Cynthia Carroll, Chief Executive, Anglo American plc:
THE JOURNEY
Over the past five years we have been on a journey to transform Anglo American into a leader in the mining industry, a company that delivers on its commitments by driving for performance and shareholder value.
The transformation started with safety. We developed a performance culture, a more efficient organisational structure, and a more joined-up business capturing synergies across the Group.
We turned around business unit performance and became a cohesive company, with a clear vision and strategy, and with the ability to successfully deliver large complex projects.
We established relationships with governments, unions and other stakeholders around the world.
And we are now reaping the benefits and the rewards of that transformation. In 2011, four out of seven business units delivered record operating profit.
Take Metallurgical Coal, for example. In 2007, the business barely broke even. The transformation we began in Australia five years ago delivered record profits in 2010 and 2011. As you all know, in 2008 we took the hard decision to invest through the downturn.
The result is that, in 2011, three of our four big, complex projects were delivered on or ahead of schedule. It is really an extraordinary achievement to commission three major new mining operations in the same year.
Our Los Bronces expansion project, one of the most challenging and complex in the world, started production five months ago and is already operating at 75 per cent of capacity – an outstanding achievement. At full production, Los Bronces will more than double current
volumes.
The Barro Alto project in Brazil, which we commissioned a year ago, is already operating at 70 per cent of capacity. It will increase production from our Nickel business by 180 per cent.
The Kolomela iron ore mine in South Africa, was commissioned five months ahead of schedule, and is already producing at around 50 per cent of capacity. In December, we shipped our first load of iron ore from the new mine.
In the meantime, our asset optimisation and supply chain initiatives delivered $3.2 billion worth of value in 2011 against a target of $2 billion.
In addition, we are delivering transformational, value-generating transactions, with the acquisition of the Oppenheimer family’s stake in De Beers and the sale of a minority interest in our Chilean copper business to Mitsubishi.
We are, however, facing some headwinds, including calls for higher taxes and royalties, rising input costs, shortages of skilled workers, infrastructure constraints and tighter environmental regulations.
There are also the constant challenges of depleting resources, declining grades at existing mines, and the diminishing likelihood of finding large-scale, world-class deposits.
Despite these challenges, our efforts delivered an operating profit of $11.1 billion in 2011, an increase of 14 per cent on 2010. Underlying earnings were up 23 per cent to $6.1 billion.
Dividend pay-outs were 74 cents per share for the year. These are results for which you, our shareholders, along with our management and employees, should feel justifiably proud.
We still have much work to do, and other challenges lie ahead.
SAFETY
Turning to safety...
Over the past five years we lifted safety standards and put systems in place across the Group to improve performance.
The result has been a 57 per cent reduction in fatalities across the Group. Platinum operations have seen a 52 per cent reduction. Despite these figures, safety performance at Platinum has, and continues to be, our biggest challenge.
We are determined to reach a point where we have zero fatalities, and we have taken bold steps to bring about cultural change.
In 2007, we shut down Platinum operations following a number of fatalities.
In November last year, I went to South Africa to address 30,000 Platinum employees, joined by Neville Nicolau, Norman Mbazima as well as trade union leaders and government safety inspectors to re-emphasise our commitment and our drive towards zero harm. There I launched ‘Zero Harm in Action’, an initiative that aims to bring about a cultural transformation in Platinum by applying a zero-tolerance approach to unsafe behaviour.
We have shown zero harm is achievable in all parts of the organisation, including Platinum’s operations.
In 2011, excluding Platinum, Lost Time Injury Frequency Rates dropped by 16 per cent, while at 91 per cent of our operations there was not a single fatal injury.
But we had 17 fatalities last year... and that’s 17 too many.
We still have a long way to go on safety.
THE FUTURE
Looking ahead, although there continues to be uncertainty in the global economy in the short term, particularly in Europe, I remain optimistic about the long-term outlook for Anglo American’s diversified mix of commodities.
Despite China’s slowdown and structural adjustment towards a consumption driven economy, its inland provinces, are experiencing and will experience double-digit growth over the next decade.
In India, a growing middle class and rising disposable incomes should continue to drive demand for coal, diamonds and platinum group metals.
In the emerging economies overall, we expect sustained growth driven by rising increasing standards.
PROJECTS
Anglo American is well placed to take advantage of medium to long term growth in the developed and emerging economies, having one of the largest, most diversified and balanced growth pipelines in the mining industry, with around $100 billion in total projects.
Our project pipeline will allow us to increase production by more than 50 per cent by the end of 2014, by 75 per cent in the medium term, and 100 per cent in the longer term.
As you know, our largest strategic growth project is Minas-Rio in Brazil.
This is a high-quality Tier One iron ore asset. It has a large and expandable resource base, which currently stands at 5.8 billion tonnes.
At full production, the delivered cash cost to China will be around $45 to $50 a tonne. This is at the very low end of the cost curve.
And we are making good progress.
Earthworks at the beneficiation plant are 86 per cent complete. More than 94 per cent of land access has been secured along the pipeline, compared to 86 per cent a year ago. More than 200 kilometres – or 38 per cent – of the pipeline has been installed.
As to be expected, we are encountering environmental realities such as caves, while land access and permitting in an ever-changing regulatory environment, adds complexity.
Since the start of activities at Minas-Rio, we have experienced seven State legal interruptions relating to different environmental licences and permitting processes.
In March, work was suspended for three days on parts of the beneficiation plant, following a legal interruption on archaeological studies that had been carried out in the mine area.
In all cases, but one, activities were able to continue or were suspended for just a few days.
We are currently in discussions about another legal interruption notification on a power transmission line licence, and we are confident construction activity on the line will resume soon.
Added to these challenges are rising labour and construction costs in Brazil.
But we are overcoming these by implementing cost-reduction programmes, engaging proactively with permitting authorities and locking in labour costs to deliver first ore on ship in the second half of 2013 – within the 15 per cent capital increase we announced to the market.
We are also maintaining momentum on our next phase of growth, where in 2011 we got Board approval for six growth projects across six commodities.
These projects are in the right commodities, at the low end of the cost curve, offering attractive returns.
They include our five million tonnes a year Grosvenor export metallurgical coal project in Queensland, where we have also been awarded preferred respondent status for the development of a dedicated 30 million tonne export coal terminal at Abbot Point.
In the meantime, our eyes are fixed firmly on the next generation of Tier One assets.
Since 1999, our exploration team has made 15 major discoveries and received international recognition for Los Sulfatos in Chile and Sakatti in Finland.
Our discovery of copper, nickel and platinum group metals at Sakatti in northern Finland is a great example of our greenfield exploration expertise.
We are using innovative drilling technology to deliver value and reduce our environmental impact as we work towards defining the resource.
CHALLENGES
We do, however, have some other challenges.
They are challenges we are meeting with confidence and the full weight of Anglo American values of integrity, accountability, collaboration, and care and respect.
Above all, we are facing these challenges with the courage of our convictions in the knowledge that this company stands for the very best.
I will start with Codelco...
Adding to the comments Sir John made earlier, I wish to reaffirm that your company is ready to work with Codelco on a commercial solution.
We are open to sensible negotiations conducted in good faith, but we will not be moved from defending our very clear rights and protecting value for our shareholders.
This is how we do business − with integrity and a spirit of collaboration.
Codelco’s management knew what our alternatives were – we made them very clear on a regular basis − in terms of selling down our holdings to a third party prior to any valid exercise of the option, and it sought to prematurely exercise the option.
Unfortunately, it has not yet been possible to reach a settlement that takes account of Anglo American’s strong legal position.
Moving to Platinum...
Since 2007, we have made significant progress on the Platinum business, delivering improvements in safety, increasing production, containing costs and increasing productivity.
In 2011, operating profits increased to $890 million despite 81 safety stoppages at our own operations.
We have seen substantial improvement, and the returns have been in line with the rest of the industry.
However, these returns have declined in recent years and are not acceptable to us for the medium to long term.
The platinum industry faces significant challenges, including cost inflation, safety stoppages and lingering concerns over European demand.
As a result, we are embarking on a review to assess the optimal configuration of the Platinum portfolio.
We are doing this with a single purpose in mind – maximising shareholder value and returns through the cycle.
We expect to complete the review by the end of the year.
Turning to the Pebble project in Alaska...
I wish to welcome visitors and friends from Alaska who are with us today.
As you are aware, we are still developing a proposal for a mine plan to take to permitting.
So we have not yet even put preliminary plans on the table.
This is an early-stage project.
Nevertheless, we understand the environmental sensitivities.
That’s why Pebble has spent more than $120 million on a ground-breaking environmental study, something that to the best of our knowledge has never before done on such a scale for a project anywhere in the world.
The information we have gathered will be considered carefully in the process of defining what a project may look like.
So, as of today, no mine plan has been finalised.
Yet there are organisations in the United States, such as the Natural Resources Defense Council, that are distributing misinformation to thousands, if not millions, of Americans.
My 89-year-old mother, who is sitting in the audience, and lives in New Jersey, receives regularly personalised correspondence and pamphlets from the NRDC making outlandish claims, on the implications of a mine which has not even been defined, or submitted for review, by the rigorous permitting processes of the United States.
This correspondence claims that – and I quote:
“The mine would be absolutely huge in scale, with a gaping pit wide enough to line up nine of the world’s longest cruise ships, and deep enough to swallow the Empire State Building.”
And the reality is that salmon and mining can co-exist, and we see examples in Alaska such as Red Dog and Fort Knox, where mining and fishing do co-exist. Another example is in British Columbia, where the Fraser River had a record salmon count of 34 million in 2010.
This is a proven fact.
So Anglo American will approach the Pebble project as we do with all projects, with care for the people and the environment; with professionalism and integrity; and on the basis of rigorous science, not inflammatory rhetoric.
I ask people to consider the facts before wrongly misrepresenting the situation.
Silicosis...
I would like to add my own voice to that of the Chairman and express my personal sympathy and concern.
At the AGM last year, I informed shareholders that a proposal would be developed to provide appropriate medical treatment for those claimants who had instituted proceedings in South Africa against Anglo American, prior to the date of the proposal.
The cost of this treatment would be borne entirely by Anglo American, and the treatment would continue for as long as it took for the claims to be finally resolved in court.
The proposal was made and accepted.
Since then, Anglo American South Africa has worked with all parties and agreed on the best possible way to provide this medical care.
All 16 available claimants in South Africa have been examined and are receiving ongoing care, support and treatment.
WHAT SETS US APART
Our care for the health of our people and the development of the communities in which we operate sets us apart in the industry.
There are no better examples than our HIV/AIDS testing and treatment initiatives and our Zimele enterprise development programme.
Anglo American is a world leader in these areas and it is something we should all be proud of.
In 2011, more than 110,000 of our people were tested for HIV in South Africa alone.
More than 90 per cent of our employees in southern Africa participated in voluntary HIV counselling and testing. More than 60 per cent of HIV-positive employees in southern Africa participated in disease-management programmes.
And more than 4,500 employees received free anti-retroviral drugs.
In June last year, we pledged $3 million over three years to the UK Government-led Global Alliance for Vaccines and Immunisations. This is a public-private partnership that is increasing access to immunisation in the world’s poorest countries.
In January this year, I joined other world business leaders at the World Economic Forum, in Davos, to launch the Business Leadership Council for a Generation Born HIV-Free. This is a private-sector-led initiative that aims to end the transmission of HIV from mothers to children by the end of 2015.
Our Zimele enterprise development programme was the first mining initiative to be recognised by the United Nations’ Business Call to Action.
We committed to a job creation target in South Africa of 25,000 by 2015.
We have invested $78 million in more than 1,000 new small businesses that have already generated more than 19,500 jobs, largely outside of direct mining.
In total, around the world, we have created more than 47,000 new jobs as part of small enterprises.
More than 36 per cent of Zimele-supported businesses are run by female entrepreneurs, and more than 48 per cent are run by young people.
Five years ago there was only one Zimele main office in South Africa – today there are 31 enterprise development hub offices.
These are real jobs making a real and positive difference to local communities.
In addition to this, the fact that 66 per cent of our total operational water requirements are met by recycling or re-using water, and you can see and appreciate that our approach to sustainability is a key differentiator for Anglo American.
Sustainability is fundamental to the way we do business and is embedded in everything we do.
CLOSING REMARKS
In closing, I reiterate that the journey we embarked on five years ago to transform Anglo American into a performance driven company is delivering real value for you, our shareholders.
We have come a long way by transforming the safety culture; streamlining the organisational structure; bringing in people with the right skills; and capturing synergies and efficiencies across the Group.
We have done this while building relationships with stakeholders around the world – underpinned by a clear vision and strategy.
So, we continue on our journey and work through the challenges with determination and the courage of our convictions, while caring for people and protecting the environment.
Above all, we have world-class assets on which to build an even stronger future – and great people committed to making a difference.
This is what sets Anglo American apart and positions us well to deliver value for you – and prosperity for the communities in which we operate.
