Thank you Sir Mark, I should like to add my thanks to Tony Trahar for laying strong foundations for the next phase of our growth and development. I am particularly grateful to him for his willingness to share his experience and advice during the handover period.
I will not detain you with a lengthy review of 2006 since you have already seen the Annual Report and the Annual Review. I will, therefore:
- briefly highlight the financial headlines for the year;
- report on the progress made in delivering on our strategy;
- outline Anglo American's capacity for organic growth; and
- set–out some preliminary priorities for the early months of my tenure as your Chief Executive.
Financial Headlines
In 2006 we achieved an operating profit for the year of $9.8 billion – our highest ever recorded – on the back of increased production, strong commodity prices and some successes in containing costs at a time of exceptional cost pressures. Notably strong performances were recorded by Base Metals and Platinum and we achieved record production of platinum, copper, zinc and iron ore.
Underlying earnings were $5.5 billion with record EBITDA of $12.2 billion. The strong cash generation from our operations in 2006, as well as the proceeds from non–core disposals, enabled us to announce a $7.5 billion return of capital in the form of share buybacks and special dividends – one of the highest levels of capital returns in the industry. This was in addition to $1.4 billion in ordinary dividends paid in 2006 and a further $1.1 billion final dividend recommended in respect to 2006.
On the 21st February of this year we announced a further buyback of $3 billion, which commenced this month.
Delivering our Strategy
The strategy announced by the Board in October 2005 is to become a focused mining group and, in the process, simplify our structure and enhance returns for our shareholders. Although the achievement of some of our objectives has involved complex regulatory issues we have made good progress and I would expect us to pass some more significant milestones over the next few months.
Plans for a full demerger of Mondi are on track. Final approval has now been received from the regulatory authorities in South Africa for a Dual Listed Company Structure with primary listings in both Johannesburg and London. This structure reflects the fact that the majority of Mondi's business is in Europe whilst recognising Mondi's South African heritage and its significant ongoing operations there.
The Dual Listed Company will comprise Mondi Ltd, a South African incorporated company holding Mondi's South African assets, and Mondi plc, a UK incorporated company holding Mondi's non South African assets, together, Mondi Ltd and Mondi plc, will be known as the Mondi Group. The Mondi Group will be managed as a single enterprise and the Board of Directors and management team of Mondi plc and Mondi Ltd will be identical. Sir John Parker and Cyril Ramaphosa will become Joint Non–Executive Chairmen of the Mondi Group.
David Hathorn and Paul Hollingworth will continue as Chief Executive Officer and Chief Financial Officer, respectively, of the Mondi Group. The headquarters of the Mondi Group will be based in South Africa.
It is currently expected that demerger documentation will be sent to Anglo American shareholders in early June 2007. Subject to receiving shareholder approval, the demerger is expected to be effected during July 2007.
Last year we reduced our holding in AngloGold Ashanti from 51% to 42% and realised around $1 billion in the process. The decision to exit our gold holding is driven by the higher relative valuations attributable to pure–play gold companies, compared with how those assets are valued as part of a diversified mining group. We will continue to explore all options that will enable us to exit AngloGold Ashanti in an orderly manner over the next two years.
The unbundling of Tongaat–Hulett's aluminium business to shareholders and simultaneous introduction of broad based black economic empowerment into both Tongaat–Hulett and Hulett Aluminium will occur during the second quarter of 2007 – reducing our holdings in each of them to 38% and 39% respectively.
In July 2006, we disposed of the majority of our stake in Highveld Steel, with Russia's Evraz Group and Credit Suisse each acquiring 24.9% of Highveld's share capital for an aggregate consideration of $412 million. The European Union competition authorities gave their approval in February. Once the remaining regulatory approvals are received, Evraz has an option to purchase our remaining 29.2% shareholding in Highveld. This should realise a further $266 million.
A Platform for Growth
I should emphasise that the Board see these disposals, and the greater focus and coherence they create, as a foundation upon which aggressively to grow our remaining, core, businesses. We have one of the best project pipelines in the industry with some $7 billion in approved projects and a further $10 to $15 billion of potential projects under review, to underpin that growth.
During 2006 approval was given to the $1.2 billion Barro Alto project in Brazil, which will enable us to more than double our nickel production by 2011. Approval was also given to a number of new projects and expansions which will enable us to grow our platinum output at a compound growth rate of 5% a year.
Kumba Iron Ore's already approved projects will see their production rise by 40% by 2009 – and we have other iron ore expansion possibilities under consideration.
In Anglo Coal, our new Dawson mine in Australia is expected to attain design capacity later this year with the Lake Lindsay project coming on stream in 2008. In South Africa, work is well under way at Mafube and in Colombia, Cerrejon is planned to expand production from 28 million tonnes to 32 million tonnes by the end of next year.
Similarly, De Beers will be bringing Snap Lake in Canada into production later this year. Victor is scheduled to follow in 2008. Approval has been granted for two new diamond mining operations in South Africa.
We are, in addition, looking at opportunities in new countries. We have already established a strong presence in China where we hope to develop some significant investment opportunities, over the medium term, especially in coal and platinum. De Beers have re–entered Angola and the Democratic Republic of Congo. In addition to our Moscow and Beijing representative offices, Anglo American will shortly be opening new offices in India and the DRC.
Initial Impressions
Since joining the Board in January and taking over as Chief Executive in March, I have visited a representative selection of operations in South Africa, Chile, Colombia, Venezuela and Australia. I have been listening and learning. I have been impressed by much of what I have seen – from an excellent continuous improvement programme in Anglo Chile to ground–breaking community and HIV/AIDS programmes at our Goedehoop colliery in South Africa.
The Group has an exceptional asset base; a unique and enviable market position in platinum and diamonds; excellent growth prospects; employees of the highest quality and commitment; and a strong technical base. These are great strengths and we need to ensure that we are maximising the value that they can deliver. The Board appointed me, as an outsider, to act as a catalyst for change and I intend to live up to that challenge. We will work to improve operational efficiencies while bringing the organisation together globally. To complement our organic growth potential we will examine possible acquisitions – when the time and the prices are right.
I know you will not expect me to set out definitive plans at this stage. I thought, nonetheless, that I should indicate five early areas of focus: safety; streamlining decision–making; leveraging our scale; continuous improvement and knowledge sharing programmes; and improving our engagement with stakeholders.
Safety is the foremost responsibility of any employer and we will be relentless in working to improve our safety performance. Progress has been made but, even so, last year 44 people lost their lives in our operations. This is simply not acceptable. We will, therefore, build upon the work set in hand by Tony Trahar and the excellent framework of standards which were produced in 2005. I have made clear that effective management of safety will be a key requirement for those managers who wish to make progress within the company. We will be implementing the learnings from 20 safety peer reviews undertaken at site level last year and I am determined that we will be more effective in capturing lessons from safety incidents and near–misses and disseminating them. We will be convening a special meeting of our top 100 managers worldwide for a Safety Summit in June to ensure that there is consistency of approach.
I am introducing changes too to our corporate structures so as to up the tempo, reduce bureaucracy and enable faster decision making. I want to see managers more empowered – with clear objectives and stretching targets against which to deliver. I have already removed one layer of management and increased my own interface with the business unit management teams.
I intend to see faster progress in establishing shared services and in maximising our ability to leverage our scale in areas like procurement.
We have enormous potential, but there needs to be a greater sense of common purpose across our businesses. We will instil a more regular approach of sharing knowledge and ideas as central to the way the new Anglo American does business. That approach is taking root, with over 300 electronic collaborative groups already established and a new toolset to support innovation is being piloted for roll–out across the Group. I know too – because I have seen them – that we have practices that are clearly world class. We will work to achieve greater consistency across the company in applying these practices everywhere. And we will recognise and reward innovation and collaboration within and between our businesses.
Finally, the new style at Anglo American will be more engaged with the world around us. We are leaders in an industry which depends upon the goodwill of others to thrive. We must work more closely with our host governments and seek to understand and complement their policy priorities. We will get closer to our customers and suppliers to understand how to work better together. And we will seek to improve our contribution to development and our understanding of the concerns and priorities of the communities where we work.
Outlook
In closing, I believe that the strong global growth we are seeing will provide a supportive climate for our businesses in 2007. Stocks of most of the major metals remain relatively low and there remain significant constraints within parts of the supply chain. Thus the outlook is for metals to remain significantly above long term equilibrium levels.
This is my first AGM as Chief Executive – I look forward to leading our excellent team in tackling the challenges ahead.
