Anglo American Annual Report 2012

Safety and environmentSadly, two colleagues lost their liveswhile working at Thermal Coaloperations in South Africa in 2012.Thorough incident investigationswere conducted to ensure that theroot causes of these incidents areunderstood, corrected and sharedacross the Group.Thermal Coal has been on a journeyof continuous improvement in safetyover the past five years, reflected inthe decrease in the lost-time injuryfrequency rate (LTIFR) from 0.31 in2008 to the current 0.20.MarketsAnglo Americanweighted averageachieved sales prices($/tonne) 2012 2011South Africa exportthermal coal (FOB) 92 114South Africadomesticthermal coal 21 21Colombia exportthermal coal (FOB) 89 101Attributablesales volumes(‘000 tonnes) 2012 2011South Africa exportthermal coal (1) 17,151 16,532South Africadomesticthermal coal (1) (2) 40,110 40,454Colombia exportthermal coal 10,926 10,685(1)Includes capitalised sales from Zibulo mine of1,580,800 (export) and 632,200 (domestic) tonnesfor the year ended 31 December 2011.(2)Includes domestic metallurgical coal of 91,800tonnes for the year ended 31 December 2012(year ended 31 December 2011: 318,000 tonnes).The international seaborne marketexperienced an overall decline inprices during the year owing tooversupply. The average API4index price fell by 20% to $93/t(2011: $116/t) and closed the yearat $90/t (2011: $105/t).Although international seabornedemand grew by 14% to 910 Mt, itremained below supply growth as aresult of unprecedented US exportvolumes, strong production growthand fewer weather-related supplydisruptions from the major supplyregions of Indonesia, Australia,Colombia and South Africa. CheapUS natural gas displaced a significantvolume of US domestic thermal coal inSouth Africanthermal coalexports intoAsia continuedto increase,principallydriven by India.2012, as utility companies switchedfrom coal to gas.For the South African thermal coalindustry, exports into Asia continued toincrease, principally driven by India. Asiaaccounted for 66% of South Africanthermal coal shipments (2011: 64%).South African thermal coal exportsincreased by 4% to 68.3 Mt(2011: 65.7 Mt), supported by a morestable performance by Transnet FreightRail (TFR) and drawdown fromstockpiles. TFR railed 68.5 Mt to theRBCT, a 4% increase over 2011.Operating performanceAttributableproduction(‘000 tonnes) 2012 2011South Africa exportthermal coal (1) (2) 17,132 16,328Colombia exportthermal coal 11,549 10,752South AfricaEskom coal (1) 33,706 35,296South Africadomestic other (2) 6,293 5,383(1)Includes capitalised production from Zibulo mineof 1,521,800 (export) and 633,400 (domestic)tonnes for the year ended 31 December 2011.(2)Includes domestic metallurgical coal of 91,800tonnes for the year ended 31 December 2012(year ended 31 December 2011: 323,400 tonnes).South AfricaUnderlying operating profit fromSouth African operations decreasedby 38% to $482 million, driven bylower average export thermal coalprices and above-inflation costincreases in labour, power andfuel. This was partly offset by theincorporation of Zibulo as an operatingasset, a weaker South African randand higher sales volumes, supportedby a more stable TFR rail performance.Export production increased by 5% asa result of Zibulo’s continued ramp upand a change to include lower calorificvalue coals, resulting in higher yieldingproducts at Zibulo and Goedehoop,partly offset by the planned closure ofhigh cost sections at Goedehoop,Greenside and pits at Kleinkopje.ColombiaAt Cerrejón, underlying operatingprofit of $358 million was 26% downon 2011 owing to the impact of lowerthermal coal prices, compensated tosome extent by a strong operationalperformance and drier weatherconditions, with record productionand sales.ProjectsFeasibility studies on the New Largoproject were completed in 2012. Thereare two stages to the project: Stage 1comprises a 23 kilometre overlandconveyor, which will run from anexisting coal processing plant toEskom’s Kusile power station,transporting a secondary product aswell as other third-party coal. Stage 2entails the construction of a newopencast colliery and associatedinfrastructure. The project is expectedto be presented for board approvalonce all environmental permitshave been obtained for both stagesof the project and the coal supply andother commercial agreements havebeen concluded.The Cerrejón expansion project (P40),to increase the port and logisticschain capacity to handle a totalmine output of 40 Mtpa (currently32 Mtpa), is being implemented and isexpected to be delivered on schedule.OutlookThe international seaborne thermalcoal market is expected to remainoversupplied into 2013. Pricingpressure, therefore, is expected toremain. Thermal coal production cutsare already taking effect to someextent and producers around theglobe continue to review operationsand growth projects which couldfavourably impact prices. Globalseaborne demand is expected tocontinue to grow in 2013, drivenmainly by China and India. The Chinesedomestic market price and the highUS break-even price for producersshould act, respectively, as a naturalfloor and ceiling for seaborne thermalcoal prices.Operating and financial reviewAnglo American plc Annual Report 2012 67