Anglo American Annual Report 2012

GOVERNANCE DIRECTORS’ REMUNERATION REPORT4.3.3 Asset Optimisationand Supply Chain• Vesting of one half of LTIP awardsgranted in 2012 depends on theperformance of the Company’sstrategic Asset Optimisation andSupply Chain (AOSC) programmesover the three-year period to31 December 2014.• These programmes strive to unlockvalue from the Company’s assetsin a sustainable way throughstructured Group-wide programmesaimed at reducing costs, increasingvolumes and improving overalloperational efficiencies.• The AOSC performance targetsrepresent the operating and capitalexpenditure savings that theprogramme is yielding, comparedwith the savings made if theprogramme had not beenimplemented. These savings arerealised cumulatively over thethree-year performance period.• For 2011 LTIP awards onwards,the effect of changes in bothcommodity prices and exchangerates have been stripped out of theAOSC targets and results so that onlydirectly attributable managementactions are recognised.• The AOSC targets and vestingschedule for the 2012 LTIP awardsare shown in Figure 19.• The Committee reviews theAOSC targets prior to each LTIPaward to ensure they remainappropriately stretching and thebenefits delivered are significantto the Company.• At the end of each performanceperiod, the assessment ofperformance against targets isreviewed by internal audit andreported to shareholders.• Figure 20 shows an exampleof AOSC improvements atMetallurgical Coal.Figure 20: Asset Optimisation and Supply ChainAt our Metallurgical Coal BusinessUnit, we set out to focus on improvingequipment performance which isdriven by rate, availability andutilisation of our fleet at open cutmines. Effective work area setupwas the key to rate improvements,whilst utilisation improvementsincrease the productive time thatequipment operates throughreducing non-value adding activities.Benchmarking best practiceequipment performance hassupported identification of the gapsand valuing the improvement.Open cut saleable AO benefitsMt – Anglo share15.62012 withoutAO (2010–2012)0.52010 AO(Figures are not subject to external audit)By improving the rate, availabilityand utilisation of our equipment,moretonnes are moved for processingand ultimately available for sale toour customers. Our equipmentperformance benefit is calculatedon the improvement in controllablevariables (which could be availabilityand/or utilisation and/or rate) againstactual performance in the previousyear, whilst all other variables are0.32011AOImprovements are ‘locked in’ to theOperational Management Systemwhich defines the practices andprocesses by which our MetallurgicalCoal sites operate, both from a mineplanning perspective as well as anoperational perspective.This approach was rolled out inMetallurgical Coal in 2008 and isdelivering benefits.1.12012 AO17.52012 with AO benefit(2010–2012)treated as uncontrollable and thusexcluded from the benefit calculation.The additional material moved ismultiplied by the strip ratio to provideadditional run of mine tonnes. Therun of mine tonnes are multiplied bythe yield achieved in the processingplant to deliver additional saleableproduction. Any incremental costsare deducted from the additionalrevenue generated.122 Anglo American plc Annual Report 2012