a signifi cant to be $0.4 billion below the revised budget of $8.8 billion. share of high grade fi nes and lump products which attracted Despite the project’s complexity and logistical challenges, a market premium. Minas-Rio achieved an exceptional safety performance with very low lost time injury rates compared to other projects Manganese ore of similar scale. Delivery of the project is a signifi cant The manganese ore market remained under pressure, milestone. The ramp up schedule continues and is expected with the benchmark ore price (CIF China) falling 16% over to reach design capacity during the second quarter of 2016. the prior year. Infrastructure constraints in South Africa Minas-Rio is a world class asset benefi ting from long life were loosened, which eliminated a key bottleneck from the (~45 years); high quality iron ore saleable product market. This resulted in South African production becoming (~67% Fe); and a favourable cash cost, and is expected the relevant price setting assets. to be in the bottom half of the cash cost curve. Underlying EBIT is expected to be capitalised until the end of 2015, by which time the Minas-Rio project is expected to have achieved commercial production capacity. In 2014, Iron Ore Brazil’s capitalised underlying EBIT loss was $57 million, while an amount of $34 million was charged to the income statement in relation to expenses that were not directly associated with the project. Sales volumes of 0.2 Mt relate to three Panamax vessels transporting iron ore from Minas-Rio to customers in China. Iron ore production volumes for the year reached 0.7 Mt (wet basis).

Anglo American plc Strategic Report 2014 49 STRATEGIC REPORT IRON ORE AND MANGANESE

OPERATING PERFORMANCE Samancor Production of manganese ore remained consistent at Kumba 3.3 Mt (attributable basis), with a record performance in Overall, Kumba showed a marked improvement in the second half. Production benefi ted from improved ore production as plans put in place over the past few years recovery and plant availability in South Africa, which offset yielded benefi ts. These were complemented by the the impact of weather related stoppages in the fi rst quarter implementation of Anglo American’s Operating Model in Australia. at Sishen in August. Production of manganese alloys increased by 14% to Sishen production of 35.5 Mt increased 15% 286,100 tonnes (attributable basis) owing to greater furnace (2013: 30.9 Mt), with total tonnes mined rising to stability and availability in South Africa and Australia. 229.9 Mt (2013: 208.8 Mt). Of this amount, 187.2 Mt was waste (2013: 167.8 Mt). Although below the waste target set at the start of the year, waste removal run rates are now OPERATIONAL OUTLOOK meeting targets. Additional contractor capacity has been Kumba secured and the performance of Kumba’s own mining fl eet Kumba will focus on optimising its production portfolio improved. The vertical rate of advance at the mine was by reconfi guring its project portfolio to focus on low cost increased, further strengthening the exposed ore position. production. The target is an additional ~5 Mt in South Africa The strategic redesign of the western pushbacks of the pit, over the next three to fi ve years, through incremental together with the improved waste removal run rates, have volumes from projects at Sishen and Kolomela. achieved appropriate waste removal during the year to ensure suffi cient exposed ore to support a 2015 production Additional port capacity through the use of the Saldanha target of 36 Mt. Multi-Purpose Terminal is expected to optimise port throughput. Sishen is aiming to increase production to Execution of the pit redesign plan has resulted in an around 36 Mt in 2015, as it ramps up its waste stripping to improved mining plan that enables better use of equipment, around 250 Mt. This will be supported by the Dingleton and the deployment of two priority pushbacks. Around relocation project and ongoing implementation of 780 Mt of waste was taken out of the revised life of mine Anglo American’s Operating Model. Following the planned plan, reducing the average life of mine stripping ratio from commissioning of a new modular plant in 2015, production 4.4 to 3.9, and the reserve life from 18 years to 16 years at guidance has been increased by 1 Mt to 38 Mt in both 2016 the end of 2014. and 2017. Kolomela maintained its strong performance, with total Kolomela’s life of mine production capacity has been tonnes mined increasing by 18% to 70.4 Mt (2013: 59.9 Mt). increased to 11 Mtpa from 2015, and studies are in progress The mine produced 11.6 Mt of iron ore (2013: 10.8 Mt), an which could result in increasing production further to 12 Mt increase of 7%, and mined 55.5 Mt of waste (2013: 46.7 Mt). in 2016 and to 13 Mtpa from 2017. The future of Thabazimbi Pre-stripping of the third pit (19.4 Mt), in order to maintain mine in Kumba’s portfolio is currently being assessed. fl exibility, was completed during the year, with fi rst ore Iron Ore Brazil exposed during November. Iron ore production of between 11 Mt and 14 Mt (wet basis) Thabazimbi lifted output to 1.1 Mt (2013: 0.6 Mt), with is expected in 2015. Nameplate capacity is expected to be waste mining volumes increasing by 19% to 31.6 Mt reached by the second quarter of 2016, with production of (2013: 26.5 Mt). between 24 Mt and 26.5 Mt (wet basis) expected in 2016. In addition to the safe ramp up of operations, activities also Volumes railed on the Iron Ore Export Channel were include the completion of the outstanding construction 6% higher at 42.2 Mt (2013: 39.7 Mt) on the back of the works and the regular cycle of licence and permit renewals improved performance at Sishen and Kolomela, accounting required for the mining operations. for 31.7 Mt and 10.5 Mt, respectively. To facilitate the expansion of Sishen mine to the west, Phase 1 of the Dingleton relocation project was completed, with 71 homes in Dingleton North being moved to the new host site. Phase 2, the relocation of the 428 remaining houses, buildings and businesses, has commenced and is progressing well.

50 Anglo American plc Strategic Report 2014 Strategic report Strategic DEVELOPING SISHEN FOR THE FUTURE

Image Mining safety ofﬁ cer Kobus Ellis and shovel operator Pitrus Skhungweni at Sishen mine. Next to them is a giant shovel, capable of delivering a payload of 108 tonnes in one scoop, which is being used to remove the calcrete overburden in the South Western portion of the pit.

During 2013, Kumba undertook and concluded various • The Dingleton relocation project to facilitate Sishen’s analyses and geological studies in order to better understand westward expansion has now commenced. In the the orebody at Sishen mine, and determine how best to mine current phase, 17 private homeowners and the occupants it successfully and sustainably. of 54 municipal houses in the northern section of Dingleton had been relocated by the end of 2014, with the rest to The outcome of this review has been the development of follow by the end of 2016. a revised mining plan, with a resultant reduction of almost 780 Mt of waste stripping over the life of the mine, along with • Two new waste dumps are being constructed to reduce a number of other initiatives aimed at improving effi ciencies the distance trucks are required to travel to move waste. and ensuring that Sishen is able to meet its revised production targets. • A fi ve-year fl eet and associated infrastructure plan is currently under way, which includes an on-site Sishen is on track to meet its target of 38 Mt of iron ore maintenance facility to safely and effi ciently service the production in 2016 as a result of the following initiatives: mine’s haul trucks. This, along with increasing the fl eet • The implementation of Anglo American’s Operating Model, of trucks, is set to increase capacity for moving ore as a project being piloted at Sishen to improve productivity the mine ramps up. through scheduled work. Initiated in August 2014, this is Following the success of the Operating Model pilot at already yielding signifi cant benefi ts, including improving Sishen North, further roll outs are planned at Sishen pre-strip scheduled work from 20% to ~70%, a 50% reduction in and Kolomela plant during 2015, followed by roll out at all waiting time on shovels, and a 23% effi ciency other areas. improvement in total tonnes handled.

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