Final Results

21st Feb 2007 07:02

Anglo American PLC21 February 2007 News Release 21 February 2007 Anglo American announces record earnings of $5.5 billion, up 46% Financial results • Operating profit(1) increased to $9.8 billion, up 54%• Record underlying earnings(2) of $5.5 billion, up 46% over 2005• Strong performances from Platinum; Base Metals; Ferrous Metals and Gold• Record production levels across most commodities• Cost savings of $583 million achieved, despite ongoing industry cost pressures• $6.9 billion of projects currently under development; projects approved in 2006 include $1.2 billion Barro Alto nickel and $1.6 billion of platinum projects Capital return/dividends • Additional buyback of $3 billion announced for 2007, following $7.5 billion announced in 2006, totalling $10.5 billion• Ongoing capital management programme• Final dividend up 21% to 75 US cents per share, bringing total normal dividends for the year to 108 US cents per share - up 20% Strategic progress • AngloGold Ashanti - interest reduced to 42% - initial $1 billion realised - phased exit strategy• Approval obtained for Dual Listed Company Structure for Mondi• Kumba restructuring completed resulting in a 64% direct interest in Kumba Iron Ore• Tarmac portfolio restructured; good progress on operational improvements• Disposal of major portion of Highveld Steel - $412 million received for 49.8% stake• Tongaat-Hulett: announces broad based BEE proposals and Hulamin demerger HIGHLIGHTS FOR THE YEAR TO 31 DECEMBER 2006 Year ended Year ended %US$ million, except per share amounts 31.12.06 31.12.05 changeGroup revenue including associates(3) 38,637 34,472 12%Operating profit including associates before special items and 9,832 6,376 54%remeasurements(1)Profit for the year attributable to equity shareholders 6,186 3,521 76%Underlying earnings for the year(2) 5,471 3,736 46%EBITDA(4) 12,197 8,959 36%Net cash inflows from operating activities 8,310 6,781 23%Earnings per share (US$): Basic earnings per share 4.21 2.43 73% Underlying earnings per share 3.73 2.58 45%Interim dividend (US cents per share) 33 28 18%Recommended final dividend 75 62 21%Total normal dividends for year 108 90 20%Special dividend previously paid 67 33 103%Total dividends for the year including special dividend 175 123 42% (1) Operating profit includes share of associates' operating profit (before share of associates' tax andfinance charges) and is before special items and remeasurements, unless otherwise stated. See note 3 to thefinancial information. For definition of special items and remeasurements see note 6 to the financialinformation.(2) See note 9 to the financial information for basis of calculation of underlying earnings.(3) Includes the Group's share of associates' turnover of $5,565 million (2005: $5,038 million). Seenote 3 to the financial information.(4) EBITDA is operating profit before special items and remeasurements, depreciation and amortisation insubsidiaries and joint ventures and share of EBITDA of associates. EBITDA is reconciled to cash inflowsfrom operations and to total profit from operations and associates in note 14 to the financial information. Tony Trahar, Chief executive, said: "In 2006, we achieved the highest ever operating profit of $9.8 billion, anincrease of 54% over the prior year. Our strong performance was due toincreased production across the majority of our businesses and higher prices, inparticular for base metals, platinum and iron ore. The strong global growthduring the year as well as constrained supply in many metals and minerals meantthat commodity prices remained strong, though cost pressures continued to be amajor area of focus. Strong cash generation (EBITDA) from our operations of $12.2 billion, as well asproceeds from non-core disposals, resulted in us announcing $7.5 billion beingreturned to our shareholders in the form of share buybacks and specialdividends, one of the highest levels of capital return in the industry. Afurther $3 billion buyback programme will be undertaken in 2007. During 2006, excellent progress was made in developing the Group's pipeline ofgrowth opportunities with a number of projects given the go-ahead, including the$1.2 billion Barro Alto nickel deposit in Brazil and $1.6 billion of platinumprojects including the Potgietersrust expansion, the Amandelbult expansion andthe Rustenburg Paardekraal 2 shaft replacement project. There are currently $6.9billion of projects under development and we are assessing a further $10 - $15billion of unapproved opportunities that will provide the Group with aprofitable growth platform over the next decade. It was an important year for Anglo American, with the Group making progress onits strategic objectives of further focusing the business on its core miningportfolio, simplifying its structure and enhancing returns. As a more focused,cohesive group, further cost savings and synergies as well as technology andknowledge sharing will be key priorities. Global economic growth was especially rapid in the first half of 2006, with allthe major regions of the world growing rapidly over this period. Commodityprices reacted positively to this environment, with new highs being recorded fora number of products. In the second half, global growth began to moderate,particularly in the US. European markets are improving and emerging markets, in particular China andIndia, are growing strongly. Continued growth in these regions in 2007 is likelyto largely offset weaker US growth and thus the decline in global growth fromthe strong level achieved in 2006 should be fairly modest. This should provide asupportive climate for commodities in the near term. The Group continues toprogress its strong organic project pipeline and drive operational excellence tomeet ongoing demand for its commodities." Review of 2006 Financial results Anglo American's underlying earnings for the year were a record $5.5 billion ascontinued strong metal prices and improved volumes reflected the favourabletrading environment for the Group's key commodities. Operating profit of $9.8billion was 54% higher over the prior year, with EBITDA up 36% at a record $12.2billion. Strong contributions came from Base Metals and Platinum as well as asignificant increase in contribution from AngloGold Ashanti. Kumba's resultsalso showed a significant increase. Coal recorded lower underlying earningsmainly due to a decline in export sales volumes and increased costs, while Paperand Packaging recorded a lower contribution and Industrial Minerals a flatcontribution, owing to continuing difficult market conditions although Paper andPackaging saw some improvement in conditions in the second half of the year.Underlying earnings at De Beers were below the prior year, mainly reflectinglower preference share income due to the June 2006 redemptions, and higherminorities as a result of the Ponahalo black economic empowerment transactionwhich was completed in April 2006. Production volumes were up for platinum, copper, zinc and nickel, iron ore, coaland industrial minerals, despite challenging operating conditions at some of thebase metals and coal mines. The mining industry globally is facing ongoing cost pressure throughout thesupply chain and, against this background, the Group achieved cost savings of$583 million in synergies, efficiencies and procurement. Platinum reported record operating profit of $2,398 million (24% of AngloAmerican's total operating profit), up 181%, on the back of a significantlyhigher price achieved for the basket of metals sold, higher production and aweaker average rand/dollar exchange rate. Diamonds recorded attributable operating profit of $463 million (5% of AngloAmerican's total), down 21% on 2005, due in part to lower sales by the DiamondTrading Company. Base Metals generated a record operating profit of $3,876 million (39% of AngloAmerican's total), up 131%, due to increased copper, zinc, lead and ferroniobiumproduction and significantly higher metals prices. Ferrous Metals and Industries' operating profit declined 7% to $1,360 million(14% of Anglo American's total), mainly as a result of the sale of non-corebusinesses as well as lower vanadium and manganese prices, partially offset byhigher iron ore prices. Coal recorded operating profit of $864 million (9% of Anglo American's total),15% lower, due mainly to lower export prices and export sales volumes. Industrial Minerals' operating profit was 9% lower at $336 million (3% of AngloAmerican's total), a robust performance in the face of challenging marketconditions, with lower volumes and weaker margins in some businesses exacerbatedby high energy costs for much of the year. Gold achieved a 41% increase in operating profit of $467 million (5% of AngloAmerican's total), on the back of a stronger gold price which was 31% higherthan the average price received in 2005. Paper and Packaging reported a lower operating profit of $477 million (5% ofAnglo American's total), a decrease of 4%, after a stronger second half partlyoffset the impact of a poor first six months. Capital structure and increased return to shareholders The Group's net debt position has reduced by $1.7 billion since the prior yearend. At 31 December net debt amounted to $3.3 billion. This underlines thestrong operating cash flows as well as proceeds from disposals, deconsolidationof AngloGold Ashanti debt and the conversion of $1.1 billion of the Group'sconvertible debt. The $2 billion share buyback, which commenced in March 2006,was completed in August 2006. The additional $4 billion share buyback announcedat the interim commenced in September 2006, with around $3.2 billion of shareshaving been repurchased as at 20 February 2007. Dividends In line with the Group's progressive dividend policy, the final dividend hasbeen raised 21% to 75 cents per share, to be paid on 3 May 2007 subject toshareholder approval at the Annual General Meeting to be held on 17 April 2007.Total dividends for the year (including the interim special dividend of 67 centsper share), amount to 175 cents per share (2005:123 cents per share). Significant progress on strategic objectives During 2006, significant progress was made in terms of restructuring theportfolio. In April, $1 billion worth of AngloGold Ashanti shares was sold,reducing Anglo American's shareholding from 51% to 42%. The decision to reduceand ultimately exit the Group's gold holding relates to the higher relativevaluations attributable to pure-play gold companies, rather than as part of adiversified mining group. Anglo American continues to explore all availableoptions to exit AngloGold Ashanti in an orderly manner. Regarding Mondi, plans for a full demerger are progressing. Approval inprinciple has been received from the regulatory authorities in South Africa fora Dual Listed Company Structure with primary listings in Johannesburg andLondon. Arrangements are being finalised to enable a smooth and efficienttransition to a fully independent company. The senior management team is inplace and a new board of directors is being established. The listing is targetedfor mid 2007. Good progress was made in restructuring the Ferrous Metals and Industriesbusiness. In July 2006 the majority of the Group's stake in Highveld Steel wassold, with Russia's Evraz group and Credit Suisse each acquiring 24.9% ofHighveld's share capital for an aggregate consideration of $412 million. Evrazhas an option to increase its stake in Highveld, once regulatory approvals arereceived, entitling Evraz to purchase the remaining 29.2% shareholding. Onimplementation of the option arrangement, the aggregate amount that will havebeen received by Anglo American for its 79% interest in Highveld will be $678million. In November, the restructuring of Kumba was completed, with the listings on theJohannesburg Stock Exchange of Kumba Iron Ore as a pure play iron ore company,in which Anglo American holds 64%, and Exxaro, which became South Africa'slargest black economic empowered natural resources company. The unbundling of the Tongaat-Hulett Group's aluminium business to shareholdersand simultaneous introduction of broad based black economic empowerment in bothTongaat-Hulett and Hulamin will occur during the second quarter of 2007. Thiswill reduce Anglo American's interests in Tongaat-Hulett to 38% and in Hulaminto 39%. Tarmac's strategic review was completed in early 2006 and clearly defines thescope of its business as aggregates, together with three routes to market(asphalt, concrete and concrete products), and integration of cement whereappropriate. The disposals announced in February 2006 have been largelycompleted and good progress is being made on delivering structural operationalimprovements. Tarmac is aiming to make a $50 million profit improvement on alike-for-like basis over the next three years. Strong project pipeline driving growth During 2006, excellent progress was made in developing the Group's pipeline ofgrowth opportunities across numerous territories. Anglo American currently has$6.9 billion of approved projects under development. Anglo Platinum expects refined platinum production to be between 2.8 and 2.9million ounces in 2007 in line with its long term growth target of 5% per annum.During 2006 the company approved several major projects, including the $692million Potgietersrust expansion, the $224 million Amandelbult expansion and the$316 million Paardekraal 2 shaft replacement project. These new projects willcontribute 456,000 platinum ounces to Anglo Platinum's production. The Townlands Ore Replacement Project at a capital cost of $139 million wasapproved in February 2007. This will replace 70,000 ounces of refined platinumper annum by 2014 with production from new Merensky and UG2 areas at theRustenburg Townlands Shaft. Anglo Coal has an extensive range of growth options in the coal industry and iscurrently developing four major projects across three operating regions. InAustralia, work is continuing on the $835 million Dawson project, which isplanned to reach full production in 2007, producing an additional 12.7 milliontonnes per annum for export markets. Construction has also begun on the $516million Lake Lindsay greenfield project at the German Creek mine which willproduce 3.7 million tonnes of metallurgical coal and 0.3 million tonnes ofthermal coal annually by 2008, most of it for the Pacific Rim markets. In SouthAfrica, development of the Mafube mine has started following the granting ofprospecting rights, while the Isibonelo project, which supplies 5 million tonnesto Sasol per annum, reached full production in 2006. In Colombia, the firstphase of the expansion to 28 million tonnes per annum at the Cerrejon minereached completion and a second expansion to 32 million tonnes per annum isalready under way. Base Metals is currently assessing a number of major projects, which will drivesignificant production growth well into the next decade. In December, thego-ahead was given for the $1.2 billion Barro Alto project in Brazil which willproduce an average of 36,000 tonnes of nickel per year in the form offerronickel over a minimum 26 year mine life. Construction of the Barro Altofacilities is scheduled to begin in 2007, with production commencing in 2010 andramping up to full capacity during 2011. In addition, work is continuing onfeasibility and de-bottlenecking studies at the two major Chilean copperoperations, Los Bronces and Collahuasi, and a decision to proceed with theseexpansions is expected in 2007. Kumba Iron Ore is well advanced on the $754 million Sishen expansion project inSouth Africa's Northern Cape, with first output due in 2007 and full ramp-up to13 million tonnes per annum targeted for 2009. This will take the company to 45million tonnes per annum of iron ore production, of which 36 million tonnes perannum will be exported. Further brownfield and greenfield projects offer thepotential to increase Kumba Iron Ore's annual production to over 70 milliontonnes per annum by 2015. Other iron ore growth opportunities are being pursued. Progress continues on De Beers' Canadian projects at Snap Lake and Victor.Despite project costs rising, owing to higher energy costs, technologicalchallenges and the impact of the early closure of the winter road to the sites,both developments remain on track to open in the final quarters of 2007 and2008, respectively. In 2006, De Beers also approved two projects in SouthAfrica: the re-opening of the dormant Voorspoed mine and the South African SeaAreas marine mining project for a total capital expenditure of $284 million. Outlook Global economic growth was especially rapid in the first half of 2006, with allthe major regions of the world growing rapidly over this period. Commodityprices reacted positively to this environment, with new highs being recorded fora number of products. In the second half, global growth began to moderate,particularly in the US. European markets are improving and emerging markets, in particular China andIndia, are growing strongly. Continued growth in these regions in 2007 is likelyto largely offset weaker US growth and thus the decline in global growth fromthe strong level achieved in 2006 should be fairly modest. This should provide asupportive climate for commodities in the near term. The Group continues toprogress its strong organic project pipeline and drive operational excellence tomeet ongoing demand for its commodities. For further information:Investor enquiriesNick von SchirndingTel: +44 207 968 8540 Charles GordonTel: +44 207 968 8933 Anne DunnTel: +27 11 638 4730 Media enquiriesKate AindowTel: +44 207 968 8619 Daniel NgwepeTel: +27 11 638 2267 Fiona WrenchTel : +27 11 638 Notes to editors: Anglo American plc is one of the world's largest mining and natural resourcegroups. With its subsidiaries, joint ventures and associates, it is a globalleader in platinum group metals, gold and diamonds, with significant interestsin coal, base and ferrous metals, industrial minerals and paper and packaging.The group is geographically diverse, with operations in Africa, Europe, Southand North America, Australia and Asia. (www.angloamerican.co.uk) Webcast of presentation: A live webcast of the annual results presentation starting at 10.00am UK time on21 February can be accessed through the Anglo American website atwww.angloamerican.co.uk. Pictures: High resolution images can be downloaded by the media at www.vismedia.co.uk Note: Throughout this press release '$' denotes United States dollars and 'cents' refers to United States cents; operating profit includes associates'operating profit and is before special items and remeasurements unless otherwisestated; special items and remeasurements are defined in note 6 and underlyingearnings are calculated as set out in note 9 to the financial information.EBITDA is operating profit before special items and remeasurements, depreciationand amortisation in subsidiaries and joint ventures and share of EBITDA ofassociates. EBITDA is reconciled to cash inflows from operations and to totalprofit from operations and associates in note 14 to the financial information. Financial review of Group results Underlying earnings per share for the year increased to $3.73 per share, anincrease of 45% compared with 2005. Underlying earnings totalled $5,471 million,with strong contributions from Base Metals and Platinum as well as a significantincrease in contribution from AngloGold Ashanti. Coal recorded lower underlyingearnings mainly due to a decline in export sales volumes and increased costs,while Paper and Packaging recorded a lower contribution and Industrial Mineralsa flat contribution, owing to continuing difficult market conditions, althoughPaper and Packaging saw some improvement in overall market conditions in thesecond half of the year. Underlying earnings at De Beers were below the prioryear, principally reflecting lower sales by the Diamond Trading Company andincreased exploration and development cost, as well as lower preference shareincome arising from the June 2006 redemptions, and higher minorities as a resultof the Ponahalo black economic empowerment transaction which was completed inApril 2006. Kumba's results showed a significant increase over the prior year;however, Ferrous Metals as a whole recorded a lower contribution chiefly owingto lower manganese and vanadium prices, the impact of the increased minoritiesas a result of the Highveld part disposal in July, as well as the full yearimpact of the disposal in mid-2005 of Boart Longyear and Samancor Chrome. Underlying earnings Year ended Year ended$ million 31 Dec 2006 31 Dec 2005Profit for the financial year attributable to equity shareholders 6,186 3,521Operating special items including associates 562 323Operating remeasurements including associates 429 317Net profit on disposals including associates (1,367) (185)Financing special item 4 -Financing remeasurements including associates: Fair value loss on convertible option 18 32 Exchange gain on De Beers' preference shares (40) (72) Unrealised gains and losses on non-hedge derivatives (8) (2)Tax on special items and remeasurements including associates (124) (15)Related minority interests on special items and remeasurements (189) (183)including associatesUnderlying earnings 5,471 3,736Underlying earnings per share ($) 3.73 2.58 Profit for the year after special items and remeasurements increased by 76% to$6,186 million compared with $3,521 million in the prior year. This increaserelates mainly to strong operational results as discussed above. There was asignificant increase in net profits on disposal which, including associates, was$1,182 million higher than 2005, mainly as a result of the Group's disposal of19.7 million ordinary shares in AngloGold Ashanti and the Group'snon-participation in the issue of ordinary shares by AngloGold Ashanti ($909million net profit on disposal) as well as the profit of $301 million on partialdisposal of Highveld. This was largely offset by the $52 million loss on partialdisposal of Kumba's non-iron ore assets as well as operating special items andremeasurements losses of $991 million, including the impairment andrestructuring of certain Tarmac assets ($278 million), impairment and closurecosts relating to the Dartbrook coal mine in Australia ($125 million),impairment mainly of certain downstream converting Packaging assets and certainBusiness Paper assets at Paper and Packaging ($104 million) and unrealisedlosses on non-hedge derivatives ($429 million), recorded principally atAngloGold Ashanti. The Group's results are influenced by a variety of currencies owing to thegeographic diversity of the Group. The South African rand on average weakenedslightly against the US dollar compared with the prior year, with an averageexchange rate of R6.77 compared with R6.37 in 2005. Currency movementspositively impacted underlying earnings by $129 million. Operating resultsbenefited from weaker average rates for the rand and Australian dollar, althoughthese were offset by the stronger Chilean peso and Brazilian real. There was asignificant beneficial effect on underlying earnings from increased pricesamounting to $3,581 million, particularly in respect of copper and platinumgroup metals. Summary income statement Year ended Year ended$ million 31 Dec 2006 31 Dec 2005Operating profit before special items and remeasurements 8,742 5,344Operating special items (524) (186)Operating remeasurements (344) (301)Operating profit from subsidiaries and joint ventures 7,874 4,857Net profit on disposals 1,168 87Share of net income from associates (1) 685 657Total profit from operations and associates 9,727 5,601Net finance costs before special items and remeasurements (165) (428)Financing special items and remeasurements - 35Profit before tax 9,562 5,208Income tax expense (2,640) (1,275)Profit for the financial year 6,922 3,933Minority interests (736) (412)Profit for the financial year attributable to equity shareholders 6,186 3,521Basic earnings per share ($) 4.21 2.43 Group operating profit including associates before special items and 9,832 6,376remeasurements (1) Operating profit from associates before special items and 1,090 1,032remeasurementsOperating special items and remeasurements (2) (123) (153)Net profit on disposals (2) 199 98Financing remeasurements (2) 26 7Net finance costs (before remeasurements) (101) (51)Income tax expense (after special items and remeasurements) (368) (274)Underlying minority interest (after special items and (38) (2)remeasurements)Share of net income from associates 685 657 (2) See note 3 to the financial information. Special items and remeasurement charges 31 December 2006 31 December 2005 Excluding Excluding associates Associates Total associates Associates Total $ millionOperating special (524) (38) (562) (186) (137) (323)itemsOperating (344) (85) (429) (301) (16) (317)remeasurementsOperating specialitems andremeasurements (868) (123) (991) (487) (153) (640) Operating special items and remeasurements, including associates, amounted to$991 million, with $562 million operating special charges in respect of impairments, restructurings and mine and operation closures, including a $278 million combined impairment and restructuring charge relating to certain non-core assets to be sold and other assets to be restructured at Industrial Minerals following the conclusion of the strategic review, an impairment and related closure costs of $125 million at AngloCoal Australia's Dartbrook mine, and a $104 million impairment at Paper and Packaging mainly of certain downstream converting Packaging assets. Operating remeasurements, including associates, of $429 million principallyrelates to unrealised losses on non-hedge commodity derivatives at AngloGoldAshanti. The loss in 2006 relates to the revaluation of non-hedge derivativesresulting from changes in the prevailing spot gold price, exchange rates andinterest rates compared with the equivalent period in 2005. Net profit on sale of operations, including associates, amounted to $1,367million. This included the profit on sale of 19.7 million ordinary shares inAngloGold Ashanti, which resulted in $737 million profit on disposal as well as$172 million profit on the deemed disposal of AngloGold Ashanti arising from thenon-participation in the issue of ordinary shares by AngloGold Ashanti. A gainof $301 million also arose on the part disposal of Highveld, offset by a loss of$52 million on the part disposal of Kumba's non-iron ore assets. The Group alsorealised a $103 million profit on the sale of an indirect 26% equity interest inDe Beers Consolidated Mines Limited to Ponahalo Holdings (Proprietary) Limited. Financing remeasurements, including associates, are made up of a $18 millionfair value loss on the AngloGold Ashanti convertible bond option, unrealised netgains of $8 million on non-hedge derivatives and a $40 million foreign exchangegain on De Beers dollar preference shares held by a rand denominated entity. In line with IFRIC guidance, the option component of the AngloGold Ashanticonvertible bond is fair valued at each reporting period and held as aliability. Changes in fair value of the liability are taken to the incomestatement. The US dollar preference shares held by De Beers (a rand functional currencyentity) are classified as 'financial asset investments' and are retranslated ateach period end. The resulting rand:US dollar foreign exchange gains and lossesare reported through the income statement as a remeasurement charge. Net finance costs Net finance costs, excluding special items and remeasurements of nil (2005: gainof $35 million), decreased from $428 million in 2005 to $165 million. Thedecrease reflects lower interest costs due to the reduction in net debt. Taxation 31 December 2006 31 December 2005 $ million Before special Associates' Including Before special Associates' tax Including items and tax and associates items and and minority associates remeasurements minority remeasurements interests interests Profit before tax 9,159 407 9,566 5,612 285 5,897Tax (2,763) (369) (3,132) (1,283) (281) (1,564)Profit for 6,396 38 6,434 4,329 4 4,333financialperiodEffective tax 32.7 26.5rateincludingassociates % IAS 1 Presentation of financial statements requires income from associates to bepresented net of tax on the face of the income statement. Associates' tax istherefore not included within the Group's total tax charge on the face of theincome statement. Associates' tax before special items and remeasurementsincluded within 'Share of net income from associates' for the year ended 31December 2006 was $369 million (2005: $281 million). The effective rate of taxation before special items and remeasurements includingshare of associates' tax before special items and remeasurements was 32.7%. Thiswas an increase from the effective rate on the same basis of 26.5% in the yearended 31 December 2005. The December 2005 tax rate benefited from the one-offimpact of a reduction in the statutory tax rates in South Africa and Ghana.Without this one-off benefit the effective tax rate for the prior year wouldhave been 29.7%. The December 2006 tax rate reflects the relative impact of thestatutory tax rates, on a fully distributed basis where appropriate, of thecountries in which the Group's operations are based. In future periods it isexpected that the effective tax rate, including associates' tax, will remain ator above the UK statutory tax rate of 30%. Balance sheet Equity attributable to equity shareholders of the Company was $24,271 millioncompared with $23,621 million as at 31 December 2005. During the year, the Group announced a share buyback programme totalling $6billion. By the end of 2006, $3.9 billion of this programme had been completed,with the programme due to complete fully in the first half of 2007. A further$3 billion share buyback has been announced for 2007. Net debt, excluding hedges but including balances that have been reclassified asheld for sale ($80 million) was $3,324 million, a decrease of $1,669 millionfrom 31 December 2005. The reduction was principally due to reduction of debtfrom cash flows from operations and disposals, deconsolidation of AngloGoldAshanti debt and conversion of $1.1 billion of the Group's convertible debt,although this was partially offset by $3.9 billion of share buyback and $1.5billion special dividend as at 31 December 2006. Net debt at 31 December 2006 comprised $6,304 million of debt, offset by $2,980million of cash, cash equivalents and current financial asset investments. Netdebt to total capital(1) as at 31 December 2006 was 12.9%, compared with 17.0%at 31 December 2005. Cash flow Net cash inflows from operating activities was $8,310 million compared with$6,781 million in 2005. EBITDA was $12,197 million, a substantial increase of36% from $8,959 million in 2005. Depreciation and amortisation decreased by $405million to $2,036 million. Acquisition expenditure accounted for an outflow of $344 million compared with$530 million in 2005. This included $76 million, net of cash acquired, inrespect of the Group's investment in AltaSteel (Ferrous Metals and Industries)and $65 million in respect of the Group's investment in Akrosil and Stambolijski(Paper and Packaging). Proceeds from disposals totalled $1,642 million, with net proceeds on the saleof 19.7 million ordinary shares of AngloGold Ashanti of $839 million and netproceeds of $412 million received on disposal of 49.8% of Anglo American'sshareholding in Highveld Steel. Repayment of loans and capital from associates amounted to $394 million and isattributable to capital redemptions by De Beers, comprising the redemption of$175 million of preference shares and a further $219 million in respect of ashare premium redemption following the Ponahalo black economic empowermenttransaction. Purchases of tangible assets amounted to $3,686 million, anincrease of $380 million. Increased capital expenditure by Platinum, Coal,Ferrous Metals and Industries, Industrial Minerals and Base Metals was partiallyoffset by a reduction in capital expenditure at Paper and Packaging, as well asthe impact of including AngloGold Ashanti's capital expenditure up to 20 April2006, after which it is accounted for as an associate. Dividends A final dividend of 75 US cents per share to be paid on 3 May 2007 has beenrecommended. Analysis of dividends US cents per share 2006 2005Interim dividend (US cents per share) 33 28Recommended final dividend 75 62 Normal dividend for year 108 90Special dividend previously paid 67 33Total dividends 175 123 (1) Net debt to total capital is calculated as net debt divided by total capitalless investments in associates. Total capital is net assets excluding net debt. Operations review In the operations review on the following pages, operating profit includesassociates' operating profit and is before special items and remeasurementsunless otherwise stated. Capital expenditure relates to cash expenditure onfixed assets. PLATINUM $ million Year ended Year ended 31 Dec 2006 31 Dec 2005 Operating profit 2,398 854EBITDA 2,845 1,282Net operating assets 7,078 7,018Capital expenditure 923 616Share of Group operating profit 24% 13%Share of Group net operating assets 25% 20% Anglo Platinum's operating profit reached a record $2,398 million, increasing181% on 2005's operating profit of $854 million. This was achieved on the backof a significantly higher price achieved for the basket of metals sold,increased production and a weaker average rand/US dollar exchange rate. Markets The average dollar price realised for the basket of metals sold equated to$2,030 per platinum ounce, 46% higher than in 2005, with firmer platinum,rhodium and nickel prices making the largest contribution to the increase. Theaverage realised price for platinum of $1,140 per ounce was $246 higher than in2005, while nickel averaged $10.74 per pound against $6.77 in 2005. The priceachieved for rhodium averaged $3,542 per ounce, an increase of $1,576 per ounceover 2005, and includes the effect of existing long term contractualarrangements with some customers entered into to support and develop the rhodiummarket. Technological development continues to drive industrial demand for platinum andongoing research into new applications will create further growth in thissector. With the rapid spread of exhaust emissions legislation, over 91% of newvehicles sold in the world now have autocatalysts fitted. The intensifyingstringency of emissions legislation will drive growth in PGM demand forautocatalysts as new legislation is applied to trucks and off road vehicles inthe USA. The increasing popularity of diesel-powered vehicles in Europecontinues and this has also intensified the demand for platinum, asdiesel-powered cars can only use autocatalysts that are predominantlyplatinum-based. Operating performance Refined platinum production for the year rose by 15% to 2,816,500 ounces,primarily due to increased production at mining operations and the release ofmetal from pipeline stocks, including the processing of concentrate built up atthe Polokwane Smelter in 2005. Platinum production from mining operations,expressed in equivalent refined ounces (metal contained in concentrate net ofsmelting and refining losses), increased by 5% to 2,638,600 ounces. The increasewas mainly attributable to improved production volumes at the Amandelbult,Kroondal, Modikwa, Bafokeng-Rasimone and Rustenburg operations as well as newoutput from the Marikana and Mototolo operations. However, this was partlyoffset by lower output from Potgietersrust and the Western Limb TailingsRetreatment plant. The cash operating cost per equivalent refined platinum ounce in rand termsincreased by 10.7%. Once-off additional ground support work during 2006 atUnion, equipping and development programmes to establish a sustainable base forfuture production at Amandelbult and Rustenburg, cost increases in diesel,steel, tyres and labour and the effect of lower grades as a consequence of ahigher percentage of UG2 ore mined, were the principal reasons for the aboveinflation unit cost increase. Projects Anglo Platinum remains confident of the robustness of demand for platinum and iscontinuing with its expansion programme and expects to meet its stated averagecompound growth target of 5% per annum by exploiting its own reserves throughdirect investment in projects as well as with joint venture partners. Thisgrowth profile requires projects that will create incremental new production aswell as maintain existing production levels due to reserve depletion fromcurrent mining activities. The implementation of Anglo Platinum's extensive suite of mining and processingprojects to expand and maintain production continues on schedule. Projects thathave increased production include Modikwa, Kroondal and for the first time in2006, the Marikana and Mototolo ventures which have both added equivalentrefined platinum ounces of 12,800 for 2006. Marikana, approved in 2005, willproduce 74,000 refined platinum ounces a year by 2009. Mototolo is set to reachsteady state production by the end of 2007, producing refined platinumproduction of 130,000 ounces per annum at steady state. In 2006 the company approved capital expenditure totalling $1.6 billion, whichincluded the Potgietersrust North expansion project. Work on this project, whichaims to mill an additional 600,000 tonnes of ore per month, producing anadditional 230,000 refined platinum ounces per annum from 2009, has commenced. Projects that contribute towards maintaining production levels include theAmandelbult 1 shaft optimisation project, which was successfully completedduring the year with the 75,000 tonnes per month UG2 concentrator being fullycommissioned and running at capacity. This concentrator processes UG2 ore asMerensky production declines due to the depletion of Merensky ore reserves. The Amandelbult East Upper UG2 project, which was approved in 2006, willconventionally mine the UG2 reef, using existing mining infrastructurepreviously employed to extract Merensky reef, at the vertical number 2 shaft andat three decline shafts. The 75,000 tpm UG2 concentrator will be expanded to210,000 tpm and by 2012 the project will contribute an additional 106,000 ouncesof refined platinum per annum. The Rustenburg Paardekraal 2 shaft replacement project will access deeperMerensky reserves at a rate of 100,000 tpm. The project is expected to produce120,000 ounces of refined platinum per annum by 2015, replacing decreasingproduction as a result of reserve depletion. The Townlands Ore Replacement project at a capital cost of $139 million wasapproved in February 2007 and will replace 70,000 ounces of refined platinum perannum by 2014 with production from new Merensky and UG2 areas at the RustenburgTownlands Shaft. In December, Anglo Platinum concluded a black economic empowerment transactionwith the Bakgatla-Ba-Kgafela traditional community, under which the communityacquired a 15% interest in Anglo Platinum's Union Section mining andconcentrating business as well as interests in the prospecting rights of certainproperties in the vicinity of Union Section. Outlook The demand for newly-mined platinum continues to grow from the autocatalyst andindustrial sectors offsetting the decline in demand from the jewellery sector.Autocatalyst demand is expected to continue growing in response to growth in thesales of diesel vehicles worldwide coupled with the advances in emissionlegislation requiring the fitment of catalyst systems and particulate filterscontaining platinum. The application of platinum in a wide variety of uses inindustry remains robust. In the jewellery sector, the high price of platinum,but more importantly the volatility in the price, is limiting the levels ofstock held within the trade and hence demand is down. Additional developmentprojects to support the "Platinum" brand and the industry are being implementedin China, Japan and the USA. These initiatives are expected to sustain interestand assist in restoring demand even at current price levels. The recovery of palladium demand in the industrial market continues particularlyin the autocatalyst and electronics sectors. Substitution of palladium forplatinum in gasoline engine emission control catalysts is a continuing feature.The demand for palladium in the Chinese jewellery trade reduced from theexceptional peak last year as the manufacturing and retail pipelines wereestablished. Sustained demand will be dependent on creating consumer desire forthe product. The development of a differentiating image for palladium is in itsinfancy, but being pursued. The market for palladium is also being supported byinvestor interest in the metal which absorbs additional supply from Russianstocks. The markets for rhodium and ruthenium are supported by strong industrial demandand are expected to be buoyant in the medium term. Refined platinum production for 2007 is expected to be between 2.8 million and2.9 million ounces. While production and sales volumes will increase in 2007,the most significant variable affecting earnings will be metal prices and therand/US dollar exchange rate. DIAMONDS$ million Year ended Year ended 31 Dec 2006 31 Dec 2005 Share of associate's operating profit 463 583EBITDA 541 655Group's share of De Beers' net assets (1) 2,062 2,056Share of Group operating profit 5% 9% (1) De Beers is an independently managed associate of the Group. The Group'sshare of De Beers' net assets is disclosed. The Group's share of operating profit from De Beers declined by 21% to $463million from the 2005 figure of $583 million. This was largely attributable tolower sales by the Diamond Trading Company (DTC), the marketing arm of De Beers,increased exploration and development costs, reduced earnings in the diamondaccount, the impact of increased finance charges, and the dilution in earningsas a consequence of the sale of 26% of De Beers Consolidated Mines to a blackeconomic empowerment consortium. Markets Solid consumer demand for diamond jewellery continued in 2006, with the US, andparticularly China and India, reporting strong sales growth. Sales by the DTCwere $6.2 billion, slightly below the previous year (2005: $6.5 billion), thoughstill the second-highest on record. The decline reflected the reduced supplyavailable to the DTC and the continuing challenging environment in the wholesalemarket for rough diamonds, where a lack of liquidity, margin pressure andincreasing financing costs impacted pipeline demand. DTC marketing initiatives continue to effectively drive demand for diamondjewellery. Preliminary reports point to global retail sales for 2006 rising byabout 4%-5%, with India and China achieving double-digit growth. DTC marketingprogrammes such as 'Journey Diamond Jewellery' and 'Trilogy' were strong growthdrivers in 2006. Independently managed De Beers Diamond Jewellers (DBDJ), the DeBeers retail joint venture with Louis Vuitton Moet Hennessy (LVMH), had anexcellent year, with an encouraging performance in the United States, whichaccounts for around 50% of world jewellery sales by value. In 2007 DBDJ willintroduce its first wristwatch collection and increase its presence in the US,the Middle East, Japan, Hong Kong and South Korea. Operating performance In 2006 the De Beers group achieved its highest ever production of 51 millioncarats (2005: 49 million carats). This was attributable mainly to Debswanaraising output in Botswana from 31.9 million carats to 34.3 million carats. InNamibia, Namdeb lifted production by 18% to just over 2 million carats.Production from the South African operations totalled 14.6 million carats.Element Six, De Beers industrial diamond business, continues to achievesustained growth, recording a satisfactory profit for the year. In Canada, De Beers is on target to start production at Snap Lake in theNorthwest Territories in October, 2007, while the Victor mine in Ontario isscheduled to come on stream in the last quarter of 2008. In June 2006 De Beersannounced that it had been granted a right to mine for diamonds at thelong-closed Voorspoed mine in South Africa's Free State province. As part of its$145 million South African Sea Areas marine mining project, a mining vessel, nowundergoing commissioning, will commence operations off the west coast of SouthAfrica in the third quarter of 2007. When all of these operations are in fullproduction they will contribute 3.3 million carats, valued at $700 million, toDe Beers' production capacity. In 2006 De Beers positioned itself well to take advantage of explorationopportunities. The company has been granted three new concessions in Angola,prospecting licences have been granted in Botswana around the Jwaneng and Orapaareas, while De Beers is involved in a number of joint ventures to accesspromising ground in the Democratic Republic of Congo. In Canada, De Beers hassold its 42% stake in the Fort a la Corne project in Saskatchewan. In September2006 De Beers and Alrosa, the leading Russian diamond mining company, signed aMemorandum of Understanding which should lead to joint diamond prospecting andexploration activities in Russia. A groundbreaking empowerment transaction was concluded in April 2006, resultingin the sale of 26% of De Beers Consolidated Mines, the South African mining armof De Beers, to a black economic empowerment consortium. In May 2006 the Government of Botswana and De Beers signed the renewal of themining licence for Jwaneng, the world's most valuable diamond mine. The licencewill run for 25 years (effective from 1 August 2004), while the currently heldlicences for the Orapa, Lethlakane and Damtshaa mines were also extended to2029. The agreement also covered the sale of diamond production from Debswana(held 50:50 by the Government of Botswana and De Beers) to the DTC for a furtherfive years, and the establishment of Diamond Trading Company Botswana (alsoequally owned by the two parties) to sort and value all Debswana's diamondproduction. On 30 January 2007, the Government of Namibia and De Beers announced theextension of the DTC sales contract for a further eight years (effective 1January 2006), and the establishment of Namibia Diamond Trading Company to sort,value and market Namibia's diamond output. Following the announcement in 2004 that De Beers had reached a settlement withthe US Department of Justice, De Beers announced a provisional agreement inMarch 2006 to settle and consolidate all of the remaining class actions againstDe Beers for a total sum of $295 million. Proceedings to obtain final judicialapproval of the settlement of the class actions are continuing. On 31 January 2007 the European Commission formally announced that it haddecided to reject all of the outstanding complaints against De Beers and the DTC in respect of the DTC Sales and Marketing policy, and the Russian Trade agreement. Outlook The outlook for further growth in retail diamond jewellery sales remainspositive, with India and China likely to be the leading growth markets, and theUS continuing its five year growth trend. While DTC sales are likely to beconstrained by availability in 2007, due to the reduction in Russian purchasesas agreed with the European Commission, De Beers will benefit from bringing newproduction on stream towards the end of the third quarter of 2007. De Beers willfocus on implementing its new vision of 'maximising the value of its leadershipposition'. This includes, in addition to new production, reviewing assets thatdo not fit the De Beers portfolio criteria, focusing exploration on the mostprospective areas, continuing to improve cost efficiency and investing in DBDJand the 'Forevermark' marketing programmes. BASE METALS $ million Year ended Year ended 31 Dec 2006 31 Dec 2005 Operating profit 3,876 1,678 Copper 3,019 1,381 Nickel, Niobium, Mineral Sands 405 249 Zinc 516 102 Other (64) (54) EBITDA 4,214 1,990Net operating assets 4,268 4,785Capital expenditure 298 271Share of Group operating profit 39% 26%Share of Group net operating assets 15% 13% Anglo Base Metals generated a record operating profit of $3,876 million (2005:$1,678 million) on the back of increased copper, zinc, lead and ferroniobiumproduction and significantly higher metal prices, partially offset bysignificant rises in the costs of energy and most key consumables. Althoughcopper and zinc treatment and refining charges eased, increases in metal pricelinked smelter deductions and price participation saw a significant increase inthis component of costs. The strength of the Chilean and Brazilian currenciesagainst the dollar also adversely impacted operating profits. MarketsAverage LME prices (c/lb) 2006 2005Copper 305 167Nickel 1,095 668Zinc 148 63Lead 58 44 With global GDP growth remaining strong, average base metal prices movedsignificantly upwards in 2006. Although copper demand was slightly weaker thanexpected (with destocking by the Chinese and other manufacturers) andprice-induced substitution (particularly in respect of copper and nickel) wasalso a feature, aggregate demand growth for base metals was largely as expectedat 5%-6%. The primary drivers of the dramatic increase in prices were tightmetal inventories (in turn, a reflection of weak mine supply growth arising froma lack of investment in new capacity and further supply side disruptions,particularly in the case of copper) and the significant and rapid inflow ofspeculative and investor funds into commodities markets. Operating performance Copper Division 2006 2005Operating profit ($m) 3,019 1,381Attributable production (tonnes) 643,800 634,600 Los Bronces copper mine implemented measures to overcome the lower throughputexperienced in the first half arising from unexpectedly hard ore encountered inthe Donoso Este area. Production, which included a record amount of cathode, wasmarginally lower at 226,000 tonnes (2005: 227,300 tonnes). El Soldado sawincreasing mining flexibility and grade as the year progressed and delivered68,700 tonnes (2005: 66,500 tonnes). Mantoverde suffered some delays in dumpconstruction early in the year and output decreased by 3% to 60,300 tonnes.Mantos Blancos reduced the dump leach area under irrigation but this was morethan offset by improved grades and recoveries in both the vat leach and sulphideore circuits, resulting in a 5% rise in production to 91,700 tonnes.Notwithstanding intermittent production interruptions arising from the Rosariocrushing and conveying system and SAG Mill No. 3, Collahuasi lifted output to440,000 tonnes (2005: 427,100 tonnes) largely as a result of a 13% improvementin sulphide mill throughput. Molybdenum production rose materially to 3,400tonnes (2005: 300 tonnes) in the first full year of molybdenum plant production.Chagres increased production by 26% to 173,400 tonnes following the completionof the expansion project at the end of 2005. The $80 million El Soldado pit extension project was completed on time and underbudget. The Los Bronces feasibility study, which contemplates increasing copperproduction by 75% at a cost of approximately $1.2 billion, will be completed inmid-2007, while the Quellaveco revised feasibility study, examining a projectwith production of copper of around 200,000 tonnes per annum at a capital costof approximately $1.2 billion, will be complete in 2008. Evaluation of theprogressive de-bottlenecking project at Collahuasi will be undertaken this year. The new Chilean mining tax was paid with effect from January 2006. Nickel, Niobium and Mineral Sands Divisions 2006 2005Operating profit ($m) 405 249Attributable nickel production (tonnes) 26,400 26,500 Production of 16,600 tonnes at Loma de Niquel was marginally down for the year.Codemin output rose to 9,800 tonnes (2005: 9,600 tonnes), but sales volumes were11% higher owing to the timing of shipments. In the first full year ofproduction following the completion of the scalping project, niobium outputincreased a further 18% to a record 4,700 tonnes. Namakwa Sands' zircon andrutile production was very similar to 2005 at 128,400 tonnes and 28,200 tonnesrespectively, while slag tonnage, which had been at similar levels until a majorfurnace burn-out occurred in August, was 19% lower at 133,900 tonnes. In December the $1.2 billion Barro Alto project, which will see the constructionof a 36,000 tonnes per annum ferronickel operation in Brazil, was approved.First production is scheduled for 2010. Zinc Division 2006 2005Operating profit ($m) 516 102Attributable zinc production (tonnes) 334,700 324,200Attributable lead production (tonnes) 71,400 63,000 Skorpion operated at design capacity until August when impurities in theelectrowinning circuit caused a hydrogen fire, necessitating a 20 day shutdown.Although operations were again running at design capacity by December,production for the year eased to 129,900 tonnes (2005: 132,800 tonnes).Increased production from secondary mining (released by the backfill programme),improved grades (arising from the start-up of mining in the Bog Zone) andimproved mill throughput and recoveries resulted in Lisheen producing 170,700tonnes of zinc and 23,100 tonnes of lead (2005: 159,300 tonnes and 20,800tonnes, respectively). At Black Mountain the commissioning at the Deeps shaft and the phasedredeployment from the Broken Hill and Swartberg orebodies to, and the opening upof, the Deeps orebody has led to a gradual improvement in grade. This, togetherwith a modest improvement in mill throughput, saw an increase of 6% in zincproduction and 14% in lead output to 34,100 tonnes and 48,300 tonnes,respectively. In January 2007 it was announced that black economic empowerment company ExxaroResources Limited had exercised an option under which it had, subject to thesatisfaction of conditions precedent and contractual price adjustments, agreedto acquire Namakwa Sands (for R2.0 billion) and 26% of each of Black Mountainand Gamsberg (for a combined figure of R180 million). Anglo Base Metals continues to focus on operational excellence and delivering onthe value-additive growth options that it is creating. Increases in zinc andferroniobium production are forecast in 2007 while nickel output should bemaintained. Copper production, excluding Collahuasi, is forecast to increasemodestly. Collahuasi had forecast a rise in production of some 5%, but thetaking down of a SAG mill for 65 days to replace its stator motor (which iscovered by insurance) will result in an attributable shortfall of approximately13,000 tonnes and a level of production in line with 2006. Outlook After four consecutive years of particularly strong growth in the world economy,the current consensus is one of slightly lower growth in 2007 without unduepressure on inflation rates and thus the level of interest rates. Althoughfundamentals will continue to be positive and overall stock levels below'normal', both the zinc and the copper markets are likely to see some stockbuild up as they move into a surplus in 2007, the extent of which (particularlyin copper) will depend on supply side disruptions. Nickel markets will remainvery tight in 2007, but nickel and zinc markets will see further increases insupply in 2008. Fundamentals are therefore supportive, but suggest an easing ofprices. The full extent of any price moves and the pace of such change will bedictated by fluctuations in speculative and investment funds sentiment inwhat is likely to be a volatile pricing environment. FERROUS METALS AND INDUSTRIES $ million Year ended Year ended 31 Dec 2006 31 Dec 2005Operating profit 1,360 1,456 Kumba 778 568 Highveld Steel 230 436 Scaw Metals 160 121 Samancor Group 52 144 Tongaat-Hulett 154 131 Boart Longyear - 67 Other (14) (11)EBITDA 1,560 1,779Net operating assets 2,796 4,439Capital expenditure (including biological assets) 582 373Share of Group operating profit 14% 23%Share of Group net operating assets 10% 12% Ferrous Metals and Industries' operating profit declined by 7% to $1,360 million(2005: $1,456 million), mainly as a result of the sale of non-core businessesthat contributed $94 million in 2005, as well as lower vanadium and manganeseprices, partially offset by higher iron ore prices. Markets World crude steel production increased by 9% in 2006, to reach a total of 1.2billion tonnes. China accounted for most of the increase, with its share ofglobal output rising to 34% in 2006. The South African steel market wascharacterised by strong demand, attributable to numerous major projects, amongthem infrastructural preparations for the 2010 Soccer World Cup, as well asexpansion by utilities and the mining and chemical industries. Operating performance Kumba achieved an operating profit of $778 million (2005: $568 million). Globaliron ore demand remained strong in 2006, fuelled by the continuing expansion ofthe steel industry in China. In addition to the 71.5% annual iron ore priceincrease achieved in April 2005, an annual increase of 19% was achieved witheffect from April 2006. Export sales volumes for the period grew in line withproduction improvements. Kumba Iron Ore produced a record 31 million tonnes ofiron ore for the period, exporting 21 million tonnes. A $754 million, three-yearexpansion programme is currently under way at the Sishen mine which willincrease sales volumes by 40% to 45 million tonnes per annum. Ramp-up willcommence in 2007, with full production expected in early 2009. Scaw produced a record operating profit of $160 million (2005: $121 million).The acquisition in February of AltaSteel, a manufacturer of steel andvalue-added steel products in Canada, together with the acquisition of theremaining 50% of Moly-Cop Canada, contributed $32 million for the year. Strongdemand for rolled, cast and wire rod products contributed to higher profits. Theinternational grinding media operations achieved higher sales volumes, althoughthis benefit was more than offset by negative exchange rate movements. Anglo American's attributable share of Samancor's operating profit was $52million (2005: $144 million). The 2005 operating profit included a $16 millioncontribution from Samancor's chrome business, which was disposed of in June2005. Although higher manganese ore sales volumes were achieved, lower alloyvolumes and lower selling prices negatively impacted profits. In 2006, theaverage manganese ore price achieved was $2.2 per metric tonne unit (mtu),compared with the 2005 average price of $2.9/mtu. Highveld reported a lower operating profit of $230 million (2005: $436 million),although this performance was still the second best in its history. An increasedcontribution from the steel business, driven by strong South African steeldemand, was more than counteracted by the easing of vanadium prices from therecord levels achieved in 2005. In 2006, the average ferrovanadium priceachieved was $39 per kilogram of vanadium (kgV) compared with the 2005 averageof $66/kgV. Tongaat-Hulett's operating profit grew to $154 million (2005: $131 million). Thesugar operations benefited from a higher world sugar price of 12.8 USc/lb in2006, compared with 9.0 USc/lb in 2005, while the 2006 South African sugar cropwas the second lowest in 10 years. Hulamin continued its progress in increasingsales volumes, with record rolled product sales of 183,000 tonnes (2005: 173,000tonnes). African Products' margins were affected by pricing pressures on starchand glucose and increasing maize input costs. Moreland benefited from increasedcontributions from its commercial, industrial and resorts property developmentportfolios. Strategic review Further progress was made on optimising the division's asset base during theyear. In July, Anglo American announced the sale of its 79% shareholding in HighveldSteel to Evraz, an international steel producer, and Credit Suisse, for anaggregate consideration of $678 million. Following the disposal of the initial49.8%, for which Anglo American received $412 million, Evraz has an option toacquire Anglo American's remaining 29.2% stake in Highveld Steel for $266million once regulatory approvals are received. This amount will be reduced byany dividends paid by Highveld Steel prior to Anglo American selling itsremaining shares. The deal represents a substantial foreign direct investmentin South Africa. In November the Kumba empowerment transaction was completed. This resulted inthe listings on the Johannesburg Stock Exchange of Kumba Iron Ore, as a pureplay iron ore company in which Anglo American holds 64%, and Exxaro, whichbecame South Africa's largest black economic empowered natural resourcescompany. In December the Tongaat-Hulett Group announced the proposed unbundling andlisting of Hulamin and simultaneous introduction of broad based black economicempowerment into both companies. This transaction, which is anticipated to becompleted by mid 2007, will result in broad based black economic empowermentgroups acquiring 25% and 15% interests in Tongaat-Hulett and Hulamin,respectively. Anglo American's shareholding in Tongaat-Hulett will reduce from50% to 38% and its shareholding in Hulamin from an effective 45% to 39%. In line with Anglo American's objective of consolidating its agri-processingbusinesses within Tongaat-Hulett, it was announced in December thatTongaat-Hulett had acquired Anglo American's 50% shareholding in the ZimbabweStock Exchange listed sugar producer, Hippo Valley Estates, for $36 million. Outlook Scaw's volumes in the South African market are expected to grow, driven byinfrastructural expansion and construction and mining industry activity. Demandfor Scaw's products internationally is forecast to remain strong, driven bymining demand in Latin America and buoyant economic growth in Alberta, Canada.Samancor should benefit from volume improvements and higher prices. Highveld'sperformance in 2007 should be similar to that of 2006, depending largely onvanadium prices and continued strength in the South African steel demand.Tongaat-Hulett is expected to benefit from higher sugar production and salesrevenue, while Hulamin plans to continue to grow its rolled product volumes andoptimise its sales mix. Global economic growth looks set to continue in 2007, albeit at a slightlysofter pace, with global steel output forecast to rise by over 6% in 2007. Theoutlook for the division remains broadly positive, given the benchmark annualiron ore price increase of 9.5% effective 1 April 2007 and a stable rand.Earnings in 2007 will be influenced by the timing of the sale of AngloAmerican's remaining Highveld stake and the transaction unbundling theTongaat-Hulett aluminium business. COAL$ million Year ended Year ended 31 Dec 2006 31 Dec 2005Operating profit 864 1,019 South Africa 380 470 Australia 279 323 South America 227 240Projects and corporate (22) (14)EBITDA 1,082 1,243Net operating assets 2,862 2,244Capital expenditure 780 331Share of Group operating profit 9% 16%Share of Group net operating assets 10% 6% Anglo Coal's operating profit decreased by 15% to $864 million. Coal productionand sales for the first half of the year were adversely affected by acombination of poor weather in South Africa and rail and port constraints inAustralia. In the second half production and sales volumes recovered and weremarkedly higher. Nevertheless for the year, operating profit was lower due to anoverall decline in export volumes and a pull back in export prices from the veryhigh levels of the year before. South Africa, Australia and South Americacontributed 44%, 32% and 26% respectively, to operating profit. Markets Global demand and supply for thermal coal remained well balanced during 2006.The dampening effect of mild winter temperatures in Europe and the US wasmitigated by a series of worldwide logistical and production constraints and abuoyant European energy market, bolstered by high oil and gas prices. Thecombination of these factors maintained thermal coal prices at historically highlevels. Metallurgical coal prices softened in 2006 from the highs of 2005,particularly the semi soft coking and pulverised injection (PCI) coals. During 2006 geopolitical events demonstrated coal's strategic importance to theoverall energy mix. Compared to oil and gas, coal's security of supply fromwidely distributed reserves makes it one of the world's most reliable energysources. This together with the development and implementation of clean coaltechnologies will, over time, position coal to make a significant contributiontowards satisfying future global energy demand while addressing environmentalconcerns. Operating performance Operating profit for South African sourced coal, at $380 million, was 19% lowerthan the previous year's $470 million, reflecting average realised export priceswhich were 6% lower in 2006 and a 1% decline in export sales volumes. The randcontinued to weaken in 2006, with a positive impact on operating profit of $28million. Production for the year increased by 2.5 million tonnes, or 4.3%, to 59.3million tonnes, as Isibonelo went into full production and output from Landauand New Denmark grew. Landau benefited from improved yields arising from plantefficiency improvements and favourable contractor performance, whilst NewDenmark benefited from strong longwall performance. Excessive rainfall duringthe first quarter hampered production at several operations in particular NewVaal and Kleinkopje. Total sales, bolstered by Isibonelo, reached 59.3 million tonnes, 4.5% higherthan prior year. Export sales decreased by 0.2 million tonnes or 1%. Sales toEskom rose by 2.5% as increased economic activity continued to spur electricitydemand. Operating profit for the Australian operations reduced by 14% to $279 million(although the 2005 results included $27 million from insurance proceedspertaining to a roof fall at Moranbah North the previous year). The decline inoperating profit was chiefly on account of lower production volumes arising fromthe cessation of mining at Dartbrook owing to difficult geological conditions,combined with commissioning delays to the Grasstree longwall operation. Thesereductions were partly compensated by the staged expansion at Dawson, resultingin an overall reduction of 0.9 million tonnes for Anglo Coal Australia. Sitecosts rose, with industry inflation statistics reporting 11.7% increases year onyear on the back of rising prices of commodities globally and often poor localavailability of scarce resources. Other cost increases came with the expandingDawson mine and the purchase of third party coal during the Grasstree transitionphase at Capcoal. Port and rail constraints impeded final sales volumes andresulted in higher closing stock on hand at all export mine sites. Callide's output increased by 0.3 million tonnes to 9.8 million tonnes. Dawsonmine received additional heavy mining equipment as part of its incrementalexpansion and increased production by 11%, with the coking coal proportion ofits coal mix rising to 45% from 30% in 2005. Drayton maintained output, althoughport constraints resulted in the mine being stock bound at year end. During theyear Capcoal moved its main underground operations to the Grasstree mine, whichexperienced delays owing to conveyor and longwall commissioning problems,resulting in an 11% reduction in production. In 2006 work got under way on theLake Lindsay project, which will extend open cut mining from the Capcoaloperation. Moranbah North's production was 0.5 million tonnes lower, primarilyas a result of difficult geological challenges being experienced during thefirst half of 2006. In South America, operating profit was 5% lower than 2005 at $227 millionfollowing a decline in export selling prices, higher operating costs,particularly in respect of fuel prices, and a stronger Colombian peso. Thedecrease in operating profit was partly offset by an increase in production atCerrejon of 9% to 28.4 million tonnes as the first expansion project wascompleted. Sales volumes at Carbones del Guasare in Venezuela were marginallybelow 2005 because of transportation difficulties between the mine and the port. In Australia, capital expenditure for the year was 190% higher at $537 million,principally attributable to the ramp-up of the $426 million Dawson and $361million Lake Lindsay projects. Dawson is expected to reach full production of5.7 million tonnes per annum in 2007. Lake Lindsay is proceeding to plan, withfirst coal scheduled for 2008. In South Africa, the start of work at the $132 million Mafube mine, wash plantenhancements at Goedehoop and completion of the Isibonelo mine represent themajority of the capital expenditure. Mafube will increase Anglo Coal's thermalcoal production by 5 million tonnes per annum. The coal projects which have beenidentified as part of Project Eureka will continue to enhance Anglo Coal'sparticipation in the South African coal sector. In South America the expansion of Cerrejon to 32 million tonnes per annum iscontinuing and full production is scheduled for 2008. A pre-feasibility study isinvestigating additional capacity beyond 32 million tonnes per annum. Outlook The rand exchange rates and coal prices will continue to be the two mainvariables in 2007, with export prices expected to be more stable in 2007, thoughwith a somewhat softer bias. Thermal coal prices for 2007 will continue to be subject to volatility,resulting from anticipated growth in India and the Asian economies, increasedincremental supply from major producing regions, unpredictable fluctuations inseasonal temperatures and the price of competing energy fuels. Hard coking coalprices have decreased by up to 20% for 2007 contracts beginning in April. Earlynegotiations in thermal coal are showing that the market is remaining strong,with similar prices set to be realised in 2007. Substantial capital will continue to be invested in all regions, withaccompanying increases in production, particularly in South Africa andAustralia. In November 2006, Anglo Coal, Hillsborough Resources and North Energy MiningIncorporated created Peace River Coal, of which Anglo Coal owns 60%. Peace RiverCoal is a metallurgical coal mine in Canada that is expected to produce around2.0 mt in 2007. The agreement between Anglo Coal and Shell with respect to the joint developmentof Monash Energy (coal-to-liquids projects) advances and the conclusion of theconcept study is anticipated in 2007. In February 2007, Anglo Coal announced the creation of Anglo Inyosi Coal, anempowered coal company housing key current and future domestic and exportfocused coal operations. Anglo Coal has signed a Heads of Agreement with Inyosi,a newly formed broad based black economic empowerment company. Inyosi willacquire 27% of Anglo Inyosi Coal, creating a company valued at R7 billion andincorporating several key Anglo Coal assets, namely Kriel Colliery an existingmine, and Elders, Zondagsfontein, New Largo and Heidelberg projects. INDUSTRIAL MINERALS $ million Year ended Year ended 31 Dec 2006 31 Dec 2005Operating profit 336 370 Tarmac 315 340 Copebras 21 30EBITDA 580 618Net operating assets 4,524 3,982Capital expenditure 298 274Share of Group operating profit 3% 6%Share of Group net operating assets 16% 11% Anglo Industrial Minerals generated an operating profit of $336 million. TarmacGroup's operating profit was 7% lower than 2005 at $315 million. The UK profitwas down 10%, considered a robust performance in the face of challenging marketconditions, with lower volumes and weaker margins in some businesses exacerbatedby high energy costs for much of the year. Input cost pressures were partlymitigated by cost savings of some $63 million as a result of operationalefficiencies, including Tarmac's ongoing supply chain management programme. Markets and operating performance Tarmac's contribution from its international businesses increased by 5%,reflecting strong performances by the Middle East and improvements by Poland andGermany, offset by weaker demand in Spain. Copebras' operating profit was down30% from the prior year owing to the combined effects of the 11% strengtheningof the Brazilian real against the US dollar and weak demand from theagricultural sector. In 2006 Tarmac completed its operational, commercial and organisationalrestructuring. The new business structure facilitates continuous improvementboth operationally and commercially. The scope of its activities are also nowclearly defined as aggregates, together with the three routes to market(asphalt, concrete and concrete products), and integration of cement whereappropriate. This strengthens Tarmac's ability to improve its results and grow.A special charge for impairment and restructuring costs of $278 million wastaken. This related to businesses sold ($46 million), businesses retained andrestructured ($212 million) and closure and other items ($20 million). In addition to bolt-on acquisitions in France, the Czech Republic and Poland,Tarmac successfully entered Turkey and acquired a developing business inRomania, involving interests in quarries and ready mixed concrete. Theseacquisitions enhance Tarmac's ability to develop its business in Central andeastern Europe, identified as a key focus of the company's growth strategy. 2006 saw increased focus on improving the profitability of underperformingbusinesses and on disposing of 'non-core' businesses including the UK basedMinerals and Materials business and the underperforming TopPave business.Previously announced disposals of assets in Hong Kong and Germany were completedin the second half of the year. Tarmac's operating profit in the UK declined owing largely to general marketweakness, which caused demand to fall, and to high and volatile energy relatedcosts for much of the year. The Aggregate Products business was impacted by weakdemand and a highly competitive marketplace, with demand for coated stone being8% down on the previous year. During 2006, additional resources were directed at improving commercial andoperational processes in Aggregate Products, and early results are encouraging.Work has started on Tarmac's largest ever contract, resurfacing England's M1motorway - an example of new, long term, framework agreements that now prevailin the marketplace. Tarmac's Building Products and International businesses experienced improvedresults compared with the previous year. However this gain was offset by weakdemand for aggregate products, particularly in the road and housing sectors.Despite a substantial decline in demand from the housing sector for blocks,underlying profits in Building Products were 23% better than 2005. This reflectsthe benefits of operational improvements in the Topblock and Precast businessesand the disposal of the underperforming TopPave business. The Precast businessalso benefited from the work related to the construction programme for the 2012London Olympic games. Operating profits for Tarmac International improved 5% over the previous yearowing to stronger markets in France and benefits accruing from acquisitions andre-organisation and improved performance in Poland, the first full-year benefitof the Shawkah quarry in the Middle East (one of the largest in the TarmacGroup) and high demand in the Czech Republic and Germany. Profits in Spain werelower, largely reflecting the impact of higher cement costs despite strongdemand in the Central Region. Outlook Market conditions in the UK are expected to remain challenging with weak demandin some sectors and high cost pressures. The uncertainty of government spendingon infrastructure is also a cause for concern, as is the increasing impact ofdifferent types of construction materials such as steel and timber on theindustry. Volatility of energy prices and the impact that they have on Tarmac'sbusiness in terms of cement and distribution costs will also continue to affectperformance and demand commensurate efforts to drive further efficiencies. GOLD $ million Year ended Year ended 31 Dec 2006(1) 31 Dec 2005Operating profit 467 332EBITDA 843 871Net operating assets - 6,982Capital expenditure 196 722Group's aggregate investment in AngloGold Ashanti 1,623 -Share of Group operating profit 5% 5%Share of Group net operating assets - 20% (1) The results for 2006 are reported as a subsidiary up to 20 April andthereafter as an associate at 42% attributable (see note 3 to the financialinformation). The Group's share of AngloGold Ashanti's net assets is disclosed. Attributable operating profit in 2006 climbed to $467 million, 41% higher thanthe figure for the previous year (2005: $332 million), mainly due to impact of astronger gold price, partially offset by the Group accounting for AngloGoldAshanti as an associate from 20 April 2006. At the end of 2006 the gold price($604 per ounce) was more than 36% higher than at the beginning of the year($445 per ounce), while the average price received for the year was 31% higherthan the prior year. Total cash costs were $27 per ounce higher, at $308 perounce, mainly resulting from stronger operating currencies, inflation and lowergrades. Markets Investor interest in gold continued throughout 2006. The average gold pricereceived increased by $138 per ounce to $577. This momentum has continued into2007, with the spot gold price currently well above the $600 per ounce mark. Operating performance In 2006, AngloGold Ashanti's production from ongoing operations declined by 9%to 5.64 million ounces and was largely attributable to reductions of 305,000ounces in Tanzania, 122,000 ounces in South Africa and 88,000 ounces in Ghana.These decreases were only partly compensated by small increases in output fromassets in Australia, Argentina and Mali. The review of AngloGold Ashanti's assets has resulted in management implementingprogrammes to ensure that these operations better their ore reserve, profitmargin and growth potential. During the year AngloGold Ashanti successfully raised $500 million of equity ata negligible discount to the prevailing market price. AngloGold Ashanti is focusing on growing the reserve and resource base, boththrough exploration and through a disciplined, value adding mergers andacquisitions programme. In respect of both of these activities, the company is now looking outside ofthe world's mature gold regions and has exploration projects in Africa in theDemocratic Republic of Congo and in South America in Colombia. In Russia,AngloGold Ashanti has announced the formation of a strategic alliance withPolymetal. Strategic alliances are being pursued in China to allow the companyto successfully extract value from a region undergoing significant regulatorychange. Exploration partnerships in the Philippines, Laos and Mongolia haveresulted in land positions being acquired in several prospective areas. Outlook The gold price has now risen for six years in succession, which has not beenseen since the deregulation of the gold market in the developed markets in 1971.Ongoing strong demand from the growing economies of China and India as well ascontinued investor speculation and official sector activities are seen as beingsupportive of the gold price. PAPER AND PACKAGING $ million Year ended Year ended 31 Dec 2006 31 Dec 2005Operating profit 477 495 Packaging 287 293 Business Paper 130 163 Other 60 39EBITDA 923 916Net operating assets 7,019 6,365Capital expenditure (including biological assets) 644 746Share of Group operating profit 5% 8%Share of Group net operating assets 25% 18% In the second half of the year there was some improvement in overall marketconditions. Operating profit for the second half of 2006 at $265 million was upon the comparable period for 2005. The second half performance partially offsetthe impact of a poor first six months with full year profits of $477 million, 4%down on 2005. Although operating rates for Mondi's European upstream papermarkets appear to have improved allowing for some price increases, input costpressures (fibre, chemicals and energy) and tough trading conditions indownstream converting activities have continued to put margins under pressure.In response Mondi has focused on cost saving and profit improvement initiativesdelivering $224 million of benefits for the full year. Markets and operating performance Mondi Packaging's operating profit of $287 million was 2% below the previousyear's $293 million, the strong upturn in packaging paper pricing was more thanoffset by higher input costs and continued margin pressure in the convertingoperations. Mondi has been active in restructuring its converting operations toimprove efficiencies and focus on high growth niche areas, with ten sitesdivested and one closed during the year. In addition Mondi closed down twocorrugators amounting to 8% of its capacity. The results of these actions canbe seen in productivity, measured in output per employee which has improved by9% across the business. There were several small acquisitions in the period with Mondi furtherstrengthening its position in the higher growth niche release liner segmentthrough the acquisition of Akrosil (mainly US and European based), Schleipen andErkens and NBG Special Coatings (both European based). The acquisition ofPeterson Barriere in Norway adds to the extrusion coating segment. Theacquisition of the Bulgarian Kraft Paper Factory Stambolijski was finalisedduring June. Agreement to dispose of Mondi's stake in Bischof + Klein, anassociate company specialising in polymer films and flexible packaging, wasreached in December with completion expected during the first quarter of 2007. Mondi is considering an investment in Poland or the Czech Republic in a newpaper machine to produce lightweight testliner and fluting. This is a marketwhich is growing rapidly and where there is a shortage of product in EasternEurope. The cost of this investment is estimated at $365 million and willprovide capacity of 470,000 tonnes with first production expected in the secondhalf of 2009. Mondi Business Paper's operating profit of $130 million was 20% down on the $163million recorded in 2005. Tough trading conditions contributed to the declinein profits (particularly in the first half), and were compounded by the slowstart up at the Merebank South Africa operation, of the paper machine PM31following a major rebuild, and expenses related to project development. PM31 is now operating at a much improved run rate and is producing better gradesof paper. Further improvement is required which may include some modificationsto the machine in order that it can produce at its designed potential. Inaddition the South African operation is undergoing a major restructuringprogramme to improve efficiencies and lower costs. As a result of thisrestructuring and the improvement in PM31 performance a better result isexpected in 2007 from the South Africa. Within the rest of the business the non-integrated mills saw profitabilitysignificantly eroded by rising pulp costs but both Syktyvkar and Ruzomberokrecorded strong results on the back of increased sales volumes and good costcontrol. In response to weak European market conditions Mondi took 110,000 tonnes atannual production capacity out of the business papers market in 2006 byirreversibly converting the Dunaujvaros mill in Hungary to a speciality paperplant and selling the assets. Overall product demand was positive with uncoated woodfree sales volumes up 10%also helped by increased production from PM31. The increased demand has led toimproved operating rates and some improvement in pricing towards the end of theyear (an average price increase of 4% was announced across Mondi businesspaper's key paper grades in January 2007). However pricing is still well belowhistoric mid cycle levels and margins continue to be impacted by rising inputcosts, particularly for fibre and energy. Consideration is being given to a major modernisation programme for the Russianoperation which could see substantial investment over the next five years inimproving infrastructure, increasing capacity and reducing cost through enhancedefficiencies. This capital expenditure programme includes some elements thatwould have been part of the previously announced major pulp expansion project(initial cost estimate of $1.5 billion) and will allow the mill to be in a goodposition to reconsider this project once the modernisation programme iscomplete. Mondi Packaging South Africa had a better year with improved agriculturalpackaging volumes and good cost control. Other operations which comprise theNewsprint and Merchant activities as well as corporate costs saw net operatingprofits well up on the comparable period. All major trading operations recordedimproved results with both newsprint operations performing well as a result ofan improved pricing environment. Outlook The company enjoyed a strong finish to 2006 which will provide a good platformgoing into 2007 and whilst the trading environment has undoubtedly improved,concerns remain about the strength of the recovery and the level of overcapacityin some of the markets in which Mondi operates. Mondi is encouraged by thenumber and scale of recent industry announcements regarding capacity closuresand this bodes well for the future. Overall, Mondi expects a better financialperformance in 2007, despite rising corporate costs (in anticipation of thedemerger from Anglo American plc), as a result of improved pricing for its keyproducts, focus on cost saving and the benefits of a better PM31 performance. For full financial accounts please find attached pdf document. http://www.rns-pdf.londonstockexchange.com/rns/5923r_-2007-2-20.pdf This information is provided by RNS The company news service from the London Stock Exchange

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