Anglo American Annual Report 2012

OPERATING AND FINANCIAL REVIEW THERMAL COAL01 Engineering professionalsin training Keith Roelofseand Clair Nel carrying out aroutine lift-cage inspectionat Zibulo.2012 Thermal coal demandGlobal 910 MtSTRATEGYThe business is focused on beinga high margin producer of thermalcoal, with a growth strategy basedon participating in and expanding intothe most attractive export markets,while maintaining its domestic marketcommitments. It aims to deliver onthis ambition, in the near term, bydeveloping its current portfolio ofexpansion projects. In the longer term,if appropriate, the business willconsider asset purchases tosupplement growth.Thermal coal demand is being drivenby Asian economic growth and itsreliance on low cost, readily availablesupply. China and India will constitutethe majority of thermal coal growth,with demand likely to exceed domesticthermal coal supply, thereby causingan upswing in seaborne thermal coalmarkets in future years. In SouthAfrica, demand for new coal supply isincreasing and is expected to continueto grow in order to supply Eskom’sfuture coal requirements.In support of its strategy to maximisethe value of its portfolio of operatingmines, Thermal Coal’s current primaryfocus is on implementing a collectionof asset optimisation initiatives(Project Khulisa) and integrated mineplanning (Project EVO). The goalof Khulisa (meaning ‘to grow’) isto determine Thermal Coal’s trueperformance potential and implementprogrammes to achieve these targets.In 2012, the project identified andpursued a total of 88 initiatives, rangingfrom operational improvements tochanging mind-sets and behaviours.Project Khulisa will continue in 2013.In addition to developing and growingoperations in its existing geographies,Thermal Coal is constantly evaluatingpotential opportunities in new andstrategic geographies.EuropeJapanSouth KoreaTaiwanIndiaChinaIncorporating:USARest of World158 Mt125 Mt107 Mt61Mt96 Mt236 Mt8 Mt119 Mt2012 Thermal coal productionGlobal 910 MtIndonesia 358MtAustralia182MtColombia80MtRussia100 MtSouth Africa 74MtUSA50 MtIncorporating:China5 MtMozambique 1MtRest of World 62 MtSource: Wood Mackenzie, AME, IEA, McCloskey,and Anglo American Commodity Research estimatesIn 2012,Thermal Coalidentified andpursued a totalof 88 assetoptimisationinitiatives aspart of ProjectKhulisa.Operating safely, sustainablyand responsiblyTwo principal risks facing ThermalCoal are water and climate change.Coal mining has the potential to affectthe quality of water in catchments thatare already under stress – a risk that ismitigated by careful operational watermanagement and our leading watertreatment facilities. Two carbon- andenergy-related risks Thermal Coalis engaging on are the South Africangovernment’s proposed energy priceincreases, which could double theenergy bill in South Africa over thenext few years, and the anticipatedintroduction of a long term priceon carbon. In South Africa, we areparticipating in a fact-buildingexercise with the government tohelp shape effective carbon policythat is aligned with the country’sdevelopment objectives.FINANCIAL ANDOPERATIONAL OVERVIEWThermal Coal generated an underlyingoperating profit of $793 million, a36% decrease, mainly driven by loweraverage export thermal coal pricesand above-inflation cost pressures.This was partly offset by the closureof high cost sections, a weakerSouth African rand and increasedsales volumes from the fullincorporation of Zibulo as an operatingasset, supported by record productionat Cerrejón.0166 Anglo American plc Annual Report 2012