Anglo American Annual Report 2012

OPERATING AND FINANCIAL REVIEW METALLURGICAL COAL2012 Metallurgical coal demandGlobal 1,095 MtNorth America 29 MtWestern Europe 73 MtJapan65 MtChina746 MtIndia41MtCIS66 MtIncorporating:South America 21MtOther Asia47MtRest of World6 MtSource: AME, Wood Mackenzie, CRU, company reportsand Anglo American Commodity Research estimates2012 Metallurgical coal productionGlobal 1,095 MtChina669 MtOceania169 MtNorth America 109 MtCIS100 MtMongolia20 MtRest of World 29 MtSource: AME, Wood Mackenzie, CRU, company reportsand Anglo American Commodity Research estimatesIn 2012, the international seabornemetallurgical coal market totalledaround 250 Mt (2) , the major consumingregions being Japan, South Korea,Taiwan, Europe, India, China andBrazil. On average, Australia suppliesroughly two-thirds of the seabornemetallurgical coal market.Historically, annual contract pricing haspredominated in the market. A shift toshorter term pricing in 2010–2012saw the majority of contracts pricedon a quarterly basis, with a growingproportion being priced on amonthly basis.The Queensland State Budget wasdelivered in September 2012, witha royalty rate increase which equatesto a 22% increase on the royalty ratepayable per tonne of coal sold for$200/t or more, with effect from1 October 2012.STRATEGYEmerging markets, particularly in theAsia-Pacific region, are likely to remainthe driving force behind metallurgicalcoal demand. In light of this,Metallurgical Coal’s strategy is toincrease the value of the business byoptimising existing operations andinvesting in growth projects in thesupply regions best placed to producethe high-margin export metallurgicalcoals sought by our customers. Toimplement this strategy:• A structured programme of assetoptimisation has been designed todeliver industry-best operationalperformance over the existing assetbase, targeting longwall performanceat the underground operations andkey equipment at the open cut mines;• An attractive organic growthpipeline with the potential to triplehard coking coal production tosatisfy growing market demand,including opportunities in Australiaand Canada. To underpin itsindustry leading growth plans,Anglo American has several exportport options under study inQueensland, Australia, and hassecured port access for the RomanProject in Canada;MetallurgicalCoal has anattractiveorganic growthpipeline withthe potentialto triple hardcoking coalproduction tosatisfy growingmarket demand.• In line with demand from thesteelmaking industry in bothexisting and emerging markets,Metallurgical Coal is realisingincreased value from developingsuperior specialised productofferings tailored to individualcustomers in the steel sector.Operating safely, sustainablyand responsiblyWater management and rehabilitationare key environmental focus areas forMetallurgical Coal. Climate variabilityin the regions in which we operaterequires water management strategiesthat are equally effective in periods offlood and drought. Our rehabilitationstrategy requires disciplinedmanagement of disturbed land and thedevelopment of mine closure plans.To play our part in mitigating theemissions which may contributeto climate change and reduce ourexposure to the carbon pricingmechanism, we have invested morethan $120 million over the past fiveyears to abate 8 Mt of CO 2e emissionsusing available commercial-scaletechnologies.FINANCIAL AND OPERATIONALOVERVIEWMetallurgical Coal recorded anunderlying operating profit of$405 million, 66% lower than the 2011record of $1,189 million. This wasdriven by a 29% decrease in exportmetallurgical coal prices, partiallyoffset by a 25% increase inmetallurgical coal sales volumes.Productivity improvements at both theopen cut and underground operationsand a reduction in weather relatedstoppages, supported by the rigorouspreparation for seasonal rain, led to asignificant increase in metallurgicalcoal production and sales.Year-on-year FOB cash unit costsimproved, with a 10% reduction atthe Australian export operations,and a 20% reduction achieved in thesecond half of the year.Safety and environmentThere were no fatal injuries at ourMetallurgical Coal operations in2012. The lost-time injury frequencyrate of 1.75 is the lowest on recordand represented a 29% improvement62 Anglo American plc Annual Report 2012