Anglo American Annual Report 2012

OPERATING AND FINANCIAL REVIEW COPPERSTRATEGYWe continue to believe our Copperbusiness has attractive long termfundamentals. Short term growth isbeing delivered from the successfulramp up of the Los Bronces expansionfollowing delivery of its first productionin the fourth quarter of 2011. Theexpansion produced a total of196,100 tonnes of copper in 2012and is now running at full capacity.Additional growth in the mediumterm is expected to come from theQuellaveco project in Peru, which istargeted to be put forward for boardapproval in 2013. We continue toexplore for low operating cost and longlife development opportunities andevaluate longer term projects,including Michiquillay, Pebble,Los Bronces District and West Wall.On 24 August 2012, Anglo Americancompleted the disposal of 25.4%of AA Sur, to a Codelco and Mitsuijoint venture company for a cashconsideration of $1.9 billion. As part ofthis transaction, all litigation betweenAnglo American and Codelco hasbeen terminated. The agreementdemonstrates our focus on deliveringvalue to shareholders. We remain fullycommitted to our major inwardinvestment programme in the Chileanbusiness and to continuing oursignificant social and communityinvestment commitments in Chile.In September 2011, we announcedour participation in a sales processto dispose of our effective 16.8%interest in Palabora Mining Companyin South Africa. On 11 December 2012,we reached an agreement to sellour interest for ZAR893 million(approximately $103 million), subjectto regulatory approvals in South Africaand China which are expected to takefour to six months.We continue toexplore for lowoperating costand long lifedevelopmentopportunitiesand evaluatelonger termprojects,includingMichiquillay,Pebble,Los BroncesDistrict andWest Wall.Copper stocks and priceCopper stocks (kt)1,0007505002500Jan 09 Jan 10Jan 11Jan 12Shanghai StocksComex StocksLME StocksCopper price (c/lb)Source: Anglo American Commodity ResearchOperating safely, sustainablyand responsiblyWater efficiency, re-use and recyclingare a particular focus for our Copperoperations, which are situated inextremely water-scarce regions. Thebusiness is implementing 11 differentwater projects to achieve its waterreduction target.FINANCIAL ANDOPERATIONAL OVERVIEWCopper generated an underlyingoperating profit of $1,687 million, a31% decrease. Higher sales volumesfrom the Los Bronces expansion weremore than offset by the lower averagecopper price and higher operating,exploration and study costs. Lowergrade profiles in particular impactedproduction, and consequently unitcosts, at Collahuasi, Los Bronces,and Mantos Blancos.Safety and environmentCopper’s lost-time injury frequencyrate (LTIFR) was 0.20 (2011: 0.19),while no fatal incidents occurred atmanaged operations. The business’safety efforts have involved closinggaps identified in the risk and changemanagement reviews conductedin 2011, with a particular focus onleadership, contractor management,and fighting fatigue.500450400350300250200150100Copper’s energy initiatives havedelivered a 3-4% reduction, if theimpact of the Los Bronces expansionis excluded. A portfolio of additionalenergy savings programmes is underway to sustain the progress madein 2012.MarketsAverage price 2012 2011Average marketprices (c/lb) 361 400Average realisedprices (c/lb) 364 378The copper price rose in the early partof 2012, from 343 c/lb at the start ofthe year to 387 c/lb by May. AsEurope’s sovereign debt crisis tookhold and Chinese economic growthslowed, concerns grew over theoutlook for the world economy and theprice softened into the second halfof the year. Yet despite an environmentof macroeconomic uncertainty, whichcontinues to have an impact ondemand, the price recovered inSeptember, held up on the back ofsupply-side shortfalls, and ended theyear at 359 c/lb. For the full year, therealised price averaged 364 c/lb, adecrease of 4% compared with 2011.This included a positive provisionalprice adjustment for 2012 of$47 million versus a net negativeadjustment in the prior year of$278 million.Copper price (c/lb)70 Anglo American plc Annual Report 2012