Sir John Parker, Chairman, Anglo American plc:
Good afternoon, everyone. Many of you, I know, have travelled a long way. I also see that we have here with us today interest groups from as far afield as Alaska and South Africa. May I extend a warm welcome to you all.
GOVERNANCE
In opening my address this morning, I should like to say a few words about the governance of your company and what your Board has been doing to promote the long-term success of the company for all of its stakeholders.
The Board owns the strategy and its role encompasses the establishment, review and monitoring of strategic objectives. This includes taking a balanced and disciplined approach to capital management; the approval of major acquisitions, disposals and capital expenditure; and overseeing the company’s systems of governance, internal control and risk management. It is also part of the Board’s remit to approve business plans, budgets and all material expenditure.
But to do its job properly, any board has to have an appropriate set of skills and experience to challenge and stress-test its company’s strategy. Since I became your Chairman some two and a half years ago, I have endeavoured, therefore, to ensure that your Board is a strong and influential one, while being reflective of a constantly changing business environment.
In terms of enhancing the Board’s contribution to our affairs, during the year Anglo American’s directors and the company’s most senior executives participated in an internal strategy forum spanning nearly two days. I also reported back to the Board on its performance against the objectives set in an internally facilitated Board-effectiveness review conducted the previous year. In addition, I commissioned an external effectiveness review of the Board and its various committees; the results of that review will be detailed in the 2012 annual report.
At the AGM in 2011, the Board also became an ‘early mover’ in adopting the idea of annual reelection of directors as part of our commitment to setting the tone of the company’s governance from the very top. We also reiterated our objective to increase the representation of women on the Board from 20 per cent to 30 per cent by 2013 (excluding the chairman).
I should like to thank all the members of the Board team collectively for their contribution to Board debates, as well as those individuals who are doing such sterling service on the Board’s important committees.
OUR PEOPLE
I would also like to pay tribute to Cynthia Carroll and her management team. Cynthia, as many of you know by now, is a leader who works tirelessly in executing the Group’s strategy. She has assembled an impressive executive team around her that I believe is best in class over a range of fields from exploration to mining engineering and environmental engineering, backed up by a highly skilled workforce.
SAFETY
Turning to some of the most important developments in our business over the past 12 months... Not surprisingly, I will start with Safety, because that remains our No. 1 agenda item. Most regrettably, the significant improvement in our safety performance over the previous four years was not maintained in 2011. The number of people who lost their lives while on company business increased to 17 from 15 the previous year − though that compares with 40 five years ago − while there was an accompanying levelling-out in our injury rate.
In light of this, we are redoubling our efforts to seek solutions, particularly at site level. The Board fully supports Cynthia in her drive to bring about real and lasting change in the way in which we approach safety − only by changing people’s mindsets, and fostering a climate of openness, will we start to make lasting improvements and further progress towards our ultimate goal of zero harm Group-wide.
PERFORMANCE AND DIVIDEND
2011 was characterised by difficult conditions for many mining company operations around the world, and across the industry. In the early months, our Australian operations (and, to a somewhat lesser extent, those in Chile and South Africa) experienced exceptional flood conditions. Indeed, I saw the devastation for myself in Australia. Throughout the year, too, the effects of various operational difficulties were compounded by ongoing pressure on unit costs resulting from lower grade profiles and higher-than-inflation cost inputs, while in the second half we were confronted by a more uncertain macro-economic landscape.
Against this background, Anglo American recorded a sound set of financial and operational results. Operating profit rose by 14 per cent to a record $11.1 billion from $9.8 billion in 2010. The Board has proposed a final dividend of 46 cents per share, giving a total dividend for the year of 74 cents, a 14% increase, and at the higher end of market expectations.
DELIVERING ON OUR GROWTH PROJECTS
It is very satisfying to report that in 2011 Anglo American commissioned no fewer than three major new mining operations, all of them on or ahead of schedule and in the lower half of the cost curve – an extraordinary achievement in an industry that is often criticised for its shortcomings in the project-delivery field. I have great confidence in the engineering and project-delivery ability of Anglo American.
The Barro Alto nickel project in Brazil came on stream in March, the Los Bronces copper expansion in Chile was commissioned in October and the Kolomela iron ore mine in South Africa shipped its first ore in December, five months ahead of schedule.
DELIVERING VALUE
We also continue to keep a close eye on value-enhancing M&A opportunities. A key development during the year was our announcing our intention to acquire the Oppenheimer family's interest in De Beers. This is a unique opportunity to gain control of the world’s most famous diamond company – and its unsurpassed assets. As you know, in early January 2012, our shareholders voted overwhelmingly to approve the transaction, and we expect closure of the deal sometime in the second half of this year.
Shortly afterwards, we announced a major value-enhancing divestment with the sale of a 24.5 per cent interest in Anglo American Sur (AAS) in Chile to Mitsubishi for $5.4 billion. AAS, which includes the Los Bronces and El Soldado mines and the Chagres smelter, is a world-class copper business with extensive reserves and resources, and significant growth potential. The transaction enabled us to realise an attractive valuation for a minority stake in AAS, valuing 100 per cent of AAS at $22 billion – almost double that of analysts’ valuations.
The decision by the Board to sell a 24.5 per cent stake in AAS was considered with the utmost care. We have acted to deliver very significant value to our shareholders, in full compliance with what is a very clear legal contract between ourselves and the Chilean state-owned copper producer, Codelco. We have also made it clear, from the outset, that we are wholly amenable to working with Codelco to find a commercial solution for the benefit of Codelco and for Chile, though such a solution must recognise our rights within the contract.
Anglo American has invested $6.5 billion in Chile over the past 30 years, and has paid more than $6 billion in taxes in the last five years alone, reflecting the strength of our relationship with the Chilean government, while our future investment plans for the country are also very considerable. Anglo American represents the very best standards and practices in our industry; we are an approachable company, but we stand up for what is right by our shareholders.
Turning to another matter... Even though our Platinum business is performing in line with the rest of the platinum industry, we recognise that the current level of returns is not acceptable to our investors. With the full support of the Board, therefore, Cynthia and her team are carrying out a top-to-bottom review to ensure that the business is configured optimally to deliver value in
the long term.
A CHANGING LANDSCAPE
As the Chairman of a leading global mining company, I am often asked these days about the risks posed by the upwelling of resource nationalism. Certainly it is the case that countries are becoming far more aware, and protective, of the value of their mineral inheritance. Developing nations and developed economies alike are seeking to increase their share of the mining cake through a range of means, from establishing joint ventures with mining companies, to windfall taxes and increased royalties, and even in some cases threatening to push matters to the point of nationalisation of mining assets.
At the same time, the growing demand for metals and minerals means that mining companies are exploring in regions beyond their traditional mining jurisdictions, with all their attendant climatic, infrastructural, logistical, security and other challenges. This inevitably presents a heightened degree of risk and may be accompanied by political instability in some countries where good governance is still developing.
STAKEHOLDER ENGAGEMENT AND SUSTAINABLE DEVELOPMENT
But where there is risk, there is generally opportunity – and it is the duty of the Board and management to seek out and unlock such opportunity. I believe the best way to do that is to always conduct ourselves to the highest standards of corporate conduct and to build strong links across the wide stakeholder spectrum.
In our own Group, our leadership in the social and sustainable development arena has been recognised once again by Business in the Community recently awarding Anglo American a platinum ranking in its 2012 Corporate Responsibility Index – the UK’s leading voluntary benchmark of corporate responsibility. We are the only mining company to secure platinum status – and we have now done so for three years running, which is a great reflection on our people.
In recognising our responsibilities to all shades of stakeholders, we always need to bear in mind that there are important constituencies who may not be directly invested in companies such as Anglo American, but who are nevertheless influential stakeholders. They perform an important role, for example, in keeping up the pressure on our industry to act in a transparent and responsible manner, in examining the feasibility of ethical accreditation in respect of the origin of minerals and metals and, more generally, monitoring what companies such as Anglo American are doing on a wider, sustainable development canvas.
Our own long-held view on sustainable development is that, as a leading international player in the extractives industry, we should take a proactive approach, and that we should seek to take the lead in the key sustainability issues facing our industry.
But how does such an approach play out in practice?
Take the issue of water – a serious one for Anglo American because more than 80 per cent of our operations are in water-stressed regions. The need to use water wisely and efficiently has led us to establish a new Group technical standard for water management, while an important focus in 2011 was the implementation of our new Water Efficiency Target Tool across every single business unit. Current major water projects include building a desalination plant at Mantoverde copper mine in Chile and, in South Africa, doubling the capacity of the eMalahleni water treatment plant on the Witbank coalfield and bringing an assured supply of potable water for the first time to nearly two million people who neighbour one of our Eastern Limb platinum mines.
In the long run, climate change may well become a major issue for the mining industry, and Anglo American seeks to play its part in helping address its causes and mitigating its effects. We are an active and vocal participant in the debate that is taking place on a global, national and local level, and we are engaging with governments and other key stakeholders to develop equitable and effective climate-change policies, and to enable our communities to access clean energy. At a grassroots level, we are investing in clean coal research and development projects in Australia, South Africa and the US, and we are assisting in funding a private-public partnership to develop a fuel cells industry in South Africa.
With regard to carbon abatement, we support government actions to put in place policies that lead to a long-term price on carbon – but we want to see this done in full consultation with stakeholders, from a solid fact base and over a realistic timeframe, so that it does not jeopardise jobs, industry competitiveness, or social and economic development.
PEBBLE
I would like to turn now to say something about the Pebble copper project in Alaska … and I extend a warm welcome to those of you who have travelled from Alaska, including the Pebble Partnership’s CEO John Shively, who is an Alaskan. I appreciate that here today we may have both critics and supporters of the Pebble project, as well as those who have not yet made up their minds but do support the project’s right to be allowed to go through the permitting process. We are fully aware that there is a range of concerns over the project − we have an Alaskan management team at Pebble who understand this better than anyone. I would like to stress that it is our hope that all interested parties participate in what will be a very extensive dialogue and long drawn-out permitting process, and to base their opinions and decisions on the facts.
SILICOSIS
I believe we may have amongst us people representing former miners who claim to have contracted silicosis as a result of working in South Africa’s gold mines. Anglo American is very sympathetic to the claimants’ situation – but, more than that, we are doing something about it for those individuals whose claims in South Africa have taken so long to be resolved. As the Chairman of Anglo American, I want to assure you that progress is being made in alleviating those claimants’ plight – as Cynthia will tell you in a few minutes.
We have listened, and we have acted.
ECONOMIC OUTLOOK
Finally, turning to the economic outlook... In 2011, there was a distinct slowdown in the major emerging economies, alongside continuing fragility in the US and Europe. Thankfully, decisive policy response from the world’s central banks has helped to stabilise financial markets and the broader economy. In the US, there are encouraging signs that the economy is finally shrugging off the effects of the financial crisis. In Europe, policymakers have headed off extreme downside risks, though some sizeable structural problems remain in many economies.
In China, the economy has slowed in response to earlier policy restraints on the housing market. With growing evidence of a much-needed adjustment, there is scope for some selective policy easing to cushion the economy. In the medium to long term, China and India will continue to benefit from technological and productivity catch-up, driving sustained strong growth. Rising living standards and a growing middle class should drive more demand for industrial commodities. In addition, The US should overcome its recent difficulties, with a resumption of healthier long-term growth rates as positive trends in demographics and productivity reassert themselves.
