Anglo American Annual Report 2012

OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTIONSTRATEGIC ELEMENT: Investing in world class assets and the most attractive commoditiesPROJECT DELIVERY TOCONTINUE TO DRIVE HIGHQUALITY PRODUCTION GROWTHIN BRIEF• Cerrejón P40 8 Mtpa exportthermal coal expansion inColombia – first coal in 2013.• Minas-Rio 26.5 Mtpa iron oreproject in Brazil – injunctionslifted and first ore on ship(FOOS) end of 2014.• Grosvenor 5 Mtpametallurgical coal projectin Australia – longwallproduction in 2016.CAPEX: 4 strategicgrowth projects$ bn2012201120101.7CAPEX: Other projects$ bn2012201120101.01.02.42.3CAPEX: Stay in business$ bn2012201120101.71.32.42.7The Group’s extensive portfolioof undeveloped world classresources and pipeline of growthoptions span its chosen corecommodities. It offers theGroup flexibility to sequenceinvestment in line with the Group’sview of market dynamics andthe geopolitical environment.Capital is prioritised to maximisevalue accretion while minimisingrisk exposure, taking intoconsideration the Group’sresulting funding capacity.We have a number of projects in theexecution phase and are progressingwith the development of other growthprojects, including the 225,000 tonnesper annum (tpa) Quellaveco greenfieldcopper project in Peru.The Minas-Rio iron ore projectin Brazil is expected to capture asignificant part of the pellet feedmarket with its premium productfeaturing high iron content andlow contaminants. Phase 1 of theMinas-Rio project is expected toproduce 26.5 million tonnes perannum (Mtpa), with potentialoptimisation to 29.8 Mtpa.During the year Anglo Americancompleted a detailed cost andschedule review of the project. Thereview included third party input andexamined the outstanding capitalexpenditure requirements in light ofcurrent development progress andthe disruptive challenges faced by theproject. The review included a detailedre-evaluation of all aspects of theoutstanding schedule, with a focus onmaximising value and mitigating risk.Following completion of the review,estimated capital expenditure forthe Minas-Rio project increased to$8.8 billion, if a centrally held riskcontingency of $600 millionis utilised in full. On the basis ofthe revised capital expenditurerequirements and assessment of thefull potential of Phase 1 of the project(excluding at this stage the potentialfor future expansions up to 90 Mtpa),Anglo American will record animpairment charge of $4 billion at31 December 2012, on a post-taxbasis. The first phase of the project willbegin its ramp up at the end of 2014.The published resource has increasedmore than fourfold since acquisition to5.77 billion tonnes in 2011, of which wehave recently converted 1.45 billiontonnes to Ore Reserves. We anticipateincreases in the resource confidenceand further conversion of resourcesto reserves through our ongoing infilldrilling programme.In Colombia, the brownfield expansionproject, P40, aims to increase valueby increasing export thermal coalproduction capacity by 8 Mtpa to40 Mtpa (100% basis), throughadditional mining equipment andthe debottlenecking of key logisticsinfrastructure along the coal chain.The project was approved byCerrejón’s shareholders in the thirdquarter of 2011. The project isprogressing well and is expected tobe delivered on schedule, with firstcoal expected in 2013.The greenfield Grosvenormetallurgical coal project is situatedimmediately to the south ofAnglo American’s Moranbah Northmetallurgical coal mine in the BowenBasin of Queensland, Australia. Themine is expected to produce 5 Mtpaof high quality metallurgical coal fromits underground longwall operationover a projected life of 26 years andto benefit from operating costs in thelower half of the cost curve.Grosvenor forms a major part of theGroup’s strategy of tripling hard cokingcoal production from its Australianassets, using a standard longwall andcoal handling and preparation plant(CHPP) design. In its first phase ofdevelopment, Grosvenor will consistof a single new underground longwallmine, targeting the same wellunderstood Goonyella Middle coalseam as Moranbah North, and willprocess its coal through the existingMoranbah North CHPP and trainloading facilities. The Grosvenorproject is currently in execution, withengineering work progressing to plan,construction under way and longwallThe Group’sextensiveportfolio ofundevelopedworld classresourcesand pipelineof growthopportunitiesspans ourchosen corecommodities.16 Anglo American plc Annual Report 2012