25th Apr 2006 11:00
Anglo American PLC25 April 2006 News Release 25 April 2006 Anglo American AGM 2006 Address to shareholders by the chairman and chief executive At Anglo American plc's Annual General Meeting for shareholders in London today(25 April 2006), Sir Mark Moody-Stuart, chairman, and Tony Trahar, chiefexecutive, made the following remarks: Speech by Sir Mark Moody-Stuart, Chairman, to the Anglo American plc Annual General Meeting - 25 April 2006 Ladies and Gentlemen, 2005 was another year of strong prices for most of ourcommodities. This contributed to a 39% increase in underlying earnings. Giventhe strong cash generation achieved for the period, the Board is pleased torecommend an increase in the normal dividend to 90 US cents - an increase of 29%- together with a special dividend of 33 US cents per share. In addition wehave commenced a share buy-back programme of $2 billion to be implemented duringthis year. As the Chief Executive will outline in greater detail, during 2005 the Boardcarried out a strategic review that will result in the most significant changein the shape of our business since our listing in London. Over the last sixyears we have divested some $9 billion of non-core assets as part of a strategyof concentrating on our core natural resources businesses and of upgrading thequality of our assets. The decisions taken at the end of last year will movethis strategy on to the next stage and will result in the creation of a morefocussed mining and quarrying business. Our management team under Tony Trahar's strong leadership, has been making goodprogress with the implementation of this strategy. We expect all the keymilestones to have been achieved well before next year's AGM. Tony isdetermined to drive through the completion of this programme. He has indicatedto the Board that with the completion of this phase of the Group's developmenthe believes it would be appropriate for him to make way for a new leader tooversee the next phase of our plans for growth. Since Tony will by then beapproaching his normal retirement age, the Board has accepted the logic of thisview. It provides us with the prospect of securing a smooth and orderlytransition and of creating a leadership group with the prospect of many years inthe job. We have, therefore, commenced a process of identifying a successor.Nevertheless, Tony's continuing commitment as Chief Executive to the completionof our strategic restructuring means that this is not the moment forvaledictories, save to note the enormous contribution which Tony has made andcontinues to make to Anglo American's development and success. Governance During the year there were an unusually large number of changes to the Board.At last year's AGM you elected three new Executive Directors, David Hathorn,Rene Medori and Simon Thompson and one new Non-Executive, Ralph Alexander. At the end of 2005 two Executive Directors, Tony Lea and Barry Davison, retiredfrom the Board. Tony Lea was our Finance Director from the time of theformation of Anglo American in 1999 having previously served the Group for manyyears in both Anglo American Corporation and Minorco. He played a pivotal rolein establishing the company's credibility with the investment community. Tonysuccessfully handed over his role as Finance Director to Rene Medori lastSeptember, but continues to be available for advice. Barry Davison joined theBoard in 2001 as Executive Chairman of Anglo Platinum. Barry is a man with areal passion for his product and he has played a major role in the rapidexpansion of global platinum demand as well as in negotiations with the SouthAfrican Government around the evolving black economic empowerment agenda. Hecontinues as non-Executive Chairman of Anglo Platinum. We are grateful to bothTony and Barry for their contributions to the success of the Group. From 1 January, Peter Woicke joined the Board and is proposed for electiontoday. He has had a distinguished career in finance including as a ManagingDirector of the World Bank and as Chief Executive Officer of the InternationalFinance Corporation. It is with regret that I report the decision of Dr Maria Silvia Bastos Marquesto step down from the Board after two and a half years. I would like to thankher for her distinctive and valued contribution to our deliberations. I am alsodelighted to recommend the election of Dr Mamphela Ramphele who has previouslyserved as a Non-Executive Director of Anglo American Corporation of South Africaand as Vice Chancellor of the University of Cape Town. Dr Ramphele also bringsa distinguished record of public service outside of South Africa including as aManaging Director of the World Bank. These changes will bring the Board back into compliance with the Combined Coderequirement that at least half of the Board should be made up of independentnon-Executives - excluding myself. For the coming year we will be making some changes to the composition of ourBoard Committees. Mr Phaswana will step down from the Remuneration Committee.Mr Margetts will be leaving the Audit Committee and will be replaced by MrWoicke. Dr Ramphele and Mr Woicke will join the Nominations Committee. MrAlexander and Dr Ramphele will join the Safety and Sustainable DevelopmentCommittee. I should like to thank those Directors who have chaired Board Committees: DavidChallen, Chairman of the Audit Committee; Chris Fay, who chairs the Safety andSustainable Development Committee; Fred Phaswana who chairs the NominationsCommittee; and Rob Margetts who has led our work on remuneration. I am gratefulfor the experience and judgement which each has brought to these important areasof our work. International Context The Chief Executive will report upon the Company's operational performance, butI would like to preface this with some comments on the changing internationalcontext in which we are working and to touch on some of the issues contained inour Report to Society 2005 - which was published last week and is available heretoday if you would like a copy. Some 70% of our operations are in developing countries. In many of themgovernment capacities are limited or lacking, institutions are often weak andpoverty is a major challenge. The sectors in which we are active have a numberof distinct characteristics. These include: • Firstly, our operations have significant environmental and socialimpacts that need to be carefully managed; • Secondly, since mining involves the extraction of a non-renewablenatural resource it presents distinct challenges in relation to sustainabledevelopment. We therefore seek to ensure that during the lifetime of a mine webalance the depletion of a natural resource through growing the stock of social,human and man-made capital. This is not too difficult where there is aneffective State that makes good use of tax revenues - but that is not always thecase; • Thirdly, the revenues that we generate are often volatile and may causemacro-economic difficulties and extractive revenues have sometimes been subjectto wholesale embezzlement by government; and • Fourthly, our assets are immobile and once we have committed to thedevelopment of an operation we have a clear incentive to manage relations withstakeholders in such a way as to minimise conflict and to promote stability andprosperity. These distinctive challenges involve us in having to manage a wide range ofincreasingly salient social and political risks. These issues are notperipheral, but are fundamental to our continuing access to land and resourcesand to our ability to attract investors and the best talent. Moreover, I think we are seeing a retreat from some of the protections of fiscaland regulatory stability that inward investors enjoyed in many countries duringthe late 1990s and the early years of the twenty-first Century. Fuelled in partby an increase in nationalism around the exploitation of natural resources andby the current boom in commodity prices, some governments have been seeking aproportionately higher tax take. In such situations, governments need to recallthat investor confidence is important at times of famine as well as feast andthey should avoid tax models which do not reflect market lows or which, throughreducing margins, lessen the resources which can be viably developed. However, there is an important risk management point here for extractivecompanies. Whilst we cannot and should not take on responsibilities that areproperly those of governments, we also cannot stand aloof from major governanceand social issues in the countries where we operate. Thus, it is important for our industry to be actively engaged in maximising ourbeneficial impacts in areas like poverty reduction and to support goodgovernance measures, such as the Extractive Industries Transparency Initiativeor the International Council on Mining and Metals' Resource Endowment project.At a community level it is crucial too for us to understand the needs,priorities and concerns of the communities where we work through structuredengagement and to seek, through our work in areas like training and supply chaindevelopment, to ensure that other skills and enterprises are generated to takethe strain when mining stops in a locality. In all these areas, working aloneand through initiatives like the International Council on Mining and Metals, theGlobal Compact, the Global Business Coalition on HIV/AIDS, and the new NEPADInvestment Climate Facility, I believe Anglo American to be at the forefront ofaddressing these strategic risks to our business. Climate Change I want to highlight one other area that relates to sustainable development,namely climate change. As a company with energy use equivalent to that ofFinland, we have a corporate responsibility to manage and reduce our carbonimpacts and to anticipate the likely regulatory developments and costs of carbonwhich society will impose. This is highly relevant to us as a major energy user- and hence our recent decision to increase our targeted energy saving from 12%to 15% by 2014, relative to our 2004 baseline - and to use an attributed cost ofcarbon in all new investment decisions. This makes sound commercial sense aswell as being environmentally responsible. We are also looking at the immediate commercial opportunities created by carbontrading; by instruments such as the Clean Development Mechanism and from powergeneration through the use of methane drained from coal beds before they aremined - contributing to safer mining as well as to prevention of greenhouse gasemissions. We are looking too to be closely involved in technologicalinnovations designed to mitigate the effects of climate change through, forexample, our membership of the US Government led public-private partnershipFutureGen project; through investigating the potential impact of carbon captureand storage via our Monash project in Australia; and through Anglo Platinum'sinvolvement in the development and application of fuel cell technologies. Anglo American is a long-term business and it is essential that we understandthe strategic and policy imperative which will impact upon our business goingforward. In closing I would like to place on record - on your behalf - the thanks of theBoard to the Chief Executive and his management team and to all our staff fortheir efforts, ingenuity and commitment in delivering another fine set ofresults. I will now ask Tony Trahar to provide an account of the financial andoperational performance of the business and of progress in implementing ourstrategy. Speech by Tony Trahar, Chief Executive, to the Anglo American Annual General Meeting - 25 April 2006 Thank you Chairman. I would like to start with a few words about strategy, thento review the financial and operational highlights of 2005 and to update you onhow we are addressing the issue of safety at our operations. Before moving to the substance of my remarks may I thank you for your kind wordsregarding my planned retirement next year. As you know, I suggested thistimescale with the clear intention of first completing our strategicrestructuring programme. This will be done with due dispatch after which itseems to me that it will be a good moment, at the age of 58, to hand over to anew leadership team so that they can oversee the next phase in the developmentand growth of the Group. Strategy Over the seven years since Anglo American plc was listed in London, we havepursued a consistent, but steadily evolving, strategy designed: • To simplify our shareholding structure, especially through the unravelling of the cross-holding with De Beers, and to increase our transparency; • To develop a strong project portfolio as the foundation for value-enhancing growth; • To increase the synergies available to the Group in areas like information management, technology, procurement, sustainable development and human resources; • To further advance our strong sense of corporate social responsibility in the countries in which we operate; and • To improve the focus of our business through the disposal of non-core assets for value; In 2005 and the early months of 2006 we have continued to implement thisstrategy and we have disposed of Boart Longyear, our mining equipment business,Samancor Chrome and a number of smaller business interests in our Ferrous andIndustries division for $1.1 billion. More fundamentally, at the end ofOctober, we announced the outcome of our strategic review that had at its heartthe intention to focus increasingly on our core mining business. This willentail: • The listing of Mondi, our paper and packaging business on the London Stock Exchange; • The disposal of our South African steel and vanadium business, Highveld; • The restructuring of Tongaat Hulett, in which we own a 52% stake, so as to list separately its aluminium operations; • A strategic review of Tarmac's businesses with a view to improving its overall returns; • Reducing our stake in AngloGold Ashanti; and finally • Buying back $2 billion of our own shares. On each front progress is being made. Some shareholders may question why, given our planned focus on mining assets, wehave chosen to reduce our exposure to AngloGold Ashanti at a time of rising goldprices. It is important to note the relatively small share of our earnings -some 3% in 2005 - that now comes from gold. But more particularly, goldcompanies have a distinctive group of investors and trade on different multiplescompared with diversified mining companies. Thus, the value of our stake inAngloGold Ashanti has not been fully reflected in our overall marketcapitalisation. Already, through reducing our stake to some 41.8% we haverealised some $1 billion in cash. The announcement of our strategy on AngloGoldAshanti and the steady progress with its implementation has been well receivedby the markets. We will continue to support value creating opportunities in Mondi leading up toa separate listing. We can take credit for having built Mondi, through acombination of organic growth and shrewd acquisitions, into a major player inboth business papers and packaging. Nevertheless, the time is now appropriateto prepare Mondi for a listing in its own right. In regard to Tarmac - the core of our industrial minerals division - there aresignificant overlaps and synergies between its extractive businesses and many ofthe disciplines involved in mining. It also adds stability and geographicaldiversity to our earnings. Thus we continue to regard it as a core businesswhilst seeking to improve its margins and returns on capital. This process hasalready begun, with a number of smaller businesses having been identified fordisposal, and recent acquisitions in Romania, Poland and the Czech Republicadding to its growing European base. Financial Performance During 2005, Anglo American continued its track record of strong earningsgrowth, of increasing dividends to shareholders, of identifying and developingprojects to underpin our future growth; and of rigorous cost control. We reported record underlying earnings of $3.7 billion, an increase of 39%compared with 2004. We also achieved record production levels in coal,diamonds, iron ore, vanadium, nickel, zinc and platinum group metals and BaseMetals, Ferrous Metals and Coal each generated their highest ever contributionto earnings. EBITDA was up by $1.9 billion at $9 billion - enabling us toreduce debt by almost 40% to $5 billion and to return some $2.5 billion toshareholders through a special dividend and buy-back programme. These good results were driven by strong commodity prices and the continuingexpansion of the Group's production base. Compared with 2004, the averageprices in 2005 for a number of our key commodities were up 300% for vanadium,71% for iron ore, 28% for copper; 32% for zinc; 6% for platinum and nickel and9% for gold. This strength has continued into 2006 with copper up 51% at theend of the first quarter compared with a year before, zinc up 70%, platinum up20% and gold up 29%. Moreover, the relative robustness of the performance of,and confidence in, the global economy has led most commentators to expect pricesto remain firm during 2006. This is underpinned in the case of a number ofcommodities by relatively restricted supply growth and the steep increase inmany mining and processing input costs, not least of which are rising energycots. The increasing involvement of investment funds does, however, add agreater element of unpredictability to the markets and we have seen considerableprice volatility in recent weeks. But the scale of our earnings growth did not result from passivity in the faceof rising prices. A number of measures that we have put in place over the lasttwo years significantly enhanced our performance. An example of this was ourability to deliver $730 million in cost and efficiency savings in 2005, up 32%on 2004. Whilst preserving the entrepreneurial flexibility of our businessunits we have increasingly sought to leverage the resources of the Group moreeffectively across disciplines including procurement, talent management, andtechnical and research support. We are currently embarking upon a similarprocess in relation to Information Technology through a major infrastructureconsolidation process. We are also planning a significant drive to supportknowledge sharing and collaboration across business units and disciplinesthrough our new global information portal. In relation to growth opportunities, the most cost effective route is throughthe development of our own greenfield projects or brownfield expansions and wehave one of the largest project pipelines in the industry. In 2005 weauthorised several new platinum projects and Anglo Platinum expects to increaseproduction from 2.45 million ounces last year to between 2.7 and 2.8 millionounces in 2006. In coal we have agreed the expansion of the Dawson project and the go-ahead forthe new Lake Lindsay colliery - both in Australia. These metallurgical coalprojects represent an investment of $1.4 billion. I visited the Australian coaloperations last month with the Chairman and the Safety Committee and we weremost impressed with the potential for further expansion. In South Africa, andsubject to regulatory clearances, we expect to see the $264 million Mafubeproject get under way and in Colombia an expansion at Cerrejon Coal from 28million to 32 million tonnes per annum has been approved. In 2005, the Board also approved a $559 million expansion of iron ore operationsat Kumba's Sishen mine. This will increase production from the mine by 10million tonnes by 2009. Our associate company, De Beers, is proceeding with theSnap Lake and Victor projects in Canada, and the Voorspoed project in SouthAfrica. Our Base Metals operations are progressing feasibility studies for thenew Barro Alto nickel project in Brazil; and for a major expansion at the LosBronces copper mine in Chile. In total, the Group has a current approved project portfolio of $6.7 billionwith a further $10 billion to $15 billion of projects under consideration. Thesewill underpin our growth prospects across the board. Black Economic Empowerment Chairman, you referred to the importance of companies working with our hostsocieties to address their major socio-economic challenges. This is particularlyrelevant for Anglo American in South Africa where a great deal still needs to bedone to address the legacies of the apartheid era. Anglo American has been atthe forefront of business attempts to spread opportunities to new blackentrepreneurs. At the grassroots level this is reflected in our drive toprocure more from BEE companies - this expenditure has grown from R800 millionin 1999 to R9 billion in 2005. Last year we had the honour of hosting PresidentMbeki at an exhibition that he asked us to stage about the work of our AngloZimele, our business development incubator. At any one time this is invested insome 25 to 30 companies supporting over 2,000 jobs. I am pleased to note that AngloGold Ashanti has been granted its new ordermineral rights. In relation to equity ownership, the Anglo American Group hashelped to catalyse the emergence of several major South African black-ownedmining companies. Over the last year, we have facilitated, through oursubsidiary, Kumba, the creation of the largest black-owned, managed andcontrolled mining company in South Africa and we have supported De Beers'genuinely broadly-based empowerment deal with Ponahalo. We are also proud of the progress that is being made in establishing wideremployee share ownership schemes across our Group in South Africa. We aremaking good progress too in increasing the proportion of historicallydisadvantaged South Africans in our management ranks. BRICs We are looking at opportunities arising from new geographies. The balance ofpower in the world economy has been shifting dramatically over the last fiveyears - a process which seems certain to accelerate - as the BRIC economies,Brazil, Russia, India and China, come increasingly to the fore. These economiesand their material intensive growth patterns are to a large extent drivingcommodity markets - as did the demands of Japanese growth in the 1960s and1970s. We have a long-established presence in Brazil with identified expansionopportunities. In Russia our most significant asset is Mondi's Syktyvkar millbut we have also established a representative office in Moscow and are lookingat further opportunities. India is already a significant market for a number ofour products and we are looking to establish a representative office during 2006to bring us closer to operational opportunities. In China, which is already amajor market for our products, Tarmac, Kumba and Mondi each have smalloperations and AngloGold Ashanti and Anglo Platinum have active explorationprogrammes. Anglo Coal has a number of significant opportunities under review. During 2005, we acquired a small stake in major Chinese coal producer, Shenhua.We intend to look not only at conventional opportunities to acquire and developmines but also at new partnerships both within the BRIC economies andinternationally with the significant companies that are emerging from thesecountries. Safety and Corporate Social Responsibility One of our greatest challenges has been to improve our safety record. We havemade a lot of progress since 1999 with a major reduction in both our number offatalities and our lost time injury frequency rate. It has been a consistentpriority at all levels from the board room to the stope. We have many examplesof excellence with Base Metals, for example, not having had a fatality in over16 months anywhere in the world. Over the last two years we have, nonetheless,seen a slowing in the momentum of improvement. We continue to suffer injuriesand fatalities amongst our 128,000 employees and 44,000 contractors at ourmanaged operations. Over the last few months we have introduced a new framework of non-negotiablestandards - the Anglo Safety Way. All senior managers, including myself, haveattended a new safety training module, developed by Du Pont, as the start of acascade process. We have also introduced a new safety peer audit process thathas been successfully introduced around the Group and in terms of culture we aredetermined that lessons are captured and learned more effectively from safetyincidents and that our managers accept that 'zero harm' is a realistic goal inour operations. I hope to be able to report on a much improved safetyperformance at next year's meeting. Chairman, in your remarks you referred to a number of the important initiativeswhich we are pursuing in relation to sustainable development. I can confirmthat the executive team see these challenges as central to the long-term futureof our business including our access to capital, to talent and to land andresources. Our recently released "Report to Society", which is available toshareholders at this meeting, clearly sets out the many exciting programmes wehave underway at our operations - and the progress that is being made on thisfront. Conclusion Ladies and Gentlemen, 2005 was a year of significant achievement. We achievedrecord earnings, production was up, costs were contained, projects weredelivered on time, and further organic growth prospects were added. We havealso set ourselves clear strategic targets for refocusing the Group to realisevalue and to provide the foundation for future growth. In terms of risks, Chairman you have referred to issues of resource nationalismand higher taxes in some jurisdictions. There are also major cost pressuresbearing upon a number of our key inputs which we have, to date, been largelysuccessful in containing. Although there are also clearly concerns in theworld economy arising from trade imbalances, the scale of the US deficit and theinflationary pressures which may result from higher energy prices, the overalloutlook remains encouraging, with leading indicators signalling continuingstrong global growth and robust underlying demand. If prices and demandcontinue at, or near, current levels the Group can expect another strong year. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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