Cynthia Carroll, Chief Executive, Anglo American plc:
Thank you, Sir Mark – I too would like to welcome all of
you here today.
You will all by now have seen our results which we announced in
February and our annual report, so I do not intend to dwell on our
2008 performance. 2008 saw a year of solid results for the Group,
with particularly strong performances from coal, especially in
Australia, iron ore and manganese. This year, in contrast, will be
very different, against the background of the downturn in commodity
prices and demand that began during the second half of last
year.
I would first like to focus on the series of measures we have
taken both to weather the current market conditions and to position
Anglo American optimally for the upturn in the cycle.
I will also talk about the progress we are making with the
development of our pipeline of world class strategic growth
projects as we invest through the cycle in readiness for economic
recovery and long term value creation. I will then look at the
tremendous progress we are making with our safety practices and
some of the awards we have received for our leadership in the field
of sustainable development, before concluding with the outlook.
We have taken decisive action to position Anglo both financially
and operationally on the basis of our outlook for the economic
conditions that we will face, while preserving our significant
growth options.
Capital expenditure – we have reduced capital expenditure
by more than 50% to $4.5 billion. But I want to emphasise that we
have preserved our major strategic projects. We have reduced capex
to a level which ensures their continued development, without
jeopardising their investment cases. I will say more about these
projects in a few moments.
Production cutbacks – we have scaled back production
growth in line with anticipated reduced demand, particularly for
platinum, metallurgical coal and diamonds.
Headcount – we are in the process of reducing our
headcount worldwide by some 19,000 people. This is a big number
– it is a global figure, encompassing all our businesses, as
well as the corporate offices. The bulk of it is accounted for by a
downsizing in contractor numbers in line with our revised
production and project plans, supplemented by natural
attrition.
Further disposals of non-core assets – we have continued
with our programme of disposing of assets that are not core to the
future of Anglo. Just last month marked our exit from our
investment in AngloGold Ashanti as we maximised the value of that
holding by selling at a strong price. Since the start of this year
we have realised proceeds in excess of $1.7 billion from the sale
of that residual shareholding, thereby reducing the Group’s
net debt position. During 2008, we disposed of the Group’s
investment in China Shenhua Energy, Tarmac Iberia, Namakwa Sands
and a 26% interest in both Black Mountain and Gamsberg, generating
total proceeds in excess of $1.2 billion.
Suspension of dividend – our decision to suspend dividend
payments was a difficult one. Notwithstanding the measures we had
taken to safeguard the flexibility of our balance sheet in order to
preserve the Group’s growth options, the Board felt that the
dividend should be suspended. I am fully aware of the pain this can
cause to our shareholders, but I firmly believe that it is in the
long term interests of the company that we preserve cash at this
time and ensure that we are well positioned to emerge from this
downturn.
Liquidity – finally, in terms of liquidity, you will also
have seen that just two weeks ago we launched a highly successful
$2 billion bond, for which there was extremely strong demand from
investors in both North America and Europe. Also since we reported
our full year results, we have secured a $1 billion loan from the
Brazilian development bank, BNDES, for the Minas-Rio iron ore
project in Brazil.
This series of measures taken over the last few months provides
us with enhanced financial flexibility and we are therefore
strongly positioned for the long term to deliver significant
shareholder value through our existing operations and our well
funded growth pipeline.
Anglo American’s world-class strategic growth
prospects
I have talked about the importance of continuing the development
of our key strategic growth projects, albeit on revised schedules.
Anglo American has one of the strongest and highest quality project
pipelines in world mining, focused on the most attractive commodity
segments of seaborne iron ore, copper and nickel, with projects
approved or already under way totalling some $16 billion. These
projects are a key driver of future value creation for you, our
shareholders.
All of our projects – including the ‘Big 3’
of Minas-Rio in iron ore, the Los Bronces expansion in copper and
Barro Alto in nickel – are extremely well placed on their
industry cost curves.
Our projects have the great benefits of large scale and long
life: an average life of more than 40 years, against an industry
average of well under half that.
Finally, many of our projects are structured in such a way as
to provide us with a high degree of optionality in terms of
development and payment timing, giving the Group the breadth and
flexibility to adjust quickly to changes in demand.
As I have said, we are continuing to invest in and develop our
strategic growth projects through the cycle and I will now spend a
few moments on each of our three largest projects.
Minas-Rio – firstly, Minas-Rio, our world
class iron ore project in Brazil. The project is a large scale, low
cost asset in the highly attractive seaborne iron ore segment and
it benefits from an integrated logistics system, namely a pipeline
to transport the iron ore in slurry form from the mine to a port
that we are building with our partners at Açu. This was a
unique opportunity to acquire a tier 1 iron ore asset in terms of
scale, cost and quality in an industry that is highly consolidated,
with formidable barriers to entry. When the first phase begins
production in the first half of 2012, it is expected to be in the
first quartile of the iron ore cost curve and will be highly
competitive in terms of product quality. As an example of how we
have expanded the potential of this asset, the resource base was
originally estimated at around 300 million tonnes. Anglo’s
technical teams have now revised that to more than 1 billion
tonnes, with potential of up to 7 billion tonnes. This is simply an
enormous, high quality asset and it will play a significant role in
the future growth of your company.
Barro Alto – secondly, Barro Alto, our
36,000 tonnes per annum nickel project, also in Brazil. Again, this
is a large scale, low cost, long life project that is expected to
have cash costs in the lower half of the nickel industry cost
curve. When Barro Alto reaches full production in 2012, it will
more than double Anglo American’s current nickel
production.
Los Bronces – thirdly, we have Los
Bronces, our existing 236,000 tonnes per annum copper mine in
Chile, which we are in the process of expanding. Production from
Los Bronces in the first 10 years of operation of the project will
increase by more than by 170,000 tonnes per annum, a 70% increase
over current production levels, making it the world’s 6th
largest copper mine. The Los Bronces mine is already in the first
quartile in terms of its costs relative to the copper industry and,
when the production from the expansion comes on stream at the end
of 2011, the increase in cost-advantaged production will further
enhance Anglo American’s overall position on the cost
curve.
These three projects are perfect examples of the quality of
operations and projects in our portfolio; low cost, long life, in
the right commodities and in countries we know well – and
which will enable us to leverage our highly valuable relationships
with host governments and other local stakeholders.
Delivering operational excellence
Turning for a moment to the excellent progress we have made to
uplift our performance across the existing operations: our three
cost saving and efficiency initiatives that we started to put in
place almost two years ago – before the onset of the current
downturn – are already making an important contribution to
our financial and operating performance.
The asset optimisation programme has been rolled out across the
Group and is expected to contribute $1 billion to operating profit
by 2011. This global programme is driving greater operational
efficiencies to achieve best in class performance as we continue to
drive down costs at our operations, placing Anglo in an ever more
robust position to withstand periods of low commodity prices.
In addition, our global procurement and shared-services
initiatives have already delivered an initial $200 million of
savings in 2008 and are on track to achieve savings of $1 billion,
also by 2011.
Safety
In terms of safety, 2008 was a much-improved year for Anglo
American: the number of fatal incidents in the workplace reduced
from 40 the previous year to 27, while our lost-time injury, or
LTI, frequency rate declined by 17 per cent.
This level of fatal injuries – even in an industry with
all the hazards of deep-level mining – remains unacceptable,
but the figures continue to trend downwards in our ultimate pursuit
of ‘zero harm’.
Just to take three examples: during 2008, Kumba Iron Ore roughly
halved its LTI frequency rate, our Australian coal operations
lowered their LTI frequency rate by 40%, while Anglo
Platinum’s Union Mine achieved 6 million fatality-free
shifts. I am pleased to say that our overall LTI performance in the
first three months of this year has also continued to trend in the
right direction.
In 2008, Anglo American was the key driver behind the Tripartite
Safety Summit in South Africa, which brought together
representatives from government, the trades unions and the mining
industry to seek ways to bring about a sustained improvement in
safety performance in the country’s mining industry.
While it would be simplistic to attribute the safety progress
that is being made to the summit, it is most encouraging to see
that the number of people who lost their lives in the South African
mining industry declined by almost a quarter in 2008 in comparison
with 2007.
Sustainable development
In the wider developmental context, a key message I wish to
convey is that Anglo American continues to progress its sustainable
development agenda. Sustainable development is embedded into our
culture and is integral to the way we do business.
In this respect, I should like to refer to a number of awards we
have received recently that signal our intention to continue to
exert leadership in our sector:
At the inaugural Commonwealth Business Council-Africa Business
Awards, held in London in July, we were judged the leader in 3
categories: best international business in Africa; biggest
contribution to the Millennium Development Goals; and gender
sensitivity;
In Chile, our Emerge small business initiative achieved
recognition once again for its contribution to community
development when it was awarded the Chilean-North American Chamber
of Commerce’s Good Corporate Citizenship prize in October
– following the achievement of the Presidential Bicentennial
Award the previous year;
Anglo Platinum received two top honours at the annual Ernst
& Young Excellence in Sustainability Reporting Awards for
2008.
In Brazil, Base Metals won top prize in the country’s
environmental benchmark awards in 2008 for its socio-environmental
projects within various communities surrounding its
operations;
Here in the UK, Tarmac was awarded the Wildlife Trust’s
Biodiversity Benchmark for the work undertaken at all seven of its
active Northumberland quarries – the largest number of sites
ever recognised for combined excellence; and
In South Africa, Our Chairman’s Fund was voted the best
corporate grantmaker in the Trialogue CSI Handbook survey for the
eighth consecutive year. That is some achievement.
Outlook
In summary, commodity markets have experienced a turbulent six
months, though prices for most commodities appear to have
stabilised more recently. Indeed, there are even signs of some
improvement, most notably in the copper price that has increased by
more than 50% from its low point reached in December. The platinum
price has also improved, moving up above $1,200 per ounce from its
lows of below $800 in October 2008, following strengthening
investment demand from exchange traded funds and supportive
incentive schemes for the purchase of new cars in Germany and
France.
Looking forward, we are confident that the medium- to long-term
fundamentals are firmly in place for strong commodity demand
growth.
We see significant value to be created by the Group’s
long-life, low-cost growth projects, several of which are well
timed to enter production in 2011, and our continued success at
driving down our operating costs will further strengthen our
competitive position through the cycle.
On the demand side, the economic recovery of the OECD member
countries and the ongoing industrialisation of the major developing
markets are expected to drive long-term demand for commodities,
stimulated by government spending programmes in many major
economies, including the US and China.
Furthermore, let us not forget the effect of the downturn on
many of the mining industry’s junior players and the
resulting impact on exploration activity, in addition to the
abandonment or delays to many major greenfield projects across some
of the more established players.
When the cycle turns, supply of many commodities is likely to be
severely constrained. By preserving our key growth projects,
uplifting the performance of our existing operations and continuing
to drive down costs, Anglo is well placed to reap the rewards of
that upswing.
Thank you.
