15th Apr 2008 12:17
Anglo American PLC15 April 2008 News Release15 April 2008 Anglo American plc AGM 2008 Address to shareholders by the Chairman and Chief Executive At Anglo American plc's Annual General Meeting for shareholders in London today(15 April 2007), Sir Mark Moody-Stuart, chairman, and Cynthia Carroll, chiefexecutive, made the following remarks: Sir Mark Moody-Stuart, Chairman, Anglo American plc: Ladies and Gentlemen, welcome to the Anglo American Annual General Meeting. Wemeet to review a further highly successful year in which operating profit fromcore operations rose by 12% to $8.9 billion - allowing us to continue with ourprogressive dividend policy through the Board's recommendation of a 15% increasein our dividend to 86 cents which, if accepted, will take our dividends for theyear to 124 cents per share. I commend the Board's proposal to you. I am also pleased to note the significant progress made by the company under theleadership of Cynthia Carroll and her executive team. There is a new vigour andvitality in the company. A raft of important initiatives has been launched to:improve operational performance; to realise synergies between our businesses andto improve the consistency of application of policies and standards across ouroperations. In addition, the level and quality of engagement with keystakeholders has been significantly increased. This refreshed approach has been most evident in the handling of safety issues,which has been a consistent area of concern for the Board. Cynthia Carroll hasexerted impressive leadership in this area, challenging ingrained assumptionsabout the inherent dangers involved in mining and creating real belief in theconcept of 'zero harm'. Managers are aware that they will not progress in theorganisation if they have a poor safety record. Furthermore, through thetemporary closure of Rustenburg platinum mine for comprehensive retraining ofthe workforce in the aftermath of a series of fatal incidents, Cynthia gave apalpable demonstration of commitment to our long-standing dictum that safetymust come before production. In so doing she has begun to change the nature ofthe debate about safety across the South African mining industry with theinvolvement of Government and the unions. There is still a long way to go butthere are some encouraging signs that we are achieving a step change inperformance. The challenge will be to ensure that the current intense focus onsafety continues and that the current improvement becomes sustainable through achange in culture. The Board also believes that an intelligent balance is being struck between anawareness, on one hand, that in the current climate assets are relativelyexpensive and, on the other, of the importance of increased corporate activityfor the long-term growth potential of the Group. We have been bolder than inprevious years and made several acquisitions to complement the organic growth ofthe portfolio. These have strengthened our portfolio of copper and coal assetsand we have taken major strides in delivering against our objective ofestablishing the Group as a significant player in the iron ore business throughthe MMX acquisition in Brazil. The disposal of non-core assets over the lasttwo years was intended to provide a platform for the growth of our corebusinesses. That growth will come from a combination of an impressive projectpipeline, targeted acquisitions and the hard, and unglamorous, grind ofimproving the efficiency of our existing assets. In another year of strong financial results I wish to thank each and every oneof our employees for their contribution. Over the last year the Board and BoardCommittees have met in South Africa twice and in Chile. In addition, I havepersonally visited Anglo activities in Australia, China and the Philippines. Ineach of these countries I have been impressed by the professionalism of theAnglo people whom I have met. We have some of the best people in the industryand there is a widespread commitment to excellence and to 'doing the rightthing'. There is also a good awareness of our Business Principles and keypolicies. We are currently updating and reviewing our 'Good Citizenship'business principles based on internal and external stakeholder input. Copies ofthe current document are available at the meeting. The process is almostcomplete but if any investor would like to contribute to this work, yourfeedback would be welcome. Commodity prices remained high over the last year reflecting both the strengthof the global economy for most of this period and, in particular, theunprecedented rate of urbanisation in both China and India. But another factorat work has been the industry's relatively muted ability to expand the supply ofkey commodities at the anticipated rate. The factors that have constrainedsupply growth include: lengthier permitting processes; the increased importanceof gaining community consent; bottlenecks in the supply chain, skills shortagesand constraints in the supply of water and energy. These underline the extentto which the mining sector cannot afford to be insular in how it relates to theoutside world and how sustainable development considerations are increasinglycentral to our ability to do business. Moreover, society increasingly expectsus to contribute to finding solutions to global challenges such as poverty,delivering against the Millennium Development Goals and climate change. Some of you may be aware of a pamphlet recently produced by 'Action Aid' inSouth Africa. This alleged that in communities in the Limpopo Province of SouthAfrica our subsidiary, Anglo Platinum, has been forcing people off theirtraditional land, has failed adequately to compensate families who areresettled, has not provided them with sufficient alternative agricultural landand has polluted water at schools close to the Potgietersrust platinum mine. Iwill not go into these issues in detail now - although some of them will, nodoubt, be raised in questions - but there is another side to this story. The resettlement of three communities has been planned or under discussion withthe affected communities for almost a decade. In the case of the village of GaPila out of over 700 households, only 27 have failed to move; and in the casesof the two Mothotlo villages, which is still underway, over 820 households outof 956 have already moved. Moreover, they have moved to better houses, tovillages with improved schools; they now have a clinic and have received moreand better agricultural land. South African law - as in this country - provides for communities to be moved inorder to facilitate projects of national importance. But we have instead workedon the basis of obtaining the freely given consent of the community andtraditional authorities through negotiation. The fact that all 956 householdshave signed agreements, together with the support given by the traditional andpolitical leaders in the region, are an indication that the resettlement isbased on a fair compensation model. This is not to deny that in an area that has great social challenges that thereare enduring problems of poverty and lack of development - but it is ourobjective that in the coming years the resettled communities will receive asignificant net benefit from the mine and the opportunities which it generates. We take the allegations from Action Aid about water pollution at local schoolsextremely seriously. On a precautionary basis Anglo Platinum is, with theagreement of the municipality, providing alternative drinking water for thecommunity. We believe that there is, indeed, a problem of elevated nitrates inwater from shallow wells in many villages in the wider area - and I welcome thatAction Aid brought this to attention. Contrary to what is stated by Action Aid,the data available to Anglo Platinum indicates that this arises from pitlatrines or geological factors and not from the mine. Further work is under wayto identify the source of the problem and to devise solutions. In many rural communities in Limpopo Province and elsewhere, often remote fromany mining, there is a problem with water quality in shallow wells which canarise from sewage, cattle kraals or indeed underlying geology. It is a majorchallenge for frequently under-resourced municipalities to fulfil theirresponsibilities of providing clean water to communities. There are clear limitsto what Anglo American or Anglo Platinum can do, but I know that we are happy towork with development NGOs and development agencies to see whether workablesolutions can be found to this wider problem. Together with the publicauthorities we have sought to work with Action Aid - but I understand that lastweek the municipality felt obliged to adjourn a meeting to compare scientificdata when Action Aid tried to turn it into a media circus. Copies of a detailed rebuttal of the points made by Action Aid are availablehere today and they are also available on the Anglo Platinum and Anglo Americanwebsites. I have worked in the resources sector throughout my career and believepassionately in its ability, when responsibly done, to contribute to widerdevelopment. The sector has some distinctive features compared with otherindustries, of which I would highlight five. Firstly, we typically exploit resources which are not owned by ourselves but byhost governments on behalf of their people - which underlines the conditionalnature of our licence to operate. There is, in each country, a legitimateargument to be made about the extent to which a proportion of royalties and taxrevenues are recycled to the areas where mining takes place. Secondly, in adding value to natural resources, the sustainability challenge isto ensure that, during the lifetime of a mine, we contribute to building thesocial and human capital of the communities where we work so that theircapacities and access to opportunity are increased. Thirdly, our assets are immobile, involve significant up-front capitalexpenditure and are long-term investments - meaning that we have to live withthe judgements we make about our ability to operate ethically in particularlocations. This means that we have a very active interest in good governanceand a clear preference for working in jurisdictions where the rule of lawoperates and where there is effective and predictable enforcement ofenvironmental and other legislation which governs our business. Fourthly, our social and environmental footprint is often significant, bringingwith it commensurate responsibilities to local communities - including the needto improve our ability to understand our indirect and cumulative impacts. And, fifthly, mineral resources are often found in areas where there haspreviously been limited development and where the sector may offer the onlyroute for progress. This often means working with national and localgovernments with limited capacities or in weak governance zones and where we mayfind ourselves thrust into roles more properly filled by the State. Itunderlines the importance of our seeking to contribute to improving governancethrough initiatives like the Extractive Industries Transparency Initiative andthe Investment Climate Facility for Africa and of the central role ofpartnerships with governments, international institutions, NGOs, community basedorganisations and other businesses in producing better development outcomes. These factors provide a backdrop of almost unique complexity for a business.They suggest that we will not always get our interactions right across some 40countries. But it would be disingenuous of our critics to ignore the effortsthat we invest in maximising the likelihood of our getting things right. Henceour leading edge Socio-Economic Assessment Toolbox - or SEAT - process that isnow implemented at every one of our established operations; our well establishedprogrammes for enterprise development; our leadership in HIV/AIDS; and our newtoolbox for long term mine closure planning. I welcome too our growing networkof partnerships with NGOs including CARE International on development issues andFauna and Flora International on biodiversity. Furthermore, it is important that we look at our contribution to society in theround. Our return to shareholders is a fundamental part of our role as acompany but I draw your attention too to the developmental opportunities that wedeliver to society including through innovation and building the skills of thosewho work for or with us. Moreover, it is instructive to note that in 2007whilst we generated $5.9 billion for investors, we also paid $11 billion to oursuppliers, including almost $5 billion to suppliers in Africa; we paid $3.6billion in wages and employee benefits; and paid or generated some $3.8 billionin taxes and royalties for our host governments to reinvest in services likehealth and education. The business which we generate for suppliers, in turn,generates further tax revenues. Finally, ladies and gentlemen, I should thank members of the Board for theirwork over the last year. In this period, we have seen the departure of DavidHathorn as an Executive Director following the demerger of Mondi; of RalphAlexander and of Bobby Godsell. Let me thank all of them for theircontributions. David Hathorn has the important job of leading an independentcompany in which many of you may, like me, also be shareholders. Ralph Alexanderhas become chief executive of an energy company with interests in alternativeenergy sources. I wish them both every success. Bobby Godsell has retired fromAngloGold Ashanti and I would like to thank him in particular for his work overmany years in both Executive and Non-Executive roles as well as for thesignificant role he played in the peaceful transition to democracy in SouthAfrica. I am also pleased to welcome Sir C.K. Chow to the Board. He brings a formidabletrack record in international business to the Board as well as specific insightsinto the Asia Pacific region - from where we have not previously had strongrepresentation. I will now ask our Chief Executive, Cynthia Carroll, to address the meeting. 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 nowhave also seen our Annual Report. I will therefore give you just a briefoverview of our considerable achievements of 2007 and the outlook for the yearahead. 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 $5.8billion 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 theBoard, we are continuing with our announced $4 billion share-buyback programme,which will amount to a $14.5 billion capital return to shareholders since thebeginning of 2006. We are also working to optimise our capital structure andseek to achieve our target gearing of 40% in the near term. This representsabout $14 billion in net debt, which will support our substantial near- andmedium-term growth plans. Safety I too would like to comment on the changes we have made in our approach tosafety in the past year. 2007 marked a turning point in our approach to safety, in response to anunacceptable fatality performance across the Group. It had become clear that agradual approach was not delivering the dramatic lowering of injury, andparticularly fatality, rates that we were seeking. A step-change was needed. Wetherefore launched a series of initiatives to drive consistent safety messagesand practices across our businesses. We held two safety summits in the year andhave shown we are prepared to do what is necessary to meet this challengehead-on, by shutting down mine shafts where safety performance has not been upto our standards. Although these are early days, we do appear to be making progress. A dreadfulfirst half saw 29 people lose their lives at our operations, but during thesecond six months the fatality figure reduced to 11. In September, we achieved afatality-free month - so we know it can be done. It is very encouraging to be able to report that in 2008 our fatality frequencyrate has continued on its downward path, while there are also indications thatthe 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 andbeyond, and I continue to believe strongly that optimally run businesses havegood safety records. Sustainable development In the area of sustainable development, we are looking at how we can stretch ourcontribution to the fullest through partnership with others. For example, ourSEAT community-engagement toolbox, now in its more demanding second phase, isbeing accorded ever-wider international recognition. In 2008, we have also introduced new policy frameworks for safety, health andthe environment, and are making headway with strategic work on water and energyefficiency. We will be reviewing our performance and setting new targets as aresult. Increased transparency, higher performance standards and attracting andretaining skills are essential to achieving against these ever more challengingtargets. The global climate is changing and, with it, an increased likelihood of impacton our operations and increased tensions around water. It is now urgent andevident that it must be a consideration in everything we do. We operate in someof the world's most arid areas - in Chile, in Australia, in the western regionsof southern Africa. Increasingly we must compete for water resources and accountfor the full social and environmental costs. To do so successfully means we mustbe technically innovative and contribute to wider environmental and socialsolutions. Examples include a water-treatment plant at eMalahleni and a wetlandsconservation area near Isibonelo, both coal mines in South Africa and mist trapsto harvest water for the community surrounding our Mantos Blancos copper mine inChile. At Emalahleni, the plant, which processes water from undergroundcollieries, will generate a water recovery exceeding 99%, while the Los Broncesexpansion will reduce the use of fresh water by 40% per tonne of copperproduced. Everyone is well aware that our industry is enjoying a prolonged period ofstrong growth and sustained demand for our products. One of the challenges ofthis environment is a shortage of skilled labour, something we are addressing byhighlighting the importance of diversity within our Group. Most notably, thisincludes the emphasis we are placing on attracting, retaining and rewardingwomen, who are still represented in only modest numbers. In 2007, womenrepresented 15.3 per cent of our management numbers and we are aiming tocontinue to increase the proportion of women across the businesses andthroughout 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 leadingfocused mining company. To achieve this goal of focusing on our three corecommodity groupings - precious, base metals and bulk - further steps in theGroup's restructuring were completed successfully during the year. The Company disposed of its remaining 29% holding in Highveld Steel in May andHulamin was unbundled from Tongaat-Hulett in June. Mondi, the paper andpackaging business, was demerged in July and, in line with the intention toultimately exit AngloGold Ashanti, we reduced our holding from 41.6% to 16.6% bythe 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 itsbusiness improvement initiatives starting to make a significant impact.However, we have decided not to launch the marketing phase of the sale processuntil credit market conditions improve. Tarmac continues to be managed tomaximise shareholder value and this includes active reviews of its portfolio. We are bringing greater rigour to Anglo American's operating platform byintroducing a value based management (VBM) methodology in all business units. Apilot project has been completed in Anglo Coal and VBM is now being rolled outinto all of the businesses. In addition, an asset optimisation initiative willmaximise operational efficiencies at site level and allow benchmarking ofperformance and the spread of best practices. We have recently completed a comprehensive review to determine the best approachfor delivering key business-support functions. This has led to the establishmentof three shared-services centres, providing common accounting and employeeservices, located in existing offices in Asia-Pacific, South America and SouthAfrica. During the year, we also launched a centralised procurement programme toleverage the benefits of operating on a worldwide scale. Initial projectionspoint to the Group achieving around a billion dollars of procurement andshared-services savings in the next three years. Improved government relations 2007 marked a shift in our relations with governments. For example, in SouthAfrica, we took bold steps to try to dramatically raise our overall safetyperformance, at a significant sacrifice to production. We also showed ourwillingness to work with government agencies in addressing the HIV/AIDSepidemic, while in 2008 we have provided management expertise in helping tacklethe country's power-supply problems. The company also made significant progressduring 2007 in meeting the transformation requirements in respect of employmentequity and black economic empowerment in terms of the South African MiningCharter - culminating in groundbreaking equity participation arrangements inAnglo Platinum's assets. These are just some of the moves that are yielding benefits for our Group. Iwould also like to think that it was not just coincidental that in February wewere able to announce that we were to be awarded new order mining rights for allof Anglo American's mining operations in South Africa. We have made substantialprogress in recent weeks and expect to be able to finalise the conversionsshortly. This provides greater certainty for our businesses and will enable theGroup to continue to make a strong contribution to the country's prosperity andeconomic growth. Furthermore, in Chile, our enterprise-development programme, based on our highlysuccessful Anglo Zimele small-business development model in South Africa, wasrecognised through the award of one of only seven medals issued by the Chileangovernment to commemorate the country's bicentenary. Project expertise driving profitable growth In terms of projects, Anglo American has one of the strongest and highestquality pipelines in the entire mining sector. Over the past year, this doubledto more than $40 billion. Our Base Metals, Iron Ore, Coal and Platinumbusinesses each have project pipelines of $5 billion or higher. In the nearterm, we have $12 billion in approved projects and have around $30 billion inprojects under consideration, with nearly half in the attractive base metalsmarket and a quarter in seaborne iron ore. We are making excellent progress with the development of our projects - just togive you a few examples, in November we announced the $1.7bn expansion of LosBronces copper project in Chile which, on completion in 2011, will increaseproduction by an average of 170,000 tpa, making Los Bronces one of the 10largest copper mines in the world. The $1.5 billion Barro Alto nickel projectin Brazil is also making good progress and is also due to come fully on streamin 2011, taking our total attributable nickel production to 100,000 tonnes ayear. And in platinum, the $692 million PPRust North expansion project isexpected to reach full capacity in 2009, when it will mill an additional 600,000tonnes of ore per month. Over the next 5 to 10 years, our project pipeline has the potential to increaseAnglo's share in all of our core market segments. Moreover, we are nowexploring for minerals in 25 countries around the globe, and we will continue todrive 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 acquiringmajor new projects in countries where we have an existing presence and in newgeographies, as well as opening new offices in India and the Democratic Republicof 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 criticalmass for our Group in an extremely consolidated industry, with high barriers toentry and where we are a relatively new entrant. This shareholding and therecent announcement that we have acquired control of Minas-Rio and the Amapairon ore mine, together with the expansions at Kumba in South Africa, couldresult in the Group's attributable iron ore production rising to 150 milliontonnes a year and securing around 10% of the high-margin seaborne iron ore tradeby 2017. Similarly in copper, the acquisition of Michiquillay in Peru and thepurchase of a 50% stake in the Pebble copper project in Alaska, combined withexpansions in Chile at Los Bronces and Collahuasi, could see the Group'sattributable copper production rising to around 1.6 million tonnes a year by2016. We also formed an exciting strategic partnership with China Development Bank tojointly identify and develop mining projects in China, Africa and elsewhere.This marks a positive and differentiating feature of Anglo's engagement withChina. As for the M&A activity in the sector, I have been asked many times in the lastseveral months about how Anglo sees itself in an environment of industryconsolidation. Well, I can tell you that we are not sitting idle. We are beingfleet-footed and are expediting our project pipeline in order to capitalise onthe attractive near- and longer-term pricing environment. And we continue tomake targeted, value-enhancing acquisitions that are complementary to ourexisting portfolio and in line with our growth strategy as a focused miningcompany. We will pursue all acquisitive growth opportunities that we believe make sensefor Anglo, and we are working to ensure that we are maximising Anglo's value toour 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. Overthe next 10 years, we anticipate strong demand growth of 4 to 5% compoundedannually for most key commodities - driven mainly by China, as well as by Indiaand other developing countries. This is likely to be bolstered by higher thanhistorical real prices, tight supply and robust demand growth. Tempering that, however, is the continuation of high cost inputs in the form ofenergy, fuel and consumables, combined with rising capital costs and criticalstaff shortages. Added to these, there are problems relating to assurance ofelectricity supply - most critically in South Africa, where we are working withEskom and the government to implement solutions - but also potentially in Chileand Brazil. Conclusion In conclusion, we are looking beyond the recent significant restructuring with afocus on driving value through both performance optimisation and growth. Inaddition, we are continuing to strengthen and refocus the management team, withthe recent appointments of Ian Cockerill from Gold Fields to become CEO of AngloCoal, Kuseni Dlamini as Head of Anglo South Africa and Russell King as ChiefStrategy Officer. Anglo American is strongly positioned with our unique portfolio of assets. Wehave the best resources in the world in platinum, while De Beers remains theparamount name in diamonds. We are building strong positions in base metals,iron ore and coal - with all businesses poised to deliver significant valuecreation from existing operations and expansion projects, complemented by M&A.Our mines have among the longest lives in the industry, and our overall costposition continues to improve. And, not to be biased...I think we have amongst the best people in the worldwith diverse backgrounds and deep expertise. Their ability to deal at timeswith 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 thebusiness. These are truly exciting times for Anglo American and for our sector and I lookforward to another successful year. Thank you. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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