Anglo American Annual Report 2012

INVESTING Page 14 ORGANISING Page 18OPERATING Page 22EMPLOYING Page 32Change in risk during 2012No change in riskIncreased riskDecreased riskEXPLORATIONExploration and development are costly activities, with noguarantee of success, but are necessary for future growth.Impact: Failure to discover and develop new mineral resourcesof sufficient magnitude could have an adverse bearing on futureresults and the Group’s financial condition.Root cause: Exploration and development are speculativeactivities and often take place in challenging or remote locationsfrom a climate, altitude or political perspective.Mitigation: The Group invests considerable sums each year infocused exploration programmes to enable resource discoveryand development to reserves. This investment includes the useof leading technology in exploration activity.No change in riskINVESTING Page 14 ORGANISING Page 18OPERATING Page 22 EMPLOYINGORE RESERVES AND MINERAL RESOURCESAnglo American’s Ore Reserves and Mineral Resources estimatesare subject to a number of assumptions that may be incorrect.Impact: Deviations from the estimated price of commodities,production costs and mining and processing recovery ratesmay have an impact on the financial condition and prospectsof the Group.Root cause: All assumptions related to Ore Reserves andMineral Resources are long term in nature and are subject tovolatility owing to economic, regulatory or political influences.Mitigation: Anglo American is experienced in managing OreReserves and Mineral Resources and has robust procedures inplace to reduce the likelihood of significant variation. All factorsare consistently monitored by management.The Group’s procedure on reporting of Ore Reserves and MineralResource estimates is summarised on page 191.Operating and financial reviewSUPPLY RISKThe inability to obtain key consumables, raw materials, miningand processing equipment in a timely manner.Impact: Any interruption to the Group’s supplies or increasein costs has a negative effect on our financial position andfuture performance.Root cause: During strong commodity cycles, increaseddemand can be experienced for such supplies, resulting in periodswhen supplies are not always available to meet demand.Anglo American has limited influence over manufacturersand suppliers.Mitigation: We take a proactive approach to developingrelationships with critical suppliers and to leveraging the Group’spurchasing power. Contingency plans are developed to mitigateloss of critical supplies.No change in riskINVESTING ORGANISING Page 18OPERATING Page 22 EMPLOYINGCONTRACTORSInability to employ the services of contractors to meet businessneeds or at expected cost levels.Impact: Disruption of operations or increased costs may ariseif key contractors are not available to meet production needs.Delays in start-up of new projects may also occur.Root cause: Mining contractors are used at several Groupoperations to develop mining projects, mine and deliver ore toprocessing plants. In periods of high commodity prices, demand forcontractors may exceed supply.Mitigation: Effective planning and the establishment of effectiveworking relationships with critical contractors help mitigate this risk.No change in riskINVESTINGOPERATINGORGANISINGEMPLOYING Page 32No change in riskINVESTING Page 14 ORGANISING Page 18OPERATING EMPLOYINGOPERATIONAL PERFORMANCE AND PROJECT DELIVERYFailure to meet production targets or project delivery timetablesand budgets.Impact: Increased unit costs may arise from failure to meetproduction targets, thus affecting our operational and financialperformance. Failure to meet project delivery timetables andbudgets may delay cash inflows, increase capital costs andreduce profitability, as well as have a negative impact on theGroup’s reputation.Root cause: Increasing regulatory, environmental, accessand social approvals can increase construction costs andintroduce delays.Operational performance can be influenced by technical andengineering factors as well as events or circumstances that havean impact on other critical inputs to the mining and processingof minerals.Mitigation: Management oversight of operating performanceand project delivery through regular executive managementbriefings, a continuous focus on improvement of operationsthrough our asset optimisation programme, and consistentapplication of the company’s methodology for new projectsare vital aspects in managing this risk.Commentary: While some of our growth projects ramped upproduction during 2012 as planned, our key project in Brazil,Minas-Rio is behind schedule as a result of permit delays and legalchallenges, as described on pages 58 and 59. In addition, some ofour business units did not meet expected production volumes dueto operational performance challenges as indicated on page 43.Production performance was also affected by industrial strikeaction in South Africa as described on pages 57 and 80.Increased riskINVESTING Page 14 ORGANISING Page 18OPERATING Page 22 EMPLOYING Page 32Anglo American plc Annual Report 2012 51