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 <strong>2012</strong>and 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 <strong>2012</strong>, <strong>Anglo</strong> <strong>American</strong>completed 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 between<strong>Anglo</strong> <strong>American</strong> 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 <strong>2012</strong>,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: <strong>Anglo</strong> <strong>American</strong> 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 <strong>2012</strong>.MarketsAverage price <strong>2012</strong> 2011Average marketprices (c/lb) 361 400Average realisedprices (c/lb) 364 378The copper price rose in the early partof <strong>2012</strong>, 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 <strong>2012</strong> of$47 million versus a net negativeadjustment in the prior year of$278 million.Copper price (c/lb)70 <strong>Anglo</strong> <strong>American</strong> plc <strong>Annual</strong> <strong>Report</strong> <strong>2012</strong>
Operating performanceAttributableproduction (tonnes) <strong>2012</strong> 2011Copper 659,700 599,000Total copper production (includingour share of the Collahuasi jointventure) of 659,700 tonnes was 10%higher than in 2011. This was mainlydue to the increased contribution fromthe Los Bronces expansion, offset bylower production at the establishedLos Bronces operation and atCollahuasi and Mantos Blancos.Production at Los Bronces was 65%higher at 365,300 tonnes, with themine benefiting from the 196,100tonnes (2011: 19,000 tonnes) achievedfrom the expansion as it ramped up tofull production. The new processingplant reached throughput designcapacity ahead of expectations inAugust <strong>2012</strong>. This increase in outputwas partially offset by lower gradesaccessed during the year. Productionat the established Los Broncesoperation was impacted by reduced pitflexibility, lower stockpiles and safetydriven reductions in slope angles.Production at El Soldado increasedby 15% to 53,800 tonnes, owingto improved plant performance,expected higher ore grades andbetter recoveries. Production atMantoverde also increased, by 6%,to 62,300 tonnes, driven by improvedLeading copper consumers(<strong>2012</strong> estimated refined copper consumption)<strong>2012</strong> estimated world total: 19.9MtMtChinaEurope3.88.2crushing performance. MantosBlancos’ production of 54,200 tonnesdecreased by 25%, affectedby an incident involving a loadernecessitating a change in mine plan,resulting in a lower ore grade areabeing mined.Our share of production at Collahuasifell by 38% to 124,100 tonnes, partlyowing to anticipated lower gradesbeing mined during the year. Thiswas exacerbated by lower recoveries,adverse weather conditions in theearly months, safety stoppages anda ball mill failure.In response to the performance issuesat Collahuasi, the joint venture partnersput in place a business improvementplan, with an <strong>Anglo</strong> <strong>American</strong> andXstrata joint management teamassuming leadership from July. Theteam has implemented a number ofimprovement plans aimed at deliveringimproved operating performancein 2013. A new CEO was appointedat Collahuasi with effect from19 December <strong>2012</strong>.ProjectsIn Peru, the Quellaveco projectreceived three critical permits in thefourth quarter: an amendment to theenvironmental impact assessment,the beneficiation concession andthe key water permit. Communityengagement continued throughthe ‘dialogue table’ process, whereagreement was reached in July inrelation to water usage, environmentalresponsibility and <strong>Anglo</strong> <strong>American</strong>’ssocial contribution over the life of themine. <strong>Anglo</strong> <strong>American</strong> is targetingsubmission of the project to its Boardfor approval in 2013. The concept levelstudy for the Michiquillay project wascompleted and is under review.Activity at the Pebble project inAlaska continues, with the focus oncompleting a pre-feasibility studyand preparing to commencepermitting. The draft Bristol BayWatershed Assessment was releasedby the Environmental ProtectionAgency (EPA) in May <strong>2012</strong>. TheEPA has announced that it has revisedthe draft watershed assessmentreport to take account of feedbackand it intends to have the revisedassessment peer reviewed andcommented on publicly with a viewto finalising the assessment in 2013.In Peru, theQuellavecoproject receivedthree criticalpermits in thefourth quarter:an amendmentto theenvironmentalimpactassessment, thebeneficiationconcessionand the keywater permit.At Collahuasi, the project to increaseconcentrator plant throughput to160,000 tonnes of ore per daywas reduced in scope and thepre-feasibility study on the furtherexpansion potential was put on hold,both pending restoring operationalstability of current operations.OutlookProduction levels in 2013 areexpected to benefit from theexpanded Los Bronces operationrunning at full capacity for the full year.Mine development and improvingmine flexibility will be a continued focusat Los Bronces, which will also impactcosts. Increased production is alsoexpected at Collahuasi followingimplementation of the improvementplans put in place during <strong>2012</strong>, as wellas the No. 3 ball mill coming back into operation from November <strong>2012</strong>,and planned mining of higher oregrade phases.Challenges remain in managingcontinuing industry-wide input costpressures, and this will be a keyfocus for the business in 2013.Ongoing market concerns arisingfrom uncertainties over the near termoutlook for the global economy maylead to short term volatility in thecopper price. The medium to long termfundamentals for copper, however,remain strong, predominantly drivenby robust demand from the emergingeconomies and supply constraintsowing to ageing mines and steadilydeclining average grades.Operating and financial reviewRest of worldN. America1.9JapanSouth KoreaIndiaBrazil0.60.41.00.73.3Source: Brook Hunt – a Wood Mackenzie company<strong>Anglo</strong> <strong>American</strong> plc <strong>Annual</strong> <strong>Report</strong> <strong>2012</strong> 71