Delivering change, Building Resilience

Foundations for the Future

In 2016, we articulated our objective of creating a more resilient business. We set out a number of clear, short and longer term targets to enable us to deliver and we have met those that were identified for delivery in 2016.

We are well advanced towards meeting our objective of building the resilience that will ensure the sustainable creation of value for all our stakeholders – building the foundations for the future.

In this Annual Reporting centre, you can discover the highlights of our 2016 performance, download all of our reports and build your own report bundle.

At a glance

During a year of continued slow economic recovery globally, we have staged a sector-leading recovery to become the FTSE 100’s top performer in 2016.

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Our business at a glance

Our business model

Governance

Remuneration

Focus the portfolio

Here, we look at how our portfolio choices have been driven by asset quality and resource potential.

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Overview

Financial

Drive consistent delivery

As global economic and political uncertainty continues and commodity prices remain generally volatile, it is important to keep on driving improvements through our business.

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Overview

Production

Cost

Develop core business processes

Our core business processes refer to the fundamentals of our work across our entire value chain – from exploration and discovery to delivering our products to our customers.

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Overview

Environmental

Socio-political

Create a high performance culture

We foster a high performance culture through resourcing the Group with capable people and designing reward structures that differentiate performance without compromising our values or the health and safety of our employees.

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Overview

Safety and health

People

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Our business at a glance

We are a globally diversified business with a diverse portfolio of world-class assets. As a responsible miner – of diamonds (through De Beers), platinum and other precious metals, copper, nickel, iron ore and coal – we are the custodians of what are precious natural resources. We work together with our global key partners and stakeholders to unlock the long-term value that those resources represent for our shareholders and for the communities and countries in which we operate – creating sustainable value.

Net debt reduced

Driven by $2.6 billion attributable free cash flow and asset disposals

$8.5 billion

Our portfolio of world-class competitive mining operations and undeveloped resources provides the raw materials to meet the growing consumer driven demands of the world’s developed and maturing economies.

Our business model

Discover how, as a business, we have responded to external pressures as global economic and political uncertainties prevail. The mining industry continues to face considerable external pressures as global economic and political uncertainties prevail. We responded decisively by sustainably improving cash flow generation, materially strengthening our balance sheet through selective asset disposals and actively managing our diversified portfolio to focus on our differentiated asset and product mix.

Cost and volume improvements

achieved in 2016

$1.5 billion

We draw upon a number of key value inputs from both our central expertise and the operating businesses that, through expert allocation, development, extraction and marketing, create sustainable value for our shareholders and our diverse range of stakeholders.

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Governance

We continually work to maintain and develop the framework for good governance.

Our Board has directors from Australia, France, Ireland, Lesotho, the UK, and the USA, with a broad range of professional experience

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The role of the board

The Board is collectively responsible for the governance of the Company and this role is particularly important when the Company finds itself under stress and operating in difficult economic conditions. At times such as this, shareholders and other stakeholders expect the Board to respond effectively and appropriately and to take the actions necessary to ensure and safeguard the Company’s long term success.

Board characteristics

Board experience and diversity

In addition to the chairman, chief executive and senior independent director, the Board currently comprises a further two executive directors and five additional independent non-executive directors, making a total of 10 directors.

In 2016, two non-executive directors resigned, and one of these resignations (that of Judy Dlamini at the end of August) resulted in the Board’s composition falling below the Davies Report target of 25% female membership. Recruitment processes have been under way since late 2016 resulting in the nomination of an additional female director for shareholders to vote on at the AGM in April. This appointment will ensure that the Board returns to having at least 25% female membership and retains two ethnically diverse directors. A separate process is targeting the recruitment of a non-executive director with project management and large construction skills alongside significant mining experience to further strengthen our Board.

In respect of other measures of diversity, the Board has directors from across the world with a broad range of professional experience as set out in the table below.

In 2017, René Médori will retire from the Board and as finance director. Stephen Pearce is proposed for election at the AGM in April to succeed him. Stephen joined Anglo American as finance director designate and as a member of the GMC on 30 January 2017.

Following Sir John Parker’s decision to step down as chairman during the course of 2017, Sir Philip Hampton is leading the Nomination Committee’s process to identify a successor to the chairmanship. Sir John will continue to chair the Board until a successor is appointed.

Remuneration

The actions taken across the business in 2016 to drive free cash flow and further refine the portfolio enabled us to strengthen its financial position and foundations for the future.

The performance of the business, up to and during 2016, is reflected in the long and short term remuneration received by the executive directors.

Executive directors’ salaries were frozen in 2016, to recognise the challenges faced by Anglo American.

Group-wide remuneration at a glance

Each component of remuneration is designed to reward the accomplishment of aspects of the Company’s strategy.Our remuneration ploicy

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Focus the portfolio

Overview

The high quality assets across our De Beers, platinum group metals (PGMs) and copper businesses underpin our position in those respective markets and are the cornerstone of a more resilient and competitive Anglo American. In addition, we continue to benefit from the performance of a number of other world class assets across the bulk commodities of iron ore and coal, as well as nickel.

Disposal proceeds

Received in 2016

$1.8 billion

GAHCHO KUÉ – DELIVERING THE LARGEST NEW DIAMOND MINE IN MORE THAN A DECADE

Gahcho Kué, the world’s largest new diamond mine in the last 13 years, officially opened in September 2016, ahead of schedule and in line with the projected C$1 billion (US$0.9 billion) capital budget. The mine, a joint venture between De Beers (51%) and Mountain Province Diamonds (49%), is expected to produce approximately 53 million carats of rough diamonds, from around 34 million tonnes of material, over its projected 12-year life, from 2017.A fly-in/fly-out remote mine site, where winter temperatures can regularly plunge as low as minus 40⁰C or colder, Gahcho Kué lies 280 kilometres north-east of Yellowknife in Canada’s Northwest Territories (NWT).

The mine, which was commissioned in August 2016, is on track to reach full commercial operation in the first quarter of 2017. It will mine three open pits, and will employ a total of 530 employees and long term contractors. In 2016, Gahcho Kué supported a total of 2,050 direct and indirect full time equivalent (FTE) jobs, with an induced employment impact of 660 FTE’s.

Over the life of the mine, Gahcho Kué is expected to contribute a total of C$5.7 billion into the economy of NWT, which derives more than half of its gross domestic product from mining activities. Partnering with local indigenous communities, which have a say on the use of resources in their ancestral lands, has ensured that the majority of workers during both the construction phase and the ongoing operation of the mine are drawn from the local community.

Production from Gahcho Kué will more than compensate for the loss of output following the placement of Snap Lake onto extended care and maintenance at the end of 2015. The mine will make an important contribution to rough diamond supply in an environment characterised by a steady rise in consumer demand from the growing middle classes in emerging markets, and from millennials, combined with supply constraints as economically viable kimberlite resource discoveries continue to be rare events.

Financial

Greater project, operating capital and cost discipline are helping restore our competitive advantage. We are building the foundations for a more resilient Anglo American, more attuned to changing market dynamics, and more strongly positioned to deliver robust profitability and cash flows through the cycle.

Net debt reduced by 34% to

(2015: $12.9 billion)

$8.5 billion

The primary source of competitive advantage in the mining industry is to own high quality, low cost, long life assets of scale, with positions that can be further enhanced if those assets deliver products into structurally attractive markets. In assessing our asset portfolio, we consider:

  • The standalone quality of individual assets, including their relative cost position and resource and growth potential;
  • Our global competitive position within the individual product groups; and
  • The additional value potential generated through our dedicated marketing expertise.

Portfolio choices driven by asset qualityDelivering our portfolio restructuring

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Drive consistent delivery

Overview

In this challenging environment, we are committed to managing what is in our control; achieving cost and productivity improvements; to enhance cash flows through the cycle and further strengthen our balance sheet. We are continuing to implement Anglo American’s Operating Model in order to deliver production targets, lower operating costs and to carry out work safely.

Production volumes (Cu eq.)

increase in 2016

2%

Leveraging the Group’s considerable technical expertise, the Operating Model provides the structure and discipline to optimise the operation of our world-class assets and provides the foundation for improvements across the business.

Production

We aim to sustainably deliver valuable product to our customers using our Operating Model, aimed at getting the best out of our assets. Delivery of the Operating Model is leading to greater confidence in our ability to meet performance targets and improve work management, as work is now planned, scheduled and resourced well ahead of execution. The Operating Model also provides greater role clarity, with distinct accountabilities and responsibilities, enabling sustainable and stable processes that deliver the expected outcomes.

NUMBER OF ASSETS WHERE OUR OPERATING MODEL HAS BEEN FULLY OR PARTLY IMPLEMENTED:

9

SISHEN – COMING THROUGH THE DOWNTURN, PREPARED FOR THE UPTURN

During 2015, confronted by steadily declining prices as iron ore markets continued to deteriorate, Kumba Iron Ore took bold action to ensure that South Africa’s premier iron ore producer remained profitable. In a series of moves in response to the worsening price environment, the huge open pit at Sishen mine was progressively redesigned, with a final pit design achieved in late 2015. This design called for considerably less waste rock stripping, which would allow Sishen to operate at a reduced cash break even price. More generally, it enabled a more flexible and responsive approach to mining operations, with lower execution risk.

The ramifications of the reconfiguration of pit design and change in mining approach, however, were to be felt far more widely – and it would take a multi-disciplinary team effort if Kumba was to successfully deliver on its plans.

On the operational side, the mine and the Group’s technical and financial teams worked closely together on a series of business improvement projects, with additional support provided by the ongoing implementation of Anglo American’s Operating Model. Two areas of the business merited particular focus: operating hours and mining fleet utilisation had to increase materially – by as much as 30%; and substantial changes needed to be made to the shift-roster system. The first was largely achieved by the fourth quarter as a new rigour was applied to seeking greater efficiencies. Secondly, new rosters enabled a more effective handover between shifts and reduced break times, leading to a 10% increase in productivity in this area.

In many ways, however, the impact on people’s lives was even more challenging. The changes meant that some 1,500 employees, along with 1,000 contractors, would have to leave the operation. Through a comprehensive process of engagement, at all levels of the organisation, with affected stakeholders, Kumba was able to undertake the largest restructure in its history while avoiding industrial action.

Cost

We aim to be competitive by operating as efficiently as possible. Effective capital allocation throughout the economic and commodity price cycle is critical to maintaining flexibility and resilience, given the long term and capital intensive nature of our business.

Attributable free cash flow

in 2016

$2.6 billion

Anglo American seeks to improve operating free cash flow through five levers: improving productivity and lowering input costs across all operations (deployment of the Operating Model); reducing overhead expenditure (implementation of the Functional Model, simplification of portfolio); timely delivery of investment projects (e.g. Grosvenor, Gahcho Kué); maximising revenue (development of Marketing activities); and optimising investment in working capital.

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Develop core business processes

Overview

With innovation and outstanding delivery at the forefront of how we deliver value, the business processes we are implementing are vital to the success of our core activities and achieving best practice across the Group. We are starting to see tangible benefits from the roll-out of our Operating Model across our major assets; a more stable and predictable operating performance is leading to improved productivity and costs, fewer environmental incidents and a fuller understanding of our mine-to-market value chain. Working together with all our stakeholders, we will begin to deliver on the full potential of our portfolio and enhance the sustainable value we can create for our host communities.

In 2017, we are aiming to deliver an incremental $1 billion of net cost and volume improvements.

FutureSmart™ Mining

It is essential that we continually focus on, and invest in innovation and technology development if we are to find more productive, efficient and sustainable ways of extracting value from the minerals we mine and deliver to our customers. Traditional means of innovating are translating into new approaches that are more collaborative and inclusive.

Anglo American’s FutureSmart™ approach to innovation includes bringing together stakeholders with different perspectives to reframe challenges, produce rough prototypes to quickly test ideas and co-create user-centred solutions that can be adopted faster.

Enter the world of FutureSmartTM Mining

Environmental

We aim to minimise our environmental footprint. As a responsible miner, our social and legal licences to operate stem largely from our ability to demonstrate compliance with permitting requirements, responsible environmental management and the equitable distribution of the economic value generated by our operations.

We reduced new water consumption by 14% in 2016.

Our approach to water

Water management is of great significance to our business activities, given that around 75% of our current portfolio is located in regions with high levels of water risk. The water-related challenges faced by our sites typically fall into three categories: water security; managing highly variable rainfall; and mitigating the impact of mining activities on water quality and the rights of other users.

In line with International Council on Mining and Metals (ICMM) guidance, we have developed a new water management standard in partnership with our regional stakeholders, which has a more focused and structured approach to managing basin-wide water risks. We are working towards more ambitious water savings targets for 2020, which include reducing our absolute freshwater intake by 20% and recycling/reusing water for 75% of our water requirements.

Socio-political

As a major mining company, with the great majority of our operations in developing markets, we are committed to supporting our host governments to achieve social development goals. We endeavour to design and execute our projects according to the highest social standards, and to ensure our presence in host countries leaves a positive lasting legacy.

In 2016, 23% ($2.0 billion) of supplier expenditure was with host communities (2015: $1.8 billion, 17%)

Our socio-economic development strategy

Our strategic focus is on improving the productivity of local markets and public institutions to support sustainable job creation and effective public service delivery. Our integrated approach is concentrated on promoting local and preferential procurement, enterprise development and workforce development, working with local institutions to strengthen their capacity, maximise the socio-economic benefits from our own infrastructure, and deliver social investment that supports those most in need.

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Create a high performance culture

Overview

During 2016, we continued the review of our organisation to structure work more effectively, establish clear accountabilities and authorities, and remove role duplication.

2016: INTRODUCTION OF THE FUNCTIONAL MODEL

Reshaping our business

The review has taken place in line with the principles of the Operating Model, which has been rolled out at nine of our operations. As we implement the Operating Model, we are adapting our operational structures in order to derive maximum benefit from its design. We are also reshaping our corporate functions to maximise the value of the relationships that exist between functions and operations, while reducing costs.

The resultant design, known internally as the Functional Model, intends functions to become more cohesive, for functional work to become more integrated and for functions to have a higher level of accountability for business outcomes.

In practice, this means that, rather than having support staff based within, and supporting, individual business units or operations, each function will be accountable for providing the Group with the most effective support and delivering it in the most cost-effective manner.

Safety and health

People are our business, and we’ve no doubt about our first priority: doing everything we can to keep our employees safe and well.

Reduction in recordable case frequency rates

Reported in 2016

24%

Ongoing focus on safety

In 2016, we regret to report that 11 employees and contractors lost their lives in work-related activities at operations managed by Anglo American. Seven of the fatalities were at our Platinum operations in South Africa. The 11 deaths represent a very disappointing increase on the six lives lost in 2015.

Any loss of life is unacceptable and we remain unwavering in our commitment to achieving our vision of zero harm. Throughout 2016, we strengthened our control improvement programme by placing an emphasis on the effective management and use of critical controls. The programme is supported by the work management elements of our Operating Model. This work will continue during 2017, with the aim of achieving a consistent approach and standard across all our sites.

Our ongoing focus on ensuring safety in the workplace was positively reflected in a reduction in injuries, and a decrease in our total recordable case frequency rate, compared with 2015.

People

We aim to create sustainable, competitive advantage through capable people in an effective, performance-driven organisation. Having an engaged and productive workforce is essential for our success. In assessing capability, we consider technical skills and knowledge that have been acquired through experience and practice; mental processing ability; social process skills; and application (the degree of drive and commitment a person displays).

By year end, women made up 18% of our overall workforce and 25% of managers.

Developing Talent

We continue to invest in developing a pipeline of future talent. As part of that [process], we provide development and training opportunities to our leaders and workforce, which are vital in encouraging our people to grow in their work. We have a range of external and internal development programmes in use across the Group, spending more than $73 million on training in 2016. In an increasingly competitive market for skills, we continue to invest in developing a pipeline of future talent through our support of 2,700 graduates, bursars, apprentices and trainees.

Anglo American has numerous initiatives focused on supporting education and development, from schools through to tertiary institutions, as well as programmes targeted at building skill and leadership capability. In South Africa, the 2016 SAGEA (South African Graduate Employers Association) survey recognised Anglo American as the Employer of Choice in the South African Mining Sector for the fifth consecutive year.

Centre for Experiential Learning

Anglo American’s Centre for Experiential Learning (CEL) is a state of the art facility in Johannesburg, focused on embedding business improvement across the Group.

The CEL delivers programmes comprised of business improvement processes, tools and techniques that aim to achieve stable and capable processes that reduce variability and waste; and in coaching and facilitation skills to improve project execution. The courses are designed to support the roll-out of Anglo American’s Operating Model and are aligned with technical and safety training initiatives to improve efficiency and effectiveness of individual and team development.

Both areas of work play a vital role in the delivery of Anglo American’s strategy, helping to develop core business processes and deliver a high performance culture.

Learning is achieved through experiential activities related to the particular improvement initiative the delegate is working on. Participants are expected to reflect on the activity, develop a theory and then conduct experiments to test the theory’s validity before attempting to initiate a solution, i.e. doing, reflecting, investigating, validating and then practising to enhance performance, with the assistance of an experienced business improvement coach. This approach provides employees with tangible skills and outcomes which can be effectively applied to real work processes and individual and team development.

In 2016, the CEL continued to support the Group in the delivery of its strategy and development of our people. In total, business improvement training – including inter-personal skills and Operating Model training – was conducted with more than 1,500 employees. These employees attended more than 90 events, representing teams from across the business – in both functional and operational areas – totalling more than 3,000 training days.

The focus for the CEL in 2017 will be to continue to support the roll-out of the Operating Model and collaborate with sites on leading business improvement practices.

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