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OPERATING AND FINANCIAL REVIEW IRON ORE AND MANGANESEIRON ORE ANDMANGANESENorman MbazimaCEO – KumbaPauloCastellari-PorchiaCEO – Iron Ore Brazil01UNDERLYING OPERATING PROFIT(2011: $4,400 m)$2,949 mSHARE OF GROUP UNDERLYINGOPERATING PROFIT(2011: 40%)48%UNDERLYING EBITDA(2011: $4,586 m)$3,198 m01 Construction of the pump station at ourMinas-Rio iron ore project in Brazil.Key financial and non-financial performance indicators$ million (unless otherwise stated) (1) 2012 2011Underlying operating profit 2,949 4,400Kumba Iron Ore 2,980 4,491Iron Ore Brazil (5) (141)Samancor 103 165Projects and Corporate (129) (115)Underlying EBITDA 3,198 4,586Net operating assets 9,356 12,427Capital expenditure 2,077 1,659Share of Group underlying operating profit 48% 40%Share of Group net operating assets 18% 28%Non-financial indicators (2) 2012 2011Number of fatal injuriesKumba Iron Ore 2 –Iron Ore Brazil – 1Lost-time injury frequency rateKumba Iron Ore 0.10 0.08Iron Ore Brazil 0.01 0.01Total energy consumed in 1,000 GJKumba Iron Ore 7,603 7,045Iron Ore Brazil 713 2,074Total greenhouse gas emissions in 1,000 tonnes CO 2eKumba Iron Ore 945 907Iron Ore Brazil 49 112Total water used for primary activities in 1,000 m 3Kumba Iron Ore 8,803 8,179Iron Ore Brazil 895 5,273(1)In 2012, Amapá was reclassified from Iron Ore and Manganese to Non-core within the Other Mining and Industrial (OMI) segment to align withinternal management reporting. Financial comparatives have been reclassified to align with current presentation.(2)In a given year, non-financial data is reported within the business unit that had management control of the operation; therefore non-financial datafor Amapá is reported within OMI and Iron Ore Brazil for 2012 and 2011 respectively.54 Anglo American plc Annual Report 2012

2012 Iron ore demandGlobal 1,092 Mt (1)North America49 MtEurope92MtJapan and rest of Asia 132 MtChina628MtIndia54 MtCIS71 MtIncorporating:South America39 MtRest of World27 MtSource: CRU, AME, company reports andAnglo American Commodity Research estimates(1)Global iron ore, Fe unit basis2012 Iron ore productionGlobal 1,092 Mt (1)North America61 MtSouth America288 MtChina159 MtIndia82 MtCIS110 MtAustralia295MtIncorporating:Europe48MtRest of World49MtSource: CRU, AME, company reports andAnglo American Commodity Research estimates(1)Global iron ore, Fe unit basisBUSINESS OVERVIEWOur Iron Ore portfolio is based inSouth Africa and Brazil. In South Africa,we have a 69.7% (2011: 65.2%)shareholding in Kumba Iron OreLimited, a leading supplier of seaborneiron ore. Our Brazilian interestscomprise the Minas-Rio project(composed of Iron Ore Brazil’s 100%share in Anglo Ferrous Minas-RioMineração S.A., and its 49% holdingin LLX Minas-Rio, which owns the portof Açu currently under construction,and from which the project’s iron orewill be exported). Our 70% interest inthe Amapá iron ore system is now heldin Other Mining and Industrial.Kumba, listed on the JohannesburgStock Exchange, produces a leadingquality lump ore and also producespremium fine ore, in a lump-to-fineratio of 60:40. Kumba operatesthree mines – Sishen mine in theNorthern Cape, which produced33.7 million tonnes (Mt) of iron ore in2012; the new Kolomela mine, situatedclose to Sishen mine, which wasbrought into production during 2011and produced 8.5 Mt during 2012;and Thabazimbi mine in Limpopo,with an output of 0.8 Mt.Export ore is transported via theSishen/Kolomela-Saldanha iron oreexport channel (IOEC) to SaldanhaPort. The rail and port operations areowned and operated by the SouthAfrican parastatal, Transnet.Kumba is well positioned to supplythe growing Asia-Pacific andMiddle East markets and Europeansteel markets. In 2012, the companyexported 90% of its total iron oresales volumes of 44.4 Mt, with 69%of these exports destined for Chinaand the remainder for Europe, Japan,South Korea and India.Our Minas-Rio iron ore project islocated in the states of Minas Geraisand Rio de Janeiro and will includeopen pit mines and a beneficiationplant in Minas Gerais producinghigh grade pellet feed. Oncompletion of Phase 1, ore will betransported through a 525 kilometreslurry pipeline to the port of Açu inRio de Janeiro state.Kumbaproduces aleading qualitylump ore andalso producesa premiumfine ore.OPERATINGDRIVING PITSAFETY TO ANEW LEVELAs its vehicle population increases,one of the world’s biggest openpit operations is tackling the issueof vehicle collisions.As no suitable, off-the-shelfsolutions were available, Sishen’sengineers joined forces withFLARM, specialists in aviationcollision avoidance technology,to design a system tailor-madefor open pit mining.The ensuing collision avoidancesystem (CAS) links all vehiclesand safety features in oneintelligent system. It allowsfor vehicles to be remotelymonitored, and manual controlto be overridden. Notably, CASeliminates haul trucks’ notoriouslyblind spots, giving drivers amuch better all-round view.As operators gain experiencein CAS, Sishen is seeing asignificant fall in vehicle collisionsand ‘near misses’.Meanwhile, FLARM hasestablished SAFEmine, acompany set up specifically tobring Sishen’s CAS technologyto a worldwide market.ImageKumba’s Keitumetse Hynes has been trainedin CAS. She drives a haul truck at the Sisheniron ore mine in South Africa.Operating and financial reviewAnglo American plc Annual Report 2012 55

01 Moving sections intoposition along the525 kilometre ironore slurry pipeline atour Minas-Rio projectin Brazil.02 Preparation workunder way on installingpower supply at thesite of Minas-Rio’smilling plant.01Followingsuccessfulcommissioningin 2011,Kolomelacontinued itsramp up aheadof expectationsand deliveredan outstandingperformance in2012, producing8.5 Mt ofiron ore.end of 2012, with steel mills returningto the market, which was reflected ina marked increase in index iron oreprices. Overall, index prices averaged$130/t (CFR 62% Fe Platts) in 2012,23% lower than the $169/t averageachieved in 2011.Operating performanceKumba Iron OreUnderlying operating profit decreasedby 34% from $4,491 million to$2,980 million principally as a resultof 23% weaker average export iron oreprices, partly offset by a 7% increase inexport sales volumes. Total operatingcosts rose by 16%, driven primarily bya $254 million increase in operatingcosts at Kolomela mine owing tooperating costs being capitalised in2011, above inflation cost increasesand the mining of 14.5 Mt of additionalwaste at Sishen mine.Total production of iron ore increasedby 4% to 43.1 Mt due to the ramp upof Kolomela, partially offset by theimpact of the unprotected strike duringthe fourth quarter. Total tonnes minedat Sishen rose by 4% to 171.6 Mt(2011: 165.0 Mt), of which wastemined amounted to 133.5 Mt, anincrease of 12% (2011: 119.0 Mt). Ironore production at Sishen, however,decreased by 13% to 33.7 Mt(2011: 38.9 Mt) mainly owing to theeffects of the unprotected strike.On 3 October, around 300 Sishenemployees commandeered mostof the mining equipment at the mine.The situation ended on 16 Octoberand production recommenced on20 October, though on a limitedbasis as attendance in the miningsection remained low in the immediateaftermath of the strike. Operationsare subsequently being ramped up.Production rates continue to improveand are expected to return to normaloperating levels by the end of the firsthalf of 2013.Sishen lost around 5 Mt of productionas a result of the industrial action andthe subsequent ramp up of operations.These losses exacerbated theproduction challenges experiencedearlier in the year resulting frommining feedstock and qualityconstraints that affected the availabilityof material supplied to the mine’s twoprocessing plants.Operating and financial review02FINANCIAL ANDOPERATIONAL OVERVIEWUnderlying operating profit decreasedby 33% from $4,400 million to$2,949 million, principally as a resultof weaker average export iron oreprices at Kumba and lower pricesand alloy volumes at Samancor. Thiswas partially offset by an increase inexport iron ore at Kumba and recordmanganese ore volumes at Samancor.Safety and environmentKumba Iron OreRegrettably, Kumba suffered its firstloss of life since 2010, when twoemployees were fatally injured atSishen mine during 2012. Kumbarecorded a lost-time injury rate (LTIFR)of 0.10 (2011: 0.08), a 25% increaseyear on year. Kolomela continued itsimpressive safety record and achieved29 million man-hours without a fatalincident or LTI between March 2010and October 2012.Iron Ore BrazilThere were no losses of life at Iron OreBrazil sites in the year. The LTIFR of0.01 was in line with the prior year.MarketsGlobal crude steel productionincreased by 2% in 2012 to 1,550 Mt(2011: 1,526 Mt). This increase wasdriven primarily by China, where crudesteel output increased by around 3%to 717 Mt (2011: 695 Mt). In the rest ofthe world, crude steel output was fairlyflat at 833 Mt.Seaborne iron ore supplies weresubject to adverse weather conditionsin both Brazil and Australia in the firstquarter of 2012, and ongoing Indiansupply disruptions following the ban oniron ore mining in Goa. For the year asa whole, seaborne supplies were 0.3%higher, reaching a level of 1,062 Mt.Considerable price volatility marked2012, especially during the thirdquarter when prices fell by as much as36%, as Chinese steel mills depletedstockpiles and reduced raw materialinventory levels to as little as 17 days’worth of production requirements.Iron ore prices reached a high of$151/t (62% Fe CFR China) in April2012, but fell to a low of $89/t in earlySeptember, before stabilising ataround $130/t towards the end of theyear. The market recovered at theAnglo American plc Annual Report 2012 57

OPERATING AND FINANCIAL REVIEW IRON ORE AND MANGANESEFollowing successful commissioningin 2011, Kolomela continued its rampup ahead of schedule and delivered anoutstanding performance in 2012,producing 8.5 Mt. Production hasexceeded monthly design capacitysince July 2012, and reached recordlevels during the second half of theyear. Total tonnage mined increasedby 26% to 43.5 Mt (2011: 34.6 Mt),of which waste mined was 33.5 Mt,11% higher than the prior year figureof 30.3 Mt.Kumba’s sales volumes were 2%higher at 44.4 Mt (2011: 43.5 Mt).Export sales volumes for the yearincreased by 7% to 39.7 Mt(2011: 37.1 Mt) as production lossesat Sishen were offset by productionfrom Kolomela and by sales fromstock. The production losses causedby the unprotected strike reducedexport stock levels across the valuechain and impacted export spot salesvolumes. Notwithstanding the impactof the strike, Kumba met all its exportcustomer sales commitments for2012. Domestic sales volumes toAMSA reduced by 27% to 4.7 Mt(2011: 6.4 Mt). Export sales volumesto China accounted for 69% of thecompany’s total export volumes forthe year, compared to 68% in 2011.Iron Ore BrazilIron Ore Brazil generated an underlyingoperating loss of $5 million, reflectingthe pre-operational state of theMinas-Rio project.SamancorUnderlying operating profitdeclined by 38% to $103 million(2011: $165 million), driven by lowerprices and lower alloy volumes, partlyoffset by lower costs and strong oresales volumes. A slowdown in steelproduction weighed heavily on oreand alloy prices.Production of ore increased by20% from 2.8 Mt to a record 3.3 Mt(attributable basis) owing to aconsistently strong operatingperformance and improved plantavailability at both GEMCO in Australiaand Hotazel in South Africa. Alloyproduction, however, decreased by34% to 198,400 tonnes (attributablebasis) following the termination ofenergy-intensive silica-manganeseproduction at the Metalloys plant inSouth Africa and the temporarysuspension of production at TEMCOin Australia during the first half of theyear. TEMCO subsequently returnedto full capacity during the third quarter.ProjectsThe components of Kumba’sgrowth include new developments,expansions at existing operations, andgrowth though technological advancesthat will allow the processing of lowergrade ore.Kumba is currently studyingopportunities to expand Kolomela’sproduction through a beneficiationprocess, which could add a further6 Mtpa to its output. The project hasprogressed to pre-feasibility study andfurther decisions will be made in duecourse, depending on prevailingmarket conditions.The SEP 1B commenced constructionduring the year, and is expected tobe commissioned in 2013, within the$48 million capex budget.The growth portfolio is constantlybeing reviewed taking into account themacroeconomic environment, theoutcome of project studies and thestatus of the IOEC expansion study.Construction is under way at the firstphase of the 26.5 Mtpa Minas-Rioiron ore project, with optimisationto 29.8 Mtpa. Anglo Americanannounced in December 2012 that allthree injunctions that had disrupted theproject in the year, contributing to thedelay of first ore on ship (FOOS)to the end of 2014, had been lifted.We announcedin December2012 thatall threeinjunctions thathad disruptedthe Minas-Rioproject duringthe year,contributingto the delayof first ore onship to the endof 2014, hadbeen lifted.Construction progress is in line withthe revised construction scheduleannounced in July 2012, namely:• The mine and beneficiation plantare on track – 92% of the earthworkshave been completed at thebeneficiation plant, the first of twogrinding mills has been installed andthe civil works for the secondarycrusher are complete;• At the 525 kilometre slurry pipeline,almost 50% of the pipeline has beenlaid (approximately 247 kilometres),with 76% of the land cleared forearthworks and pipe installation totake place;• The filtration plant is on schedulefor completion by June 2013;• The port’s two stackers andreclaimer have been erected and theshiploader installation is under way.010258 Anglo American plc Annual Report 2012

01 At the Kumba/Kolomela rail loadingfacility iron ore is transferred to railwagons for the 861 kilometre journeyto the dedicated iron-ore exportterminal at Saldanha Bay onSouth Africa’s Atlantic coast.02 The jig plant at Sishen mine is oneof the biggest of its type in the world.The primary drivers of the capitalexpenditure increase from theprevious estimate in 2011 relate to:• The delay in FOOS from late 2013to late 2014;• Scope changes, including thoseagreed as part of the review processand taking into considerationadditional land access costs andpurchases, increased earth and civilworks required following access tovarious sites along the pipeline andthe increased costs of meetinglicence conditions;• Construction inflation costs,including contract adjustments andmining equipment price increases;• A centrally held risk contingencyof $600 million to accommodatea number of potential factors toachieve the FOOS date of the endof 2014, including the potential foradditional price escalation,productivity acceleration andfinalisation of the extent of earthand civil works required on landthat is yet to be accessed.Following its approval in 2011, the$279 million GEEP2 project(Anglo American’s 40% share:$112 million) will increase GEMCO’sbeneficiated product capacity from4.2 Mtpa to 4.8 Mtpa through theintroduction of a dense media circuitby-pass facility. The project is expectedto be completed, on schedule andbudget, in late 2013. The expansion willalso address infrastructure constraintsby increasing road and port capacity to5.9 Mtpa, creating 1.1 Mtpa of latentcapacity for future expansion.The addition of a $91 million (ona 100% basis) high carbon ferromanganesefurnace at the Metalloyssmelter in South Africa will add anadditional 130,000 tonnes of capacityper year. Hot commissioning wascompleted, on schedule, in thefourth quarter of 2012, with fullproduction expected in the secondquarter of 2013.Kolomelamine remainson track toproduce 9 Mtin 2013, in linewith designcapacity.OutlookA similar level of growth in globalcrude steel production is expectedfor 2013, with China’s productionrising marginally to about 740 Mt,while growth in production in otherdeveloping countries is expected tobe countered by a reduction in outputin some of the developed markets.In 2013, Indian iron ore productionis expected to remain under pressureas a result of domestic policy changes.However, new supply capacity,primarily from Australia, is expectedto partially offset this reduction inIndian supply.The start of 2013 has seen a rapidrecovery in iron ore prices. Theconsensus view is that this rally will notbe sustained throughout the year;however some positive sentiment inrelation to Chinese steel consumptiongrowth has been restored and isexpected to provide support to pricesthroughout the year. Seaborne iron oresupply growth may lead to iron oreprices softening in the second half of2013, but on average prices areanticipated growth to be firmer than in2012.The knock-on effect of the 2012unprotected strike at Sishen mine isexpected to result in lower productionvolumes than originally planned in2013. Sishen mine is anticipated toproduce at least 37.0 Mt in 2013. Theramp up in waste mining at Sishenmine continues and will continue to putupward pressure on the mine’s cashunit costs. Kolomela mine remains ontrack to produce 9 Mt in 2013, in linewith design capacity. Export salesvolumes are expected to be in linewith 2012 levels.Due to a weaker market, a supplyside response provided price supportfor manganese ore in the latter partof 2012. The recovery in pricingis expected to continue into 2013,however, muted demand expectationsare expected to limit the rate andextent of the recovery in the near term.Kumba Iron Ore updateSishen supply agreementarbitrationA dispute arose between Sishen IronOre Company Proprietary Limited(SIOC) and ArcelorMittal South AfricaLimited (AMSA) in February 2010, inrelation to SIOC’s contention that thecontract mining agreement concludedbetween them in 2001 had becomeinoperative as a result of the fact thatAMSA had failed to convert its old ordermining rights. This dispute has beenreferred to arbitration. On 9 December2011, SIOC and AMSA agreed to delaythe arbitration proceedings in relationto the Sishen Supply Agreement untilthe final resolution of the mining rightsdispute. This arbitration is only expectedto commence in the fourth quarter of2013, with possible resolution onlyexpected in the third quarter of 2014at the earliest.An Interim Pricing Agreement (IPA2)between SIOC and AMSA was in placeuntil 31 July 2012 and was extended to31 December 2012.In December 2012 a further interimagreement was concluded, afternegotiations which were facilitated bythe Department of Trade and Industry(DTI). The further interim agreementwill govern the sale of iron ore from theSishen mine to AMSA for the period1 January 2013 to 31 December 2013,or until the conclusion of the legalprocesses in relation to the 2001Sishen Supply agreement (whicheveris sooner), at a weighted average priceof $65/t. Of the total 4.8 Mt, about1.5 Mt is anticipated to be railed toSaldanha Steel and the rest to AMSA’sinland operations.21.4% undivided share of theSishen mine mineral rightsOn 3 February 2012 both theDepartment of Mineral Resources(DMR) and Imperial Crown Trading 289Proprietary Limited (ICT) submittedapplications for leave to appeal againstthe High Court judgment. SIOC appliedfor leave to present a conditionalcross-appeal, in order to protect itsrights. The Supreme Court of Appeal(SCA) hearing will be held on19 February 2013, and the SCAjudgement is expected to be receivedearly in the second half of 2013.The High Court order did not affect theinterim supply agreement betweenAMSA and SIOC, which was in placeuntil 31 July 2012 and was extended to31 December 2012. SIOC will continueto take the necessary steps to protect itsshareholders’ interests in this regard.Operating and financial reviewAnglo American plc Annual Report 2012 59

OPERATING AND FINANCIAL REVIEW METALLURGICAL COALMETALLURGICAL COALSeamus FrenchCEOUNDERLYING OPERATING PROFIT(2011: $1,189 m)$405 mSHARE OF GROUP UNDERLYINGOPERATING PROFIT(2011: 11%)7%UNDERLYING EBITDA(2011: $1,577 m)$877 mKey financial and non-financial performance indicators$ million (unless otherwise stated) 2012 2011Underlying operating profit 405 1,189Underlying EBITDA 877 1,577Net operating assets 5,219 4,692Capital expenditure 1,028 695Share of Group underlying operating profit 7% 11%Share of Group net operating assets 10% 11%01Non-financial indicators 2012 2011Number of fatal injuries 0 0Lost-time injury frequency rate 1.75 2.47Total energy consumed in 1,000 GJ 14,787 13,695Total greenhouse gas emissions in 1,000 tonnes CO 2e 3,919 3,629Total water used for primary activities in 1,000 m 3 14,717 14,38501 Mine site officer Nicolette Martens andproduction supervisor Gordon Barwickinspect the conveyor near the coalhandling and preparation plant atMoranbah North, in Queensland, Australia.60 Anglo American plc Annual Report 2012

(1)Throughout theMetallurgical Coalcommentary,all volumes are expressedon an attributable basis.(2)CRU Metallurgical CoalMarket Report(February 2013)(3)Customs Information(Global TradeInformation ServicesInc.)BUSINESS OVERVIEWAnglo American is Australia’s secondlargest metallurgical coal producerand third largest global exporter ofmetallurgical coal. (1)Its coal operations in Australia arebased on the east coast, from wherethe business serves a range ofcustomers throughout Asia and theIndian sub-continent, Europe andSouth America. Our operation inCanada, Peace River Coal, mainlyserves customers in Europe, Japanand South America.Metallurgical Coal operates six minesin Australia and one metallurgical coalmine, Peace River Coal, in BritishColombia, Canada. In Australia thereis one wholly owned mine, and five inwhich Metallurgical Coal has a majorityinterest. Five of the mines are locatedin Queensland’s Bowen Basin:Moranbah North (metallurgical coal),Capcoal (metallurgical and thermalcoal), Foxleigh (metallurgical coal),Dawson (metallurgical and thermalcoal) and Callide (thermal coal).Drayton mine (thermal coal) is in theHunter Valley, New South Wales. Allof the mines are in well-establishedlocations and have direct access torail and port facilities at Dalrymple Bayand Gladstone in Queensland andNewcastle in New South Wales.Moranbah North (88%) is anunderground longwall miningoperation with a mining leasecovering 100 km 2 . Coal is minedfrom the Goonyella Middle Seam,approximately 200 metres below thesurface. The mine’s annual capacityis 4.5 million tonnes (Mt) of hardcoking coal for steel manufacturing.Capcoal (70%) operates twounderground mines and an opencut mine. Together, they producedaround 6.0 Mt of hard coking,pulverised coal injection (PCI) andthermal coals in 2012.Dawson (51%) is an open cutoperation, with production of 4.6 Mtof coking and thermal coal in 2012.Foxleigh (70%) is an open cutoperation which produced 1.9 Mtof high quality PCI coal in 2012.Peace River Coal (100%) is an opencut operation in Canada, with an outputof 1.4 Mt of metallurgical coal in 2012,an increase of 47% over the prior year.Metallurgical Coal owns an effective23% interest in the Jellinbah andLake Vermont mines in Queensland,producing 2.1 Mt of coking, PCI andthermal coals in 2012.Anglo American has agreed to acquirea 58.9% interest in the Revuboèmetallurgical coal project inMozambique from the Talbot Estatefor a total cash consideration ofA$540 million (approximatelyUS$555 million). The Revuboè projectis an incorporated joint venture andincludes Nippon Steel Corporation(33.3% interest) and POSCO (7.8%interest). Revuboè comprises hardcoking and thermal coal suitable foropen cut mining, with the potentialto support the export of 6 to 9 milliontonnes per annum (Mpta) on a100% basis.The transaction remains subject toa number of conditions and is in linewith Anglo American’s strategiccommitment to grow the globalmetallurgical coal business to supplyour customers from each of the keymetallurgical coal supply regions ofAustralia, Canada and Mozambique.Metallurgical Coal’s resource base,consisting of Measured, Indicated andInferred (in LOM) Resources additionalto Coal Reserves, totals 3.8 billiontonnes on a 100% basis (2.7 billiontonnes on an attributable basis).Details of Metallurgical CoalResources appear in the CoalReserves and Resources section ofthe Annual Report, pages 200–203.INDUSTRY OVERVIEWMetallurgical coal, composed ofcoking coal and PCI coal, is anessential raw material in blast-furnacesteel production, which representsapproximately 70% of global crudesteel output.Global metallurgical coal supplyamounts to approximately 1 billiontonnes per year. China is the biggestconsumer of metallurgical coal, withtotal consumption of approximately730 Mt (2) in 2012. Owing to its largedomestic metallurgical coalproduction, China only needs toimport about 7%, or 50 Mt (3) , of its totalmetallurgical coal requirement. This,however, represents a significantportion (20%) of the total globalseaborne metallurgical coal market.Metallurgicalcoal, composedof coking coaland PCI coal,is an essentialraw materialin blast-furnacesteel production.ORGANISINGCAPCOALOPEN CUT –AUSTRALIANMINE OFTHE YEARMetallurgical Coal’s CapcoalOpen Cut operation won theMining Prospect Award’sAustralian Mine of the YearAward in 2012 owing to safetyimprovements, increasedthroughput at the coal handlingand preparation plant (CHPP) andproduction milestones deliveredover an 18 month period.The site experienced a real stepchange in safety, with the totalrecordable case frequency ratedecreasing by 75% since 2010and the electrical maintenanceworkshop achieving 22 years’lost-time injury free in July 2012.The site experienced the benefitsof an upgrade to the CHPP, whichincreased capacity at the plantwith the installation of a new 5 Mtcapacity module. In June 2012,the CHPP achieved record feedtonnes with 1.4 Mt of coalprocessed through the plant inthe month.The introduction of a new ropeshovel at Capcoal has allowedthe site to take advantage ofdouble sided loading. In thefirst half of 2012, the mineexperienced record metallurgicalcoal production, delivering itshighest first half of the year runof mine tonnes at 3.3 Mt, a 28%improvement on the previousbest half production.ImageMetallurgical Coal’s Capcoal open cut minein Queensland.Operating and financial reviewAnglo American plc Annual Report 2012 61

OPERATING AND FINANCIAL REVIEW METALLURGICAL COAL2012 Metallurgical coal demandGlobal 1,095 MtNorth America 29 MtWestern Europe 73 MtJapan65 MtChina746 MtIndia41MtCIS66 MtIncorporating:South America 21MtOther Asia47MtRest of World6 MtSource: AME, Wood Mackenzie, CRU, company reportsand Anglo American Commodity Research estimates2012 Metallurgical coal productionGlobal 1,095 MtChina669 MtOceania169 MtNorth America 109 MtCIS100 MtMongolia20 MtRest of World 29 MtSource: AME, Wood Mackenzie, CRU, company reportsand Anglo American Commodity Research estimatesIn 2012, the international seabornemetallurgical coal market totalledaround 250 Mt (2) , the major consumingregions being Japan, South Korea,Taiwan, Europe, India, China andBrazil. On average, Australia suppliesroughly two-thirds of the seabornemetallurgical coal market.Historically, annual contract pricing haspredominated in the market. A shift toshorter term pricing in 2010–2012saw the majority of contracts pricedon a quarterly basis, with a growingproportion being priced on amonthly basis.The Queensland State Budget wasdelivered in September 2012, witha royalty rate increase which equatesto a 22% increase on the royalty ratepayable per tonne of coal sold for$200/t or more, with effect from1 October 2012.STRATEGYEmerging markets, particularly in theAsia-Pacific region, are likely to remainthe driving force behind metallurgicalcoal demand. In light of this,Metallurgical Coal’s strategy is toincrease the value of the business byoptimising existing operations andinvesting in growth projects in thesupply regions best placed to producethe high-margin export metallurgicalcoals sought by our customers. Toimplement this strategy:• A structured programme of assetoptimisation has been designed todeliver industry-best operationalperformance over the existing assetbase, targeting longwall performanceat the underground operations andkey equipment at the open cut mines;• An attractive organic growthpipeline with the potential to triplehard coking coal production tosatisfy growing market demand,including opportunities in Australiaand Canada. To underpin itsindustry leading growth plans,Anglo American has several exportport options under study inQueensland, Australia, and hassecured port access for the RomanProject in Canada;MetallurgicalCoal has anattractiveorganic growthpipeline withthe potentialto triple hardcoking coalproduction tosatisfy growingmarket demand.• In line with demand from thesteelmaking industry in bothexisting and emerging markets,Metallurgical Coal is realisingincreased value from developingsuperior specialised productofferings tailored to individualcustomers in the steel sector.Operating safely, sustainablyand responsiblyWater management and rehabilitationare key environmental focus areas forMetallurgical Coal. Climate variabilityin the regions in which we operaterequires water management strategiesthat are equally effective in periods offlood and drought. Our rehabilitationstrategy requires disciplinedmanagement of disturbed land and thedevelopment of mine closure plans.To play our part in mitigating theemissions which may contributeto climate change and reduce ourexposure to the carbon pricingmechanism, we have invested morethan $120 million over the past fiveyears to abate 8 Mt of CO 2e emissionsusing available commercial-scaletechnologies.FINANCIAL AND OPERATIONALOVERVIEWMetallurgical Coal recorded anunderlying operating profit of$405 million, 66% lower than the 2011record of $1,189 million. This wasdriven by a 29% decrease in exportmetallurgical coal prices, partiallyoffset by a 25% increase inmetallurgical coal sales volumes.Productivity improvements at both theopen cut and underground operationsand a reduction in weather relatedstoppages, supported by the rigorouspreparation for seasonal rain, led to asignificant increase in metallurgicalcoal production and sales.Year-on-year FOB cash unit costsimproved, with a 10% reduction atthe Australian export operations,and a 20% reduction achieved in thesecond half of the year.Safety and environmentThere were no fatal injuries at ourMetallurgical Coal operations in2012. The lost-time injury frequencyrate of 1.75 is the lowest on recordand represented a 29% improvement62 Anglo American plc Annual Report 2012

over 2011 and was attributable tovisible and proactive leadershipand accountability at all levels, afocus on contractor management,and a reduction in the number ofrisks associated with vehiclesand machinery.MarketsAnglo Americanweighted averageachieved salesprices ($/tonne) 2012 2011Exportmetallurgical coal 178 251(FOB)Export thermal coal(FOB)96 101Domesticthermal coal 37 35Export metallurgical coal productionincreased by 24% to 17.7 Mt, withrecord production in the second half,and the full year, while thermal coalproduction was in line with the prioryear at 13.0 Mt. Production improvedat both underground and open cutoperations by 29% and 22%respectively, with record run of mineproduction achieved at all of theexport open cut operations. Increasedproduction was driven by assetoptimisation programmes and areduction in rain-related stoppages,supported by rain mitigation initiativesimplemented during 2011.Record coal production wasachieved at the Capcoal open cutmine, with a 28% increase over theprior year, driven by best in classrates on large capacity shovels andoptimal alignment of equipment topit conditions.Dawson delivered a notableturnaround in performance with totalproduction increasing by 18% to arecord of 4.6 Mt. This was due toimproved equipment performance andthe optimisation of the terrace minedesign that was implemented in 2012.Peace River Coal in Canadasignificantly lifted its coal productionby 47%, underpinned by productivityimprovements and upgrades to thecoal handling and preparation plant.At the underground operations inAustralia, production increased by29%, driven by improved longwallperformance. Moranbah delivered a45% increase in volumes as a result ofa recovery from the partial drift failureand a 47% increase in cutting hours inthe second half of the year comparedto the first half.Thermal coal production was impactedby wet weather in New South Walesand industrial action in the first quarterat Drayton.ProjectsPhase 1 of our wholly ownedGrosvenor project continues tobe developed on schedule. All keypermits and licences are in placeand engineering and procurementactivities are progressing to plan.Construction has commenced on site,with the access road complete andbulk earthworks well under way.Production of longwall coal is forecastto commence in 2016.Record coalproductionwas achievedat the Capcoalopen cut mine,with a 28%increase overthe prior year.Studies for the next phase of ourinvestment programme includeGrosvenor Phase 2, a 6 Mtpa secondlongwall; and Moranbah South,a 12 Mtpa (on a 100% basis),50%-owned joint venture, comprisingtwo longwalls. Exploration andenvironmental approval activities tosupport these projects are in progress.Concept studies are also under wayto develop options to further expandour operations in Australia and BritishColumbia. The Drayton South projectis planned to replace export thermalcapacity for the Drayton mine inNew South Wales.OutlookStrong production from Australiacombined with exports from the USled to oversupply into the weakenedmarket during 2012, resulting insubstantially lower spot and monthlysettlement prices in the third andfourth quarters. It is anticipated thatthere will be a rebalancing of themarket during the first half of 2013,with demand recovery from Chinaand idling of some high cost USand Australian production. Pricedifferentiation between premium andlower quality products is expected toremain, with continued supply ofsecond tier products from the US.Metallurgical Coal is positioned totake advantage of any future coalprice increases as a result of thefocus on delivering high margin,low cost capacity, and thedemonstrated benefits of assetoptimisation initiatives.Operating and financial reviewAttributablesales volumes(’000 tonnes) 2012 2011Exportmetallurgical coal17,413 13,983Export thermal coal 6,043 6,274Domesticthermal coal 6,921 7,455Prices for seaborne metallurgical coaldropped sharply in the latter half of theyear, resulting in the average 2012 hardcoking coal price falling by 27% to$210/t from the 2011 average hardcoking coal benchmark price of$289/t. Overall supply of metallurgicalcoal was ahead of 2011 levels, owing toincreased exports from the US, whileAustralian hard coking coal supplyremained below 2010 levels.Hard coking coal prices fell, withlower quality PCI and semi-soft pricesfalling more significantly. The majorityof Anglo American’s metallurgicalcoal sales were placed against termcontracts with quarterly negotiatedprice settlements.Hard coking coal accounted for67% of Metallurgical Coal’s exportmetallurgical coal sales in 2012.Operating performanceAttributableproduction(’000 tonnes) 2012 2011Export17,664 14,190metallurgical coalExport thermal6,046 6,064coalDomestic thermal6,925 7,362coalAnglo American plc Annual Report 2012 63

OPERATING AND FINANCIAL REVIEW THERMAL COALTHERMAL COALGodfrey GomweCEOUNDERLYING OPERATING PROFIT(2011: $1,230 m)$793 mSHARE OF GROUP UNDERLYINGOPERATING PROFIT(2011: 11%)13%UNDERLYING EBITDA(2011: $1,410 m)$972 m01Key financial and non-financial performance indicators$ million (unless otherwise stated) 2012 2011Underlying operating profit 793 1,230South Africa 482 779Colombia 358 482Projects and corporate (47) (31)Underlying EBITDA 972 1,410Net operating assets 1,965 1,886Capital expenditure 266 190Share of Group underlying operating profit 13% 11%Share of Group net operating assets 4% 4%01 Production geologist Elsie Phelaneand drilling assistant Thabo Mdlulicheck core samples in October 2011at Zibulo, now Thermal Coal’snewest colliery.Non-financial indicators 2012 2011Number of fatal injuries 2 2Lost-time injury frequency rate 0.20 0.19Total energy consumed in 1,000 GJ 5,742 5,823Total greenhouse gas emissions in 1,000 tonnes CO 2e 1,620 2,583Total water used for primary activities in 1,000 m 3 8,525 8,26064 Anglo American plc 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

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

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

OPERATING AND FINANCIAL REVIEW COPPERCOPPERJohn MacKenzieCEOUNDERLYING OPERATING PROFIT(2011: $2,461 m)$1,687 mSHARE OF GROUP UNDERLYINGOPERATING PROFIT(2011: 22%)27%01UNDERLYING EBITDA(2011: $2,750 m)$2,179 mKey financial and non-financial performance indicators$ million (unless otherwise stated) 2012 2011Underlying operating profit 1,687 2,461Underlying EBITDA 2,179 2,750Net operating assets 8,536 7,643Capital expenditure 996 1,570Share of Group underlying operating profit 27% 22%Share of Group net operating assets 17% 17%Non-financial indicators 2012 2011Number of fatal injuries 0 1Lost-time injury frequency rate 0.20 0.19Total energy consumed in 1,000 GJ 15,559 12,887Total greenhouse gas emissions in 1,000 tonnes CO 2e 1,601 1,467Total water used for primary activities in 1,000 m 3 35,667 28,70101 José Arancibia, operator, at theMantoverde electrowinning coppercathode plant.68 Anglo American plc Annual Report 2012

Applicationsthat makeuse of copper’selectricalconductivitymake upapproximately60% of totalglobal demand.BUSINESS OVERVIEWWe have interests in six copperoperations in Chile. The MantosBlancos and Mantoverde mines arewholly owned and we hold a 50.1%interest in Anglo American Sur(AA Sur), which includes theLos Bronces and El Soldado minesand the Chagres smelter. We alsohave a 44% shareholding in theCollahuasi mine. The mines produce acombination of copper in concentrateand copper cathode together withassociated by-products such asmolybdenum and silver.In addition, we have a controllinginterest in the Quellaveco (81.9%)and Michiquillay (100%) projectsin Peru and a 50% interest in thePebble project in Alaska.INDUSTRY OVERVIEWCopper’s principal use is in the wireand cable markets because of themetal’s electrical conductivity andcorrosion resistance. Applicationsthat make use of copper’s electricalconductivity, such as wire (includingthe wiring used in buildings), cablesand electrical connectors, make upapproximately 60% of total globaldemand. The metal’s corrosionresistantproperties find numerousapplications, particularly plumbing pipeand roof sheeting, in the constructionindustry, which accounts for a further20% of demand. Copper’s thermalconductivity also makes it suitable foruse in heat-transfer applications suchas air conditioning and refrigeration,which constitute some 10% of totaldemand. Other applications includestructural and aesthetic uses.Access to quality orebodies, locatedin regions providing stable political,social and regulatory support forresponsible and sustainable mining,are likely to continue to be the keyfactor distinguishing project returnsand mine profitability. However, suchorebodies are scarce, and it will beincreasingly necessary for miningcompanies to develop mines in morechallenging environments. With nofundamental technological shiftsexpected in the short to medium term,forecast long term demand is likely tobe underpinned by robust growth incopper’s electrical uses, particularlywire and cable in construction,automobiles and electricityinfrastructure. The key growth areawill continue to be the developingworld, led by China and, in the longerterm, India, where early-stageindustrialisation and urbanisationon a large scale continues to propelcopper demand growth. Moreover,the intensity of copper consumptionis still at a high level in the case ofChina, while in India it is on anupward trajectory. This is in contrastwith the advanced economies andtheir much lower levels of intensity.In spite of near term supply growth thatcould well be noticeably above that ofthe past six or seven years, constraintson the supply side are likely to prove astructural feature of the market. Thiswill be driven by continuing declinesin ore grades at maturing existingoperations and new projects, a lackof capital investment and underexplorationin the industry, as well aspolitical and environmental challengesin many current and prospectivecopper areas.The industry is capital-intensiveand is likely to become more soas high grade surface deposits areexhausted and deeper and/or lowergrade deposits are developed in morechallenging locations. Combined withthe need to develop infrastructure innew geographies, this requires greatereconomies of scale if mines are to becommercially viable. Scarcity of waterin some countries, such as Chile andPeru, is also necessitating theconstruction of capital- and energyintensivedesalination plants.During the period 2000–2011, Chinaincreased its share of first-use refinedmetal consumption from 12% to anestimated 39%. Consumptioncontinued to increase in 2012, whiledemand elsewhere fell in aggregatefor the second year running, movingChina’s share of refined demandabove 40%.OPERATINGWATERMANAGEMENTIN THE ANDESOur Copper business in Chilewas faced with the challenge ofincreased water requirementsin an already water-constrainedenvironment. With significantdemand on water by various localusers, the Los Bronces operationneeded to minimise its use offresh water from the MetropolitanRegion catchment area, home tomore than 7 million people.When expanding Los Bronces,we constructed a waterrecirculation system stretchingfrom the Las Tórtolas tailings damback to the Los Bronces mine.The system returns water,previously used to transport ore,back to the mine, located some3,600 metres above sea level.Water is pumped through apipeline 52.5 kilometres long,with a total elevation differenceof 2.5 kilometres from end to end.At a total cost of $180 million,the decision to opt for a waterrecirculation system went wellbeyond short term economicconsiderations. A feat of worldclass engineering was required– entailing a trade-off betweenhigher energy requirements andcarbon emissions on the onehand and water savings on theother – if the mine was tohave the capability to adaptsuccessfully to current andanticipated future watersupply limitations.The initiative has reduced themine’s water requirement from0.81 to 0.52 million m 3 /tonne,with more than 22 million m 3being recirculated during 2012.ImageLas Tórtolas tailings dam, close to theLos Bronces copper mine in Chile.Operating and financial reviewAnglo American plc Annual Report 2012 69

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

Operating performanceAttributableproduction (tonnes) 2012 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 2012. 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(2012 estimated refined copper consumption)2012 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 Anglo American 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 2012.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 Anglo American’ssocial contribution over the life of themine. Anglo American 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 2012. 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 2012, as wellas the No. 3 ball mill coming back into operation from November 2012,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 companyAnglo American plc Annual Report 2012 71

OPERATING AND FINANCIAL REVIEW NICKELNICKELWalter De SimoniCEOUNDERLYING OPERATING PROFIT(2011: $57 m)$26 mSHARE OF GROUP UNDERLYINGOPERATING PROFIT(2011: 1%)0.4%UNDERLYING EBITDA(2011: $84 m)$50 mKey financial and non-financial performance indicators$ million (unless otherwise stated) 2012 2011Underlying operating profit 26 57Underlying EBITDA 50 84Net operating assets 2,509 2,535Capital expenditure 100 398Share of Group underlying operating profit 0.4% 1%Share of Group net operating assets 5% 6%01Non-financial indicators 2012 2011Number of fatal injuries 1 –Lost-time injury frequency rate 0.11 0.23Total energy consumed in 1,000 GJ 19,154 15,364Total greenhouse gas emissions in 1,000 tonnes CO 2e 1,421 1,423Total water used for primary activities in 1,000 m 3 7,090 7,13801 Risk engineer Renner Ferreira deFreitas on the observatory of theBarro Alto ferronickel plant, which issteadily ramping up to full capacity.72 Anglo American plc Annual Report 2012

BUSINESS OVERVIEWOur Nickel business unit comprisestwo Brazilian operating assets:Codemin and Barro Alto, bothferronickel producers in the state ofGoiás. Within the portfolio there arealso two promising growth projects,Jacaré and Morro Sem Boné, bothlaterite deposits which are also locatedin Brazil.In Venezuela, despite attempts byMinera Loma de Níquel to obtainconcession and permit renewal toenable a continuation of ouroperations, the application for renewalwas refused and the concessions andpermits granted by the governmentexpired on 10 November 2012.As of 10 November 2012, therefore,Anglo American’s mining andproduction activities at Loma de Níquelceased permanently and, in light ofthis, Anglo American has taken actionto end its working relationship withthe majority of its Loma de Níquelemployees and is seeking to wind upthe operations in an orderly fashion.INDUSTRY OVERVIEWNickel demand is linked to the stateof the stainless steel industry, whichconsumes two-thirds of the metaland all ferronickel production. Nickelused in the manufacture of alloy steeland other non-ferrous alloys accountsfor a further 17% of output.China is the largest stainless steelproducing country, with more than44% of world production in 2012, with70% of the related nickel requirementproduced domestically. Of this, nickelpig iron (NPI) accounted for around60% in 2012. The next most importantproducer is Europe, which accountsfor 22% of world output, while the USproduces 6%.Nickel can be produced from twodifferent ore types: sulphides andlaterites. This has resulted in a largenumber of processing technologiesthat have made the industry a verycomplex one, with high processingcosts and capital intensity. Productionis concentrated among the biggestfive producers, which between themare responsible for almost half ofglobal output.The nickel industry faced a varietyof challenges in 2012. Demand wasaffected by the European debt crisisand the slowdown in the Chineseeconomy, while the supply sidecontinued to face increased capitalexpenditure pressure and technicalissues that delayed the ramp up ofmany projects in the industry.STRATEGYOur Nickel business focuses on thesafe and responsible operation ofworld class assets that have long lifeof mine and competitive productioncosts. We leverage our expertise inoperating ferronickel plants to ensurewe have optimal processes in placeacross our operations; our Codeminplant celebrated 30 years of operationsin 2012.Delivery of efficient production issupported by our asset optimisationinitiatives which are driving improvedoutput, reduced costs and revenueenhancements, and will extend thelives of both our operations.At full production, both Barro Alto andCodemin are positioned in the first halfof the industry’s cash cost curve.In addition to driving value fromexisting operations, Nickel continuesto assess its portfolio of expansionaryand exploration projects.Our strategy and growth ambitionsrely on attracting and retaining asuitably qualified workforce. Themining industry in Brazil continuesto face a difficult labour market, witha shortage of qualified people withspecific knowledge of the miningindustry. Only by addressing andovercoming this challenge will we beable to deliver on our strategy. One ofthe ways we are doing so is through ourtailored trainee programme designedto develop engineers and otherprofessionals capable of meeting ourfuture needs.Our Nickelbusinessfocuses onthe safe andresponsibleoperation ofworld classassets thathave long lifeof mine andcompetitiveproductioncosts.EMPLOYINGTRAINING OURFUTUREPROFESSIONALSOne of the ways we areaddressing the shortage ofqualified people at our Nickeloperations in Brazil is throughour tailored trainee programmeto develop engineers intofuture leaders.The selection process for theinaugural intake in 2012 tookplace during the preceding year,with 11,649 graduates competingfor 31 vacancies. Those selectedwere knowledgeable in suchareas as: supply chain, sustainabledevelopment, geology,production and maintenance,human resources andinformation management.In early 2012, the trainees weresent to gain hands-on workexperience at Barro Alto,Niquelândia, our São Paulocorporate office and Nickel’sproject office in Belo Horizonte.The trainees are working, on arotation basis, at the various sites,until the programme ends in mid-2013. On successful completionof the programme, the traineeswill be considered completelyprepared professionals, readyto meet the challenges of theircareer in Anglo American.ImagePart of the inaugural intake of graduatetrainees at our Nickel business in Brazil.Operating and financial reviewAnglo American plc Annual Report 2012 73

OPERATING AND FINANCIAL REVIEW NICKEL01 Electricians Cesar Augustode Lima and AntonioMilhomen Silva next to oneof Barro Alto’s 185 metrerotary kilns, wherenickel-bearing ore isreduced prior to smelting.Operating safely, sustainablyand responsiblySafety and sustainable developmentare central to our strategy. We managesafety and environment risks throughour Integrated Management System,which is certified to the ISO 9001,ISO 14001 and OHSAS 18001 globalstandards and we continue to focuson risk identification and control,employee training and leadershipcommitment. Our environmentalstrategy includes a focus on water,energy and greenhouse gas emissions.We have made pleasing progress inthese areas and incorporated what wehave learned from Codemin into thedesign of Barro Alto.Our opencast mining processescan have a notable impact on thelandscape, and can be difficult tofully rehabilitate, particularly insloped areas. We have partneredwith biodiversity NGOs andscientific groups to develop regionalspecific plans for the remediation offauna and flora in order to determinethe best solutions to overcome thisdifficulty, while aligning them to ourclosure plans.Recognising the importance of therole we play in the local community,we also have invested significantlyin long term programmes related tofemale empowerment, sexual andreproductive health, citizenship andrural entrepreneurship. In recognitionof this work, the business received the‘Sustainable Company of the Year2012’ award from Exame businessmagazine, one of the most prestigioussustainability awards in Brazil.Nickel’senvironmentalstrategyincludes afocus on water,energy andgreenhousegas emissionsand we haveincorporatedwhat we havelearned fromCodemin intothe design ofBarro Alto.Nickel stocks and priceNickel stocks (kt)18016014012010080604020252015105Nickel price (c/lb)01FINANCIAL ANDOPERATIONAL OVERVIEWUnderlying operating profit for the yearwas $26 million (net of $32 millionproject evaluation operating costs),54% lower than in 2011. It included aself-insurance recovery of $59 million(offset at Anglo American Group)and an amount of $12 million in termsof the favourable settlement of anoutstanding tax claim with the Braziliangovernment. The results, however,were affected significantly by a 23%decline in the London Metal Exchange(LME) nickel price and by an extended0Jan 09 Jan 10Jan 11Jan 12LME StocksLME PriceSource: Anglo American Commodity Research074 Anglo American plc Annual Report 2012

Leading nickel consumers(2012 estimated refined nickel consumption)2012 estimated world total: 1,700 ktktChinaEuropeJapanN. America144South Korea79India66South Africa22163Rest of World58Taiwan57404Source: Brook Hunt – a Wood Mackenzie company705export ban imposed by the Venezuelangovernment from the beginning ofJune, resulting in the cessation ofproduction in September. Theunderlying operating result for BarroAlto was capitalised throughout 2012.Safety and environmentRegrettably, a fatal incident occurredat the Barro Alto mine, ending Nickel’srecord five year fatality-free period.The incident has sparked renewedefforts to prevent further harm.The business’ lost-time injuryfrequency rate (LTIFR) improved by52% to 0.11 (2011: 0.23).MarketsAverage nickel price(c/lb) 2012 2011Average marketprice (LME, cash) 794 1,035Average realisedprice (c/lb) 765 1,015Despite LME nickel pricestrengthening at the start of 2012, withthe nickel price reaching 983 c/lb atthe end of January, prices droppedto a low of 689 c/lb in August owingto the worsening macroeconomicenvironment which affected stainlesssteel production and nickel demand.The nickel market recorded a surplusof 50,000 tonnes for the yearcompared with a surplus of 32,000tonnes in 2011. Nickel consumptionincreased by 4.9% to 1.7 million tonnes(Mt), but supply also rose following theramping up of a number of new nickelplants. The growth in supply was lowerthan expected as a result of problemsat many new operations.Operating performanceAttributableproduction(tonnes) 2012 2011Nickel 39,300 29,100Nickel production increased by 35%to 39,300 tonnes, with the increasingproduction profile from Barro Altooffsetting the lower output fromLoma de Níquel.Barro Alto, which produced its firstmetal in March 2011, delivered around21,600 tonnes of nickel in 2012.Production and the ramp up scheduleat the new operation was, however,affected by three major stoppagesduring the year in order to address kilnperformance issues and to rebuild thesidewalls in line 1’s electric furnace,following a partial collapse.Since the end of the final stoppage,with the furnace returning to atemperature which can support normaloperations in mid-December, line 1has achieved a feed rate averaging85% of nominal capacity.As a preventative measure, line 2’selectric furnace sidewalls are now alsobeing rebuilt and following this, theoperation is expected to completeits ramp up to nominal capacity.Issues in the furnace hearths werediscovered during the year. Thesituation is being closely monitoredby the operation, together with thesupplier, and since discovery hasnot worsened. With continued closemonitoring this is not expected to alterthe ability to reach nominal capacity.Barro Alto,which producedits first metalin March 2011,deliveredaround 21,600tonnes of nickelin 2012.Production from Loma de Níqueltotalled 8,100 tonnes in the year, 40%lower than 2011, as a result of thecessation of operations, exacerbatedby the extended export ban.Codemin’s production was stable ataround 9,600 tonnes, with a decline ingrade being offset by a series of assetoptimisation initiatives.ProjectsThe unapproved projects in thepipeline at Jacaré and Morro SemBoné have the potential to significantlyincrease the Group’s total nickelproduction. The pre-feasibility studyof Jacaré was completed in the yearand we will focus on obtainingenvironmental licences during 2013.OutlookProduction in 2013 is expected to behigher than 2012 as the increasingcontribution from Barro Alto more thanoffsets the loss of Loma de Níquel.Barro Alto is targeting to reach fullcapacity during 2013.Both demand and supply are expectedto increase further in 2013 and asurplus of 13,000 tonnes is forecast.The market is expected to remainrelatively challenging owing to theprevailing macroeconomicenvironment and ramp up of newnickel supply, including NPI – thoughany further underachievement interms of the ramping up of new nickelsupply could provide some upside tocurrent forecasts.Operating and financial reviewAnglo American plc Annual Report 2012 75

OPERATING AND FINANCIAL REVIEW PLATINUMPLATINUMChris GriffithCEO –Anglo AmericanPlatinum LimitedUNDERLYING OPERATING(LOSS)/PROFIT(2011: $890 m)$(120) mSHARE OF GROUP UNDERLYINGOPERATING PROFIT(2011: 8%)(2)%UNDERLYING EBITDA(2011: $1,672 m)$580 m01Key financial and non-financial performance indicators$ million (unless otherwise stated) 2012 2011Underlying operating (loss)/profit (120) 890Underlying EBITDA 580 1,672Net operating assets 10,419 11,191Capital expenditure 822 970Share of Group underlying operating profit (2)% 8%Share of Group net operating assets 20% 25%Non-financial indicator 2012 2011Number of fatal injuries 7 12Lost-time injury frequency rate 1.15 1.27Total energy consumed in 1,000 GJ 24,399 25,168Total greenhouse gas emissions in 1,000 tonnes CO 2e 5,743 5,991Total water used for primary activities in 1,000 m 3 28,755 31,24801 No. 1 shaft at Siphumelele, one of ourPlatinum business’ five mines at itsRustenburg section, the world’s biggestproducer of primary platinum.76 Anglo American plc Annual Report 2012

BUSINESS OVERVIEWOur Platinum business, based inSouth Africa, is the world’s leadingprimary producer of platinum, andaccounts for approximately 40% of theworld’s newly mined production of themetal. Platinum mines, processes andrefines the entire range of platinumgroup metals (PGMs): platinum,palladium, rhodium, ruthenium, iridiumand osmium. Base metals such asnickel, copper and cobalt sulphate areimportant secondary products and aresignificant contributors to earnings.Platinum’s operations exploit theworld’s richest reserve of PGMs,known as the Bushveld Complex,which contains PGM-bearingMerensky, UG2 and Platreef ores.Access to an excellent portfolio of orereserves ensures Platinum is wellplaced to be the world’s major platinumproducer for many years to come.Platinum wholly owns 10 miningoperations currently in production,a tailings re-treatment facility, threesmelters, a base metals refineryand a precious metals refinery.Concentrating, smelting and refiningof the output are undertaken atRustenburg Platinum Mines’ (RPM)metallurgical facilities.Platinum’s 100%-owned miningoperations currently consist of thefive mines at Rustenburg Section –Khomanani, Bathopele, Siphumelele,Thembelani and Khuseleka;Amandelbult Section’s two mines,Tumela and Dishaba; as well asMogalakwena and Twickenhammines. Union mine is 85% held, with ablack economic empowerment (BEE)partner, the Bakgatla-Ba-Kgafelatraditional community, holdingthe remainder. The Unki mine inZimbabwe is currently wholly ownedpending the implementation ofthe state’s recently approvedindigenisation plan.Platinum also has 50:50 joint ventureswith a BEE consortium, led by AfricanRainbow Minerals, at Modikwaplatinum mine; and with XK PlatinumPartnership in respect of the Mototolomine. In addition, Platinum has 50:50pooling and sharing agreementswith Aquarius Platinum covering theshallow reserves of the Kroondal andSince 2000,China has beenthe leadingplatinumjewellerymarket,followed byEurope, Japanand NorthAmerica.Marikana mines. The companyowns 49% of Bokoni mine andholds, through RPM, 27% of AtlatsaResources. Platinum is in partnershipwith Royal Bafokeng Resources,and has a 33% shareholding in thecombined Bafokeng-Rasimoneplatinum mine (BRPM) and Styldriftproperties. Platinum, through RPM,holds 12.6% of RB Plats’ issuedshare capital.INDUSTRY OVERVIEWPGMs have a wide range of industrialand high technology applications.Demand for platinum is drivenprimarily by its use in autocatalyststo control emissions from bothgasoline and diesel engine vehicles,and in jewellery. These uses areresponsible for 70% of total netplatinum consumption. PGMs,however, have a wide range of otherapplications, predominantly in thechemical, electronic, medical, glassand petroleum industries.Our Platinum business is the majorfunder and supporter of the PlatinumGuild International (PGI), which playsa key role in encouraging demand forplatinum and in establishing newplatinum jewellery markets. Since2000, China has been the leadingplatinum jewellery market, followedby Europe, Japan and North America.Industrial applications for platinumare driven by technology and,especially in the case of autocatalysts,by legislation. With the rapid spread ofexhaust emissions legislation, morethan 94% of new vehicles now haveautocatalysts fitted. The intensifyingstringency of emissions legislationwill drive growth in PGM demand.Palladium’s principal application,accounting for some 45% of demand,is in autocatalysts, particularly ingasoline vehicles. The metal is alsoused in electronic components, dentalalloys and, more recently, has becomean emerging jewellery metal inmarkets such as China.Rhodium is an important metal inautocatalytic activity, which accountsfor nearly 80% of net demand.STRATEGICPORTFOLIOREVIEWOn 15 January 2013, AngloAmerican announced theproposals of its portfolio review,the objective of which was toassess the options available tocreate a sustainable, competitiveand profitable Anglo AmericanPlatinum. The entire value chainwas reviewed, including costs,resources, mining, processing,the marketing and commercialstrategy, as well as the optimalshape and size of the portfolio.The main recommendation is toreduce Platinum’s productiontarget by around 400,000 ouncesa year to between 2.1 and2.3 million ounces per annum andto more closely align output withexpected demand, while retainingthe flexibility to meet potentialincreased demand. Thisrecommendation may beachieved through the proposalsmade within the consultationprocess embarked upon in termsof the requirements of the LabourRelations Act 66 of 1995, i.e. theclosure of Khuseleka andKhomanani mines (four shafts)and placing them on long termcare and maintenance, andthrough consolidatingRustenburg into three operatingmines. Should these proposalsultimately be implemented,production at Rustenburg mineswould reduce to a sustainablelevel of between 320,000 and350,000 ounces a year.Production from high cost assetswill be replaced with that fromlow cost, high quality assets overthe next decade. The productionprofile indicates excess smeltingand refining capacity in the shortto medium term and provides anopportunity to improve capitalefficiency. Options are beingevaluated to fill capacity andreduce costs. The cost basewill also be reduced to align withthe revised production levels,with a focus on labour andorganisational structure.Operating and financial reviewAnglo American plc Annual Report 2012 77

OPERATING AND FINANCIAL REVIEW PLATINUMSTRATEGYIn reformulating its strategy,Platinum has reviewed the businessacross the entire value chain toaddress structural challenges thathave eroded profitability over timewith the intention of creating a safe,sustainable, competitive and profitableplatinum business for the long termbenefit of all its stakeholders.This will be achieved through thealignment of baseline productionwith long term demand expectations,focusing on a high quality portfolioof operations to produce PGMs onan economically sustainable basis.An organisational design has beendeveloped to ensure that theoperations are supported by anappropriate level of overhead, whilethe commercial strategy aims toensure value and stability for Platinumand customers, while promoting newPGM applications. Operationally, thebusiness intends to increase exposureto lower risk, higher margin, lesscapital intensive mines, supporting asignificant reduction in the cost baseand a more efficient allocation ofcapital. Flexibility for long termgrowth options will nevertheless beretained, ensuring Platinum is wellpositioned should demand increaseabove expectation.Platinum continues to take its socialresponsibility seriously, particularlyto its employees and surroundingcommunities. The implementationof the strategy aims to deliver a stable,competitive and profitable businessthat will be best placed to sustain andcreate employment over the long term.Operating safely, sustainablyand responsiblyThe journey to zero harm remains akey strategic objective. Although thecompany’s safety strategy remainssound, it continues to review andadjust it in order to ensure that itspecifically targets the major causesof injuries and fatalities. Platinum isalso working tirelessly with its partnersin government and its workforce toimplement more effective meansof addressing major risks andnon-compliance with standards.Platinum’simplementationof its strategyaims todeliver a stable,competitiveand profitablebusiness thatwill be bestplaced tosustain andcreateemploymentover thelong term.Platinum price$ (oz)2,0001,8001,6001,4001,2001,000800H1 2011 marketprice: $1,792/ozH1 2011 achievedbasket price:R20,194/ozH2 2011 marketprice: $1,650/ozH2 2011 achievedbasket price:R19,061/ozJan 11Jun 11Rand Pt. basketPlatinumSource: Anglo American Commodity ResearchGross platinum demandby application’000 oz20082009201020112012Dec 110 4,500 9,000AutocatalystJewelleryChemicalElectricalGlassinvestmentIncorporating:Medical and BiomedicalPetroleumOtherSource: Johnson Matthey Interim Review 2012H1 2012 marketprice: $1,558/ozH1 2012 achievedbasket price:R20,086/ozJun 12H2 2012 marketprice: $1,551/ozH2 2012 achievedbasket price:R19,504/ozGross platinum supplyby country’000 oz2008200920102011201225,00020,00015,00010,0005,0000Dec 12Rand (oz)0 3,500 7,000South AfricaRussiaNorth AmericaZimbabweOthersSource: Johnson Matthey Interim Review 201278 Anglo American plc Annual Report 2012

01 At Mogalakwena North,maintenance work takesplace on a spare grizzlyunit, which forms part ofthe mine’s secondarycrusher circuit. Keepinga complete spare unit inworking order cuts downtimeto a minimum when theoriginal grizzly has to go infor maintenance.FINANCIAL ANDOPERATIONAL OVERVIEWPlatinum recorded an underlyingoperating loss of $120 million in2012, compared with $890 millionunderlying operating profit in 2011.This was primarily due to lowersales volumes, the impact of highermining inflation on costs and loweraverage realised prices. Platinumsales volumes for the period werelower owing to the two month illegalindustrial action experienced atmost of the mining operations in thefourth quarter. This was compensatedin part by a weaker average randagainst the dollar and a positivestock adjustment of $172 million.Cash operating costs perequivalent refined platinum ounceincreased by 21% to ZAR16,364(2011: ZAR13,552), primarily due tothe impact of the strike and increasesin the costs of labour, electricity,diesel and key inputs of processingoperations. Productivity decreasedby 4% to 6.05m 2 (2011: 6.32m 2 ).Refined platinum productionand sales decreased by 6% and17% respectively.Safety and environmentSeven employees lost their lives duringthe period and Platinum extends itssincere condolences to their families,friends and colleagues. The causes ofthe loss of life included falls of groundand transport related incidents. Thecompany’s safety performance hasimproved since 2007, and the fatalinjury and lost-time injury frequencyrates have come down by 54% and44% respectively.The proactive management of safetyrisks resulted in a decrease in thenumber of safety stoppages duringthe year. In 2012, there were 52 safetystoppages in Platinum’s operations,compared with 81 in 2011. Since thesafety stoppages were contained tothe areas where deviations wereobserved, the impact on productionwas considerably reduced in 2012.MarketsGross platinum demand declinedby 140,000 ounces, or 2%, in2012, as a result of weaker demandfor autocatalyst and industrialapplications more than offsettingincreases in jewellery demand initiatedby lower platinum pricing. Primarysupply of platinum was negativelyaffected by labour stoppages and mineclosures in South Africa. In addition,autocatalyst recycling decreased by16% in the year, in response to lowerplatinum prices.The palladium market moved from asurplus in 2011 to a significant deficit in2012. South African output was lowerfor the same reasons as for platinum,while less metal was sold fromRussian stockpiles. Gross demand forpalladium rose by 15%, or 900,000ounces, in 2012, following an increasein demand from the autocatalyst sectorand a return of investor interest.Following a prolonged surplus, therhodium market moved into balancein 2012, with reductions in supplybalancing increased demand fromthe autocatalyst and chemical sectors.AutocatalystsGlobal light vehicle sales grew by 5%in 2012 to 81 million units reflecting,for vehicles lighter than 3.5 tonnes,growth in North America, Japan andthe BRIC nations (Brazil, Russia, Indiaand China). This growth was offset byweakness in Europe and other regions.Ongoing economic uncertainty inEurope, for example, continued toimpact demand for new vehicles there,with sales approximately 8% belowthose in 2011.Increased substitution of palladiumfor platinum, together with a rise inthe production of gasoline vehiclesin North America and China, resultedin a 7% increase in demand forpalladium. Higher output of gasolinevehicles in 2012 also underpinned a6% increase in rhodium demand.Supplies of PGMs from recycling ofspent catalysts decreased by 12% to2.8 million ounces.01Operating and financial reviewAnglo American plc Annual Report 2012 79

OPERATING AND FINANCIAL REVIEW PLATINUM01 Unki mine’sconcentrator plantin Zimbabwe.02 Fitter assistant MosesNyamunda and chairliftoperator Sankie Mafokoworking on maintainingthe conveyorsat Marikana No. 4shaft decline.JewelleryGross platinum demand for thefabrication of jewellery rose by 10%to 2.7 million ounces, as strongdemand from China and Indiabalanced generally weaker economicconditions across the globe. Withplatinum trading at a discount to goldthroughout the year, manufacturerswere able to receive higher margins,encouraging the use of platinum inChina, while demand in India continuesto grow faster than other markets inpercentage terms.Gross demand for platinum for thefabrication of jewellery in China roseby 14% in 2012, to approximately1.9 million ounces, of which recycledplatinum jewellery represented halfa million ounces. Platinum purchasesby manufacturers increased by 16%to 1.4 million ounces.IndustrialFollowing record demand for platinumin 2011, as purchasers addresseddelayed consumption, platinum offtakefor industrial applications decreasedby 16% to 1.7 million ounces.InvestmentInvestment demand for platinumwas flat at 460,000 ounces in 2012,although the performance during theyear was erratic. Japanese buyers oflarge bars were very active in themonths when the price was lower thanYen 4,000/gram ($1,550 per ounce).The release of the Canadian PlatinumMaple Leaf and the AustralianPlatinum Platypus bullion coinsalso boosted interest in demand.After significant liquidation ofpalladium ETFs in 2011, positivesentiment resulted in a 16%increase in net holdings in 2012,to 2.04 million ounces.010280 Anglo American plc Annual Report 2012

Operating performanceProductionPlatinum’s own mines, includingWestern Limb Tailings Retreatment,produced 1.46 million of equivalentrefined platinum ounces, a decreaseof 9%.The illegal strike action at our miningoperations from 18 September to15 November 2012 resulted in a lossof platinum production of 306,000ounces, of which 82,000 ounceswere lost during the subsequent rampup period.Equivalent refined platinum productionfor the year totalled 2.22 millionounces, 8% down on 2011.Production at the Western Limboperations (Rustenburg, Union andAmandelbult mines) was negativelyaffected by the industrial action duringthe second half of 2012. Productionat the Rustenburg Complex minesdecreased by 43,300 ounces, or 8%,while Union and Amandelbult mines’production decreased by 13% and23% respectively.Mogalakwena mine output decreasedby 2% to 300,200 ounces, followinglower throughput at the concentratorsand lower head grade. The fall inproduction was partly compensatedby higher volumes from Unki mine.Equivalent refined platinumproduction at Unki increased by20% to 62,100 ounces as the mineexceeded its ramp up schedule,reaching steady state productionlevels ahead of schedule.The new nickel tank house at theBase Metal Refinery continuesto experience some operationalchallenges and this is expectedto impact production in 2013.Refined platinum productiondecreased by 6% to 2.38 millionounces as the processing of pipelinestocks into refined ounces in thesecond half of 2012 reduced theimpact of the industrial action.ProjectsSeveral projects were halted duringthe year owing to the current difficulteconomic and operating environment,including the Thembelani 2 shaft,Tumela 4 shaft, and slag cleaningfurnace 2 projects. The subsequentwrite-down for Thembelani 2 shaftproject was ZAR2.2 billion($251 million) while the write-downfor Tumela 4 shaft, slag cleaningfurnace 2 and other projects wasZAR4.4 billion ($579 million).OutlookDespite the lacklustre outlook forglobal economic growth, Platinumbelieves that global platinum demandis likely to be balanced in the shortterm. Overall platinum demand isexpected to grow marginally in 2013,despite the lack of economic growthin the European market. Tighteningemissions legislation in all markets,and the overall global increase invehicle production, especially in Chinaand India, is expected to offset lowervolumes in Japan, North Americanand Europe. Jewellery demand isexpected to grow, primarily owing tothe continuing growth in the popularityof platinum jewellery in China and Indiaand the expansion of retail outlets inChina by Hong Kong jewellers.Primary supply challenges areexpected to continue during 2013,with higher mining inflation exertingmargin pressure and the increased riskof supply disruptions from industrialaction in South Africa. The ongoingconstraint on capital investmentposed by low prices continues to limitSouth African output. However,supplies of metal from the recyclingof spent autocatalysts are expected torise as pipeline stocks are processed.Palladium demand is expected togrow in 2013, supported by globalvehicle production growth, particularlyin China, and tightening emissionslegislation. Primary supply is alsoexpected to be constrained by thesame factors as those affectingplatinum production. As a result,the palladium market is expectedto remain in deficit in 2013.The rhodium market is expectedto remain in balance during 2013.Modest growth in autocatalyst andnew industrial demand is likely tobe balanced by an increase inrecycled supply.Following the conclusion of the recentportfolio review, Platinum expects toproduce between 2.1 and 2.3 millionounces of refined platinum in 2013.Cost inflation challenges are likely tocontinue in 2013, with mining inflationexpected to remain above the averageinflation rate in South Africa. In spite ofthe difficult inflationary environment,Platinum aims to contain cash unitcosts to between ZAR16,000 andZAR16,500 per equivalent refinedplatinum ounce. The unit cost targetexcludes the cost of implementing theportfolio review proposals.Platinum’s project portfolio has beenaligned with the proposals of theportfolio review, with the capitalexpenditure target reduced by 25%to ZAR100 billion over the nextdecade. Capital allocation will continueto focus on the highest return andlowest risk opportunities.Operating and financial reviewAnglo American plc Annual Report 2012 81

OPERATING AND FINANCIAL REVIEW DIAMONDSDIAMONDSPhilippe MellierCEO – De BeersGroupUNDERLYING OPERATING PROFIT(2011: $659 m)$496 mSHARE OF GROUP UNDERLYINGOPERATING PROFIT8%UNDERLYING EBITDA(2011: $794 m)$711mKey financial and non-financial performance indicators$ million (unless otherwise stated)Year ended 31 Dec 2012 Year ended 31 Dec 2011De Beers(100%)AngloAmericanshare (1)AngloDe Beers American(100%) (2) share (1)Underlying operating profit 815 496 1,491 659Underlying EBITDA 1,075 711 1,763 794Net operating assets 12,944 12,944Capital expenditure 249 94Share of Group underlying operating profit n/a 8%Share of Group net operating assets n/a 25%Group’s associate investment in De Beers (3) n/a n/a n/a 2,23001Non-financial indicators 2012 2011Number of fatal injuries 3 7Lost-time injury frequency rate 0.13 0.15(1)Amounts based on the Group’s 45% shareholding to 16 August 2012 and a 100% basis thereafter. Underlying earnings from 16 August 2012excludes the 15% non-controlling interest.(2)Underlying operating profit and underlying EBITDA for 2011 on a 100% basis is provided for information.(3)Excludes outstanding loans owed by De Beers, including accrued interest of $301 million in 2011.01 The diamond recovery processplant at Venetia, South Africa’sbiggest diamond mine, whichproduced just over 3 millioncarats in 2012.82 Anglo American plc Annual Report 2012

BUSINESS OVERVIEWDe Beers is the world’s leadingdiamond company. Together withits joint venture partners, De Beersproduces approximately 35% of theworld’s rough diamonds by value, andemploys more than 23,000 peoplearound the world.In August 2012, Anglo Americancompleted its acquisition of the 40%shareholding in De Beers, for a totalcash consideration of $5.2 billion,thereby increasing Anglo American’sshareholding in De Beers to 85%.The remaining interest is held by theGovernment of the Republic ofBotswana (GRB).De Beers operates across key partsof the diamond value chain, includingexploration, production, the sellingof rough diamonds, the marketingof polished diamonds through itsproprietary diamond brand,Forevermark, and retail sales throughDe Beers Diamond Jewellers (DBDJ),a 50:50 joint venture with LVMHMoët Hennessy Louis Vuitton SA.De Beers’ mines are located in fourcountries: Botswana, Canada, Namibiaand South Africa. All operations areopen pit with the exception of SnapLake, an underground mine in Canada,and Namdeb Holdings’ alluvial andmarine mining operations in Namibia.Consumer demand forecasts$ Polished wholesale prices2012USA 37%China/Hong Kong 13%India 9%Japan 10%Gulf 8%Rest of World 22%Source: De BeersIn Botswana, De Beers’ interests areheld through the Debswana DiamondCompany, a 50:50 joint venture withthe GRB. Debswana’s operationsinclude Jwaneng, the world’s richestdiamond mine; Orapa, the world’slargest open-pit diamond mine;Letlhakane; and Damtshaa.In South Africa, De Beers has a 74%interest in De Beers ConsolidatedMines (DBCM), with the remaining26% held by Ponahalo Holdings, whichis a black economic empowermentconsortium. DBCM’s operationsinclude Venetia, which produces about70% of De Beers production fromSouth Africa; Voorspoed, a source oflarge and exotic coloured diamonds;and Kimberley Mines, a tailingsprocessing facility.In Namibia, De Beers’ interests areheld through Namdeb Holdings (NH),a 50:50 joint venture with theGovernment of the Republic ofNamibia (GRN). Diamonds are minedon land by Namdeb, and at sea byDebmarine Namibia, both of whichare wholly owned by NH. Marinemining is performed by a fleet offive mining vessels.In Canada, De Beers wholly owns itstwo mining operations; Victor, locatedin Northern Ontario; and Snap Lake, inthe Northwest Territories. De BeersConsumer demand forecasts$ Polished wholesale prices2017 FUSA 34%China/Hong Kong 17%India 14%Japan 7%Gulf 9%Rest of World 19%Source: De BeersDe Beers’mines arelocated in fourcountries:Botswana,Canada,Namibia andSouth Africa.INVESTINGFOREVERMARK– A UNIQUEPROMISEWhen it comes to purchasingluxury products, consumers wantassurance of the superior qualityand provenance of the product.De Beers Group provides thisthrough Forevermark, ourproprietary diamond brand,available in over 900 retailpartners in 12 markets includingthe core diamond jewellerymarkets of China, Japan, Indiaand the US.Every Forevermark diamondcomes with a promise of qualityand integrity, symbolised by theunique inscription inside thediamond. Each one is inscribedwith the Forevermark icon anda unique identification numberusing patented technologydeveloped by the De BeersGroup. Since the launch ofForevermark, more than 500,000diamonds have received theForevermark inscription asevidence that they have met thebrand’s high standards of quality,ethical integrity and provenance.The rigorous standards thatapply to Forevermark incorporatethe De Beers Best PracticePrinciples Assurance Programmethat provides consumers withassurance that the entire journeyof their diamond has met thehighest standards of ethical,social and environmentalperformance, and can be wornwith pride.ImageThe unique Forevermark inscription.Operating and financial reviewNote: These figures provide estimates and forecasts of the size and growth of main diamond consumer marketsbased on pipeline and consumer research commissioned by De Beers Group Strategy. 2012 results are preliminary.For more information turn to page 84Anglo American plc Annual Report 2012 83

OPERATING AND FINANCIAL REVIEW DIAMONDSalso has a 51% shareholding in a jointventure in Gahcho Kué, a project in thevicinity of Snap Lake. The project is atan advanced permitting stage. Whenoperational, Gahcho Kué is expectedto produce approximately 4.5 millioncarats per annum over a life of mineof 11 years.De Beers sells rough diamondsthrough two distribution channels:over 90% is sold via long termcontract sales to clients (known asSightholders), with the remainderbeing sold via regular auctions.De Beers is also an equal joint venturepartner in DTC Botswana and inNamibia DTC with the GRB and GRN,respectively. The local companiesfacilitate local sales and beneficiation,and are intermediaries in the globalselling function.As part of its long term contractsales, De Beers sorts and valuesproduction into 14,000 price points.These diamonds are aggregated andsold to Sightholders at one of 10 Sightseach year.De Beers is a global leader in the useof innovative online systems to auctionrough, uncut diamonds to small,mid-tier and large manufacturing,retailing and trading businesses.De Beers participates at the polishedend of the value chain through itsproprietary diamond brand,Forevermark, and, at the retail end,through DBDJ.Diamonds inscribed as Forevermarkprovide consumers with confidencethat their diamonds are beautiful, rareand responsibly sourced. They areavailable in carefully selected,authorised jewellers in the majorconsumer markets around the world.DBDJ’s high-end retail stores arelocated in the most fashionable areasin the world, including New York,Beijing, Hong Kong, London, Paris,Tokyo and Dubai.Element Six is the global leader in thedesign, development and production ofsynthetic diamond supermaterials for arange of applications. It comprises twobusinesses: Technologies which iswholly owned; and Abrasives, in whichDe Beers has a 60% interest (UmicoreSA hold the remaining 40%).In 2012,De Beerscontinued themigration ofits Londonbasedsalesoperations toGaborone,Botswana.INDUSTRY OVERVIEWAround 60% of the world’s diamonds,by value, originate from south andcentral Africa, with significantsources also found in Russia, Australiaand Canada.Most diamonds come from the miningof kimberlite deposits. Anotherimportant source of gem diamonds,however, has been secondary alluvialdeposits formed by the weatheringof primary kimberlites and thesubsequent deposition of releaseddiamonds in rivers and beach gravels.Rough or uncut diamonds arebroadly classified either as gem orindustrial quality, with gem beingoverwhelmingly (>99%) the larger ofthe two markets by value. The primaryworld market for gem diamonds isretail jewellery, where aspects suchas size, colour, shape and clarity havea large impact on valuation.STRATEGYDe Beers’ vision is to unlock the fulleconomic value of its leadershipposition in the diamond industry.De Beers is a demand-driven business,with a clear understanding thatconsumer desire is the overwhelmingsource of value for its diamonds.With growth in demand for diamondsexpected to outstrip productiongrowth in the medium to long term, thecompany aims to maximise the valueof every carat mined, sorted and sold.To achieve this objective, De Beersfocuses on optimising the value of itsmining assets, selling to selectedleading diamantaires and offeringconsumers the integrity andconfidence of its brands.Operating safely, sustainablyand responsiblyDe Beers goes beyond maintainingthe company’s social licence tooperate, to ensure consumers canbe confident in the ethical integrityof De Beers’ diamonds. De Beers’activities in support of sustainabledevelopment are a core part of thecompany’s business model and spanthe diamond pipeline.Upstream, this strategy includesensuring employee safety, healthand well-being; and effectiveenvironmental stewardship. De Beersalso works in partnership with hostgovernments and other stakeholdersto assist in the provision of long termand sustainable economicdevelopment, including support forlocal and indigenous procurement,enterprise development, socialinvestment, and beneficiation.Through beneficiation, De Beerssupports the development ofvalue-adding downstream activitiesin producer countries. In 2012,De Beers continued the migration ofits London-based sales operations toGaborone, Botswana. Agreed in 2011,as part of a 10-year sales agreementbetween De Beers and the GRB for thesorting, valuing and sale of Debswana’sdiamond production, the relocation ofDe Beers’ international aggregationand sales activity will be completed bythe end of 2013. The move will bolsterDe Beers’ long term beneficiationactivities in the region, through helpingestablish southern Africa as a worldleading downstream diamond centre.De Beers also supports initiatives todrive best practice throughout thediamond pipeline. These include theKimberley Process CertificationScheme, an inter-governmentalinitiative that seeks to eliminateconflict diamonds from the globalsupply chain, as well as a bespokeethical, environmental and socialassurance programme that coversmore than 300,000 diamond sectorworkers across the world.FINANCIAL ANDOPERATIONAL OVERVIEWDe Beers’ underlying operating profit(on a 100% basis) fell by $676 millionto $815 million, 45% lower, reflectingthe impact of difficult tradingconditions brought aboutpredominantly by weaker demandand changing product requirementsfrom Sightholders. Anglo American’sshare of underlying operating profitfrom De Beers totalled $496 million, adecrease of 25%, the overall reductionbeing partly offset by Anglo American’shigher shareholding.84 Anglo American plc Annual Report 2012

Safety and environmentIn 2012, De Beers recorded threefatalities (2011: 7) and a lost-timeinjury frequency rate (LTIFR) of 0.13(2011: 0.15). Safety remains the firstpriority for De Beers and the companycontinues to drive improvement insafety performance through theongoing roll-out of a standardisedsafety management system that aimsto embed a safety culture across thebusiness. Following a slope failure andtragic loss of life at Jwaneng in June,pit operations were suspended fora period of seven weeks to allow fora comprehensive geotechnicalreview, ensuring that it was safe torecommence mining.MarketsDemand for diamond jewellery in thekey markets of the US, China andJapan grew, albeit at a slower pacethan in 2011. This, together with higherpolished stock levels, resulted in adecline in polished prices particularlyin the third quarter of the year.Although rough diamond pricesremained broadly stable in the firsthalf of 2012, a combination of weakerpolished prices, high levels of cuttingcentre stock and tightening liquidityin the mid-stream, resulted in a pricecorrection during the third quarter.By the end of 2012, rough diamondprices stabilised, reflecting a modestimprovement in consumer demandduring the holiday sales season in mostmajor diamond jewellery markets.Operating performanceMining and manufacturingDe Beers’ full-year productiondeclined by 11% to 27.9 millioncarats (2011: 31.3 million carats). Inlight of prevailing diamond markettrends, as well as operationalchallenges, the company’s statedstrategy of producing to demand hasbeen maintained. Operations continueto focus on maintenance and wastestripping backlogs, while a number offactors impacted production at specificsites. At Debswana, this included theJwaneng mine slope failure in June.DBCM saw lower grades from Venetiaand production was also impacted bythe disposal of Finsch in September2011. Canada’s Snap Lake showedsignificant improvement during 2012as work continues on optimising themine to enable economic access tothe promising, though challenging,orebody.Debmarine Namibia’s Grand Banksmining vessel was re-commissionedin 2012 and Namdeb’s Elizabeth Baymining area in Northern Bay wasbrought back into operation duringthe year.Element Six experienced a challengingyear, with weakness in a number of keyend-markets, particularly in the secondhalf of the year. In response, ElementSix focused on cost containment andimproved operational performanceand made significant progress on anumber of its strategic milestones,including improved customer serviceand innovation.SalesDe Beers’ total sales decreased to$6.1 billion (100% basis), primarilyas a result of diminished demand forrough diamonds, changing productrequirements from Sightholders andreduced availability of some goods.BrandsForevermark continued to growstrongly in 2012, particularly in the coremarkets of China, Japan, India and theUS, and was launched in South Africa,Canada and the UAE. It is now availablein more than 900 retail partners in12 markets. Since the launch ofForevermark, more than 500,000diamonds have been inscribed with aunique identification number showingthat they have met the brand’s highstandards of quality, ethical integrityand provenance.DBDJ faced the challenging marketconditions experienced by mosthigh-end jewellers in 2012, butcontinued to focus on expanding itsstore network in China, a market ofsignificant opportunity for high-endjewellery brands. New stores wereopened in Shanghai and Nanjing,giving DBDJ five stores in China, withan additional store scheduled to openin 2013. Franchise partners will openfurther stores in Kuala Lumpur, Bakuand Vancouver in 2013. DBDJ currentlyhas 43 stores in leading diamondconsumer markets around the world.OtherThe agreement entered into byDe Beers in the US in 2006 to settleall outstanding class actions against itbecame unconditional and effective inMay. The $295 million settlement, plusinterest, held in escrow since 2006 isnow being distributed in accordancewith the court ordered plan.De BeersDiamondJewellerscurrentlyhas 43 storesin leadingdiamondconsumermarketsaroundthe world.ProjectsIn Botswana, construction of theinfrastructure at Jwaneng’s Cut-8project is largely complete. Cut-8will provide access to approximately95 million carats of mainly high qualitydiamonds and extend the life of theworld’s richest diamond mine to atleast 2028.In South Africa, the Venetiaunderground project was approvedby the De Beers and Anglo AmericanBoards. Environmental authorisationwas granted in July and theEnvironmental Management Planwas approved by the Department ofMineral Resources in October. Thefinal outstanding regulatory clearanceswere obtained in February 2013 andthe project will commence shortly.De Beers will invest approximately$2 billion to build the new undergroundmine, which will extend the life of theresource until 2042 and replace theopen pit as South Africa’s largestdiamond mine.In Canada, the Environmental ImpactReview documentation for theGahcho Kué project has beensubmitted for review and the ReviewPanel is expected to issue a decisionreport in 2013.OutlookDe Beers expects moderate growthin diamond jewellery demand in 2013.This will be supported primarily by amore positive picture emerging fromChina and India compared to 2012.Some upside is possible in the US,while trading conditions in othermarkets are likely to be challenging.The rough diamond manufacturingsector closed 2012 with high levelsof inventory, particularly in thehigher-end categories of diamonds,and faces continued pressure in termsof liquidity. In the medium to longterm, industry fundamentals areexpected to strengthen as diamondproduction plateaus and demandcontinues to increase.Anglo American plc Annual Report 2012 85Operating and financial review

OPERATING AND FINANCIAL REVIEW OTHER MINING AND INDUSTRIALOTHER MININGAND INDUSTRIALRubenFernandesCEO – Phosphatesand NiobiumDuncanWanbladGroup DirectorOther Miningand Industrial –Tarmac, Amapáand Scaw MetalsUNDERLYING OPERATING PROFIT(2011: $315 m)$337 mSHARE OF GROUP UNDERLYINGOPERATING PROFIT(2011: 3%)5%UNDERLYING EBITDA(2011: $540 m)$485 mKey financial and non-financial performance indicators$ million (unless otherwise stated) (1) 2012 2011Underlying operating profit 337 315Phosphates 91 134Niobium 81 52Amapá 54 120Tarmac 73 (38)Scaw Metals 49 37Zinc – 20Corporate (11) (10)Underlying EBITDA 485 540Net operating assets 786 3,843Capital expenditure 260 225Share of Group underlying operating profit 5% 3%Share of Group net operating assets 2% 9%0101 A granulator at Phosphates’Cubatão plant, where fertiliseris made into granulated form.Non-financial indicators (2) 2012 2011Number of fatal injuriesPhosphates and Niobium – –Amapá, Tarmac and Scaw Metals 1 1Lost-time injury frequency ratePhosphates and Niobium 0.39 0.15Amapá, Tarmac and Scaw Metals 0.25 0.21Total energy consumed in 1,000 GJ (3) 2,710 2,222Total greenhouse gas emissions in 1,000 tonnes CO 2e (3) 93 65Total water used for primary activities in 1,000 m 3 (3) 8,313 8,569(1)In 2012, Amapá was reclassified from Iron Ore and Manganese to Non-core within the Other Mining and Industrial segment to align with internalmanagement reporting. Financial comparatives have been reclassified to align with current presentation.(2)In a given year, non-financial data is reported within the business unit that had management control of the operation, therefore non-financial datafor Amapá is reported within OMI and Iron Ore Brazil for 2012 and 2011 respectively.(3)Non-financial performance data given for Phosphates and Niobium only.86 Anglo American plc Annual Report 2012

BUSINESS OVERVIEWPhosphatesOur Phosphates business is thesecond largest integrated phosphatefertiliser producer in Brazil. Itsoperations are vertically integrated,covering mining of phosphate ore,beneficiation of the ore to producephosphorus pentoxide (P 2O 5)concentrate, and processing intointermediate and final products.Our phosphates mine at Ouvidor, inGoiás state, currently produces, onaverage, around 5.9 Mt of ore perannum (dry basis). It is a primephosphate deposit, containing someof Brazil’s highest grades of ore(approximately 13% P 2O 5). Thecompany has approximately 15% ofcurrent Brazilian phosphate mineralresources and has a remaining mine lifeof 40 years at current production rates.Run-of-mine phosphate ore is treatedat a beneficiation facility on the samesite, and approximately 1.36 milliontonnes per annum (Mtpa) of finalphosphate concentrate is producedat an average grade of around 35%P 2O 5. Phosphates operates twochemical processing complexes:one in Catalão in Goiás, the other atCubatão in the state of São Paulo. Thecompany produces a wide variety ofproducts for the Brazilian agriculturesector, including low analysis(approximately 20% P 2O 5content) andhigh analysis (40%-55% P 2O 5content)phosphate fertilisers, dicalciumphosphate (DCP) for the animal feedindustry, as well as phosphoric andsulphuric acids for the food and animalfeed industries.NiobiumOur Niobium business is located in thecities of Catalão and Ouvidor, in Goiásstate, Brazil, and is one of the world’sthree principal niobium producers.In operation since 1973, our Boa Vistamine produces and exportsapproximately 4,000 tonnes ofniobium per year. Now, approachingthe end of the weathered ore, theNiobium business is investing inadapting the existing plant to processfresh rock.Our phosphatesmine, containingsome of Brazil’shighest gradesof ore hasapproximately15% of currentBrazilianphosphatemineralresources.INDUSTRY OVERVIEWPhosphatesPhosphate fertiliser demand isdriven by strong fundamental trends,including expanding food needs froma growing global population, changingdietary habits in major emergingeconomies such as China and India,and increased demand for biofuels.Brazil, a major agricultural nation, isthe fourth largest phosphate marketglobally and needs to import almost50% of its required phosphatefertilisers. Our phosphates mine,situated in Brazil’s under-suppliedCentral-West region, gives us acompetitive cash-cost advantage.NiobiumAs an alloying agent, niobium bringsunique properties to high strengthsteel alloys (HSSA), such as increasedformability, corrosion resistance,weldability and strength under toughworking environments, includingextreme high or low temperatures.Around 90% of total global niobiumconsumption is used as an alloyingelement, in the form of ferroniobium(FeNb) in high strength steels, whichare used in the manufacture ofautomobiles, ships and high pressurepipelines, as well as in the petroleumand construction industries. Theproduct is exported to major steelplants in Europe, the US and Asia.STRATEGYPhosphates and Niobium’s corestrategy is to expand the existingoperations and mineral reserves inboth commodities through a rigorousfocus on operational excellence, andthe execution of selected low cost andhigh returning projects.At Phosphates, significant brownfieldexpansion opportunities are currentlybeing evaluated in order to meet theexpected growing demand needs ofthe Brazilian agricultural market, whichis strategically placed to address theglobal shifts in dietary habits andwhere the outlook for the productionof fertiliser products is very positive.At Niobium, our investment in the BoaVista Fresh Rock project is expected toconsolidate the business as the secondlargest producer of niobium worldwide,feeding mainly into, and increasing ourmarket share in, the HSSA market.ORGANISINGVALUE FROMWASTE ATPHOSPHATESPhosphates is applying the‘reduce, re-use, recycle’philosophy on an industrial scale.A leading Brazilian producer ofphosphate fertilisers, each yearPhosphates generates 7,800tonnes of phosphate waste,with 20% being re-used at thegranulation stage of production.The rest was traditionally soldas a low-value by-product ordisposed of in waste lagoons.Following laboratory and, later,industrial-scale tests, aPhosphates technical teamdemonstrated that phosphatewaste could also be re-usedin the intermediate acidulationstage. The technique was putinto full-scale production inMarch 2012.Phosphate waste recoveredand re-used has now increasedto 40% – with a target of 60%.This has led to lower productioncosts, with no loss of quality,and the environmental benefitof significantly reducedwaste disposal.ImageLaboratory analyst Thiago Araujo.Operating and financial reviewAnglo American plc Annual Report 2012 87

OPERATING AND FINANCIAL REVIEW OTHER MINING AND INDUSTRIAL01 Phosphates stockpilein Cubatão.02 Processing plant andwater-treatment areaat Cubatão.FINANCIAL ANDOPERATIONAL OVERVIEWSafety and environmentIn 2012, no fatalities were recorded inPhosphates and Niobium, however theLTIFR increased to 0.39 (2011: 0.15).All 14 injuries were of low potentialseverity and most involved injury tohands and feet. The lessons learnedfrom the incident investigations arebeing used to improve riskassessment, promote safe behaviourand prevent unsafe operatingconditions.Water consumption was marginallyreduced as more water was re-used,particularly at the phosphate operations.While energy consumption decreasedyear on year, CO 2 emissions increaseddue to an alignment of conversionfactors with Group standards.MarketsPhosphatesFertiliser demand in Brazil rose around4% in 2012, reflecting the strongfundamentals of the Brazilianagricultural sector. Brazilian fertiliserconsumption has been growing fasterthan the global average and thisperformance is expected to continue infuture years, supported by favourableweather conditions, plentiful accessto water and the widespread use ofadvanced farming techniques byBrazilian farmers. Continued highprices of soybean and corn have alsoincentivised farmers to increase grainproduction through more intensivefertiliser application.This favourable market scenarioresulted in Phosphates reporting arecord fertiliser sales performanceof 1.2 Mt for the year.NiobiumGlobal steel mill activity was subduedin 2012, with producers reluctant toresume idle operations, replenishstocks, and to commit to furtherinvestment in their businesses. Despitethe challenging environment, however,increased production of HSSA in bothemerging and developed countries,ensured that niobium demandremained strong for the year.Operating performancePhosphatesDespite record fertiliser sales,underlying operating profit decreasedby 32% to $91 million, driven mainly byunfavourable international fertiliserBrazilianfertiliserconsumptionhas beengrowing fasterthan theglobal averageand thisperformanceis expected tocontinue infuture years.prices, coupled with increased labourcosts and general inflationarypressures. DCP sales were alsoadversely affected by difficulties in thecattle industry, which had a negativeimpact on the operating results.Phosphates production increased by5% to a record of 1.1 Mt, due to anumber of asset optimisation initiativeswhich improved overall performanceat Catalão and Cubatão.NiobiumNiobium generated an underlyingoperating profit of $81 million, a 56%increase over 2011. Sales volumes ofniobium rose by 15%, mainly due toan increase in production arising froma better performance at the tailingsplant and improvements in theconcentration process at the Boa Vistamine. Unit production costs declinedowing to lower aluminium and powerprices and more efficient use ofconsumables, combined with theimpact of higher production.ProjectsNiobiumThe Boa Vista Fresh Rock projectcontinued to make progress, withadditional capital expenditureapproved in June 2012. The existingplant will be adapted to process newrock instead of oxide ore, leading toan increase in production capacityto approximately 6,500 tonnes ofniobium per year (2012: 4,400 tonnes).OutlookPhosphatesStrong grain prices continue tosupport fertiliser demand, and fertiliserprices are expected to remain highduring 2013. The market expectsfarmers to expand the area given overto agriculture, as the current ratiobetween fertiliser and grain pricesremains positive.In addition, the high level of cornprices will be a motivating factor foran aggressive ‘mini crop’ (a smallersecondary crop, mainly corn, grownin the first half of the year) in the firstquarter of 2013.NiobiumDemand is expected to remainsubdued in Europe and in PacificRim/East Asian countries, such asJapan, South Korea and, to a lesserdegree, China.Production is expected to declinein 2013, owing to lower grades andrecoveries as lower quality ore isextracted from Boa Vista mine as itapproaches the end of the weatheredore and encounters lower gradesand higher contaminants. Tailingsproduction is also expected todecrease as a result of lowerniobium grades contained in thephosphate tailings.010288 Anglo American plc Annual Report 2012

AMAPÁAmapá generated an underlyingoperating profit of $54 million,a decrease of $66 million on theprior year.Production increased significantly,in line with planned ramp up andalso due to higher mass recovery inthe beneficiation plant as a result ofthe plant’s improved stability. Theoperation is now at design productioncapacity. Higher sales were alsoachieved following fewer delaysassociated with transportable moisturelimits. Transhipment at Trinidad andTobago from smaller capacityHandymax to the larger capacityCapesize vessels for onward shipmentto the Middle and Far East wassuccessfully implemented in thesecond half of 2012.The favourable impact of improvedproduction and higher sales, however,was more than offset by a sharpdecrease in prices during 2012, thoughtight cost control and improvedoperating efficiencies, partlycompensated their effect. Underlyingoperating profit also benefited fromthe reversal of penalty provisions,which were in place at the end of 2011,as a result of contract renegotiations.Regrettably, one fatality occurredat Amapá iron ore system in Brazilduring 2012. The LTIFR hasimproved over the past six years,and encouragingly, the severity ofinjuries also continues to decline.On 4 January 2013, Anglo Americanannounced an agreement to sell its70% interest in Amapá to ZaminFerrous Ltd. The transaction is subjectto regulatory approval and is expectedto complete in 2013. We have alwaysmaintained that we did not envisageholding our interest in Amapá over thelong term and, in July 2012, reportedthat we had transferred responsibilityfor Amapá to our Other Mining andIndustrial business unit and stated thatwe were exploring the possibility ofdivesting our interest.Anglo American has transformed theoperational performance of Amapásince acquisition in 2008, increasingannual production from 1.2 Mt in 2008to 6.1 Mt in 2012.TARMACTarmac reported an underlyingoperating profit of $73 million,compared with a loss of $38 millionin 2011. Tarmac’s underlying EBITDAwas $148 million, 44% higher thanin 2011.Quarry materialsThe business’ profitability was athigher levels than last year, mainly asa result of the operation being treatedas ‘held for sale’ from the end of July2012, and the subsequent cessationof recorded depreciation. There hasbeen a decline in asphalt volumes, withfew major road schemes commencingin 2012 as a result of the UKgovernment’s austerity measures.Private-sector growth remainedmuted throughout the year, thuskeeping pressure on ready-mixconcrete prices and volumes, but wasoffset in part by the resilient centralLondon market. A continued focuson maximising the use of substitutefuel and recycled asphalt materialsis helping to mitigate the impact ofrising hydrocarbon costs and tosupport margins.On 7 January 2013, Anglo Americanand Lafarge announced thecompletion of their 50:50 joint venturewhich will combine their cement,aggregates, ready-mix concrete,asphalt and asphalt surfacing,maintenance services, and wasteservices businesses in the UK. Thejoint venture will be known as LafargeTarmac. Completion of the LafargeTarmac joint venture followed finalclearance from the UK CompetitionCommission, predicated on thecompleted sale of a portfolio of Tarmacand Lafarge construction materialsoperations in the UK, which alsooccurred on 7 January 2013.Building productsPerformance was affected bythe continued general economicdownturn, compounded by disruptionto building activity followingunseasonal wet weather duringthe summer months.The weak building products marketresulted in a highly competitivepricing environment affecting salesvolumes, although cost reductionprojects and improvements inoperating efficiencies are helpingto mitigate some of the impact.In early 2013,Anglo Americanand Lafargeannouncedthe completionof their 50:50joint venture.A number of initiatives continue to bedeveloped to ensure improved longerterm performance, but the short termremains difficult owing to the prevailingweak market conditions.SCAW METALSScaw Metals experienced a 32%increase in underlying operating profitto $49 million for the 11 months toend November 2012 compared withthe full year 2011, mainly as a resultof the company being treated as‘held for sale’ from 24 April 2012,and the subsequent cessation ofrecorded depreciation.Cast Products showed a markedimprovement, owing to firm demandacross all segments and a reductionin costs following the closure of aloss making foundry in the prior year.Grinding Media reported a decreasein underlying operating profit as aresult of lower demand from themining sector owing to industrialaction in the second half of 2012.This business is expected to recoveras mining operations revert to fullproduction. The performance ofWire Rod Products suffered as aconsequence of a decline in miningactivity, but nevertheless reportedstable earnings. Demand forconstruction products remainedweak, but in spite of this the RolledProducts business, through costcontainment measures andoperational improvements, wasable to minimise its losses.Total production of steel productswas 611,600 tonnes for the 11 monthsto end November 2012, a decreaseof 9.7% over the full year 2011.On 24 April 2012, Anglo Americanannounced the sale of its interestin Scaw South Africa to an investmentconsortium led by the IndustrialDevelopment Corporation ofSouth Africa and the Group’spartners in Scaw South Africa,being Izingwe Holdings (Pty)Limited, Shanduka Resources (Pty)Limited and the Southern PalaceGroup of Companies (Pty) Limited.On 23 November, the sale ofScaw South Africa and relatedcompanies completed for a totalconsideration of ZAR3.4 billion($440 million) on a cash- anddebt-free basis as announced.Operating and financial reviewAnglo American plc Annual Report 2012 89