Anglo American Annual Report 2012

OVERVIEW CHAIRMAN’S STATEMENTCHAIRMAN’SSTATEMENTIn a very tough year, we made significantprogress in overcoming the most seriouschallenges to our business, to the benefitof everyone invested, directly or indirectly,in Anglo American.Sir John Parkerrecognise that over the next two years we will bear a heaviercapital expenditure burden as we seek to complete thedevelopment of Minas-Rio and Grosvenor in Australia, afterwhich we expect capital expenditure to be moderated.We have a substantial potential pipeline of high-quality growthoptions in the most attractive commodities. However, giventhe increased challenges involved in developing large andcomplex greenfield sites, the Board will apply a highlydisciplined approach to the allocation of capital, with smaller,lower-risk brownfield expansion projects more likely to findfavour. Prior to Board approval of large greenfield projectswe will explore the merits of seeking suitable partners.Given theincreasedchallengesinvolved indevelopinglarge andcomplexgreenfieldsites, theBoard willapply a highlydisciplinedapproach tothe allocationof capital.OUR PERFORMANCEIt was a difficult year for the mining industry andAnglo American encountered its share of challenges.Against a backdrop of a marked economic slowdown inChina, a troubled euro zone and only a sputtering recoveryin the US, the industry faced falling prices, while profitabilitywas further impacted as costs continued to rise well aboveinflation in many countries. In our own business, in SouthAfrica, we had to contend with lengthy illegal industrial actionat our Platinum and Kumba Iron Ore operations – whichultimately had the effect of tipping Anglo American Platinuminto making a loss for the year. In the first half of the year,we also encountered operational setbacks in our Copperbusiness, where output is now stabilising. At our largestcapital project, the Minas-Rio iron ore project in Brazil, adiversity of problems led to a revised delivery date andcapital-cost increases. This led us to review the carryingvalue of the asset, writing it down by $4 billion (after tax).DIVIDENDS AND CAPITAL ALLOCATIONIn spite of all these challenges affecting cash flow, the Boardwas able to recommend a final dividend of 53 cents per share,giving a rebased total dividend for the year of 85 cents, a 15%increase, reflecting our confidence in the underlying business.This increase completes the rebuilding of our dividend fromzero in 2009, to a new base level competitive with ourdiversified peer group.The three major projects we commissioned in 2011 – BarroAlto nickel, Los Bronces copper expansion and Kolomela ironore – have all been ramping up. At Minas-Rio, however, theinevitable knock-on effect of permitting and other delays haveresulted in the project’s capital expenditure rising to anexpected $8.8 billion, if a Group-held risk contingency of$600 million is consumed, with the first iron ore shipment dueby the end of 2014. I am confident, however, that Minas-Riowill become one of the world’s great high-quality iron oremines, with high potential cash generation and a publishedresource base of well over 5 billion tonnes, a more thanfourfold increase since acquisition.Anglo American’s objective is to maintain a strong investmentgrade rating – which demands rigorous capital discipline. WeDELIVERING VALUEIn these volatile times, boards have a heightenedresponsibility to ensure that management delivers enduringvalue for shareholders. That is why, following almost a yearof studying various options and social plans, we haveannounced a proposed major restructuring of our Platinumbusiness. We aim to return it to a sustainable profit and a moresecure future for the 45,000 employees who would remain.I am glad to report we have had positive dialogue with theSouth African government, with a joint commitment to worktogether on this restructuring and the finalisation of ourrecovery plans.It is pleasing to report that, following the dispute with theChilean state copper producer, Codelco, we were able toretain majority control of Anglo American Sur and to establisha new relationship that positions us to build a strong futurefor our business in Chile. We were also able to generate$2.3 billion of incremental proceeds for shareholderscompared to the original option price.Our acquisition from the Oppenheimer family of its 40%shareholding in De Beers now gives shareholders greaterexposure to the world’s No. 1 diamond company. We believeDe Beers is well positioned to capitalise on the positivefundamentals in diamonds, with the supply of gem diamondslikely to fall well short of demand over the long term.SAFETY AND SUSTAINABLE DEVELOPMENTThe number of people who lost their lives on companybusiness fell to 13; sadly, this is 13 too many. Our lost-timeinjury frequency rate, which had reached a plateau in recentyears, also resumed a downward trend. Overall, duringCynthia Carroll’s six-year watch, on a like-for-like basis, theannual number of deaths Group-wide fell by half. This stepchange in performance is great testimony to Cynthia’ssafety leadership, as well as the commitment of her seniormanagement team. Their tireless endeavours in leading thesafety agenda have brought about real and lasting change inthe way we approach our drive for zero harm. I know ourincoming chief executive Mark Cutifani, during whose watchat AngloGold Ashanti, over a similar timeframe, the company’ssafety record improved significantly, is also determined to takethe lead on this most fundamental of issues.As a company, Anglo American takes climate-changemitigation and water management particularly seriously –with targets for these included in the performance contracts02 Anglo American plc Annual Report 2012