Cynthia Carroll, Chief Executive, Anglo American plc:
Thank you, Sir Mark, and I too would like to welcome you all here today. We announced our full year results for 2007 on 20th February and you will now have
also seen our Annual Report. I will therefore give you just a brief overview of our considerable achievements of 2007 and the outlook for the year ahead.
Financial headlines
As you have heard, Anglo American had a record financial performance in 2007. The Group reported a total operating profit of $10.1 billion and a record $5.8 billion of total Group underlying earnings. Several factors contributed to this; among them:
• Robust pricing in our core commodity segments, especially copper, platinum
and iron ore;
• Higher production levels; and
• Continued progress in driving cost savings, totalling $380 million for the year.
In addition to the increased level of the final dividend recommended by the Board, we are continuing with our announced $4 billion share-buyback programme, which will amount to a $14.5 billion capital return to shareholders since the beginning of 2006. We are also working to optimise our capital structure and seek to achieve our target gearing of 40% in the near term. This represents about $14 billion in net debt, which will support our substantial near- and medium-term growth plans.
Safety
I too would like to comment on the changes we have made in our approach to safety in the past year. 2007 marked a turning point in our approach to safety, in response to an unacceptable fatality performance across the Group. It had become clear that a gradual approach was not delivering the dramatic lowering of injury, and particularly fatality, rates that we were seeking. A step-change was needed. We therefore launched a series of initiatives to drive consistent safety messages and practices across our businesses. We held two safety summits in the year and have shown we are prepared to do what is necessary to meet this challenge head-on, by shutting down mine shafts where safety performance has not been up to our standards.
Although these are early days, we do appear to be making progress. A dreadful first half saw 29 people lose their lives at our operations, but during the second six months the fatality figure reduced to 11. In September, we achieved a fatality-free month – so we know it can be done. It is very encouraging to be able to report that in 2008 our fatality frequency rate has continued on its downward path, while there are also indications that the lost-time injury frequency rate, which had reached something of a plateau, is also turning down. We expect to build upon this progress this year and beyond, and I continue to believe strongly that optimally run businesses have good safety records.
Sustainable development
In the area of sustainable development, we are looking at how we can stretch our contribution to the fullest through partnership with others. For example, our SEAT community-engagement toolbox, now in its more demanding second phase, is being accorded ever-wider international recognition. In 2008, we have also introduced new policy frameworks for safety, health and the environment, and are making headway with strategic work on water and energy efficiency. We will be reviewing our performance and setting new targets as a result. Increased transparency, higher performance standards and attracting and retaining skills
are essential to achieving against these ever more challenging targets. The global climate is changing and, with it, an increased likelihood of impact on our operations and increased tensions around water. It is now urgent and evident that it must be a consideration in everything we do. We operate in some of the world's most arid areas – in Chile, in Australia, in the western regions of southern Africa. Increasingly we must compete for water resources and account for the full social and environmental costs. To do so successfully means we must be technically innovative and contribute to wider environmental and social solutions.
Examples include a water treatment plant at eMalahleni and a wetlands conservation area near Isibonelo, both coal mines in South Africa and mist traps to harvest water for the community surrounding our Mantos Blancos copper mine in Chile. At Emalahleni, the plant, which processes water from underground collieries, will generate a water recovery exceeding 99%, while the Los Bronces expansion will reduce the use of fresh water by 40% per tonne of copper produced. Everyone is well aware that our industry is enjoying a prolonged period of strong growth and sustained demand for our products. One of the challenges of this environment is a shortage of skilled labour, something we are addressing by highlighting the importance of diversity within our Group. Most notably, this includes the emphasis we are placing on attracting, retaining and rewarding women, who are still represented in only modest numbers. In 2007, women represented 15.3 per cent of our management numbers and we are aiming to continue to increase the proportion of women across the businesses and throughout the ranks. Achieving such diversity is key to our success.
Progress on strategic objectives
In relation to our strategy, we made good progress in 2007 in becoming a leading focused mining company. To achieve this goal of focusing on our three core
commodity groupings – precious, base metals and bulk – further steps in the Group's restructuring were completed successfully during the year. The Company disposed of its remaining 29% holding in Highveld Steel in May and Hulamin was unbundled from Tongaat-Hulett in June. Mondi, the paper and packaging business, was demerged in July and, in line with the intention to ultimately exit AngloGold Ashanti, we reduced our holding from 41.6% to 16.6% by the year end,realising in excess of $2.9 billion. The decision was also taken to sell Tarmac, the construction materials business. Tarmac had a very strong operational performance in 2007, with a number of its business improvement initiatives starting to make a significant impact. However, we have decided not to launch the marketing phase of the sale process until credit market conditions improve. Tarmac continues to be managed to maximise shareholder value and this includes active reviews of its portfolio. We are bringing greater rigour to Anglo American's operating platform by introducing a value based management (VBM) methodology in all business units. A pilot project has been completed in Anglo Coal and VBM is now being rolled out into all of the businesses. In addition, an asset optimisation initiative will maximise operational efficiencies at site level and allow benchmarking of performance and the spread of best practices.
We have recently completed a comprehensive review to determine the best approach for delivering key business-support functions. This has led to the establishment of three shared-services centres, providing common accounting and employee services,located in existing offices in Asia-Pacific, South America and South Africa. During the year, we also launched a centralised procurement programme to leverage the benefits of operating on a worldwide scale. Initial projections point to the Group achieving around a billion dollars of procurement and shared-services savings in the next three years.
Improved government relations
2007 marked a shift in our relations with governments. For example, in South Africa, we took bold steps to try to dramatically raise our overall safety performance, at a significant sacrifice to production. We also showed our willingness to work with government agencies in addressing the HIV/AIDS epidemic, while in 2008 we have provided management expertise in helping tackle the country's power-supply problems. The company also made significant progress during 2007 in meeting the transformation requirements in respect of employment equity and black economic empowerment in terms of the South African Mining Charter – culminating in groundbreaking equity participation arrangements in Anglo Platinum's assets. These are just some of the moves that are yielding benefits for our Group. I would also like to think that it was not just coincidental that in February we were able to announce that we were to be awarded new order mining rights for all of Anglo American's mining operations in South Africa. We have made substantial progress in recent weeks and expect to be able to finalise the conversions shortly. This provides greater certainty for our businesses and will enable the Group to continue to make a strong contribution to the country's prosperity and economic growth. Furthermore, in Chile, our enterprise-development programme, based on our highly successful Anglo Zimele small-business development model in South Africa, was recognised through the award of one of only seven medals issued by the Chilean government to commemorate the country's bicentenary.
Project expertise driving profitable growth In terms of projects, Anglo American has one of the strongest and highest quality pipelines in the entire mining sector. Over the past year, this doubled to more than $40 billion. Our Base Metals, Iron Ore, Coal and Platinum businesses each have project pipelines of $5 billion or higher. In the near term, we have $12 billion in approved projects and have around $30 billion in projects under consideration, with nearly half in the attractive base metals market and a quarter in seaborne iron ore. We are making excellent progress with the development of our projects – just to give
you a few examples, in November we announced the $1.7bn expansion of Los Bronces copper project in Chile which, on completion in 2011, will increase production by an average of 170,000 tpa, making Los Bronces one of the 10 largest copper mines in the world. The $1.5 billion Barro Alto nickel project in Brazil is also making good progress and is also due to come fully on stream in 2011, taking our total attributable nickel production to 100,000 tonnes a year. And in platinum, the $692 million PPRust North expansion project is expected to reach full capacity in 2009, when it will mill an additional 600,000 tonnes of ore per month.
Over the next 5 to 10 years, our project pipeline has the potential to increase Anglo's share in all of our core market segments. Moreover, we are now exploring for minerals in 25 countries around the globe, and we will continue to drive our exploration efforts to further enrich our organic growth pipeline.
Acquisitions to fuel further growth
During 2007, Anglo American was active in identifying and successfully acquiring major new projects in countries where we have an existing presence and in new geographies, as well as opening new offices in India and the Democratic Republic of Congo, further expanding our geographic footprint. The acquisition of a 49% stake in the Minas-Rio iron ore project in Brazil is helping to build critical mass for our Group in an extremely consolidated industry, with high barriers to entry and where we are a relatively new entrant. This shareholding and the recent announcement that we have acquired control of Minas-Rio and the Amapá iron ore mine, together with the expansions at Kumba in South Africa, could result in the Group's attributable iron ore production rising to 150 million tonnes a year and securing around 10% of the high margin seaborne iron ore trade by 2017. Similarly in copper, the acquisition of Michiquillay in Peru and the purchase of a 50% stake in the Pebble copper project in Alaska, combined with expansions in Chile at Los Bronces and Collahuasi, could see
the Group's attributable copper production rising to around 1.6 million tonnes a year by 2016.
We also formed an exciting strategic partnership with China Development Bank to jointly identify and develop mining projects in China, Africa and elsewhere. This marks a positive and differentiating feature of Anglo's engagement with China. As for the M&A activity in the sector, I have been asked many times in the last several months about how Anglo sees itself in an environment of industry consolidation. Well, I can tell you that we are not sitting idle. We are being fleet-footed and are expediting our project pipeline in order to capitalise on the attractive near- and longer-term pricing environment. And we continue to make targeted, value-enhancing acquisitions that are complementary to our existing portfolio and in line with our growth strategy as a focused mining company. We will pursue all acquisitive growth opportunities that we believe make sense for Anglo, and we are working to ensure that we are maximising Anglo's value to our shareholders.
Outlook
Turning to the outlook, we remain very positive on copper, bulk commodities, especially iron ore and metallurgical coal, and for platinum group metals. Over the next 10 years, we anticipate strong demand growth of 4 to 5% compounded annually for most key commodities – driven mainly by China, as well as by India and other developing countries. This is likely to be bolstered by higher than historical real prices, tight supply and robust demand growth. Tempering that, however, is the continuation of high cost inputs in the form of energy, fuel and consumables, combined with rising capital costs and critical staff shortages. Added to these, there are problems relating to assurance of electricity supply – most critically in South Africa, where we are working with Eskom and the government to implement solutions – but also potentially in Chile and Brazil.
Conclusion
In conclusion, we are looking beyond the recent significant restructuring with a focus on driving value through both performance optimisation and growth. In addition, we are continuing to strengthen and refocus the management team, with the recent appointments of Ian Cockerill from Gold Fields to become CEO of Anglo Coal, Kuseni Dlamini as Head of Anglo South Africa and Russell King as Chief Strategy Officer. Anglo American is strongly positioned with our unique portfolio of assets. We have the best resources in the world in platinum, while De Beers remains the paramount name in diamonds. We are building strong positions in base metals, iron ore and coal – with all businesses poised to deliver significant value creation from existing operations and expansion projects, complemented by M&A. Our mines have among the longest lives in the industry, and our overall cost position continues to improve. And, not to be biased...I think we have amongst the best people in the world with diverse backgrounds and deep expertise. Their ability to deal at times with unforeseen developments is second to none. By bringing the Group together under one umbrella and creating a 'One Anglo' culture, we are extracting the maximum value from each and every part of the business.
These are truly exciting times for Anglo American and for our sector and I look forward to another successful year.
Thank you.
