The speech made by the chief executive, Tony Trahar, at the 2005 annual general meeting.
"Thank you Chairman. In 2004, our Group experienced generally buoyant global economic conditions, which were reinforced by burgeoning Chinese demand, and resulted in high US dollar prices for almost all our mining products, albeit offset to some extent by the strength of the Rand and the Euro, which adversely affected our South African and European export businesses. The Group continued with its expansion programme and a number of new projects were commissioned successfully during the year. Overall we were very pleased to report record profits of $2.69 billion and earnings per share up 57% to $1.88 per share.
At the time of our results announcement I said that 2004 was a year 'spent in the engine room' – strengthening the efficient running of our asset base. We achieved record cost and efficiency savings of $554 million and have set a further target of $350 million for 2005. Management and structural reorganisations have been implemented in the Platinum, Paper and Packaging and Industrial Minerals businesses. We are also seeking to optimise the benefits of being a global Group across all our operations, including the areas of technical, procurement, information technology and sustainable development. Over the next 18 months we will, for example, be establishing a Group wide information Portal. This will not only improve communication but also provide a platform for faster and easier sharing of information and best practice within and between business units and will assist collaborative problem solving. We believe that there is significant value to be unlocked through the faster spread of 'innovation' and 'best practice'. We are also improving talent management across the Group in order to create more attractive career paths for high potential managers.
Another cross-Group project will see a drive to improve energy efficiency. We consume energy equivalent to a medium-sized country like Chile or Finland and we believe that there are cost, efficiency and environmental justifications for a major focus on improving performance in this area.
Acquisitions, Disposals and Projects
During 2004, disposals worth $2.1 billion were completed. These included the sale of our 20% stake in Gold Fields for $1.2 billion - yielding a profit of some $464 million. Other disposals included the sale of Hudson Bay Mining and Smelting for $257 million and our 49% stake in Terra Industries for $255 million. We continue to evaluate further disposals as part of optimising our asset base.
In terms of acquisitions, the $1.4 billion merger between AngloGold and Ashanti Goldfields was completed, strengthening AngloGold Ashanti's resource base and production capacity. Anglo Paper and Packaging also acquired the 30% outstanding interest in Frantschach and the Bauernfeind packaging businesses in Central Europe for a combined cost of $822 million.
Having spent $15 billion on some very attractive acquisitions over the last six years, we are cautious about pursuing an aggressive acquisitions strategy at currently high valuations in our precious commodities and metals and minerals businesses. We are, however, fortunate in having one of the strongest project pipelines in the industry. We have some $4.7 billion in approved and a further $8 billion in, as yet, unapproved projects across all our business units and geographies.
We have built a track record of value enhancing acquisitions over the last five years and have also greatly improved the quality of our asset base. We have significant greenfield or brownfield expansions underway in most of our businesses around the world. Moreover, we have a solid record of sound project management which last year involved ramping up the Skorpion zinc mine in Namibia to 95% of design capacity and successfully commissioning a number of projects including the Collahuasi Rosario project in Chile, the new Buxton cement plant in the UK and the Ruzomberok pulp and paper project in Slovakia.
New Geographies
No one with an interest in commodity markets can fail to be aware of the pivotal role of Chinese demand. Indeed changes in sentiment regarding the perceived robustness of Chinese growth were a source of significant volatility during 2004. China is already a significant market for our commodities. We are also actively looking for investment opportunities within China. This has involved learning about how to do business effectively and in accordance with our Business Principles through a number of relatively small investments in quarrying, manufacturing, paper making and zinc refining. We are looking at further opportunities in coal and platinum. In this context, we are particularly encouraged by the increasing emphasis, on the part of the Chinese Government, on improving mine safety and environmental standards.
Turning to Russia, during 2004 we opened a representative office in Moscow and are looking to build upon our highly successful investment in the Syktyvkar mill in the Komi Republic. We are also beginning to look for opportunities in India.
Significant Business Unit Developments
A major achievement of our strategy has been to achieve a good geographical and product balance. I believe this has been achieved and, in each of the last four years, a different business unit has been the major contributor to earnings and last year, for the first time, South America was the largest contributor. The two biggest sectoral contributors in 2004 – Base Metals and Ferrous Metals and Industries were both poor performers only two years earlier.
There is a great deal of information set out in our Annual Review, Annual Report and Report to Society. I would like to highlight a few significant developments.
In Base Metals, the performance of the Minera sur Andes operations in Chile has been very pleasing, providing a cash flow return last year of some 48% on our investment. I was in Chile last week and was most impressed by the progress being made by our teams in that country. At Los Bronces mine we have added significantly to the measured and indicated resources and we intend to complete a de-bottlenecking project at the Chagres Smelter before the end of the year. The $80 million El Soldado pit expansion project is also within budget and on time.
Within Ferrous Metals, we continue to work with interested parties to establish a way forward for our involvement in Kumba Resources which meets our iron ore objectives and produces significant black economic empowerment opportunities. We are pleased by Kumba's agreement with Transnet on the expansion of rail links to facilitate iron ore expansions in the Northern Cape.
Turning to diamonds, 2004 saw significant developments that will underpin De Beers' sustainable growth. Firstly, a settlement was reached with the US Department of Justice of a long-standing case in respect of industrial diamonds. This will normalise the way in which De Beers does business in the United States. Secondly, in December, De Beers reached agreement with the Government of Botswana on a 25 year renewal of all four of its mining leases in Botswana.
In relation to Coal, we are increasingly engaged in the debate around climate change issues. I do not doubt that coal will continue to play an important part in meeting the energy needs of much of the developing world. We believe that such growth will be increasingly dependent upon progress being made with clean coal technologies and we are working together with our customers in this area.
In December, Anglo American and Mitsui announced approval for the $653 million Dawson coal project in Australia. In September, agreement was reached between Anglo Coal and Kumba Resources that may lead to the development of a major new coking coal mine in central Queensland while in South Africa new mines are being developed at Mafube and Isibonelo and we are jointly investigating, with BHP Billiton, the proposed expansion of coal resources in the Western Complex.
In Platinum, progress is being made in addressing significant operational challenges against a background of tough currency conditions and rising costs. Action is also being taken to address the difficult geological conditions at Amandelbult and Modikwa – although the benefits of this are unlikely to be apparent before the second half of the year, a number of expansionary and mine-life extension projects are well underway.
Safety
Chairman, you have already spoken about a number of issues of relevance to the sustainable development of the countries and communities in which we work. I would like to focus specifically, however, on safety. We were deeply disappointed that in 2004 there were 49 fatalities at our directly managed operations – five more than in the previous year. This marks the first reversal in five years in an otherwise consistently improving trend. Whilst we were encouraged by a 23% drop in our lost time injury frequency rate, the Executive Board is increasing the Group's efforts to improve safety. Tonight I will be presenting safety awards to our best performing operations as a celebration of success and as a means of highlighting best practice. We also place a consistent emphasis on visible felt leadership in enforcing our safety 'Golden Rules' and on encouraging employees to take responsibility both for the safety of themselves and for those with whom they work. In addition this year there will be a clear focus on 'near miss' incidents and on improving safety performance amongst our contractors – who account for over half of our total fatalities.
Outlook
In closing I would like to update shareholders regarding the outlook for the rest of 2005. The world economy is expected to continue growing, albeit at a somewhat slower rate. Although there are certainly grounds for concern regarding the volatility of currencies, the dollar prices for many of our mining products continue at high levels and these should more than offset the adverse impact of the weak dollar on some of our export businesses. Although we are experiencing upward pressure on costs in our operations every effort will be made to contain these. The Group is generating substantial cash flows and is investing in a number of exciting projects which will generate attractive returns. We also have a strong balance sheet, with considerable capacity to pursue further opportunities when they arise. I believe that our geographic and product diversity, together with our expanding asset base, will continue to underpin our results in 2005.
Thank you."
