Final Results

22nd Feb 2006 07:02

Anglo American PLC22 February 2006 PART 1 News Release22 February 2006 Anglo American announces record earnings of $3.7 billion, up 39%, $1.5 billion capital return and update on Strategic Review • Record underlying earnings(1) of $3.7 billion, a 39% increase over 2004. • Operating profit(2) increased to $6.4 billion, up 36%, with record production levels for nickel, zinc, coal, iron ore, vanadium, platinum group metals and diamonds; highest ever contributions from Base Metals, Ferrous Metals and Coal. • Cost pressures continue: offset by cost savings and efficiencies of $730 million. • Cash generation at a record level: EBITDA(3) of $9 billion, up $1.9 billion. Net debt down 39% to $5 billion. • $6.7 billion project pipeline: New projects totalling $3.8 billion approved:- • Coal ($919 million): Dawson, Lake Lindsay, Mafube • Platinum ($1 billion): Mototolo JV, Marikana JV, Potgietersrust • Diamonds ($718 million): Snap Lake, Victor, Voorspoed, South African Sea Areas • Ferrous Metals ($559 million): Sishen Expansion • Gold ($432 million): Boddington• Normal dividends up 29% to 90 cents. Special dividend of 33 cents per share. Strategic Review - update • Mondi to be listed on the London Stock Exchange in 2006/7.• Holding in AngloGold Ashanti to be reduced - separate announcement issued today.• Tarmac strategic review underway - first phase completed with businesses in Germany, Hong Kong and UK concrete paving identified for disposal.• Highveld Steel sale process progressing; Tongaat-Hulett to unbundle and list Hulett Aluminium.• $1 billion capital return increased to $1.5 billion - $1 billion buyback in 2006 and $0.5 billion special dividend. HIGHLIGHTS FOR THE YEAR TO 31 DECEMBER 2005 Year ended Year ended % 31.12.05 31.12.04 changeUS$ million, except per share amounts Group revenue including associates(4) 34,472 31,938 7.9%Operating profit including associates before special 6,376 4,697 35.7%items and remeasurements(2)Profit for the year attributable to equity shareholders 3,521 3,501 0.6%Underlying earnings for the year(1) 3,736 2,684 39.2%EBITDA(3) 8,959 7,031 27.4%Net cash inflows from operating activities 6,781 5,187 30.7%Earnings per share (US$):Basic earnings per share 2.43 2.44 (0.4)%Underlying earnings per share 2.58 1.87 38.0%Interim dividend (US cents per share) 28 19 47.4%Recommended final dividend 62 51 21.6%Recommended special dividend 33 - -Total dividends 123 70 75.7% (1) See note 7 to the financial information for basis of calculation of underlying earnings.(2) Operating profit includes share of associates' operating profit (before share ofassociates' tax and finance charges) and is before special items and remeasurements, unlessotherwise stated. See note 1 to the financial information. For definition of special items andremeasurements see note 4 to the financial information.(3) EBITDA is operating profit before special items and remeasurements plus depreciation andamortisation of subsidiaries and joint ventures and share of EBITDA of associates. EBITDA isreconciled to cash inflows from operations and to total profit from operations and associates innote 11 to the financial information.(4) Includes the Group's share of associates' turnover of $5,038 million (2004: $5,670million). See note 1 to the financial information. Tony Trahar, Chief Executive, said: "The Group achieved record results for 2005, with a 39% increase in underlyingearnings to $3.7 billion. Many of our businesses achieved record levels ofproduction as buoyant market conditions continued throughout the year. Coal,copper, zinc, platinum, iron ore and vanadium prices hit new levels as Chinaonce again proved to be the chief driver of global growth, with the US economyshowing its resilience and signs of a long-awaited recovery emerging in Japan. It is particularly pleasing to note that, in what was a very challenging costenvironment, we achieved record cost savings and efficiency improvements of $730million, a 32% increase on 2004. Our continued strong cash generation, with EBITDA at $9 billion, enables us tofund internally one of the strongest organic growth pipelines in the industry,as well as giving us the capacity to return excess cash to shareholders. $1.5billion in the form of a $1 billion buyback and a $500 million special dividendwill be returned in 2006. The capital structure will be reviewed regularly inlight of market conditions, operating cash flows and progress on strategicdelivery and capital projects. Across our mining portfolio we have a $6.7 billion approved project pipelineunderway, and other projects that are being considered, as well as significantexploration prospects. Some $3.8 billion worth of new projects, including majorexpansions in our coal, iron ore, platinum and diamond businesses have beenapproved. The $516 million Lake Lindsay project in Australia will contributesubstantially to increasing Anglo Coal's metallurgical coal capacity by around50% over the next three years. The $559 million Sishen iron ore expansion inSouth Africa was also approved during the year and will raise annual productionfrom 31 to 41 million tonnes by 2009, whilst De Beers is spending $1.6 billionon expanding diamond production. Having previously approved the $230 millionPotgietersrust replacement project, Anglo Platinum is in the final stages ofapproving the $692 million Potgietersrust expansion project. In addition, theGroup is considering further major projects with an estimated potential cost ofaround $15 billion. In terms of our strategic review, we have embarked on a series of initiativeswith the aim of further focusing the business on our core mining portfolio and,in the process, simplifying the structure and enhancing returns and shareholdervalue. In regard to the main elements of the strategic review, we have made furtherprogress since our announcement in October last year. In summary, we havedecided to list Mondi on the London Stock Exchange in 2006/7. The first phase ofTarmac's strategic review has been completed with businesses in Germany, HongKong and UK concrete paving identified for disposal. As previously announced, weintend to reduce our shareholding in AngloGold Ashanti and we are progressingthe sale of Highveld. Tongaat-Hulett has recently announced that it intends tounbundle and list its aluminium business, Hulett Aluminium. The outlook for the global economy is encouraging, with leading indicatorsshowing signs of continuing global growth and strong underlying demand for ourproducts. If prices and demand continue at or near current levels, the Groupshould have another strong year. Every effort will be made to contain cost increases and improve efficienciesagainst a background of exceptional inflationary pressures in the mining sector. The Group has real momentum, as evidenced by its performance in 2005. We expectto make significant progress on delivering our recently announced strategy whileat the same time pursuing our strong organic project pipeline and looking forfurther growth and acquisition opportunities." Review of 2005 Underlying earnings per share for the year increased to $2.58 per share, anincrease of 38% compared with 2004. Underlying earnings totalled $3.7 billion,with record contributions from Base Metals, Ferrous Metals and Industries andCoal, as well as a significant increase in contributions from Platinum and DeBeers. Paper and Packaging and Industrial Minerals recorded lower contributionsowing to tough market conditions. AngloGold Ashanti recorded a lowercontribution mainly due to an increase in net interest costs as well as theimpact of stronger operating cost currencies, inflation and lower grades during2005. Profit for the year attributable to equity shareholders after special items andremeasurements, increased by 0.6% to $3.5 billion. This increase was despite areduction in net profit on disposals which, including associates was $840million higher in 2004, with the $464 million profit on the sale of the Group'sinterest in Gold Fields and the $415 million gain on the deemed disposal ofAngloGold at the time of the merger with Ashanti. Anglo American's results are influenced by a variety of currencies owing to thegeographic diversity of the Group. The South African rand on averagestrengthened against the US dollar compared with the prior year, with an averageexchange rate of R6.37 compared with R6.44 in 2004. Currency movementsnegatively impacted underlying earnings by $88 million. Operating results wereimpacted by stronger average rates for the rand, Chilean peso, Australian dollarand European currencies, although this was partially offset by the positiveimpact on monetary assets and liabilities of the weaker closing rand rate. Therewas a positive impact of increased prices amounting to $2.2 billion. Base Metals reported record operating profit(1) of $1.68 billion (26% of AngloAmerican's total operating profit), an increase of 32% over the prior year, dueto record production of nickel, zinc, niobium and zircon and significantlyhigher prices. Ferrous Metals and Industries operating profit reached a record level of $1.46billion (23% of Anglo American's total), up 64% as a result of higher iron oreand vanadium prices and generally higher volumes. Coal recorded its highest ever operating profit contribution of $1 billion, anincrease of 105% on 2004 (16% of Anglo American's total) due to improved exportcoal prices and increased production. Platinum reported operating profit of $854 million, a 59% increase over 2004(13% of Anglo American's total), mainly as a result of higher US dollar pricesrealised on metals sold and increased sales volumes. Diamonds recorded attributable operating profit of $583 million (9% of AngloAmerican's total), 2% higher than 2004, despite the lower effective shareholdingin 2005. Paper and Packaging reported a 13% decline in operating profit to $495 million(8% of Anglo American's total), reflecting difficult trading conditions in keymarkets. Performance was underpinned by $223 million in cost savings and profitimprovement initiatives. Industrial Minerals reported operating profit of $370 million (6% of AngloAmerican's total), 12% lower than 2004, due to challenging UK market conditions,higher energy costs and currency exchange impact at Copebras. Gold achieved operating profit of $332 million (5% of Anglo American's total),12% higher than 2004, mainly due to the higher average gold price received forthe year - cash costs were well controlled. Challenging cost environment 2005 was a particularly challenging year for the mining industry with regard tocost containment. Price escalations in excess of inflation over a range ofinputs from tyres to fuel, to steel and contractors, exerted material pressureon running costs and capital expenditure. Despite this, the Group managed to contain overall cost increases with cost andefficiency savings of $730 million, up 32% on the prior year. (1) All references to operating profit in this section refer to operating profitincluding associates' operating profit and is before special items andremeasurements. Disposals with enterprise value of $1.1 billion As part of the ongoing strategy of optimising the Group's asset base, a numberof disposals were made during 2005. The sales of Boart Longyear's subsidiary,Wendt, and the remaining Boart Longyear Group were concluded in March and Julyrespectively for a combined enterprise value of $635 million. Highveld Steel sold its stainless steel investments, Acerinox and Columbus, foran attributable enterprise value of $136 million. Anglo American and BHP Billiton sold their respective 40% and 60% shareholdingsin Samancor Chrome in June for a combined enterprise value of $469 million. In July, Kumba's local partner in the Hope Downs iron ore project in Australiaexercised an option to acquire Kumba's interest in the project, resulting in a$176 million pre-tax settlement. Dividends and Capital Returns to Shareholders The strong financial position of the Group affords it the opportunity to return$1.5 billion of cash in 2006 in the form of a $1 billion buyback and a $500million special dividend, equivalent to 33 cents per share. This is beforetaking into account capital proceeds that will arise as a result of the Group'sdecision to dispose of a number of interests, as outlined in its StrategicReview announcement in October 2005. In line with the Group's progressive dividend policy, the final dividend hasbeen raised 22% to 62 cents per share, plus a special dividend of 33 cents pershare, to be paid together on 3 May 2006. Total dividends for the year,including the special dividend, amount to 123 cents per share. The capital structure will be reviewed regularly in light of market conditions,operating cash flows and progress on strategic delivery and capital projects. Growth and projects Anglo American has one of the strongest growth profiles in the mining industry.Across our mining portfolio we have a broad suite of projects in progress, withothers under consideration, as well as significant exploration prospects. Recent projects completed In Chile, the $47 million Collahuasi molybdenum plant was commissioned ahead ofschedule and under budget and entered production in November. The $21 millionChagres de-bottlenecking project, which increases production capacity from162,000 to 184,000 tonnes per annum, was successfully completed in the fourthquarter of 2005. The Black Mountain Deeps project in South Africa wassubstantially completed during 2005 and production ramp-up is well advanced.Skorpion Zinc in Namibia has consistently achieved design capacity since May. The $65 million Isibonelo coal mine commenced production on time and on budgetand is expected to produce five million tonnes per annum of thermal coal when itreaches full production during 2006. The Kleinkopje expansion project was alsocompleted during 2005. Ramp up of production at the Buxton cement plant exceeded expectations,averaging 97.5% of design capacity during the year. The $174 million upgrade at Mondi Business Paper's Merebank paper mill in SouthAfrica was successfully commissioned during October with annual production ofuncoated woodfree paper set to increase by approximately 277,000 tonnes to536,000 tonnes by 2007. Projects approved / under review The group has approved $3.8 billion of new projects during 2005 and thebeginning of 2006, bringing its total approved project pipeline, net ofcompletions during the year, to $6.7 billion. Anglo Coal has a substantial near-term approved project portfolio spread acrossAustralia, South Africa and South America. In Australia, the $516 million LakeLindsay metallurgical coal project was approved during the year and constructioncommenced on the $835 million Dawson project. Anglo Coal's metallurgical coalcapacity will be increased by around 50% over the next three years. Subject toregulatory clearances, the $132 million Mafube coal project in South Africa willincrease thermal coal production by 2.5 million tonnes from 2008. At Cerrejon in Colombia, a $280 million two-phase expansion has been approved toincrease production to 32 million tonnes per annum. A pre feasibility studyis currently underway to investigate additional expansion beyond this. In China, the Group has a 60% interest in the Xiwan open-cut coal mine, wherethe feasibility of a large coal-to-chemicals project is being investigated witha number of partners. In 2005, Anglo American invested $153 million in theInitial Public Offering of China Shenhua Energy Company Limited, the largestcoal producer in China and the fifth largest in the world, and looks forward toa mutually beneficial strategic alliance with the company. In February 2006, itwas announced that Anglo Coal had entered into a joint venture to develop cokingcoal properties in British Columbia, Canada. Work continues on the feasibilitystudy for Monash, a fuel from brown coal project, in Australia. In Base Metals, the Group has the potential to significantly increase copperproduction over the next few years. The $80 million El Soldado pit extensionproject remains on schedule and within budget. The Los Bronces feasibilitystudy, to examine a possible doubling of production, will be completed early in2007, while a significant de-bottlenecking opportunity, that has the potentialto increase production at a relatively low capital cost, is currently underevaluation at Collahuasi. The feasibility study for the $1 billion Barro Alto nickel project (33,000tonnes per annum) in Brazil is well advanced and board approval is likely to besought later this year. Namakwa Sands' $43 million project to increase output ofrutile by 26% and high margin zircon by approximately 20%, commencing from 2008,is under way. As demand for platinum group metals rises, Anglo Platinum expects to increaseproduction from 2.45 million ounces in 2005 to between 2.7 and 2.8 millionounces in 2006. Beyond 2006, the company plans to increase platinum output byaround 5% a year. During 2005, Anglo Platinum announced the $18 million Marikanajoint venture and the $100 million Mototolo joint venture. Anglo Platinumapproved mining replacement projects totalling $770 million including the $230million Potgietersrust replacement project, and is in the final stages ofapproving the $692 million Potgietersrust expansion which will bring on 230,000ounces of additional platinum production in 2009. The $559 million Sishen iron ore expansion in South Africa was approved in Marchand will raise annual production from 31 million tonnes to 41 million tonnes by2009. Construction started in mid 2005, with production ramp-up to commence bymid 2007. The Group has further iron ore expansion opportunities throughprojects at Sishen South, where an investment decision is likely in the firsthalf of 2006, and at Faleme in Senegal. This could see annual iron oreproduction more than double from the current level. De Beers gave the go-ahead for the $513 million Snap Lake project and inNovember approval was given to develop the $791 million Victor diamond deposit,both located in Canada. In South Africa, approval has been given for there-opening of the $177 million Voorspoed mine, while $115 million has beenallocated to the South African Sea Areas marine mining project. Mondi is considering a one million tonne softwood pulp expansion at Syktyvkar innorth west Russia at a capital cost of around $1.5 billion, to meet growingworldwide pulp demand, driven mainly by China. Tarmac has several growth and expansion programmes under way to enhance marketpenetration in key regional markets, mainly in central and eastern Europe. Strategic Review Update In October 2005, the Group announced the outcome of its strategic review whichrepresents a further chapter in Anglo American's ongoing strategic developmentover the past six years. The Group's aim is to focus further on its core miningportfolio and in the process simplify its structure and enhance returns andshareholder value. • Anglo American has successfully grown Mondi to create one of Europe'slargest and most successful paper and packaging groups. Anglo Americanrecognises that there are only limited synergies with its mining portfolio andtherefore, a decision has been taken to list Mondi on the London Stock Exchangein 2006/7. In the meantime, Anglo American will continue to support Mondi'sgrowth opportunities as they arise. • The decision to reduce the Group's shareholding in AngloGold Ashantirelates to the higher relative valuations investors attribute to pure-play goldmining stocks, rather than as part of the make-up of a diversified mining group.Anglo American is considering a number of options to effect the reduction.Attention is drawn to the separate announcement issued today. • In the case of Tarmac, the considerably strengthened management teamis in the process of undertaking a review of its business with the aim ofimproving returns on capital invested by turning around, restructuring ordivesting underperforming parts of the portfolio while continuing to grow itscore businesses. Since the year end, the first phase of the review has beencompleted with businesses in Germany, Hong Kong and UK concrete pavingidentified for disposal. Tarmac has also made three acquisitions in itsaggregates business in the UK, Poland and, in early 2006, Romania. • The Group is also progressing well with the remainder of itsindustries portfolio. Boart Longyear and Samancor Chrome were sold during 2005and the disposal of the Group's 79% shareholding in Highveld Steel isprogressing. Tongaat-Hulett has recently announced that it intends to unbundleand list its aluminium business, Hulett Aluminium and simultaneously introduceBlack Economic Empowerment equity participation in both Tongaat-Hulett andHulett Aluminium. • The Group has approved significant platinum expansion projects andnegotiations for a further platinum empowerment transaction have commenced. Outlook The outlook for the global economy is encouraging, with leading indicatorsshowing signs of continuing global growth and strong underlying demand for theGroup's products. If prices and demand continue at or near current levels, theGroup should have another strong year. Every effort will be made to contain cost increases and improve efficienciesagainst a background of exceptional inflationary pressures in the mining sector. The Group has real momentum, as evidenced by its performance in 2005. AngloAmerican expects to make significant progress on delivering its recentlyannounced strategy while at the same time pursuing its strong organic projectpipeline and looking for further growth and acquisition opportunities. For further information: Investor Relations Media Relations Nick von Schirnding Kate AindowTel: +44 207 968 8540 Tel: +44 207 968 8619 Charles Gordon Daniel NgwepeTel: +44 207 968 8933 Tel: +27 11 638 2267 Anne DunnTel: +27 11 638 4730 Webcast of presentation: A live webcast of the annual results presentation starting at 10.00am UK time on22nd February can be accessed through the Anglo American website atwww.angloamerican.co.uk. View interview with CEO: An interview with Tony Trahar in video and text is available on:www.angloamerican.co.uk and on www.cantos.com Pictures: High resolution images can be downloaded by the media at www.vismedia.co.uk 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, gold and diamonds, with significant interests in coal, baseand ferrous metals, industrial minerals and paper and packaging. The group isgeographically diverse, with operations in Africa, Europe, South and NorthAmerica, Australia and Asia. 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 4 and underlyingearnings are calculated as set out in note 7 to the financial information.EBITDA is operating profit before special items and remeasurements plusdepreciation and amortisation of subsidiaries and joint ventures and share ofEBITDA of associates. EBITDA is reconciled to cash inflows from operations andto total profit from operations and associates in note 11 to the financialinformation. Financial review of Group results Underlying earnings per share for the year increased to $2.58 per share, anincrease of 38% compared with 2004. Underlying earnings totalled $3,736 million,with strong contributions from Base Metals, Ferrous Metals and Industries andCoal as well as a significant increase in contributions from Platinum and DeBeers. Paper and Packaging and Industrial Minerals recorded lower contributionsowing to tough market conditions. AngloGold Ashanti recorded a lowercontribution mainly due to increased net interest costs as well as higherinflation, stronger operating cost currencies and lower grades. Underlying earnings Year ended Year ended$ million 31 Dec 2005 31 Dec 2004Profit for the financial year attributable to equity shareholders 3,521 3,501Operating special items including associates 323 92Operating remeasurements including associates 317 -Net profit on disposals including associates (185) (1,025)Finance remeasurements: Fair value loss on convertible option 32 - Exchange (gain)/loss on De Beers preference shares (72) 112 Unrealised gains on non-hedge derivatives including (2) - associatesTax on special items and remeasurements including associates (15) 2Related minority interests on special items and remeasurements (183) 2Underlying earnings 3,736 2,684Underlying earnings per share ($) 2.58 1.87 Profit for the year after special items and remeasurements increased by 0.6% to$3,521 million compared with $3,501 million in the prior year. This increase wasdespite a reduction in net profit on disposals which, including associates, was$840 million higher in 2004, with the $464 million profit on the sale of theGroup's interest in Gold Fields and the $415 million gain on the deemed disposalof AngloGold at the time of the merger with Ashanti. Summary income statement Year ended Year ended$ million 31 Dec 2005 31 Dec 2004Operating profit before special items and remeasurements 5,344 3,641Special items (186) 25Operating remeasurements (301) -Group operating profit before associates 4,857 3,666Net profit on disposals 87 1,015Net income from associates (1) 657 550Profit before finance costs 5,601 5,231Net finance costs before remeasurements (428) (255)Remeasurement finance income/(cost) 35 (112)Profit before tax 5,208 4,864Tax (1,275) (923)Profit after tax 3,933 3,941Minority interests (412) (440)Profit for the financial period attributable to equity 3,521 3,501shareholdersEarnings per share ($) 2.43 2.44Group operating profit including associates before special 6,376 4,697items and remeasurements(1) Operating profit from associates 1,032 1,056Operating special items and remeasurements(2) (153) (117)Net profit on disposals(2) 98 10Other special items and remeasurements(2) 7 -Net finance costs (before remeasurements) (51) (100)Income tax expense (after special items and remeasurements) (274) (280)Underlying minority interest (after special items and remeasurements) (2) (19)Net income from associates 657 550 (2) See note 4 to the financial information The Group's results are influenced by a variety of currencies owing to thegeographic diversity of the Group. The South African rand on averagestrengthened against the US dollar compared with the prior year, with an averageexchange rate of R6.37 compared with R6.44 in 2004. Currency movementsnegatively impacted underlying earnings by $88 million. Operating results wereimpacted by stronger average rates for the rand, the Chilean peso, Australiandollar and European currencies although this was partially offset by thepositive impact on monetary assets and liabilities of the weaker closing randrate. There was a significant positive impact of increased prices amounting to$2.2 billion. Special items and remeasurement charges Operating special items and remeasurements, including associates, amounted to$640 million with operating special charges of $323 million and operatingremeasurements of $317 million. Operating special charges in respect of impairments, restructurings and mine andoperation closures amounted to $210 million, including a $31 million loss on theclosure of Ergo and a $38 million impairment of Bibiani in AngloGold Ashanti andimpairment and restructuring of Corrugated assets and goodwill of $77million in Paper and Packaging. Operating special charges also included $113million for the Group's share of a legal provision in respect of its associateDe Beers. Operating remeasurements, including associates, of $317 million includes $286million of unrealised losses on non-hedge commodity derivatives at AngloGoldAshanti (2004: nil as IAS 39 did not apply). The loss in the current yearrelates to the revaluation of non-hedge derivatives resulting from changes inthe prevailing spot gold price, exchange rates and interest rates and impactsAngloGold Ashanti's current year earnings due to the full adoption of IAS 32 and39 in 2005. Net profit on sale of operations, including associates, amounted to $185million. This included a $52 million profit on sale of Samancor Chrome, $25million profit on sale of Acerinox, $21 million profit on disposal of BoartLongyear and $21m profit on disposal of Wendt. There was also a $27 millionprofit on formation of the Marikana joint venture by Anglo Platinum. These werepartially offset by a $57 million loss on disposal of Hope Downs. Financing remeasurements, including associates, include a $32 million fair valueloss on the AngloGold Ashanti convertible bond option, unrealised gains of $2million on non-hedge derivatives and a $72 million foreign exchange gain on DeBeers dollar preference shares held by a rand denominated entity. The option component of the AngloGold Ashanti convertible bond is fair valued ateach reporting period and held as a liability. Changes in fair value of theliability are taken to the income statement. As a result of the adoption of IAS 21 and 28, the US dollar preference sharesheld by De Beers (a Rand functional currency entity) have been reclassified as "financial asset investments" and are retranslated at each period end. Theresulting Rand:US dollar foreign exchange gains and losses are reported throughthe income statement as a remeasurement charge. A currency gain of $72 millionhas been recorded for the year ended 31 December 2005 (2004: loss of $112million). Net finance costs Net finance costs excluding finance remeasurement income of $35 million (2004:loss of $112 million) increased from $255 million in 2004 to $428 million. Theincrease reflects lower investment income due to the sale of certain investmentsover the last two years. Taxation The effective rate of taxation including share of associates' tax before specialitems was 26.5 %. This was a decrease from the effective rate including shareof associates' tax of 27.7% in 2004. The reduction in the effective tax rate wasprincipally due to a reduction in the South African statutory rate from 30% to29% and a reduction in the Ghanaian tax rate, which resulted in a $187 millionreduction in deferred tax, most of the benefit of which was taken in the firsthalf of 2005. Without this one-off benefit the effective tax rate for the periodwould have been 29.7%. In future periods it is expected that the effective taxrate, adjusted for associates' tax, will remain at or above the current levels. Balance sheet Total shareholders' equity was $23,621 million compared with $23,125 million asat 31 December 2004. Net debt was $4,993 million, a decrease of $3,250 million from 31 December 2004.The reduction was principally due to reduction of debt using cash flows fromoperations and disposals. Net debt at 31 December 2005 comprised $8,439 millionof debt, offset by $3,446 million of cash, cash equivalents and currentfinancial asset investments. Net debt to total capital(1) as at 31 December2005 was 17.0%, compared with 25.4% at 31 December 2004. Cash flow Net cash inflows from operating activities were $6,781 million compared with$5,187 million in 2004. EBITDA was $8,959 million, a substantial increase of 27%from $7,031 million in 2004. Depreciation increased by $334 million to $2,441million. Acquisitions expenditure accounted for an outflow of $530 million compared with$1,243 million in 2004. This included $153 million in respect of the Group'sinvestment in the Initial Public Offering of China Shenhua Energy CompanyLimited. Income from disposals totalled $677 million, with proceeds on the sale ofAcerinox and Columbus of $173 million (with a further $21 millionremitted by associates) and $445 million on the disposal of Boart and Wendt.Proceeds remitted by associates in respect of disposals included $83 million forthe sale of Samancor Chrome. Repayment of loans and capital from associates amounted to $370 million.Purchases of tangible fixed assets amounted to $3,306 million, an increase of$140 million. Increased capital expenditure by AngloGold Ashanti, Coal andFerrous Metals and Industries was partially offset by a reduction in capitalexpenditure at Platinum, Base Metals, Industrial Minerals and Paper andPackaging. (1) Total capital is the sum of net assets and net debt less investment inassociates 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. BASE METALS $ million Year Year ended ended 31.12.05 31.12.04 Operating profit 1,678 1,276 Copper 1,381 1,048 Nickel, Niobium, Mineral Sands 249 224 Zinc 102 38 Other (54) (34)EBITDA 1,990 1,625Net operating assets 4,785 4,952Capital expenditure 271 367Share of Group operating profit (%) 26% 27%Share of Group net operating assets (%) 13% 13% Base Metals generated its highest ever operating profit of $1,678 million (2004:$1,276 million) on the back of record production of nickel, zinc, niobium,zircon and rutile from ongoing operations, with significantly higher metalprices. Controllable costs were well contained. However, margins at alloperations came under pressure from significant rises in the costs of energy andmost key consumables, as well as higher freight rates, treatment and refiningcharges in the copper market and increased zinc smelter price participation. Thestrength of the Chilean, South African and Brazilian currencies against the USdollar also adversely impacted operating profit. Markets Average Prices (c/lb) 2005 2004Copper 167 130Nickel 668 628Zinc 63 48Lead 44 40 Average base metal prices in 2005 exceeded the most optimistic of expectations.Notwithstanding reasonable GDP growth, notably in China and the US, slowerindustrial production and manufacturing growth precipitated destocking which,when combined with price-induced substitution and increased scrap usage,resulted in only a modest increase in metal demand. Offsetting this was a mutedmine supply-side response to higher prices, especially in the case of copperwhere unexpected supply disruptions led to output being some 1 million tonneslower than forecast. Substantial speculative investment inflows were asignificant feature of the market in 2005. Operating performance Copper Division 2005 2004Operating Profit ($'m) 1,381 1,048Attributable Production ('000 tonnes) 635 766 Attributable copper production decreased by 74,300 tonnes due to the disposal ofHudson Bay. Mantoverde increased output by 3% to 62,000 tonnes, reflectinghigher treatment rates. Production at Mantos Blancos declined by 8% to 87,700tonnes, as a result of a planned reduction in dump leach treatment rates andgrades. Los Bronces (227,300 tonnes) and El Soldado (66,500 tonnes) alsoexperienced small reductions in production owing to lower grades. Attributableproduction from Collahuasi was 187,900 tonnes (2004: 211,600 tonnes). This wasmainly due to lower sulphide mill throughput following outages of the oreconveyor and SAG mill No. 3, and lower sulphide ore grades after an earthquakeand pit wall failures necessitated a rescheduling of the mine plan. The $80 million El Soldado pit extension project remains on schedule and withinbudget. The $21 million Chagres de-bottlenecking project, which increasesproduction capacity from 162,000 to 184,000 tonnes per annum (tpa) of anode/blister from 2006, was successfully completed. The $47 million Collahuasimolybdenum plant was completed under budget and ahead of time and will producebetween 5,000 and 8,000 tpa of molybdenum, dependent on grade. It enteredproduction in November 2005 and is expected to pay back its initial investmentwithin the first six months. Los Bronces is scheduled to complete a feasibilitystudy into a possible doubling of production, due for completion in 2007, whilea significant de-bottlenecking opportunity is currently under evaluation atCollahuasi. In May 2005 the final tranche of the Disputada purchase was paid, bringing thetotal acquisition cost to $1,395 million. In the period from 2003 to 2005Disputada generated an EBITDA of $1,648 million. Nickel, Niobium & Mineral Sands Division 2005 2004Operating Profit ($'m) 249 224Attributable Nickel Production ('000 tonnes) 27 24 Production at Loma de Niquel was marginally down for the year, although outputat Codemin rose to 9,600 tonnes (2004: 6,500 tonnes) following thesuccessful completion, within budget and on time, of the Codemin 2 project.After successful commissioning of the scalping project, niobium production rose14% to 4,000 tonnes. Improved mineral recoveries resulted in a 23% increase inrutile and an 8% rise in zircon production at Namakwa Sands. The feasibility study for the 33,000 tpa Barro Alto nickel project is welladvanced and board approval is likely to be sought later this year. NamakwaSands' $43 million project to increase output of rutile by 26% and high marginzircon by approximately 20% commencing from 2008 is underway. Zinc Division 2005 2004Operating Profit ($'m) 102 38Attributable Zinc Production ('000 tonnes) 324 411Attributable Lead Production ('000 tonnes) 63 55 Attributable zinc production decreased by 107,000 tonnes due to the disposal ofHudson Bay. Skorpion has consistently achieved design capacity since May,following a fire in the tankhouse in February that interrupted ramp-up.Production for the year increased 11% to 132,800 tonnes. Improved performance ofthe new backfill plant at Lisheen allowed secondary mining to commence,resulting in higher head grades and production of zinc (159,300 tonnes) and lead(20,800 tonnes) (2004: 156,300 tonnes and 17,200 tonnes respectively). The BlackMountain Deeps project was substantially completed, with finalisation of thedevelopment of the Deeps mine and the ramping up of production now welladvanced. With increased access to the Deeps orebody, mining flexibility beganto improve and zinc and lead grades rose materially, yielding 32,100 tonnes ofzinc and 42,200 tonnes of lead representing increases of 14% and 13%respectively. Outlook The outlook for 2006 is good, with strong demand and constrained productionincreases across the industry. Cost pressures are expected to remain intense asthe entire supply chain to the industry operates at, or close to, capacity.However, the current consensus is one of relatively strong global growth and aweaker US dollar, as structural issues resurface and US interest rates approachtheir peak. Metal inventories are low (in the case of copper and nickel) ortightening (in respect of zinc). With the possible exception of zinc, however,and in the absence of further supply-side disruptions, base metal markets seemlikely to move into a small surplus during 2006 on the back of increased primaryproduction, substitution and scrap usage. Fluctuating levels of fund interest inthe sector may, however, influence short-term price movements to a greaterextent than fundamentals. FERROUS METALS AND INDUSTRIES $ million Year Year ended ended 31.12.05 31.12.04 Operating profit 1,456 887 Kumba 568 203 Highveld Steel 436 169 Scaw Metals 121 85 Samancor Group 144 241 Tongaat-Hulett 131 69 Boart Longyear 67 72 Terra - 55 Other (11) (7)EBITDA 1,779 1,231Net operating assets 4,439 5,302Capital expenditure 373 284Share of Group operating profit (%) 23% 19%Share of Group net operating assets (%) 12% 14% Ferrous Metals and Industries' operating profit reached a record $1,456 million,up 64% on 2004. This was as a result of substantially higher prices for iron oreand vanadium, generally higher volumes and increased cost savings, partiallyoffset by the strong rand and lower manganese alloy prices. Markets Global crude steel production for 2005 was 1,129 million tonnes (Mt), anincrease of 5.9% over 2004. China's share of world output increased from 26.3%in 2004 to 30.9% in 2005, making it the largest global producer. The global ironore market continues its very strong trend, with prices forecast to rise furtherin 2006. Demand for vanadium weakened in the second half of 2005. Ferrovanadiumprices, although off their mid-2005 record highs, are still averaging over $38/kgV. Manganese ore prices softened in the second half in response to weakeningdemand as manganese alloy margins came under pressure. Strategic review Significant progress in restructuring the division was made during 2005, withfurther asset disposals for a total attributable enterprise value for AngloAmerican of $1,029 million. In January and May, Highveld sold its stainlesssteel investments in Acerinox and Columbus for an attributable enterprise valueof $136 million. The sales of Boart Longyear's subsidiary, Wendt, and theremaining Boart Longyear group were concluded in March and July respectively fora combined enterprise value of $635 million. Anglo American and BHP Billitonsold their respective 40% and 60% shareholdings in Samancor Chrome in June for acombined enterprise value of $469 million. Samancor also disposed of halfits shareholding in Acerinox, as well as other interests, for a combinedenterprise value of $149 million. The sale of ferrochrome producer ZimbabweAlloys for an enterprise value of $10 million was completed in September. InOctober, Anglo American announced its decision to seek to dispose of itsshareholding in Highveld. Tongaat-Hulett recently announced that it intends tounbundle and separately list its aluminium business, Hulett Aluminium andsimultaneously introduce Black Economic Empowerment participation in bothTongaat-Hulett and Hulett Aluminium. Operating performance Kumba achieved an operating profit of $568 million (2004: $203 million). Theimpact of stronger commodity prices and higher sales volumes, together withsolid operational performances and the benefits of its business improvementprogramme were partially offset by the strong rand. With effect from the secondquarter, Kumba benefited from the international annual dollar-denominatedbenchmark price increase of 71.5%. Production of iron ore was 31 Mt, of which71% was exported. In March, Kumba announced the approval of a major expansionproject at its Sishen iron ore mine in South Africa. This will increaseproduction by 10 million tonnes per annum (Mtpa) to 41 Mtpa by 2009.Construction started in mid-2005, with production ramp-up to commence bymid-2007. In July, Kumba's local partner in the Hope Downs iron ore project in Australiaexercised an option to acquire Kumba's interest in the project, resulting in a$176 million pre-tax settlement. Kumba announced a major restructuring of itsoperations in October. As part of this black economic empowerment transaction,Kumba's iron ore assets are to be partially unbundled to Kumba shareholders andtwo separate listed entities - Kumba Iron Ore and Newco - will be established.Following the transaction, Anglo American will own 66% of Kumba Iron Ore and 17%of Newco, of which 10% will be a long-term holding. Highveld Steel had a record year, with an operating profit of $436 million(2004: $169 million). This was largely due to significantly higher vanadiumprices, relatively strong sales into the South African steel market andcost-saving initiatives. Ferrovanadium prices averaged $66/kgV in 2005, upthreefold on 2004. Scaw also produced record results, with operating profit rising to $121 million(2004: $85 million). Strong demand for cast and forged products, particularly inthe second half, offset a weaker performance from rolled products. Cost savingsalso contributed to the higher earnings. The attributable share of Samancor's operating profit amounted to $144 million(2004: $241 million). Samancor's manganese operations were affected by reducedsales volumes and substantially lower alloy prices, while Samancor Chrome onlycontributed for the first six months. Boart Longyear's operating profit was $67 million (2004: $72 million),representing a seven-month contribution until its effective sale date at the endof July. Tongaat-Hulett's operating profit increased to $131 million (2004: $69 million).Hulett Aluminium grew its rolled products volumes by 20% to 173,000 tonnes andreduced unit conversion costs. Earnings from Tongaat-Hulett Sugar increased as aresult of higher South African and export sales volumes and a better world sugarprice. African Products continued its profit recovery, with an increase in salesvolumes and lower maize costs. Moreland Properties continued to accelerate itsdevelopment pace, with strong contributions across its portfolios. Outlook Global iron ore demand should be maintained in the coming year. Market consensusis that iron ore prices should rise by 10% to 20% in 2006. The outlook forvanadium remains positive but the price levels seen in 2005 are not expected tobe repeated in 2006. Manganese alloy markets are expected to strengthen.Prospects for continued real growth in global steel demand remain positive in2006, with the strongest growth again expected to come from China. Increasingraw material and energy costs will, however, present major challenges to steelproducers. COAL $ million Year Year ended ended 31.12.05 31.12.04 Operating profit 1,019 497 South Africa 463 252 Australia 316 78 South America 240 167EBITDA 1,243 687Net operating assets 2,244 2,303Capital expenditure 331 218Share of Group operating profit (%) 16% 11%Share of Group net operating assets (%) 6% 6% Anglo Coal lifted operating profit by 105% to a record $1,019 million. Theincrease was attributable to improved export prices realised during the year anda 4% rise in production to 93 million tonnes. South Africa, Australia and SouthAmerica contributed 45%, 31% and 24%, respectively, to operating profit. Markets During the year, global demand and supply fundamentals for coal were reasonablywell balanced, driven by generally strong world economic activity and continuedrobust commodity demand from the steel and power sectors, led by China. Domesticdemand in China for thermal coal remained firm and so capped that country'sexport volumes. Indonesian supplies grew sufficiently to make it the largestthermal coal exporter in the world. However, the impact of supply growth wasmoderated to some extent by infrastructure constraints or operating problems inseveral other regions of the world. Metallurgical prices remained firm, particularly for hard coking coals, butthere was a softening of prices towards year end for semi-soft coking andpulverised coal injection (PCI) coals. Thermal coal prices moved down from 2004peak levels as the year progressed, but were significantly ahead, on average, ofthe previous year's prices. Thermal coal markets remain volatile, moving quickly- particularly in Europe - in response to fluctuations in the price of competingfuels. The introduction of the European Union Emissions Trading Scheme (EU ETS) had atangible effect on the thermal coal market during 2005, as the cost of CO2emissions now features in the determination of power-generating margins whenusing all fossil fuels. Nevertheless, the EU ETS allowance provisions inindividual countries, coupled with high alternative fuel prices, have permittedcoal to maintain a competitive position as a critical power generation fuel. Operating performance Operating profit for South African sourced coal, at $463 million, was 84% higherthan for the previous year. Export prices were 35% up on those for 2004.Production rose by 4% to 56.9 million tonnes following the start-up of theIsibonelo mine in July and a general improvement in production at the othermines. Most notable was the excellent performance of Goedehoop mine, despite itshaving to recover from an underground fire. Total sales of 56.8 million tonneswere also 4% higher, due to the rise in production, supported by improvedperformance by the rail utility, Spoornet, and continued growth in localelectricity demand. Operating profit for the Australian operations climbed by 305% to $316 million.Higher prices for all types of coal, particularly metallurgical coal,contributed strongly to the result, as did an overall production volume increaseof 0.5 million tonnes to 26.1 million tonnes. This increase in production wasmainly a result of improved performance at Moranbah North, where a solidoperational perfomance resulted in a 205% increase in production. Production atDartbrook was restricted by difficult geological conditions. Strong demandacross the industry for key resouces created contractor and equipmentavailability shortfalls that limited production at some sites, and resulted inincreased costs for both directly price linked costs, such as royalties andfuel, and other key inputs including labour and consumables at all operations. In South America, operating profit was up by 44% to $240 million, on the back ofcoal price increases and a 5% increase in production volume to 10.1 milliontonnes. These gains were counteracted in part by increases in operating costscaused by rising fuel prices, royalties, and the strengthening of the Colombianpeso and Venezuelan bolivar against the US dollar. Operations were also affectedby higher than expected rainfall during the year. In Australia, capital expenditure for the year was 36% higher at $185 million,mainly as a result of the ramp-up of the $835 million Dawson expansion projectand the $151 million Grasstree project, which is planned to start productionduring the second half of 2006. The feasibility study for the $516 million LakeLindsay project was completed and the project started in early 2006. In South Africa, the Isibonelo and Kleinkopje expansion projects, both of whichwere completed during the year, represented the main items of capitalexpenditure. Feasibility studies are in progress on a number of other expansionprojects in response to the increased domestic demand for coal. In South America, Cerrejon is continuing with the expansion to 28 million tonnesper annum (Mtpa), which should be completed by the end of 2006. Furtherexpansion of the operation to 32 Mtpa was approved during the year and hascommenced. A pre-feasibility study is currently under way to investigateadditional expansion beyond 32 Mtpa. Outlook Firm hard coking coal prices are anticipated in the coming year, but prices forsemi-soft coking and PCI coals will reflect the downward trend that commenced in2005. That trend will have an impact on thermal coal prices, particularly in theIndo-Pacific region. Although thermal coal demand for 2006 appears to begenerally firm, improved supply infrastructure performance, combined withincremental supply increases, will have a moderating influence. Consequently,average thermal coal prices in 2006 are expected to be slightly lower than in2005. Substantial capital expenditure will continue to be incurred in all regions,with the resulting increases in production, especially in Australia, comingthrough over the next two years. In February 2006, Anglo Coal announced it hadentered into a joint coking coal venture in British Columbia, Canada. In China,the Group has a 60% interest in the Xiwan open cut coal mine, where thefeasibility of a large coal-to-chemicals project is being investigated with anumber of partners. Work continues on the feasibility study for Monash, a fuelfrom brown coal project, in Australia. PLATINUM $ million Year Year ended ended 31.12.05 31.12.04Operating profit 854 536EBITDA 1,282 853Net operating assets 7,018 7,560Capital expenditure 616 633Share of Group operating profit (%) 13% 11%Share of Group net operating assets (%) 20% 20% Anglo Platinum's operating profit rose by 59% to $854 million, mainly as aresult of higher US dollar prices for metals sold and increased sales volumes.The cash operating cost per equivalent refined platinum ounce (equivalent ouncesare mine ounces converted to expected refined ounces) increased by 9.4% in randterms. Cost initiatives, including supply-chain savings, yielded additionalsavings of $36 million compared with 2004. Markets The average dollar price realised for the basket of metals sold was $1,388 perplatinum ounce sold, 16% higher than in 2004. Firmer platinum, rhodium andnickel prices made the largest contribution to the increase. The averagerealised price for platinum, of $894 per ounce, was $52 higher, while rhodiumaveraged $1,966 per ounce compared with $933. The average realised price fornickel was $6.77 per pound, against $5.92 in 2004. Operating performance Whilst refined platinum group metal (PGM) production increased by 5% whencompared to 2004, refined platinum production of 2.5 million ounces was similarto 2004. This was the result of a shutdown at the Polokwane Smelter fromSeptember through to December, which will see 123,600 ounces of platinum beingrefined in 2006 instead of 2005. Equivalent refined platinum production from theoperations managed by Anglo Platinum and its joint venture partners increased by50,000 ounces, or 2%, primarily as a consequence of the expansion of theKroondal Platinum Mine with Aquarius Platinum, and higher output at ModikwaPlatinum Mine, as the mine ramps up further towards steady-state production.Lower production was recorded at the Rustenburg and Amandelbult mines. At Rustenburg, the ore-source mix continued to change as the currently availableMerensky reserves diminish, and Merensky ore is replaced with UG2 ore. Operatingperformance in the second half of the year improved over the first six months,as the considerable efforts made to restore production and improve safety andefficiencies started to take hold. The Amandelbult mine continued with effortsto reverse the impact of complex geological and ground conditions at the No. 1and 2 shafts. Again, performance improved in the second half, indicative ofprogress made with the planned turnaround. Changes in the rhodium refining circuit at the Precious Metals Refinery resultedin a substantial release of metal previously held in the pipeline. Consequently,refined rhodium production increased by 74,800 ounces. The overall processrecovery of platinum improved by 3% as a result of new technology introduced inthe concentrating and smelting operations. Projects During the year Anglo Platinum announced the following ventures: • The Marikana Pooling and Sharing agreement with Aquarius Platinum, tojointly mine contiguous properties. Anglo Platinum will share in profits fromJanuary 2006 and will treat additional concentrate that arises from theexpansion of the Marikana operation. In addition to sales of concentrate interms of off-take agreements, the venture is expected to produce an additional90,000 ounces of platinum and 43,000 ounces of palladium in concentrate perannum when it reaches steady state production in 2007. • The Mototolo joint venture with Xstrata Alloys, to develop a platinummine and concentrator. The mine is expected to reach steady state production inthe third quarter of 2007. The mine will produce approximately 132,000 ounces ofplatinum and 82,000 ounces of palladium in concentrate per annum. Anglo Platinumwill purchase Xstrata's 50% share of PGM concentrate for further smelting,refining and marketing of finished products. During 2005, mining replacement projects totalling some $770 million wereapproved. These projects are planned to reach steady state between 2008 and2012, replacing some 586,000 ounces of platinum production per annum. Includedin these projects is the $230 million Potgietersrust replacement project whichwill produce 200,000 replacement platinum ounces per annum. The Potgietersrustmine will be further expanded to produce an additional 230,000 platinum ouncesper annum. Outlook Increased mined production and a reduction in the level of pipeline inventoriesare expected to result in refined platinum production of between 2.7 and 2.8million ounces in 2006. Management at Anglo Platinum continues to vigorouslyaddress unit costs in conditions of relatively high inflation in the miningenvironment. The emphasis on increasing volumes at improved operatingefficiencies remains. Demand for platinum continues to be strong and remains supportive of firmplatinum prices. The resilience of jewellery demand - particularly in theChinese market - at prices over $900 per ounce adds confidence to this view. Thegrowth in platinum demand in Europe for diesel autocatalyst systems, bothoxidation and now heavily loaded particulate traps, is strong. Tightening dieselemission legislation and its early adoption supports this, as well as thegrowing popularity of diesel engine powered vehicles. Industrial demand remainsfirm, particularly in the glass and petroleum sectors. Industrial palladium demand continues to grow, encouraged by the relatively lowprice. However, as adequate supplies are available, the relative high rulingprices are the result of investment interest in the metal. It is notable thatpalladium demand from Chinese jewellery manufacturers doubled in 2005 and,should sustainable consumer interest be established, this could beneficiallyalter the nature of palladium supply and demand. While production and sales volumes will increase in 2006, the most significantvariable affecting earnings will be metal prices in rand terms. If the randbasket price remains at current levels, then earnings for 2006 are likely to behigher than those in 2005. DIAMONDS $ million Year Year ended ended 31.12.05 31.12.04Share of associates' operating profit 583 573EBITDA 655 655Group's share of De Beers' net assets (1) 2,056 2,208Share of Group operating profit (%) 9% 12% The Group's share of total operating profit from De Beers increased by $10million over the 2004 figure to $583 million. Markets Overall, 2005 proved to be quite a good year for the diamond industry.Preliminary reports point to global retail sales of diamond jewellery for theyear rising by 6-7%. The diamond trade experienced growth in all major regions,with the exception of Europe, where sales were generally flat. The US, whichaccounts for around 50% of world jewellery sales by value had a satisfactoryChristmas season and mirrored the upward world trend. In the Asia-Pacificregion, there was a low single digit increase, with Japan's steady economicrevival being reflected in a modest increase in growth for the third yearrunning; China, meanwhile, had a much better second six months. In the MiddleEast, the Gulf region experienced growth well in excess of targets. For most of the year, demand for rough diamonds from the cutting centres wasstrong. Sales by The Diamond Trading Company (the DTC), the marketing arm of DeBeers, were a record $6,539 million, 15% higher than in 2004. During the yearthe DTC raised its rough diamond prices on two occasions, the cumulative effectbeing that sales were at prices 9.5% higher on average than in 2004. The firstsight of 2006 was slightly down on that of a year earlier, while in Februarythis year the DTC raised its rough diamond prices by an average of 2% on theevidence of the continuing underlying demand growth. Operating performance De Beers group production, which includes the joint ventures in Botswana andNamibia, increased by 4% to 49 million carats. The South African operationslifted output by 10% to 15.2 million carats. However, in future years there willbe no contribution from the Kimberley underground mines or from Koffiefontein asthese loss making operations have been closed. Debswana raised production by 2%to a record 31.9 million carats, while the combined land and offshore operationsat Namdeb totalled 1.86 million carats, down 5%. During the year, De Beers announced the approval of the $513 million Snap Lakeunderground project in Canada's Northwest Territories, which will be thecompany's first mine outside Africa and the first fully underground diamond minein Canada. This was followed by the go ahead being given for a second Canadianproject, the $791 million Victor project in Ontario. Snap Lake is due to enterproduction in late 2007, with start up at Victor, which received environmentalapproval in October, scheduled to commence in the third quarter of 2008. InSouth Africa, approval has been given for the re-opening of the $177 millionVoorspoed mine, while $115 million has been allocated to the South African SeaAreas marine mining project. Agreement has been reached, and a preliminary order issued, to settle themajority of civil class action suits filed against De Beers in the UnitedStates. This settlement does not involve any admissibility on the part of DeBeers and, if finally approved, will bring an end to a number of outstandingdisputes. $250 million has been paid in escrow pending conclusion of thesettlement process. In 2005, De Beers and Ponahalo Investment Holdings signed a Memorandum ofUnderstanding relating to the proposed sale of a 26% equity interest in De BeersConsolidated Mines Limited to Ponahalo, a broad based South African blackeconomic empowerment company, for approximately $597 million. The sale is likelyto be completed in April 2006. Outlook Demand for rough diamonds continues to be steady, though stocks of both roughand polished diamonds in the cutting centres are at relatively high levels, asare aggregate debt levels. Consequently, the price of outside diamonds hasdropped significantly, with a concomitant effect on the DTC's rough stones. Inspite of the current strain, however, the outlook for diamonds in 2006 is apositive one, in line with macro-economic forecasts of another good year ofgrowth for the global economy. PAPER AND PACKAGING $ million Year Year ended ended 31.12.05 31.12.04Operating profit 495 569 Packaging 293 297 Business Paper 163 180 Other 39 92EBITDA 916 978Net operating assets 6,365 6,596Capital expenditure (including bio assets) 746 822Share of Group operating profit (%) 8% 12%Share of Group net operating assets (%) 18% 17% Total operating profit declined 13% from $569 million to $495 million,reflecting the continued difficult trading conditions across Mondi's keymarkets. In response to the tough business environment, the company hasdelivered $223 million in cost savings and profit improvement initiatives,underpinning the goal of profitability and competitive advantage in all tradingconditions. Markets and Operating performance Mondi Packaging's total operating profit was $293 million, slightly below thatof the previous year. The marginal impact of acquisitions made in early 2004,along with benefits of $103 million from significant cost saving and profitimprovement initiatives, was offset by continued weak trading conditions. Thesewere brought about mainly by a combination of over capacity and lacklustremanufacturing growth in western European markets. The most difficult market wassackpaper, which saw substantial price declines. Notably, a number of papermachines achieved all time production records. Productivity, measured in outputper employee, improved by 8% across the business. In the latter part of the yearthere were signs of improvements in the markets, as a weakening euro, a pick upin European manufacturing activity and restructuring among key producers in thecorrugated packaging sector led to improved trading conditions. Management has responded to the structural over capacity in the corrugatedsector by undertaking a significant restructuring. This involved the closure offour plants in the UK and France, the disposal of a further nine plants in theUK, and further rationalisation measures across the remaining operations. Oneoff cash costs associated with these restructurings amounted to $15 million,with a further $62 million in asset and goodwill write downs and provisions.These costs are defined as operating special items and so are excluded fromoperating profit. The restructuring programme is expected to yield annual cashflow benefits in excess of $22 million, of which $12 million has been realisedin 2005. This is in addition to steps taken over the past 18 months torationalise the upstream paper business, including the closure of two high costrecycled containerboard mills with a combined capacity of 100,000 tonnes perannum, representing around 14% of Mondi Packaging's total capacity in thesegrades. The acquisition of release liner manufacturer Akrosil, completed in earlyJanuary 2006, will result in further expansion into the United States, whileconsolidating Mondi Packaging as one of the major players in the global merchantrelease liner sector. The acquisition of Paper Factory Stambolijski in Bulgariastrengthens Mondi Packaging's position as one of the leading global suppliers ofsack kraftpaper. Completion of the transaction remains subject to competitionclearance. A recently approved project to rebuild the PM1 machine at Swiecie inPoland, at a cost of €39 million, will increase the company's exposure to thefast growing lightweight kraftliner market. Mondi Business Paper's total adjusted operating profit declined by 9% to $163million. Although demand remained reasonable, pricing was under pressure duringthe year owing to a combination of the strong euro, which attracts dollardenominated imports, as well as over capacity in core European markets. Uncoatedwoodfree sales volumes increased by 3.3%. This was mainly as a result ofadditional volumes from the successful rebuild of Ruzomberok's PM18 papermachine, offset in part by reduced volumes from Merebank during the rebuild ofPM31. A major focus on cost saving and profit improvement initiatives hasyielded benefits of $104 million. The Richards Bay RB720 expansion project andthe Merebank PM31 rebuild have been commissioned successfully and fullproduction is expected to be achieved during 2006. Incremental uncoated woodfreepaper volumes coming on to the market as a result of the PM31 rebuild will beoffset by a reduction of around 100,000 tonnes from Hungary. This follows thesale of the Dunaujvaros paper mill, which will be converted by the new owners tothe production of paper for release liner during 2006. The remaining businesses in the Mondi portfolio underperformed when comparedwith 2004. Rand strength has had a negative impact on local market pricing andexport revenues in the South African based packaging and newsprint businesses,while difficult trading conditions in key markets are putting pressure on theEuropean paper merchant, Europapier. Outlook The company will continue to focus on attaining operational excellence acrossits operations, integrating and optimising the significant new investments inRichards Bay, Merebank, Akrosil and Stambolijski, and achieving further costreductions and profit improvements at existing facilities. Together with thespecific restructuring initiatives undertaken in the corrugated operations in2005, this will position the business to benefit from any upturn in the markets. Mondi is considering a one million tonnes per year softwood pulp expansion at acapital cost of $1.5 billion at its Syktyvkar plant in north west Russia inorder to meet growing worldwide pulp demand, driven mainly by China. While it is still to early too call a sustained turnaround in tradingconditions, there are signs of improvement. The recently implemented priceincreases in containerboard and uncoated woodfree reflect the benefits ofindustry rationalisation and improved demand, although sustained dollar weaknessmay undermine any recovery. INDUSTRIAL MINERALS $ million Year Year ended ended 31.12.05 31.12.04Operating profit 370 421 Tarmac 340 354 Copebras 30 67EBITDA 618 638Net operating assets 3,982 4,480Capital expenditure 274 304Share of Group operating profit (%) 6% 9%Share of Group net operating assets (%) 11% 12% Industrial Minerals generated an operating profit of $370 million. Tarmac'sprofit before special items was 4% lower at $340 million. Trading conditions inthe UK were challenging, particularly in the second half of 2005, as the effectsof higher energy costs and flat volumes impacted performance. Tarmac'scontribution from its international businesses was in line with last year,reflecting strong second half business performance in France, Spain and theMiddle East, offset by weaker demand in Germany. Tarmac's European portfoliogrew during the year with a number of small bolt on acquisitions in Poland,France and the UK. The acquisition of a developing business in Romania in early2006 further strengthened Tarmac's position in central Europe, identified as akey focus of the company's growth strategy. The appreciation of the Braziliancurrency, the real, was almost entirely responsible for profits at Copebrasbeing $37 million down on 2004. Markets and operating performance In the UK, Tarmac realised price increases of between 3% and 7% across variousproduct groups, though margins were impacted by increased operating and energyrelated costs. Volumes were generally flat and leading market positions weremaintained. However, margins in the coated stone and concrete markets wereparticularly challenging, reflecting high fuel costs and competitive pressuresin an over supplied marketplace. The Buxton cement plant, which started up inMarch 2004, exceeded project appraisal production by 43%. The weak housingmarket affected demand for concrete products, particularly Aircrete blocks,where the market declined by some 11%. This sharp fall in demand contributed toa significant erosion of margins, exacerbated by fuel costs and ongoingoperational issues. Operating profits in France were considerably better than in 2004, reflectingthe contribution of new acquisitions, improved prices and good cost control. InGermany, operating profits were affected by delays and reductions ininfrastructure projects in a significantly over supplied marketplace, whichdepressed prices. In the Middle East, Tarmac's operations continue to benefitfrom strong local demand. Trading in Spain, Poland and the Czech Republic was inline with the previous year. Copebras' underlying business performed well, although the stronger Braziliancurrency resulted in a substantial increase in local costs, in dollar terms.Selling prices and raw material costs are essentially dollar denominated androse in tandem. Copebras' fertiliser sales held up well despite a 13% drop inthe overall fertiliser market in Brazil resulting from the effects of the 17%appreciation of the real on the Brazilian agricultural sector, compounded by lowrainfall. Adapting to changing market dynamics, Tarmac significantly restructured andstrengthened its management and organisational structure in 2005. The UKbusiness is now divided into Aggregates Products, with enhanced local presence,and Building Products, which reflects the more national focus of its customerbase. The structure further facilitates continuous improvement in production andlogistics, and also in sales and back office activities. During 2005, thedivision achieved $86 million of cost savings and efficiency improvements. The business development resource has been strengthened, with a Frankfurt base,to better position Tarmac to grow its European business. The company recentlymade three acquisitions in its aggregates business in the UK, Poland, and inearly 2006, Romania. Tarmac has also embarked on a strategic portfolio reviewdesigned to increase focus and improve performance and is currently planning toexit certain non-core businesses in Germany and Hong Kong as well as concretepaving in the UK. Outlook Market conditions in the UK are expected to remain difficult with sluggishdemand and high cost pressures, particularly energy costs. Tarmac announcedprice increases across its product range in January 2006, but in a highlycompetitive marketplace, margins will be influenced by the degree to which thesehold. GOLD $ million Year Year ended ended 31.12.05 31.12.04Operating profit 332 296EBITDA 871 694Net operating assets 6,982 7,124Capital expenditure 722 585Share of Group operating profit (%) 5% 6%Share of Group net operating assets (%) 20% 19% In 2005, operating profit of $332 million was 12% higher compared with theprevious year (2004: $296 million). At the end of 2005, the gold price was morethan 11% higher than at the beginning of 2005, while the average local pricereceived for the year was 9% higher than for 2004. Total cash costs were $13 perounce higher, at $281 per ounce, mainly resulting from stronger operatingcurrencies, inflation and lower grades. Markets The return of investor interest in gold continued throughout 2005, with asustained rise in the gold price. The average gold price received increased by$45 per ounce to $439. In the final quarter of the year, the spot gold pricebroke through $500 per ounce on a number of occasions. This momentum hascontinued into 2006, with the spot gold price currently well above the $500 perounce mark. Operating performance AngloGold Ashanti's production in 2005 from ongoing operations was 6.2 millionounces, 6% higher than the previous year, and was largely attributable to theinclusion of a full year's production of the Ashanti assets, in addition torecord performances from Sunrise Dam in the first two quarters of the year andproduction improvements at Morila and Mponeng of 28% and 27% respectively. Theseincreases were offset by a reduction in output from key South African assets,including Great Noligwa and TauTona. The optimisation of the Ashanti assets is ongoing, and management hasimplemented programmes to ensure that these operations, starved of workingcapital for an extended period, realise their ore reserve, profit margin andgrowth potential. Current growth projects will maintain AngloGold Ashanti's production in excessof 6 million ounces through to 2013. In addition to that, management is focusedon growing the reserve and resource base, both through exploration and through adisciplined, value adding mergers and acquisitions programme. In respect of bothof these activities, the company is now looking outside of the world's maturegold regions and has announced exploration projects in Africa in the DemocraticRepublic of Congo and in South America in Colombia. In Russia, AngloGold Ashanti has acquired productive capacity with its 30% sharein London based Trans-Siberian Gold as an entry point to this region. In China,strategic alliances are being pursued to allow the company to successfullyextract value from a region undergoing significant economic and regulatorychange. Exploration partnerships in the Philippines, Laos and in Mongolia haveresulted in land positions being acquired in several prospective areas. Outlook The gold price has now risen for five years in succession, a phenomenon not seensince the deregulation of the gold market in the developed markets in 1971.Ongoing strong demand from growing economies in China and India as well ascontinued investor speculation and official sector activities are seen assupportive of the gold price. EXPLORATION As the prelude to any new mining project, exploration is fundamental to theGroup's success. And as the world becomes increasingly well prospected, AngloAmerican, in addition to a focus on near-mine resources, is searching for newdeposits in more remote regions, such as the Arctic Circle and central Africa.In 2005, it spent $150 million on exploration, across 31 different countries. Anglo Base Metals (which spent $50 million) has found significant new resourcesclose to the Chilean copper mines of Los Bronces and El Soldado, and nearCatalao niobium mine in Brazil. Elsewhere work continues on extending thecopper resource discovered by Anglo American at Boyongan in the Philippines,while greenfields exploration is in progress in Chile, Brazil, Indonesia, Mexicoand Peru. Nickel sulphide mineralisation has been discovered at West Raglan,Canada and drilling continues for nickel resources at the Mosku project inFinland and the MAN project in Alaska. Delineation of the nickel lateritediscovery at Jacare, Brazil, is underway. Anglo Coal ($13 million) is assessing the viability of methane production inSouth Africa's Waterberg coalfield. It completed scoping studies on China'sXiwan Project and began drilling on the Guxian prospect. Coal exploration isbeing carried out in Canada. Anglo Ferrous Metals and Industries ($21 million) is exploring for iron ore inSouth Africa on both greenfield and brownfield sites, and continues to evaluateopportunities in West Africa. AngloGold Ashanti ($45 million) is exploring around many of its existingoperations, as well as in China, Colombia, the Democratic Republic of Congo,Laos, Mongolia, the Philippines, and Russia. Anglo Platinum ($21 million) is exploring near existing operations and in SouthAfrica's Bushveld Complex. Early-stage drilling at China's Danba project hasbeen encouraging, and programmes continued in Brazil, Canada, Russia andZimbabwe. Exchange rates against the US dollar Average 2005 2004South African rand 6.37 6.44Pound sterling 0.55 0.55Euro 0.80 0.80Australian dollar 1.31 1.36Chilean peso 559 609 Year endSouth African rand 6.35 5.65Pound sterling 0.58 0.52Euro 0.85 0.74Australian dollar 1.36 1.28Chilean peso 512 556 Commodity pricesAverage market prices for the period 2005 2004Gold - US$/oz 445 409Platinum - US$/oz 897 847Palladium - US$/oz 201 231Rhodium - US$/oz 2,056 991Copper - US cents/lb 167 130Nickel - US cents/lb 668 628Zinc - US cents/lb 63 48Lead - US cents/lb 44 40European eucalyptus pulp price US$/tonne 582 520 Consolidated income statementfor the year ended 31 December 2005 Before Special Before Special special items and special items and items and remeasurements items and remeasurements remeasurements (note 4) remeasurements (note 4)US$ million Note 2005 2005 2005 2004 2004 2004 Group revenue 1 29,434 - 29,434 26,268 - 26,268Total operating costs (24,090) (487) (24,577) (22,627) 25 (22,602) Operating profit fromsubsidiaries andjoint ventures 1 5,344 (487) 4,857 3,641 25 3,666Net profit on 4 - 87 87 - 1,015 1,015disposalsNet income from 1 696 (39) 657 621 (71) 550associatesTotal profit fromoperations andassociates 6,040 (439) 5,601 4,262 969 5,231 Investment income 498 72 570 719 - 719Interest expense (926) (37) (963) (974) (112) 1,086Net finance costs 5 (428) 35 (393) (255) (112) (367) Profit before tax 5,612 (404) 5,208 4,007 857 4,864 Income tax (expense)/ 6 (1,283) 8 (1,275) (885) (38) (923)incomeProfit for the 4,329 (396) 3,933 3,122 819 3,941financial year Attributable to:Minority interests 593 (181) 412 438 2 440Equity shareholders 7 3,736 (215) 3,521 2,684 817 3,501of the Company Earnings per share(US$) Basic 7 2.43 2.44Diluted 7 2.36 2.35 DividendsProposed ordinary dividend per share (US 62.0 70.0cents) Proposed ordinary dividend (US$ millions) 903 1,007Proposed special dividend per share (US 33.0 -cents) Proposed special dividend (US$ millions) 480 - Dividends paid during the period per 79.0 58.0share (US cents) Dividends paid during the period (US$ 1,137 827millions) The impact of acquired and discontinued operations on the results for the year is not material. Underlying earnings and underlying earnings per share are set out in note 7. Consolidated balance sheetas at 31 December 2005 US$ million Note 2005 2004 Intangible assets 2,572 2,644Tangible assets 30,796 33,172Biological assets 350 374Environmental rehabilitation trusts 288 237Investments in associates 3,165 3,486Fixed asset investments - 1,084Financial asset investments 899 -Deferred tax assets 337 128Other financial assets (derivatives) 183 -Other non-current assets 153 66Total non-current assets 38,743 41,191 Inventories 3,569 3,549Trade and other receivables 5,174 5,534Current tax assets 211 220Current asset investments - 2Current financial asset investments 16 -Cash and cash equivalents 10 3,430 2,955Other current financial assets (derivatives) 747 -Total current assets 13,147 12,260 Total assets 51,890 53,451Short term borrowings 10 (2,076) (3,383)Trade and other payables (5,024) (5,368)Current tax liabilities (1,145) (831)Other current financial liabilities (derivatives) (1,286) -Total current liabilities (9,531) (9,582) Medium and long term borrowings 10 (6,363) (7,817)Retirement benefit obligations (1,258) (1,201)Other financial liabilities (derivatives) (508) -Deferred tax liabilities (5,201) (5,810)Provisions (1,451) (1,328)Total non-current liabilities (14,781) (16,156) Total liabilities (24,312) (25,738)Net assets 27,578 27,713 EquityCalled-up share capital 9 747 747Share premium account 9 1,637 1,633Other reserves 9 1,330 3,074Retained earnings 9 19,907 17,671Equity attributable to equity shareholders of the Company 23,621 23,125Minority interests 9 3,957 4,588Total equity 27,578 27,713 Consolidated cash flow statementfor the year ended 31 December 2005 US$ million Note 2005 2004 Cash inflows from operations 10 7,265 5,291Dividends from associates 461 368Dividends from financial/fixed asset investments 9 28Income tax paid (954) (500)Net cash inflows from operating activities 6,781 5,187 Cash flows from investing activitiesAcquisition of subsidiaries, net of cash and cash (298) (1,135)equivalentsDisposal of subsidiaries, net of cash and cash equivalents 419 274Investment in associates (29) -Sale of interests in associates 11 1,424Sale of interests in joint ventures 2 37Purchases of tangible fixed assets (3,306) (3,166)Proceeds from disposal of tangible assets 327 151Investment in biological assets (55) (67)Purchases of financial asset investments (203) (108)Proceeds from sale of financial asset investments 245 263Loans granted to related parties - 6Repayment of loans and capital from associates 370 299Loan repayments from related parties 1 -Utilised in hedge restructure (69) -Other investing activities (18) (4)Net cash used in investing activities (2,603) (2,026)Cash flows from financing activitiesIssue of shares by subsidiaries to minority interests 73 146Sale of treasury shares to employees 240 46Repayment of short term borrowings (1,356) (1,830)Repayment of medium and long term borrowings (632) (598)Issue of convertible bonds - 990Decrease in minority loans - (2)Increase in current financial/fixed asset investments 13 23Interest received 210 195Interest paid (547) (601)Dividends paid to minority interests (421) (178)Dividends paid to Company shareholders (1,137) (827)Other financing activity (19) (39)Net cash used in financing activities (3,576) (2,675) Net increase in cash and cash equivalents 602 486 Cash and cash equivalents at start of year 2,781 2,186Cash movements in the year 602 486Effects of changes in foreign exchange rate (64) 109Cash and cash equivalents at end of year 10 3,319 2,781 Consolidated statement of recognised income and expensefor the year ended 31 December 2005 US$ million 2005 2004Gain on revaluation of available for sale investments 31 -Loss on cash flow hedges (316) -Exchange (losses)/gains on translation of foreign operations (2,182) 2,617Actuarial loss on post-retirement benefit schemes (171) (57)Actuarial (loss)/gain on post-retirement benefit schemes - associates (24) 31Deferred tax 140 6Other movements 5 (32)Net (expense)/income recognised directly in equity (2,517) 2,565TransfersTransferred to profit or loss: sale of available for sale investments (32) -Transferred to profit or loss: cash flow hedges (8) -Transferred to profit or loss: exchange differences on disposal of foreign operations - (30)Total transferred from equity (40) (30)Profit for the year 3,933 3,941Total recognised income and expense 1,376 6,476Adoption of IAS 32 and IAS 39 (see note 13) (127) -Total recognised income and expense for the year 1,249 6,476 Attributable to:Minority interests (40) 755Equity shareholders of the Company 1,289 5,721 This information is provided by RNS The company news service from the London Stock ExchangeMORE TO FOLLOW

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