Sir John Parker, Chairman, Anglo American plc:
Good afternoon, ladies and gentlemen. Many of you, I know, have travelled a long way. May I extend a warm welcome to all of you to the Anglo American plc AGM.
As you all know, 2012 was a very difficult year for the mining industry. Against a backdrop of a marked economic slowdown in China, a troubled euro zone and only a relatively weak and patchy recovery in the United States, the industry faced falling prices, while profitability was further eroded by above-inflation cost increases in many countries.
As a consequence – and in line with a number of our peers – Anglo American experienced a sharp decline in profitability. We reported an underlying operating profit of $6.2 billion, 44 per cent down on the previous year; our underlying EBITDA decreased by 35 per cent to $8.7 billion; while underlying earnings were 54 per cent lower at $2.8 billion.
Our financial and operating performance further suffered as we experienced setbacks in key areas of our business. In South Africa, we encountered lengthy illegal industrial action at our Platinum and Kumba Iron Ore operations – with Anglo American Platinum recording a loss for the year. In the first six months, we also encountered operational setbacks in our Chilean copper business, though I am pleased to say that output there is now on a recovery track. At our flagship Minas-Rio iron ore project in Brazil, a diversity of problems led to a revised delivery date and capital-cost increases. This led us to review the carrying value of this asset, writing it down by $4 billion.
In spite of all these challenges affecting cash flow, the Board was able to recommend a final dividend of 53 cents per share, giving a rebased total dividend for the year of 85 cents, a 15 per cent increase, reflecting our confidence in the underlying business going forward. This increase completes the rebuilding of our dividend since its suspension in 2009 to a new base level competitive with our diversified peer group.
Continuing on a positive note, I should also like to add that the three major new mining operations we have commissioned – Kolomela iron ore in South Africa, Barro Alto nickel in Brazil and our copper expansion at Los Bronces in Chile – are contributing strongly to cash flow.
In 2012, our new mining operations and expansions generated $1.2 billion, almost 20 per cent of total operating profit.
Complementing the underlying cash flows from the business, our capital demands have also been underpinned by the contributions from our successful disposal programme. By year-end, our divestment programme of non-core businesses, as announced in October 2009, had generated proceeds of $4 billion on a debt- and cash-free basis.
Anglo American’s objective is to maintain a strong investment-grade rating – which demands rigorous capital discipline. We recognise only too well that our major capital project, Minas-Rio, has been a much bigger challenge than any of us could have anticipated and that over the next two years we will bear a heavier capital expenditure burden as we seek to complete its development, after which we expect capital expenditure to be moderated.
Given the increased challenges involved in developing large and complex greenfield sites, the Board will apply a highly disciplined approach to the allocation of capital – with smaller, lower-risk brownfield expansion projects more likely to find favour in the short term. We will also explore the merits of seeking suitable partners in large greenfield projects.
We are making real progress, however, towards first iron ore shipment from Minas-Rio by the end of 2014. We have secured the vast majority of the permits needed; the focus now is on working towards converting our installation licences into operating licences. Earthworks at the beneficiation plant are almost complete; around three-quarters of the civil works have been done; and almost half of the 525-kilometre pipeline has been laid. Minas-Rio is a world-class iron ore project of rare magnitude and quality, in an established mining jurisdiction, representing one of the world’s largest undeveloped resources of iron ore.
I would also like to mention the successful outcome of the dispute with the Chilean state copper producer, Codelco. We were able to retain majority control of Anglo American Sur and to establish a new relationship that positions us to build a very strong future for our business in Chile. We were also able to generate $2.3 billion of incremental proceeds for our shareholders compared to the original option-price formulae.
A further key development during the year was the completion of our acquisition from the Oppenheimer family of its 40% shareholding in De Beers, which gives our shareholders greater exposure to the world’s No. 1 diamond company. De Beers is well positioned to capitalise on the positive fundamentals in diamonds, with the supply of gem diamonds anticipated to fall well short of demand over the long term.
In these volatile times especially, boards have a heightened responsibility to ensure that management delivers enduring value for shareholders. That is why, following almost a year of studying various options and social plans, we announced a major restructuring of our Platinum business. We aim to return it to a sustainable profit and a more secure future for the 45,000 employees who would remain in that business. We continue to engage positively with the South African government on the finalisation of our recovery plans.
Turning to safety, this is a constant challenge, and none of us can afford to let up our vigilance for an instant. Last year, the number of people who lost their lives on company business decreased to 13, while our lost-time injury frequency rate also resumed a downward trend.
I would like to take a moment now to pay tribute to Cynthia Carroll, who earlier this month stepped down as chief executive and who leaves Anglo American at the end of this meeting. Overall, during her six-year watch, the annual number of people who died on the company’s business, on a like-for-like basis, was reduced by at least half. This step change in performance is great testimony to Cynthia’s safety leadership, as well as the commitment of all of her senior management team. Their tireless endeavours in leading the safety agenda have brought about real and lasting change in the way we approach our drive for zero harm.
Cynthia’s leadership has had a transformational impact on Anglo American. She developed a clear strategy, based on an attractive range of core commodities, and created a strong and unified culture and a streamlined organisation. Cynthia lived out Anglo American’s values to the full and her legacy includes, among many other things, a step-change improvement in safety, sustainability and the quality of our dialogue with governments, communities and other stakeholders around the world.
As a Board, we not only thank her but wish her all success and good wishes in the years ahead.
At this juncture, I would also like set some of the other changes to the Board in the context of the heightened responsibility boards now have. Over the past few years, governance pressures on listed companies have been growing in intensity. Both institutional and individual shareholders have sought to hold under-performing managements and boards to account. And that is right.
In the three-plus years I have been Chairman of your company, therefore, I have sought to refresh and strengthen the Board by bringing in members with a range of skill-sets and experience that can add value to our business and maintain capital discipline. It is in that light that we appointed Anne Stevens in May 2012. Anne is an engineer with extensive industrial experience, including operating in a range of South American countries in which we are present.
I also wish to take this opportunity to thank Dr Mamphela Ramphele, who stepped down in July, for the wealth of experience and insight she brought to the Board’s affairs. Mamphela, who was a key figure in South Africa’s struggle for democracy, later had a very distinguished career, including serving as vice-chancellor of the University of Cape Town and as a managing director of the World Bank.
Peter Woicke is also standing down from the Board. He has been a director since 2006 and Chairman of the Safety and Sustainable (S&SD) Committee for the past three years. Peter has brought a wealth of experience and knowledge about development in emerging economies to our proceedings and has ensured that Anglo American remains at the forefront of the major sustainability issues facing our industry.
We are very fortunate to have someone of Jack Thompson’s extensive mining experience and knowledge of safety to take over as Chairman of the Committee and to build on Peter Woicke’s excellent work.
The Board is also proposing the appointment of Dr Byron Grote as a non-executive director at today’s meeting. Byron Grote has more than three decades of broad-based business experience in the natural-resources sector, including mining and, more latterly, 10 years as chief financial officer of BP. Dr Grote will also join the Audit Committee and, in due course, take over the chairmanship from David Challen, who has rendered outstanding service.
I am particularly glad that David has agreed, given the extensive changes to Board membership since late 2009, to serve for at least another year as the senior independent non-executive director.
And now to Mark Cutifani.
The Board conducted a global search, which I led, to identify the best possible candidate for the role of chief executive. We had a very clear list of criteria of what we wanted to see in a CEO for the next decade, and Mark was the Board’s unanimous choice to succeed Cynthia.
Mark, who took up his post on 3 April, was the CEO of AngloGold Ashanti, based in South Africa, where he led the successful restructuring and development of its business. He is an experienced listed-company chief executive who has a focus on creating value. Mark is a seasoned miner, with 36 years’ experience in the industry and broad experience of mining operations and projects across a wide range of commodities and geographies, including South Africa and the Americas, as well as his native Australia. He is a highly respected leader in the global mining industry, with values – and I include safety and sustainability foremost among these – strongly aligned to those of Anglo American.
Finally, turning to the outlook for mining commodities and Anglo American in particular.
There are now clear signs of an upturn in US housing, which should reinforce a broader economic recovery helped by ultra-loose monetary policy. In China, the authorities have also eased policy to stimulate faster growth. But the country’s newly installed leadership is mindful of the need to rebalance the economy, which will restrain growth over the next few years. In Europe and Japan, activity has been weak, but there are signs of improvement and changes in recent policy should boost growth in 2013.
In the medium term, we see continuing robust demand for industrial commodities as emerging economies continue to industrialise and advanced economies invest in upgrading their infrastructure.
