Anglo American Annual Report 2012

BUSINESS OVERVIEWOur Thermal Coal business operatesin South Africa and Colombia. InSouth Africa, Thermal Coal whollyowns and operates seven mines. Italso has a 73% stake in two mines,Kriel and the new Zibulo colliery,a multi-product operation whichproduces thermal coal for both exportand Eskom, the state-owned powerutility, with the balance held by InyosiCoal, a broad-based black economicempowerment entity. In addition,Thermal Coal has a 50% interest inthe Mafube colliery and Pholawashing plant.Six of the mines collectively supply23 million tonnes per annum (Mtpa)of thermal coal to both the exportand local markets. New Vaal,New Denmark and Kriel collieriesare domestic product operationssupplying 29 Mtpa of thermalcoal to Eskom. Isibonelo mineproduces 5 Mtpa of thermal coalfor Sasol Synthetic Fuels, thecoal-to-liquids producer, under a20 year supply contract.Thermal Coal’s South Africanoperations currently route all exportthermal coal through the Richards BayCoal Terminal (RBCT), in which it hasa 24.2% shareholding, to customersthroughout the Mediterranean-Atlanticand Asia-Pacific regions. Exportproduction volumes are expected toincrease in the future owing to yieldimprovements and increasedproduction of lower calorific value coal.In Colombia, Anglo American,BHP Billiton and Xstrata each havea one-third shareholding in Cerrejón,the country’s largest thermal coalexporter. In 2011, an expansion (P40)was approved to increase this capacityby 8 Mtpa to 40 Mtpa by 2015(13.3 Mtpa attributable). Cerrejónowns and operates its own rail anddeep water port facilities and sells intothe export thermal and pulverised coalinjection (PCI) markets.Thermal Coal’s attributable measuredand indicated resources in addition tocoal reserves totals some 2.6 billiontonnes as detailed in the CoalReserves and Resources section ofthe Annual Report, pages 204–207.Demand forseabornethermal coalhas increasedby 73.5%since 2001.INDUSTRY OVERVIEWThermal coal is the most abundantsource of fossil fuel energy in theworld. Exceeding known reservesof oil and gas, it accounts for more than40% of electricity generation. Thermalcoal has dominated global energydemand, accounting for 45% ofprimary energy demand growth from2011–2012. The near 55% increasein coal demand over the past decadeis roughly equivalent to three timesUS coal consumption on an energyadjustedbasis.The bulk of coal production is usedin power generation; decisionsthat affect the energy mix of powergeneration therefore influence coaldemand. These include long termindustry dynamics for nuclear, gasand renewable power generationand policy decisions on climate/environmental legislation.In 2012, export seaborne thermalcoal accounted for 910 Mt or 17.5%of total coal production, with a largeproportion of seaborne productioncoming from four key basins:Indonesia, Australia, Colombia andSouth Africa. Demand for seabornethermal coal has increased by 73.5%since 2001, and is expected tocontinue to grow for at least the nextdecade, driven by India and China’simport requirements.Consequently, the key risks tothe medium term growth of exportseaborne thermal revolve aroundthe ability of India and China to sustaintheir rates of economic growth, aswell as logistical constraints and costinflation pressures.In the last few years, the coal industryhas seen growth in US exports,particularly to Europe, due to theavailability of low priced US naturalgas. In 2012, US exports peaked to55 Mt from 25 Mt in 2010, driving downexport coal prices. US power utilitiescontinue to substitute coal withgas-powered generation; howeverthe long term view is that the naturalgas price will remain between$4-6/million British Thermal Unit(mmBtu), at which point mostof the coal volumes currently lostto gas should revert to beingeconomically viable.ORGANISINGCARRYINGTHEIR PROPERWEIGHTLoading of haul trucks has beenidentified as one of Landau’sbiggest opportunities forimprovement.An internal survey found thatcontractor operators had beenconsistently underloading thecolliery’s fleet of haul trucks.They did so to avoid the vehicles’cut-out switch being activatedautomatically once a truckreached its maximum permittedcapacity – a practice that resultedin throughput inefficiencies at thisround the clock operation.Faced with this under-performance,the mine instigated a plan thatincluded comparing Landau’shaul truck operations with itspeers, using the lessons learnedto adopt best-practice operatortraining. This was thensupplemented by systematicrecalibration of truck loads withcalibrated weights.These actions resulted in a20% improvement in truck loadfactor in 2012 and significantcost savings.ImageA front end loader loads coal on to aconveyor belt in the open pit.Operating and financial reviewAnglo American plc Annual Report 2012 65