Anglo American
Annual Report 2004

Plain-text annual report

7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 9:15 pm Page fc1 ANGLO AMERICAN MEETING THE WORLD’S NEEDS ANNUAL REPORT 2004 7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 2:23 am Page ifc2 HIGHLIGHTS OF 2004 • Record results: headline earnings(1) up 59% at $2,689 million; headline earnings per share up 57% at $1.88 • Total profit for the year up 83% at $2,913 million • Cash generation: EBITDA(2) up by $2.3 billion at $7.1 billion • Record Base and Ferrous Metals performances • $1.5 billion of projects successfully commissioned; $4.7 billion project pipeline on track • Ongoing optimisation of asset base: $2.1 billion of disposals, including Hudson Bay and stakes in Gold Fields and Terra. Minera Sur Andes and Kumba acquisitions performing well • Cost savings and efficiencies up 65% at $554 million • Final dividend increased by 31% to 51 US cents. Total dividend up 30% at 70 US cents over 2003 CONTENTS Financial highlights Chairman’s questions and answers Chief executive’s statement Financial review Directors’ report Corporate governance Remuneration report Statement of directors’ responsibilities Independent auditors’ report 01 02 03 06 19 22 28 44 45 Financial statements Ore reserves and mineral resources Production statistics Exchange rates and commodity prices Key financial data Summary by business segment Shareholder information Other Anglo American publications 46 90 114 120 121 122 123 124 7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 2:03 am Page 01 Anglo American plc Annual Report 2004 01 FINANCIAL HIGHLIGHTS $ million (unless otherwise stated) Turnover including share of joint ventures and associates Total operating profit Total operating profit before operating exceptional items Profit for the financial year Headline earnings for the financial year(1) Net operating assets(3) EBITDA(2) Net cash inflow from operating activities Capital expenditure Basic earnings per share ($): Profit for the financial year Headline earnings for the financial year Total dividend for the financial year (US cents per share) SELECTED FINANCIAL DATA 2004 2003 31,795 4,480 4,572 2,913 2,689 37,601 7,110 4,773 3,129 2.03 1.88 70.0 24,909 2,606 2,892 1,592 1,694 29,709 4,785 3,184 3,025 1.13 1.20 54.0 123 47.5 114 49.0 125 51.0 120 54.0 188 70.0 4,688 4,647 4,792 4,785 7,110 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 n Headline earnings per share n Dividends per share US cents EBITDA US$ million (1) Headline earnings are defined in note 12 to the financial statements. (2) EBITDA is operating profit before exceptional items, plus depreciation and amortisation in subsidiaries and share of EBITDA of joint ventures and associates. EBITDA is reconciled to net cash inflow from operating activities in the financial statements following the cash flow statement and statement of total recognised gains and losses. (3) Net operating assets are defined in note 2 to the financial statements. *Throughout this report 1999, 2000 and 2001 figures have been restated for FRS 19. Figures for the years 1999 to 2003 have been restated for UITF 38. Unless otherwise stated, throughout this report ‘$’ and ‘dollar’ denote US dollars. 7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 2:04 am Page 02 02 Anglo American plc Annual Report 2004 CHAIRMAN’S QUESTIONS AND ANSWERS Q. While the financial performance for 2004 was good, do you feel that enough was done to strengthen the fundamentals of the business? A. Yes. Our earnings were strong but this was not purely a function of commodity prices. They reflect, for example, the value adding nature of the acquisitions made over the last four years – especially Minera Sur Andes, Syktyvkar, Cerrejón – and the De Beers transaction. These have produced a stronger and more balanced portfolio. Who, in the past, would have predicted the pre-eminence of Latin America in our 2004 earnings? Nor, in a year of ‘plenty’, have we rested on our laurels. We have realised a further $554 million in cost savings. Through the merger with Ashanti Goldfields, AngloGold’s resource base and growth prospects have been strengthened. Reorganisations within Anglo Platinum and Paper and Packaging have been carried out. We launched a drive to encourage innovation and greater entrepreneurialism. The fundamentals of the business are stronger than they were 12 months ago. Q. Many of the opportunities which Anglo is examining are in ‘new geographies’. Do you think you are properly equipped to manage the risks involved? A. Actually, we have a strong project pipeline in very familiar regions – southern Africa, South America, eastern Europe and Australia. We are also looking at new geographies, chiefly China, Russia and India, since each has the potential to be a major growth market as well as a significant commodities producer. Our approach has been to become involved, initially in a relatively limited way, while we seek to better understand the risks of doing business in each. The board is very supportive of this and believes it is one of Anglo’s strengths. When I went to China, for example, I visited small Anglo businesses in quarrying and drilling equipment and was briefed on three other potential opportunities. Similarly, we held a stake in Syktyvkar in Russia for five years before taking control. This gradualist approach gives us a better feel for the operating environment in new countries. Q. There was a controversy about Anglo’s judgement of political risk in South Africa – where do things now stand on this? A. The problem was never our perception of political risk – but those of some people in the international capital markets. These concerns are largely the legacy of the leaking of an early draft of the Mining Empowerment Charter in 2002. Confidence has been returning as this memory has receded and this will be given momentum by the successful conversion of ‘old order’ mineral rights. We remain committed to South Africa and are strongly supportive of the agreed scorecard approach in the Mining Act and the need to deliver on it – hence our big continuing investment programme. To an extent I can share the frustration of the South African government. It has pursued exemplary macro-economic policies and deserves to have been rewarded with more foreign direct investment. at the traditional ‘hard’ skills, but the board has identified ‘people’ issues as a strategic priority and we are now definitely moving in the right direction. Q. What do you see as the non-financial highlights of 2004? A. I would highlight four. First, Anglo became a signatory to the UN Global Compact – the ten principles of which we fully support – and made all the preparations to become a party to the Voluntary Principles on Security and Human Rights. Secondly, our work on HIV/AIDS continued to progress, with some 2,200 employees now on anti-retrovirals and an improved uptake of voluntary counselling and testing. Thirdly, our innovative Socio-Economic Assessment Toolbox process had an enthusiastic take-up at site level, with some 30 assessments already under way. Fourthly, we reorganised how we bring the strands of sustainable development together and instituted a project to improve our calibration of sustainable development risk. The benefits of these changes will come through during 2005. Q. You are closely identified with ‘sustainable development’ and ‘corporate responsibility’ – how would you answer those who say it is a peripheral issue or, as in the recent Economist article, that business should just concentrate on profits for shareholders? A. Sustainable development is absolutely central to the future acceptability of our business and to its ongoing success and profitability. Our businesses have high environmental and social impacts, many deplete a non-renewable (albeit generally recyclable) resource, and global concerns like climate change and HIV/AIDS are highly relevant to us. These issues reflect upon our licence to operate, our sustainability as an investment, our ability to attract the most talented recruits and our acceptability to governments and communities. Moreover, our ability to understand and address societal concerns is fundamental to our good name and the value of that reputation. Q. Are you concerned that other stakeholders, like governments and more assertive communities, want to increase their share of the profits from your operations? A. Every enterprise faces tensions around how rewards are shared – investors, employees, suppliers and customers all want their ‘fair share’. In the natural resources business there are more parties to the process. For much of the last 30 years mining has been a value destroyer for investors. Governments tend to overlook the lean times when proposing new or higher taxes in years like this. During 2005, Chile and South Africa are both planning to decide upon a royalty regime. Such taxes have implications for competitiveness, investment and employment. Some communities feel they get a raw deal when fiscal benefits are often only felt at a national level. We seek to improve the local development effects of our businesses but it is important too for national governments to ensure that a proportion of tax revenues is shared with local people. Q. Anglo is used to thinking about physical assets, finance and technology. Are you as good at nurturing talent? A. I would like to thank our employees for their commitment in 2004. During my site visits and at the centre I have been impressed by the calibre of Anglo’s people. I like the fact that we typically entrust most senior operational posts to locally recruited managers. We have become much more strategic and proactive in creating a performance-driven culture, career and talent management, addressing shortcomings in our engagement with employees and in moving to a more diverse workforce. We have been better Q. Were there any major disappointments in 2004 – if so, how do you intend to rectify them? A. The increase in fatalities at our managed operations from 44 to 49 was of course a major disappointment. There was a welcome further improvement in the lost time injury frequency rate of 23%, but we are not prepared to be philosophical about the death of any employee or contractor. There is already an emphasis on improving safety at all sites, but it is evidently not enough. Thus, we must continue to emphasise visible felt leadership in the field of safety, focus on safety for contractors – who made up over half the 2004 7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 2:04 am Page 03 Anglo American plc Annual Report 2004 03 fatalities – and seek to focus on leading indicators such as ‘near hits’ and tackling unsafe behaviour. We have made good progress over the last four years and we will do our utmost to return to the path of improvement. Q. What changes are planned in the composition of the board? A. Bill Nairn, our technical director, retired from the board at the end of 2004. I am grateful for the experience that he brought to the Group and especially his relentless focus on safety. At the AGM, two non-executive directors will be retiring: Sir David Scholey and Göran Lindahl. Sir David steps down after a long association with the Anglo Group, including serving as a director since December 1999. Göran has brought his wide international experience and knowledge of sustainable development to our deliberations. We shall miss them. One new independent non-executive director, Ralph Alexander, will be proposed at the AGM. He is an American citizen and is chief executive of BP Petrochemicals. He brings extensive experience of the energy business and has a strong international background. Two new executive directors will also be proposed: David Hathorn and Simon Thompson, respectively chief executives of the Paper and Packaging and Base Metals businesses. Both have played a major part in the international expansion of the Group. In addition, it is proposed that René Médori be elected a director with effect from 1 June 2005. René, a French national, who has extensive experience of UK and US business cultures, will be joining us from The BOC Group plc, where he is finance director. He will succeed Tony Lea as finance director in September and Tony will leave the board in December. In relation to the Combined Code requirement to ‘comply or explain’ I should mention that we will briefly be non-compliant in that from June to December less than half the board, excluding myself, will be independent non-executive directors. I believe that this is fully justified in ensuring continuity and a smooth handover between Tony and René. Sir Mark Moody-Stuart Chairman CHIEF EXECUTIVE’S STATEMENT One of the dominant features of 2004 was the increased demand for a range of commodities as China’s industrialising economy continued to consume more raw materials. Copper, nickel, zinc, coal and iron ore markets all benefited materially and a number of these commodities reached their highest price levels for many years. As a result of these strong conditions as well as rising platinum, gold and diamond prices, Anglo American reported record headline earnings of $2.69 billion and headline earnings per share increased by 57% to $1.88 per share. Nonetheless, the year was dominated by two major influences – volatile global markets, largely because of the uncertain outlook in the Middle East; and the possibility of a marked slowdown in China’s economic growth rate. During the second, and again in the fourth quarter of the year, markets grew concerned that official Chinese attempts to slow down excessive investment and growth would result in a ‘hard landing’. During each of these periods, metals prices responded by dropping sharply and then rebounding fairly quickly. Chinese GDP growth is now projected to average around 8% for 2005. In line with the board’s policy of progressively increasing dividends, the board has decided to increase the final dividend by 12 cents to 51 cents per share, resulting in a total dividend of 70 cents per share for 2004, up 30%. STRATEGY Since our primary London listing in mid-1999, Anglo American has grown by over 70%, with a present market capitalisation now approaching $38 billion. Our strong cash generation has been matched by one of the largest capital expenditure programmes in the industry. Our existing $4.7 billion project pipeline and more than $8 billion in unapproved projects, spread across all our business units and geographies, provide an excellent platform for growth going forward. We will continue to enhance and add value to Anglo’s portfolio of world-class assets in all areas; in particular, through: Securing the most competitive cost of capital Owning world-class assets Anglo’s high-calibre employees Innovation and entrepreneurship Development of world-class technology Maintaining high standards of sustainable development Becoming the business partner of choice to suppliers, customers and key stakeholders. Our strategy for future investment remains focused around the three key areas that make up our portfolio, namely Precious Commodities, Metals and Minerals, and Paper and Packaging. ACQUISITIONS AND ORGANIC GROWTH Although Anglo American remains cautious about valuations at this point in the cycle, the Group continues to examine expansion and acquisition opportunities in all its business sectors. The following overview of our business units covers key developments; detailed summaries of operating performances are contained on pages 7 to 14 of this report. Platinum We are actively focusing on achieving further business optimisation in Anglo Platinum. The strong level of the South African rand continues to materially affect the rate of expansion and also operating costs when translated into US dollars. The projects that have been earmarked for development will continue to be reviewed in light of the strong rand. 7878v03_PH_Rp_FC-p27_020305.qxp 2/3/05 11:52 pm Page 4 4 Anglo American plc Annual Report 2004 CHIEF EXECUTIVE’S STATEMENT CONTINUED Despite the loss of production due to industrial action during October, arising out of wage negotiations, Anglo Platinum achieved its 2004 target of producing 2.45 million ounces of refined platinum. The company recently established a co-operative joint venture contract with Sichuan Mineral Resource Company to conduct exploration for platinum group metals in China's Sichuan Province. Gold One of the most significant transactions of the year was the merger of AngloGold and Ashanti Goldfields, which was completed in April. The merger has resulted in a substantial increase in gold reserves against a background of a diminishing global reserve base. AngloGold Ashanti continues to pursue further growth opportunities in new frontiers such as Laos, the Philippines and Russia, in partnership with junior mining and exploration companies. AngloGold Ashanti, in which Anglo American holds a 51% stake, is the world’s second largest gold mining company in terms of production. Diamonds De Beers’ strategy of Supplier of Choice, which focuses on driving demand in the diamond industry, continues to be implemented successfully. Central to this has been the realignment of De Beers’ relationship with its sightholders, a process that is now substantially complete and that has brought about considerable benefits for De Beers and the diamond industry as a whole. De Beers’ $180 million a year advertising and marketing spend has been significantly bolstered by an increase in advertising programmes by sightholders and their downstream trade partners. Following years of underperformance in terms of market share, diamonds are now competing successfully with other luxury goods. At the retail level, sales of diamonds worldwide exceeded $60 billion for the first time. An important breakthrough took place in July when De Beers announced that it had reached a settlement with the US Department of Justice for the resolution of a longstanding case against De Beers in respect of industrial diamonds. The resolution of the case underscores the company’s commitment to be fully legally compliant throughout the world. In December, De Beers announced that it had secured a 25 year renewal of all four mining leases in Botswana, on a coterminous basis. De Beers and the European Commission are in the final stages of a constructive dialogue to address the Commission’s concerns over aspects of the five year trade agreement between De Beers and Russian diamond producer Alrosa. Base Metals On the back of high base metals prices and record production of copper, nickel, zinc and mineral sands products, Base Metals achieved record headline earnings of just over $1 billion. The acquisition of Minera Sur Andes was a major contributor to this performance with headline earnings of $430 million. A significant achievement during the year was the Skorpion zinc mine in Namibia commencing commercial production in May and achieving 95% of design capacity by year end. Commissioning of the $654 million Collahuasi Rosario Project in Chile commenced in April, some five weeks ahead of schedule and under budget. The project rapidly achieved design capacity and will enable Collahuasi to maintain production of copper in concentrate at a long term average rate of 400,000 tonnes per annum. Codemin, in Brazil, became a wholly-owned subsidiary following the purchase of the remaining 10% from the International Finance Corporation, and the expansion project was completed on time and on budget and will ramp up to full capacity during the first quarter of 2005. In line with Base Metals’ strategy of focusing on fewer, larger, lower cost assets, its 25% stake in Nkomati Nickel was disposed of in February for $37 million and Hudson Bay in Canada was sold for $257 million. Coal In December, Anglo American and Mitsui announced the approval of the $653 million Dawson Complex, which will include the recapitalisation of the existing operation at Moura in central Queensland, Australia and the establishment of two additional operations on adjacent tenures. This will increase production by 5.7 million tonnes per annum over Moura’s existing saleable production of 7 million tonnes per annum. In October, Anglo American and Kumba signed Heads of Agreement that could lead to the development of a major coking coal mine in central Queensland. In August, Anglo Coal and Eyesizwe announced that they were entering into a 50:50 joint venture to mine the Arnot North coal reserves, known as Mafube Colliery, and mining has commenced. A new opencast operation, the Isibonelo Colliery, is being developed to provide Sasol with 5 million tonnes of coal per annum. Production is due to commence in mid-2005. Anglo Coal and BHP Billiton are jointly investigating the proposed expansion of coal resources in the Western Complex in South Africa. In Colombia the approved expansion at Cerrejón from 22 million to 28 million tonnes per annum is on schedule and should be achieved by 2007. Paper and Packaging In April, Anglo American’s wholly-owned subsidiary Mondi acquired the remaining 30% interest in Frantschach for a total consideration of $390 million. The acquisitions of Copamex’s industrial packaging businesses (renamed Mondimex) and Roman Bauernfeind were completed in the first quarter of 2004 and are performing according to expectations, having strengthened Mondi’s position in the North American and central European markets respectively. In November, Mondi announced a major restructuring focused on global product lines, namely Mondi Business Paper and Mondi Packaging. The reorganisation has streamlined and rebranded the existing businesses under the Mondi name, allowing the group to improve its visibility to customers and to reduce its overhead costs. Industrial Minerals In the UK, Anglo Industrial Minerals’ new cement plant at Buxton commenced operating in March and is ramping up to full capacity of 800,000 tonnes per annum. The project cost of £110 million was £5 million below budget. In China, the Yang Quarry, situated 140 kilometres from Shanghai and the closest reserve of top-quality asphalt aggregates to China’s commercial capital, commenced production at the end of the year. Production will be ramped up during 2005. Following completion of the Goiás project in 2003, Copebrás almost doubled its contribution on the back of buoyant Brazilian fertiliser markets. Ferrous Metals and Industries With global steel production surpassing 1 billion tonnes for the first time, the contribution from Ferrous Metals and Industries’ operations increased more than fourfold. Regarding Kumba's Hope Downs iron ore project in Australia, which has been the subject of a dispute with a local partner, Kumba is appealing a recent arbitration decision. Subject to Kumba’s rights of appeal, the process for determining a fair value, at which the local partner can elect to acquire Kumba’s project interest, has commenced. Until Kumba’s participation in the project is finally resolved, it continues to perform its contractual obligations in respect of the project. 7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 2:04 am Page 05 Anglo American plc Annual Report 2004 05 SAFETY AND SUSTAINABLE DEVELOPMENT It is with deep regret that we report the deaths of 28 contractors and 21 employees in accidents at our operations during the year. This represented an increase of five deaths compared with 2003, following four years of consistent decline. Such accidents are wholly unacceptable and we will be redoubling our efforts to eliminate them. It was encouraging, however, that the lost time injury frequency rate improved by 23% – which indicates success in embedding safer behaviour at site level. We have made significant progress in addressing the sustainable development agenda, including launching our Socio-Economic Assessment Toolbox; making strides in improving local business development and initiating a pilot sustainable development risk management process. OUTLOOK The outlook for the year ahead is very dependent upon growth prospects for Organisation for Economic Co-operation and Development (OECD) countries and China. While the leading indicators for the OECD currently point to some slowing of industrial output growth during the first half, China continues to grow strongly and will remain a vital market for many of our commodities. On the supply side, global output is generally set to increase and much will depend on the industry maintaining capital discipline in the face of higher commodity prices. A key challenge for the Group will be to continue improving operating efficiencies and cost control against a background of volatile currencies and, in particular, a weak US dollar. In the meantime, Anglo American’s geographic and commodity diversity, its significant project pipeline, its disciplined acquisition process and strong cash generation will continue to underpin performance. OUR EMPLOYEES At the end of 2004, Bill Nairn retired as technical director. I would like to thank Bill for his long and dedicated service to the Group. He has been succeeded as technical director by Tony Redman, who is also chairman of Anglo Coal, and who has been appointed to the Executive Board. In February 2005, we announced the appointment of Lazarus Zim as chief executive officer and Godfrey Gomwe as chief operating officer of Anglo American Corporation of South Africa. Lazarus will also chair the South Africa Transformation Committee and has joined the Executive Board. Finally, my appreciation and thanks go to all our employees worldwide who, through their hard work and dedication, have helped make this a record year for Anglo American. A J Trahar Chief Executive SOUTH AFRICA: BLACK ECONOMIC EMPOWERMENT During the year, several developments took place concerning the legislative framework governing the transformation process in South Africa’s mining industry. Most notably, the Mineral and Petroleum Resources Development Act, which aims to make transformation effective across a broad front – including human resources and community development, as well as employment equity – came into effect on 1 May 2004. All South African mining operations are focused on the implementation of this Act. Anglo American has submitted a number of applications to convert ‘old order’ mineral rights into ‘new order’ rights. The Group hopes to be able to report progress in this regard later in the year. During the year the South African government confirmed that royalties in terms of the Royalty Bill will become payable only in 2009; a second draft of the Royalty Bill is expected to be unveiled in the future. We have adopted a comprehensive approach to transformation in South Africa, including the establishment of a Transformation Committee, which has been integrated with all the business units’ activities. Procurement remains an important area of focus: over the last year we spent the equivalent of $900 million on business development and the procurement of goods and services from black-owned businesses, up 62% on the previous year. Mondi South Africa concluded two significant empowerment transactions during 2004. First in June, a joint venture was formed with Shanduka Resources (formerly MCI Resources) in its integrated newsprint business, with Mondi retaining a 58% interest and, secondly, Mondi disposed of 42% of its $370 million South African packaging businesses to Shanduka, effective 1 January 2005. These empowerment transactions allowed for further interests in the newsprint and packaging businesses to be set aside for broad based participation by Mondi South Africa employees and relevant communities. DISPOSALS During 2004, a number of disposals were made. These included Anglo American’s 20% stake in Gold Fields Limited for $1.18 billion, the remaining interest in FirstRand Limited for $47 million and the Group’s 49% stake in Terra Industries Inc for $255 million. In line with Base Metals’ strategy of focusing on fewer, larger, lower cost assets, its 25% stake in Nkomati Nickel was disposed of in February for $37 million and Hudson Bay in Canada was sold for $257 million in December. Anglo American and BHP Billiton have recently announced the sale of their respective 40% and 60% shareholdings in Samancor Chrome for an enterprise value of $469 million, the sale will be effective 1 April 2005, subject to obtaining regulatory approvals. 7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 2:05 am Page 06 06 Anglo American plc Annual Report 2004 FINANCIAL REVIEW RESULTS SUMMARY Headline earnings for the year reached record levels at $2,689 million compared with $1,694 million in 2003 and headline earnings per share increased by 57% to $1.88 per share. This performance resulted from a particularly strong contribution from Base Metals and significant increases from Ferrous Metals and Industries and Coal. Platinum also increased its contribution. Industrial Minerals headline earnings were marginally lower than last year. Lower headline earnings were recorded by Paper and Packaging, reflecting tougher market conditions. AngloGold Ashanti recorded lower headline earnings due mainly to the impact of the stronger rand. Headline earnings $ million Profit for the financial year Operating exceptional items Non-operating exceptional items Exceptional finance charge Goodwill amortisation Tax on exceptional items Related minority interests Headline earnings Headline earnings per share ($) 2004 2003 2,913 92 (520) – 221 (1) (16) 2,689 1.88 1,592 286 (386) 13 203 (13) (1) 1,694 1.20 Profit for the year increased by 83% to $2,913 million compared with $1,592 million in the prior year. The increased profit in 2004 was principally due to strong operational results, significant profits on the sale of the Group’s non-core assets, including its holding in Gold Fields Limited, and a net reduction in exceptional impairment charges. These more than compensated for an increased net interest charge and an increase in the effective tax rate. Summary profit and loss account $ million 2004 2003 Total operating profit before exceptional items 4,572 (92) Exceptional operating items Total operating profit Non-operating exceptional items Profit before interest Net interest payable Profit before tax Tax Profit after tax Minority interests Profit for the financial year Earnings per share ($) 4,480 520 5,000 (359) 4,641 (1,279) 3,362 (449) 2,913 2.03 2,892 (286) 2,606 386 2,992 (319) 2,673 (736) 1,937 (345) 1,592 1.13 The Group’s results are influenced by a variety of currencies due to its geographic diversity. The South African rand in particular strengthened considerably against the US dollar during the year with an average exchange rate of $1:R6.44 compared with R7.55 in 2003. Currency movements adversely impacted headline earnings by $385 million. This was more than offset by the positive impact of increased prices amounting to $1,661 million. EXCEPTIONAL ITEMS Operating exceptional charges amounted to $92 million. These included an impairment of $100 million to the carrying value of Black Mountain in Base Metals and the Group’s share, $117 million, of an impairment in Palabora, an associate of Base Metals. Impairments were partially offset by the $154 million reversal of a previous impairment of Terra Industries Inc. Non-operating exceptional gains amounted to $520 million. These included $464 million of profit from the sale of the Group’s holding in Gold Fields Limited. INTEREST The net interest charge increased from $319 million in the prior year to $359 million in 2004. The increase reflects higher average net debt levels during 2004 compared with the average during 2003. TAXATION The effective rate of taxation before exceptional items was 30%, compared to 29% in 2003. This change in the effective rate was due to a number of one-off tax benefits arising in 2003 and a change in the mix of earnings contributed by the Group’s businesses. BALANCE SHEET Total shareholders’ funds were $24,998 million compared with $19,772(1) million as at 31 December 2003. The increase was primarily due to retained earnings and the appreciation of the South African rand and other local currencies against the US dollar. Net debt was $8,121 million, a decrease of $512 million from 2003. Net debt at 31 December 2004 comprised $10,782 million of debt, offset by $2,661 million of cash and current asset investments. Net debt to total capital as at 31 December 2004 was 21.5%, compared with 27.1%(1) in 2003. Further information on net debt is given on page 15. CASH FLOW Net cash inflow from operations was $4,773 million compared with $3,184 million in 2003. EBITDA was $7,110 million, a substantial increase of 49% from $4,785 million in 2003. Depreciation and amortisation, which increased by $660 million to $2,123 million, are analysed opposite. Acquisitions expenditure accounted for an outflow of $1,119 million compared with $1,469 million in 2003. The Group has increased its interests in Anglo Platinum to 74.8% and, following the merger of AngloGold and Ashanti Goldfields, purchased further shares in AngloGold Ashanti to restore the Group’s holding to 51%. The Group has also acquired the remaining 30% minority interest in Frantschach AG. Proceeds from disposals, excluding sale of other investments, totalled $1,863 million, with $1,180 million from the sale of the Group’s holding in Gold Fields Limited, $246 million cash consideration from the sale of Hudson Bay Mining and Smelting Co Ltd and $255 million from the sale of the Group’s interest in Terra Industries Inc. Net proceeds from the sale of other investments totalled $263 million, including the sale of the Group’s remaining stake in FirstRand Limited, part disposal of the Group’s interest in Western Areas and sale of the Group’s interest in Avgold. (1) Restated for UITF (Urgent Issues Task Force) abstract 38 ‘Accounting for ESOP trusts’. See note 1 to the financial statements. 7878v03_PH_Rp_FC-p27_020305.qxp 2/3/05 11:52 pm Page 7 Anglo American plc Annual Report 2004 7 Analysis of depreciation by business segment (subsidiaries) $ million Platinum Gold Coal Base Metals Industrial Minerals Ferrous Metals and Industries Paper and Packaging Other 2004 309 338 148 270 215 273 379 16 2003 206 180 124 220 176 105 285 14 1,948 1,310 Analysis of amortisation by business segment (subsidiaries) $ million 2004 2003 Platinum Gold Coal Base Metals Industrial Minerals Ferrous Metals and Industries Paper and Packaging Other 17 38 5 2 60 6 27 20 17 32 5 1 53 5 18 22 175 153 Analysis of capital expenditure by business segment (subsidiaries) $ million Platinum Gold Coal Base Metals Industrial Minerals Ferrous Metals and Industries Paper and Packaging Other 2004 633 572 217 286 299 284 819 19 3,129 2003 1,004 339 207 352 316 195 601 11 3,025 Purchases of tangible fixed assets amounted to $3,129 million, an increase of $104 million from 2003. Increased capital expenditure by Paper and Packaging, AngloGold Ashanti and Ferrous Metals and Industries was partially offset by a reduction in capital expenditure by Anglo Platinum. Dividends The directors recommend a final dividend of 51 US cents per share to be paid on 29 April 2005. Total dividends for the year amount to 70 US cents per share, a 30% increase on the 2003 total dividend. PLATINUM $ million Total operating profit before exceptional items Total operating profit Headline earnings EBITDA Net operating assets Capital expenditure Share of Group headline earnings (%) Share of Group net operating assets (%) 2004 537 537 239 867 7,563 633 9 20 2003 447 433 205 673 6,119 1,004 12 21 Anglo Platinum’s operating profit rose by 24% to $537 million. This was largely due to improved prices and greater sales volumes, though partially offset by the strength of the rand, which raised costs in dollar terms. Markets The average dollar price realised for the basket of metals sold equated to $1,194 per platinum ounce sold, 25.9% greater than in 2003, with improved platinum, rhodium and nickel prices making the largest contribution. The average realised price for platinum of $842 per ounce was $146 higher, while rhodium prices climbed from $527 to $933 per ounce, with nickel rising from $4.07 per pound to $5.92. Operating performance Refined platinum production increased by 6.3% to 2.45 million ounces. The increase was due mainly to improved smelting recoveries, additional production from the mines and the commencement of the Western Limb Tailings Retreatment Plant in January 2004. Cash operating costs per equivalent refined ounce of platinum rose to $784 following a 9.2% increase in rand unit costs and the strength of the rand against the dollar, which raised costs in dollar terms. Mining unit costs were adversely affected by production lost to a wage strike in October, the ongoing substitution of higher grade Merensky production with UG2 production and difficult geological conditions at Amandelbult and Modikwa which, while anticipated, had a greater impact than expected. Cost performance at the processing operations was excellent and the overall smelting and refining unit cost decreased in rand terms. The restructuring initiative has made good progress to the stage where sustainable cost savings will be realised from 2005. During 2004, a total of $80 million was achieved in cost saving initiatives. In May 2004, Anglo Platinum successfully concluded a rights offer of convertible perpetual cumulative preference shares, which raised $599 million. Anglo American subscribed for the rights offer, investing $459 million. The proceeds were used to reduce short term borrowings. Net debt has decreased from $1,038 million at the end of 2003 to $608 million. Capital expenditure for 2004 amounted to $633 million (2003: $1,004 million). Operations at the Anglo Platinum Converting Process were stable and in line with planned production build-ups, with significantly reduced sulphur emissions. The Polokwane Smelter recovered well from the cooler failure and overall performance for the year was good. The Western Limb Tailings Retreatment Plant commissioned at the end of 2003 achieved a rapid build-up of tonnage and is continuing towards maximising recoveries. The Kroondal Platinum Mine, jointly mined with Aquarius Platinum, is operating well and made a useful contribution to Anglo Platinum’s performance for the year. Negotiations in respect of other joint ventures are continuing. Anglo Platinum continues to work closely with South Africa’s Department of Minerals and Energy and good progress is being made towards meeting the requirements of the Mineral and Petroleum Resources Development Act and the Broad Based Economic Empowerment Charter. The conversion of ‘old order’ mineral rights to ‘new order’ rights in accordance with the requirements of the new Act has begun. 7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 2:05 am Page 08 08 Anglo American plc Annual Report 2004 FINANCIAL REVIEW CONTINUED Outlook Anglo Platinum remains confident of the robustness of current and future demand for platinum and will continue its expansion programme. In line with its stated policy of implementing only those projects which meet its investment hurdle rate and, with the unlikely prospect of higher rand prices in the short term, the rate of implementation of the expansion programme has been adjusted. Current plans for 2005 indicate refined platinum production of 2.6 million ounces. While Anglo Platinum remains flexible with regard to the rate of expansion, the revised implementation is expected to result in refined platinum production in 2006 of between 2.7 and 2.8 million ounces. Demand for platinum continues to be strong and, given the existing currency environment and the outlook for supply, is supportive of a platinum price at levels of $800 per ounce and above. GOLD $ million Total operating profit before exceptional items Total operating profit after exceptional items Headline earnings EBITDA Net operating assets Capital expenditure Share of Group headline earnings (%) Share of Group net operating assets (%) 2004 263 262 158 701 2003 369 326 167 642 6,425 3,302 572 6 17 339 10 11 Total operating profit before exceptional items was 29% lower at $263 million (2003: $369 million). The average spot price of $409 per ounce for the year was $46 per ounce or 12.7% stronger than for 2003. However, the South African rand strengthened against the dollar by some 15% during the year and the average local price of R84,700 per kilogram was 4% lower than for 2003. Despite the increase in the average dollar gold price and a rise in gold output, total cash costs were $54 per ounce higher, at $268 per ounce, mainly due to stronger operating currencies and lower grades. Efficiency improvements and cost saving initiatives totalled $63 million. Gold production was 8% higher at 6.05 million ounces, attributable largely to the merger with Ashanti Goldfields, completed on 26 April, as well as higher production at Sunrise Dam in Australia and Cripple Creek & Victor in the US. These increases were offset by the disposal of Jerritt Canyon in the US and the closure of Union Reefs in Australia, as well as reduced production from South Africa. Markets The return of investor interest in gold during the third quarter of 2004 produced a sustained rise in the gold price, and the final quarter of the year produced a spot gold price of $457 per ounce, the highest price seen in almost 17 years. The driving influence on investor sentiment remained the weakening of the US dollar, particularly against the euro, but also against the Japanese yen. This has been the case throughout the past three and a half year rise in the spot price of gold and it underlines the primary influence of the health of the US currency on the gold price in this current gold market cycle. The physical market for gold during 2004 showed some positive moves. Against the background of a long term downward trend in the crucial area of demand for gold jewellery, there was improved offtake in the Middle East and in south east Asia and sustained demand in India. In China, sales of modern 18 carat gold jewellery in metropolitan markets grew sharply. Operating performance The merger with Ashanti Goldfields brought to AngloGold a substantial gold ore reserve. The challenge now is to ensure that these operations, starved of working capital for an extended period, realise their ore reserve, profit margin potential and growth potential. In addition to current growth projects, which will have the effect of maintaining the AngloGold Ashanti annual production profile of some 6.5 million ounces through to around 2012, management is focused on growing the reserve and resource base. This growth will be achieved through exploration and a disciplined, value adding mergers and acquisitions programme, concentrating outside of the world’s mature gold regions. In terms of this new frontiers policy, joint ventures have been formed in Russia with London based Trans-Siberian Gold, in the Philippines with Australian listed company Red 5 and, in Laos, where AngloGold Ashanti has formed an exploration alliance with Oxiana. In Mongolia, the company has an exploration team on the ground and is acquiring land positions in several prospective areas. In the Democratic Republic of Congo, the company has been active for several months establishing a base in the north east of the country. The company has also established an office in Colombia and other prospective areas in Central America are under consideration. Outlook The weakening of the US currency has been the primary driver of the gold price rise over the past three and a half years and the gold price correlation with the dollar remains an important one for the year ahead. Against this background, the gold price is expected to trade in the current range or higher in 2005. DIAMONDS $ million Total operating profit Headline earnings EBITDA 2004 586 381 688 2003 562 386 638 Group’s share of De Beers’ net assets(1) 3,069 2,886 Share of Group headline earnings (%) 14 23 (1) De Beers is an independently managed associate of the Group. The Group’s share of De Beers’ net assets is disclosed. The figures for the Group’s share of net operating assets shown for other businesses relate to the Group’s subsidiaries only. The Group’s share of total operating profit from De Beers increased by $24 million over the 2003 figure to $586 million. Diamond stocks at year end were at a similar level to that reported at the end of 2003. Markets Overall, 2004 was another good year for the diamond industry. Against the background of accelerating economic growth in the major diamond consuming countries, diamond jewellery sales performed well. Preliminary indications are that global retail sales of diamond jewellery for the year as a whole were about 6% higher than the previous year in local currency and, because of the continued weakening of the dollar, about 8% higher in dollars. Strong areas of growth were Asia-Pacific, India and the Gulf region, with Japan also recording modest growth for the second year running. The US, accounting for over 50% of world diamond jewellery sales, had a solid Christmas season overall, despite concerns over high personal debt levels. 7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 2:05 am Page 09 Anglo American plc Annual Report 2004 09 During the year, levels of polished stocks in the cutting centres declined, but cutting centre bank debt continued to climb in line with the increase in the volume of trade. However, the lending banks seem reasonably comfortable with the ability of the trade to finance the higher level of debt. There was strong demand for rough diamonds from the cutting centres throughout the year and full year sales by The Diamond Trading Company (DTC), the marketing arm of De Beers, were $5,695 million, 3% higher than in 2003. During the year, the DTC raised its rough diamond prices on three occasions, the cumulative effect being that sales by the DTC in 2004 were at prices, on average, 14% higher than in 2003. The DTC had a strong first sight in 2005 at which it raised its rough diamond prices by a further 3% on the evidence of the underlying demand growth achieved in 2004 and anticipated in 2005. Operating performance Despite De Beers group diamond production being significantly below target in the first half of the year, the deficit was more than made up in the second six months. Production for the year, inclusive of its joint ventures in Botswana and Namibia, totalled 47 million carats, 3 million carats (7%) more than in 2003. Debswana produced a record 31.1 million carats, an increase of 2% over 2003, notwithstanding experiencing a number of operational difficulties and industrial action. Namdeb’s production of 1.86 million carats was 28% higher and included record marine production of 865,000 carats. De Beers’ South African mines produced a total of 13.7 million carats in 2004, an increase of 1.8 million carats (15%) on 2003. Mainly because of the new Combined Treatment Plant, Kimberley Mines produced a record 2 million carats, a production level last achieved 90 years ago, in 1914. Although rand mining costs per tonne were lower than in 2003, the weakness of the dollar, the currency in which diamonds are sold, has put De Beers’ older and more marginal mines under continued pressure, with five of its seven mines operating at a loss. Management continues to focus its efforts on further reducing costs and driving efficiencies throughout its operations. De Beers recently reached agreement with the Government of the Republic of Botswana (GRB) for the renewal of the Jwaneng mining licence for a further 25 year period from 1 August 2004 and the extension of the Orapa, Damtshaa and Letlhakane mining licences to the same end date. De Beers and the GRB have also agreed that the 15% holding in De Beers’ ultimate holding company, DB Investments, previously owned by Debswana, be directly owned by GRB. De Beers has made a number of commitments to the European Commission regarding its proposed trade agreement with the Russian diamond producer, Alrosa. De Beers believes that it has now addressed the concerns raised by the Commission and looks forward to having the commitments formally accepted by the Commission in the near future. The reorganisation of De Beers’ South African assets is now in the process of being implemented. Accordingly, De Beers Consolidated Mines Limited should be in a position to implement a black economic empowerment transaction during 2005. Outlook 2005 is likely to be a more challenging year for the diamond industry. However, with the transformation of the industry that has taken place over the last few years, there is now growing evidence that diamonds are competing favourably with other luxury products. BASE METALS $ million Total operating profit before exceptional items Copper Nickel, niobium and mineral sands Zinc Head office expenses and other Total operating profit after exceptional items Headline earnings EBITDA Net operating assets Capital expenditure Share of Group headline earnings (%) Share of Group net operating assets (%) 2004 1,275 1,046 224 38 (33) 1,038 1,042 1,626 2003 286 269 106 (62) (27) 78 206 569 4,062 4,087 286 352 39 11 12 14 Anglo Base Metals generated record operating profits before exceptional items of $1,275 million (2003: $286 million) following record production of copper, nickel, zinc and mineral sands products and significantly higher base metals prices. While on-mine cost control remained tight, margins were adversely affected by increased prices in areas such as energy, explosives, chemicals, freight, insurance and, in the copper concentrate market, a significant increase in treatment and refining charges. However, $47 million was realised from efficiency improvements and cost saving initiatives, partly offsetting the increased operating costs. Markets 2004 witnessed a record performance on the back of a sustained rebound in world economic growth. Strong growth in metals demand, together with relatively constrained supply increases, resulted in metal market deficits and lower inventories. This, together with a weakening of the US dollar and significant speculative fund interest, propelled US dollar base metals prices to multi-year highs. Operating performance The copper division’s operating profit before exceptional items was $1,046 million (2003: $269 million) as a result of its highest ever attributable copper production of 766,000 tonnes (2003: 708,800 tonnes) and a higher average copper price received of 133 US cents/lb (2003: 81 US cents/lb). Los Bronces produced a record 231,600 tonnes on the back of higher mining rates and grades and improved metallurgical recoveries. Attributable production from Collahuasi was a record 211,600 tonnes, mainly due to higher tonnages treated through the concentrator following the Rosario project commissioning. The Rosario transition project was successfully completed five weeks ahead of schedule at a capital cost of $627 million (budget $654 million) and its mill throughput has consistently exceeded design capacity of 110,000 tonnes per day. The $80 million El Soldado pit extension project, approved during the year, will extend mine life by more than 20 years. The $21 million Chagres de-bottlenecking project, which increases production capacity from 162,000 tonnes per annum to 184,000 tonnes per annum of anode/blister, was also approved during the year and will be built and commissioned during 2005. The construction of a $47 million molybdenum plant with a capacity of 6,700 tonnes per annum at Punta Patache was approved by Collahuasi and will enter production in 2006. Scoping studies for significant increases in production are under way at both Collahuasi and Los Bronces. 7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 2:06 am Page 10 10 Anglo American plc Annual Report 2004 FINANCIAL REVIEW CONTINUED The Minera Sur Andes operations generated an operating profit of $511 million. Current indications are that the remaining $86 million of the contingent purchase price will be paid in May 2005. FERROUS METALS AND INDUSTRIES $ million Total operating profit before exceptional items The Group’s share of an impairment of Palabora amounted to $117 million. The nickel, niobium and mineral sands division generated an operating profit of $224 million (2003: $106 million), on the back of attributable nickel production of 24,000 tonnes and an average nickel price received of 617 US cents/lb (2003: 403 US cents/lb). Production at both Loma de Níquel and Codemin was essentially unchanged, while niobium production rose slightly. At Namakwa, rutile and zircon production grew by 16% and 28% respectively as the operation recovered from the after-effects of the mineral separation plant fire in the second half of 2003. All operations saw significant upward pressure on costs due to currency effects, the rising prices of key inputs such as power, fuel oil, aluminium powder and anthracite, and, in Brazil, the imposition of new taxes. The 25% interest in the Nkomati joint venture was sold for $37 million and Codemin became a wholly-owned subsidiary following the purchase of the outstanding 10% of the company. The $67 million Codemin 2 project which will increase nickel production to in excess of 10,000 tonnes per annum, was commissioned on time and on budget and will ramp up to full capacity during the first quarter of 2005. The Barro Alto feasibility study will be completed in 2005. The zinc division’s operating profit before exceptional items was $38 million (2003: $62 million loss) following zinc production of 410,700 tonnes and an average zinc price received of 48 US cents/lb (2003: 38 US cents/lb). Skorpion mine entered commercial production in May 2004. The operation produced 119,200 tonnes of zinc during 2004 and achieved 95% of capacity by year end. Lisheen saw lower production of zinc and lead due to lower grades and reduced mining rates ahead of the commissioning of the pastefill plant which commenced in October 2004. Black Mountain continued to experience lack of mining flexibility ahead of the Deeps orebody entering production. Mill throughput was maintained and zinc production rose 9% but lower grades resulted in lead production of 37,500 tonnes (2003: 39,600 tonnes). Currency effects at all operations placed significant upward pressure on costs. The sinking of both the main and ventilation shafts at Black Mountain is complete and hoisting operations commenced in early 2005. The development of the Deeps mine and the ramping up of zinc production will continue throughout 2005. The final estimated cost of the project is $125 million, against a budget of $110 million, as a result of the strength of the rand. Hudson Bay, which contributed $37 million to operating profit in 2004, was sold in December for $257 million, resulting in a $42 million loss on the sale. A decision was also made to impair the carrying value of Black Mountain by $100 million. Outlook A weaker dollar and low metal inventories should provide a solid support to dollar-denominated prices. Nonetheless, some base metals markets could move towards balance or even into surplus in the second half as price-induced supply increases gather pace. Kumba Highveld Steel Scaw Metals Samancor Boart Longyear Tongaat-Hulett Terra Other 2004 895 205 168 101 236 67 69 53 (4) 2003 208 33 11 70 41 33 10 14 (4) 208 107 441 4,629 195 6 16 Total operating profit after exceptional items 1,050 Headline earnings EBITDA Net operating assets Capital expenditure Share of Group headline earnings (%) Share of Group net operating assets (%) 480 1,249 5,534 284 18 15 Ferrous Metals and Industries lifted operating profit before exceptional items to record levels in 2004, from $208 million to $895 million. The business benefited from improved prices for iron ore, manganese, ferrochrome, steel and vanadium. In addition, significant progress was made in efficiency improvements and cost saving initiatives which totalled $103 million. Markets World crude steel production in 2004 increased by 8.8% over 2003, while China produced 272.5 million tonnes of crude steel, an increase of 23.2%. The South African steel market was also characterised by strong local demand, rising by 20%. In respect of Terra, a previous impairment of $154 million was released during the year as an operating exceptional gain. Anglo American’s entire shareholding in Terra was sold for $255 million, resulting in an exceptional gain of $13 million. In January 2005, Highveld Steel and Samancor sold half of their shareholdings in Acerinox. Anglo American’s attributable share of the proceeds was $69 million. In February 2005, Anglo American and BHP Billiton announced that they had reached agreement for the sale of their respective 40% and 60% shareholdings in Samancor Chrome for an enterprise value of $469 million. Operating performance Kumba’s contribution to Anglo American’s operating profit before exceptional items was $205 million (as a subsidiary) compared with $33 million in 2003 (representing a 20.1% attributable equity interest for ten months and as a subsidiary for one month). This performance reflected higher commodity prices, solid operational performances and margin-improvement initiatives, countered to some extent by the strong rand. The global market for seaborne iron ore increased by an estimated 95 million tonnes in 2004. Kumba’s iron ore operations benefited from an average 19% annual increase in dollar denominated prices, with effect from 1 April 2004, and further significant increases are anticipated in 2005. Its Sishen and Thabazimbi mines produced a total of 30.1 million tonnes of iron ore during the year, of which 20.9 million tonnes were exported. 7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 2:06 am Page 11 Anglo American plc Annual Report 2004 11 Regarding Kumba's Hope Downs iron ore project in Australia, which has been the subject of a dispute with a local partner, Kumba is appealing a recent arbitration decision. Subject to Kumba’s rights of appeal, the process for determining a fair value, at which the local partner can elect to acquire Kumba’s project interest, has commenced. Until Kumba’s participation in the project is finally resolved, it continues to perform its contractual obligations in respect of the project. Scaw Metals’ operating profit was $101 million (2003: $70 million). This was achieved against a background of greatly increased international steelmaking raw material prices and resulting input cost increases, offset to some extent by high selling prices. Production was higher, with strong performances in most divisions. Import competition, however, aided by the strong rand and weak dollar, continued to have a negative effect on some of Scaw’s downstream businesses. The attributable share of Samancor’s operating profit amounted to $236 million (2003: $41 million). The manganese business had an outstanding year, benefiting from improved market conditions as a result of product shortages, driven primarily by Chinese crude steel production. This led to significantly higher alloy prices being achieved in 2004. The chrome operations benefited similarly from higher ferrochrome prices, offset to some extent by the strong rand. Highveld Steel had a record year with an operating profit of $168 million (2003: $11 million). This was largely due to higher prices for steel, vanadium and manganese alloys, together with increased volumes sold into the South African market. Production costs were well controlled and cost savings of $38 million were achieved, resulting in substantially higher operating margins. Ferrovanadium prices rose from historically low levels in early 2003 of $6/kgV to recent levels of $52/kgV. Boart Longyear’s operating profits totalled $67 million (2003: $33 million). Product and contracting results in the Americas and Asia-Pacific were substantially better than 2003 owing to much higher drilling activity, while those in sub-Saharan Africa improved as a result of increased sales of rockdrills and capital equipment. The Hardmaterials and Wendt operations benefited from restructurings undertaken in 2003, and Wendt also profited from increased machine sales as a result of the improved business environment. The European business continued to struggle, posting a loss for the full year. Tongaat-Hulett’s operating profit was $69 million (2003: $10 million). The aluminium division performed well on the back of increased volumes, an improved product mix and reduced costs, while the sugar division’s profitability was negatively impacted by the relatively small South African sugar crop. Import competition and higher maize input costs adversely affected the starch and glucose operations. Moreland Properties posted strong results, capitalising on buoyant demand across all its portfolios. Terra generated an attributable operating profit before exceptional items of $53 million (2003: $14 million), largely reflecting higher nitrogen margins. Outlook Ferrous metals prices may soften in 2005 as anticipated Chinese demand for steel slows. China’s domestic steel consumption growth rate has reportedly fallen as the country shifts from being the world’s biggest steel importer to a net exporter. The persistent strength of the rand is expected to continue to affect margins adversely in the coming year. Ferrous Metals and Industries will continue to reshape its portfolio around core businesses, focusing on increased iron ore output and improved margins through greater operating efficiencies and cost saving initiatives. COAL $ million Total operating profit South Africa Australia South America Headline earnings EBITDA Net operating assets Capital expenditure Share of Group headline earnings (%) Share of Group net operating assets (%) 2004 487 244 79 164 351 686 2003 333 133 130 70 232 505 2,539 2,152 217 13 7 207 14 7 Operating profit increased by 46% to $487 million, mainly due to higher export prices and a 3 million tonne (3%) rise in sales. Markets During the year, coal demand was strong and prices increased markedly. Metallurgical coal prices were driven by robust steel sector raw material demand, led by sustained Chinese economic growth and rising imports, a tight supply situation and logistics chain constraints. Healthy thermal coal offtake in China moderated the level of Chinese exports. Power, oil, gas and thermal coal prices were influenced by continued inefficiencies in the logistics chain, mainly affecting South Africa and Australia, coupled with growing global energy demand and security of supply concerns. Relatively small imbalances in supply and demand continue to bring significant price and directional uncertainty to the world’s energy and raw material markets, especially for thermal coals. Spot South African steam coal prices increased by 73% during the first six months and, although they had reduced by 25% at year end, they remain well above historic average price levels. Operating performance Operating profit for South African sourced coal, at $244 million, was 83% higher than in 2003 and export prices were up 42%. The rand continued to strengthen against the dollar, reducing headline earnings by $17 million. Production rose by 5% to 54.5 million tonnes. This reflected strong domestic demand from Eskom, the South African power utility, which led Kriel and New Vaal collieries to produce at record levels. Plans are in place to acquire additional mining equipment for New Denmark, the other colliery serving the domestic market, so that it can increase output substantially in 2005. Production at most of the export mines was slightly higher, with the exception of Bank and Landau, where difficult mining conditions affected production. Capital expenditure in South Africa rose by $27 million, mainly due to the development of Isibonelo colliery, due to start production in 2005. Following the signing of a memorandum of understanding with BHP Billiton relating to the Western Complex reserves, a feasibility study is investigating the optimal use of these reserves. Operating profit for the Australian operations fell by 39% to $79 million. This was mainly because production ceased at Moranbah North Mine (MNM) for eight months following a roof collapse at the tail end of the longwall face in January 2004. The effects were partly mitigated by an estimated $40 million, the proceeds from a related insurance claim. Gains from exchange- rate hedges taken out during the year dampened some of the 7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 2:06 am Page 12 12 Anglo American plc Annual Report 2004 FINANCIAL REVIEW CONTINUED adverse effects of the stronger Australian dollar (up by 11% against the US currency). Following the roof strata collapse at MNM, the longwall was relocated. Production resumed in late August and by year end production rates were reaching targeted expectations. However, the colliery produced 2.3 million tonnes less high-margin coking coal than the previous year. At Dartbrook, output was marginally down and production at Drayton was in line with the prior year, while Callide, Moura and Capcoal exceeded previous performances, which together offset MNM's negative volume impact. Aggregate attributable saleable coal production was in line with the previous year, at 25.6 million tonnes. Total attributable sales declined by 4% to 25.5 million tonnes, though domestic sales increased by 0.7 million tonnes, mainly driven by generating capacity demand. Export sales were further limited by port constraints at Dalrymple Bay Coal Terminal, though a port-allocation system at Newcastle has helped eliminate ship congestion. The Moura/Theodore/Dawson project was announced in December, and is scheduled to commence in early 2005. Work continues on the feasibility study for Lake Lindsay, adjacent to the Capcoal complex. On 18 June, a Supreme Court decision on the Grasstree project’s compliance with the Coal Mining Safety and Health Regulations resulted in Grasstree suspending operations. This suspension was lifted at the beginning of December and Grasstree remains on schedule to start up during 2006. Dartbrook successfully made the transition to the Kayuga seam during the first six months. Anglo Coal has now acquired all the shares in Australian Power and Energy Limited (APEL) that it did not previously own. APEL is conducting a pre-feasibility study into producing liquid fuel from brown coal in Victoria. Operating profit at the South American operations rose by 134% to $164 million, following significantly improved coal prices and a 9% increase in attributable sales volume, to 9.9 million tonnes. These gains were partly offset by increases in fuel prices and royalty payments and the effects of the weakening dollar. In addition, equipment availability at Venezuela's Carbones del Guasare (CDG) was reduced by administration problems with newly introduced exchange controls, although these appeared to be under control by the year end. Cerrejón continues to expand its operations, with a production goal of 28 million tonnes per annum by the end of 2006. Feasibility studies on further expansion opportunities are under way at both Cerrejón and CDG. In 2004, Anglo Coal realised $51 million from efficiency improvements and cost saving initiatives. Outlook With MNM back in operation, improved production is expected in 2005. Rand and Australian dollar strength together with coal prices will continue to be the two main variables. Metallurgical coal prices have again risen substantially in negotiations for 2005, and high prices for thermal coals – notwithstanding their reductions in the second half of 2004 – are expected to continue in the current year. INDUSTRIAL MINERALS $ million Total operating profit before exceptional items Tarmac Copebrás Total operating profit after exceptional items Headline earnings EBITDA Net operating assets Capital expenditure Share of Group headline earnings (%) Share of Group net operating assets (%) 2004 346 280 66 337 267 624 2003 325 290 35 325 270 557 4,729 4,304 299 10 13 316 16 14 Operating profit before exceptional items increased by 6% to $346 million. Tarmac’s operating profit before exceptional items declined by 3% to $280 million, mainly due to challenging market conditions in the UK. In contrast, Copebrás benefited from buoyant local market conditions and increased international fertiliser prices which, together with the increased production from the new plant, resulted in an 89% increase in operating profit. Markets and operating performance In the UK, markets were disappointing. Following the completion of work on large projects such as the M6 toll road in 2003, demand for asphalt was weaker, with little major contract activity during the year. Aggregates demand was slightly lower, although concrete volumes increased. Modest price improvements were achieved, but these were insufficient to offset higher bitumen and fuel costs. The benefits of Tarmac’s ongoing business improvement and procurement programmes continued to be felt, with the group achieving a total of $64 million in cost savings and efficiency improvements, but these were partially offset by the disappointing performance of Concrete Products. By contrast, the cement business had a good year. The new Buxton plant began operating in March, having been completed at a cost of £110 million, £5 million below budget. The plant is performing to expectations, which has resulted in a near-doubling in contribution from this business. The mortar business also performed well, assisted by recent investments in dry silo mortar plants in Leeds, Glasgow and Coventry. As Tarmac continued to develop its business in the UK, three acquisitions were completed during the year, including that of David W Gordon Ltd, one of Scotland’s leading concrete block producers. Significant investments were also made in new plant, including a new ready-mixed concrete plant at King’s Cross in London and the replant of a major limestone quarry in South Yorkshire. In continental Europe, operating profit grew by 9%. France benefited from a strong private housing market, although the public sector was more subdued. The businesses in Poland and the Czech Republic experienced stronger market conditions. The latter also benefited from a first-time contribution from Bilfinger Berger Baustoffe, which is performing above expectations. During the year, Wisniowka, a well located high quality sandstone quarry in central Poland, was acquired. This will enable the business to benefit from anticipated Polish infrastructure projects. Operating profit in Spain improved again despite weaker market conditions in Madrid. The business on the Mediterranean coast, which was the main part of the Mavike acquisition in 2002, showed a substantial improvement. Weak market conditions, however, continued in Germany. 7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 2:06 am Page 13 Anglo American plc Annual Report 2004 13 The Middle East business experienced another year of substantial growth. With its local partner, Tarmac is developing a new quarry in the United Arab Emirates to supply this buoyant market. The Far East business continued to improve. At the end of the year, a new quarry supplying the Shanghai market commenced operation. Production will be ramped up during 2005. Copebrás had an excellent year. Operating profit increased by 89%, due to continued strong Brazilian demand for phosphate based fertilisers and higher international prices. The continuing recovery of the South American economies also resulted in a significant improvement in sales volumes of sodium tripolyphosphate (STPP), which is used in detergents. Outlook Market conditions in the UK are expected to remain extremely challenging throughout 2005. Volumes are not expected to grow significantly and the industry is facing cost increases arising mainly from fossil fuel price rises and legislative compliance. Tarmac has announced price increases for all its major products with effect from the beginning of January. In addition, Tarmac’s performance will be underpinned by continuing cost reductions and initiatives to improve customer service. In continental Europe, healthy market conditions are expected in Poland and the Czech Republic as these economies continue to grow. The short term outlook in Germany remains uncertain, although in those major cities where the business is active, demand is expected to remain stable. The run-up to the 2006 soccer World Cup, which takes place in Germany, may provide a boost. In Spain, although demand in Madrid may be weaker, continued growth on the Mediterranean coast is expected. France is expected to see modest improvement. In all regions, opportunities to invest in the core product areas will continue to be examined, both in existing and adjacent countries of focus. Local market conditions for fertilisers in Brazil remain buoyant although there is some concern about lower international prices for some agricultural commodities. However, the new plant at Goiás, which is in the country’s interior and away from the threat of imports, gives Copebrás a strong position in this market. PAPER AND PACKAGING $ million Total operating profit Packaging Business Paper Other Headline earnings (1) EBITDA Net operating assets Capital expenditure Share of Group headline earnings (%) Share of Group net operating assets (%) 2004 559 284 209 66 381 996 2003 656 302 294 60 425 976 6,496 4,820 819 14 17 601 25 16 (1) Headline earnings for Paper and Packaging for the year ended 31 December 2003 have been adjusted as net interest for wholly-owned operations in Paper and Packaging is now accounted for centrally within Corporate Activities. See note 3 to the financial information. Operating profit at $559 million was 15% lower than 2003. This reflected a significantly tougher trading environment than in 2003, particularly in the business paper sector, despite the positive impact of increased volumes and cost reductions. Dollar reported results are improved by the translation impact of the stronger euro and rand. Operating performance In November, Mondi announced the restructuring of its operations into global product groups with the formation of two primary business units, Mondi Packaging and Mondi Business Paper. The rebranding and reorganisation of the existing businesses under the Mondi name has improved Mondi’s visibility to customers and reduced its overhead cost structure. Mondi Packaging is a combination of the Frantschach group, including Swiecie, with the existing Mondi Packaging Europe group and the containerboard machines at Syktyvkar and Richards Bay. Mondi Business Paper incorporates Neusiedler and the South African uncoated woodfree paper machines in Merebank, the pulp mill in Richards Bay and the related forest operations. The balance of the Mondi group consists of the South African packaging businesses, the European paper merchant group Europapier, and the European and South African newsprint businesses. Mondi Packaging’s operating profit of $284 million was 6% below that of 2003. The adverse impact of soft markets was not fully offset by the positive impact of substantial cost savings and profit improvement initiatives achieved in 2004 and the acquisition of the Roman Bauernfeind business. This acquisition is performing above expectation. The purchase of the remaining 30% minority interest in Frantschach AG was completed in April. Mondi Business Paper’s operating profit of $209 million fell 29% short of the previous year. Total production volumes increased by 19% to 1,881,851 tonnes, with the PM18 rebuild at Ruzomberok performing well. Production in South Africa was affected by the planned March shutdown for the mill modernisation and expansion project – RB720. Production output since the shutdown has been highly satisfactory and final commissioning of the pulp mill is currently progressing well. Office communication paper prices fell by 9% compared with 2003, due to competitive markets and the adverse effects of currency movements. These negative price impacts were, however, countered by further cost savings and production efficiency improvements. The balance of the Mondi operations performed in line with 2003, with higher earnings at the paper merchant offset by lower newsprint earnings, following the part disposal of the South African newsprint assets in 2004. Paper and Packaging delivered $144 million in cost savings and productivity improvements during 2004, offsetting to a large extent lower prices. Other developments The joint venture with Shanduka Resources (formerly MCI Resources) in Mondi South Africa’s integrated newsprint business was completed in the first half of 2004. Mondi retained a 58% interest and this empowerment transaction allows for a further 8% in the newsprint business to be set aside for broad based participation by Mondi South Africa employees and relevant communities. Mondi has also sold, with effect from 1 January 2005, a 42% interest in its South African packaging businesses to Shanduka Resources in an empowerment transaction, which values the entire business at $370 million. There is a further earn-out of $35 million in current terms if certain cash flow projections are achieved over the next four years. A further 3% will be set aside by Mondi for broad based participation by Mondi South Africa employees. In South Africa, the disposal of non-core assets is well advanced, with a binding offer having been accepted for Mondi’s share in surplus plantations in the Eastern Cape. That transaction is expected to be concluded during early 2005. 7878v03_PH_Rp_FC-p27_020305.qxp 2/3/05 11:52 pm Page 14 14 Anglo American plc Annual Report 2004 FINANCIAL REVIEW CONTINUED Outlook In 2005, Mondi will continue its product differentiation strategy, capitalising on the recent expansion projects and innovation programmes combined with further aggressive cost reduction initiatives. If dollar weakness is sustained, this will continue to place pressure on European and South African prices. The impact on pricing should be largely offset by increased volume from the Ruzomberok rebuild which will reach full capacity in 2005 as well as the Richards Bay RB720 project which is currently commissioning. EXPLORATION The Group spent $120 million on exploration in 2004 – $41 million on base metals, $9 million on coal, $14 million on ferrous metals, $43 million at AngloGold Ashanti and $13 million at Anglo Platinum. Anglo Base Metals concentrated on brownfield exploration near its mines in Chile, Brazil, Ireland, South Africa and Namibia. Drilling identified additional copper resources at El Soldado and Los Bronces in Chile. Other copper exploration took place in Mexico, Peru, the Philippines and Brazil, while zinc exploration focused on India and Australia. Nickel exploration continued around the West Raglan sulphide discovery in northern Quebec as well as in Brazil and Finland. Anglo Coal's exploration stayed close to existing operations in Australia, Colombia and South Africa. Prospecting for coal-bed methane took place in South Africa and Australia, while the Xiwan project in China’s Shaanxi province completed an extensive initial drilling programme. Anglo Ferrous Metals’ exploration activities all related to Kumba, with most expenditure incurred on greenfield and brownfield iron ore exploration in South Africa. AngloGold Ashanti continued to explore around its mines in Argentina, Australia, Brazil, Ghana, Guinea, Mali, Namibia, South Africa, Tanzania and the US. In Asia, the company has an exploration team on the ground in Mongolia, where it is acquiring land positions in several prospective areas, and has set up an exploration office in China. It has also established joint ventures in the Philippines and Laos. In addition, its investment in Trans- Siberian Gold provides opportunities for further growth in Russia. Elsewhere, AngloGold Ashanti is exploring in prospective areas of Peru, Colombia and Alaska and is establishing an exploration base in the north east region of the Democratic Republic of Congo. Anglo Platinum’s efforts focused on exploration in South Africa. Elsewhere, its partners carried out programmes in Canada and Russia, while a joint venture began to explore in the Sichuan province of China. TREASURY MANAGEMENT AND HEDGING POLICY The principal financial risks arising from the Group’s activities are those related to commodity price risk, currency risk, interest rate risk, counterparty risk and liquidity risk. The Group’s principal treasury policies are set by the board. The Group treasury acts as a service centre and operates within clearly defined guidelines approved by the board. Anglo American uses a number of derivative instruments to hedge these financial risk exposures. The Anglo American accounting department provides an independent control function to monitor and report on treasury activities, which are also subject to regular review by internal and external audit. The treasury of the Group’s associate, De Beers, is independently managed as are those of the non-wholly-owned subsidiaries such as AngloGold Ashanti and Anglo Platinum. Commodity risk Anglo American is exposed to movements in the price of precious metals, base metals and other commodity products. Strategic hedging of the price risk is undertaken from time to time and derivatives are used to optimise the value of Anglo American’s production of these commodities. Gold hedging is independently managed by AngloGold Ashanti. Currency risk The Group publishes its financial statements in US dollars and a substantial proportion of the Group’s sales are denominated in US dollars. As a result, a large component of the Group’s net debt is denominated in US dollars. However, the Group conducts business in many currencies and, as a result, it is subject to currency risks owing to exchange rate movements which will affect the Group’s costs and the translation of the profits of subsidiaries, joint ventures and associates whose functional currency is not the US dollar. Anglo American retains a significant proportion of its assets within subsidiaries, joint ventures and associates located in countries, principally South Africa, where the local currency is treated as the functional currency and is used for reporting purposes. In the consolidated financial statements, the exchange differences arising on the translation of net assets of these non-dollar denominated subsidiaries, joint ventures and associates less any offsetting exchange differences on foreign currency financing of these assets, are dealt with in reserves in accordance with SSAP 20 ‘Foreign currency translation’. Accordingly, the currency translation differences of $2,512 million recorded in note 25 have been reported through the consolidated statement of total recognised gains and losses on page 50 and appear as an increase in shareholders’ funds. These differences do not affect the consolidated profit and loss account or the consolidated cash flow statement. The currency translation differences which have arisen are mainly attributable to the appreciation of the South African rand against the US dollar since 1 January 2004, although the appreciation of the Australian dollar, euro and sterling against the US dollar have also contributed. If the rand and other currencies appreciate or depreciate against the US dollar in future reporting periods, currency translation differences will continue to appear as an increase or a reduction in shareholders’ funds, respectively. The non-dollar denominated businesses actually derive the majority of their revenues in dollars, while the majority of their costs continue to be incurred in their local currency. To this extent, the currency appreciation does not impact on the real underlying value of the non-dollar denominated assets within these businesses. However, although revenues are mainly denominated in US dollars, operating costs are incurred mainly in local currencies so the Group profitability and cash flow is exposed to exchange rate movements between local currencies and the US dollar. 7878v03_PH_Rp_FC-p27_020305.qxp 2/3/05 11:52 pm Page 15 Anglo American plc Annual Report 2004 15 Exchange rates against the US dollar Average South African rand Pound sterling Euro Australian dollar Chilean peso Year end South African rand Pound sterling Euro Australian dollar Chilean peso 2004 6.44 0.55 0.80 1.36 609 5.65 0.52 0.74 1.28 556 2003 7.55 0.61 0.88 1.53 690 6.67 0.56 0.79 1.33 593 Non-wholly-owned subsidiaries in general will arrange and maintain their own financing and funding requirements. In most cases the financing will be non-recourse to Anglo American. In addition, certain projects are financed by means of limited recourse project finance, if appropriate. It is believed that the Group’s net cash flow from operations, its holdings of cash and cash equivalents and access to credit facilities and capital markets will be sufficient to cover the likely short and long term cash requirements of the Group. At the end of 2004, net debt was $8,121 million, being gross debt of $10,782 million offset by $2,661 million of cash and current asset investments. At 31 December 2004, the Group had available undrawn, committed borrowing facilities totalling $4,921 million. The maturity profile for the Group’s available undrawn, committed borrowing facilities is as follows: Interest rate risk The Group is exposed to interest rate risk, in particular to changes in US dollar, rand, sterling and euro interest rates. Corporate policy is to maintain a high proportion of floating rate debt, although strategic hedging using fixed rate debt may be undertaken from time to time if considered appropriate. At 31 December 2004, the Group had fixed rate debt of $2,199 million, representing 27.1% of net debt (2003: 28.4%). The policy is to invest cash at floating rates of interest and cash reserves are maintained in relatively short term investments in order to maintain liquidity while achieving a satisfactory return for shareholders. Counterparty risk Cash deposits and other financial instruments give rise to credit risk on the amounts due from counterparties. The Group controls and monitors the distribution of these exposures against approved limits to minimise the risk of loss in the event of non-performance by a counterparty. The limits involved relate to minimum credit ratings, exposure limits and shareholders’ equity. The possibility of material loss arising in the event of non-performance by a counterparty is considered unlikely. Liquidity risk and financing The Group is assigned short term ratings of P-2 and A-2, and long term ratings of A3 (stable outlook) and A- (stable outlook) from Moody’s and Standard and Poor’s respectively. Committed bank facilities $ million Expiring 2005 2006 2007 2008 2009 2010 After 2010 Total Facility amount 4,146 103 203 1,636 2,699 178 152 9,117 The maturity profile of net debt is shown below: Debt and (cash) maturity profile $ million 2005 2006 2007 2008 2009 2010 After 2010 Gross cash(1) Debt (2,661) – – – – – – 3,333 631 1,407 2,953 1,481 560 417 Drawn Available 2,127 101 153 1,458 27 178 152 4,196 Net debt 672 631 1,407 2,953 1,481 560 417 8,121 2,019 2 50 178 2,672 – – 4,921 Cumulative net debt 672 1,303 2,710 5,663 7,144 7,704 8,121 8,121 The following financing activities were undertaken during 2004: Total (2,661) 10,782 Anglo American Capital plc and Anglo American Australia Finance Limited issued a number of small private placements. (All notes are guaranteed by Anglo American plc). A $1,000 million European Commercial Paper Programme was established in October 2004. The programme provides further funding diversity and flexibility. The European Commercial Paper Programme is in addition to a $1,300 million Canadian Commercial Paper Programme established a number of years ago. In addition to its capital market activities, Anglo American borrows using short term variable rate instruments such as commercial paper, bills and money market lines, as well as using committed medium and short term bank facilities. Anglo American maintains committed facilities as back up to its commercial paper programmes and for immediate liquidity needs. An existing $2.25 billion committed facility was refinanced in 2004. A new $2.5 billion committed facility was set up, incorporating a $750 million tranche maturing in July 2005 and a $1,750 million tranche maturing in July 2009. (1) Gross cash comprises cash of $2,086 million and cash equivalents of $575 million. OTHER RISK FACTORS The risk factors set out below are further uncertainties that the Group considers could cause the Group’s actual results to differ materially from expected and historical results: Economic and political risks The Group is geographically diverse and encounters different legal and regulatory requirements in different jurisdictions. Businesses may be affected by any political, economic or regulatory developments in any of the countries in which they operate, including risks such as restrictions on the export of currency or expropriation of assets. The Group has no control over changes in local inflation rates or market interest rates. Acquisitions The Group has undertaken a number of acquisitions in the past. With these, as with any such future transaction, there is the risk that any benefits or synergies identified at acquisition may not be achieved. Rigorous guidelines are applied to the evaluation and execution of all acquisitions, which require approval of the Investment Committee and Executive Board and, in the case of acquisitions beyond a certain value, the approval of the board. 7878v03_PH_Rp_FC-p27_020305.qxp 2/3/05 11:52 pm Page 16 16 Anglo American plc Annual Report 2004 FINANCIAL REVIEW CONTINUED Health, safety and environment The Group is subject to numerous health, safety and environmental laws and regulations in each of the jurisdictions in which it operates. Any changes in laws, regulations or community expectations can result in increased compliance and remediation costs. The HIV/AIDS epidemic in sub-Saharan Africa is a significant threat to economic growth and development. Providing access to treatment in developing countries has become a humanitarian as well as an economic and social imperative. In 2002, the Group announced it would provide anti-retroviral therapy to employees with HIV/AIDS. Natural risks The Group’s operations can be exposed to natural risks such as flood, weather or difficult geological conditions. Appropriate insurance can provide protection from some, but not all, of the costs that may arise from unforeseen events. CRITICAL ACCOUNTING POLICIES The Group financial statements are prepared in accordance with UK GAAP. The Group’s accounting policies are described on pages 52 to 53 of the financial statements. The application of certain of these policies requires assumptions or judgements by management. Actual results may differ from the estimates calculated using these assumptions and judgements. Management believes that the following are the critical policies where the assumptions and judgements made could have a significant impact on the consolidated financial statements: Pensions and post-retirement benefits The expected costs of providing pensions and post-retirement benefits under defined benefit arrangements are charged against profits to spread the expected costs on a straight-line basis over the service lives of the employees entitled to those benefits. Assumptions in respect of the expected costs are set after consultation with qualified actuaries. While management believes the assumptions used are appropriate, a change in the assumptions used would impact the earnings of the Group. Restoration, rehabilitation and environmental costs Provision is made, based on net present values, for restoration, rehabilitation and environmental costs as soon as the obligation arises. Costs incurred at the start of each project are capitalised and charged to the profit and loss account over the life of the project through depreciation of the asset and the unwinding of the discount on the provision. Costs for restoration of subsequent site damage are provided at net present value and charged against profits as extraction progresses. Management uses its judgement and experience to provide for and amortise these estimated costs. Mining reserves The Group’s mining properties are depreciated over the life of the mine using the unit of production method based on proven and probable reserves. When determining reserves, assumptions that were valid at the time of estimation may change when new information becomes available. Any changes could affect depreciation rates and asset carrying values. Exceptional items Operating exceptional items are those that management considers, by virtue of their size or incidence, should be disclosed separately to ensure that the financial information also allows an understanding of the underlying performance of the business. The determination as to which items should be disclosed separately requires a degree of judgement. INTERNATIONAL FINANCIAL REPORTING STANDARDS The Council of the European Union announced in June 2002 that listed companies in Europe would be required to adopt International Financial Reporting Standards (IFRS) for accounting periods beginning on or after 1 January 2005. The adoption of IFRS will be first reflected in the Group’s financial statements for the half year ended 30 June 2005 and the year ended 31 December 2005. The accounting standards to be adopted are subject to ongoing review and endorsement by the EU and possible amendment by interpretative guidance from the International Financial Reporting Interpretations Committee (IFRIC) and the accounting profession. The information presented below has been prepared on the basis of current interpretations of standards expected to be applied by the Group in its 2005 financial statements. The Group began preparation for the adoption of IFRS in April 2003 when it established a global project team to manage the convergence to IFRS. The scope of this project included: an assessment of the impact from the conversion to IFRS on the Group’s reported financial results; a continued assessment of the impact from proposed future developments to international accounting standards; identification of changes required to the Group’s existing accounting systems and procedures; targeted training and education of all appropriate employees within our businesses; and the timely communication to internal and external stakeholders of areas subject to significant change. The IFRS transition project is well advanced and the Group is on track to meet its reporting deadlines. All significant project milestones, including system changes and targeted IFRS training for all employees affected by the transition, have now been completed. The Group has prepared IFRS accounting and treasury policies in accordance with standards expected to be effective, or available for early adoption, as at 31 December 2005, the date of the Group’s first annual IFRS financial statements. The Audit Committee has approved the Group’s first time adoption choices made in accordance with IFRS 1, including the adoption of International Accounting Standards (IAS) 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement prospectively from 1 January 2005. The UK GAAP balance sheet as at 1 January 2004 and financial information for the six months ended 30 June 2004 and year ended 31 December 2004 will be restated in accordance with these first-time accounting choices and policies (excluding IAS 32 and 39). The 2004 restated financial information at each of these reporting dates will be published in May 2005. This publication will include a reconciliation of the Group’s UK GAAP reported profit and loss account, balance sheet and total equity to the restated IFRS results, and will provide details of material policy differences and adjustments arising. First-time adoption choices The Group has made the following first-time accounting policy choices, in accordance with IFRS 1: business combinations – acquisitions prior to 1 January 2004 will not be restated; goodwill – the requirement to retranslate goodwill balances to the exchange rate at reporting date in accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates will be applied prospectively to goodwill balances arising on acquisitions after 1 January 2004 (the transition date); 7878v03_PH_Rp_FC-p27_020305.qxp 2/3/05 11:52 pm Page 17 Anglo American plc Annual Report 2004 17 post-retirement benefits – surpluses/deficits of post-retirement benefits under defined benefit arrangements will be recognised in full at 1 January 2004. From 1 January 2004, the Group will apply the full provision accounting method, as permitted in IAS 19 (revised) Employee Benefits, with subsequent actuarial gains and losses being recorded directly in equity; currency translation differences – translation differences relating to foreign currency investments in subsidiaries, associates and joint ventures are deemed to be zero at the date of transition and, as such, the gain or loss on subsequent disposal of any foreign operation will exclude translation differences that arose before that date; joint venture entities – these entities will be proportionally consolidated in accordance with IAS 31 Interests in Joint Ventures; financial instruments – IAS 32 and 39 will be applied prospectively from 1 January 2005; share-based payments – IFRS 2 Share-Based Payment will be applied to all share-based rewards made after 7 November 2002 that did not vest before 1 January 2005; disposal groups – IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations will be applied from 1 January 2005; exploration for and evaluation of mineral resources – IFRS 6 Exploration for and Evaluation of Mineral Resources will be applied early, from 1 January 2005. Key policy impacts Although the majority of accounting standards to be applied in the Group’s first full IFRS financial statements have been finalised, the principles may still be subject to possible amendment as a result of additional interpretative guidance from IFRIC and the accounting profession. A summary of the more significant accounting policy changes we anticipate will arise, based on current interpretations of the standards within each of these areas, is provided below. Our assessment may be subject to revision as a result of new accounting developments and is not a comprehensive list of all expected changes. Business combinations, intangible assets and goodwill The more significant policy changes resulting from the transition to IFRS include: the replacement of goodwill amortisation with an annual impairment test; the treatment of goodwill and fair value adjustments arising on acquisition of foreign operations as assets and liabilities of the acquiree, to be retranslated on consolidation in accordance with IAS 21; the abolition of merger accounting; a broader definition of intangible assets to be recognised at acquisition; and the reclassification of minority interests from liabilities to equity. Financial instruments The adoption of IAS 32 and 39 will require all derivatives, with the exception of commodity based (normal purchase or normal sale) contracts, to be recognised on the balance sheet at fair value. Subsequent changes in fair values are either taken to equity, if the criteria for cash flow hedge accounting are met, or to the income statement. Previously, derivatives qualifying as hedges in accordance with UK GAAP have been held off balance sheet and the fair value disclosed within a note to the financial statements. Any derivatives embedded within the terms of contractual commitments that are not considered closely related to the underlying host contract will also be separately identified and fair valued. Commodity based (normal purchase or normal sale) contracts that meet the own use requirements of IAS 39 are recognised in earnings when they are settled by physical delivery. Treasury systems and procedures have been reviewed to ensure that any hedging undertaken by the Group qualifies for hedge accounting under IFRS where otherwise the impact would be considered material to the reported Group results. Deferred tax Deferred tax will be provided at the date of acquisition and on some balances previously excluded from provision under UK rules such as revaluations and fair value adjustments. Unrealised gains The international accounting framework provides no distinction between unrealised and realised gains for financial reporting. As such, all unrealised gains, with the exception of actuarial gains/losses on post-retirement schemes and currency translation differences, will be recorded through the income statement and not through a statement of total recognised gains and losses, as was required under UK GAAP. Proportional consolidation of joint venture entities Results of joint venture entities will be incorporated on an individual line-by-line basis in the Group financial statements, in accordance with proportional consolidation rules set out in IAS 31. The accounting policies for Joint Arrangements Not Entities (JANEs) and joint venture operations are fundamentally the same under both UK and international policies. Accounting for dividends proposed The final dividend proposed will only be recognised in the following year when it is formally approved for payment. This is in accordance with IAS 10 Events After the Balance Sheet Date and also with the Companies Act 1985 (International Accounting Standards and Other Accounting Amendments) Regulations 2004, which will be effective for financial years commencing on or after 1 January 2005. Employee benefit schemes: post-retirement and share option remuneration IAS 19 requires companies to recognise the full deficit (or surplus, subject to restrictions) of post-retirement benefit schemes under defined benefit arrangements on the balance sheet. The Group is expected to adopt IAS 19 (revised) early and will recognise all actuarial gains or losses directly through equity. Under IFRS, options granted by the Group to employees, for example under Employee Share Option Schemes and Save As You Earn Schemes, are to be fair valued at grant date using an option pricing model and charged through the income statement over the vesting period of the options. The nature of Anglo’s employee remuneration schemes is such that there is not expected to be a material difference to existing UK GAAP charges on application of IFRS 2. Translation of results from foreign currency operations IFRS requires the currency translation adjustment (CTA) arising on translation of a foreign operation to be recycled through the income statement when that operation is disposed of. Currently, under UK GAAP, the CTA is not included in the gain or loss calculated if that operation is sold. 7878v03_PH_Rp_FC-p27_020305.qxp 2/3/05 11:52 pm Page 18 18 Anglo American plc Annual Report 2004 FINANCIAL REVIEW CONTINUED Presentation and disclosure of financial information The transition to an international accounting framework will give rise to an increase in certain disclosures to the financial statements. There will also be some presentational changes. Financial statements will disclose a detailed reconciliation of reserve movements for the current year, with comparatives. A statement of recognised income and expenses will be presented, as required by IAS 19 (revised), to report actuarial gains/losses in respect of post-retirement schemes under defined benefit arrangements. Exploration for and evaluation of mineral resources IFRS 6 was issued in December 2004 as an interim standard in advance of a more comprehensive review of accounting practices in the extractive industry. The standard does not impact the Group’s existing policy for exploration and evaluation expenditure. 7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 2:18 am Page 19 Anglo American plc Annual Report 2004 19 DIRECTORS’ REPORT The directors have pleasure in submitting the statutory financial statements of the Group for the year ended 31 December 2004. This directors’ report should be read in conjunction with the chairman’s questions and answers, chief executive’s statement, operations review and social responsibility report contained in the Annual Review, the financial review and the remuneration report contained in this Annual Report. These include information on all the individual business sectors of the Group, its joint ventures and its associates, their performance and current and future developments. PRINCIPAL ACTIVITIES AND BUSINESS REVIEW Anglo American, with its subsidiaries, joint ventures and associates, continues to be a global leader in the mining and natural resource sectors. It has significant and focused interests in platinum group metals, gold, diamonds, coal, base metals, industrial minerals, paper and packaging, and ferrous metals and industries, as well as financial and technical strength. The Group’s business is a going concern as interpreted by the Guidance on Going Concern and Financial Reporting for directors of listed companies registered in the United Kingdom, published in November 1994. The net book value of the Group’s tangible fixed assets at 31 December 2004 was $31,155 million. DIVIDENDS An interim dividend of 19 US cents per ordinary share was paid on 21 September 2004. The directors recommend a final dividend of 51 US cents per ordinary share. This will make a total for the year to 31 December 2004 of 70 US cents per ordinary share. Subject to the approval of shareholders at the annual general meeting (AGM) to be held on Wednesday, 20 April 2005, the final dividend will be payable on Friday, 29 April 2005 to shareholders registered in the books of the Company at the close of business on Friday, 11 March 2005. On 26 August 1999, Greenwood Nominees Limited, as nominee for Butterfield Trust (Guernsey) Limited, the trustee for the Anglo American Employee Share Ownership Trust, waived its right to all dividends (except for 1 pence), payable by the Company. The total amount waived during the year was $32,276,754, being $21,729,868 in respect of the 2003 final dividend paid in April 2004 and $10,546,886 in respect of the 2004 interim dividend paid in September 2004. On 24 June 2004, Security Nominees Limited, account BSPNI, waived its right to all dividends payable by the Company. Such waiver is in respect of shares registered in that nominee account relating to the National Insurance liability on the Bonus Share Plan. The amount waived during the year in respect of the 2004 interim dividend paid in September 2004 was $2,430. AUTHORISED SHARE CAPITAL During the year there was no change to the authorised share capital of the Company of $1,000,000,000 divided into 2,000,000,000 ordinary shares of $0.50 each and £50,000 preference shares of £1 each. ISSUED SHARE CAPITAL During the year a total of 4,028,367 ordinary shares were allotted in respect of employee share schemes at various option exercise prices. In addition, 15,110 shares were allotted on the dates and at the prices shown below to certain non-executive directors (or their nominees) by subscription of their after-tax directors’ fees: Date (2004) 7 January 2 April 1 July 30 September Number of shares Price per share 3,341 3,605 3,950 4,214 £11.89 £12.88 £11.29 £12.93 On 12 February 2004, 5,309,286 ordinary shares were allotted at a price of $21.78 per share as consideration for the acquisition of the Roman Bauernfeind Holding AG corrugated paper and packaging business. On 5 April 2004, 8,181,998 ordinary shares were allotted at a price equivalent to approximately £13.16 per share as part consideration for the acquisition of the remaining 30% minority interest in Frantschach AG. Consequently, at 31 December 2004, the issued ordinary share capital of the Company amounted to 1,493,839,387 ordinary shares of $0.50 each. There was no change during the year to the issued preference share capital of the Company of 50,000 5% cumulative preference shares of £1 each. As at 22 February 2005, the issued ordinary share capital of the Company was 1,493,843,236 ordinary shares. The authorised and issued share capital of the Company is also set out in note 24 on pages 72 to 74. Details of interests of 3% or more in the ordinary share capital of the Company are shown in the shareholder information section of the booklet enclosed herewith. EMPLOYEE SHARE OWNERSHIP TRUST The Employee Share Ownership Trust was established in 1999. On 31 December 2004, it held 55,077,983 ordinary shares in the Company, registered in the name of Greenwood Nominees Limited. These shares, which are not voted at the Company’s general meetings, are available to facilitate the operation of the Group’s share schemes, details of which are disclosed in the Remuneration Report. The operation of these schemes, and the provision of shares in connection with them, is kept under regular review. CORPORATE GOVERNANCE A report on corporate governance and compliance with the Combined Code on Corporate Governance issued by the Financial Reporting Council in July 2003 is set out on pages 22 to 27. The directors’ remuneration report, as set out on pages 28 to 43, will be proposed for approval at the AGM to be held on 20 April 2005. In accordance with the Directors’ Remuneration Report Regulations 2003, the vote on such resolution is advisory and no director’s remuneration is conditional upon the passing of the resolution. 7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 2:19 am Page 20 20 Anglo American plc Annual Report 2004 DIRECTORS’ REPORT CONTINUED DIRECTORATE The following directors held office during the year to 31 December 2004: Sir Mark Moody-Stuart non-executive chairman A J Trahar A W Lea B E Davison W A Nairn D J Challen Dr C E Fay R M Godsell G Lindahl R J Margetts chief executive finance director executive director executive director (retired 31 December 2004) non-executive director non-executive director non-executive director non-executive director senior independent non-executive director Dr M S B Marques N F Oppenheimer F T M Phaswana Sir David Scholey Prof K A L M Van Miert non-executive director non-executive director non-executive director non-executive director non-executive director Further details of the directors’ qualifications, specific responsibilities and other directorships are set out on pages 20 and 21 of the Annual Review. It is proposed at the forthcoming AGM to elect Mr R Médori as an executive director with effect from 1 June 2005 and also to elect Mr D A Hathorn and Mr S R Thompson as executive directors and Mr R C Alexander as a non-executive director all with effect from 20 April 2005. Messrs Godsell and Trahar and Professor Van Miert retire by rotation at the forthcoming AGM and, following performance reviews, and upon the recommendation of the board, being eligible, they offer themselves for re-election. Details of the directors’ interests in any Group company can be found in the remuneration report on pages 41 to 42. SUSTAINABLE DEVELOPMENT The Report to Society 2004 will be available from the Company in April. This report focuses on the safety, sustainable development, health and environmental performance of the Company’s managed operations, their performance with regard to the Company’s Good Citizenship: Our Business Principlesprinciples and the operational dimensions of their social programmes. PAYMENT OF SUPPLIERS Anglo American plc is a holding company and, as such, has no trade creditors. Businesses across the Group are responsible for agreeing the terms and conditions, including payment terms, under which business transactions with their suppliers are conducted. These terms reflect local and industry norms. The Group values its suppliers and recognises the benefits to be derived from maintaining good relationships with them. Anglo American acknowledges the importance of paying invoices, especially those of small businesses, promptly. POST BALANCE SHEET EVENTS On 1 January 2005, Mondi completed the sale of a 42% equity stake in a new entity which will own Mondi’s South African packaging businesses. This transaction values the entire business at $370 million. The Company announced on 17 February 2005 that it and BHP Billiton had reached agreement to dispose of their interest in Samancor Chrome for an enterprise value of $469 million. The disposal will be effective 1 April 2005, subject to obtaining regulatory approvals. VALUE OF LAND Land is mainly carried in the financial statements at cost. It is not practicable to estimate the market value of land and mineral rights, since these depend on product prices over the next 20 years or longer, which will vary with market conditions. EMPLOYMENT AND OTHER POLICIES The Anglo American Group, which operates throughout the world, is managed along decentralised lines. Each key operating business is empowered to manage within the context of its own industry, and the different legislative and social demands of the diverse countries in which those businesses operate, subject to the standards embodied in Anglo American’s Good Citizenship: Our Business Principles. Within all Anglo American’s businesses, the safe and effective performance of all employees, and the maintenance of positive employee relationships are of fundamental importance. Managers of Anglo American’s businesses are charged with ensuring that the following key principles are upheld: adherence to national legal standards on employment and workplace rights at all times; adoption of fair labour practices; prohibition of child labour; prohibition of inhumane treatment of employees and any form of forced labour, physical punishment or other abuse; continual promotion of safe and healthy working practices; promotion of workplace equality and elimination of all forms of unfair discrimination; provision of opportunities for employees to enhance their work- related skills and capabilities; recognition of the right of our employees to freedom of association; and adoption of fair and appropriate procedures for determining terms and conditions of employment. Copies of the Good Citizenship: Our Business Principles booklet which sets out standards of conduct on a range of ethical, human rights and social policy issues are available from the registered office of the Company and may be accessed on the Company’s website – www.angloamerican.co.uk During 2004, numerous employee communication and education workshops took place. The aim, which included areas as diverse as Talent Management, Sustainable Development and Group Strategy, was to provide employees with information on matters of concern to them, to consult employees regularly for views on matters affecting them and to make employees aware of financial and economic factors affecting the performance of the Company. In addition, presentations by certain operating divisions took place and a survey of employee communication was conducted. The chief executive also gave a presentation on the Company’s strategy. The Company regularly publishes Optima and AngloWorld which contain items of news, current affairs and information relevant to Group employees. Press releases and a news clippings service are published on the Company’s intranet, keeping employees up to date with developments in those business sectors in which the Group is active. 7878v03_PH_Rp_FC-p27_020305.qxp 3/3/05 7:29 pm Page 21 Anglo American plc Annual Report 2004 21 DONATIONS During the year, Anglo American and its subsidiaries made donations for charitable purposes totalling $47.4 million. Of that amount, $1.8 million was donated in the UK, consisting of payments in respect of education, sport and youth $331,000 (18%); community development $942,000 (53%); health and HIV/AIDS $200,000 (11%); environment $77,000 (4%); arts, culture and heritage $49,000 (3%) and other charitable causes $194,000 (11%). A fuller analysis of Anglo American’s social investment activities can be found in the Annual Review and the sustainable development Report to Society. Although it is the policy of Anglo American plc not to give party political donations, a policy shared by many multinational corporations, the Anglo American plc board decided in 2003 that it should make an exception in relation to South Africa’s democratic transition. The board concluded that its major South African operating company, Anglo Operations Limited (AOL), could set aside the sum of R6 million for donations to political parties contesting the 2004 South African general election. A sub-committee of the board headed by Sir Mark Moody-Stuart considered an appropriate allocation of funds and recommended that the African National Congress, as the ruling party enjoying the majority electoral support in the country, should receive R3 million of the donation; the Democratic Alliance, as the official opposition and second largest party, R1.5 million; the next three largest parties – the Inkatha Freedom Party, the New National Party and the United Democratic Movement – R480,000, R240,000 and R120,000 respectively; and R60,000 each to the other smaller parties with representation in the South African parliament. These donations were made in February 2004. The Anglo American Platinum board decided to contribute R1 million of the total of R6 million donated by AOL. In December 2003, the board of AngloGold decided to authorise total donations for the South African political parties, to be paid in 2004, of R1.6 million according to the formula – 30% each to the African National Congress and Democratic Alliance and 20% each to the Inkatha Freedom Party and the United Democratic Movement. In February 2004, a sub-committee of the board of Kumba Resources authorised payments of R1 million in support of the democratic process in South Africa. The money was distributed to each of the six parties with representation in parliament with a small upweighting of the share going to opposition parties. This resulted in the following division: African National Congress R600,000, Democratic Alliance R200,000, Inkatha Freedom Party R120,000, the New National Party R50,000 and the United Democratic Movement R30,000. In February 2004, the board of Tongaat-Hulett also decided to make a donation of R500,000 in support of the democratic process in South Africa. The total grant was divided between the six parties represented in parliament in proportion to the number of seats which they hold. The Anglo American plc board has reaffirmed the policy of not making donations to, or incurring expenses for the benefit of, any UK political party or any other EU political organisation, as defined in the Political Parties, Elections and Referendums Act 2000. AUDITORS Resolutions to reappoint the auditors, Deloitte & Touche LLP, and to authorise the board to determine their remuneration, will be proposed at the forthcoming annual general meeting in accordance with Section 384 of the Companies Act 1985. ANNUAL GENERAL MEETING The AGM will be held at 11:00 am on Wednesday, 20 April 2005 at The Conference Centre, Church House, Dean’s Yard, London SW1P 3NZ. The notice convening the meeting is set out in the separate booklet enclosed with this report. In addition to the ordinary business of the meeting (which includes a resolution to approve the directors’ remuneration report), as special business, shareholder consent will be sought to renew the directors’ existing authorities to: (i) allot relevant securities up to an aggregate nominal amount of $248,500,000 (equivalent to 497 million ordinary shares of $0.50 each). This authority, which the directors have no present intention of exercising (other than as referred to in (ii) below) represents 33.3% of the ordinary issued share capital at 22 February 2005 and is in accordance with the Association of British Insurers (ABI) guidelines; (ii) allot equity securities for cash up to an aggregate nominal amount of $37,250,000 (equivalent to 74.5 million ordinary shares of $0.50 each), being 5% of the ordinary issued share capital in issue at 22 February 2005, which limit complies with the guidelines of the Pre-Emption Group (set up by the London Stock Exchange and which includes the National Association of Pension Fund Managers and the ABI). The directors have no present intention of exercising this authority except in relation to the allotment of ordinary shares to certain non-executive directors by subscription of their after tax directors’ fees; and (iii) make market purchases of up to a maximum of 149 million ordinary shares of $0.50 each of the Company, being up to 10% of the ordinary issued share capital at 22 February 2005, at a price not less than $0.50 and not exceeding 105% of the average middle market closing price of such shares on the London Stock Exchange on the five dealing days prior to the date of repurchase. The directors have no present intention of exercising this authority and would only do so if they considered it was in the best interests of shareholders generally and if the purchase could be expected to result in an increase in earnings per share. In exercising this authority, the directors may treat the shares that have been bought back as either cancelled or held in treasury (or a combination of both), and to the extent that any such shares are held in treasury, earnings per share will only be increased until such time as the shares are transferred or re-sold out of treasury. Treating the bought-back shares as treasury shares gives the Company the ability to sell or transfer them quickly and cost-effectively and provides the Company with additional flexibility in the management of its capital base. The Company may use any shares repurchased and held in treasury for the purposes of its employee share schemes. If any such shares are used, the Company will, so long as required under institutional investor guidelines, count them towards the limits in the schemes as if they were newly issued shares. The total number of options to subscribe for shares outstanding at 22 February 2005, which could be issued on conversion of the 3.375% convertible bonds due April 2007, was 47,589,607 ordinary shares, which represents 3.2% of the issued ordinary share capital at that date. If the Company were to buy back the maximum number of shares permitted pursuant to this resolution, then the total number of options to subscribe for shares outstanding would represent 3.5% of the reduced issued share capital. By order of the board Nicholas Jordan Company Secretary 22 February 2005 7878v03_PH_Rp_FC-p27_020305.qxp 3/3/05 7:29 pm Page 22 22 Anglo American plc Annual Report 2004 CORPORATE GOVERNANCE COMPLIANCE STATEMENT The Anglo American Group is committed to the highest standards of business integrity, ethical values and professionalism in all its activities. As an essential part of this commitment, the board supports the highest standards of corporate governance and the directors are accountable to the shareholders for doing so. The key principles underpinning the governance of the Group are set out in this statement. An effective system of control aimed at managing business risks is an integral component of the Group’s governance practices, details of which are provided in the internal control section below. Throughout the year ended 31 December 2004 and up to the date of this report, the Company has been in compliance with the provisions set out in Section 1 of the Combined Code on Corporate Governance issued by the Financial Reporting Council. Details of the application of the principles of Section 1 of the Combined Code are set out below. BOARD OF DIRECTORS The board of directors is responsible to the shareholders for setting the direction of Anglo American through the establishment of strategic objectives and key policies. The board meets on a regular basis, at least six times a year. The board considers issues of strategic direction, major acquisitions and disposals and approves major capital expenditure and other matters having a material effect on Anglo American. Presentations are made to the board by business management on the activities of operations and both executive and non-executive directors undertake regular visits to operations and projects. During 2004, non-executive directors visited the following operations: Richards Bay and SilvaCel paper mills, the Sishen iron ore mine and the Potgietersrust Platinums mine in South Africa and the Hippo Valley, Unki and Zimbabwe Alloys operations in Zimbabwe, as well as operations in Canada and China. The composition of the board, with a strong independent element, ensures that no one individual has unfettered powers of decision and authority. Following the retirement of W A Nairn on 31 December 2004, the board currently comprises three executive and eleven non-executive directors, eight of whom are independent according to the definition contained in the Combined Code. The independent directors are Sir Mark Moody-Stuart, D J Challen, F T M Phaswana, Prof K A L M Van Miert, Dr C E Fay, G Lindahl, R J Margetts and Dr M S B Marques. R J Margetts is the senior independent non-executive director. The other non-executive directors are R M Godsell, N F Oppenheimer and Sir David Scholey. The terms and conditions of appointment of non-executive directors are available for inspection upon request during normal business hours and at the AGM and are referred to in the Remuneration Report set out on page 34. Sir David Scholey and Mr Göran Lindahl have indicated that they will retire from the board at the AGM in April. The board has recommended to shareholders the appointment of Mr R C Alexander as a non-executive director with effect from 20 April 2005. The board has also recommended to shareholders that Mr R Médori be appointed a director with effect from 1 June 2005 with the intention that he will take over the position of finance director on 1 September 2005. The board has also recommended to shareholders the appointment of Mr D A Hathorn and Mr S R Thompson as executive directors of the Company. Biographical details of Messrs Hathorn and Thompson are set out on page 14 of the Annual Review. Biographical details of Messrs Alexander and Médori are set out in the Notice of Meeting. The chairman is responsible for leading the board and for its effectiveness. He sets the agenda for meetings of the board in collaboration with the chief executive. The chairman, with the assistance of the company secretary, ensures that the directors receive timely, accurate and clear information before board meetings and updates of issues arising between meetings. The chief executive, together with the other members of the Executive Board, is responsible for the overall day-to-day management of the Company. In the year to 31 December 2004 the board met seven times, the Audit and Nomination Committees four times and the Remuneration Committee five times. The attendance at these meetings was as follows: Board (seven meetings) Audit Committee (four meetings) Remuneration Committee (five meetings) Nomination Committee (four meetings) Sir Mark Moody-Stuart A J Trahar D J Challen B E Davison Dr C E Fay R M Godsell A W Lea G Lindahl R J Margetts Dr M S B Marques W A Nairn N F Oppenheimer F T M Phaswana Sir David Scholey Prof K A L M Van Miert 7 7 7 6 7 7 7 7 7 7 7 6 7 5 7 – – 4 – 4 – – – 4 – – – 4 – 4 – – 5 – 4 – – – 5 – – – 5 – – 4 – – – – – – – 4 – – 2 4 4 4 Anglo American’s directors have a wide range of expertise as well as significant experience in financial, commercial and mining activities. As recommended by the Combined Code, all directors have full access to internal and external auditors, and are encouraged to stay fully abreast of the Group’s business through meetings with senior management and site visits. Training and briefings are available to all directors on appointment and subsequently, as necessary, taking into account existing qualifications and experience. During the year, directors have attended, inter alia, workshops and briefings on the following subjects: the new OFR (operating and financial review) requirements; board effectiveness; remuneration committees; the role of the chairman, and corporate social responsibility. Four of the non-executive directors, Dr Fay and Messrs Godsell, Margetts and Oppenheimer, will have completed six years as directors of the Company during the course of 2005. The Combined Code requires that where non-executive directors remain on a board beyond a six-year term, their continuance should be subject to rigorous review and should take into account the need for progressive refreshing of the board. 7878v03_PH_Rp_FC-p27_020305.qxp 3/3/05 7:48 pm Page 23 Anglo American plc Annual Report 2004 23 In October 2004, the board met for its annual three day strategy session, part of which was devoted to an evaluation of the performance of the board, its committees and its members. The directors (other than Dr Fay and Messrs Godsell, Margetts and Oppenheimer) confirm that, having reviewed their performance, they believe that it is in the best interests of the Company for Dr Fay and Messrs Godsell, Margetts and Oppenheimer to continue as directors of the Company beyond their six year terms. In reaching this conclusion, the board has taken cognisance of the unique positions of Messrs Godsell and Oppenheimer as, respectively, the CEO and chairman of AngloGold Ashanti and De Beers. Their advice and input to the Anglo American plc board in relation to their respective companies are considered essential. Dr Fay and Mr Margetts chair the Safety & Sustainable Development and Remuneration Committees, respectively, and also provide invaluable input as members of the Audit Committee. Dr Fay has many years’ experience in the safety, health and environment field, as well as broad technical and project management experience and has gained considerable insight into these aspects of the various Group operations. His continued leadership of the drive to improve safety and enhance sustainable development at the Company’s operations is considered most desirable and in the best interests of the Company and its workforce as well as its shareholders. Mr Margetts has broad experience of global businesses and, in addition to his contribution to strategic issues, has shown great skill in the complex field of remuneration policy and in his roles as chairman of the Remuneration Committee, a member of the Nomination and Audit Committees and as the senior independent non-executive director. The board is therefore of the view that it is also in the interest of the Company for Mr Margetts to continue in those roles beyond the six-year term. In addition, the board performance evaluation process confirmed that those directors due for re-election at the AGM (Messrs Godsell and Trahar and Professor Van Miert) continue to demonstrate their commitment and to make valuable and effective contributions to the Company and the proposed re-elections are therefore recommended by the chairman and the board. In relation to the “progressive refreshing of the board”, Dr Marques’ appointment in December 2003, brought new insight into South American affairs and the intended appointment of Messrs Hathorn, Médori and Thompson as executive directors and the intended appointment of Mr Alexander as an independent non-executive director will bring further invaluable and new experience to the board. The board is confident that it has, therefore, fully complied with the requirements of the Combined Code in regard to the constitution of the board. As referred to above, a formal evaluation of the performance of the board, its committees and the directors was carried out in October 2004 by means of detailed questionnaires and interviews. This process confirmed that all the directors’ contributions remain valid. The results of the evaluation were discussed at the October meeting of the board. The evaluation process also included a review, chaired by the senior independent non-executive director (without the chairman present), of the performance of the chairman. The board evaluation process resulted in a number of changes to board agenda items and the conduct of the board meetings. In addition, a programme of informal meetings of directors was instituted. All directors have access to management, and to the advice and services of the company secretary, and to such information as is needed to carry out their duties and responsibilities fully and effectively. Furthermore, all directors are entitled to seek independent professional advice concerning the affairs of Anglo American at its expense. All directors are subject to election by shareholders at the first opportunity following their appointment. In addition, directors retire by rotation and stand for re-election by shareholders at least once every three years in accordance with Anglo American’s articles of association. Subject to specific fundamental, strategic and formal matters reserved for its decision, the board delegates certain responsibilities to a number of standing committees, which operate within defined terms of reference laid down by the board, as referred to below. The terms of reference of the Audit, Remuneration, Nomination and Safety & Sustainable Development Committees of the board are published on the Company’s website. EXECUTIVE MANAGEMENT EXECUTIVE BOARD On 22 February 2005, the Executive Committee was replaced by the Executive Board, as the principal executive organ of the Company. Prior to 22 February 2005, the Executive Committee was chaired by the chief executive and the other members were all of the executive directors of the Company and D A Hathorn, R J King and S R Thompson. The Executive Board is chaired by the chief executive and the membership comprises all of the executive directors of the Company, the chief executive officer of Anglo American South Africa, the executive vice president responsible for Group human resources and business development and the technical director. The Executive Board is empowered and responsible for implementing the strategies and policies determined by the board, managing the business and affairs of the Company, prioritising the allocation of capital, technical and human resources and establishing best management practices. The Executive Board is also responsible for senior management appointments and monitoring their performance and acts as the Anglo American risk committee for the purpose of reviewing and monitoring Anglo American’s systems of internal control. The Executive Board presently comprises: A J Trahar (chairman), B E Davison, D A Hathorn, R J King, A W Lea, A E Redman, S R Thompson and P L Zim. INVESTMENT COMMITTEE The role of the Investment Committee, which is a sub-committee of the Executive Board, is to manage the process of capital allocation by ensuring that investments and divestments increase shareholder value and meet Anglo American’s financial criteria. The Committee makes recommendations to the Executive Board and/or the board on these matters. The Committee meets as required. The Investment Committee presently comprises: A W Lea (chairman), D A Hathorn, A E Redman, S R Thompson and P G Whitcutt (Head of Finance). 7878v03_PH_Rp_FC-p27_020305.qxp 2/3/05 11:52 pm Page 24 24 Anglo American plc Annual Report 2004 CORPORATE GOVERNANCE CONTINUED COMMITTEES OF THE BOARD REMUNERATION COMMITTEE The Remuneration Committee, comprising solely independent non-executive directors, is responsible for establishing and developing Anglo American’s general policy on executive and senior management remuneration and determining specific remuneration packages for executive directors. The Remuneration Committee presently comprises: R J Margetts (chairman), D J Challen, Dr C E Fay and F T M Phaswana. SAFETY & SUSTAINABLE DEVELOPMENT COMMITTEE (S&SD) The S&SD Committee (formerly the Safety, Health and Environment Committee) is responsible for developing framework policies and guidelines for the management of sustainable development issues, including safety, health and environment matters, and ensuring the progressive implementation of the same throughout the Group. The Committee normally meets four times each year, including a visit to an operation, and business unit heads are invited to attend committee meetings. Each business unit head makes an annual safety and sustainable development presentation to the Commitee. A separate Report to Society 2004 will be published in April. This report focuses on the safety, sustainable development, health and environmental performance of the Company’s managed operations, their performance with regard to the Company’s ‘Good Citizenship’ principles and the operational dimensions of their social programmes. The S&SD Committee presently comprises: Dr C E Fay (chairman), B E Davison, R M Godsell, G Lindahl, Dr M S B Marques, Sir Mark Moody-Stuart, W A Nairn, A E Redman, Sir David Scholey and A J Trahar. NOMINATION COMMITTEE The Nomination Committee makes recommendations to the board on the appointment of new executive and non-executive directors, including making recommendations as to the composition of the board generally and the balance between executive and non- executive directors. The Nomination Committee meets as and when required and has engaged external consultants to identify appropriate candidates. The board, via the Nomination Committee, has taken steps to ensure that the Human Resources function of the Group regularly reviews and updates the succession plans of directors and senior managers. During the year the Nomination Committee managed the process of the selection of René Médori to succeed Tony Lea as finance director with effect from 1 September 2005 and the proposed election of Messrs Hathorn and Thompson as executive directors and Mr Alexander as a non-executive director at the AGM. The Nomination Committee presently comprises: F T M Phaswana (chairman), R J Margetts, Sir Mark Moody-Stuart, N F Oppenheimer, Sir David Scholey and Prof K A L M Van Miert. AUDIT COMMITTEE Role and responsibilities The primary role of the Audit Committee is to ensure the integrity of financial reporting and the audit process, and that a sound risk management and internal control system is maintained. In pursuing these objectives the Audit Committee oversees relations with the external auditors and reviews the effectiveness of the internal audit function. In fulfilling its responsibility of monitoring the integrity of financial reports to shareholders, the Audit Committee has reviewed accounting principles, policies and practices adopted in the preparation of public financial information and has examined documentation relating to the Annual Report, Annual Review, Interim Report, preliminary announcements and related public reports. The clarity of disclosures included in the financial statements was reviewed by the Audit Committee, as was the basis for significant estimates and judgements. In assessing the accounting treatment of major transactions open to different approaches, the Committee considered written reports by management and the external auditors. The Committee’s recommendations are submitted to the board for approval. The chief financial officers of all operations have provided confirmation, on a six-monthly basis, that financial and accounting control frameworks operate satisfactorily. The Audit Committee considered summaries of the significant risk and control issues arising from these reports. The Audit Committee also received regular internal and external audit reports on the results of audits at various operations. Further information on risk management processes is provided in the internal control disclosure statement on page 26. The Audit Committee has satisfied itself that the United Kingdom professional and regulatory requirements for audit partner rotation and employment of former employees of the external auditors have been complied with. The Audit Committee considered information pertaining to the balance between fees for audit and non-audit work for the Group in 2004 and concluded that the nature and extent of non-audit fees do not present a threat to the external auditors’ independence. Furthermore, after reviewing a report from the external auditors on all relationships between the external auditors and Anglo American that might reasonably have a bearing on the external auditors’ independence and the audit engagement partner and staff’s objectivity, and the related safeguards and procedures, the Audit Committee has concluded that the external auditors’ independence was not impaired. The Audit Committee approved the external auditors’ terms of engagement, scope of work, the process for the 2004 interim review, the annual audit and the applicable levels of materiality. Based on written reports submitted, the Audit Committee reviewed, with the external auditors, the findings of their work and confirmed that all significant matters have been satisfactorily resolved. The Committee’s assessment of the external auditors’ performance and independence underpins its recommendation to the board to propose to shareholders the re-appointment of Deloitte & Touche LLP as auditors until the conclusion of the AGM in 2006. 7878v03_PH_Rp_FC-p27_020305.qxp 2/3/05 11:52 pm Page 25 Anglo American plc Annual Report 2004 25 A key factor that may impair auditors’ independence is a lack of control over non-audit services provided by the external auditors. In essence, the external auditors’ independence is deemed to be impaired if the auditors provide a service which: results in auditing of own work by the auditors; results in the auditors acting as a manager or employee of the Group; puts the auditors in the role of advocate for the Group; or creates a mutuality of interest between the auditors and the Group. Anglo American addresses this issue through three primary measures, namely disclosure of the extent and nature of non- audit services, the prohibition of selected services, and prior approval by the Audit Committee chairman of non-audit services where the cost of the proposed assignment is likely to exceed a specified amount. Disclosure entails reporting non-audit services to the Group’s audit committees and inclusion of prescribed detail in the Annual Reports of listed entities. The policy’s definition of prohibited non-audit services corresponds with the European Commission’s recommendations on auditors’ independence. Other safeguards encapsulated in the policy include: The external auditors are required to adhere to a rotation policy based on best practice and professional standards in the United Kingdom. The standard period for rotation of the audit engagement partner is five years and for any key audit principal seven years. Any partner designated as a key audit principal of Anglo American will not be employed by Anglo American in a key management position unless a period of at least two years has elapsed since the conclusion of the last relevant audit. The Audit Committee ensures that the scope of the auditors’ work is sufficient and that the auditors are fairly remunerated. The Audit Committee has primary responsibility for making recommendations to the board on the appointment, reappointment and removal of the external auditors. The Audit Committee has the authority to engage independent counsel and other advisors as they determine necessary in order to resolve issues on auditor independence. DIRECTORS’ REMUNERATION The directors’ remuneration report, setting out Anglo American’s policy on executive directors’ remuneration, benefits, share schemes, long term incentive and bonus plans and pension entitlements, is set out on pages 28 to 43 of this Annual Report. A resolution to approve the remuneration report will be proposed at the forthcoming AGM. Each internal audit function reports directly to an audit committee at business or listed company level and is accountable for maintaining Group auditing standards, including risk reporting. Internal audit functions’ mandates and annual audit coverage plans were approved by the relevant audit committees, which have considered reports on the results of internal audit work. A summary of audit results and risk management information was presented to the Audit Committee at regular intervals throughout the year. Also tabled were reports submitted by the Group’s head of internal audit on internal audit functions’ performance against Group standards. The effectiveness of the Group’s internal audit functions is evaluated by means of annual assessments against predetermined criteria and periodic external peer reviews, the results of which are reported to the Audit Committee. During the year the Audit Committee has reviewed the Group’s progress towards the implementation of the new International Financial Reporting Standard (IFRS)programme. A special meeting was called in April 2004 to consider the accounting options for first time adoption of IFRS. The Audit Committee also reviewed business units’ audit coverage plans aimed at providing assurance in respect of mineral resources and ore reserves. Composition of the Audit Committee The Committee comprises solely independent non-executive directors. The dates of appointment and names of those who were members during the year and who currently remain members are: D J Challen (chairman) R J Margetts Dr C E Fay F T M Phaswana Prof K A L M Van Miert 9 September 2002 19 March 1999 4 June 2001 2 September 2002 10 May 2002 The board, in consultation with the Audit Committee chairman, makes appointments to the Audit Committee. The board has determined that the Committee members have the skills and experience necessary to contribute meaningfully to the Committees’ deliberations. In addition, the chairman of the Committee has requisite experience in accounting and financial management. The Audit Committee met four times during 2004, two meetings coinciding with key dates within the financial reporting and auditing cycle. All of the members were present at those meetings, two of which were followed by discussions, independent of management, with the external audit partners and the head of internal audit. Details of remuneration paid to members of the Audit Committee, including the additional fee paid to the chairman of the Audit Committee, are set out on page 36. Policy on external auditors’ independence Anglo American’s policy on auditors’ independence, which came into effect on 1 January 2003, is consistent with the ethical standards promulgated by the Auditing Practices Board and published in December 2004. 7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 10:16 am Page 26 26 Anglo American plc Annual Report 2004 CORPORATE GOVERNANCE CONTINUED RELATIONS WITH SHAREHOLDERS The Company maintains an active dialogue with its key financial audiences, including institutional shareholders and sell-side analysts. The Investor and Corporate Affairs department manages the ongoing dialogue with these audiences and regular presentations take place at the time of interim and final results as well as during the rest of the year. An active programme with potential shareholders is also maintained. Any concerns raised by a shareholder in relation to the Company and its affairs are communicated to the board as a whole. The board is briefed on a regular basis by the Investor and Corporate Affairs department and analysts’ reports are circulated to the directors. During the year there have been regular presentations and meetings with institutional investors in the UK, South Africa, continental Europe, the USA and Canada to communicate the strategy and performance of Anglo American. Executive directors as well as key corporate officers host such presentations and meetings. The chairman is also available to shareholders to discuss any matter they wish to raise. The Company’s website (www.angloamerican.co.uk) provides the latest and historical financial and other information on Anglo American. Shareholders will have the opportunity at the forthcoming AGM, notice of which is contained in the booklet enclosed herewith, to put questions to the board, including the chairmen of the various committees. Facilities have been put in place to enable shareholders to receive company communications electronically rather than by mail and, for those unable to attend the meeting, to cast their AGM votes by telephone or by electronic means including those shareholders whose shares are held in the CREST system. Voting on each resolution to be proposed at the AGM will be conducted on a poll rather than by a show of hands. The results of the poll will be announced to the press and on the Company’s website. ACCOUNTABILITY AND AUDIT The board is required to present a balanced and understandable assessment of Anglo American’s financial position and prospects. Such assessment is provided in the chairman’s questions and answers and the chief executive’s statement set out on pages 2 to 5 and the financial review set out on pages 6 to 18 of this Annual Report. The respective responsibilities of the directors and external auditors are set out on pages 44 and 45. As referred to in the directors’ report on page 19, the directors have expressed their view that Anglo American’s business is a going concern. INTERNAL CONTROL DISCLOSURE The Executive Board, as mandated by the board, has established a Group-wide system of internal control to manage significant Group risks. This system, which has been operating throughout the year and to the date of this report, supports the board in discharging its responsibility for ensuring that the wide range of risks associated with the Group’s diverse international operations is effectively managed in support of the creation and preservation of shareholder wealth. The board’s policy on risk management encompasses all significant business risks to the Group, including financial, operational and compliance risk, which could undermine the achievement of business objectives. This system of risk management is designed so that the different businesses are able to tailor and adapt their risk management processes to suit their specific circumstances. This flexible approach has the commitment of the Group’s senior management. There is clear accountability for risk management, which is a key performance area of line managers throughout the Group. The requisite risk and control capability is assured through board challenge and appropriate management selection and skills development. Managers are supported in giving effect to their risk responsibilities through policies and guidelines on risk and control management. Continuous monitoring of risk and control processes, across 15 significant Group-wide risk areas and other business-specific risk areas, provides the basis for regular and exception reporting to business management and boards, the Executive Board and the board. The risk assessment and reporting criteria are designed to provide the board with a consistent, Group-wide perspective of the key risks. The reports to the board, which are submitted at least every six months, include an assessment of the likelihood and impact of risks materialising, as well as risk mitigation initiatives and their effectiveness. The system of internal control, which is embedded in all key operations, provides reasonable rather than absolute assurance that the Group’s business objectives will be achieved within the risk tolerance levels defined by the board. Regular management reporting, which provides a balanced assessment of key risks and controls, is an important component of board assurance. In addition, certain board committees focus on specific risks such as safety of people and capital investment and provide assurance to the board on those matters. The chief financial officers provide confirmation, on a six-monthly basis, that financial and accounting control frameworks have operated satisfactorily. The board also receives assurance from the Audit Committee, which derives its information, in part, from regular internal and external audit reports on risk and internal control throughout the Group. The Group’s internal audit functions have a formal collaboration process in place with the external auditors to ensure efficient coverage of internal controls. The Anglo American internal audit function is responsible for providing independent assurance to the Executive Board and the board on the effectiveness of the risk management process throughout the Group. Anglo American seeks to have a sound system of internal control, based on the Group’s policies and guidelines, in all material associates and joint ventures. In those companies that are independently managed, the directors who are represented on these organisations’ boards seek assurance that significant risks are being managed. 7878v03_PH_Rp_FC-p27_020305.qxp 3/3/05 7:32 pm Page 27 Anglo American plc Annual Report 2004 27 In conducting its annual review of the effectiveness of risk management, the board considers the key findings from the ongoing monitoring and reporting processes, management assertions and independent assurance reports. The board also takes account of material changes and trends in the risk profile and considers whether the control system, including reporting, adequately supports the board in achieving its risk management objectives. During the course of the year the board considered the Group’s responsiveness to changes within its business environment. The board is satisfied that there is an ongoing process, which has been operational during the year, and up to the date of approval of the Annual Report, for identifying, evaluating and managing the significant risks faced by the Group in accordance with the Turnbull guidelines. This includes social, environmental and ethical risks as highlighted in the Disclosure Guidelines on Socially Responsible Investment issued by the Association of British Insurers. A detailed report on social, environmental and ethical issues will be included in the Company’s Report to Society 2004. WHISTLEBLOWING PROGRAMME Following adoption in December 2003 of a whistleblowing policy that is aligned with the Public Interest Disclosure Act 1998, the Group has implemented a whistleblowing programme in virtually all of the managed operations. The programme, which is monitored by the Audit Committee, is aimed at enabling employees, customers, suppliers, managers or other stakeholders, on a confidential basis, to raise concerns in cases where conduct is deemed to be contrary to our values. It may include: actions that may result in danger to the health and/or safety of people or damage to the environment; unethical practice in accounting, internal accounting controls, financial reporting and auditing matters; criminal offences, including money laundering, fraud, bribery and corruption; failure to comply with any legal obligation; miscarriage of justice; any conduct contrary to the ethical principles embraced in our Good Citizenship: Our Business Principles or any similar policy; any other legal or ethical concern; and concealment of any of the above. The programme makes available a selection of telephonic, e-mail, web-based and surface mail communication channels to any person in the world who has information about unethical practice in Anglo American plc and its managed operations. The communication facilities are operated by independent service providers who sanitise information received from callers to remove all indications as to the identity of the callers before submission to designated persons in the Group. 7878v03_GC_Rp_28-p39_020305.qxp 4/3/05 2:09 am Page 28 28 Anglo American plc Annual Report 2004 REMUNERATION REPORT REMUNERATION COMMITTEE Role of the Remuneration Committee and Terms of Reference The Remuneration Committee (the Committee) is responsible for considering and making recommendations to the board on: the Company’s general policy on executive and senior management remuneration; the specific remuneration packages for executive directors of the Company, including basic salary, performance-based short and long term incentives, pensions, and other benefits; and the design and operation of the Company’s share incentive schemes. The full Terms of Reference of the Committee can be found on the Anglo American website and copies are available on request. The Committee met five times during 2004. Membership of the Committee The Committee comprised the following independent non-executive directors during the year ended 31 December 2004: R J Margetts (chairman); D J Challen; Dr C E Fay; and F T M Phaswana. The Company’s chairman and chief executive attend the Committee meetings by invitation and assist the Committee in its considerations, except when issues relating to their own compensation are discussed. No directors are involved in deciding their own remuneration. In 2004 the Committee was advised by R J King and C B Corrin (Group Human Resources), the Company’s finance function and by Ernst & Young LLP (who were appointed by the Committee to act as independent advisors). In 2004, the Committee also received advice from: Monks Partnership (a subsidiary of PricewaterhouseCoopers LLP) – appointed by the Company, with the agreement of the Committee, to provide market remuneration data; PricewaterhouseCoopers LLP – appointed by the Company, with the agreement of the Committee, to provide specialist valuation services; and Hewitt Bacon & Woodrow Limited – appointed by the Company, with the agreement of the Committee, to provide specialist actuarial advice. In addition, Mercer Human Resource Consulting Limited (Mercer) is engaged by the Committee to review the Committee’s processes on an annual basis in order to provide shareholders with assurance that the remuneration processes that the Company and the Committee have followed are in line with the stated policy as set out below, and that the Committee has operated within its Terms of Reference. A summary of the letter from Mercer containing the conclusions of their review of the Committee’s executive remuneration processes for 2004 can be found on page 43, whilst the full letter can be found on the Company’s website. In 2004 the advisors to the Committee provided other services to the Company in the UK on the following basis: Advisors Ernst & Young LLP PricewaterhouseCoopers LLP Nature of other services General tax advice Taxation and payroll advice; investment advisors and actuaries for various pension schemes; advisors on internal audit projects Mercer group companies Investment advisors and actuaries for various pension schemes Hewitt Bacon & Woodrow Limited Investment advisors and actuaries for various pension schemes Certain overseas operations within the Group are also provided with audit and non-audit related services from Ernst & Young’s, PricewaterhouseCoopers’ and Mercer’s worldwide member firms. The Company’s auditors, Deloitte & Touche LLP, have not provided advice to the Committee; however, in their capacity as Group auditors, they do undertake an audit of all remuneration elements. 7878v03_GC_Rp_28-p39_020305.qxp 4/3/05 2:09 am Page 29 Anglo American plc Annual Report 2004 29 REMUNERATION POLICY Anglo American’s remuneration policy is formulated to attract and retain high calibre executives and motivate them to develop and implement the Company’s business strategy in order to optimise long term shareholder value creation. It is the intention that this policy should conform to best practice standards and that it will apply for 2005 and subsequent years, subject to ongoing review as appropriate. The policy is framed around the following key principles: total rewards will be set at levels that are sufficiently competitive to enable the recruitment and retention of high calibre executives; total incentive-based rewards will be earned through the achievement of demanding performance conditions consistent with shareholder interests; incentive plans, performance measures and targets will be structured to operate soundly throughout the business cycle; the design of long term incentives will be prudent and will not expose shareholders to unreasonable financial risk; in considering the market positioning of reward elements, account will be taken of the performance of the Company and of the individual executive director; and reward practice will conform to best practice standards as far as reasonably practicable. Representatives of the Company’s principal investors are consulted on changes to remuneration policy. Elements of executive director remuneration Each executive director’s total remuneration consists of salary, annual bonus, long term incentives and benefits. An appropriate balance is maintained between fixed and performance-related remuneration and between elements linked to short term financial performance and those linked to longer term shareholder value creation. Assuming on-target performance, the Committee’s policy is that at least 50% (60% for the chief executive) or more of total executive director remuneration is performance-related. In 2004, 67% of the chief executive’s remuneration on an expected value basis was performance-related; for the other executive directors, on average the figure was 61% (see illustrative charts below). 34% 33% n Fixed n Performance-related annual bonus n Performance-related long-term incentives 33% 39% n Fixed n Performance-related annual bonus n Performance-related long-term incentives 33% 28% Chief executive expected values Average executive director expected values Shareholders approved the introduction of the new Bonus Share Plan (BSP) at the AGM in 2004. Taken together, the BSP and the existing Long Term Incentive Plan (LTIP) are designed to clearly underpin the Company’s existing performance culture by creating a better linkage between shareholder value creation and executive reward. The combination of performance measures provides a thorough assessment of value-driven performance. The Committee monitors closely the relevance and appropriateness of the performance measures and targets applicable to the BSP and LTIP. These performance conditions may be amended by the Committee only to the extent that they are a fairer measure of performance, consistent with the original performance conditions and no less demanding. The level of share-based remuneration within the reward mix will ensure that executive directors and other levels of management have a meaningful level of exposure to the Company’s share price performance. 7878v03_GC_Rp_28-p39_020305.qxp 4/3/05 2:09 am Page 30 30 Anglo American plc Annual Report 2004 REMUNERATION REPORT CONTINUED Basic salary The basic salary of the executive directors is reviewed annually and is targeted at the median of companies of comparable size, market sector, business complexity and international scope. Company performance, individual performance and changes in responsibilities are also taken into consideration in setting salary levels each year. Bonus Share Plan The BSP was operated for the first time during 2004 and all executive directors are eligible to participate in it. The BSP requires executive directors to invest a significant proportion of their remuneration in shares, thereby more closely aligning their interests with those of shareholders, and encourages management at all levels to build up a meaningful personal stake in the Company. Awards under the BSP are made annually and consist of three elements: a performance-related cash element, an equal amount, as a conditional award, of Bonus Shares and an additional performance-related element in the form of Enhancement Shares. These bonus awards are not pensionable. The BSP operates as follows: the value of the bonus is calculated by reference to achievement against annual performance targets. The performance measures for the BSP include measures of corporate and, where applicable, business unit performance as well as the achievement of specific individual objectives. For executive directors, the corporate element is based on stretching Earnings Per Share (EPS) targets which are calculated using headline earnings (defined in note 12 of the financial statements). In 2004, the EPS targets were met in full; the Committee reviews these measures annually to ensure they remain appropriate and sufficiently stretching in the context of the economic and performance expectations for the Company and its operating businesses; it is the Committee’s usual policy to base 70% of each annual bonus award on the corporate or business measure and the remaining 30% on key personal performance measures. The level of bonuses payable will be reduced if certain overall safety improvement targets are not met. Bonus parameters are set on an individual basis; in the case of the directors and top tier of management, half of the bonus is paid in cash. The cash element would not normally exceed 75% of basic salary for the chief executive and 60% of basic salary for the other executive directors. The other half of the bonus is in the form of a conditional award of Bonus Shares equal in value to the cash element. These Bonus Shares vest only if the participant remains in employment with the Group until the end of a three year holding period, or is, in the view of the Remuneration Committee, deemed to be a ‘good leaver’; and in order to provide continuing focus on medium term performance, executive directors will also receive an award of conditional Enhancement Shares at the same time as the award of Bonus Shares. The maximum potential, at face value, of the Enhancement Shares is 75% of the face value of the Bonus Shares (i.e. in the case of the chief executive a maximum of 56% of basic salary). Awards of Enhancement Shares made in 2004 will vest after three years only to the extent that a challenging performance condition, based on EPS growth against the UK Retail Price Index (RPI), is met, as shown below: 75% 33% 0% f o e g a t n e c r e p l a n o i t i d d A d e r i a u q c a s e r a h S s u n o B RPI +0% RPI +3% RPI +6% RPI +9% RPI +12% RPI +15% RPI +18% Real EPS growth over 3 years Vesting of Enhancement Shares Additional percentage of Bonus Shares acquired Real EPS has been selected as the most appropriate performance measure for this element of the plan because it is a fundamental financial performance indicator, both internally and externally, and links directly to Anglo American’s long term objectives of maintaining and improving earnings. The targets were approved by the Committee after reviewing industry performance over a number of years and have been set at a level which provides stretching performance levels for management. At the end of each performance period, the level of performance achieved and the proportion of awards vesting will be published in the subsequent remuneration report. In 2004, only executive directors and the top tier of management worldwide (circa 50 individuals) participated in the BSP. In 2005, it is intended that participation in the BSP will be extended to other tiers of senior management globally (circa 1,300 individuals) who will thereafter cease to receive grants under the Company’s Executive Share Option Scheme (ESOS). 7878v03_GC_Rp_28-p39_020305.qxp 4/3/05 2:10 am Page 31 Anglo American plc Annual Report 2004 31 Share option and all employee schemes No share options were granted to executive directors under the ESOS in 2004 and, as noted above, future grants under the ESOS will be discontinued, other than for use in recruitment or other exceptional circumstances. Executive directors remain eligible to participate in the Company’s Save As You Earn (SAYE) and Share Incentive Plan (SIP) schemes. As these schemes are open to all UK employees, performance conditions do not apply. Long Term Incentive Plan Grant levels Conditional LTIP awards continue to be made annually to executive directors. Awards under the LTIP in 2004 were increased from 120% to 160% of basic salary for the chief executive and from 100% to 130% of basic salary for the other executive directors. Awards were raised in order to maintain market competitiveness and to reflect the rebalanced incentive structure. These awards are discretionary and are considered on a case-by-case basis. In exceptional circumstances and in order to accommodate changing market conditions, individual awards may be made up to a maximum of two times’ basic salary per annum. Performance measures As in previous years, vesting of LTIP awards made during 2004 is subject to the achievement of stretching performance targets, relating to Total Shareholder Return (TSR) and to an operating measure, currently Return On Capital Employed (ROCE), over a fixed three year period. In previous years, executive directors with direct divisional responsibility were measured partially on divisional ROCE as well as Group ROCE. However, all awards made in 2004 and thereafter will be measured only on Group ROCE, in order to provide a simpler and more coherent focus on overall Group performance. Half of each award made to a director, therefore, is subject to a Group TSR measure while the other half of each award is subject to a Group ROCE measure. These performance measures were selected on the basis that they clearly foster the creation of shareholder value. At the end of each performance period, the level of ROCE performance achieved and the level of award earned will be published in the subsequent remuneration report. There is no retesting of performance. The LTIP closely aligns the interests of shareholders and executive directors by rewarding superior shareholder and financial performance and by encouraging executives to build up a shareholding in the Company. Total Shareholder Return The Committee considers comparative TSR to be a suitable long term performance measure for the Company’s LTIP awards. Executives benefit only if shareholders have enjoyed returns on their investment which are superior to those that could have been obtained in other comparable companies. The vesting of that part of the LTIP award contingent upon TSR performance varies according to the Company’s TSR over the performance period, relative to a weighted basket of international natural resource companies (the Index). The Index comprises three categories: the first consists of a minimum of five international diversified mining companies, the second a minimum of five international paper and packaging companies and the third a minimum of four international industrial minerals companies. Each category is weighted to reflect Anglo American’s business mix. The Committee may amend the list of comparator companies in the Index, and the relative weightings, if circumstances make this necessary (for example, as a result of takeovers or mergers of comparator companies in the Index). In calculating TSR, it is assumed that all dividends are reinvested. For awards made in 2004, the companies constituting the Index were as follows: Mining Paper and Packaging Industrial Minerals Category weighting Comparator companies 71% BHP Billiton plc Companhia Vale do Rio Doce Freeport McMoRan Copper & Gold Inc Kumba Resources Limited Noranda Inc Rio Tinto plc Teck Cominco Limited WMC Resources Limited Xstrata plc 17% M-real Corporation Sappi Limited SCA David S. Smith (Holdings) plc Stora Enso Oyj UPM-Kymmene Group 12% Aggregate Industries plc CRH plc Hanson plc RMC Group plc 7878v03_GC_Rp_28-p39_020305.qxp 4/3/05 2:10 am Page 32 32 Anglo American plc Annual Report 2004 REMUNERATION REPORT CONTINUED Shares contingent on TSR performance will vest as follows: Anglo American’s relative TSR % Proportion of TSR element vesting Below the weighted average TSR of the Index Equal to the weighted average TSR of the Index Equal to the weighted average TSR of the top two companies in each category Equal to or greater than the weighted average TSR of the top company in each category 0 50 100 150 Shares will vest on a straight-line basis for performance between 50% and 100% and between 100% and 150% as described above. A graph showing the Company’s TSR performance against the weighted average of the Index as shown above for the five years from 1 January 2000 to 31 December 2004 can be found on page 35; for the purposes of drawing this graph, Companhia Vale do Rio Doce and Xstrata plc were excluded as they were not listed at the beginning of the period depicted by the graph. Return On Capital Employed Group ROCE is the second performance measure for LTIP grants. The board considers this to be among the most important factors which drive sustainable improvements in shareholder value in a natural resources business, as well as one of the most important measures of differentiation in performance in this sector. The proportion of shares vesting based on Group ROCE will vary according to the degree of improvement in the Group’s average annualised ROCE over the performance period. The Committee sets minimum targets for improvement in returns on both capital employed for the financial year preceding the start of the performance period (existing capital employed) and on the additional capital employed during the performance period (incremental capital employed). The maximum ROCE targets are based on stretching levels of return on the existing capital employed. The targets for each element of the LTIP conditionally awarded in 2004 are shown below. These are adjusted for movements in commodity prices, certain foreign exchange rate effects, capital in progress and for relevant changes in the composition of the Group. Minimum ROCE target Maximum ROCE target The ROCE elements of the award vest as shown in the table below: Below or equal to the minimum target Equal to or greater than the maximum target % Existing % Incremental capital employed capital employed 14.57 16.57 11 11 % Proportion of ROCE element vesting 0 100 Shares will vest on a straight-line basis for performance between the minimum target and the maximum target. Vesting of share incentives in the event of change of control or termination of employment In the event of a change of control of the Company, the following provisions apply under the Company’s incentive plans: share options granted under the former ESOS may be exercised irrespective of whether the applicable performance conditions have been met; the number of shares that vest under the LTIP will be calculated by reference to the extent to which the applicable performance conditions have been met at the time of the change of control; participants will be entitled to receive their bonus and matching shares under the former Deferred Bonus Plan; Bonus Shares awarded under the BSP will be released and Enhancement Shares awarded under that plan will vest, only to the extent that the applicable performance conditions have been satisfied; SAYE options may be exercised (to the extent of savings at the date of exercise); and participants may direct the SIP trustee as to how to deal with their SIP shares (although the Matching Shares may be forfeited in some circumstances). In the event that a director’s employment is terminated, vesting of outstanding share options is dependent upon the reasons the contract is terminated. Performance conditions fall away in the event of redundancy. However, if the executive resigns voluntarily, then all options lapse unless the Committee determines otherwise. In the case of LTIP interests, if a director resigns voluntarily, then his interests lapse. If he is made redundant, vesting at the end of the performance period is based on the normal performance criteria and then pro-rated for the proportion of the performance period for which the director served. 7878v03_GC_Rp_28-p39_020305.qxp 4/3/05 2:10 am Page 33 Anglo American plc Annual Report 2004 33 In the case of the BSP, if a director ceases to be employed before the end of the year in respect of which the annual performance targets apply, then no award will be made unless the Committee determines otherwise (taking into account the proportion of the year for which the director was an employee of the Group and of performance to date against the annual performance targets at the date of cessation). If a director resigns before the end of the three year vesting period, the Bonus Share awards lapse and the Enhancement Shares are forfeited. If a director is made redundant, Bonus Share awards will be transferred as soon as practicable after the date of leaving and the Enhancement Shares will vest at the end of the performance period, to the extent that the performance conditions have been met. Pensions Pension and life insurance benefits for executive directors reflect practice in the countries in which they perform their principal duties. Pension arrangements are tailored to take account of historic obligations and, insofar as agreed by the Committee, the personal circumstances of each executive. Details of individual pension arrangements are set out on pages 39 and 40. The Remuneration Committee is considering the impact on UK pension arrangements of the new UK pensions regime which will apply from April 2006. Further details will be disclosed in the 2005 remuneration report. Other benefits Executive directors are entitled to the provision of either a car allowance or a fully expensed car, medical insurance, death and disability insurance, social club membership (in accordance with local market practice), limited personal taxation/financial advice and reimbursement of reasonable business expenses. Directors based in South Africa are eligible to receive housing loan subsidies at a preferential interest rate in accordance with local market practice. The provision of these benefits is considered to be market competitive in the appropriate locality for executive director positions. Executive shareholding targets Within five years of their appointment, executive directors are expected to acquire a holding of shares with a value of two times’ basic salary in the case of the chief executive and one times’ basic salary in the case of other executive directors. The Remuneration Committee will consider achievement against these targets when making grants under the various long term incentive plans. External appointments Executive directors are not permitted to hold external directorships or offices without the approval of the board; if approved, they may retain the fees payable from one such appointment. During the year ended 31 December 2004, B E Davison retained fees from one appointment amounting to £16,000. Policy on non-executive directors’ remuneration Non-executive directors’ remuneration is approved by the board as a whole on the recommendation of the chairman and executive directors. The Company’s policy on non-executive directors’ remuneration is based on the following key principles. Remuneration should be: sufficient to attract and retain world-class non-executive talent; consistent with recognised best practice standards for non-executive directors’ remuneration; in the form of cash fees, but with the flexibility to forgo all or part of such fees, to subscribe for shares in the Company if the non-executive director so wishes (after deduction of applicable income tax and social security contributions); and set by reference to the responsibilities taken on by the non-executives in chairing the board and its committees. Non-executive directors may not participate in the Company’s annual bonus plan, share option schemes, Long Term Incentive Plan or pension arrangements. The board reviews non-executive directors’ fees periodically to ensure they remain market competitive. Additional fees are paid to the chairmen of board committees and to the senior independent director. Where non-executive directors have executive board roles within subsidiaries of the Company, then they may also receive additional remuneration on account of these increased responsibilities. With the exception of R M Godsell, who is remunerated by AngloGold Ashanti Limited in his capacity as its chief executive, none of the non-executive directors has any such role. Chairman’s fees The chairman’s fees are approved by the board (in the absence of the chairman) on the recommendation of the Committee and chief executive, who take external advice on market comparators. 7878v03_GC_Rp_28-p39_020305.qxp 4/3/05 11:21 am Page 34 34 Anglo American plc Annual Report 2004 REMUNERATION REPORT CONTINUED Directors’ service contracts It is the Company’s policy that the period of notice for executive directors will not exceed 12 months. In order properly to reflect their spread of responsibilities, all the executive directors, with the exception of A W Lea, who is employed by Anglo American International (BVI) Limited, have contracts with Anglo American International (IOM) Limited and with Anglo Operations Limited. The salaries under these contracts are payable in sterling and/or South African rand as appropriate. The employment contracts of all executive directors are terminable at 12 months’ notice by either party. Executive directors(1) A J Trahar (chief executive) B E Davison (chairman, Anglo Platinum) A W Lea (finance director) W A Nairn (technical director) (retired 31/12/04) Notice period Date of appointment AGM re-election 12 months 12 months 12 months 12 months 19 April 1999 15 May 2001 19 April 1999 15 May 2001 20 April 2005 21 April 2004 21 April 2004 – (1) At each annual general meeting (AGM) all those directors who have been in office for three years or more since their election or last re-election shall retire from office. Details of those retiring by rotation this year are contained in the Notice of AGM. In addition, a director may at any AGM retire from office and stand for re-election. The contracts of executive directors contain a provision that sets out the compensation payable in lieu of notice if the Company terminates the contract (other than for cause) or if the executive director resigns in circumstances where there has been a material adverse change in role, responsibilities or remuneration. Compensation is based on the value of 12 months’ basic salary, target annual bonus for 12 months and the annual value of benefits. The Company may choose whether to continue to provide other benefits during any notice period or to pay an amount equal to the gross value of these benefits over the period. Although the Committee notes that this policy is no longer in complete compliance with the latest ABI guidelines, it has enabled the Company to remain market competitive in an historic context. As market practice has now moved away from the inclusion of liquidated damages in service contracts, the Committee will review this policy in 2005 for new appointments to the board. The contracts of executive directors do not provide for any enhanced payments in the event of a change of control of the Company. All non-executive directors have letters of appointment with the Company for an initial period of three years from their date of appointment, subject to re-election at the AGM. In addition to his letter of appointment with the Company, R M Godsell has a service contract with AngloGold Ashanti Limited, an independently managed subsidiary of the Company, in his capacity as its chief executive. Under this contract, his employment may be terminated by either party giving to the other 12 months’ notice. Non-executive directors(1)(2) Sir Mark Moody-Stuart (chairman) D J Challen (chairman, Audit Committee) Dr C E Fay (chairman, S&SD Committee) R M Godsell G Lindahl R J Margetts (senior independent director and chairman, Remuneration Committee) Dr M S B Marques N F Oppenheimer F T M Phaswana (chairman, Nomination Committee) Sir David Scholey Prof K A L M Van Miert Date of letter of appointment AGM re-election 19 July 2002 20 September 2002 15 April 1999 15 April 1999 27 September 2001 15 April 1999 11 December 2003 15 April 1999 21 June 2002 6 December 1999 25 March 2002 25 April 2003* 25 April 2003* 21 April 2004 20 April 2005* to retire at AGM 2005 21 April 2004 21 April 2004* 21 April 2004 25 April 2003* to retire at AGM 2005 20 April 2005* * first election following date of appointment (1) At each AGM all those directors who have been in office for three years or more since their election or last re-election shall retire from office. Details of those retiring by rotation this year are contained in the Notice of AGM. In addition, a director may at any AGM retire from office and stand for re-election. (2) There is no fixed notice period; however, the Company may in accordance with, and subject to, the provisions of the Companies Act 1985, by Ordinary Resolution of which special notice has been given, remove any non-executive director from office. 7878v03_GC_Rp_28-p39_020305.qxp 4/3/05 2:11 am Page 35 Anglo American plc Annual Report 2004 35 Historical comparative TSR performance graphs The graphs below represent the comparative TSR performance of the Company from 1 January 2000 to 31 December 2004. In drawing these graphs it has been assumed that all dividends paid have been reinvested. 150 125 100 75 50 25 0 2000 2001 2002 2003 2004 200 150 100 50 0 2000 2001 2002 2003 2004 n FTSE 100 Index n Anglo American plc n LTIP Comparator n Anglo American plc The first graph shows the Company’s performance against the performance of the FTSE 100 Index, chosen as being a broad equity market index consisting of companies of comparable size and complexity to Anglo American plc. This graph has been produced in accordance with the requirements of Schedule 7A to the Companies Act 1985. The second graph shows the Company’s performance against the weighted comparator group used to measure company performance for the purposes of the vesting of LTIP interests awarded in 2002. This graph gives an indication of how Anglo American plc is performing against the targets in place for LTIP interests already granted, although the specifics of the comparator companies for each year’s interests may vary to reflect changes such as mergers and acquisitions amongst the Company’s competitors or changes to the Company’s business mix. The TSR level shown at 31 December each year is calculated in accordance with the LTIP rules. In particular, TSR is calculated in US dollars, and the TSR level shown at 31 December each year is the average of the closing daily TSR levels for the six month period up to and including that date. REMUNERATION OUTCOMES DURING 2004 The information set out in sections one to eight below has been subject to audit. 1. Directors’ emoluments The following tables set out an analysis of the pre-tax remuneration during the years ended 31 December 2004 and 2003, including bonuses but excluding pensions, for individual directors who held office in the Company during the year ended 31 December 2004. Executive directors Basic Salary(2) Basic salary sacrificed into International Approved Pension Scheme(2) Annual performance bonus(3) Benefits in kind(4) Payments on retirement(5) Executive directors (1) A J Trahar B E Davison A W Lea W A Nairn 2004 £000 801 423 510 378 2003 £000 729 392 475 342 2004 £000 89 47 – 42 2003 £000 81 43 – 38 2004 £000 601 195 214 181 2003 £000 563 144 192 156 2004 £000 53 27 23 35 2003 £000 51 24 22 31 2004 £000 – – – 21 2003 £000 – – – – 2004 £000 1,544 692 747 657 Total 2003 £000 1,424 603 689 567 (1) Subsequent to their retirement from the board in 2001, L Boyd and M W King continue to hold non-executive directorships with certain listed subsidiaries of the Group. They received fees of £29,000 (2003: £29,000) and £21,000 (2003: £26,000) respectively, for the provision of these services during the year. (2) As A J Trahar, B E Davison and W A Nairn had no provision for past service in respect of their sterling-denominated pension fund, their employing company has contractually agreed that supplementary pension contributions should be made to the Anglo American plc International Approved Pension Scheme in return for these executives having given up their right to part of their future basic salary. The table above includes these amounts, which are £89,000, £47,000 and £42,000 respectively. (3) The 2004 performance bonus represents the cash element of the Bonus Share Plan payable in 2005. The share elements under this scheme for 2004 will be awarded during 2005. (4) Each director received a car allowance or a fully expensed car and a limited amount of personal taxation/financial advice. All directors received death and disability insurance and, with the exception of W A Nairn, also received medical insurance. A J Trahar, A W Lea and W A Nairn received club membership; in addition, A J Trahar received a housing loan subsidy. (5) On retirement at 31 December 2004, W A Nairn received payment for accumulated untaken leave of £19,000 and an award to mark completion of 40 years of service of £2,000. 7878v03_GC_Rp_28-p39_020305.qxp 4/3/05 2:11 am Page 36 36 Anglo American plc Annual Report 2004 REMUNERATION REPORT CONTINUED Non-executive directors The fees and other emoluments paid to non-executive directors during the year ended 31 December 2004 amounted to £1,602,000 (2003: £1,355,000). Non-executive directors (1) Sir Mark Moody-Stuart D J Challen Dr C E Fay R M Godsell(2)(3) G Lindahl R J Margetts Dr M S B Marques N F Oppenheimer(2) F T M Phaswana(2) Sir David Scholey Prof K A L M Van Miert 2004 £000 330 67 67 58 55 77 55 61 69 55 55 Fees 2003 £000 300 52 55 47 45 65 3 58 54 48 45 Other emoluments 2004 £000 – – – 653 – – – – – – – 2003 £000 – – – 583 – – – – – – – 2004 £000 330 67 67 711 55 77 55 61 69 55 55 Total 2003 £000 300 52 55 630 45 65 3 58 54 48 45 (1) Each non-executive director, with the exception of Sir Mark Moody-Stuart, is paid a fee of £55,000 per annum, and those non-executive directors who act as chairmen of the Audit Committee, S&SD Committee and Remuneration Committee are paid an additional sum of £12,000 per annum. The chairman of the Nomination Committee is paid an additional sum of £6,000 per annum. R J Margetts received additional fees of £10,000 in his capacity as senior independent director. (2) R M Godsell, N F Oppenheimer and F T M Phaswana received fees for their services as non-executive directors of Anglo American Corporation of South Africa Limited amounting to £3,000, £3,000 and £8,000 respectively. N F Oppenheimer also received fees of £3,000 from AngloGold Ashanti as a non-executive director of that company until 30 April 2004. (3) Under R M Godsell’s service contract with AngloGold Ashanti, his basic salary was equivalent to £467,000 per annum (2003: £435,000) and he was awarded a performance bonus equivalent to £170,000 (2003: £133,000). R M Godsell is also entitled to the provision of a car allowance, medical insurance and death and disability insurance. The total value of these benefits was equivalent to £16,000 (2003: £15,000). 2. Bonus Share Plan Total interest at 1 January Bonus Share interests(1) Number of Bonus Shares conditionally awarded Number of Enhancement Shares conditionally awarded 2004(2) during 2004(3) during 2004(4) A J Trahar B E Davison A W Lea – – – 49,570 12,705 16,914 37,178 9,529 12,686 Total interest at 31 December 2004 86,748 22,234 29,600 Market price at date of award £ 11.36 11.36 11.36 Date of vesting of Bonus Shares(3) End date of performance period for Enhancement Shares(4) 1/1/2007 1/1/2007 1/1/2007 31/12/2006 31/12/2006 31/12/2006 (1) In light of his retirement on 31 December 2004, W A Nairn was not granted conditional awards under the BSP. (2) The BSP was approved by shareholders in 2004, as a replacement for the ESOS and the Deferred Bonus Plan. No BSP interests vested during 2004. (3) The value of the bonus under the BSP is calculated by reference to measures of both corporate performance (based on stretching EPS targets) as well as the achievement of specific individual objectives. Details of the performance conditions applying to bonuses in 2004 are described in further detail on page 30. In 2004, the EPS targets were met in full. Half of the bonus is paid in cash (which would not normally exceed 75% of basic salary for the chief executive and 60% of basic salary for the other directors) and the other half takes the form of a conditional award of Bonus Shares equal in value to the cash element. The Bonus Shares vest if the director remains in employment with the Group until the end of a three year holding period. The market price of the shares at the date of award of Bonus Shares made in 2004, in respect of 2003 performance, was £11.36 per share. (4) A conditional award of Enhancement Shares was made at the same time as the award of Bonus Shares (to a maximum of 75% of the face value of the Bonus Shares). Enhancement Shares awarded in 2004 will only vest to the extent that a challenging performance condition based on EPS growth against the UK Retail Price Index is met. Further details of this performance condition are provided on page 30. The market value of the shares on the date of award of the Enhancement Shares in 2004 was £11.36 per share. 3. Long Term Incentive Plan LTIP interests A J Trahar B E Davison A W Lea W A Nairn Total beneficial interest in LTIP at 1 January 2004 258,061 115,341 130,744 103,572 Number of shares conditionally awarded during the year 111,525 47,829 51,900 – Number of shares vested during the year(1) (42,983) (15,178) (23,418) (18,194) Number of shares lapsed during the year (31,317) (18,172) (17,062) (13,256) Total beneficial interest in LTIP at 31 December 2004 295,286 129,820 142,164 72,122 Latest performance period end date(2) 31/12/2006 31/12/2006 31/12/2006 31/12/2005 (1) The LTIP awards made in 2004 are conditional on two performance conditions as outlined on page 31: the first based on the Company’s TSR relative to a weighted group of international natural resource companies and the second based on an underlying operating measure which focuses on raising Anglo American’s ROCE in the medium term. Further details on the structure of the LTIP, the required level of performance for the 2004 award and how performance against targets is measured can be found on pages 31 and 32. A second award during 2004, included in the table above, was made to the executive directors subsequent to the AGM at which the BSP was approved (and the consequent rebalancing of the incentive structure as outlined on page 30). The market prices of the shares at the dates of award were £12.62 and £12.34 per share respectively. (2) The performance period applicable to each award is three years. The performance period relating to the 2001 LTIP awards (which were granted on 26 June 2001) ended on 31 December 2003. Vesting was subject to two performance conditions: the first based on the Company’s TSR relative to a weighted group of international natural resource companies and the second based on an underlying operating measure which focused on improvements in the Company’s ROCE in the medium term. Part of each award was based on the TSR measure and part on the operating measure. The market price of the shares at the date of the first LTIP awards was £10.30 per share. The market price of the shares at the date of vesting of such awards was £13.07 per share. 7878v03_GC_Rp_28-p39_020305.qxp 4/3/05 5:30 pm Page 37 Anglo American plc Annual Report 2004 37 Number of shares vested A J Trahar B E Davison A W Lea W A Nairn Number of shares vested 42,983 15,178 23,418 18,194 Date of conditional award 26/06/2001 26/06/2001 26/06/2001 26/06/2001 Market price at date of award £ Market price at date of vesting £ 10.30 10.30 10.30 10.30 13.07 13.07 13.07 13.07 Money value at date of vesting £ 561,788 198,376 306,073 237,796 In the case of the first LTIP awards, granted in 2001, for all executive directors except for B E Davison, the determinants for vesting were 50% on relative TSR and 50% on meeting specified Group ROCE targets. In the case of B E Davison, to reflect his responsibility for Anglo Platinum, in 2001 the targets were 50% relative TSR, 30% Group ROCE targets and 20% on Anglo Platinum specific ROCE targets. The ROCE targets are a function of targeted improvement in returns on existing capital employed at the start of the performance period and targeted returns in excess of the cost of capital on new capital investment over that period. The entry level target for any LTIP has been the actual return achieved on the capital employed, excluding capital work in progress, in the year immediately preceding the commencement of the performance period. In order to maintain the effectiveness of the plan in driving long term performance, the actual returns in the final performance year are adjusted for movements in commodity prices, certain foreign exchange rate effects (e.g. translation windfalls), capital in progress (to reflect the fact that mines under construction absorb large amounts of capital before producing a return), for relevant changes in the composition of the Group (e.g. significant acquisitions and disposals) and other one-off factors which would otherwise result in a misleading outcome. The threshold blended target (i.e. the target on existing and new capital) for the period was 17.4% and the upper blended target 19.4%. The ROCE achieved was 18.6% and the outcome on this element of the LTIP was thus 61.7%. On the TSR measure, Anglo American achieved a TSR over the three year performance period of 60% which generated a 54% vesting in terms of the 2001 Comparator Group. The overall vesting level for those directors with a 50% Group ROCE, 50% TSR split was therefore 57.9%. In the case of B E Davison, the ROCE element attributable to Anglo Platinum’s ROCE (20% of the total 2001 LTIP) failed to meet the threshold target. The overall outcome in his case therefore was 45.5%. 4. Directors’ share options No executive share options have been granted to directors since 2003. Anglo American plc Roll-over options(1) A J Trahar W A Nairn Anglo American plc options(2)(3) A J Trahar B E Davison A W Lea W A Nairn Beneficial holding at 1 January 2004 5,000 82,000 603,512 239,000 311,608 196,029 Granted Exercised Lapsed 2004(4) Beneficial holding at 31 December Weighted average exercise price rand Earliest date from which exercisable Latest expiry date – – – – – – 5,000 82,000 51.25 1/3/2001 16/2/2008 51.25 11/8/2001 16/2/2008 £ – – – – – (100,828) – – – 603,512 – 239,000 – 210,780 – 196,029 9.35 24/6/2002 4/3/2013 9.30 24/6/2002 4/3/2013 9.87 24/6/2002 4/3/2013 9.30 24/6/2002 4/3/2013 (1) Certain of the executive directors were granted share options prior to 1 January 1999 under a previous share option scheme operated by Anglo American Corporation of South Africa Limited which were ‘rolled over’ into Anglo American plc options. (2) Share options in respect of shares, the market price for which as at 31 December 2004 is equal to, or exceeds, the option exercise price. As at 31 December 2004, there were no share options with an exercise price above the market price. (3) Options were granted having UK Inland Revenue approval (Approved Options) and without such approval (Unapproved Options). The exercise of these historical options is subject to Anglo American’s EPS (calculated in accordance with FRS 14, based on the Company’s headline earnings measure) increasing by at least 6% above the UK Retail Price Index over a three year period. If the performance condition is not met at the end of the first three year period, then performance is retested each year over the ten year life of the option on a rolling three year basis. Options are normally exercisable, subject to satisfaction of the performance condition, between three and ten years from the date of grant. (4) Beneficial holdings include SAYE options held by A J Trahar, A W Lea and W A Nairn of 3,792, 3,480 and 1,029 options respectively, with option prices per share of £4.85, £4.85 and £9.28 respectively. There are no performance conditions attached to these options. 7878v03_GC_Rp_28-p39_020305.qxp 4/3/05 2:12 am Page 38 38 Anglo American plc Annual Report 2004 REMUNERATION REPORT CONTINUED Details of the share options exercised by the executive directors in 2004 are as follows: A W Lea Number exercised 50,536 50,292 Option price £ 6.98 7.66 Market price at date of exercise £ 12.73 12.73 Gain £ 290,986 255,377 The highest and lowest mid-market prices of the Company’s shares during the period 1 January 2004 to 31 December 2004 were £14.20 and £10.72 respectively. The mid-market price of the Company’s shares at 31 December 2004 was £12.25 per share. AngloGold Ashanti Limited (AngloGold Ashanti) R M Godsell has share options in AngloGold Ashanti, an independently managed subsidiary of the Company. Details of these share options are as follows: AngloGold Ashanti options R M Godsell(2) R M Godsell(3) Options held at 1 January 2004 178,300 32,000 Granted(1) Exercised Lapsed – 14,000 – – – – Holding at 31 December 2004 178,300 46,000 Weighted average exercise price rand Earliest date from which exercisable Latest expiry date 108.04 1/3/1998 16/10/2010 250.75 2/5/2005 1/11/2014 (1) The exercise of AngloGold Ashanti options granted in 2003 and 2004 is subject to performance conditions, requiring at least a 6% real increase in EPS, year-on-year for three consecutive years. The previous existing options vest over a five year period from the date of grant with no attached performance criteria. The exercise price of the 14,000 options awarded in 2004 was R228.00 per option. (2) Share options in respect of shares whose market price as at 31 December 2004 is equal to, or exceeds, the option exercise price. (3) Share options in respect of shares whose market price as at 31 December 2004 is below the option exercise price. The highest and lowest mid-market prices of AngloGold Ashanti’s shares during the period 1 January 2004 to 31 December 2004 were R319.00 and R186.20 per share respectively. The mid-market price of an AngloGold Ashanti share at 31 December 2004 was R203.84. Anglo American Platinum Corporation Limited (Anglo Platinum) B E Davison held share options in Anglo Platinum, a listed subsidiary of the Company. Details of these share options are as follows: Anglo Platinum options(1) B E Davison Options held at 1 January 2004 36,639 1,686 Granted Exercised(2) Lapsed Holding at 31 December 2004 Option price rand – – (36,639) (1,686) – – – – 67.80 131.40 Market price at date of exercise rand 239.43 239.43 Gain rand 6,288,352 182,139 (1) There were no performance criteria attached to any of these options, which have not been awarded to B E Davison since 23 June 1999. (2) All options were exercised on 29 July 2004, with a share price of R239.43. The highest and lowest mid-market prices of Anglo Platinum’s shares during the period 1 January 2004 to 31 December 2004 were R368.06 and R193.98 per share respectively. The mid-market price of an Anglo Platinum share at 31 December 2004 was R207.00. The information provided above is a summary. However, full details of directors’ shareholdings and options are contained in the Registers of Directors’ Interests of the Company, AngloGold Ashanti and Anglo Platinum, which are open to inspection. 5. Deferred Bonus Plan and Share Incentive Plan In 2003 and earlier years, executive directors were required to defer 50% of their annual bonus under the Deferred Bonus Plan and could, at the discretion of the Committee on a year-by-year basis, defer all of their bonus (net of tax) to acquire shares in the Company. If these shares are held for three years they will be matched by the Company on a one-for-one basis, conditional upon the executive director’s continued employment. No further awards were made to directors under the Deferred Bonus Plan during 2004. The directors hold interests in deferred bonus matching shares as follows: Deferred bonus share matching interests A J Trahar B E Davison A W Lea W A Nairn Total interest at 1 January 2004 70,688 11,083 32,965 16,115 Number of shares conditionally awarded during the year – – – – Number of shares vested during the year (13,704) (2,804) (10,572) (2,204) Total interest at 31 December 2004 56,984 8,279 22,393 13,911 Latest vesting period end date 31/12/2005 31/12/2005 31/12/2005 31/12/2005 7878v03_GC_Rp_28-p39_020305.qxp 4/3/05 10:25 am Page 39 Anglo American plc Annual Report 2004 39 Details of the deferred bonus matching shares vested in 2004 are as follows: Number of shares vested A J Trahar B E Davison A W Lea W A Nairn Number of shares vested 9,560 4,144 868 1,936 10,572 696 1,508 Date of conditional award 10/4/2001 10/4/2001 10/4/2001 10/4/2001 10/4/2001 10/4/2001 10/4/2001 Market price at date of award £10.03 R113.75 £10.03 R113.75 £10.03 £10.03 R113.75 Market price at date of vesting £12.16 R145 £12.16 R145 £12.16 £12.16 R145 Money value at date of vesting £116,250 R600,880 £10,555 R280,720 £128,555 £8,463 R218,660 A J Trahar, A W Lea and W A Nairn each purchased 123 shares under the SIP scheme during the year in addition to the 205 shares held by each of them at the beginning of the year. If these shares are held for three years, they will be matched by the Company on a one-for-one basis, conditional upon the director’s continued employment. Participants in the SIP scheme are entitled to receive dividends from these matching shares upon vesting. No SIP matching shares vested during 2004. 6. Pensions Directors’ pension arrangements Each executive director, other than A W Lea, is a member of the Anglo American plc International Approved Pension Scheme (the International Scheme), which is a defined contribution pension scheme. A J Trahar participates in the International Scheme in terms of his contract with Anglo American International (IOM) Limited for services to be rendered outside South Africa. Normal contributions were made on his behalf into the International Scheme at the rate of 35% of the basic salary payable under this contract. He also participates in the Anglo American Corporation Pension Fund (the Pension Fund) in respect of his South African contract, whereby he accrues an annual pension at the rate of 2.2% of pensionable salary (as defined in the rules of that scheme) for each year of pensionable service. The Pension Fund provides spouse’s benefits of two-thirds of the member’s pension on the death of a member. It does not have provision for guaranteed pension increases. Following previously announced senior management changes in South Africa, A J Trahar will increase the time he devotes to Group matters globally. Accordingly, the Committee has decided that, with effect from January 2005, the proportion of his overall remuneration paid under his South African contract will be reduced. The Committee has been advised that, as a consequence, his pension payable on retirement out of the Pension Fund (his South African final salary defined benefit scheme) will be substantially less than he would otherwise have accrued. The Committee has also been advised by independent professionally qualified actuaries that to provide benefits of equivalent value to those forgone would require additional contributions into the International Scheme amounting to £5.6 million, during 2005, which the Committee has decided should be paid. Normal contributions will continue to be paid into the International Scheme with effect from January 2005, at the rate of 35% of the basic salary payable under his contract with Anglo American International (IOM) Limited. A W Lea participates in the Anglo American plc Approved Pension Scheme (formerly known as the Minorco Executive Directors’ Fund). This scheme is also a defined contribution pension scheme. Prior to the formation of the Company in May 1999, A W Lea was entitled to employer contributions at a rate of 35% of the basic salary under his contract with Anglo American International (BVI) Limited, a commitment which continues to be honoured. A W Lea is also entitled to deferred benefits in the Pension Fund in respect of previous South African service. B E Davison participates in the International Scheme in terms of his contract with Anglo American International (IOM) Limited; normal contributions are made on his behalf at the rate of 25% of the basic salary payable under this contract. He also participates in the Anglo American Corporation Retirement Fund, whereby contributions are made at the rate of 15% of basic salary (plus car allowance for historical reasons), under his South African contract. He elected to join this scheme when it was established in September 1998 and transferred his accrued benefits from the Pension Fund, of which he was previously a member. W A Nairn participated until his retirement at 31 December 2004 in the International Scheme in terms of his contract with Anglo American International (IOM) Limited; normal contributions were made on his behalf at the rate of 25% of the basic salary payable under this contract. He was also entitled to contributions at the rate of 14% of basic salary (plus car allowance for historical reasons) to an independent personal retirement plan located in South Africa, under his South African contract. No pension costs were incurred in respect of the non-executive directors, with the exception of R M Godsell, who continued to be a member of the AngloGold Ashanti Pension Fund (a defined benefit pension scheme) in his capacity as chief executive of that company. 7878v03_PH_Rp_40-p43_020305.qxp 2/3/05 11:34 pm Page 40 40 Anglo American plc Annual Report 2004 REMUNERATION REPORT CONTINUED Defined contribution pension schemes The amounts paid into defined contribution pension schemes by the Group in respect of the individual directors were as follows: A J Trahar B E Davison A W Lea W A Nairn Normal contributions(1) 2004 £000 156 97 179 89 2003 £000 142 90 166 81 (1) As Messrs Trahar, Davison and Nairn have no provision for past service in respect of their sterling-denominated pension fund, their employing company has contractually agreed that supplementary pension contributions should be made to the International Scheme in return for these executives having given up their right to part of their future basic salary. These supplementary contributions, of £89,000 (2003: £81,000), £47,000 (2003: £43,000) and £42,000 (2003: £38,000) respectively, are disclosed in the directors’ emoluments table on page 35. Defined benefit pension schemes A J Trahar and A W Lea are eligible for membership of the Pension Fund in respect of their South African remuneration (or, in the case of A W Lea, his past service in South Africa). The Pension Fund is a funded final salary occupational pension scheme approved by the Financial Services Board and the Commissioner of Inland Revenue in South Africa. Executive directors A J Trahar A W Lea Non-executive director R M Godsell(3) Additional benefit earned (excluding inflation) during the year ended 31 December 2004 £000 Accrued entitlement as at 31 December 2004 £000 20 3 17 322 51 289 Transfer value of accrued benefits as at 31 December 2004 £000 3,936 633 2003 £000 3,173 515 3,337 2,411 Increase in transfer value in the year less any personal contributions(1)(2) £000 405 64 905 (1) The transfer value, less any personal contributions, of the increase in additional benefits earned during 2004 amounted for A J Trahar, A W Lea and R M Godsell to £233,000, £33,000 and £171,000 respectively. (2) The increase in transfer value above 2003’s figure arises from currency differences, salary increases and, in the case of A J Trahar, 12 months’ additional pensionable service. (3) In his capacity as chief executive of AngloGold Ashanti, R M Godsell is entitled to membership of the AngloGold Ashanti Pension Fund. The transfer values disclosed above do not represent a sum paid or payable to the individual director; instead, they represent potential liabilities of the pension schemes. 7. Excess retirement benefits No person who served as a director of the Company during or before 2004 has been paid or received retirement benefits in excess of the retirement benefits to which he was entitled on the date on which benefits first became payable (or 31 March 1997, whichever is later). 8. Sums paid to third parties in respect of a director’s services No consideration was paid to or became receivable by third parties for making available the services of any person: as a director of the Company, or while a director of the Company, as a director of any of the Company’s subsidiary undertakings, or as a director of any other undertaking of which he was (while a director of the Company) a director by virtue of the Company’s nomination, or otherwise in connection with the management of the Company or any undertaking during the year to 31 December 2004. 7878v03_PH_Rp_40-p43_020305.qxp 4/3/05 5:24 pm Page 41 Anglo American plc Annual Report 2004 41 9. Directors’ share interests The interests of directors who held office at 31 December 2004 in Ordinary Shares (Shares) of the Company and its subsidiaries were as follows: Beneficial Deferred bonus share match(2) SIP(1) LTIP(3) As at 31 December 2004 As at 1 January 2004 (or if later, date of appointment) Conditional beneficial(6) Beneficial Non- Conditional beneficial(6) Non- BSP BSP Bonus Enhancement Shares(4) Shares(5) Deferred bonus share match(2) SIP(1) LTIP(3) – 81,203 205 70,688 258,061 917,778 90,985 328 56,984 295,286 49,570 37,178 767,778 A J Trahar(6) – – 11,083 115,341 15,307 – 9,529 8,279 129,820 12,705 32,299 B E Davison A W Lea(7) – 51,607 205 32,965 130,744 – 71,785 328 22,393 142,164 16,914 12,686 W A Nairn(8) – 22,324 205 16,115 103,572 – – 40,641 328 13,911 72,122 Sir Mark Moody-Stuart(9) – – 15,780 – – – 18,973 – – 2,000 – – – 2,000 D J Challen – – 3,511 – – – 5,359 Dr C E Fay R M Godsell(6) – 917,778 92 – 767,778 – 92 – – 7,792 – – – 10,934 G Lindahl R J Margetts(10) – – 6,297 – – – 8,640 – – – Dr M S B Marques – – – 752 N F Oppenheimer(6)(11) 59,126,043 – 917,778 – 767,778 65,996,788 – – – 4,692 – – 8,181 F T M Phaswana – – 10,537 – – 11,220 Sir David Scholey – – 500 – – 500 Prof K A L M Van Miert – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (1) The award of these Shares is conditional upon the participant’s continued employment by the Group until three years after the conditional grant date. (2) The award of these Shares is conditional upon the participant’s continued employment by the Group until three years after the grant date. (3) The award of Shares under the LTIP is conditional upon the satisfaction of the performance conditions set out on pages 31 and 32. (4) The award of Bonus Shares under the BSP is conditional upon the participant’s continued employment by the Group until three years after the conditional grant date. (5) The award of Enhancement Shares under the BSP is conditional upon the satisfaction of the performance conditions set out on page 30 as well as continued employment. (6) Messrs Godsell and Oppenheimer are deemed to be interested in The Ernest Oppenheimer Memorial Trust’s holding of 767,778 shares of virtue of being Trustees and Mr A J Trahar is also deemed to be interested by virtue of his wife being a Trustee. None of them is a beneficiary of the Trust. (7) A W Lea’s beneficial interest includes 200 Shares arising as a result of his son’s interest in these Shares. (8) W A Nairn retired on 31 December 2004. (9) Sir Mark Moody-Stuart’s beneficial interest includes 12,500 Shares arising as a result of his interest in a family trust. (10) R J Margetts’ beneficial interest in 8,640 Shares arises as a result of his wife’s interest in these Shares. (11) N F Oppenheimer’s beneficial interest in 59,125,951 of these Shares arises as a result of his interest in a discretionary trust which is treated as interested in 52,250,206 Shares in which E Oppenheimer & Son Holdings Limited is treated as interested and 6,870,745 Shares in which Central Holdings Limited is treated as interested. The 6,870,745 Shares referred to above are Shares held by Debswana Diamond Company (Pty) Limited, in which N F Oppenheimer and Central Holdings Limited have no economic interest. His interest in 5,000 of these Shares arises as a result of his wife’s interest in a trust which has an indirect economic interest in those Shares. The following changes in the above interests occurred between 1 January 2005 and the date of this report: Shares in Anglo American plc Beneficial Directors 90,985 A J Trahar(6) 32,299 B E Davison A W Lea (7) 71,785 Sir Mark Moody-Stuart(8) 18,973 5,359 Dr C E Fay 10,934 G Lindahl R J Margetts(9) 8,640 8,181 F T M Phaswana 11,220 Sir David Scholey SIP(1) 328 – 328 – – – – – – Deferred bonus share match(2) 56,984 8,279 22,393 – – – – – – LTIP(3) 295,286 129,820 142,164 – – – – – – As at 1 January 2005 Conditional Non-beneficial BSP Bonus Shares(4) 49,570 12,705 16,914 – – – – – – BSP Enhancement Shares(5) 37,178 9,529 12,686 – – – – – – 767,778 – – – – – – – – 7878v03_PH_Rp_40-p43_020305.qxp 4/3/05 2:15 am Page 42 42 Anglo American plc Annual Report 2004 REMUNERATION REPORT CONTINUED Shares in Anglo American plc continued Beneficial Directors 108,472 A J Trahar(6) 35,311 B E Davison A W Lea(7) 77,463 Sir Mark Moody-Stuart(8) 19,814 5,853 Dr C E Fay 11,735 G Lindahl R J Margetts(9) 9,259 9,103 F T M Phaswana 11,392 Sir David Scholey SIP(1) 347 – 347 – – – – – – Deferred bonus share match(2) 32,219 5,267 12,803 – – – – – – LTIP(3) 295,286 129,820 142,164 – – – – – – As at 22 February 2005 Conditional Non-beneficial BSP Bonus Shares(4) 49,570 12,705 16,914 – – – – – – BSP Enhancement Shares(5) 37,178 9,529 12,686 – – – – – – 767,778 – – – – – – – – (1) The award of these Shares is conditional upon the participant’s continued employment by the Group until three years after the conditional grant date. (2) The award of these Shares is conditional upon the participant’s continued employment by the Group until three years after the grant date. (3) The award of Shares under the LTIP is conditional upon the satisfaction of the performance conditions set out on pages 31 and 32. (4) The award of Bonus Shares under the BSP is conditional upon the participant’s continued employment by the Group until three years after the conditional grant date. (5) The award of Enhancement Shares under the BSP is conditional upon the satisfaction of the performance conditions set out on page 30 as well as continuing employment. (6) A J Trahar is deemed to be interested in The Ernest Oppenheimer Memorial Trust’s holding of 767,778 shares by virtue of his wife being a Trustee. He is not a beneficiary of the Trust. (7) A W Lea’s beneficial interest includes 200 Shares arising as a result of his son’s interest in these Shares. (8) Sir Mark Moody-Stuart’s beneficial interest includes 12,500 Shares arising as a result of his interest in a family trust. (9) R J Margetts’ beneficial interest in 9,259 Shares arises as a result of his wife’s interest in these Shares. Shares in subsidiaries of Anglo American plc AngloGold Ashanti Limited R M Godsell N F Oppenheimer Anglo American Platinum Corporation Limited B E Davison (1) Shares held by N F Oppenheimer in his capacity as trustee of various trusts. (2) 20,067 of these shares are held through a family trust. (3) 38,325 of these shares are held through a family trust and were purchased during the year. As at 1 January 2004 As at 31 December 2004 (or if later, date of appointment) Beneficial Non- beneficial Beneficial Non- beneficial 460 – – 8,726(1) 460 – – 4,370(1) 22,067(2) – 60,392(3) – APPROVAL This directors’ remuneration report has been approved by the board of directors of Anglo American plc. Signed on behalf of the board of directors R J Margetts 22 February 2005 7878v03_PH_Rp_40-p43_020305.qxp 4/3/05 2:15 am Page 43 Anglo American plc Annual Report 2004 43 INDEPENDENT REMUNERATION REPORT REVIEW This letter reports on the results of the review carried out by Mercer Human Resource Consulting Limited of the processes followed by the Anglo American Remuneration Committee (the Committee) that support the Remuneration Report for the financial year 2004. Mercer undertook the review at the request of the chairman of the Committee in order to provide shareholders with assurance that the remuneration processes followed are appropriate and that the Committee has complied with the policies set out in the Remuneration Report. In order to reach our opinion, we reviewed the Committee’s Terms of Reference and the minutes of its meetings held during the year as well as material presented to the Committee for its review. We also interviewed the chairman and secretary of the Committee. Our review was not intended to audit the compensation data set forth in the Remuneration Report or to evaluate the merits of Anglo American’s remuneration programme. Based on our review, Mercer is of the opinion that the process followed by the Committee during 2004 was fully consistent with its Terms of Reference and that the decisions taken by the Committee were in line with the principles set out in the Remuneration Report. It continues to be our view that the Committee takes a suitably robust approach to its work. We would note in particular the changes to long term incentive arrangements which have been proposed in response to dialogue held with institutional investors. We note that the Committee has refined its modus operandi each year, taking into account any comments we have made in our reviews. As a result, we believe that the Anglo American Remuneration Committee is exemplary in its conduct, decision-making and reporting. The members of the Remuneration Committee have received training and are regularly updated on executive compensation and corporate governance matters. Further detail regarding the Mercer review is included in a letter of this date addressed to the Committee chairman, which we understand will be made available on the Company’s website. Mark Hoble Mercer Human Resource Consulting Limited Dexter House 2 Royal Mint Court London EC3N 4NA 25 January 2005 7878v04_GC_Rp_p44-89_020305.qxp 2/3/05 11:28 pm Page 44 44 Anglo American plc Annual Report 2004 STATEMENT OF DIRECTORS’ RESPONSIBILITIES United Kingdom company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and of the profit or loss of the Group for that period. In preparing those financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable accounting standards have been followed; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for the system of internal control, safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 7878v04_GC_Rp_p44-89_020305.qxp 2/3/05 11:28 pm Page 45 Anglo American plc Annual Report 2004 45 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ANGLO AMERICAN plc We read the directors’ report and the other information contained in the annual report for the above year as described in the contents section including the unaudited part of the directors’ remuneration report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. BASIS OF AUDIT OPINION We conducted our audit in accordance with United Kingdom auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the directors’ remuneration report described as having been audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the circumstances of the Company and the Group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the directors’ remuneration report described as having been audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the directors’ remuneration report described as having been audited. OPINION In our opinion: • the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 31 December 2004 and of the profit of the Group for the year then ended; and • the financial statements and part of the directors’ remuneration report described as having been audited have been properly prepared in accordance with the Companies Act 1985. Deloitte & Touche LLP Chartered Accountants and Registered Auditors London 22 February 2005 We have audited the financial statements of Anglo American plc for the year ended 31 December 2004 which comprise the consolidated profit and loss account, the consolidated balance sheet, the consolidated cash flow statement, the consolidated statement of total recognised gains and losses, the Company balance sheet and the related notes 1 to 38. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information specified by the Directors’ Remuneration Report Regulations 2002 to be audited which is set out in sections 1 to 8 of the remuneration report. This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS As described in the statement of directors’ responsibilities, the Company’s directors are responsible for the preparation of the financial statements in accordance with applicable United Kingdom law and accounting standards. They are also responsible for the preparation of the other information contained in the annual report including the directors’ remuneration report. Our responsibility is to audit the financial statements and the part of the directors’ remuneration report described as having been audited in accordance with relevant United Kingdom legal and regulatory requirements and auditing standards. We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the directors’ remuneration report described as having been audited have been properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the directors’ report is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and transactions with the Company and other members of the Group is not disclosed. We review whether the corporate governance statement reflects the Company’s compliance with the nine provisions of the July 2003 FRC Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures. 7878v04_GC_Rp_p44-89_020305.qxp 4/3/05 12:33 pm Page 46 46 Anglo American plc Annual Report 2004 FINANCIAL STATEMENTS CONTENTS Page 47 Consolidated profit and loss account 48 Consolidated balance sheet 49 Consolidated cash flow statement Consolidated statement of total recognised gains and losses 50 51 Balance sheet of the Company, Anglo American plc Notes to Financial Statements 1 Accounting policies 2 Segmental information 3 Profit for the financial year 4 Group operating profit 5 Exploration expenditure 6 Employee numbers and costs 7 Exceptional items 8 Investment income 9 Interest payable 10 Tax on profit on ordinary activities 11 Dividends 12 Earnings per share 13 Intangible fixed assets 14 Tangible fixed assets 15 Fixed asset investments 16 Joint ventures and associates 17 Stocks 18 Debtors 19 Current asset investments 20 Other current liabilities 21 Short term borrowings and liabilities due after one year 22 Derivatives and other financial instruments 23 Provisions for liabilities and charges 24 Called-up share capital 25 Combined statement of movement in shareholders’ funds and movement in reserves 26 Consolidated cash flow statement analysis 27 Movement in net debt 28 Acquisition of subsidiaries 29 Disposal of subsidiaries and businesses 30 Capital commitments 31 Contingent liabilities 32 Operating leases 33 Retirement benefits 34 Related party transactions 35 Reconciliation of net operating assets to net assets 36 Financial statements of the parent company 37 Group companies 38 Events occurring after end of year 66 67 71 72 74 75 75 76 80 80 80 81 81 85 86 86 88 89 52 54 56 57 58 58 59 60 60 60 61 62 62 63 64 65 65 65 66 66 7878v04_GC_Rp_p44-89_020305.qxp 2/3/05 11:28 pm Page 47 Anglo American plc Annual Report 2004 47 CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2004 US$ million Group turnover including share of joint ventures and associates Less: Share of joint ventures’ turnover Share of associates’ turnover Group turnover – subsidiaries Operating costs Group operating profit – subsidiaries Share of operating profit of joint ventures Share of operating profit of associates Total operating profit Profit on disposal of fixed assets Profit on ordinary activities before interest Investment income Interest payable Profit on ordinary activities before taxation Tax on profit on ordinary activities Profit on ordinary activities after taxation Equity minority interests Profit for the financial year Equity dividends to shareholders Retained profit for the financial year Headline earnings for the financial year Basic earnings per share (US$): Profit for the financial year Headline earnings for the financial year Diluted earnings per share (US$): Profit for the financial year Headline earnings for the financial year Dividend per share (US cents) Basic number of shares outstanding(1) (million) Diluted number of shares outstanding(1) (million) Before exceptional items 2004 Exceptional items (note 7) 2004 Note Before exceptional items 2003 Exceptional items (note 7) 2003 2004 – – – – (286) (286) – – (286) 386 100 – (13) 87 13 100 (6) 94 – 94 31,795 (1,195) (5,670) 24,930 (21,869) 3,061 446 1,065 4,572 – 4,572 345 (704) 4,213 (1,280) 2,933 (449) 2,484 (1,007) 1,477 2 2 2 2 4 4 2 2 2 7 3 8 9 10 3 3 11 12 12 12 12 12 11 12 12 – – – 31,795 (1,195) (5,670) 24,909 (1,060) (5,212) – 25 24,930 (21,844) 18,637 (16,740) 1,897 247 748 2,892 – 2,892 308 (614) 2,586 (749) 1,837 (339) 1,498 (766) 732 25 – (117) (92) 520 428 – – 428 1 429 – 429 – 429 3,086 446 948 4,480 520 5,000 345 (704) 4,641 (1,279) 3,362 (449) 2,913 (1,007) 1,906 2,689 2.03 1.88 1.96 1.81 70.0 1,434 1,500 2003 24,909 (1,060) (5,212) 18,637 (17,026) 1,611 247 748 2,606 386 2,992 308 (627) 2,673 (736) 1,937 (345) 1,592 (766) 826 1,694 1.13 1.20 1.10 1.17 54.0 1,415 1,478 (1) Basic and diluted number of shares outstanding represent the weighted average for the year. The impact of acquired and discontinued operations on the results for the year is not material. 7878v04_GC_Rp_p44-89_020305.qxp 4/3/05 2:21 am Page 48 48 Anglo American plc Annual Report 2004 CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2004 US$ million Fixed assets Intangible assets Tangible assets Investments in joint ventures: Share of gross assets Share of gross liabilities Investments in associates Other investments Current assets Stocks Debtors Current asset investments Cash at bank and in hand Creditors due within one year Short term borrowings Other current liabilities Net current assets/(liabilities) Total assets less current liabilities Creditors due after one year Long term borrowings: Convertible debt(2) Other long term liabilities Provisions for liabilities and charges Equity minority interests Non-equity minority interests Net assets Capital and reserves Called-up share capital Share premium account Merger reserve Other reserves Profit and loss account Total shareholders’ funds (equity) Note 2004 2003 (as restated)(1) 13 14 15 15 15 17 18 19 21 20 21 23 24 25 25 25 25 2,590 31,155 1,496 2,216 (720) 4,346 889 2,267 24,379 1,630 2,483 (853) 4,804 772 40,476 33,852 3,401 5,668 575 2,086 11,730 2,744 4,383 1,032 1,094 9,253 (3,333) (6,820) 1,577 (4,094) (5,224) (65) 42,053 33,787 (7,449) (2,081) (5,368) (4,986) (4,445) (175) (6,665) (1,088) (5,577) (3,954) (3,396) – 24,998 19,772 747 1,633 489 716 21,413 738 1,284 460 716 16,574 24,998 19,772 (1) The Group has adopted Urgent Issues Task Force (UITF) abstract 38 ‘Accounting for ESOP trusts’. As required by this abstract, own shares held by employee trusts have been reclassified from other investments and are now recorded as a reduction in shareholders’ funds. See note 1 to the financial statements. (2) Includes $990 million (2003: nil) of convertible debt issued by listed subsidiaries. The financial statements were approved by the board of directors on 22 February 2005. A J Trahar Chief executive A W Lea Finance director 7878v04_GC_Rp_p44-89_020305.qxp 2/3/05 11:28 pm Page 49 Anglo American plc Annual Report 2004 49 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004 US$ million Net cash inflow from operating activities Dividends from joint ventures and associates Returns on investments and servicing of finance: Interest received and other financial income Interest paid Dividends received from other fixed asset investments Dividends paid to minority shareholders Net cash outflow from returns on investments and servicing of finance Taxation: UK corporation tax Overseas tax Net cash outflow from taxation Capital expenditure and financial investment: Payments for tangible fixed assets Proceeds from the sale of tangible fixed assets Payments for other investments(1) Proceeds from the sale of other investments(1) Net cash outflow from capital expenditure and financial investment Acquisitions and disposals: Acquisition of subsidiaries(2)(3) Disposal of subsidiaries Investment in joint ventures Sale of interests in joint ventures Repayment of loans and capital from joint ventures Investment in associates(3) Sale of interests in associates Repayment of loans and capital from associates Net cash inflow/(outflow) from acquisitions and disposals Equity dividends paid to Anglo American shareholders Cash inflow/(outflow) before management of liquid resources and financing Management of liquid resources Financing Increase/(decrease) in cash in the year (1) Comprises disposal and acquisition of other investments classified as fixed assets. (2) Net of cash acquired within subsidiaries of $92 million (2003: $214 million). (3) All amounts paid in 2003 in respect of the acquisition of Kumba are included within acquisition of subsidiaries. Note 26 2004 4,773 408 2003 3,184 426 270 (572) 28 (238) (512) (50) (428) (478) 201 (452) 42 (349) (558) (6) (701) (707) (3,129) 151 (142) 263 (3,025) 117 (46) 617 (2,857) (2,337) (1,119) 402 (21) 37 77 – 1,424 299 1,099 (818) 1,615 456 (1,169) (1,469) 3 (1) – – (78) 219 41 (1,285) (741) (2,018) 182 1,785 902 (51) 28 29 26 27 7878v04_GC_Rp_p44-89_020305.qxp 4/3/05 2:22 am Page 50 50 Anglo American plc Annual Report 2004 CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 31 DECEMBER 2004 US$ million Profit for the financial year: Joint ventures Associates Unrealised profit on deemed disposal of AngloGold(1) Unrealised gain arising on exchange of business Currency translation differences on foreign currency net investments Related tax charge Other gains recognised during the year Total recognised gains for the financial year Prior year adjustment(2) Total recognised gains since last annual report Note 3 2004 2003 2,913 355 575 410 – 2,512 (12) 21 1,592 190 479 – 13 3,282 (59) – 5,844 4,828 (622) 5,222 (1) AngloGold merged with Ashanti Goldfields Company Limited on 26 April 2004. As a result of this transaction, the Group’s shareholding decreased from 55.8% to 47.2% and the Group has therefore accounted for a deemed disposal in accordance with FRS 2 ‘Accounting for subsidiary undertakings’. The holding was subsequently increased to 51% through the purchase of additional shares. (2) The Group has adopted UITF abstract 38 ‘Accounting for ESOP trusts’. As required by this abstract, own shares held by employee trusts have been reclassified from other investments and are now recorded as a reduction in shareholders’ funds. See note 1 to the financial statements. This change has been accounted for as a prior year adjustment and prior year numbers have been restated accordingly. The impact of adopting this abstract is to reduce net assets and shareholders’ funds by $622 million at 1 January 2004 (1 January 2003: $630 million). RECONCILIATION FROM EBITDA TO NET CASH INFLOW FROM OPERATING ACTIVITIES FOR THE YEAR ENDED 31 DECEMBER 2004 US$ million EBITDA(1) Less: Share of operating profit of joint ventures Share of operating profit of associates before exceptional items Amortisation of goodwill in joint ventures and associates Underlying depreciation and amortisation in joint ventures and associates Increase in stocks Increase in debtors Increase in creditors Increase in provisions Other items Net cash inflow from operating activities 2004 7,110 2003 4,785 (446) (1,065) (46) (369) (242) (419) 69 91 90 (247) (748) (50) (380) (302) (246) 348 38 (14) 4,773 3,184 (1) EBITDA is operating profit before exceptional items plus depreciation and amortisation in subsidiaries and share of EBITDA of joint ventures and associates. 7878v04_GC_Rp_p44-89_020305.qxp 4/3/05 2:22 am Page 51 Anglo American plc Annual Report 2004 51 BALANCE SHEET OF THE COMPANY, ANGLO AMERICAN plc AS AT 31 DECEMBER 2004 US$ million Fixed assets Fixed asset investments Current assets Amounts due from subsidiaries Prepayments and other debtors Cash at bank and in hand Creditors due within one year Cash held on behalf of subsidiaries Bank loans due within one year Amounts owed to subsidiaries Other current liabilities Proposed dividend Other creditors Net current liabilities Total assets less current liabilities Long term liabilities Convertible debt (see note 21) Bank loans due in more than one year Net assets Capital and reserves Called-up share capital (see note 24) Share premium account Capital redemption reserve Other reserve Profit and loss account Total shareholders’ funds (equity) Note 2004 (as restated)(1) 2003 36 12,451 9,505 1,252 50 4 1,306 1,222 6 8 1,236 (250) (698) (6,291) (328) (1,575) (5,166) (7,239) (7,069) (452) (17) (300) (17) (6,402) (6,150) 6,049 3,355 (1,091) – (1,088) (35) 4,958 2,232 36 36 36 36 36 747 1,633 82 1,955 541 4,958 738 1,284 82 – 128 2,232 (1) The Company has adopted UITF abstract 38 ‘Accounting for ESOP trusts’. As required by this abstract, own shares held by employee trusts have been reclassified from other investments and are now recorded as a reduction in shareholders’ funds. See note 1 to the financial statements. The financial statements were approved by the board of directors on 22 February 2005. A J Trahar Chief executive A W Lea Finance director 7878v04_GC_Rp_p44-89_020305.qxp 3/3/05 8:04 pm Page 52 52 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS 1 ACCOUNTING POLICIES Basis of preparation The financial statements have been prepared according to the historical cost convention, and in accordance with accounting standards applicable in the United Kingdom. The accounting policies applied in preparing the financial statements are consistent with those adopted and disclosed in the Group’s financial statements for the year ended 31 December 2003 with the addition of UITF abstract 38 ‘Accounting for ESOP trusts’, which has been adopted for the first time this year. As required by this abstract, own shares held by employee trusts have been reclassified from other investments and are now recorded as a reduction in shareholders’ funds. This change has been accounted for as a prior year adjustment and previously reported figures have been restated accordingly. The impact of adopting this abstract is to reduce net assets and shareholders’ funds by $622 million at 1 January 2004 (1 January 2003: $630 million). Basis of consolidation The financial statements comprise a consolidation of the financial statements of the Company and all its subsidiaries and incorporate the results of its share of joint ventures and associates on a gross equity and equity basis respectively. The financial statements also include the Group’s share of the results of joint arrangements that are not entities as set out below. Revenue recognition Turnover amounts are measured at the fair value of consideration received or receivable, after deducting trade discounts, volume rebates, value added tax, treatment and refining charges where applicable and other sales taxes. Turnover from metal mining activities is based on the payable metal sold. Acquisitions and goodwill arising thereon Where an investment in a subsidiary, joint venture or an associate is made, any difference between the purchase price and the fair value of the attributable net assets is recognised as goodwill. Goodwill is amortised over its estimated useful life up to a maximum of 20 years. Goodwill in respect of subsidiaries is included within intangible fixed assets. Goodwill relating to joint ventures and associates is included within the carrying value of the joint venture or associate. The unamortised balance is reviewed on a regular basis and, if an impairment in value has occurred, it is written off in the period in which the circumstances are identified. Joint ventures A joint venture is an entity in which the Group holds a long term interest and which is jointly controlled by the Group and one or more other partner under a contractual arrangement. The Group’s share of the results of joint ventures is accounted for using the gross equity method of accounting. Associates The equity method of accounting is used for investments over which the Group exercises significant influence. Typically the Group owns between 20% and 50% of the voting equity of its associates. Results of associates are equity accounted from their most recent audited financial statements or unaudited interim statements. Any losses of associates are accounted for in the consolidated financial statements. The carrying values of investments in associates represent the cost of each investment including unamortised goodwill, the share of post-acquisition retained earnings and any other movements in reserves. The carrying value of associates is reviewed on a regular basis and if an impairment in value has occurred, it is written off in the period in which those circumstances are identified. Joint arrangements The Group has contractual arrangements with other participants to engage in joint activities that do not create an entity carrying on a trade of its own. The Group includes its share of the assets, liabilities, income, expenditure and cash flows in such joint arrangements, measured in accordance with the terms of each arrangement, which is usually pro rata to the Group’s interest in the joint arrangement. Investments Investments, other than investments in subsidiaries, joint ventures and associates, are included at cost less provision for any impairment in value. Tangible fixed assets Mining properties and leases include the cost of acquiring and developing mining properties, mineral rights and investments in and loans to companies holding mineral rights. Mining properties are depreciated using the unit of production method based on proven and probable reserves. Depreciation is charged on new mining ventures from the date when the mining property is capable of commercial production. When there is little likelihood of a mineral right being exploited, or the value of the exploitable mineral right has diminished below cost, a write-down is charged against profits. Stripping costs incurred during the production phase to remove additional overburden or waste ore are deferred and charged to operating costs on the basis of the average life of mine. Interest on borrowings relating to the financing of major capital projects under construction is capitalised during the construction phase as part of the cost of the project. Where funds have been borrowed specifically to finance a project, the amount capitalised represents the actual borrowing costs incurred. Where the funds used to finance a project form part of general borrowings, the amount capitalised is calculated using a weighted average of rates applicable to relevant general borrowings during the period. Land and properties in the course of construction are not depreciated. Buildings, plant and equipment are depreciated at varying rates, on the straight-line basis over their estimated useful lives. Estimated useful lives normally vary up to 20 years for items of plant and equipment and up to a maximum of 50 years for buildings. Assets held under finance leases are depreciated over the shorter of the lease term and the useful lives of the assets. Impairments The carrying values of fixed assets are reviewed for impairment if events or changes in circumstances indicate that they may not be recoverable. Any provision for impairment is charged against profit in the year concerned. In addition, first year impairment reviews are conducted for acquired goodwill. Impairment is determined by reference to the higher of net realisable value and value in use, which is measured by reference to discounted future cashflows. The discount rate applied is based upon the Group’s weighted average cost of capital, with adjustment made for local conditions where appropriate. 7878v04_GC_Rp_p44-89_020305.qxp 4/3/05 12:34 pm Page 53 Anglo American plc Annual Report 2004 53 Research and exploration expenditure Research and exploration expenditure is written off in the year in which it is incurred. When a decision is taken that a mining property becomes viable for commercial production, all further pre-production expenditure is capitalised. Capitalisation of pre-production expenditure ceases when the mining property is capable of commercial production. Stocks Stocks and work in progress are valued at the lower of cost and net realisable value. The production cost of stocks includes an appropriate proportion of depreciation and production overheads. Cost is determined on the following bases: • raw materials and consumables are valued at cost on a first- in, first-out (FIFO) basis; • metal, coal and coke stocks are valued at average cost; and • finished products are valued at raw material cost, labour cost and a proportion of manufacturing overhead expenses. Current asset investments Current asset investments consist mainly of bank term deposits and fixed and floating rate debt securities. Debt securities that are intended to be held to maturity are recorded on the amortised cost basis. Debt securities that are not intended to be held to maturity are recorded at the lower of cost and market value. Retirement benefits The Group operates both defined benefit and defined contribution schemes for its employees. For defined contribution schemes the amount charged to the profit and loss account is the contributions paid during the year. The expected costs of providing post-retirement benefits under defined benefit arrangements are charged against profits to spread the expected costs on a straight-line basis over the service lives of employees entitled to those benefits. Costs are assessed in accordance with the advice of qualified actuaries using the projected unit method. Experience adjustments and prior service costs resulting from plan amendments are amortised over the expected average remaining service lives of relevant current employees. The difference between pension cost and funding is treated as a provision or prepayment. The Group continues to account for post-retirement benefits under the transitional arrangements for FRS 17 ‘Retirement Benefits’. Leases Rental costs under operating leases are charged to the profit and loss account in equal annual amounts over the lease term. Finance lease obligations are recorded at the inception of the lease as the present value of the minimum lease payments, derived by discounting at the interest rate implicit in the lease. The interest element of the rental is charged against profit. Foreign currency translation Foreign currency transactions by Group companies are booked in local currency at the exchange rate ruling on the date of transaction, or at the forward rate if hedged by a forward contract. The profit and loss account of foreign subsidiaries, joint ventures and associates as well as the cash flow statements of foreign subsidiaries are translated at weighted average rates of exchange, other than material exceptional items which are translated at the rate on the date of the transaction. Assets and liabilities are translated at the exchange rate prevailing at the balance sheet date, or at the forward rate if hedged by a forward contract. Exchange differences on the translation of the net assets of subsidiaries less offsetting exchange differences on foreign currency loans financing these assets, are recorded as a movement in reserves and in the consolidated statement of total recognised gains and losses. All other exchange gains or losses on settlement of foreign currency transactions translated at the rate prevailing at the date of the transactions, or the translation of monetary assets and liabilities at year-end exchange rates, are recorded in the profit and loss account. Hedging transactions In order to hedge its exposure to foreign exchange, interest rate and commodity price risks, the Group enters into forward, option and swap contracts. Gains and losses on these contracts are recognised in the period to which the gains and losses of the underlying transactions relate. Net income or expense associated with interest rate swap agreements is recognised on the accrual basis over the life of the swap agreements as a component of interest. Where commodity option contracts hedge anticipated future production or purchases, the Group amortises the option premiums paid over the life of the option and recognises any realised gains and losses on exercise in the period in which the hedged production is sold or commodity purchases are made. Restoration, rehabilitation and environmental costs An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the development or ongoing production of a mine or quarry. Such costs arising from the installation of plant and other site preparation work, discounted to their net present value, are provided for and capitalised at the start of each project, as soon as the obligation to incur such costs arises. These costs are charged against profits over the life of the operation, through the depreciation of the asset and the unwinding of the discount on the provision. Costs for restoration of subsequent site damage which is created on an ongoing basis during production are provided for at their net present values and charged against profits as extraction progresses. Employee share awards The estimated cost of awards made by the Group is charged to profit over the performance period, as appropriate. Where shares are held by an employee benefit trust the carrying value of these shares is recorded as a reduction in shareholders’ funds. The estimated cost of awards is the market value of shares awarded or the intrinsic value of the awards (being the difference between the exercise price of the award and the market price at the date of grant) adjusted to reflect performance conditions where applicable. The Group has taken advantage of the exemption given in Urgent Issues Task Force (UITF) Abstract 17 ‘Employee share schemes’, in respect of Save As You Earn schemes. Deferred taxation Deferred taxation is provided in full on all timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, subject to the recoverability of deferred tax assets. Deferred tax assets and liabilities are not discounted. Reporting currency As permitted by UK company law, the Group reports in US dollars, the currency in which most of its business is conducted. 7878v04_GC_Rp_p44-89_020305.qxp 3/3/05 8:06 pm Page 54 54 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS CONTINUED 2 SEGMENTAL INFORMATION US$ million By business segment Group subsidiaries Platinum Gold Coal Base Metals Industrial Minerals Ferrous Metals and Industries Paper and Packaging Exploration Corporate Activities Joint ventures(5) Gold Coal Base Metals Industrial Minerals Ferrous Metals and Industries Paper and Packaging Associates(5) Platinum Gold Diamonds Coal Base Metals Industrial Minerals Ferrous Metals and Industries Paper and Packaging Corporate Activities Turnover(1) Operating profit(2) Net operating assets(3) 2004 2003(4) Before exceptional items 2004 Exceptional items (note 7) 2004 2004 2003 2004 2003 3,065 2,166 1,911 2,612 3,697 4,938 6,541 – – 2,232 1,718 1,556 1,720 3,196 2,863 5,352 – – 529 204 315 932 323 590 551 (120) (263) – (1) – (120) (9) 155 – – – 529 203 315 812 314 745 551 (120) (263) 428 226 260 (36) 308 130 638 (125) (218) 7,563 6,425 2,539 4,062 4,729 5,534 6,496 – 253 6,119 3,302 2,152 4,087 4,304 4,629 4,820 – 296 24,930 18,637 3,061 25 3,086 1,611 37,601 29,709 230 3 620 136 56 150 312 – 346 100 28 274 1,195 1,060 55 13 3,177 468 88 25 1,526 228 90 5,670 46 11 2,967 295 60 22 1,476 2 333 5,212 31,795 24,909 59 – 347 18 8 14 446 8 – 586 172 (4) 5 297 (6) 7 1,065 4,572 – – – – – – – – – – – (117) – – – – (117) 59 – 347 18 8 14 446 8 – 586 172 (121) 5 297 (6) 7 948 99 – 114 14 2 18 247 5 1 562 73 – 3 76 – 28 748 (92) 4,480 2,606 (1) Turnover is measured at the fair value of consideration received or receivable for all significant products. Where a by-product is not regarded as significant, revenue may be credited against the cost of sales. The amount credited to cost of sales for the year ended 31 December 2004 was $81 million (2003: $55 million) and relates principally to AngloGold Ashanti which credits uranium and silver to cost of sales in accordance with the Gold Industry Standard on production costs. (2) An analysis of operating exceptional items for 2003 by business segment is given in note 3. (3) Net operating assets consist of tangible assets, intangible assets, stocks and operating debtors less non-interest bearing current liabilities. See note 35 for the reconciliation of net operating assets to net assets. (4) 2004 Base Metals’ turnover is stated net of treatment and refining charges on concentrate sales to external parties and refining charges on copper anode sales from Chagres to refineries. On this basis, 2003 total Base Metals’ turnover would be $1,957 million. There is no impact on operating profit for either 2004 or 2003. (5) Net assets for joint ventures and associates are disclosed in note 16. 7878v04_GC_Rp_p44-89_020305.qxp 2/3/05 11:28 pm Page 55 Anglo American plc Annual Report 2004 55 2 SEGMENTAL INFORMATION CONTINUED US$ million 2004 2003 Before exceptional items 2004 Exceptional items (note 7) 2004 2004 2003 2004 2003 Turnover Operating profit Net operating assets(1) By geographical segment (by origin) Group subsidiaries South Africa Rest of Africa Europe North America South America Australia and Asia Joint ventures(2) South Africa Rest of Africa Europe North America South America Australia and Asia Associates(2) South Africa Rest of Africa Europe North America South America Australia and Asia 10,080 574 9,214 986 2,565 1,511 56 230 235 32 611 31 1,565 1,972 969 461 447 256 7,308 44 7,721 708 1,675 1,181 17 312 372 28 323 8 1,302 2,157 640 504 280 329 1,236 (29) 637 6 1,070 141 (100) – (9) 154 (20) – 1,136 (29) 628 160 1,050 141 837 (4) 592 (279) 360 105 18,012 3,191 9,504 596 3,417 2,881 14,148 873 8,086 868 3,168 2,566 10 59 22 4 346 5 289 364 168 32 129 83 – – – – – – (117) – – – – – 10 59 22 4 346 5 172 364 168 32 129 83 9 98 31 2 105 2 135 398 116 (4) 61 42 31,795 24,909 4,572 (92) 4,480 2,606 37,601 29,709 By geographical segment (by destination) Group subsidiaries South Africa Rest of Africa Europe North America South America Australia and Asia 4,554 479 11,998 2,841 1,349 3,709 Joint ventures(2) South Africa Rest of Africa Europe North America South America Australia and Asia Associates(2) South Africa Rest of Africa Europe North America South America Australia and Asia 162 6 588 182 1 256 340 21 1,476 2,222 66 1,545 3,503 295 9,726 1,607 859 2,647 7 11 787 91 45 119 399 34 1,287 2,157 41 1,294 (1) Net operating assets consist of tangible and intangible assets, stocks and operating debtors less non-interest bearing current liabilities. See note 35 for the reconciliation of net operating assets to net assets. (2) Net assets for joint ventures and associates are disclosed in note 16. 31,795 24,909 7878v04_GC_Rp_p44-89_020305.qxp 4/3/05 12:35 pm Page 56 56 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS CONTINUED 3 PROFIT FOR THE FINANCIAL YEAR The table below analyses the contribution of each business segment to the Group’s profit for the financial year and its headline earnings which the directors consider to be a useful additional measure of the Group’s performance. Headline earnings is calculated in accordance with the definition issued by the Institute of Investment Management and Research (now Society of Investment Professionals), in Statement of Investment Practice No.1, ‘The Definition of Headline Earnings’. A reconciliation from profit for the financial year to headline earnings is given in note 12. US$ million By business segment Platinum Gold Diamonds Coal Base Metals Industrial Minerals Ferrous Metals and Industries Paper and Packaging Exploration Corporate Activities Total/Headline earnings Headline earnings adjustment (note 12) Profit for the financial year US$ million By business segment Platinum Gold Diamonds Coal Base Metals Industrial Minerals Ferrous Metals and Industries Paper and Packaging(1) Exploration Corporate Activities(1) Total/Headline earnings Operating profit before operating exceptionals Operating profit after operating exceptionals Operating exceptional items Non- operating exceptional items Net interest, tax and minority interests Goodwill amortisation 537 263 586 487 1,275 346 895 559 (120) (256) 537 262 586 487 1,038 337 1,050 559 (120) (256) 4,572 4,480 – 1 – – 237 9 (155) – – – 92 (92) 17 43 35 8 2 60 9 27 – 20 (315) (148) (240) (144) (235) (139) (424) (205) 29 (283) – – – – – – – – – – – 221 (2,104) 2,689 520 (221) 17 Operating profit before operating exceptionals Operating profit after operating exceptionals Operating exceptional items Non- operating exceptional items Goodwill amortisation Net interest, tax and minority interests 447 369 562 333 286 325 208 656 (105) (189) 433 326 562 333 78 325 208 656 (125) (190) 2,892 2,606 14 43 – – 208 – – – 20 1 286 – – – – – – – – – – – 17 41 32 8 1 53 13 18 – 20 (259) (243) (208) (109) (81) (108) (114) (249) 22 (52) 203 (1,401) 1,694 2004 Total 239 158 381 351 1,042 267 480 381 (91) (519) 224 2,913 2003 Total 205 167 386 232 206 270 107 425 (83) (221) Headline earnings adjustment (note 12) Profit for the financial year (286) 386 (203) 1 (102) 1,592 (1) Headline earnings for Paper and Packaging and Corporate Activities have been adjusted for the year ended 31 December 2003, as net interest for the wholly-owned operations in Paper and Packaging is now accounted for centrally within Corporate Activities. Net interest payable for the wholly-owned operations in Paper and Packaging was $95 million for the year ended 31 December 2004 (2003: $57 million). On the former basis headline earnings for Paper and Packaging would have been $286 million for the year ended 31 December 2004 (2003: $368 million). 7878v04_GC_Rp_p44-89_020305.qxp 3/3/05 8:07 pm Page 57 Anglo American plc Annual Report 2004 57 4 GROUP OPERATING PROFIT US$ million Group turnover Cost of sales(1) Gross profit Selling and distribution costs Administrative expenses Other operating income Exploration expenditure(2) (see note 5) Group operating profit (1) Includes Group operating exceptional credit of $25 million in continuing operations (2003: charge of $266 million). (2) Exploration expenditure in 2003 includes a $20 million exceptional charge (see note 7). US$ million Operating profit is after charging: Depreciation of tangible assets Goodwill amortisation: Subsidiaries Joint ventures and associates Rentals under operating leases: Hire of plant and machinery Other operating leases Research and development expenditure Auditors’ remuneration(3): Audit: United Kingdom Overseas Other services provided by Deloitte: United Kingdom Overseas Operating exceptional items (see note 7) (3) A more detailed analysis of auditors’ remuneration for the year ended 31 December 2004 is provided below. (4) In 2003 a further $1 million was capitalised in fixed assets relating to consultancy services provided by Deloitte. US$ million Audit services: Statutory audit fees Interim review Further assurance services: Corporate finance Tax compliance Other Tax advisory services Other non-audit services: Consultancy services Other 2004 2003 24,930 (17,846) 18,637 (14,010) 7,084 (1,625) (2,370) 117 (120) 4,627 (1,258) (1,651) 18 (125) 3,086 1,611 2004 2003 1,948 1,310 175 46 153 50 79 70 45 3 15 2 9 (25) 72 57 39 3 8 1 11(4) 286 Payable to auditor (if not Deloitte) United Kingdom Overseas – – – – – – – – – – 4.2 – 4.2 1.0 0.1 2.1 0.2 – 0.5 3.9 Payable to Deloitte Overseas 10.4 0.6 11.0 0.9 0.7 1.1 2.5 2.8 0.6 8.6 United Kingdom 2.9 0.3 3.2 – 0.2 0.9 0.4 – – 1.5 7878v04_GC_Rp_p44-89_020305.qxp 2/3/05 11:28 pm Page 58 58 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS CONTINUED 5 EXPLORATION EXPENDITURE US$ million By business segment Platinum Gold Base Metals Coal Ferrous Metals and Industries Impairment of Boyongan (see note 7) Other 6 EMPLOYEE NUMBERS AND COSTS The average number of employees, excluding joint ventures’ and associates’ employees, was: Thousands By business segment Platinum Gold Coal Base Metals Industrial Minerals Ferrous Metals and Industries Paper and Packaging Corporate Activities The principal locations of employment were: Thousands South Africa Rest of Africa Europe North America South America Australia and Asia Payroll costs in respect of the employees included in the tables above were: US$ million Wages and salaries Social security costs Post-retirement healthcare costs Defined contribution pension plan costs Defined benefit pension plan costs 2004 2003 13 43 41 9 14 – – 11 36 50 5 1 20 2 120 125 2004 2003 47 51 9 8 12 42 39 1 46 46 9 8 12 34 37 1 209 193 2004 127 22 42 4 8 6 209 2004 4,449 324 111 181 105 5,170 2003 122 12 42 4 8 5 193 2003 3,311 271 108 131 108 3,929 Disclosures on directors’ emoluments, pension entitlements, share options and long term incentive plan awards required by the Companies Act 1985 and those specified for audit by the Directors’ Remuneration Report Regulations 2002 are included in sections 1 to 8 of the remuneration report and form part of these financial statements. 7878v04_GC_Rp_p44-89_020305.qxp 3/3/05 8:11 pm Page 59 Anglo American plc Annual Report 2004 59 7 EXCEPTIONAL ITEMS Operating exceptional items US$ million Reversal of impairment of Terra Industries Inc Impairment of Black Mountain Mineral Development Write down of assets at Mantos Blancos SA Impairment of Hudson Bay Mining and Smelting Co Ltd Impairment of Boyongan Impairment of Savuka Other impairments Share of associate’s impairment charge – Palabora Mining Company Limited Total operating exceptional charge Taxation Minority interests Exceptional finance charge US$ million Share of associate’s charge on early redemption of debt Total exceptional finance charge Non-operating exceptional items US$ million Disposal of interest in Gold Fields Limited Part disposal of Western Areas Disposal of remaining interest in FirstRand Limited Disposal of interest in Nkomati Disposal of interest in Avgold Disposal of Terra Industries Inc Loss on redemption of De Beers’ preference shares Loss on disposal of Hudson Bay Mining and Smelting Co Ltd Disposal of interest in Li & Fung Disposal of interest in East Africa Gold Mines Disposal of interest in Randgold Resources Disposal of interest in JCI Disposal of Anglovaal Mining Limited Other items Share of associates’ exceptional items Profit on disposal of fixed assets Total non-operating exceptional gain Taxation Minority interests Total exceptional items (net of tax and minority interests) 2004 154 (100) (20) – – – (9) (117) (92) 42 1 2003 – – – (208) (20) (34) (24) – (286) 22 23 (49) (241) 2004 – – 2004 464 45 32 28 25 13 (44) (42) – – – – – (12) 11 520 520 (41) (1) 478 429 2003 (13) (13) 2003 – – 117 – 51 – – – 163 25 17 (20) (13) 21 25 386 386 (9) (29) 348 94 Operating exceptional items A review of the carrying value of Black Mountain Mineral Development has resulted in a $100 million exceptional charge to operating profit, attributable to Base Metals. Following a review of operations at Empresa Minera de Mantos Blancos SA, the carrying values of certain dump leach assets were written down. This has resulted in an exceptional charge to operating profit of $20 million, attributable to Base Metals. During the year, in light of the prolonged recovery in the company’s markets and share price, Ferrous Metals and Industries reversed $154 million of the impairment provision held against Terra Industries Inc. Palabora, an associate within Base Metals, recorded an impairment of $409 million during the year. The Group’s share of this impairment amounted to $117 million. Where impairment provisions have been made by subsidiaries, impairment is determined by reference to the higher of net realisable value and value in use. The relevant review during the year was based on estimated value in use, using pre-tax discount rates equivalent to a real post-tax discount rate of six per cent. 7878v04_GC_Rp_p44-89_020305.qxp 2/3/05 11:28 pm Page 60 60 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS CONTINUED 7 EXCEPTIONAL ITEMS CONTINUED Non-operating exceptional items The Group disposed of its investment in Gold Fields Limited in March 2004. Proceeds of $1.2 billion resulted in an exceptional gain of $464 million. The Group disposed of a holding of approximately 8.5% of Western Areas in December 2004. Proceeds of $48 million resulted in a gain of $45 million. An exceptional currency retranslation loss of $44 million arose on the redemption of $175 million of De Beers’ preference shares. Base Metals completed the sale of Hudson Bay Mining and Smelting Co Ltd in December 2004. Proceeds of $257 million, including cash consideration of $246 million, resulted in an exceptional loss of $42 million. Ferrous Metals and Industries disposed of its interest in Terra Industries Inc. Proceeds of $255 million resulted in an exceptional gain of $13 million. 8 INVESTMENT INCOME US$ million Interest and other financial income Share of investment income of joint ventures Share of investment income of associates Dividend income from other financial assets 2004 292 6 19 28 345 2003 227 2 43 36 308 Other financial income in the table above includes $25 million net gains arising from net foreign currency borrowings less deposits (2003: net losses of $70 million). 9 INTEREST PAYABLE US$ million Bank loans and overdrafts Other loans Unwinding of discount on provisions Share of interest payable of joint ventures Share of interest payable of associates Share of associates’ charge on early redemption of debt Capitalised 2004 428 181 62 32 83 – 786 (82) 704 2003 375 119 8 26 127 13 668 (41) 627 The weighted average interest rate applicable to interest on general borrowings capitalised was 8.4% (2003: 7.5%). 10 TAX ON PROFIT ON ORDINARY ACTIVITIES a) Analysis of charge for the year US$ million United Kingdom corporation tax at 30%(1) South Africa corporation tax at 30% Other overseas taxation Share of taxation charge of joint ventures Share of taxation charge of associates Current tax on exceptional items Total current tax Deferred taxation – subsidiaries Deferred taxation – joint ventures Deferred taxation – associates Deferred tax on exceptional items Total deferred tax(2) Total tax charge(2) 2004 Excluding exceptional items 2004 Including exceptional items 2003 Excluding exceptional items 2003 Including exceptional items 54 261 337 19 308 – 979 258 55 (12) – 301 54 261 337 19 308 59 1,038 258 55 (12) (60) 241 1,280 1,279 26 74 240 15 200 – 555 193 17 (16) – 194 749 26 74 240 15 200 9 564 193 17 (16) (22) 172 736 (1) Net of double tax relief of $259 million (2003: nil). UK corporation tax before double tax relief was $313 million (2003: $26 million). (2) In addition, $12 million (2003: $59 million) of deferred tax has been recognised in the statement of total recognised gains and losses. 7878v04_GC_Rp_p44-89_020305.qxp 3/3/05 8:12 pm Page 61 Anglo American plc Annual Report 2004 61 10 TAX ON PROFIT ON ORDINARY ACTIVITIES CONTINUED b) Factors affecting current tax charge for the year The current tax charge assessed for the year is lower than the standard rate of corporation tax in the United Kingdom and South Africa (30%). The differences are explained below: US$ million Profit on ordinary activities before tax Tax on profit on ordinary activities at 30% (2003: 30%) Tax effects of: Expenses not deductible for tax purposes: Operating exceptional items Goodwill amortisation Exploration costs Non-taxable income: Dividends receivable Non-operating exceptional items Tax allowances for capital expenditure in excess of depreciation Movement in tax losses South African secondary tax on companies Effect of differences between local and UK rates Other differences Current tax charge for the year 2004 Including exceptional items 4,641 1,392 2003 Including exceptional items 2,673 802 (15) 66 36 (8) (115) (91) (130) 96 (98) (95) 1,038 86 61 32 (11) (103) (207) 15 45 (66) (90) 564 c) Factors that may affect future tax charges The Group anticipates that its effective rate will remain above the statutory rate of 30% as the Group operates in certain countries where tax rates are higher than the UK rate, including South Africa (effective rate of 37.8% assuming distribution of profits). Details of the deferred tax provision are given in note 23. In addition to the amounts provided in deferred tax, unrecognised assets exist in respect of taxable losses. No asset has been recognised in respect of these losses as it is not regarded as more likely than not that there will be suitable taxable profits against which to offset these losses. Any utilisation of these losses in the future may lead to a reduction in effective tax rates. No deferred tax has been provided in respect of accumulated reserves of overseas subsidiaries, associates or joint ventures as future dividends are expected to be paid out of future earnings. 11 DIVIDENDS US$ million Interim paid – 19 US cents per ordinary share (2003: 15 US cents) Final proposed – 51 US cents per ordinary share (2003: 39 US cents) 2004 273 734 1,007 2003 212 554 766 As stated in note 24, the employee benefit trust has waived the right to receive dividends on the shares it holds. 7878v04_GC_Rp_p44-89_020305.qxp 3/3/05 8:13 pm Page 62 62 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS CONTINUED 12 EARNINGS PER SHARE Basic number of ordinary shares outstanding (million)(1) Potentially dilutive ordinary shares (million) Diluted number of ordinary shares outstanding (million)(1) Profit for the financial year: Basic earnings per share (US$)(2) Diluted earnings per share (US$)(3) Headline earnings for the financial year(4): Basic earnings per share (US$) Diluted earnings per share (US$) 2004 1,434 66 1,500 2.03 1.96 1.88 1.81 2003 1,415 63 1,478 1.13 1.10 1.20 1.17 (1) Basic and diluted number of shares outstanding represent the weighted average for the year. (2) Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year. The average number of shares in issue excludes the shares held by the employee benefit trust. (3) Diluted earnings per share is calculated by adjusting earnings and the weighted average number of ordinary shares in issue on the assumption of conversion of all potentially dilutive ordinary shares. (4) Basic and diluted earnings per share are also shown based on headline earnings, which the directors consider to be a useful additional measure of the Group’s performance. US$ million (unless otherwise stated) Profit for the financial year Operating exceptional charges Non-operating exceptional gains Exceptional finance charge Amortisation of goodwill: Subsidiaries Joint ventures and associates Related tax Related minority interest 2004 Basic earnings per share US$ 2.03 0.06 (0.36) – 0.13 0.03 – (0.01) Earnings 1,592 286 (386) 13 153 50 (13) (1) Earnings 2,913 92 (520) – 175 46 (1) (16) Headline earnings for the financial year 2,689 1.88 1,694 2003 Basic earnings per share US$ 1.13 0.20 (0.27) 0.01 0.11 0.04 (0.01) (0.01) 1.20 13 INTANGIBLE FIXED ASSETS US$ million Cost At 1 January 2004 Acquisition of subsidiaries Transfers from joint ventures Currency movements At 31 December 2004 Accumulated amortisation At 1 January 2004 Charge for the year Impairment Currency movements At 31 December 2004 Net book value At 31 December 2004 At 31 December 2003 Licences and other intangibles Goodwill Total 8 30 – 1 39 2 2 – – 4 35 6 2,985 330 100 50 3,465 724 173 4 9 910 2,993 360 100 51 3,504 726 175 4 9 914 2,555 2,261 2,590 2,267 The increase in goodwill relating to acquisition of subsidiaries represents the excess of fair value of the purchase price over the provisional fair value of the net assets of businesses acquired. Further detail is given in note 28, Acquisition of subsidiaries. 7878v04_GC_Rp_p44-89_020305.qxp 4/3/05 4:29 pm Page 63 Anglo American plc Annual Report 2004 63 14 TANGIBLE FIXED ASSETS US$ million Cost At 1 January 2004 Additions Acquired with subsidiaries(2) Disposal of assets Disposed with subsidiaries Reclassifications Currency movements At 31 December 2004 Accumulated depreciation At 1 January 2004 Charge for the year Impairment Disposal of assets Disposed with subsidiaries Reclassifications Currency movements At 31 December 2004 Net book value At 31 December 2004(3) At 31 December 2003 Mining properties and leases 13,230 675 2,463 (272) (548) (439) 1,775 Land and buildings Plant and equipment Other(1) Total 2,505 102 195 (70) (4) 259 380 13,195 998 299 (438) (867) 2,193 2,157 3,288 1,816 50 (77) (47) (1,940) 227 32,218 3,591 3,007 (857) (1,466) 73 4,539 16,884 3,367 17,537 3,317 41,105 3,033 623 – (93) (405) (18) 438 3,578 277 107 – (15) – 2 99 470 4,394 1,145 128 (326) (672) (10) 932 5,591 135 73 1 3 2 76 21 311 7,839 1,948 129 (431) (1,075) 50 1,490 9,950 13,306 10,197 2,897 11,946 3,006 31,155 2,228 8,801 3,153 24,379 (1) Other tangible fixed assets include properties in the course of construction and afforestation. (2) Acquired with subsidiaries includes $40 million relating to the reassessment of the fair value of Kumba (see note 28). (3) Net book value and depreciation charges relating to assets held under finance leases amounts to $147 million (2003: $165 million) and $13 million (2003: $13 million) respectively. Included in the cost above is $82 million of interest (2003: $41 million) which has been capitalised during the year. Aggregate interest capitalised included in the cost above totals $212 million (2003: $141 million). Tax relief on interest capitalised is based on the tax rates prevailing in the jurisdiction in which the interest is incurred. The impairment charge for the year includes $100 million against the assets at Black Mountain in Base Metals. Further detail regarding this impairment is given in note 7, Exceptional items. Nominal pre-tax discount rates equivalent to real post-tax discount rates of between 4% and 9% were used in the performance of impairment reviews. Included in tangible fixed assets are properties in the course of construction and land and buildings amounting to $1,956 million (2003: $2,413 million) which are not depreciated. The net book value of land and buildings comprises: US$ million Freehold Leasehold – long Leasehold – short (less than 50 years) 2004 2,735 146 16 2,897 2003 2,114 98 16 2,228 7878v04_GC_Rp_p44-89_020305.qxp 2/3/05 11:28 pm Page 64 64 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS CONTINUED 15 FIXED ASSET INVESTMENTS US$ million Loans Equity Loans Equity Loans Equity Own shares Total Interest in joint ventures Interest in associates(1) Other investments(2) Cost At 1 January 2004 (as previously reported) Prior year adjustment(3) At 1 January 2004 (as restated) Group’s share of profits less losses(4) Additions Acquired with subsidiaries Disposals Reclassifications (Repayments)/advances Currency movements At 31 December 2004 Provisions for impairment At 1 January 2004 (as previously reported) Prior year adjustment(3) At 1 January 2004 (as restated) Reversal of impairment (Charge)/utilisation for the year Reclassifications Currency movements At 31 December 2004 Net book value At 31 December 2004(5) At 31 December 2003 (as restated)(3) 260 – 260 – – – – – (48) – 212 – – – – – – – – 1,370 – 1,370 337 11 – (11) (280) (145) 2 1,284 – – – – – – – – 118 – 118 – – – – – – 7 125 – – – – – – – – 5,096 – 5,096 185 3 – (1,180) 67 (129) 422 4,464 410 – 410 (154) – (13) – 243 212 260 1,284 1,370 125 118 4,221 4,686 353 – 353 – – 36 – (13) (21) 46 401 71 – 71 – (3) (14) 7 61 340 282 627 – 627 – 141 31 (125) 2 1 69 746 137 – 137 – 10 39 11 197 549 490 693 (693) – – – – – – – – – 71 (71) – – – – – – – – 8,517 (693) 7,824 522 155 67 (1,316) (224) (342) 546 7,232 689 (71) 618 (154) 7 12 18 501 6,731 7,206 (1) Interest in associates at 31 December 2004 includes $310 million of goodwill (2003: $359 million). (2) Other investments in the table above include listed investments of $40 million (2003: $52 million). The market value of these listed investments, $51 million (2003: $166 million), exceeded the carrying value at 31 December 2004 by $11 million (2003: $114 million). (3) The Group has adopted UITF abstract 38 ‘Accounting for ESOP trusts’. As required by this abstract, own shares held by employee trusts have been reclassified from other investments and are now recorded as a reduction in shareholders’ funds. See note 1 to the financial statements. (4) Net of goodwill amortisation of $42 million (2003: $42 million) in associates and $4 million (2003: $8 million) in joint ventures. (5) US$ million 31 December Joint ventures Associates Other investments Loans 212 125 340 Equity 1,284 4,221 549 2004 Total 1,496 4,346 889 Loans 260 118 282 Equity 1,370 4,686 490 2003 Total 1,630 4,804 772 7878v04_GC_Rp_p44-89_020305.qxp 4/3/05 12:36 pm Page 65 Anglo American plc Annual Report 2004 65 16 JOINT VENTURES AND ASSOCIATES US$ million Fixed assets Current assets Liabilities due within one year Liabilities due after more than one year Net assets US$ million By business segment: Platinum Gold Diamonds Coal Base Metals Industrial Minerals Ferrous Metals and Industries Paper and Packaging Corporate Activities Net assets By geographical segment: South Africa Rest of Africa Europe North America South America Australia and Asia Net assets 17 STOCKS US$ million Raw materials and consumables Work-in-progress Finished products Joint ventures 1,577 639 (213) (507) Associates 5,153 2,183 (1,237) (1,753) 2004 Total 6,730 2,822 (1,450) (2,260) Joint ventures 2,001 482 (355) (498) Associates 5,755 2,269 (856) (2,364) 2003 Total 7,756 2,751 (1,211) (2,862) 1,496 4,346 5,842 1,630 4,804 6,434 2004 2003 77 230 3,069 461 1,088 77 629 172 39 5,842 1,607 1,627 606 161 1,499 342 5,842 2004 1,197 860 1,344 3,401 73 1,219 2,886 504 963 60 495 178 56 6,434 1,751 1,960 686 316 1,301 420 6,434 2003 956 633 1,155 2,744 2003 Total 3,080 60 902 341 4,383 The difference between the replacement cost and the values included in the financial statements is not material. 18 DEBTORS US$ million Trade debtors Amounts owed by joint ventures Other debtors Prepayments and accrued income(1) (1) Includes $178 million in relation to prepaid pension contributions (2003: $170 million). Due within one year Due after one year 3,891 6 1,106 315 5,318 3 1 167 179 350 2004 Total 3,894 7 1,273 494 5,668 Due within one year Due after one year 3,061 60 819 165 4,105 19 – 83 176 278 7878v04_GC_Rp_p44-89_020305.qxp 3/3/05 8:42 pm Page 66 66 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS CONTINUED 19 CURRENT ASSET INVESTMENTS US$ million Bank term deposits Quoted fixed and floating rate debt securities Unquoted fixed and floating rate debt securities 20 OTHER CURRENT LIABILITIES US$ million Trade creditors Amounts owed to associates Taxation and social security Other creditors Accruals and deferred income Proposed dividend (see note 11) 2004 Group carrying value 381 – 194 575 2003 Group carrying value 312 502 218 Market value 312 502 218 1,032 1,032 Market value 381 – 194 575 2004 2,792 – 986 1,423 885 734 6,820 Due after one year 1,088 1,750 3,309 119 354 45 5,577 2003 2,528 3 579 1,127 433 554 5,224 2003 Total 1,088 1,802 5,942 140 1,734 53 9,671 6,665 10,759 21 SHORT TERM BORROWINGS AND LIABILITIES DUE AFTER ONE YEAR US$ million Convertible debt(1) Other long term liabilities: Bonds issued under EMTN programme Bank loans and overdrafts Obligations under finance leases Other loans Other creditors Total (1) Includes $990 million (2003: nil) of convertible debt issued by listed subsidiaries. Due within one year – 33 2,642 31 621 6 3,333 3,333 Due after one year 2,081 1,812 2,456 126 803 171 5,368 2004 Total 2,081 1,845 5,098 157 1,424 177 8,701 7,449 10,782 Due within one year – 52 2,633 21 1,380 8 4,094 4,094 The market value of the convertible debt at 31 December 2004 was $2,061 million (2003: $1,261 million). Anglo American Capital plc and Anglo American Australia Finance Limited issued a number of small value bonds through reverse enquiries under the $3,000 million Euro Medium Term Note Programme. The total value issued was $550 million (2003: $143 million). All notes are guaranteed by Anglo American plc. A $1,000 million European Commercial Paper Programme was established in October 2004. The programme was established to provide further funding diversity and flexibility. The European Commercial Paper Programme is in addition to a $1,300 million Canadian Commercial Paper Programme established a number of years ago. In April 2002, Anglo American plc issued $1.1 billion 33⁄8 per cent convertible bonds, due 17 April 2007, convertible into ordinary shares of Anglo American plc. The bonds were issued at par and bear a coupon of 33⁄8 per cent per annum, payable semi-annually. The conversion price is £16.13 which represents a premium of 35% over the closing price of the shares in London at the date of offer. The bonds can be converted by the holder at any time between 28 May 2002 and up to 14 business days prior to 17 April 2007. The total number of ordinary shares of 50 US cents each which could be issued on conversion is 47,589,607. The bonds can be redeemed by Anglo American plc at their principal amount at any time after 9 May 2005, if the share price is at least 130% of the conversion price for 20 dealing days within a 30 day dealing period. The bonds can also be redeemed by Anglo American plc at their principal amount once conversion rights have been exercised in respect of 85% of the principal amount of the bonds. If not converted or previously redeemed the bonds will be redeemed at par on 17 April 2007. A Convertible Bond was issued in February 2004 by AngloGold Holdings Plc, a wholly-owned subsidiary of AngloGold Ashanti. The Bond is convertible into American Depositary Shares (ADSs) at a price of $65.00 per ADS up to 27 February 2009. The proceeds of the issue, after payment of expenses, were utilised by AngloGold Ashanti to refinance amounts outstanding under credit facilities, to meet transaction costs in connection with the acquisition of Ashanti and for general corporate purposes, including planned capital expenditure. 7878v04_GC_Rp_p44-89_020305.qxp 3/3/05 8:43 pm Page 67 Anglo American plc Annual Report 2004 67 21 SHORT TERM BORROWINGS AND LIABILITIES DUE AFTER ONE YEAR CONTINUED Group financial liabilities (consisting of short term borrowings and long term liabilities – see note 22) have the following maturity profile: US$ million At 31 December 2004 Convertible debt(1) Bonds issued under EMTN programme Bank loans and overdrafts Obligations under finance leases Other financial liabilities Total at 31 December 2004 At 31 December 2003 Convertible debt Bonds issued under EMTN programme Bank loans and overdrafts Obligations under finance leases Other financial liabilities Total at 31 December 2003 Within 1 year or on demand Between 1-2 years Between 2-5 years After 5 years – 33 2,642 31 627 3,333 – 52 2,633 21 1,388 4,094 – 106 235 30 260 631 – 33 738 35 97 903 2,081 1,212 2,056 17 475 5,841 1,088 1,223 2,306 20 173 4,810 – 494 165 79 239 977 – 494 265 64 129 952 Total 2,081 1,845 5,098 157 1,601 10,782 1,088 1,802 5,942 140 1,787 10,759 (1) Includes $990 million (2003: nil) of convertible debt issued by listed subsidiaries. At 31 December 2004, loans of $422 million (2003: $212 million) and $702 million (2003: $546 million) due within and after more than one year respectively were secured on the assets of the Group. Loans repayable after more than five years bear interest at rates which are either fixed or fluctuate in line with market rates. At 31 December 2004, the rates of interest charged on the majority of these loans ranged from 2.1% to 11.7%. Loans repayable after more than five years included in the above table as at 31 December 2004 include amounts of $207 million payable by instalments (2003: $120 million). The aggregate amount of loans, any instalment of which falls due after more than five years, is $355 million (2003: $184 million). 22 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS Treasury and risk management A discussion of the objectives, policies and strategies of Group Treasury and Risk Management is given in the financial review on page 14. Summary of the use of derivative instruments by the Group The Group utilises derivative and equity instruments to manage its exposure to fluctuations in foreign currency exchange rates, interest rates and commodity prices. The use of derivative instruments can give rise to credit and market risk. The Group controls credit risk by entering into derivative contracts only with counterparties who are rated A1/P1, A or better by external rating agencies or who have received specific internal corporate credit approval. The use of derivative instruments is subject to limits and the positions are regularly monitored and reported to senior management. Market risk is the possibility that future changes in foreign currency exchange rates, interest rates and commodity prices may make a derivative instrument more or less valuable. Since the Group utilises derivative instruments for risk management, market risk relating to derivative instruments will principally be offset by changes in the valuation of the underlying assets, liabilities or transactions being hedged. Foreign exchange risk The Group uses forward exchange contracts, currency swaps and option contracts to limit the effects of movements in exchange rates on foreign currency denominated assets and liabilities. The Group also uses these instruments to hedge future transactions and cash flows. As at 31 December 2004 the net amount of unrecognised hedging gains on all foreign exchange risk-related instruments, which had been deferred to a period in respect of which an exposure has been hedged, was $8 million (2003: gain $79 million). Any ultimate gain or loss resulting from these contracts will be recognised when the instruments expire. Interest rate risk The Group uses interest rate swap and option contracts to manage its exposure to interest rate movements on a portion of its existing debt and short term investments. The effect of these derivatives is reflected, as appropriate, in interest expense or interest income. As at 31 December 2004 the net amount of unrecognised hedging gains on all interest rate risk related instruments, which had been deferred to a period in respect of which an exposure has been hedged, was $1 million (2003: losses $30 million). 7878v04_GC_Rp_p44-89_020305.qxp 3/3/05 8:44 pm Page 68 68 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS CONTINUED 22 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS CONTINUED Commodity price risk The Group uses forward, spot deferred and option contracts to hedge the price risk of certain commodities that it produces, including gold and copper, and in respect of heating oil purchases. Gains or losses resulting from these activities are recognised concurrently with gains and losses associated with underlying transactions. The majority of the deferred gains or losses are unrecognised and the ultimate amount of gains or losses to be realised will depend on commodity price movements until the end of the hedge contracts concerned. The net forward position of AngloGold Ashanti was 10.5 million ounces priced forward at 31 December 2004, covering periods up to December 2014, with a marked to market value of negative $1,161 million at 31 December 2004. The value was based on a gold price of $435/oz, exchange rates of $/ZAR5.67 and $/AU$1.29 and the prevailing market interest rates and volatilities at the time. As at 25 January 2005, the marked to market value of the hedge book was a negative $993 million, based on a gold price of $426/oz, exchange rates of $/ZAR5.93 and $/AU$1.30 and the prevailing market interest rates and volatilities at the time. Concentration of credit risk The Group is exposed to credit risk in respect of current asset investments, debtors and derivative financial instruments. Given the geographical and business diversity of the Group’s debtors, the concentration of credit risk is limited. In respect of current asset investments and derivative financial instruments, procedures and policies are in place to limit the amount of credit exposure to any one counterparty. The maximum credit risk exposure is limited to fair value (see note 22(b) below). Numerical disclosures The disclosures present information regarding the Group as a whole and therefore exclude any intra-group loan balances. The disclosure of financial assets and financial liabilities which follows (other than the currency disclosures in note 22(e)) excludes debtors and other current liabilities, as permitted under FRS 13 ‘Derivatives and other financial instruments: disclosures’. 22(a) INTEREST RATE AND CURRENCY PROFILE The following interest rate and currency profile of the Group’s financial liabilities and assets is after taking into account interest rate swaps entered into by the Group: Financial liabilities US$ million Currency At 31 December 2004 US$ SA rand Sterling Euro Canadian $ Australian $ Other currencies Gross financial liabilities At 31 December 2003 US$ SA rand Sterling Euro Canadian $ Australian $ Other currencies Gross financial liabilities Fixed rate financial liabilities Weighted average interest rate % Weighted average period for which the rate is fixed in years Non-interest bearing financial liabilities Weighted average period until maturity in years Fixed rate financial liabilities Non-interest bearing financial liabilities 1,287 644 1 247 – – 20 2,199 1,349 890 1 163 5 6 41 2,455 3 124 26 13 2 12 12 192 12 88 5 19 15 12 11 162 3.9 11.7 6.8 1.7 – – 7.0 6.0 4.0 13.2 5.9 3.5 1.4 2.4 7.2 7.3 3.1 4.1 0.8 1.8 – – 2.9 3.2 4.1 3.4 0.9 2.2 5.0 2.0 10.1 3.8 – 5.4 1.0 2.6 – – 9.0 4.4 1.1 4.4 2.1 0.5 5.0 1.3 2.9 2.3 Floating rate financial liabilities 4,536 3,110 11 592 – 1 141 8,391 4,363 2,854 56 643 – 10 216 8,142 Total 5,826 3,878 38 852 2 13 173 10,782 5,724 3,832 62 825 20 28 268 10,759 Interest on floating rate liabilities is based on the relevant national inter-bank rates. 7878v04_GC_Rp_p44-89_020305.qxp 2/3/05 11:28 pm Page 69 Anglo American plc Annual Report 2004 69 22(a) INTEREST RATE AND CURRENCY PROFILE CONTINUED Financial assets US$ million Currency At 31 December 2004 US$ SA rand Sterling Euro Canadian $ Australian $ Other currencies Gross financial assets At 31 December 2003 US$ SA rand Sterling Euro Canadian $ Australian $ Other currencies Gross financial assets Non-interest bearing financial assets Floating rate financial assets Fixed rate financial assets Equity investments Non-interest bearing financial assets Weighted average interest rate % 1,502 686 73 123 6 53 183 2,626 954 347 164 115 5 73 156 1,814 61 30 – 15 – 21 8 135 88 346 3 2 – – 8 447 76 286 16 120 – 28 16 542 34 213 22 125 – 16 14 424 70 16 108 6 18 1 28 247 32 107 45 7 10 1 11 213 4.5 6.0 – 2.1 – 3.7 5.6 4.5 2.6 11.1 1.4 2.4 – – 1.4 9.1 Total 1,709 1,018 197 264 24 103 235 3,550 1,108 1,013 234 249 15 90 189 2,898 Fixed rate financial assets Weighted average period for which the rate is fixed in years 0.8 0.1 – 0.3 – – 0.2 0.4 0.5 6.4 1.4 0.1 – – 0.2 5.1 Floating rate financial assets consist mainly of cash and bank term deposits. Interest on floating rate assets is based on the relevant national inter-bank rates. Fixed rate financial assets consist mainly of cash. Equity investments are fully liquid and have no maturity period. 22(b) FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The estimated fair value of financial instruments at 31 December is shown in the following tables: Primary financial instruments held or issued to finance the Group’s operations US$ million Cash at bank and in hand Current asset investments Long term investments Gross financial assets Short term borrowings Convertible debt Long term borrowings Other financial liabilities Gross financial liabilities Estimated fair value 2,086 575 900 3,561 3,389 2,061 5,572 145 2004 Carrying value 2,086 575 889 3,550 3,333 2,081 5,223 145 Estimated fair value 1,094 1,032 886 3,012 4,165 1,261 5,577 77 2003 Carrying value 1,094 1,032 772 2,898 4,094 1,088 5,500 77 11,167 10,782 11,080 10,759 7878v04_GC_Rp_p44-89_020305.qxp 2/3/05 11:28 pm Page 70 70 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS CONTINUED 22(b) FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES CONTINUED Derivative instruments US$ million Foreign exchange risk Interest rate risk Commodity price risk: Gold Other commodity derivatives Estimated fair value asset 648 106 750 1 1,505 Estimated fair value liability 304 110 1,896 2 2,312 2004 Carrying value 336 (5) 31 – Estimated fair value asset 509 10 498 – 362 1,017 Estimated fair value liability 258 18 1,170 37 1,483 2003 Carrying value 172 22 – – 194 The following methods were used to estimate the fair value of the financial assets and liabilities: Long term investments – fair value represents the market value of quoted investments and directors’ valuation of other investments; Current asset investments – fair value is based on market prices for quoted short term investments. For non-quoted investments fair value is based on market prices of similar investments; Convertible debt – fair value is based on the quoted market value of the convertible bonds; Short and long term debt – fair value is determined by reference to quoted market prices for similar issues, where applicable, otherwise carrying value is used as an approximation to fair value; and Derivative instruments – fair value is determined by reference to market prices where available, otherwise pricing or valuation models are applied to current market information to estimate their value. 22(c) UNDRAWN BORROWING FACILITIES The Group had the following undrawn committed borrowing facilities at 31 December: US$ million Expiry date: In one year or less In more than one year but not more than two years In more than two years 2004 2003 2,019 2 2,900 4,921 2,574 176 2,271 5,021 22(d) HEDGING Gains and losses on instruments used for hedging are not recognised until the exposure that is being hedged is itself recognised. Unrecognised gains and losses on instruments used for hedging at 31 December 2004 are as follows: US$ million Unrecognised gains and losses on hedges at 1 January 2004 Less: Gains and losses arising in previous years that were recognised in 2004 Add: Gains and losses arising in 2004 that were not recognised during the year Currency movements Gains 605 (523) 762 11 Losses (1,266) 661 (1,407) (12) Total net losses (661) 138 (645) (1) Unrecognised gains and losses on hedges at 31 December 2004 855 (2,024) (1,169) Of which: Gains and losses expected to be recognised during the year 2005 Gains and losses expected to be recognised after 2005 596 259 (696) (1,328) (100) (1,069) 7878v04_GC_Rp_p44-89_020305.qxp 2/3/05 11:28 pm Page 71 Anglo American plc Annual Report 2004 71 22(e) CURRENCY PROFILE The main functional currencies of the Group include the US dollar, South African rand, sterling, euro, Canadian dollar and Australian dollar. The following analysis of net monetary assets and liabilities shows the Group’s currency exposures after the effects of forward contracts and other derivatives used to manage currency exposure. Such exposures comprise the monetary assets and monetary liabilities of the Group that are not denominated in the operating (or functional) currency of the operating unit involved and represent the transactional (or non-structural) exposures that give rise to the net currency gains and losses recognised in the profit and loss account, other than certain non-functional currency borrowings which are treated as hedges of net investments in overseas operations. Net foreign currency monetary assets/(liabilities) US$ million US$ SA rand Sterling Euro Canadian $ Australian $ Other currencies Total At 31 December 2004 Functional currency of Group operations: US$ SA rand Sterling Euro Canadian $ Australian $ At 31 December 2003 Functional currency of Group operations: US$ SA rand Sterling Euro Canadian $ Australian $ N/A (283) 1 27 – 79 (176) N/A (113) 8 (29) 4 16 (114) (230) N/A – – – – (230) (236) N/A – – – – (236) (120) 103 N/A 64 – – 47 72 106 N/A 44 – – 222 (2) 13 44 N/A – – 55 (11) 20 14 N/A – – 23 1 37 – – N/A – 38 – 28 – – N/A – 28 – 38 – 8 – N/A 46 (37) 70 – – – N/A 33 23 PROVISIONS FOR LIABILITIES AND CHARGES US$ million At 1 January 2004 Acquired with subsidiaries(1) Disposed with subsidiaries Charged to profit and loss Charged to reserves Capitalised Reclassifications Unwinding of discount Unused amounts reversed to profit and loss Amounts applied Currency movements At 31 December 2004 Post- retirement medical funding Pensions and similar obligations 465 – (31) 54 – – (4) – – (36) 81 529 216 14 (34) 105 – – (2) – (3) (88) 16 224 Restoration, rehabilitation and environmental 652 69 (31) 55 – 75 8 61 (2) (29) 84 942 Deferred taxation 2,330 11 (4) 198 12 – (15) – – (2) 378 2,908 The amounts of deferred taxation provided in the accounts are as follows: US$ million Capital allowances in excess of depreciation Other timing differences (92) 46 52 (26) – – (20) 19 46 21 (149) – – (63) Other 291 20 2 72 – – 14 1 (2) (35) 20 383 (443) (46) 97 73 – 79 (240) (193) 157 43 (134) 4 16 (107) Total 3,954 114 (98) 484 12 75 1 62 (7) (190) 579 4,986 2004 3,357 (449) 2,908 (1) Acquired with subsidiaries includes a debit of $17 million relating to the reassessment of the fair value of assets of Kumba (see note 28). The potential impact of unprovided deferred tax assets on the future effective tax rate of the Group is discussed in note 10(c). 7878v04_GC_Rp_p44-89_020305.qxp 2/3/05 11:28 pm Page 72 72 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS CONTINUED 23 PROVISIONS FOR LIABILITIES AND CHARGES CONTINUED The restoration, rehabilitation and environmental provision represents the best estimate of the expenditure required to settle the obligation to rehabilitate environmental disturbances caused by mining operations. These costs are expected to be incurred over a period in excess of 20 years. Other provisions mainly consist of provisions for restructuring and reorganisation costs and for other obligations existing at 31 December 2004. 24 CALLED-UP SHARE CAPITAL Authorised: 5% cumulative preference shares of £1 each Ordinary shares of 50 US cents each Called up, allotted and fully paid: 5% cumulative preference shares of £1 each Ordinary shares of 50 US cents each Number of shares US$ million Number of shares US$ million 2004 2003 50,000 2,000,000,000 50,000 1,493,839,387 – 1,000 1,000 – 747 747 50,000 2,000,000,000 50,000 1,476,304,626 – 1,000 1,000 – 738 738 At general meetings, every member who is present in person has one vote on a show of hands and, on a poll, every member who is present in person or by proxy has one vote for every ordinary share held. In the event of winding up, the holders of the cumulative preference shares will be entitled to the repayment of a sum equal to the nominal capital paid up, or credited as paid up, on the cumulative preference shares held by them and any accrued dividend, whether such dividend has been earned or declared or not, calculated up to the date of the winding up. During 2004, 15,110 ordinary shares of 50 US cents each were allotted in respect of certain non-executive directors by subscription of their after-tax directors’ fees (2003: 15,080). A further 4,028,367 ordinary shares of 50 US cents were allotted on exercise of employee share option plans (2003: 7,113,375). Former AAC Executive Share Incentive Scheme(1) Options to acquire ordinary shares of 50 US cents were outstanding under the terms of this scheme as follows: Year of grant Date exercisable 1990–1997 1998 1999 1 January 1999 to 15 December 2007 1 January 2000 to 4 December 2008 4 January 2001 to 4 January 2009 Weighted average option price per share £ Options outstanding 1 Jan 2004 Options exercised in year 4.72 4.57 3.82 503,500 10,109,700 390,900 84,300 1,712,600 151,400 11,004,100 1,948,300 Options lapsed in year – – – – Options outstanding 31 Dec 2004 419,200 8,397,100 239,500 9,055,800 The above share option prices have been calculated using a weighted average option price based on the shares outstanding at 31 December 2004 and converted to sterling using an exchange rate of £1.00 = ZAR 10.85. See footnote definitions on page 74. 7878v04_GC_Rp_p44-89_020305.qxp 2/3/05 11:28 pm Page 73 Anglo American plc Annual Report 2004 73 24 CALLED-UP SHARE CAPITAL CONTINUED Executive Share Option Scheme(1) Options to acquire ordinary shares of 50 US cents were outstanding under the terms of this scheme as follows: Year of grant Date exercisable Option price per share £ Options outstanding 1 Jan 2004 Options granted during the year Options exercised in year Options lapsed in year Options outstanding 31 Dec 2004 1999 1999 2000 2000 2000 2001 2001 2002 2002 2003 2003 2003 2004 2004 2004 24 June 2002 to 23 June 2009 19 October 2002 to 18 October 2009 23 March 2003 to 22 March 2010 26 June 2003 to 25 June 2010 12 September 2003 to 11 September 2010 2 April 2004 to 1 April 2011 13 September 2004 to 12 September 2011 18 March 2005 to 17 March 2012 13 September 2005 to 12 September 2012 5 March 2006 to 4 March 2013 13 August 2006 to 12 August 2013 1 October 2006 to 30 September 2013 1 March 2007 to 28 February 2014 10 August 2007 to 9 August 2014 29 November 2009 to 28 November 2014 6.98 3,411,570 8.00 277,004 7.66 4,411,972 89,816 7.66 174,168 10.19 10.03 7,212,817 115,200 11.50 7,380,883 8.05 117,892 9.28 12,676,004 242,398 70,000 8.00 11.41 10.81 13.43 11.52 12.73 – – – – 524,704 – 75,032 – 821,420 20,000 – 37,056 – – 341,861 – – – 152,945 – – – – – – 7,768,369 – 216,031 11,147 – 1,000 2,885,866 201,972 8,000 3,582,552 69,816 137,112 36,992 6,833,964 115,200 75,720 7,152,218 117,890 12,500 157,119 12,506,385 242,398 70,000 47,600 7,720,769 212,031 11,147 4,000 – – – – – – – – 2 – SAYE Share Option Scheme(1) Options to acquire ordinary shares of 50 US cents were outstanding under the terms of this scheme as follows: 36,179,724 7,995,547 1,985,518 330,433 41,859,320 Year of grant Date exercisable 1999 1999 2000 2000 2000 2001 2001 2001 2002 2002 2002 2003 2003 2003 2004 2004 2004 1 September 2004 to 28 February 2005 1 September 2006 to 28 February 2007 1 July 2003 to 31 December 2003(2) 1 July 2005 to 31 December 2005 1 July 2007 to 31 December 2007 1 July 2004 to 31 December 2004 1 July 2006 to 31 December 2006 1 July 2008 to 31 December 2008 1 September 2005 to 28 February 2006 1 September 2007 to 28 February 2008 1 September 2009 to 28 February 2010 1 September 2006 to 28 February 2007 1 September 2008 to 28 February 2009 1 September 2010 to 28 February 2011 1 September 2007 to 28 February 2008 1 September 2009 to 28 February 2010 1 September 2011 to 28 February 2012 Option price per share £ Options outstanding 1 Jan 2004 Options granted during the year Options exercised in year Options lapsed in year Options outstanding 31 Dec 2004 153,408 6.38 34,432 6.38 4.85 24,325 4.85 1,336,760 403,064 4.85 267,732 8.45 218,877 8.45 63,775 8.45 228,343 9.23 152,320 9.23 51,407 9.23 578,009 7.52 241,853 7.52 7.52 81,680 10.81 10.81 10.81 – 146,987 3,285 – 5,525 – 28,776 – – 19,634 – 248,543 2,010 – 1,710 – 3,038 – – – – 65 3,968 – 639 – 608 – 48 – 237,004 57 – 129,404 – 30,393 – 5,580 841 30,740 407 18,800 – 28,684 1,279,300 359,896 23,534 13,763 5,426 201,350 15,517 55,868 6,197 202,906 22,399 137,962 14,358 45,372 5,970 503,209 70,832 218,548 22,666 60,914 20,158 221,544 15,412 123,361 5,986 29,742 651 3,835,985 396,801 464,893 277,838 3,490,055 Long Term Incentive Plan(1)(4) Ordinary shares of 50 US cents may be awarded for no consideration under the terms of this scheme. The number of shares outstanding is as shown below: Year of grant Performance period end date 2001 2002 2003 2004 31 December 2003 31 December 2004 31 December 2005 31 December 2006 See footnote definitions on following page. Shares Shares conditionally outstanding awarded during the year 1 Jan 2004 Shares vesting in the year Shares lapsed in the year Shares outstanding at 31 Dec 2004 1,313,483 1,421,525 1,956,551 – 811,009 419,782 – – – – – – 1,823,743 82,692 79,742 1,341,783 77,388 1,879,163 25,196 1,798,547 4,691,559 1,823,743 811,009 602,108 5,102,185 7878v04_GC_Rp_p44-89_020305.qxp 4/3/05 12:38 pm Page 74 74 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS CONTINUED 24 CALLED-UP SHARE CAPITAL CONTINUED Other share incentive schemes During the year the Company operated a number of other share schemes under which ordinary shares of 50 US cents may be awarded for no consideration. Deferred bonus matching(1) Share incentive plan(1) Bonus share plan:(1)(5) Bonus shares Enhancement shares Awards outstanding at 31 December 2004 Latest performance period end/ latest release date(3) 210,994 413,992 511,860 292,488 219,372 1 January 2006 7 December 2007 31 December 2006 31 December 2006 31 December 2006 (1) The early exercise of share options is permitted upon the termination of employment, ill-health or death. (2) Outstanding options related to those individuals whose maturity period has been extended due to missed payments in terms of the scheme rules. (3) Latest performance period relates only to the Long Term Incentive Plan. For the Deferred Bonus Matching Plan and Share Incentive Plan, the dates given are the latest release dates. (4) The long term incentive awards are contingent on pre-established performance criteria being met. Further information in respect of this scheme is shown in the remuneration report on page 31. (5) The Bonus Share Plan (BSP) was approved by shareholders in 2004 as a replacement for the ESOS and the Deferred Bonus Plan. No BSP interests vested during 2004. Further information in respect of the BSP, including performance conditions, is shown in the remuneration report on page 30. Employee benefit trust The provision of shares to certain of the Company’s share option and share incentive schemes is facilitated by an employee benefit trust. During 2004, 1,600,926 (2003: 253,363) shares were sold to employees on exercise of their options, and provisional allocations were made to options already awarded. The employee benefit trust has waived the right to receive dividends on these shares. The market value of the 55.1 million shares held by the trust at 31 December 2004 was $1,296 million. At 31 December 2003 the market value of the 56.7 million shares held by the trust was $1,225 million. The costs of operating the trust are borne by the Group but are not material. 25 COMBINED STATEMENT OF MOVEMENT IN SHAREHOLDERS’ FUNDS AND MOVEMENT IN RESERVES US$ million Balance at 1 January 2004 (as previously reported) Prior year adjustment(2) At 1 January 2004 (as restated) Profit for the financial year Dividends paid and proposed Realisation of merger reserve Shares issued Unrealised profit on deemed disposal of AngloGold(3) Other reserve movements(4) Currency translation differences on foreign currency net investments(5) Related tax charge Issued share capital 738 – 738 – – – 9 – – – – Share premium 1,284 – 1,284 – – – 349 – – – – Merger reserve Other reserves Profit and loss account(1) 17,196 (622) 16,574 2,913 (1,007) (29) – 410 52 Total 20,394 (622) 19,772 2,913 (1,007) – 358 410 52 716 – 716 – – – – – – – – 2,512 (12) 2,512 (12) 460 – 460 – – 29 – – – – – Balance at 31 December 2004 747 1,633 489 716 21,413 24,998 (1) Certain of the Group’s subsidiaries operate in South Africa, where significant exchange control restrictions on distributions limit the Group’s access to distributable profits and cash balances. (2) The Group has adopted UITF abstract 38 ‘Accounting for ESOP trusts’. As required by this abstract, own shares held by employee trusts have been reclassified from other investments and are now recorded as a reduction in shareholders’ funds. See note 1 to the financial statements. (3) AngloGold merged with Ashanti Goldfields Company Limited on 26 April 2004. As a result of this transaction, the Group’s shareholding decreased from 55.8% to 47.2% and the Group has therefore had to account for a deemed disposal in accordance with FRS 2 ‘Accounting for subsidiary undertakings’. The holding was subsequently increased to 51% through the purchase of additional shares. (4) Includes credit in respect of employee share schemes. (5) An explanation of the currency translation differences included in the profit and loss reserve above is included in the financial review on page 14. 7878v04_GC_Rp_p44-89_020305.qxp 3/3/05 8:46 pm Page 75 Anglo American plc Annual Report 2004 75 26 CONSOLIDATED CASH FLOW STATEMENT ANALYSIS a) Reconciliation of Group operating profit to net cash inflow from operating activities US$ million Group operating profit – subsidiaries Exceptional (gains)/charges (all non-cash items) Group operating profit before exceptionals Depreciation and amortisation charges Increase in stocks Increase in debtors Increase in creditors Increase in provisions Other items Net cash inflow from operating activities b) Financing US$ million (Decrease)/increase in short term borrowings Increase in long term borrowings Net movement in minorities’ shares and loans Exercise of share options Issue of shares in subsidiaries Financing c) Reconciliation of net cash flow to movement in net debt US$ million Increase/(decrease) in cash in the year Cash inflow/(outflow) from debt financing Cash outflow from management of liquid resources Change in net debt arising from cash flows Loans and current asset investments acquired with subsidiaries Loans and current asset investments disposed with subsidiaries Other non-cash movements Exchange movements 2004 3,086 (25) 3,061 2,123 (242) (419) 69 91 90 2003 1,611 286 1,897 1,463 (302) (246) 348 38 (14) 4,773 3,184 2004 (1,664) 305 (2) 46 146 2003 875 531 3 71 305 (1,169) 1,785 2004 2003 902 1,359 (456) 1,805 (597) 10 (19) (687) 512 (8,633) (51) (1,406) (182) (1,639) (746) 5 – (675) (3,055) (5,578) (8,121) (8,633) Movement in net debt Net debt at start of year Net debt at end of year 27 MOVEMENT IN NET DEBT US$ million Cash at bank and in hand Debt due after one year Debt due within one year Current asset investments Total Acquisitions Cash flow excluding cash Disposals excluding cash Other non-cash movements Exchange movements 2003 1,094 (6,665) (4,094) 902 (305) 1,664 (10,759) 1,359 1,032 (456) – (348) (249) (597) – – 285 (304) (19) – 90 (439) (356) 2004 2,086 (7,449) (3,333) (795) (10,782) 18 575 – 23 6 29 (19) 10 (8,633) 1,805 (597) (19) (687) (8,121) 7878v04_GC_Rp_p44-89_020305.qxp 3/3/05 8:48 pm Page 76 76 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS CONTINUED 28 ACQUISITION OF SUBSIDIARIES The following were the principal acquisitions made during the year to 31 December 2004, accounted for under the acquisition method. Name of company acquired Frantschach AG Ashanti Goldfields Roman Bauernfeind Holding AG AngloGold Ashanti Limited Anglo American Platinum Corporation Limited Percentage acquired 30% 100% 100% 5.2% 0.9% Date of acquisition April 2004 April 2004 February 2004 Piecemeal Piecemeal The fair values of the acquired assets and liabilities in the table below are provisional, and will be finalised in the 2005 financial statements when the final values arising from the fair value exercises are confirmed. Analysis of fair value of identifiable net assets of subsidiaries acquired Frantschach Bauernfeind Ashanti Goldfields AngloGold Ashanti Anglo Platinum Other acquisitions US$ million Net assets acquired: Intangible fixed assets(1) Tangible fixed assets Investments in joint ventures Investments in associates Other investments Stocks Debtors Cash at bank and in hand Short term borrowings Other current liabilities Long term borrowings Provisions for liabilities and charges Equity minority interests Net tangible assets acquired Goodwill arising on acquisition Total cost of acquisition Satisfied by: Net cash acquired Shares issued by subsidiary Shares issued by Group Deferred consideration Forgiveness of receivable due from other joint venture partner Transfer from joint ventures to subsidiaries Amounts paid in prior years Net cash paid – – – – – – – – – – – – 248 248 142 390 – – 191 – – – – 199 1 406 – – 31 33 255 3 (100) (276) (219) (25) (4) 105 12 117 3 – 118 (5) – – – 1 129 2,052 – – 36 94 58 71 (158) (283) (73) (97) (3) 1,826 – 1,826 71 1,366 – – – 233 – 156 – 325 – – – – – – – – – – 140 465 – 465 – – – – – – – – 59 – – – – – – – – – – 15 74 – 74 – – – – – – – – 125 – – – 23 28 18 9 (32) (5) (9) 6 163 176 339 18 – – 92 – – 5 2004 2003 Total Total 130 2,967 – – 67 150 341 92 (249) (591) (297) (131) 402 – 2,834 2 14 31 277 246 214 (209) (239) (537) (225) (526) 2,881 1,882 330 50 3,211 1,932 92 1,366 309 87 – 233 5 214 – – 6 36 (33) 240 465 74 224 1,119 1,469 (1) Includes goodwill of $100 million which arose on the previous acquisition of a 50% interest in Geita. As a result of the acquisition of Ashanti, Geita is now a wholly-owned subsidiary. Frantschach AG (now part of Mondi Packaging) On 5 April 2004, the Group announced the conclusion of an agreement to acquire the remaining 30% minority interest in Frantschach AG (‘Frantschach’) for a total consideration of —320 million, comprising approximately 8.2 million Anglo American plc shares, valued at —160 million and a cash consideration of —160 million. Frantschach became 100% owned by Anglo American as a result of this transaction. The acquisition of Frantschach as a subsidiary has been accounted for in accordance with the Companies Act. A fair value table of Frantschach’s assets and liabilities for this transaction is set out on the following page. Profit after tax and minority interest of Frantschach for the period from 1 January 2004 to its acquisition on 5 April 2004 was —19.1 million. Frantschach’s profit after tax and minority interest for the period since acquisition to 31 December 2004 was —86.8 million. Frantschach’s profit after tax and minority interest for the year ended 31 December 2003 was —110.2 million. 7878v04_GC_Rp_p44-89_020305.qxp 3/3/05 8:51 pm Page 77 Anglo American plc Annual Report 2004 77 28 ACQUISITION OF SUBSIDIARIES CONTINUED The assets and liabilities as at 5 April 2004 and the total consideration paid are set out in the following table: US$ million Net assets acquired: Equity minority interests Net tangible assets acquired Goodwill arising on acquisition Total cost of acquisition Satisfied by: Value of shares issued Net cash paid Book amount Provisional fair values 248 248 248 248 142 390 191 199 Ashanti Goldfields On 26 April 2004, AngloGold merged with Ashanti Goldfields. This has been accounted for as an acquisition by AngloGold. As a result of this transaction the Group owned 47.2% of the newly merged company AngloGold Ashanti. This holding was subsequently increased to 51% through the purchase of shares. Loss after tax of Ashanti Goldfields for the period from 1 January 2004 to its merger with AngloGold on 26 April 2004 was $10.3 million. Ashanti Goldfields’ profit after tax as reported in its statutory accounts for the year ended 31 December 2003 was $50.4 million. US$ million Net assets acquired: Intangibles(1) Tangible fixed assets Other investments Stocks Debtors Cash at bank and in hand Short term borrowings Other current liabilities Long term borrowings Provisions for liabilities and charges Equity minority interests Net tangible assets acquired Goodwill arising on acquisition Total cost of acquisition Satisfied by: Net cash acquired Shares issued by subsidiary Transfer from joint venture to subsidiary (acquired prior to 2004)(1) Net cash paid Book value Revaluations 149 902 36 94 56 71 (158) (342) (73) (64) (3) (20) 1,150 – – 2 – – 59 – (33) – Provisional fair values 129 2,052 36 94 58 71 (158) (283) (73) (97) (3) 668 1,158 1,826 – – – 1,826 71 1,366 233 156 (1) Includes goodwill of $100 million which arose on the previous acquisition of a 50% interest in Geita. As a result of the acquisition of Ashanti, Geita is now a wholly-owned subsidiary. The provisional fair value adjustments in the above table represent the following: • Revaluations of reserves and resources, land and buildings and plant and equipment to fair value • Additional rehabilitation, deferred taxation and pension liability provision • Write back of goodwill and intangibles • Fair value of derivatives and hedge settlement contracts • Settlement of pre-acquisition fund as part of merger with AngloGold. 7878v04_GC_Rp_p44-89_020305.qxp 4/3/05 12:51 pm Page 78 78 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS CONTINUED 28 ACQUISITION OF SUBSIDIARIES CONTINUED Roman Bauernfeind Holding AG On 12 February 2004, following the announcement made on 10 December 2003, the directors allotted 5,309,286 ordinary shares of 50 US cents each in consideration for the acquisition of the corrugated paper and packaging business of Roman Bauernfeind Holding AG (‘Bauernfeind’). As a result of this transaction, Anglo American owned 100% of the Bauernfeind packaging business. The loss after tax and minority interest of Bauernfeind for the period from 1 January 2004 to its acquisition on 12 February 2004 was —0.7 million. The loss after tax and minority interest for the period since acquisition to 31 December 2004 was €7.5 million. The loss after tax and minority interest for the year ended 31 December 2003 was —20.5 million. US$ million Net assets acquired: Intangibles Tangible fixed assets Other investments Stocks Debtors Cash at bank and in hand Short term borrowings Other current liabilities Long term borrowings Provisions for liabilities and charges Equity minority interests Net tangible assets acquired Goodwill arising on acquisition Total cost of acquisition Satisfied by: Net cash acquired Value of shares issued Deferred consideration Net cash paid Book value Revaluations Accounting policy alignment Provisional fair values 1 225 31 33 255 3 (100) (276) (121) (26) (4) 21 – 84 – – – – – – (1) 1 – 84 – 97 – – – – – – (97) – – – 1 406 31 33 255 3 (100) (276) (219) (25) (4) 105 12 117 3 118 (5) 1 The provisional fair value adjustments in the above table represent the following: • Revaluations of land and buildings and plant and equipment to fair value • Accounting policy adjustments for the reclassification of operating leases to finance leases. AngloGold Ashanti and Anglo Platinum AngloGold merged with Ashanti Goldfields Company Limited on 26 April 2004. As a result of this transaction, the Group’s shareholding decreased from 55.8% to 47.2% and the Group has therefore had to account for a deemed disposal in accordance with FRS2 ‘Accounting for subsidiary undertakings’. The holding was subsequently increased to 51% through the purchase of additional shares. During the year the Group acquired a further 5.2% interest in AngloGold Ashanti, in piecemeal acquisitions and a further 0.9% interest in Anglo Platinum. The profit after tax of AngloGold Ashanti and Anglo Platinum for 2004 was $100 million (AngloGold 2003: $330 million) and $392 million (2003: $277 million) respectively, as reported in their statutory accounts. The assets and liabilities acquired are set out in the following table: US$ million Tangible fixed assets Equity minority interests Goodwill arising on acquisition Total cost of acquisition Satisfied by: Net cash paid Book amount Revaluations Fair value Book amount Revaluations Fair value AngloGold Ashanti Anglo Platinum – 15 15 59 – 59 – 140 140 325 – 325 325 140 465 – 465 465 59 15 74 – 74 74 Revaluations in the above table represent the revaluation of reserves and resources to fair value. 7878v04_GC_Rp_p44-89_020305.qxp 3/3/05 9:13 pm Page 79 Anglo American plc Annual Report 2004 79 28 ACQUISITION OF SUBSIDIARIES CONTINUED Other acquisitions The assets and liabilities acquired in other acquisitions during the year are set out in the following table: US$ million Net assets acquired: Tangible fixed assets Stocks Debtors Cash at bank and in hand Short term borrowings Other current liabilities Long term borrowings Provisions for liabilities and charges Equity minority interests Net tangible assets acquired Goodwill arising on acquisition Total cost of acquisition Satisfied by: Net cash acquired Deferred consideration Amounts paid in prior year Net cash paid Book amount Revaluations Accounting policy alignments Provisional fair values 81 24 28 18 9 (32) (4) (9) 6 121 43 (1) – – – – (1) – – 41 1 – – – – – – – – 1 125 23 28 18 9 (32) (5) (9) 6 163 176 339 18 92 5 224 The provisional fair value adjustments in the above table represent the following: • Revaluations, mainly reflecting the revaluation of mining properties and leases to fair value • Accounting policy adjustments, reflecting adjustments for differences between local and UK GAAP. Other acquisitions includes additional consideration and goodwill of $120 million relating to the acquisition of Minera Sur Andes (formerly Disputada) in 2002. This is the maximum amount payable as a result of copper prices reaching a certain average threshold since the date of acquisition. $34 million of this additional consideration has been paid to date. Kumba The Group completed its acquisition of Kumba on 5 December 2003. The fair values of the identifiable assets and liabilities have been reassessed during the current year to reflect additional information which has become available concerning conditions that existed on the date of acquisition. The resulting changes are set out in the following table: US$ million Net assets acquired: Tangible fixed assets Investments in joint ventures Investments in associates Other investments Stocks Debtors Cash at bank and in hand Short term borrowings Other current liabilities Long term borrowings Provisions for liabilities and charges Equity minority interests Goodwill arising on acquisition Total cost of acquisition Fair value as previously reported 2004 fair value adjustments Fair value as restated 1,959 2 14 27 228 193 190 (127) (155) (487) (208) (670) 966 – 966 40 – – (1) – 1 – – (6) (51) 17 – – – – 1,999 2 14 26 228 194 190 (127) (161) (538) (191) (670) 966 – 966 The principal fair value adjustments in the above table represent the following resulting from additional information becoming available: • Revaluation of reserves and resources • Revised fair value for decommissioning assets • Revised employee benefit accrual • Revised fair values of fixed rate borrowings • Deferred tax effect of the above. 7878v04_GC_Rp_p44-89_020305.qxp 2/3/05 11:28 pm Page 80 80 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS CONTINUED 29 DISPOSAL OF SUBSIDIARIES AND BUSINESSES US$ million Net assets disposed: Tangible fixed assets Other investments Stocks Debtors Current asset investment Cash Short term borrowings Other current liabilities Long term liabilities Long term borrowings Provisions for liabilities and charges (Loss)/profit on disposal Disposal proceeds Total proceeds Net cash disposed Interest in joint venture with net liabilities Deferred consideration or allotted shares Net cash inflow from disposal of subsidiaries during the year Hudson Bay Other disposals 313 1 49 72 19 20 (4) (55) – (23) (93) (42) 257 257 (20) – (11) 226 78 – 10 38 – – (2) (19) – – (5) 30 130 130 – 46 – 176 2004 Total 391 1 59 110 19 20 (6) (74) – (23) (98) (12) 387 387 (20) 46 (11) 402 2003 Total 34 – 10 20 – – (3) (26) (2) – (25) 9 17 17 – – (14) 3 AngloGold merged with Ashanti Goldfields Company Limited on 26 April 2004. As a result of this transaction, the Group’s shareholding decreased from 55.8% to 47.2% and the Group has therefore had to account for a deemed disposal in accordance with FRS2 ‘Accounting for subsidiary undertakings’. The holding was subsequently increased to 51% through the purchase of additional shares. As a result of the deemed disposal on the merger of AngloGold with Ashanti Goldfields Company Limited an unrealised profit of $410 million has been recorded in the Statement of Total Recognised Gains and Losses. Subsidiaries disposed of in the year principally include Hudson Bay, which was sold in December 2004. The cash flows of the disposed subsidiaries did not have a material effect on the cash flow statement. 30 CAPITAL COMMITMENTS US$ million Contracted but not provided 2004 825 2003 873 31 CONTINGENT LIABILITIES Contingent liabilities comprise aggregate amounts of $272 million (2003: $290 million) in respect of loans and performance guarantees given to banks and other third parties. AngloGold North America has $30 million of reclamation bonds with various federal and governmental agencies, to cover potential environmental obligations. These obligations are guaranteed by AngloGold Ashanti Limited. There are a number of legal or potential claims against the Group, the outcome of which cannot at present be foreseen. Provision is made for all liabilities that are expected to materialise. In addition to the amounts relating to Group companies above, under Chilean law payment of customs duties associated with capital assets can be deferred for up to seven years. As at 31 December 2004, Collahuasi has potential deferred customs duties of $3 million (2003: $11 million). 7878v04_GC_Rp_p44-89_020305.qxp 2/3/05 11:28 pm Page 81 Anglo American plc Annual Report 2004 81 32 OPERATING LEASES At 31 December 2004, the Group was committed to making the following payments during the next year in respect of operating leases: US$ million Expiry date: Within one year Two to five years After five years Land and buildings 34 75 85 194 2004 Other 28 53 9 90 Land and buildings 20 72 37 129 2003 Other 19 38 17 74 33 RETIREMENT BENEFITS The Group operates defined contribution and defined benefit pension plans for the majority of its employees. It also operates post- retirement medical arrangements in southern Africa and North America. The policy for accounting for pensions and post-retirement benefits is included in note 1. The assets of the defined contribution plans are held separately in independently administered funds. The charge in respect of these plans is calculated on the basis of contributions payable by the Group in the financial year. The post-retirement medical arrangements provide health benefits to retired employees and certain dependants. Eligibility for cover is dependent upon certain criteria. The majority of these plans are unfunded. The majority of the defined benefit pension plans are funded. The assets of these plans are held separately from those of the Group in independently administered funds, in accordance with statutory requirements or local practice throughout the world. The unfunded pension plans are principally in Europe and South America. The retirement benefit charge for the year is as follows: US$ million Defined contribution pension plans Defined benefit pension plans Post-retirement medical plans 2004 167 106 55 2003 131 108 54 Defined contribution plans The defined contribution pension cost represents the actual contributions payable by the Group to the various plans. At 31 December 2004, there were no material outstanding/prepaid contributions and so no prepayment or accrual has been disclosed in the balance sheet in relation to these plans. Defined benefit plans The above defined benefit pension plan cost consists of a regular cost of $73 million (2003: $63 million) and a variation cost of $33 million (2003: $45 million). The Group adopts a straight-line method of amortising unrecognised amounts over the future working lifetimes of active employees. Post-retirement medical plans The accumulated benefit obligation and the annual cost of accrual of benefits are assessed by independent qualified actuaries using the projected unit method. The accumulated benefit obligation calculated as at 31 December 2004 was $632 million (2003: $527 million). The provision recorded on the balance sheet as at 31 December 2004 amounted to $529 million (2003: $465 million). 7878v04_GC_Rp_p44-89_020305.qxp 2/3/05 11:28 pm Page 82 82 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS CONTINUED 33 RETIREMENT BENEFITS CONTINUED Defined benefit pension plans Qualified actuaries carry out full valuations every three years using the projected unit method. The actuaries have updated the valuations to 31 December 2004. The actuary to the majority of the South African pension plans is an employee of the Group and is supported by external advisors. The actuaries to the other plans are independent of the Group. At 31 December 2004 the estimated market value of the assets of the funded pension plans was $3,479 million (2003: $2,831 million). The market value of assets was used to determine the funding level of the plans. The market value of the assets of the funded plans was sufficient to cover 91% (2003: 90%) of the benefits that had accrued to members after allowing for expected increases in future earnings and pensions. In particular, the funding levels of the UK funded pension plans have fallen in the past year as a result of an increase in the inflation assumption, although this has been offset by increasing asset values. Companies within the Group are paying contributions as required in accordance with local actuarial advice. As the majority of the defined benefit pension plans are closed to new members, it is expected that contributions will increase as the members age. The benefit obligations in respect of the unfunded plans at 31 December 2004 were $182 million (2003: $154 million). To the extent that there is a difference between pension costs and contributions paid, a prepayment or provision arises. The accumulated difference provided in the balance sheet at 31 December 2004 gives rise to a prepayment of $178 million (2003: $170 million) and a provision of $224 million (2003: $216 million). Actuarial assumptions The principal assumptions used to determine the actuarial present value of benefit obligations and pension costs under SSAP 24 are detailed below (shown as weighted averages): Average discount rate for plan liabilities Average rate of inflation Average rate of increase in salaries Average rate of increase of pensions in payment Average long term rate of return on plan assets Expected average increase in healthcare costs Southern Africa % The Americas % 8.0 3.9 4.9 3.9 9.4 5.3 7.6 3.3 4.8 5.0 9.6 9.3 2004 Europe % 5.3 2.7 3.5 2.8 6.7 N/A Southern Africa % The Americas % 9.9 5.7 6.8 5.7 11.0 6.6 7.3 2.9 4.7 5.0 8.7 7.7 2003 Europe % 5.5 2.6 3.4 2.8 7.0 N/A Southern Africa % The Americas % 11.5 7.4 8.5 7.3 11.9 9.8 7.2 3.0 4.8 3.8 8.2 6.1 2002 Europe % 5.6 2.3 3.1 2.6 6.9 N/A FRS 17 background In November 2000 the Accounting Standards Board issued FRS 17 ‘Retirement Benefits’ replacing SSAP 24 ‘Accounting for Pension Costs’. The full implementation of FRS 17 has been deferred, though certain disclosures are required in the transition period for periods ending on or after 22 June 2001. These further disclosures are included below. Under SSAP 24, the projected unit method was one of the acceptable valuation methods. Under FRS 17, it is the only acceptable method of valuation. The pension plans have been valued historically using the projected unit method and so there is no change to the method of valuation of the defined benefit plans. 7878v04_GC_Rp_p44-89_020305.qxp 2/3/05 11:28 pm Page 83 Anglo American plc Annual Report 2004 83 33 RETIREMENT BENEFITS CONTINUED FRS 17 balance sheet disclosure Under FRS 17, the assumption for the average discount rate for plan liabilities is based on AA corporate bonds of a suitable duration and currency. The discount rate and other actuarial assumptions are generally the same as for SSAP 24 and are given above. As stated above, the principal funded schemes all relate to defined benefit pension plans. The market value of the assets in these plans and the long term expected rate of return as at 31 December 2004, 31 December 2003 and 31 December 2002 are detailed below. At 31 December 2004 Equity Bonds Other Present value of pension plan liabilities Deficit in the pension plans Deferred tax Net pension liability At 31 December 2003 Equity Bonds Other Present value of pension plan liabilities Deficit in the pension plans Deferred tax Net pension liability At 31 December 2002 Equity Bonds Other Present value of pension plan liabilities Deficit in the pension plans Deferred tax Net pension liability Southern Africa The Americas Europe Total Rate of return % Fair value US$ million Rate of return % Fair value US$ million Rate of return % Fair value US$ million Fair value US$ million 11.3 7.4 7.5 990 327 656 1,973 (1,994) (21) 6 (15) 9.3 9.8 9.2 58 111 4 173 (276) (103) 31 (72) 7.9 5.0 5.5 778 459 96 1,333 1,826 897 756 3,479 (1,724) (3,994) (391) 117 (274) (515) 154 (361) Southern Africa The Americas Europe Total Rate of return % Fair value US$ million Rate of return % Fair value US$ million Rate of return % Fair value US$ million Fair value US$ million 12.4 8.8 8.7 918 230 312 1,460 (1,484) (24) 7 (17) 8.5 9.0 6.4 105 119 10 234 (366) (132) 40 (92) 7.9 5.0 5.1 773 334 30 1,137 1,796 683 352 2,831 (1,462) (3,312) (325) 97 (228) (481) 144 (337) Southern Africa The Americas Europe Total Rate of return % Fair value US$ million Rate of return % Fair value US$ million Rate of return % Fair value US$ million Fair value US$ million 12.9 9.7 9.6 729 214 119 1,062 (1,068) (6) 2 (4) 8.9 8.1 3.3 69 77 9 155 (261) (106) 32 (74) 7.8 5.3 6.0 572 292 28 892 1,370 583 156 2,109 (1,162) (2,491) (270) 81 (189) (382) 115 (267) The increase in southern African pension plan assets and liabilities during 2003 and 2004 is principally a result of the strengthening of the South African rand against the US dollar and lower discount rate assumptions. 7878v04_GC_Rp_p44-89_020305.qxp 4/3/05 12:54 pm Page 84 84 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS CONTINUED 33 RETIREMENT BENEFITS CONTINUED The Group is continuing to review the impact of legislation passed in 2001 in South Africa on the useable surpluses in its South African plans. The actuaries to the Group plans have not yet finalised their calculations in respect of the apportionment of the surplus from the plans. The liabilities shown above in respect of South Africa have been increased where applicable based on the actuaries’ current estimates of complying with this new legislation at the relevant date. The net pension liability comprises $19 million in respect of plans in surplus (2003: $17 million) and $380 million in respect of plans in deficit (2003: $354 million). The net post-retirement medical plan liability arises as follows: US$ million Southern Africa The Americas 2004 Total Southern Africa The Americas 2003 Total Southern Africa The Americas 2002 Total Present value of post-retirement medical plan liabilities Deferred tax (621) 186 (11) 3 (632) 189 (486) 146 (41) 12 (527) 158 (359) 108 (33) 10 (392) 118 Net post-retirement medical plan liability (435) (8) (443) (340) (29) (369) (251) (23) (274) The Group’s provision of anti-retroviral therapy to HIV positive staff has not significantly impacted the post-retirement medical plan liability. FRS 17 Profit and Loss account disclosure Had the company adopted FRS 17 early, amounts included in the consolidated profit and loss account in respect of defined benefit pension and post-retirement medical plans would have been as follows: US$ million Analysis of the amount charged to operating profit Current service cost Past service costs Other amounts charged to profit and loss (curtailments and settlements) Total operating charge Analysis of the amount charged to other finance income Expected return on plan assets Interest cost on plan liabilities Net charge to other finance(income)/costs Total charge to profit and loss account Pension Post-retirement medical plans plans 73 8 (1) 80 (257) 248 (9) 71 7 – (2) 5 – 50 50 55 2004 Total plans 80 8 (3) 85 (257) 298 41 126 Pension Post-retirement medical plans plans 63 10 (2) 71 (217) 224 7 78 7 16 (12) 11 – 48 48 59 2003 Total plans 70 26 (14) 82 (217) 272 55 137 FRS 17 Statement of Total Recognised Gains and Losses (STRGL) disclosure Amounts included in the consolidated STRGL in respect of defined benefit pension plans and post-retirement medical plans would have been stated as follows: US$ million Difference between actual and expected return on plan assets – gain/(losses) Experience (losses)/gains arising on plan liabilities Effects of changes in assumptions underlying the plan liabilities – (loss)/gain Total actuarial (losses)/gains recognised in the STRGL Pension Post-retirement medical plans plans 2004 Total plans Pension Post-retirement medical plans plans 2003 Total plans Pension Post-retirement medical plans plans 163 (20) – (7) 163 108 (27) – – (9) 108 (370) (9) 168 (178) (15) (193) (145) (3) (148) (37) (35) (22) (57) (37) (12) (49) (239) – 29 4 33 2002 Total plans (370) 197 (33) (206) The gain of $163 million (2003: $108 million; 2002: loss of $370 million) between actual and expected return on plan assets is 5% (2003: 4%; 2002: 18%) of the plan assets at 31 December 2004. The experience loss of $27 million (2003: $9 million; 2002: gain of $197 million) arising on the plan liabilities represents less than 1% (2003: less than 1%; 2002: 7%) of the present value of the plan liabilities at 31 December 2004. The total actuarial loss of $57 million (2003: $49 million; 2002: $206 million) represents 1% (2003: 1%; 2002: 7%) of the present value of the plan liabilities at 31 December 2004. 7878v04_GC_Rp_p44-89_020305.qxp 3/3/05 9:26 pm Page 85 Anglo American plc Annual Report 2004 85 33 RETIREMENT BENEFITS CONTINUED FRS 17 liability disclosure The movement during 2004 and 2003 in the FRS 17 pension and post-retirement medical liability (before allowance for deferred tax) shown above can be analysed as follows: US$ million As at 1 January Current service cost Contributions Acquisitions and disposals of subsidiaries Past service costs and effects of settlements and curtailments Net finance costs Actuarial losses Currency movements As at 31 December (481) (73) 89 20 (7) 9 (35) (37) (515) Pension Post-retirement medical plans plans Pension Post-retirement medical plans plans 2004 Total plans (1,008) (80) 134 49 (5) (41) (57) (139) (527) (7) 45 29 2 (50) (22) (102) 2003 Total plans (774) (70) 123 (6) (12) (55) (49) (165) (392) (7) 47 – (4) (48) (12) (111) (382) (63) 76 (6) (8) (7) (37) (54) (481) (632) (1,147) (527) (1,008) Had the company adopted FRS 17 early, the consolidated profit and loss reserve would have been restated as follows: US$ million Profit and loss reserve at 31 December in the financial statements Less: FRS 17 Retirement benefit reserve Add: SSAP 24 balances: Prepayment (see note 18) Pension provision (see note 23) Post-retirement medical provision (see note 23) Less: attributable deferred tax Profit and loss reserve as adjusted 2004 21,413 (804) 402 (178) 224 529 (173) 2003 (as restated) 16,574 (706) 357 (170) 216 465 (154) 21,011 16,225 The above table does not include a restatement of the charges for pension and post-retirement medical plans in the current year profit and loss account that would arise from the adoption of FRS 17. Potential volatility of FRS 17 The method for calculating the net pension asset under FRS 17 would lead to volatility in the amount to be included in the balance sheet. Pension plan liabilities are measured by reference to long term AA bond yields that can move substantially and rapidly according to market conditions. The plans’ assets, which principally comprise equities, are also subject to large market swings. 34 RELATED PARTY TRANSACTIONS With effect from 1 June 2001, the cross-holding between Anglo American and De Beers was eliminated and Anglo American now accounts for its 45% interest in DB Investments (DBI), the new holding company of De Beers Société Anonyme. As a result of De Beers’ partial interest in Debswana Diamond Company (Proprietary) Limited (one of the shareholders in DBI), Anglo American accounted for an additional 3.65% of DBI’s post-tax equity earnings. As part of an agreement to extend a number of mining licences, this partial interest has been ceded by De Beers to the Government of the Republic of Botswana. Following this restructuring, Anglo American will account only for its direct 45% interest in DBI. Furthermore, Anglo American accounts for the dividends attributable to 10% non-cumulative preference shares with a redemption value of $526 million in DBI as part of operating profit, on the basis that the preference shares are part of Anglo American’s investment in the diamond business. The Company and its subsidiaries, in the ordinary course of business, enter into various sales, purchase and service transactions with joint ventures and associates and others in which the Group has a material interest. These transactions are under terms that are no less favourable than those arranged with third parties. These transactions, in total, are not considered to be significant. Amounts owing to the Group by joint ventures are disclosed in note 18. Dividends received from joint ventures and associates during the year totalled $408 million (2003: $426 million), as disclosed in the consolidated cash flow statement on page 49. 7878v04_GC_Rp_p44-89_020305.qxp 2/3/05 11:28 pm Page 86 86 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS CONTINUED 35 RECONCILIATION OF NET OPERATING ASSETS TO NET ASSETS US$ million Net operating assets (see note 2) Fixed asset investments(1) Current asset investments Cash at bank and in hand Other non-operating assets and liabilities Long term liabilities Provisions for liabilities and charges Equity minority interests Non-equity minority interests Proposed dividend Net assets 2004 2003 37,601 6,731 575 2,086 (4,206) (7,449) (4,986) (4,445) (175) (734) 29,709 7,206 1,032 1,094 (4,700) (6,665) (3,954) (3,396) – (554) 24,998 19,772 (1) As restated for the adoption of Urgent Issues Task Force (UITF) abstract 38 ‘Accounting for ESOP trusts’. See note 1 to the financial statements. 36 FINANCIAL STATEMENTS OF THE PARENT COMPANY Profit and loss of parent As permitted by section 230 of the Companies Act, the profit and loss account of the parent company is not presented as part of these financial statements. The profit after tax for the year for the parent company amounted to $976 million (2003: loss of $254 million). Balance sheet The parent company’s balance sheet is shown on page 51. Statement of movement in shareholders’ funds and movement of reserves US$ million Balance at 1 January 2004 (as previously reported) Prior year adjustment At 1 January 2004 (as restated) Profit for the financial year Employee share scheme credit Shares issued Dividends paid and proposed At 31 December 2004 Issued share capital 738 – 738 – – 9 – 747 Share premium account 1,284 – 1,284 – – 349 – 1,633 Capital redemption reserve 82 – 82 – – – – 82 Other reserve – – – 1,955(1) – – – Profit and loss account 750 (622) 128 976 31 – (594) Total 2,854 (622) 2,232 2,931 31 358 (594) 1,955 541 4,958 (1) On 1 October 2004, AA plc transferred AA Holdings to AA Services. The gain on this disposal of $1,955 million has been taken as an unrealised gain to reserves, as it does not constitute a realised profit or loss. Dividends paid and proposed relate only to shareholders on the United Kingdom principal register excluding dividends waived by Greenwood Nominees Limited as nominees for Butterfield Trust (Guernsey) Limited, the trustee for the Anglo American employee share scheme. Dividends paid to shareholders on the Johannesburg branch register are distributed by a South African subsidiary in accordance with the terms of the Dividend Access Share Provisions of Anglo American plc’s articles of association. 7878v04_GC_Rp_p44-89_020305.qxp 4/3/05 12:37 pm Page 87 Anglo American plc Annual Report 2004 87 36 FINANCIAL STATEMENTS OF THE PARENT COMPANY CONTINUED Fixed asset investments US$ million Cost At 1 January 2004 (as previously reported) Prior year adjustment At 1 January 2004 (as restated) Acquisitions Disposals At 31 December 2004 Provisions for impairment At 1 January 2004 (as previously reported) Prior year adjustment(1) At 1 January 2004 (as restated) Charge for the year At 31 December 2004 Net book value At 31 December 2004 At 31 December 2003 (as restated) Investment in subsidiaries’ equity Own shares Total 9,513 – 9,513 8,510 (5,564) 12,459 693 (693) 10,206 (693) – – – – 9,513 8,510 (5,564) 12,459 (8) – (8) – (8) 12,451 9,505 (71) 71 – – – – – (79) 71 (8) – (8) 12,451 9,505 (1) The Group and the Company have adopted Urgent Issues Task Force (UITF)38, ‘Accounting for ESOP Trusts’. As required by this abstract, own shares held by employee trusts have been reclassified from fixed asset investments and are now recorded as a reduction in Shareholders’ Funds. See note 1. The audit fee in respect of the parent company was $26,000 (2003: $20,000). 7878v04_GC_Rp_p44-89_020305.qxp 3/3/05 9:29 pm Page 88 88 Anglo American plc Annual Report 2004 NOTES TO FINANCIAL STATEMENTS CONTINUED 37 GROUP COMPANIES The principal subsidiaries, joint ventures, associates and proportionally consolidated joint arrangements of the Group at 31 December 2004, and the Group percentage of equity capital, joint arrangements and joint venture interests are set out below. All these interests are held indirectly by the parent company and are consolidated within these financial statements. The Group has restricted the information to its principal subsidiaries as full compliance with section 231(b) of the Companies Act would result in a statement of excessive length. Country of incorporation Business Percentage of equity owned(1) Subsidiary undertakings Platinum Anglo American Platinum Corporation Limited Gold AngloGold Ashanti Limited (formerly AngloGold Limited) Coal Anglo Coal(2) Anglo Coal (Callide) Pty Limited South Africa Platinum South Africa South Africa Australia Gold Coal Coal Base Metals Black Mountain Mineral Development(2) Namakwa Sands(2) Gamsberg Zinc Corporation(2) Bamisa – Barro Alto Mineração Limitada Ambase Exploration (Namibia) Proprietary Limited (Skorpion) Namibia Anglo American of South America Limitada (Catalão) Minera Sur Andes Limitada Empresa Minera de Mantos Blancos SA Codemin SA Minera Loma de Níquel, CA Minera Quellaveco SA Lisheen Brazil Chile Chile Brazil Venezuela Peru Ireland South Africa South Africa South Africa Brazil Copper, zinc and lead Mineral sands Zinc project Nickel project Zinc Niobium Copper Copper Nickel Nickel Copper project Zinc and lead Industrial Minerals Tarmac Group Limited Tarmac France SA Bilfinger Berger Baustoffe GmbH Lausitzer Grauwacke GmbH Tarmac Iberia SA WKSM SA Tarmac Severokamen A.S. Copebrás Limitada Midland Quarry Products Limited UK France Germany Germany Spain Poland Czech Republic Brazil UK Construction materials Construction materials Construction materials Construction materials Construction materials Construction materials Construction materials Fertilisers and sodium tripolyphosphate Construction materials Ferrous Metals and Industries Scaw Metals(2)/Moly-Cop Highveld Steel and Vanadium Corporation Limited Kumba Resources Limited Boart Longyear(2)/Boart Longyear Limited The Tongaat-Hulett Group Limited South Africa/Chile South Africa South Africa South Africa South Africa 100 Steel and engineering works 79.5 Steel, vanadium and ferroalloys Iron ore, coal and heavy minerals 66.6 Tools, equipment and contracting services 100 52.5 Sugar, starch and aluminum Paper and Packaging Mondi Business Paper Holdings AG (formerly Neusiedler) Mondi South Africa Limited Mondi Packaging AG(3)(formerly Frantschach) Mondi Packaging Europe SA Mondi Packaging Holdings AG (holds Roman Bauernfeind gp) Austria Frantschach Swiecie SA (now Mondi Packaging Paper Swiecie SA) Mondi Packaging South Africa(4) Europapier AG Austria South Africa Austria Luxembourg Poland South Africa Austria (1) The proportion of voting rights of subsidiaries held by the Group is the same as the proportion of equity owned. (2) A division of Anglo Operations Limited, a wholly-owned subsidiary. (3) The acquisition of the minority stake was completed on 5 April 2004. (4) The disposal of 42% to Shanduka Resources will be effective 1 January 2005. Business paper Business paper Packaging Packaging Packaging Packaging Packaging South Africa Paper merchanting 100 100 100 100 100 72 100 100 74.8 51 100 100 100 100 100 100 100 100 100 99.9 100 91.4 80 100 100 100 100 100 100 100 100 73 50 7878v04_GC_Rp_p44-89_020305.qxp 4/3/05 12:38 pm Page 89 Anglo American plc Annual Report 2004 89 37 GROUP COMPANIES CONTINUED Joint ventures Aylesford Newsprint Holdings Limited Compañia Minera Doña Inés de Collahuasi SCM Mondi Shanduka Newsprint United Marine Holdings Ltd Country of incorporation UK Chile South Africa UK Associates DB Investments SA Luxembourg Queensland Coal Mine Management (Pty) Ltd Australia Cerrejón Zona Norte SA Colombia Carbones del Cerrejón LLC Anguilla Carbones del Guasare SA Venezuela Samancor Limited South Africa Australia Groote Eylandt Mining Company (Pty) Ltd (Gemco) Tasmanian Electro Metallurgical Company (Pty) Ltd (Temco) Australia Palabora Mining Company Limited South Africa Business Newsprint Copper Newsprint Construction materials Diamonds Coal Coal Coal Coal Chrome and manganese Manganese Manganese Copper Percentage of equity owned(6) 50 44 58 50 45 33.3 33.3 33.3 24.9 40 40 40 28.7 Location Business Percentage owned Proportionally consolidated joint arrangements(5) Drayton Moranbah North Dartbrook German Creek Moura Australia Australia Australia Australia Australia Coal Coal Coal Coal Coal (5) The wholly-owned subsidiary Anglo Coal Holdings Australia Limited holds the proportionally consolidated joint arrangements. (6) All equity interests shown are ordinary shares. 88 88 78 70 51 38 EVENTS OCCURRING AFTER END OF YEAR On 1 January 2005, Mondi completed the sale of a 42% equity stake in a new entity which will own Mondi’s South African packaging businesses. The new entity, Mondi Packaging South Africa, now includes Mondi’s board and paper mills at Springs, Felixton and Piet Retief, its corrugated converting business (Mondipak) and its waste paper collection and processing operations (Mondi Recycling) and has an enterprise value of $370 million. Mondi has set aside a further 3% interest for broad-based participation by Mondi South Africa employees and relevant communities. In January 2005, Highveld Steel and Samancor sold half of their shareholdings in Acerinox. Anglo American’s attributable share of the proceeds was $69 million. On 17 February 2005, BHP Billiton and Anglo American announced that they had reached agreement for the sale of Samancor Chrome to the Kermas Group for an enterprise value of $469 million. The sale will be effective 1 April 2005, subject to obtaining regulatory approvals. 7878v04_GC_Rp_p90-ibc#86609.qxp 2/3/05 11:13 pm Page 90 90 Anglo American plc Annual Report 2004 ORE RESERVES AND MINERAL RESOURCES INTRODUCTION The Ore Reserves and Mineral Resources estimates presented in this report are prepared in accordance with the Anglo American plc (AA plc) Policy for the Reporting of Ore Reserves and Mineral Resources. This policy requires that the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves 2004 edition (the JORC Code) be used as a minimum standard. Some AA plc subsidiary companies have a primary listing in South Africa where public reporting is carried out according to the ‘South African Code for Reporting of Mineral Resources and Mineral Reserves’ (the SAMREC Code). The SAMREC Code is similar to the JORC Code and the Ore Reserve and Mineral Resource terminology appearing in this section follows the definitions in both the JORC (2004) and SAMREC Codes. The information on Ore Reserves and Mineral Resources was prepared by or under the supervision of Competent Persons as defined in the JORC or SAMREC Codes. All Competent Persons have sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which he/she is undertaking. All the Competent Persons consent to the inclusion in this report of the matters based on their information in the form and context in which it appears. The names of the Competent Persons are lodged with the AA plc company secretaries in London and are available on request. Anglo American Group Companies are subject to a comprehensive programme of audits aimed at providing assurance in respect of Ore Reserve and Mineral Resource estimates. The audits are conducted by people who qualify as Competent Persons from within a particular division, from another division of the Company or from independent consultants. The frequency and depth of the audits is a function of the risks/uncertainties associated with the estimates of a particular Ore Reserve and Mineral Resource, the overall value thereof and the time that has lapsed since an independent third party audit has been conducted. Those operations/projects subject to recent independent, third party audits are indicated in footnotes to the tables. The JORC and SAMREC Codes require the use of reasonable economic assumptions. These include long-range commodity price and exchange rate forecasts, which are prepared by in-house specialists largely using estimates of future supply and demand and long-term economic outlooks. Ore Reserves are dynamic and are influenced by changing economic conditions, technical issues, environmental regulations and additional information and therefore estimates can vary from year to year. Mineral Resource estimates tend to be influenced mostly by additional information and transfers to Ore Reserves. The estimates of Ore Reserves and Mineral Resources are as at 31 December 2004. Unless otherwise stated, Mineral Resources are additional to Ore Reserves. The figures in the tables have been rounded and, if used to derive totals and averages, could cause minor computational differences. 7878v04_GC_Rp_p90-ibc#86609.qxp 3/3/05 9:33 pm Page 91 Anglo American plc Annual Report 2004 91 PLATINUM (stated as at 31 December 2004). The Group’s Ore Reserve and Mineral Resource estimates were compiled in accordance with the Australasian Code for Reporting of Mineral Resources and Ore Reserves (The JORC Code, 2004) as a minimum standard. Where relevant, the estimates were also prepared in compliance with regional codes and requirements (e.g. The South African Code for Reporting of Mineral Resources and Mineral Reserves, The SAMREC Code, 2000). The Mineral Resources are additional to the Ore Reserves. The figures reported represent 100% of the Mineral Resources and Ore Reserves unless otherwise noted. AA plc’s interest in Anglo Platinum is 74.84%. Grade(1) 2003 Contained metal tonnes Contained metal ounces (million) 2004 2003 2004 2003 Anglo Platinum Ore Reserves Operations/Projects by reef Merensky Reef(2) Classification Proved Probable Total Proved Probable Total Proved Proved (stockpiles) Probable Total Proved Probable Total metric UG2 Reef(3) Platreef(4) All Reefs Tonnes (million) 2003 71.0 145.4 216.4 166.3 462.8 629.1 4.0 7.9 311.3 323.1 249.2 919.4 1,168.6 2004 91.3 124.8 216.0 229.5 362.3 591.8 246.8 9.9 92.0 348.7 577.6 579.1 1,156.6 2004 g/t 5.57 6.14 5.90 4.12 4.41 4.29 3.34 2.91 4.09 3.53 4.00 4.73 4.36 g/t 5.62 6.18 6.00 4.34 4.40 4.38 3.03 3.23 2.65 2.67 4.65 4.09 4.21 Total Imperial(6) 1,275.0Mton 1,288.1Mton Tailings(5) Proved Probable Total metric – 33.5 33.5 Total Imperial(6) 37.0Mton Rounding of figures may cause computational discrepancies. – – – – 0.127oz/t – 1.10 1.10 0.032oz/t 0.123oz/t – – – – 508.9 765.8 1,274.7 944.8 1,596.9 2,541.7 825.5 28.9 376.0 1,230.4 2,308.0 2,738.8 5,046.8 – 36.9 36.9 399.4 899.0 1,298.4 721.7 2,034.0 2,755.7 12.0 25.5 826.1 863.6 1,158.6 3,759.0 4,917.7 16.4 24.6 41.0 30.4 51.3 81.7 26.5 0.9 12.1 39.6 74.2 88.1 162.3 – 1.2 – – – 12.8 28.9 41.7 23.2 65.4 88.6 0.4 0.8 26.6 27.8 37.3 120.9 158.1 – – 1.2 – (1) 4E PGE grade: sum of platinum, palladium, rhodium and gold grades in grammes per tonne. (2) The global tonnage and grade remain largely unaffected compared with 2003. The proved reserves increased by 28% (20Mt). (3) The decrease in the tonnage by 6% (37Mt) is partially due to the reallocation of reserves to resources and the narrower resource widths being modelled in the deeper areas at Union and Amandelbult sections. (4) Exploration results have generated improved confidence in the reserve. These results account for the substantial increase in Proved Ore Reserves. Finalisation of modelling of reserves in the PPL North project has had a major influence on grade estimates. Within the PPRust open pit, material lying between 1.0 g/t and 1.7 g/t will be stockpiled on surface and does not report to reserves. The Platreef is mined by open pit. (5) Tailings are reported separately as resources and reserves but are not aggregated to the global resource and reserve summation tabulations due to their significantly different characteristics and the calculation thereof. (6) Total Imperial units: tonnage is reported in million short tons (Mton), grade in troy ounces per short ton (oz/t) and contained metal in million troy ounces (Moz). During 2004 the geostatistical processes of the South African operations and projects were reviewed by an external third party consulting firm. 7878v04_GC_Rp_p90-ibc#86609.qxp 3/3/05 9:35 pm Page 92 92 Anglo American plc Annual Report 2004 ORE RESERVES AND MINERAL RESOURCES CONTINUED PLATINUM CONTINUED Anglo Platinum – Mineral Resources Operations/Projects by reef UG2 Reef(3) Classification Merensky Reef(2) Measured Indicated Measured and Indicated Inferred Total Measured Indicated Measured and Indicated Inferred Total Measured Indicated Measured and Indicated Inferred Total Measured Indicated Platreef(4) All Reefs Measured and Indicated Inferred Total metric Tailings(5) Total Imperial(6) Measured Indicated Measured and Indicated Inferred Total metric Grade(1) 2003 Contained metal tonnes Contained metal ounces (million) 2004 2003 2004 2003 Tonnes (million) 2003 60.6 238.5 299.2 1,082.1 1,381.2 288.5 595.2 883.7 1,958.2 2,841.9 11.9 338.9 350.8 153.6 504.4 361.0 1,172.6 1,533.6 3,193.8 4,727.5 2004 76.1 261.4 337.5 1,138.9 1,476.4 312.0 766.8 1,078.9 1,648.2 2,727.1 148.5 309.2 457.7 575.5 1,033.2 536.7 1,337.4 1,874.1 3,362.6 5,236.6 2004 g/t 5.23 5.63 5.54 5.53 5.53 5.25 5.12 5.16 5.30 5.24 1.88 2.49 2.29 1.37 1.78 4.31 4.61 4.53 4.70 4.64 398.3 1,470.4 1,868.7 6,299.4 8,168.1 1,638.8 3,925.4 5,564.2 8,732.1 g/t 297.1 4.90 1,274.4 5.34 1,571.5 5.25 5,917.2 5.47 7,488.7 5.42 1,506.6 5.22 3,128.5 5.26 4,635.1 5.25 5.05 9,895.2 5.11 14,296.3 14,530.3 20.7 278.6 1.74 800.8 769.0 2.36 821.6 1,047.6 2.34 374.1 788.6 2.44 1,195.7 1,836.2 2.37 1,824.4 2,315.7 5.05 5,203.8 6,164.8 4.44 8,480.5 4.58 7,028.2 5.07 15,820.1 16,186.6 4.91 24,300.6 23,214.7 5,772.4Mton 5,211.1Mton 0.135oz/t 0.143oz/t – 180.1 180.1 – 180.1 – 219.0 219.0 – 219.0 – 1.03 1.03 – 1.03 – 1.08 1.08 – 1.08 – 186.4 186.4 – 186.4 – 235.8 235.8 – 235.8 12.8 47.3 60.1 202.5 262.6 52.7 126.2 178.9 280.7 459.6 9.0 24.7 33.7 25.4 59.0 74.5 198.2 272.7 508.6 781.3 – 6.0 6.0 – 9.6 41.0 50.5 190.2 240.8 48.4 100.6 149.0 318.1 467.2 0.7 25.7 26.4 12.0 38.4 58.7 167.3 226.0 520.4 746.4 – 7.6 7.6 – Total Imperial(6) 198.5Mton 241.4Mton 0.030oz/t 0.031oz/t 6.0 7.6 Rounding of figures may cause computational discrepancies. Joint venture agreements are still being finalised. Once finalised, the above statement will be affected. (1) 4E PGE grade: sum of platinum, palladium, rhodium and gold grades in grammes per tonne. (2) The additional 7% (95Mt) of Merensky resources accrue from exploration results, refinement of modelling techniques, and the addition of various joint venture properties (where finalisation of agreements have been concluded) and other properties. Similarly the grade has been positively influenced by the 2004 exploration results. (3) The decrease in total UG2 resources by 4% (115Mt) between 2003 and 2004, is ascribed largely to the restatement of the Pandora JV following the conclusion of a joint venture. Anglo Platinum’s attributable percentage changed from 100% to 42.5%. The balance of the variance is determined by dilution due to other joint ventures and exploration results. The measured and indicated categories of resources have increased significantly. (4) Exploration results have allowed for a deepening of the resource envelope with a significant improvement in the lateral extent of the defined resources as well. This accounts for the substantial increase in the measured resources. Finalisation of resources in the PPR North project has had a major influence in tonnage and grade estimates. Within the PPRust open pit, material lying between 1 g/t and 1.7 g/t, will be stockpiled on surface and reports to measured and indicated resources. The Platreef is mined by open pit. (5) Tailings are reported separately as resources and reserves but are not aggregated to the global resource and reserve summation tabulations due to their significantly different characteristics. (6) Total Imperial units: tonnage is reported in million short tons (Mton), grade in troy ounces per short ton (oz/t) and contained metal in million troy ounces (Moz). During 2004 the geostatistical processes of the South African operations and projects were reviewed by an external third party consulting firm. 7878v04_GC_Rp_p90-ibc#86609.qxp 4/3/05 12:56 pm Page 93 Anglo American plc Annual Report 2004 93 PLATINUM CONTINUED Anglo Platinum – Ore Reserves Other Projects Classification Zimbabwe – Unki – Great Dyke Proved Probable Total metric Tonnes (million) 2003 14.9 22.2 37.1 2004 14.9 22.2 37.1 2004 g/t 4.30 4.30 4.30 Contained metal tonnes Contained metal ounces (million) 2004 2003 2004 2003 Grade(1) 2003 g/t 4.30 4.30 4.30 64.1 95.5 159.6 64.1 95.5 159.6 2.1 3.1 2.1 3.1 Total Imperial(2) 40.9Mton 40.9Mton 0.125oz/t 0.125oz/t 5.1 5.1 Anglo Platinum – Mineral Resources Other Projects Classification Zimbabwe – Unki – Great Dyke Measured Indicated Measured and indicated Inferred Total metric Tonnes (million) 2003 19.5 29.1 48.6 11.6 60.2 2004 19.5 29.1 48.6 11.6 60.2 2004 4.98 4.98 4.98 4.98 4.98 Grade(1) 2003 Contained metal tonnes Contained metal ounces (million) 2004 2003 2004 2003 4.98 4.98 4.98 4.98 4.98 97.1 144.9 242.0 57.8 299.8 97.1 144.9 242.0 57.8 299.8 3.1 4.7 7.8 1.9 3.1 4.7 7.8 1.9 Total Imperial(2) South Africa – Anooraq-Anglo Platinum JV – Platreef(3) 66.4Mton 66.4Mton 0.145oz/t 0.145oz/t 9.6 9.6 g/t(6) g/t(6) Measured Indicated Measured and indicated Inferred Total metric South Africa – Sheba’s Ridge – Platreef(4) Measured Indicated Measured and indicated Inferred Total metric Total Imperial (South Africa)(2) Canada – River Valley(5) Measured Indicated Measured and indicated Inferred Total metric – 88.3 88.3 52.0 140.4 – 180.9 180.9 150.8 331.7 520.4Mton 4.3 8.4 12.7 1.8 14.5 Total Imperial(2) 16.0Mton Rounding of figures may cause computational discrepancies. – – – – – – – – – – – – – – – – – – 1.35 1.35 1.23 1.31 – 0.66 0.66 0.65 0.65 0.025oz/t 1.79 1.17 1.38 1.09 1.34 0.039oz/t – 119.2 119.2 64.0 183.3 – 118.9 118.9 98.3 217.2 7.6 9.8 17.4 2.0 19.4 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 3.8 3.8 2.1 – 3.8 3.8 3.2 12.9 0.2 0.3 0.5 0.1 0.6 – – – – – – – – – – – – – – (1) 4E PGE grade: sum of platinum, palladium, rhodium and gold grades in grammes per tonne. (2) Total Imperial units: tonnage in million short tons (Mton), grade in troy ounces per short ton (oz/t) and contained metal in million troy ounces (Moz). (3) Following the finalisation of an agreement Anglo Platinum holds an attributable interest of 50%. Only the attributable interest is reported. (4) Following the finalisation of an agreement Anglo Platinum holds an attributable interest of 35%. While the reef style is currently listed as Platreef, the use of this nomenclature is under discussion with Ridge Mining plc and a later revision of the term Platreef is anticipated. Only the attributable interest in Sheba’s Ridge is reported. (5) Anglo Platinum holds an attributable interest of 50% in River Valley, only the attributable interest is reported. (6) The grade is reported as 3E: sum of platinum, palladium and gold grades in grammes per tonne. 7878v04_GC_Rp_p90-ibc#86609.qxp 3/3/05 9:40 pm Page 94 94 Anglo American plc Annual Report 2004 ORE RESERVES AND MINERAL RESOURCES CONTINUED GOLD (stated as at 31 December 2004). In determining the economic parameters to be used, AngloGold Ashanti has been guided by the preferred position of the SEC in the USA, whereby the economic parameters used are based on a three year historical average. The Group’s Ore Reserve and Mineral Resource estimates were compiled in accordance with the Australasian Code for Reporting of Mineral Resources and Ore Reserves (The JORC Code, 2004) as a minimum standard. Where relevant, the estimates were also prepared in compliance with regional codes and requirements (e.g. The South African Code for Reporting of Mineral Resources and Mineral Reserves, The SAMREC Code, 2000). The figures reported represent 100% of the Mineral Resources and Ore Reserves attributable to AngloGold Ashanti. AA plc’s interest in AngloGold Ashanti is 50.97%. AngloGold Ashanti – Ore Reserves Tonnes (million) 2004 2003 South Africa(2) Argentina Australia Brazil Ghana Guinea Mali Namibia Tanzania(3) USA Total Classification Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total metric 30.9 256.8 287.7 0.6 6.2 6.9 45.8 102.6 148.4 3.3 8.6 11.9 45.0 43.8 88.9 21.6 32.7 54.3 8.1 15.0 23.1 0.9 6.9 7.9 24.4 46.2 70.6 47.9 73.9 121.8 228.6 592.8 821.4 54.8 267.9 322.6 6.7 0.5 7.2 46.9 105.3 152.2 4.0 5.8 9.7 – – – – – – 7.8 17.0 24.8 1.3 10.1 11.4 14.2 21.1 35.3 53.9 64.7 118.6 189.5 492.4 681.9 2004 g/t 5.21 4.11 4.23 9.99 6.87 7.15 1.21 1.33 1.29 6.58 7.59 7.31 2.09 6.23 4.13 0.77 1.10 0.97 2.74 3.31 3.11 1.09 2.06 1.94 3.01 4.49 3.98 1.07 0.94 0.99 2.20 3.29 2.99 Grade 2003 g/t 2.96 4.12 3.93 7.34 10.16 7.56 1.31 1.40 1.37 7.15 7.08 7.10 – – – – – – 2.75 3.71 3.41 1.38 1.81 1.76 3.30 4.17 3.82 1.26 0.87 1.04 2.31 3.09 2.88 Contained Au (tonnes) Contained metal ounces (million)(1) 2004 2003 2004 2003 160.8 1,056.7 1,217.5 6.0 42.9 49.0 55.6 135.9 191.5 21.4 65.5 86.9 94.3 273.1 367.3 16.6 35.9 52.5 22.1 49.7 71.8 1.0 14.2 15.3 73.7 207.4 281.1 51.2 69.4 120.6 502.7 1,950.8 2,453.6 162.0 1,104.3 1,266.4 49.1 5.6 54.6 61.3 147.2 208.6 28.3 40.8 69.1 – – – – – – 21.4 63.1 84.5 1.8 18.2 20.0 46.8 88.1 134.9 67.7 56.1 123.8 438.5 1,523.5 1,962.0 5.2 34.0 39.1 0.2 1.4 1.6 1.8 4.4 6.2 0.7 2.1 2.8 3.0 8.8 11.8 0.5 1.2 1.7 0.7 1.6 2.3 0.0 0.5 0.5 2.4 6.7 9.0 1.6 2.2 3.9 16.2 62.7 5.2 35.5 40.7 1.6 0.2 1.8 2.0 4.7 6.7 0.9 1.3 2.2 – – – – – – 0.7 2.0 2.7 0.1 0.6 0.6 1.5 2.8 4.3 2.2 1.8 4.0 14.1 49.0 Total Imperial(4) 905.4Mton 751.7Mton 0.087oz/t 0.084oz/t 78.9 63.1 See footnotes on facing page. 7878v04_GC_Rp_p90-ibc#86609.qxp 2/3/05 11:13 pm Page 95 Anglo American plc Annual Report 2004 95 GOLD CONTINUED AngloGold Ashanti – Mineral Resources Tonnes (million) 2004 2003 South Africa(2) Argentina Australia Brazil Ghana Guinea Mali Namibia Tanzania(3) USA Total Classification Measured Indicated Inferred Total Measured Indicated Inferred Total Measured Indicated Inferred Total Measured Indicated Inferred Total Measured Indicated Inferred Total Measured Indicated Inferred Total Measured Indicated Inferred Total Measured Indicated Inferred Total Measured Indicated Inferred Total Measured Indicated Inferred Total Measured Indicated Inferred Total metric 90.3 423.9 135.3 649.5 7.9 19.4 3.5 30.8 59.7 146.0 84.7 290.3 8.1 15.2 23.0 46.3 91.6 74.0 36.6 202.2 32.6 74.4 25.7 132.7 16.5 23.9 36.6 76.9 9.2 63.0 65.6 137.7 39.4 103.3 27.1 169.8 80.6 122.8 45.3 248.7 435.9 1,065.8 483.2 1,984.9 103.2 661.1 263.2 1,027.5 23.2 2.4 0.9 26.5 63.0 149.9 87.2 300.1 6.6 10.3 28.2 45.1 – – – – – – – – 13.2 23.3 57.2 93.8 8.7 56.9 60.8 126.3 20.5 43.3 20.0 83.7 109.4 110.8 38.0 258.2 347.7 1,058.0 555.4 1,961.1 Grade 2003 g/t 4.26 4.17 6.48 4.77 3.62 6.07 8.40 4.00 1.36 1.30 1.29 1.31 7.17 7.14 6.94 7.02 – – – – – – – – 2.34 2.97 1.75 2.14 0.79 1.31 1.04 1.15 3.13 3.80 3.03 3.45 1.17 0.88 1.05 1.03 2.55 3.26 4.11 3.37 Contained Au (tonnes) Contained metal ounces (million)(1) 2004 2003 2004 2003 463.1 2,758.5 417.1 3,638.7 16.3 73.3 18.7 108.3 75.2 184.4 101.7 361.3 54.6 118.4 165.9 338.9 357.0 377.4 331.2 1,065.7 25.4 74.6 30.4 130.4 34.6 65.4 77.4 177.4 6.7 81.7 74.4 162.8 107.2 377.7 79.0 563.9 80.6 117.3 41.1 239.0 1,220.7 4,228.7 1,336.9 6,786.4 439.4 2,754.6 1,705.8 4,899.7 83.8 14.7 7.3 105.8 85.5 195.1 112.2 392.8 47.4 73.4 195.5 316.3 – – – – – – – – 30.9 69.1 100.4 200.5 6.8 74.7 63.1 144.7 64.0 164.8 60.4 289.2 128.1 97.7 39.7 265.5 885.9 3,444.1 2,284.5 6,614.5 14.9 88.7 13.4 117.0 0.5 2.4 0.6 3.5 2.4 5.9 3.3 11.6 1.8 3.8 5.3 10.9 11.5 12.1 10.6 34.3 0.8 2.4 1.0 4.2 1.1 2.1 2.5 5.7 0.2 2.6 2.4 5.2 3.4 12.1 2.5 18.1 2.6 3.8 1.3 7.7 39.2 136.0 43.0 14.1 88.6 54.8 157.5 2.7 0.5 0.2 3.4 2.7 6.3 3.6 12.6 1.5 2.4 6.3 10.2 – – – – – – – – 1.0 2.2 3.2 6.4 0.2 2.4 2.0 4.7 2.1 5.3 1.9 9.3 4.1 3.1 1.3 8.5 28.5 110.7 73.4 2004 g/t 5.13 6.51 3.08 5.60 2.06 3.77 5.40 3.52 1.26 1.26 1.20 1.24 6.73 7.80 7.22 7.32 3.90 5.10 9.04 5.27 0.78 1.00 1.18 0.98 2.10 2.74 2.12 2.31 0.73 1.30 1.13 1.18 2.72 3.66 2.91 3.32 1.00 0.96 0.91 0.96 2.80 3.97 2.77 3.42 Total Imperial(4) 2,188.0Mton 2,161.7Mton 0.100oz/t 0.098oz/t 218.2 212.7 Rounding of figures may cause computational discrepancies. (1) AngloGold Ashanti reports Mineral Resources ‘as inclusive of those Mineral Resources modified to produce the Ore Reserve’ figures (JORC). (2) The large variance between the 2004 and 2003 figures is the result of economic scoping studies at WUDL, resulting in sub-economic areas being removed from the Mineral Resources. (3) The large variance between the 2004 and 2003 figures is due to the fact that AngloGold and Ashanti Goldfields each owned 50% of Geita Mine prior to the merger. (4) Total Imperial units: tonnage is reported in million short tons (Mton), grade in troy ounces per short ton (oz/t) and contained metal in million troy ounces (Moz). The 2004 Ore Reserves and Mineral Resources of the following operations were audited by third party independent auditors: Sadiola, Yatela, Kopanang, TauTona, Obuasi, Iduapriem, and Cerro Vanguardia. 7878v04_GC_Rp_p90-ibc#86609.qxp 3/3/05 9:45 pm Page 96 96 Anglo American plc Annual Report 2004 ORE RESERVES AND MINERAL RESOURCES CONTINUED COAL (stated as at 31 December 2004). The Group’s Coal Reserve and Coal Resource estimates were compiled in accordance with the Australasian Code for Reporting of Mineral Resources and Ore Reserves (The JORC Code, 2004) as a minimum standard. Where relevant, the estimates were also prepared in compliance with regional codes and requirements (e.g. The South African Code for Reporting of Mineral Resources and Mineral Reserves, The SAMREC Code, 2000). The Coal Resources are additional to the Coal Reserves, unless otherwise stated. Anglo Coal – Coal Reserves(3) Reported (%)(1) Attributable (%)(1) Tonnes (million)(2) ROM(3) 2003 ROM(3) 2004 Yield (%)(4) Saleable(3) 2004 Heat content(5) (kcal/kg) Gross as received Saleable(3) 2004 Tonnes (million)(2) Saleable(3) 2003 Saleable(3) 2004 Trade Collieries South Africa Australia Colombia Venezuela Total Classification Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Power Generation Collieries South Africa Australia Total Proved Probable Total Proved Probable Total Proved Probable Total 100 100 100 67.3 33.3 33.3 24.9 24.9 86.7 72.1 99.6 99.6 100 100 99.7 99.7 199 353 552 422 268 690 202 64 266 37 – 37 860 685 1,545 678 299 977 226 58 284 904 357 1,261 241 373 614 347 269 616 105 148 253 39 – 39 732 790 1,522 718 298 1,016 247 86 333 966 384 1,350 59 58 58 80 78 79 99 99 99 100 – 100 81 70 76 94 100 96 95 98 95 94 100 96 6,230 6,230 6,230 7,090 6,970 7,050 6,290 6,440 6,320 6,880 – 6,880 6,710 6,590 6,660 4,210 4,890 4,430 4,730 4,310 4,640 4,340 4,800 4,480 119 208 327 351 217 568 204 64 268 38 – 38 712 489 1,201 637 299 936 214 57 271 852 355 1,207 147 225 372 290 227 517 105 150 255 40 – 40 583 601 1,184 664 298 962 215 76 291 880 374 1,254 Anglo Coal – Coal Resources(6) Reported (%)(1) Attributable (%)(1) Classification Trade Collieries South Africa Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Australia Colombia See footnotes on facing page. 100 100 100 77.2 33.3 33.3 Tonnes (million)(2) MTIS(6) 2003 MTIS(6) 2004 Heat content(5) (kcal/kg) Gross as received 2004 315 265 580 165 165 330 55 220 275 370 230 600 250 150 400 – – – 5,870 6,180 6,010 6,640 6,540 6,590 6,580 6,480 6,500 7878v04_GC_Rp_p90-ibc#86609.qxp 4/3/05 12:57 pm Page 97 Anglo American plc Annual Report 2004 97 COAL CONTINUED Anglo Coal – Coal Resources(6) Reported (%)(1) Attributable (%)(1) Classification Tonnes (million)(2) MTIS (6) 2003 MTIS(6) 2004 Heat content(5) (kcal/kg) Gross as received 2004 Trade Collieries continued Venezuela Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Total Power Generation Collieries South Africa Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Australia Total Other Coal Resources South Africa Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Australia Total 24.9 24.9 84.0 77.7 90.7 90.7 100 100 98.7 98.7 100 100 100 87.2 100 97.4 4 6 10 539 656 1,195 55 50 105 340 300 640 395 350 745 – 3,280 3,280 395 435 830 395 3,715 4,110 4 6 10 624 386 1,010 60 30 90 300 340 640 360 370 730 70 3,280 3,350 590 455 1,045 660 3,735 4,395 7,260 7,580 7,480 6,190 6,380 6,300 5,230 5,060 5,150 5,010 4,540 4,790 5,040 4,610 4,840 – 4,690 4,690 6,380 6,510 6,450 6,380 4,900 5,050 Rounding of figures may cause computational discrepancies. Trade Collieries refers to operations primarily associated with the production of coal for the world export market. Power Generation Collieries refers to operations that primarily produce coal for domestic power generation requirements. Other Coal Resources refers to project areas not included in the Trade Collieries or Power Generation Collieries, while Power Generation Collieries refers to operations that primarily produce coal for internal power generation requirements. (1) Reported and Attributable (%) refers to 2004 only. For the 2003 Reported and Attributable figures, please refer to the previous Annual Report. (2) Includes 100% of Coal Reserves and Coal Resources of consolidated entities and the Group’s share of joint ventures and associates where applicable. Where the Group’s share is more than 50%, 100% of the Coal Reserves and Coal Resources are reported. (3) Coal Reserves are quoted on a run of mine (ROM) reserve tonnage basis, which represents the tonnes delivered to the plant, and on a Saleable reserve tonnage basis, which represents the product tonnes produced. (4) Yield percentage represents the ratio of Saleable tonnes to ROM tonnes and is quoted on an in situ to in situ basis or on an air dried to air dried basis. (5) The coal quality is quoted as a weighted average of the heat content of all Saleable coal products. The coal quality for the Coal Resources is reported on an in situ basis. (6) Coal Resources are quoted on a mineable in situ (MTIS) tonnage basis in addition to the ROM reserves. Coal quality parameters for Coal Reserves for trade collieries meet the contractual specifications for coking coal, metallurgical coal, steam coal and domestic coal. Coal quality parameters for Coal Reserves for power generation collieries meet the specification of the individual supply contracts. In Australia, the finalisation of the Dawson Project resources and reserve statement is reflected in a gain in Coal Reserves for the Trade Colliery Reserves (44 million ROM tonnes (51% basis)), a change in the Proved and Probable ratio and a reduction in the Trade Colliery Coal Resources and Other Coal Resources (28 million and 108 million MTIS tonnes respectively (51% basis)). The reporting of the Lake Lindsay Project Coal Resources reflects a gain of additional Coal Resources for the Trade Collieries (62 million MTIS tonnes (51% basis)). In Colombia, the change in the Proved to Probable ratio in the Trade Colliery Coal Reserves and the gain of additional Trade Colliery Coal Resources (277 million MTIS tonnes (33% basis)) reflects the result of the upgrading of the resource estimate in response to geological drilling at Cerrejón. In South Africa, the conversion of resources to reserves at Mafube Colliery is reflected in a reduction in Other Coal Resources (68 million MTIS tonnes) and the gain in the Power Generation Collieries Coal Reserves and Coal Resources (14 million ROM tonnes and 20 million tonnes respectively (50% basis)). In addition, 99.2 million saleable tonnes were depleted during 2004 by mining operations (reportable basis). The geological models for the following operations and projects were audited during 2004 by third party, independent auditors: Kriel, Cerrejón, Zondagsfontein, Saddlers Creek and Theodore North. 7878v04_GC_Rp_p90-ibc#86609.qxp 3/3/05 9:49 pm Page 98 98 Anglo American plc Annual Report 2004 ORE RESERVES AND MINERAL RESOURCES CONTINUED BASE METALS (stated as at 31 December 2004). The Group’s Ore Reserve and Mineral Resource estimates were compiled in accordance with the Australasian Code for Reporting of Mineral Resources and Ore Reserves (The JORC Code, 2004) as a minimum standard. Where relevant, the estimates were also prepared in compliance with regional codes and requirements (e.g. The South African Code for Reporting of Mineral Resources and Mineral Reserves, The SAMREC Code, 2000). The Mineral Resources are additional to the Ore Reserves, unless otherwise stated. Copper Division – Ore Reserves Classification Reported Attributable Tonnes (million)(2) (%)(1) (%)(1) 2004 2003 Los Bronces(3) Sulphide (flotation) Dump Leach (ASCu)(6) Oxide (ASCu)(6) Vat leach Mantos Blancos(5) Sulphide (ICu)(6) El Soldado(4) Sulphide (flotation) Sulphide (low grade leachable) Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Collahuasi(8) Proved Oxide and Mixed (TCu)(6) Probable Total Proved Probable Total Proved Probable Total Mantoverde Heap Leach (ASCu)(6) Low Grade Sulphide (TCu)(6) Dump Leach (ASCu)(6)(7) Sulphide (TCu)(6) See footnotes on facing page. 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 44 44 44 44 44 44 638.0 77.7 715.7 480.9 656.7 1,137.6 76.8 65.7 142.5 9.2 17.1 26.3 9.4 10.2 19.6 2.5 3.2 5.7 51.8 28.6 80.4 25.7 21.3 47.0 12.3 5.4 17.7 124.3 506.5 630.8 – 165.3 165.3 674.9 85.8 760.7 426.8 739.4 1,166.2 85.0 52.0 137.0 9.4 31.7 41.1 11.0 10.8 21.8 8.3 5.1 13.4 56.2 25.6 81.8 34.1 26.7 60.8 7.9 9.5 17.4 138.3 467.2 605.4 45.5 127.3 172.8 Grade 2003 %Cu 0.91 0.65 0.88 0.47 0.30 0.36 1.10 0.94 1.04 0.71 1.05 0.97 0.59 0.97 0.78 0.38 0.40 0.39 0.65 0.70 0.66 0.30 0.30 0.30 1.03 1.23 1.14 1.00 1.01 1.01 0.58 0.52 0.54 Contained metal tonnes (thousand)(2) 2004 2003 5,839 532 6,371 2,261 2,142 4,403 815 584 1,398 62 207 269 63 99 162 10 13 23 326 186 512 75 62 136 124 67 191 1,359 4,933 6,292 – 869 869 6,166 558 6,724 2,024 2,217 4,241 936 488 1,424 67 333 399 65 105 170 32 20 52 364 179 543 103 79 182 81 117 198 1,383 4,740 6,122 264 663 927 2004 %Cu 0.92 0.68 0.89 0.47 0.33 0.39 1.06 0.89 0.98 0.68 1.21 1.02 0.67 0.97 0.82 0.40 0.40 0.40 0.63 0.65 0.64 0.29 0.29 0.29 1.01 1.24 1.08 1.09 0.97 1.00 – 0.53 0.53 7878v04_GC_Rp_p90-ibc#86609.qxp 4/3/05 11:05 am Page 99 Anglo American plc Annual Report 2004 99 BASE METALS CONTINUED Copper Division – Mineral Resources Classification Reported (%)(1) Attributable (%)(1) Tonnes (million)(2) 2004 2003 Los Bronces Sulphide El Soldado(9) Sulphide Mantos Blancos(10) Sulphide (ICu)(6) Oxide (ASCu)(6) Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Dump Leach (ASCu)(6) Mantoverde(11) Heap Leach (ASCu)(6) Dump Leach (ASCu)(6) Collahuasi(8) Oxide and Mixed(TCu)(6) Sulphide (TCu)(6) Low Grade Sulphide (TCu)(6) 100 100 100 100 100 100 100 100 100 100 100 100 100 100 44 44 44 44 44 44 451.5 619.4 1,070.9 34.3 54.4 88.7 5.6 90.8 96.4 1.5 9.3 10.8 – – – 34.6 73.6 108.2 1.1 0.3 1.4 0.02 0.79 0.81 5.4 83.2 88.6 16.9 105.2 122.1 416.8 571.8 988.6 41.0 25.0 66.0 5.2 53.2 58.4 0.1 7.1 7.2 0.1 6.8 6.8 14.9 23.2 38.1 20.0 51.4 71.4 0.03 0.23 0.26 5.5 76.5 82.0 15.6 112.3 127.9 Grade 2003 %Cu 0.62 0.55 0.58 0.83 0.82 0.83 0.93 0.85 0.86 0.67 0.82 0.82 0.39 0.40 0.40 0.63 0.56 0.59 0.29 0.29 0.29 0.88 1.21 1.18 0.89 0.86 0.87 0.46 0.47 0.47 Contained metal tonnes (thousand)(2) 2004 2003 2,721 3,161 5,882 281 397 678 47 735 782 7 53 60 – – – 156 280 435 4 1 5 0.2 8.8 9.0 47 735 782 76 489 565 2,584 3,145 5,729 346 202 548 49 452 502 1 58 59 0.3 27 27 93 130 223 59 151 210 0.4 2.6 3.1 49 661 711 71 529 600 2004 %Cu 0.60 0.51 0.55 0.82 0.73 0.76 0.84 0.81 0.81 0.49 0.57 0.56 – – – 0.45 0.38 0.40 0.32 0.35 0.33 0.97 1.09 1.09 0.86 0.88 0.88 0.45 0.46 0.46 Rounding of figures may cause computational discrepancies. (1) Reported and Attributable (%) refers to 2004 only. For the 2003 Reported and Attributable figures, please refer to the previous Annual Report. (2) Includes 100% of Ore Reserves and Mineral Resources of consolidated entities and the Group’s share of joint ventures and associates where applicable. Where the Group’s share is more than 50%, 100% of the Ore Reserves and Mineral Resources are reported. (3) Los Bronces Reserves include 29.7Mt @ 0.97%Cu sulphides (flotation) and 20.2Mt @ 0.48%Cu low grade sulphides (leaching) to be mined from a third party mining property (as an easement agreement). The agreement that gives Los Bronces the right to mine and process these Reserves was signed in November of 2003 (Acuerdo MARCO). Sulphide flotation Reserves contain 0.015%Mo recovered as a by-product. The infill drilling carried out during the year resulted in an upgrade of Probable Reserves to Proved Reserves. The overall decrease in the sulphide flotation Reserves is due to a change in the cut-off grade which introduced changes in the geometry of the optimised pit. (4) El Soldado Oxide Resources and Reserves included in the mine plan amount to 1.3Mt @ 1.13%Cu. (5) Mantos Blancos – loss of more than 10Mt of sulphide Ore Reserves due to reduction in current life of mine. The life of mine is scheduled to end when the oxide plant runs out of material (leaving only the sulphide plant). The operation is not economic with just the sulphide plant producing. The remaining material is reported as Mineral Resource. ICu = insoluble copper (total copper less acid soluble copper), ASCu = acid soluble copper, TCu = total copper. (6) (7) Mantoverde – the dump leach Reserves have decreased due to depletion and transfer to heap leach Reserve as a result of a review of the marginal cut-off grade, and some material reclassified as Mineral Resource. (8) Collahuasi – only the attributable tonnage and metal tonnes (44%) are reported (in the AA plc 2003 Annual Report 100% was reported). Sulphide Reserves from Rosario deposit include 1045Mt @ 0.026%Mo to be mined and processed as from 2006. Rosario low grade sulphide Reserves and all Ujina sulphides previously in the Proved category have been downgraded to Probable category due to uncertainties in long term modifying factors. (9) El Soldado sulphide Resources – near mine exploration has resulted in an increase in the Indicated Mineral Resources. (10) Mantos Blancos – the change in Resources is due to the transfer from Reserves to Resources and the lowering of the cut-off grade to the marginal cut-off value. For this year's additional Resources, dump leach mineralisation outside pits has been eliminated. This loss is offset by reporting vat leach material at a lower marginal cut-off grade. (11) Mantoverde – for this year's additional Resources, dump leach mineralisation outside pits has been eliminated. This loss is offset by reporting heap leach material at a lower marginal cut-off grade, i.e. transfer of dump leach material to heap leach material. The Ore Reserves and Mineral Resources of the following operations were audited during 2004 by third party, independent auditors: Mantoverde and Collahuasi. 7878v04_GC_Rp_p90-ibc#86609.qxp 2/3/05 11:13 pm Page 100 100 Anglo American plc Annual Report 2004 ORE RESERVES AND MINERAL RESOURCES CONTINUED BASE METALS CONTINUED Nickel Division – Ore Reserves Reported Attributable Tonnes (million)(2) (%)(1) (%)(1) 2004 2003 Loma de Níquel Laterite Codemin(3) Laterite Classification Proved Probable Total Proved Probable Total 100 91.4 100 100 17.4 18.9 36.3 3.2 0.5 3.7 18.6 19.9 38.5 3.5 0.6 4.0 Nickel Division – Mineral Resources Reported Attributable (%)(1) (%)(1) 2004 Loma de Níquel Laterite Codemin(3) Laterite Classification Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated 100 91.4 100 100 1.0 4.5 5.5 3.4 3.5 6.9 Tonnes (million)(2) 2003 0.3 4.2 4.5 3.4 3.5 6.9 2004 %Ni 1.53 1.43 1.48 1.33 1.33 1.33 2004 %Ni 1.42 1.46 1.45 1.29 1.25 1.27 Grade 2003 %Ni 1.53 1.40 1.46 1.34 1.33 1.34 Grade 2003 %Ni 1.54 1.47 1.47 1.29 1.25 1.27 Contained metal tonnes (thousand)(2) 2004 2003 266 270 536 42 7 49 285 278 563 46 7 54 Contained metal tonnes (thousand)(2) 2004 2003 14 66 79 43 44 87 5 62 67 43 44 87 Rounding of figures may cause computational discrepancies. (1) Reported and Attributable (%) refers to 2004 only. For the 2003 Reported and Attributable figures, please refer to the previous Annual Report. (2) Includes 100% of Ore Reserves and Mineral Resources of consolidated entities and the Group’s share of joint ventures and associates where applicable. Where the Group’s share is more than 50%, 100% of the Ore Reserves and Mineral Resources are reported. (3) In July of 2004 Anglo American acquired the 10% share in Codemin held by IFC raising Anglo American’s stake to 100%. The Ore Reserves and Mineral Resources of Loma de Níquel were audited during 2004 by third party, independent auditors. 7878v04_GC_Rp_p90-ibc#86609.qxp 3/3/05 9:52 pm Page 101 Anglo American plc Annual Report 2004 101 BASE METALS CONTINUED For the polymetallic deposits, the tonnage figures apply to each metal. Zinc Division – Ore Reserves Reported Attributable Tonnes (million)(2) (%)(1) (%)(1) 2004 2003 Black Mountain Broken Hill(3) Zinc Reserves Copper Reserves Lead Reserves Black Mountain Swartberg(4) Zinc Reserves Copper Reserves Lead Reserves Lisheen(5) Zinc Reserves Lead Reserves Skorpion Zinc Reserves See footnotes on page 102. Classification Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total 100 100 0.1 14.0 14.1 0.4 14.0 14.4 100 100 – 2.5 2.5 – 1.5 1.5 100 100 8.6 3.4 12.0 7.6 2.3 9.9 100 100 10.4 9.3 19.7 11.2 9.5 20.7 2004 %Zn 3.53 3.68 3.68 %Cu 0.42 0.67 0.67 %Pb 2.57 3.66 3.65 %Zn – 1.01 1.01 %Cu – 0.40 0.40 %Pb – 3.50 3.50 %Zn 12.38 9.97 11.69 %Pb 2.15 1.41 1.94 %Zn 11.37 9.58 10.53 Grade 2003 %Zn 2.41 3.69 3.65 %Cu 0.52 0.67 0.67 %Pb 3.43 3.65 3.64 %Zn – 1.24 1.24 %Cu – 0.48 0.48 %Pb – 3.80 3.80 %Zn 12.96 10.62 12.41 %Pb 2.30 1.60 2.14 %Zn 11.40 9.69 10.62 Contained metal tonnes (thousand)(2) 2004 2003 5 513 519 1 94 94 4 511 514 – 25 25 – 10 10 – 88 88 1,059 341 1,399 184 48 232 1,186 887 2,073 10 518 528 2 94 96 14 512 526 – 18 18 – 7 7 – 56 56 979 245 1,224 174 37 211 1,278 918 2,196 7878v04_GC_Rp_p90-ibc#86609.qxp 4/3/05 11:07 am Page 102 102 Anglo American plc Annual Report 2004 ORE RESERVES AND MINERAL RESOURCES CONTINUED BASE METALS CONTINUED Zinc Division – Mineral Resources Classification Black Mountain Broken Hill(6) Zinc Resources Measured Indicated Measured and Indicated Copper Resources Measured Indicated Measured and Indicated Lead Resources Measured Indicated Measured and Indicated Black Mountain Swartberg(7) Zinc Resources Measured Indicated Measured and Indicated Copper Resources Measured Indicated Measured and Indicated Lead Resources Measured Indicated Measured and Indicated Lisheen(5) Zinc Resources Measured Indicated Measured and Indicated Lead Resources Measured Indicated Measured and Indicated Reported (%)(1) Attributable (%)(1) Tonnes (million)(2) 2004 2003 100 100 1.7 5.1 6.7 2.1 4.4 6.5 100 100 – 17.8 17.8 – 19.4 19.4 100 100 1.1 0.4 1.5 – 0.3 0.3 2004 %Zn 2.90 4.20 3.88 %Cu 0.61 0.83 0.78 %Pb 4.34 4.15 4.20 %Zn – 0.66 0.66 %Cu – 0.69 0.69 %Pb – 2.90 2.90 %Zn 13.36 9.63 12.33 %Pb 2.38 1.43 2.12 Grade 2003 %Zn 2.89 3.86 3.55 %Cu 0.56 0.71 0.66 %Pb 3.98 3.85 3.89 %Zn – 0.73 0.73 %Cu – 0.71 0.71 %Pb – 3.09 3.09 %Zn – 11.70 11.70 %Pb – 1.10 1.10 Contained metal tonnes (thousand)(2) 2004 2003 48 213 261 10 42 52 72 210 282 – 118 118 – 123 123 – 517 517 148 41 188 26 6 32 60 169 229 12 31 43 82 169 251 – 142 142 – 138 138 – 600 600 – 31 31 – 3 3 Rounding of figures may cause computational discrepancies. (1) Reported and Attributable (%) refers to 2004 only. For the 2003 Reported and Attributable figures, please refer to the previous Annual Report. (2) Includes 100% of Ore Reserves and Mineral Resources of consolidated entities and the Group’s share of joint ventures and associates where applicable. Where the Group’s share is more than 50%, 100% of the Ore Reserves and Mineral Resources are reported. (3) Broken Hill Ore Reserves contain 14.1 million tonnes of silver ore at 52 g/t as a by-product. (4) The increase in the Reserve is due to a change in the mine plan (addition of stopes as a result of improved orebody definition). Swartberg Ore Reserves contain 2.5Mt of silver ore @ 42 g/t as a by-product. (5) The increase in Ore Reserves and additional Mineral Resources is due to extensive infill drilling, and the results of a cut-off grade optimisation study resulting in an increase in tonnes and decrease in mining grade. (6) Broken Hill Mineral Resources contain 6.7Mt of silver ore @ 62 g/t as a by-product. (7) Swartberg Mineral Resources contain 17.8Mt of silver ore @ 35 g/t as a by-product. 7878v04_GC_Rp_p90-ibc#86609.qxp 4/3/05 12:57 pm Page 103 Anglo American plc Annual Report 2004 103 BASE METALS CONTINUED Niobium – Ore Reserves Reported (%)(1) Attributable (%)(1) Tonnes (million)(2) 2004 2003 2004 Grade 2003 Contained product tonnes (thousand)(2) 2004 2003 Catalão (Open pit) Classification Proved Probable Total 100 100 7.0 8.4 15.4 7.0 9.1 16.0 Projects – Ore Reserves Reported (%)(1) Attributable (%)(1) Tonnes (million)(2) 2004 2003 Quellaveco Advanced project Barro Alto(3) Laterite (Advanced project) Gamsberg(4) Advanced project Classification Proved Probable Total Proved Probable Total Proved Probable Total Projects – Mineral Resources Classification Quellaveco Advanced project Measured Indicated Measured and Indicated Barro Alto Laterite (Advanced project) Measured Indicated Measured and Indicated 100 80 100 100 100 100 250.1 688.3 938.4 22.9 7.3 30.2 35.0 110.3 145.2 250.1 688.3 938.4 22.9 7.3 30.2 35.0 110.3 145.3 Reported (%)(1) Attributable (%)(1) Tonnes (million)(2) 2004 2003 100 80 100 100 1.5 176.7 178.2 0.8 21.2 22.0 1.5 176.7 178.2 0.8 21.2 22.0 %Nb2O5 %Nb2O5 1.15 1.47 1.33 2004 %Cu 0.76 0.59 0.64 %Ni 1.85 1.80 1.84 %Zn 7.55 5.55 6.04 2004 %Cu 0.53 0.46 0.46 %Ni 1.63 1.36 1.36 1.15 1.48 1.34 Grade 2003 %Cu 0.76 0.59 0.64 %Ni 1.85 1.80 1.84 %Zn 7.55 5.55 6.04 Grade 2003 %Cu 0.53 0.46 0.46 %Ni 1.63 1.36 1.36 80 124 204 80 134 215 Contained metal tonnes (thousand)(2) 2004 2003 1,901 4,061 5,962 424 131 555 2,641 6,124 8,765 1,901 4,061 5,962 424 131 555 2,642 6,124 8,766 Contained metal tonnes (thousand)(2) 2004 2003 8 813 821 13 288 301 8 813 821 13 288 301 Rounding of figures may cause computational discrepancies. (1) Reported and Attributable (%) refers to 2004 only. For the 2003 Reported and Attributable figures, please refer to the previous Annual Report. (2) Includes 100% of Ore Reserves and Mineral Resources of consolidated entities and the Group’s share of joint ventures and associates where applicable. Where the Group’s share is more than 50%, 100% of the Ore Reserves and Mineral Resources are reported. (3) During 2004 approximately 0.2Mt @ 2% Ni was mined from Barro Alto and processed at the Codemin plant. This depletion is considered minor and is not reflected in this year's overall Reserve figures. (4) During 2004 approximately 18 thousand tonnes @ 8% Zn of Proved Reserves were mined from Gamsberg via an exploration adit. 7878v04_GC_Rp_p90-ibc#86609.qxp 3/3/05 9:59 pm Page 104 104 Anglo American plc Annual Report 2004 ORE RESERVES AND MINERAL RESOURCES CONTINUED BASE METALS CONTINUED The tonnage figures apply to each product. Heavy Minerals Namakwa Sands – Ore Reserves(3) Reported Attributable Tonnes (million)(2) (%)(1) (%)(1) 2004 2003 100 100 182.7 173.3 356.0 114.4 299.7 414.1 Ilmenite Zircon Rutile Classification Proved Probable Total Proved Probable Total Proved Probable Total Namakwa Sands – Mineral Resources(4) Reported Attributable Tonnes (million)(2) (%)(1) (%)(1) 2004 2003 100 100 178.3 104.2 282.5 218.8 57.6 276.4 Ilmenite Zircon Rutile Classification Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Grade 2003 % 4.2 3.3 3.5 1.2 0.8 0.9 0.3 0.2 0.2 Grade 2003 % 3.4 2.6 3.3 0.8 0.9 0.8 0.2 0.2 0.2 Contained product tonnes (million)(2) 2004 2003 7.7 6.0 13.7 2.0 1.4 3.4 0.4 0.4 0.8 4.8 9.8 14.6 1.4 2.5 3.9 0.3 0.6 0.9 Contained product tonnes (million)(2) 2004 2003 6.0 3.0 9.0 1.3 0.8 2.1 0.3 0.2 0.5 7.5 1.5 9.0 1.7 0.5 2.2 0.4 0.1 0.5 2004 % 4.2 3.5 3.9 1.1 0.8 1.0 0.2 0.2 0.2 2004 % 3.4 2.9 3.2 0.8 0.8 0.8 0.2 0.2 0.2 Rounding of figures may cause computational discrepancies. (1) Reported and Attributable (%) – no change between 2003 and 2004. (2) Includes 100% of Ore Reserves and Mineral Resources of consolidated entities and the Group’s share of joint ventures and associates where applicable. Where the Group’s share is more than 50%, 100% of the Ore Reserves and Mineral Resources are reported. (3) The increase in Proved Ore Reserves was due to upgrading Probable Ore Reserves after the 2003 drilling campaign and conversion of Measured Resource. Some Probable Ore Reserves were transferred to Mineral Resources during the 2003 model update. (4) The increase in Mineral Resources is due to transfer from Probable Ore Reserves after the 2003 model update. 7878v04_GC_Rp_p90-ibc#86609.qxp 4/3/05 4:53 pm Page 105 Anglo American plc Annual Report 2004 105 FERROUS METALS AND INDUSTRIES (stated as at 31 December 2004). The Group’s Ore Reserve and Mineral Resource estimates were compiled in accordance with the Australasian Code for Reporting of Mineral Resources and Ore Reserves (The JORC Code, 2004) as a minimum standard. Where relevant, the estimates were also prepared in compliance with regional codes and requirements (e.g. The South African Code for Reporting of Mineral Resources and Mineral Reserves, The SAMREC Code, 2000). The Mineral Resources are additional to the Ore Reserves, unless otherwise stated. Ferrous Metals – Ore Reserves Classification Reported Attributable Tonnes (million)(2) (%)(1) (%)(1) 2004 2003 Hotazel Manganese Mines (Mn)(3) Mamatwan Proved Probable Total Proved Probable Total Wessels GEMCO (Mn)(4) Proved Probable Total Highveld (Vanadium V2O5)(5) 40 40 40 40 40 40 Proved Probable Total 100 80 12.6 7.6 20.2 0.9 4.1 5.0 23.7 13.4 37.1 23.1 3.5 26.6 7.0 2.4 9.4 1.1 5.2 6.3 16.2 18.4 34.7 11.4 21.7 33.1 Ferrous Metals – Mineral Resources Classification Reported Attributable Tonnes (million)(2) (%)(1) (%)(1) 2004 2003 Hotazel Manganese Mines (Mn)(6) Mamatwan Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Wessels GEMCO (Mn)(7) Measured Indicated Measured and Indicated Highveld (Vanadium V2O5)(8) Measured Indicated Measured and Indicated Zimbabwe Alloys (Cr2O3)(9) Measured Indicated Measured and Indicated Rounding of figures may cause computational discrepancies. 40 40 40 40 40 40 100 80 100 100 13.7 8.3 22.0 1.7 8.2 9.9 27.0 16.9 43.9 49.8 252.5 302.3 0.7 1.3 1.9 7.4 2.6 10.0 2.5 12.0 14.5 20.9 23.2 44.1 51.5 155.5 207.0 0.6 104.2 104.8 2004 % Yield 2003 49.0 46.2 48.0 43.8 41.0 42.3 2004 % Yield 2003 46.6 46.1 46.4 41.8 42.0 41.9 2004 %Mn 37.7 37.2 37.5 48.0 48.0 48.0 %Mn 46.3 47.2 46.6 %V2O5 1.69 1.70 1.69 2004 %Mn 37.7 37.2 37.5 48.0 48.0 48.0 %Mn 48.5 47.0 47.9 %V2O5 1.70 1.69 1.69 %Cr2O3 39.3 44.9 43.0 Grade 2003 %Mn 38.3 38.4 38.3 48.0 48.2 48.2 %Mn 48.1 47.5 47.8 %V2O5 1.69 1.70 1.69 Grade 2003 %Mn 38.8 38.0 38.6 48.0 48.2 48.2 %Mn 48.1 47.5 47.8 %V2O5 1.70 1.69 1.70 %Cr2O3 39.1 40.4 40.4 (1) Reported and Attributable (%) refers to 2004 only. For the 2003 Reported and Attributable figures, please refer to the previous Annual Report. (2) Includes 100% of Ore Reserves and Mineral Resources of consolidated entities and the Group’s share of joint ventures and associates where applicable. Where the Group’s share is more than 50%, 100% of the Ore Reserves and Mineral Resources are reported. (3) Increase in Ore Reserves are mainly due to a change in cut-off grade policy. Mamatwan tonnages are stated as Wet Metric Tonnes, while Wessels is Dry Metric Tonnes. (4) Grades reported are beneficiated (washed samples) grades, as beneficiated grades are used in mine scheduling, quality control and blending (rather than in situ grades) and as such reflect a mineral product grade. Yield cut-offs of 30% for massive manganese and 16% for loose pisolitic manganese are used in conjunction with lithology to further differentiate the ore/waste envelope. (5) The Ore Reserve grades and tonnages are reported after crushing, washing and screening. Some Probable Ore Reserves were transferred to Mineral Resources as they do not fall within the current mining authorisation. (6) Hotazel Manganese Mines report Measured and Indicated Mineral Resources as ‘inclusive of those Mineral Resources modified to produce the Ore Reserve’ (JORC). The increase in Mineral Resources is due to a lowering of the cut-off grade. Mamatwan tonnages are stated as Wet Metric Tonnes, while Wessels is Dry Metric Tonnes. (7) GEMCO report Measured and Indicated Mineral Resources as ‘inclusive of those Mineral Resources modified to produce the Ore Reserve’ (JORC). (8) The increase in Mineral Resources is due to the inclusion of underground resources after further investigation, and the transfer of Ore Reserves. A total of 58 million tons of resources are the subject of old order unused rights as defined in the Mineral and Petroleum Resources Development Act and will expire with effect from 1 May 2005 and the decision was taken not to convert these rights. (9) Zimbabwe Alloys (ZAL) is primarily a smelting and refining company. It obtains its ore feed from tributors and small scale producers, some of whom mine from their own claims generating the Ore Reserves. The Indicated Resources include Eluvial Chromite Resources. The 2004 Mineral Resource tonnage does not include 103Mt of low carbon Cr2O3 material. The processing plant is optimised for high carbon Cr2O3. Currently it is not envisaged that ZAL will resume low carbon ferrochrome production. 7878v04_GC_Rp_p90-ibc#86609.qxp 2/3/05 11:13 pm Page 106 106 Anglo American plc Annual Report 2004 ORE RESERVES AND MINERAL RESOURCES CONTINUED FERROUS METALS AND INDUSTRIES CONTINUED Kumba Resources Limited – Ore Reserves Reported Attributable (%)(1) (%)(1) Mining Method Tonnes (million) 2004 2003 100 59.6 UG 1.0 2.7 3.7 1.6 3.7 5.3 Base Metals Rosh Pinah Zinc Reserves Lead Reserves Classification Proved Probable Total Proved Probable Total Iron Ore Sishen Iron Ore Mine Proved Probable 510 208 717 15 1 16 63 87 150 706 67 773 656 132 787 15 5 20 63 87 150 768 67 835 Total 100 52.4 OP Thabazimbi Iron Ore Mine Proved Probable Total 100 52.4 OP Hope Downs (Hope 1) Advanced project(3) Proved Probable Total 33.3 33.3 OP Coal – Reserves Grootegeluk Coal Mine Coking Coal Proved Probable Total Proved Probable Proved Probable Total Saleable Product Thermal Coal Metallurgical Coal 100 66.6 OP Leeuwpan Coal Mine(4) Thermal and Proved Metallurgical Coal Probable Total See footnotes on page 112. 100 66.6 OP 111 48 159 87 48 134 2004 %Zn 9.5 10.9 10.6 %Pb 2.7 2.6 2.7 %Fe 63.6 63.7 Grade 2003 Saleable Product (thousand tonnes)(2) 2004 2003 %Zn zinc metal zinc metal 7.0 11.5 10.2 %Pb 2.5 2.7 2.7 %Fe 63.1 62.7 91 299 390 112 431 543 lead metal lead metal 26 72 98 41 102 143 Saleable Product (million tonnes)(2) 178@ 436@ 525@ 66.3%Fe 66.0%Fe 103@ 66.1%Fe 65.8%Fe 628@ 66.3%Fe 65.9%Fe 614@ 63.6 63.0 60.9 61.5 63.0 62.1 60.9 62.8 13@ 63.5%Fe 1@ 64.1%Fe 14@ 63.5%Fe 13 4 17 61.9 61.1 61.4 61.9 61.1 61.4 Saleable Product (million tonnes)(2) 35 5 264 26 40 0.7 371 57 23 80 39 4 306 28 43 0.7 421 39 18 58 7878v04_GC_Rp_p90-ibc#86609.qxp 4/3/05 11:31 am Page 107 Anglo American plc Annual Report 2004 107 Saleable Product(2) (thousand tonnes) 2004 2003 4.1 – 4.1 3.4 – 3.4 4.9 – 4.9 – – – FERROUS METALS AND INDUSTRIES CONTINUED Kumba Resources Limited – Ore Reserves continued Reported Attributable (%)(1) (%)(1) Mining Method Tonnes (million) 2004 2003 2004 Grade 2003 7.1 – 7.1 4.9 – 4.9 41 – 41 9.7 – 9.7 – – – 57 – 57 Classification Coal Reserves continued Tshikondeni Coal Mine Coking Coal Proved Probable Total Inyanda Coal Advanced Project A-grade export steam coal Proved Probable Total 100 66.6 OP 33.3 33.3 OP 100 53.7 OP Mineral Sands(5) Hillendale Mine excluding Braeburn % Ilmenite in THM % Rutile in THM % Zircon in THM Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total % Heavy Minerals (%THM) 6.6 – 6.6 58.4 – 58.4 – 3.2 3.2 – 7.2 7.2 8.1 – 8.1 50.5 – 50.5 – 2.4 2.4 – 6.5 6.5 Fairbreeze A+B+C excluding Fairbreeze C extension % Heavy Minerals (%THM) Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total % Ilmenite in THM % Rutile in THM % Zircon in THM See footnotes on page 112. 100 53.7 OP 138 20 158 120 38 158 6.1 4.2 5.9 59.7 49.1 58.7 – 3.3 3.3 – 8.1 8.1 5.3 7.6 5.9 59.0 51.2 56.9 – 3.3 3.3 – 8.1 8.1 7878v04_GC_Rp_p90-ibc#86609.qxp 2/3/05 11:13 pm Page 108 108 Anglo American plc Annual Report 2004 ORE RESERVES AND MINERAL RESOURCES CONTINUED FERROUS METALS AND INDUSTRIES CONTINUED Kumba Resources Limited – Ore Reserves continued Reported Attributable (%)(1) (%)(1) Mining Method Tonnes (million)(2) 2004 2003 2004 Grade 2003 % Ilmenite Classification Mineral Sands continued Gravelotte Sand Proved Probable Total Coolijarloo Mine (Tiwest) % Ilmenite in THM % Rutile in THM % Zircon in THM Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total 100 53.7 OP 17.2 17.2 OP 52 – 52 7 23 30 52 – 52 8 19 27 11.0 – 11.0 11.0 – 11.0 % Heavy Minerals (%THM) 2.9 2.5 2.6 60 61 61 4.5 4.1 4.2 10 10 10 4.0 2.8 3.2 58 62 61 4.4 4.1 4.2 11 9 10 Jurien (Tiwest) – Project % Heavy Minerals (%THM) Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total % Ilmenite in THM % Rutile in THM % Zircon in THM See footnotes on page 112. 17.2 17.2 OP 2.4 0.3 2.7 2.4 0.3 2.7 6.3 6.6 6.3 55 54 55 8.4 6.1 8.1 11 7 11 6.3 6.6 6.3 55 54 55 8.4 6.1 8.1 11 7 11 7878v04_GC_Rp_p90-ibc#86609.qxp 3/3/05 10:01 pm Page 109 Anglo American plc Annual Report 2004 109 FERROUS METALS AND INDUSTRIES CONTINUED Kumba Resources Limited – Ore Reserves continued Reported Attributable (%)(1) (%)(1) Mining Method Tonnes (million)(2) 2004 2003 2004 Grade 2003 Classification Mineral Sands continued Magnetic Minerals (Ticor Limited) – Project % Ilmenite in THM % Rutile in THM % Zircon in THM Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Classification Industrial Minerals Glen Douglas Dolomite Mine Proved Metallurgical Probable Dolomite Total Proved Probable Total Aggregate Bridgetown Dolomite Metallurgical Dolomite Proved Probable Total Proved Probable Total Aggregate See footnotes on page 112. % Heavy Minerals (%THM) 34.3 34.3 OP – 7.6 7.6 – 7.6 7.6 – 10.0 10.0 – 10.0 10.0 – 48 48 – 7.0 7.0 – 10 10 – 48 48 – 7.0 7.0 – 10 10 Reported Attributable (%)(1) (%)(1) Mining Method Tonnes (million)(2) Saleable Product (million tonnes)(2) 2004 2003 2004 2003 100 66.6 OP 100 66.6 OP 33.3 33.3 OP 34 – 34 12.2 – 12.2 2.6 – 2.6 35 – 35 18.4 – 18.4 2.4 – 2.4 1.5 – 1.5 1.0 – 1.0 – – – – – – 7878v04_GC_Rp_p90-ibc#86609.qxp 2/3/05 11:13 pm Page 110 110 Anglo American plc Annual Report 2004 ORE RESERVES AND MINERAL RESOURCES CONTINUED FERROUS METALS AND INDUSTRIES CONTINUED 2004 %Zn 8.2 11.0 9.9 %Pb 2.2 3.0 2.7 %Fe 65.2 64.8 65.0 63.1 62.4 62.9 62.1 61.1 61.5 65.4 64.6 65.0 Grade 2003 %Zn 8.4 12.6 11.1 %Pb 3.0 3.0 3.0 %Fe 65.1 64.6 65.0 62.5 62.5 62.5 62.1 61.1 61.5 65.5 64.5 65.0 – >35.0 >35.0 – >35.0 >35.0 Reported Attributable (%)(1) (%)(1) Cut-off grade Tonnes (million)(2) 2004 2003 100 59.7 UG 2.3 3.5 5.8 2.0 3.8 5.8 100 52.4 OP 754 636 1,390 975 411 1,386 Kumba Resources Limited – Mineral Resources(6) Classification Base Metals Rosh Pinah Zinc Resources Measured Indicated Measured and Indicated Lead Resources Measured Indicated Measured and Indicated Iron Ore Sishen Iron Ore Mine Measured Indicated Measured and Indicated Thabazimbi Ore Mine Measured Indicated Measured and Indicated 100 52.4 OP Hope Downs (Hope 1) – Advanced Project(3) Measured Indicated Measured and Indicated Sishen South(7) – Advanced Project 33.3 33.3 OP Measured Indicated Measured and Indicated 100 66.6 OP Zandrivierspoort – Advanced Project Measured Indicated Measured and Indicated Coal Resources Grootegeluk Coal Mine Raw Coal Measured Indicated Measured and Indicated Leeuwpan Coal Mine Raw Coal Measured Indicated Measured and Indicated Tshikondeni Coal Mine Raw Coal Measured Indicated Measured and Indicated See footnotes on page 112. 33.3 33.3 OP 100 66.6 OP 100 66.6 OP 100 66.6 OP 43 19 63 66 97 163 146 147 293 – 149 149 40 26 67 66 97 163 130 126 256 – 149 149 1,463 2,075 3,538 1,521 2,075 3,596 187 10 197 27.2 10.1 37.3 160 30 190 30.0 10.1 40.1 7878v04_GC_Rp_p90-ibc#86609.qxp 3/3/05 10:08 pm Page 111 Anglo American plc Annual Report 2004 111 FERROUS METALS AND INDUSTRIES CONTINUED Kumba Resources Limited – Mineral Resources(6) continued Reported Attributable (%)(1) (%)(1) Cut-off grade Tonnes (million)(2 2004 2003 Classification Coal Resources continued Moranbah South, Australia – Project Raw Coal Measured Indicated Measured and Indicated Inyanda Coal – Advanced Project Raw Coal Measured Indicated Measured and Indicated Strehla – Project Raw Coal Measured Indicated Measured and Indicated 100 66.6 OP 33.3 33.3 OP 100 66.6 OP – 586 586 5.1 – 5.1 – 22.5 22.5 – 586 586 5.1 – 5.1 – 22.5 22.5 Kumba Resources Limited – Mineral Resources(6) Reported Attributable (%)(1) (%)(1) Cut-off grade Tonnes (million)(2) 2004 2003 Classification Heavy Minerals Hillendale Mine(8) – including Braeburn(9) Measured Indicated Measured and Indicated 100 53.7 OP Fairbreeze – including A+B+C+C extension(9) Measured Indicated Measured and Indicated Gravelotte Sand – in mining plan 100 53.7 OP Measured Indicated Measured and Indicated 100 53.7 OP KwaZulu-Natal(10) – Fairbreeze D and Block P Measured Indicated Measured and Indicated 100 53.7 OP Eastern Cape – Nombanjana, Ngcizele and Sandy Point Measured Indicated Measured and Indicated 100 53.7 OP Limpopo Sand – Letsitele Sand and Gravelotte Pebbles Measured Indicated Measured and Indicated 53.7 Limpopo Rock – Letsitele Rock and Gravelotte Rock 100 OP Measured Indicated Measured and Indicated See footnotes on page 112. 100 53.7 OP 56 – 56 196 27 223 75 – 75 – 50 50 233 – 233 12.5 – 12.5 – 53.6 53.6 75 – 75 140 75 215 75 – 75 – 50 50 233 – 233 12.5 – 12.5 – 53.6 53.6 2004 % Ilm 3.7 – 3.7 3.7 2.5 3.5 9.1 – 9.1 – 3.0 3.0 4.5 – 4.5 10.5 – 10.5 – 25.9 25.9 Grade 2003 % Ilm 3.8 – 3.8 2.8 4.6 3.5 9.1 – 9.1 – 3.0 3.0 4.5 – 4.5 10.5 – 10.5 – 25.9 25.9 7878v04_GC_Rp_p90-ibc#86609.qxp 4/3/05 12:58 pm Page 112 112 Anglo American plc Annual Report 2004 ORE RESERVES AND MINERAL RESOURCES CONTINUED FERROUS METALS AND INDUSTRIES CONTINUED Kumba Resources Limited – Mineral Resources(6) continued Reported Attributable (%)(1) (%)(1) Cut-off grade Tonnes (million)(2) 2004 2003 2004 Grade 2003 Classification Heavy Minerals continued Coolijarloo Mine, Tiwest Measured Indicated Measured and Indicated Jurien, Tiwest Measured Indicated Measured and Indicated Magnetic Minerals, Ticor Measured Indicated Measured and Indicated Classification Industrial Minerals Glen Douglas Dolomite Mine Measured Metallurgical Indicated Dolomite Measured and Indicated 17.2 17.2 OP 17.2 17.2 OP 34.3 34.3 OP 100 66.6 OP 100 66.6 OP Aggregate Measured Indicated Measured and Indicated Bridgetown Dolomite Mine(11) Metallurgical Dolomite + Aggregate Measured Indicated Measured and Indicated 33.3 33.3 OP Rounding of figures may cause computational discrepancies. OP = open pit UG = underground % Heavy Minerals (%THM) 3.2 2.4 2.6 4.6 5.5 4.8 4.7 6.9 6.6 3.6 2.6 2.8 4.6 5.5 4.7 4.7 6.9 6.6 SiO2% SiO2% <2.5 – <2.5 <2.5 – <2.5 <2.5 – <2.5 <2.5 – <2.5 18 54 72 7.5 1.6 9.1 0.4 25.9 26.3 187 – 187 18.4 – 18.4 2.5 – 2.5 24 55 79 7.5 1.6 9.1 0.4 25.9 26.3 186 – 186 12.2 – 12.2 2.7 – 2.7 (1) Reported and Attributable (%) refers to 2004 only. For the 2003 Reported and Attributable figures, please refer to the previous Annual Report. (2) Includes 100% of Ore Reserves and Mineral Resources of consolidated entities and the Group’s share of joint ventures and associates where applicable. Where the Group’s share is more than 50%, 100% of the Ore Reserves and Mineral Resources are reported. (3) Status may change pending Kumba’s appeal regarding arbitration. (4) Leeuwpan’s Coal Reserves have increased by just over 18% as a result of an increase in yield made possible by changes in specifications required by clients. (5) Kumba reports mineral sands Ore Reserves as the percentage total heavy minerals (% THM) within the Ore Reserves. Increase is due to positive exploration drilling results, which led to the updating of Mineral Resource estimates. Individual valuable heavy mineral portions are reported as a percentage of the total heavy minerals (except Gravelotte Sand which reports the percentage ilmenite in the Ore Reserve tonnage). Ilmenite is estimated with more confidence than rutile and zircon in some deposits, which is reflected in the classification. (6) Kumba Resources report Mineral Resources ‘as inclusive of those Mineral Resources modified to produce the Ore Reserve’. (7) (8) The change in estimated Mineral Resources is the result of additional drilling and subsequent orebody boundary revision. (9) Braeburn and Fairbreeze C extension Mineral Resources subject to successful prospecting rights conversion. (10) Prospecting rights on the KwaZulu deposits (Red Scar, Anmatikulu and Red Hill) have been relinquished due to disappointing exploration results. (11) Plant fines from the production of metallurgical dolomite are sold as aggregate. The ore reserves and mineral resources of the following operations were audited during 2004 by third party, independent auditors: Sishen and Inyanda. 7878v04_GC_Rp_p90-ibc#86609.qxp 4/3/05 11:12 am Page 113 Anglo American plc Annual Report 2004 113 INDUSTRIAL MINERALS (stated as at 31 December 2004). The Group’s Ore Reserve and Mineral Resource estimates were compiled in accordance with the Australasian Code for Reporting of Mineral Resources and Ore Reserves (The JORC Code, 2004) as a minimum standard. Where relevant, the estimates were also prepared in compliance with regional codes and requirements (e.g. The South African Code for Reporting of Mineral Resources and Mineral Reserves, The SAMREC Code, 2000). The Mineral Resources are additional to the Ore Reserves, unless otherwise stated. Phosphate products Copebrás – Ore Reserves(2) Classification Proved(3) Probable Total Copebrás – Mineral Resources(2) Measured Indicated Measured and Indicated Rounding of figures may cause computational discrepancies. Reported Attributable Tonnes (million)(2) (%)(1) (%)(1) 2004 2003 100 73 100 73 52.6 70.0 122.6 4.6 27.8 32.4 100.8 6.1 107.0 9.6 11.4 21.0 2004 %P2O5 12.9 13.6 13.3 12.9 13.6 13.5 Grade 2003 %P2O5 13.3 11.3 13.2 13.9 11.3 12.5 (1) Reported and Attributable (%) – no change between 2003 and 2004. (2) The increase in Ore Reserves and additional Mineral Resources is due to a mining concession being granted for Area 5 during 2004 and the subsequent increase in the pit limits. (3) A drilling grid of 50m x 50m is now required to classify reserves as Proved (and resources as Measured). This has resulted in a reduction of the Proved Reserves but the total Proved plus Probable Reserves is not affected. ANGLO PAPER AND PACKAGING The Mondi Group in South Africa owns and manages an attributable 294,412 (2003: 316,508) hectares of sustainable man-made forests. All of its producing forests have been certified by the Forestry Stewardship Council. The annual harvest is currently 4.9 million tonnes, with the Group procuring 1.24 million tonnes in order to supplement its internal requirements. 7878v04_GC_Rp_p90-ibc#86609.qxp 3/3/05 10:13 pm Page 114 114 Anglo American plc Annual Report 2004 PRODUCTION STATISTICS The figures below include the entire output of consolidated entities and the Group’s share of joint ventures, joint arrangements and associates where applicable, except for Collahuasi in Base Metals which is quoted on a 100% basis. Anglo Platinum (troy ounces)(1)(2) Platinum Palladium Rhodium Nickel (tons) AngloGold Ashanti (gold in troy ounces)(2) South Africa Argentina Australia Brazil Ghana Guinea Mali Namibia Tanzania USA Zimbabwe Gold Fields (gold in troy ounces)(2) Gold Anglo Coal (tonnes) South Africa: Eskom Trade – Thermal Trade – Metallurgical Australia: Thermal Metallurgical South America: Thermal Anglo Coal (tonnes) South Africa: Bank Greenside Goedehoop Kriel Kleinkopje Landau New Denmark New Vaal Nooitgedacht Mafube 2004 2003 2,498,200 1,331,800 258,600 22,700 3,079,000 211,000 410,000 334,000 485,000 83,000 475,000 67,000 570,000 329,000 9,000 6,052,000 2,356,100 1,213,700 237,400 22,500 3,281,000 209,000 432,000 323,000 – – 577,000 73,000 331,000 390,000 – 5,616,000 207,000 870,500 33,668,300 18,648,600 2,143,700 54,460,600 17,378,800 8,203,800 25,582,600 9,589,600 89,632,800 2,733,100 2,754,800 6,462,100 11,059,500 4,691,600 3,474,100 4,975,800 17,312,000 676,600 321,000 54,460,600 31,301,000 18,600,200 1,835,500 51,736,700 17,025,400 9,100,000 26,125,400 8,728,400 86,590,500 3,225,000 2,712,400 5,961,500 10,984,300 4,381,100 3,508,000 4,316,800 16,000,000 647,600 – 51,736,700 (1) Includes Anglo Platinum’s share, 44,500 ounces, of Northam Platinum Limited. (2) See the published results of Anglo American Platinum Corporation Limited, Northam Limited, AngloGold Ashanti Limited and Gold Fields Limited for further analysis of production information. 7878v04_GC_Rp_p90-ibc#86609.qxp 2/3/05 11:13 pm Page 115 Anglo Coal (tonnes) (continued) Australia: Callide Drayton Dartbrook German Creek Jellinbah East Moranbah Dawson Complex South America: Carbones del Guasare Carbones del Cerrejón Anglo Base Metals Copper Collahuasi 100% basis (Anglo American 44%) Ore mined Ore processed Ore grade processed Production Oxide Sulphide Oxide Sulphide Copper concentrate Copper cathode Copper in concentrate Total copper production for Collahuasi Minera Sur Andes Los Bronces mine Ore mined Marginal ore mined Las Tortolas concentrator Production El Soldado mine Ore mined Ore processed Ore grade processed Production Ore processed Ore grade processed Average recovery Copper concentrate Copper cathode Copper in concentrate Total Open pit – ore mined Open pit – marginal ore mined Underground (sulphide) Total Oxide Sulphide Oxide Sulphide Copper concentrate Copper cathode Copper in concentrate Total Anglo American plc Annual Report 2004 115 2004 2003 9,355,300 4,278,800 2,268,100 4,047,600 925,200 1,125,900 3,581,700 25,582,600 1,677,600 7,912,000 9,589,600 50,342,000 6,610,000 34,844,000 0.9 1.3 1,280,400 58,200 422,800 481,000 20,995,000 29,187,000 20,572,000 1.1 89.5 549,000 31,800 199,800 231,600 4,971,000 1,061,000 2,687,000 8,719,000 661,000 6,976,000 1.4 1.1 216,700 8,100 60,700 68,800 8,520,600 4,286,100 2,432,500 3,802,000 883,600 3,158,900 3,041,700 26,125,400 1,380,900 7,347,500 8,728,400 27,680,000 6,355,000 24,415,000 0.8 1.5 861,600 63,400 331,300 394,700 20,901,000 23,676,000 19,514,000 1.1 87.1 553,800 27,700 180,100 207,800 3,188,000 1,590,000 3,267,000 8,045,000 531,000 6,581,000 1.7 1.1 228,600 8,000 62,500 70,500 tonnes tonnes tonnes %Cu %Cu dmt tonnes tonnes tonnes tonnes tonnes tonnes %Cu % dmt tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes %Cu %Cu dmt tonnes tonnes tonnes 7878v04_GC_Rp_p90-ibc#86609.qxp 4/3/05 1:23 pm Page 116 116 Anglo American plc Annual Report 2004 PRODUCTION STATISTICS CONTINUED Chagres Smelter Copper concentrates smelted Production Copper blister/anodes Acid Total copper production for the Minera Sur Andes group Mantos Blancos Mantos Blancos mine Ore processed Oxide Sulphide Marginal ore mined Oxide Sulphide Marginal ore Copper concentrate Copper cathode Copper in concentrate Total Oxide Marginal ore Oxide Marginal ore Copper cathode Ore grade processed Production Mantoverde mine Ore processed Ore grade processed Production Black Mountain and Hudson Bay Other Total attributable copper production Nickel, Niobium and Mineral Sands Nickel Codemin Ore mined Ore processed Ore grade processed Production Loma de Níquel Ore mined Ore processed Ore grade processed Production Other Total attributable nickel production Niobium Catalão Ore mined Ore processed Ore grade processed Production tonnes tonnes tonnes tonnes tonnes tonnes tonnes %Cu (Soluble) %Cu (Insoluble) %Cu (Soluble) dmt tonnes tonnes tonnes tonnes tonnes %Cu (Soluble) %Cu (Soluble) tonnes tonnes tonnes tonnes tonnes tonnes % Ni tonnes tonnes tonnes % Ni tonnes tonnes tonnes tonnes tonnes kg Nb/tonne tonnes 2004 2003 170,400 165,000 440,500 300,400 4,476,000 4,103,000 9,359,000 0.7 1.0 0.4 94,400 58,200 36,700 94,900 9,017,000 7,028,000 0.7 0.3 60,100 79,500 19,400 766,000 403,000 521,300 1.4 6,500 1,265,000 1,204,000 1.7 17,400 100 24,000 568,100 572,500 11.04 3,500 165,500 160,100 436,700 278,300 4,738,000 4,021,000 8,819,000 0.7 1.0 0.4 110,200 51,600 35,300 86,900 9,001,000 6,048,000 0.7 0.3 60,200 87,800 21,900 708,800 500,600 530,300 1.4 6,400 1,208,000 1,216,000 1.7 17,200 1,300 24,900 559,100 529,700 10.87 3,300 7878v04_GC_Rp_p90-ibc#86609.qxp 4/3/05 11:15 am Page 117 Anglo American plc Annual Report 2004 117 Mineral Sands Namakwa Sands Ore mined Production Smelter production Zinc and Lead Black Mountain Ore mined Ore processed Ore grade processed Production Hudson Bay Ore mined Ore processed Ore grade processed Concentrate treated Production (domestic) Production (total) Lisheen Ore mined Ore processed Ore grade processed Production Ilmenite Rutile Zircon Slag tapped Iron tapped Zinc Lead Copper Zinc in concentrate Lead in concentrate Copper in concentrate Copper Zinc Copper Zinc Copper Zinc Copper Zinc Gold Silver Zinc Lead Zinc in concentrate Lead in concentrate Skorpion Ore mined Ore processed Ore grade processed Production Total attributable zinc production Zinc Zinc 2004 2003 18,618,000 320,600 23,700 119,100 169,300 105,900 16,739,000 314,600 20,400 93,300 165,800 105,900 1,518,000 1,500,000 2.7 3.0 0.5 28,200 37,500 5,200 2,484,000 2,419,000 2.2 5.2 274,900 216,500 40,000 105,200 74,300 107,000 73,400 1,020,900 1,475,000 1,460,000 11.7 1.8 156,300 17,200 1,304,000 1,187,000 12.3 119,200 410,700 1,501,000 1,449,000 2.6 3.3 0.5 25,900 39,600 4,700 2,206,000 2,207,000 1.9 5.0 273,000 228,500 39,400 93,100 83,100 117,900 57,500 1,032,800 1,522,000 1,521,000 12.3 2.1 169,300 20,800 673,000 619,000 12.0 47,400 360,500 tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes %Zn %Pb %Cu tonnes tonnes tonnes tonnes tonnes %Cu %Zn tonnes tonnes tonnes tonnes tonnes tonnes ounces ounces tonnes tonnes %Zn %Pb tonnes tonnes tonnes tonnes %Zn tonnes tonnes 7878v04_GC_Rp_p90-ibc#86609.qxp 4/3/05 3:24 pm Page 118 118 Anglo American plc Annual Report 2004 PRODUCTION STATISTICS CONTINUED Anglo Industrial Minerals (tonnes) Aggregates Lime products Concrete (m3) Sodium tripolyphosphate Phosphates Anglo Ferrous Metals and Industries (tonnes) Kumba Resources Limited Iron ore production Lump Fines Total iron ore Coal Power station coal Coking coal Steam coal Total coal Zinc metal Heavy minerals(1) Ilmenite Scaw Metals Rolled products Cast products Grinding media Highveld Steel Rolled products Continuous cast blocks Vanadium slag Samancor Chrome ore Chrome alloys Manganese ore (mtu m) Manganese alloys Zimbabwe Alloys Chrome alloys Tongaat-Hulett Sugar Aluminium Starch and glucose Hippo Valley Sugar Terra(2) Ammonia Nitrogen solutions Urea Ammonium nitrate (1) Further details of heavy minerals production are available in Kumba’s annual report. (2) Terra was sold effective December 2004. 2004 2003 70,448,300 1,185,700 8,310,800 115,700 1,169,300 18,248,000 11,864,000 30,112,000 14,017,000 2,409,000 3,018,000 19,444,000 116,000 498,000 458,000 110,000 429,000 674,013 922,477 67,587 1,155,000 378,600 106 321,100 31,000 756,000 162,000 576,000 200,000 550,200 1,497,200 163,600 387,400 67,158,100 893,800 7,874,600 88,800 1,040,300 18,172,000 11,421,000 29,593,000 13,869,000 2,162,000 2,933,000 18,964,000 112,000 393,000 352,000 115,000 389,000 578,035 877,405 69,814 1,127,400 407,700 76 288,200 39,000 843,000 147,000 610,000 224,000 677,000 1,862,400 264,500 452,800 7878v04_GC_Rp_p90-ibc#86609.qxp 4/3/05 3:25 pm Page 119 Anglo American plc Annual Report 2004 119 Anglo Paper and Packaging Mondi Packaging Packaging papers Corrugated board and boxes Paper sacks Coating and release liners Pulp – external Mondi Business Paper Uncoated wood free paper Pulp – external Wood chips Mondi Packaging South Africa Packaging papers Corrugated board and boxes Newsprint and other Newsprint (attributable share) Mining timber tonnes m m2 m units m m2 tonnes tonnes tonnes green metric tonnes tonnes m m2 tonnes tonnes 2004 2003 2,600,291 2,103 3,251 1,661 153,045 1,881,851 53,142 2,125,858 365,557 335 550,986 154,727 2,010,423 1,386 2,723 1,584 143,855 1,583,496 109,811 2,122,470 370,917 297 572,054 158,640 7878v04_GC_Rp_p90-ibc#86609.qxp 4/3/05 12:59 pm Page 120 120 Anglo American plc Annual Report 2004 EXCHANGE RATES AND COMMODITY PRICES US dollar exchange rates Average spot prices for the period South African rand Sterling Euro Australian dollar Chilean peso Closing spot prices South African rand Sterling Euro Australian dollar Chilean peso Commodity prices Average market prices for the period Gold – US$/oz Platinum – US$/oz Palladium – US$/oz Rhodium – US$/oz Copper – US cents/lb Nickel – US cents/lb Zinc – US cents/lb Lead – US cents/lb Iron ore – lumpy - US$/t Ferrovanodium – US$/t Mc – Ferromanganese - US$/t European eucalyptus pulp price – US$/t 2004 2003 6.44 0.55 0.80 1.36 609 5.65 0.52 0.74 1.28 556 7.55 0.61 0.88 1.53 690 6.67 0.56 0.79 1.33 593 2004 2003 409 847 231 991 130 628 48 40 26 20 1,207 520 363 692 201 530 81 437 38 23 20 10 707 500 7878v04_GC_Rp_p90-ibc#86609.qxp 3/3/05 10:22 pm Page 121 Anglo American plc Annual Report 2004 121 KEY FINANCIAL DATA US$ million (unless otherwise stated) 2004 2003(1) 2002(1) 2001(1)(2) 2000(1)(2) 1999(1)(2) Group turnover including share of joint ventures and associates 31,795 (1,195) Less: Share of joint ventures’ turnover (5,670) Share of associates’ turnover Group turnover – subsidiaries Operating profit before exceptional items Operating exceptional items(3) Total operating profit(3) Non-operating exceptional items(3) Net interest (expense)/investment income Profit on ordinary activities before taxation Taxation on profit on ordinary activities Taxation on exceptional items Equity minority interests Profit for the financial year Headline earnings Earnings per share ($)(4) Headline earnings per share ($)(4) Dividend per share (US cents) Basic number of shares outstanding (million)(4) EBITDA(5) EBITDA interest cover(6) Operating margin (before exceptional items) Dividend cover (based on headline earnings) Balance Sheet Intangible and tangible fixed assets Investments Working capital Provisions for liabilities and charges Net (debt)/funds Equity minority interests Non-equity minority interests Total shareholders’ funds (equity) Total capital(7) Net cash inflow from operating activities Dividends received from joint ventures and associates Return on capital employed(8) EBITDA/average total capital Net debt/(funds) to total capital 24,930 4,572 (92) 4,480 520 (359) 4,641 (1,280) 1 (449) 2,913 2,689 2.03 1.88 70.0 1,434 7,110 14.9 14.4% 2.7 33,745 6,731 2,249 (4,986) (8,121) (4,445) (175) 24,998 37,739 4,773 408 13.4% 20.4% 21.5% 24,909 (1,060) (5,212) 18,637 2,892 (286) 2,606 386 (319) 2,673 (749) 13 (345) 1,592 1,694 1.13 1.20 54.0 1,415 4,785 12.7 11.6% 2.2 26,646 7,206 1,903 (3,954) (8,633) (3,396) – 19,772 31,801 3,184 426 10.7% 17.3% 27.1% 20,497 (1,066) (4,286) 15,145 3,332 (81) 3,251 64 (179) 3,136 (1,042) (3) (528) 1,563 1,759 1.11 1.25 51.0 1,411 4,792 20.0 16.3% 2.5 18,841 6,746 822 (2,896) (5,578) (2,304) – 15,631 23,513 3,618 258 17.5% 24.4% 23.7% 19,282 (1,109) (3,387) 14,786 3,298 (513) 2,785 2,148 130 5,063 (1,247) (147) (584) 3,085 1,681 2.09 1.14 49.0 1,474 4,647 31.2 17.1% 2.3 12,870 4,873 282 (2,194) (2,018) (1,607) – 12,206 15,831 3,539 258 19.0% 26.0% 12.7% 20,570 (1,590) (4,156) 14,824 3,479 (433) 3,046 490 308 3,844 (1,143) – (818) 1,883 1,927 1.20 1.23 47.5 1,567 4,688 – 16.9% 2.6 14,315 7,234 971 (2,594) (3,590) (2,212) – 14,124 19,926 2,959 258 19.5% 25.3% 18.0% 19,245 (1,720) (5,947) 11,578 2,141 – 2,141 410 265 2,816 (538) 18 (758) 1,538 1,296 1.00 0.84 37.5 1,540 3,113 – 11.1% 2.2 11,110 7,644 914 (2,604) 81 (2,477) – 14,668 17,064 1,850 209 13.2% 18.8% (0.5%) (1) The comparative years have been restated to reflect the adoption of UITF abstract 38 ‘Accounting for ESOP trusts’. (2) 1999, 2000 and 2001 have been restated for the adoption of FRS 19. (3) As first noted in 2002, operating profit for 2000 has been restated for the reclassification of the loss of $167 million arising on the anticipated disposal of Terra Industries Inc. The disposal did not proceed and the loss has therefore been reclassified into operating exceptional items as an impairment. (4) 2000 and 1999 have been restated to reflect the three-for-one bonus issue in May 2001. (5) EBITDA is operating profit before exceptional items plus depreciation and amortisation in subsidiaries and share of EBITDA of joint ventures and associates. (6) EBITDA interest cover is EBITDA divided by net interest expense, excluding other net financial income (2004: $119 million) and exceptional financing charges (2004: nil). EBITDA interest cover for 2002 is annualised to account for acquisitions during the year. The actual EBITDA interest cover for 2002 was 25.5 times. For 2000 and 1999 EBITDA interest cover is not applicable as the Group was a net interest recipient after adjusting for other net financial income. (7) Total capital is the sum of shareholders’ funds, net debt and minority interests. (8) Return on capital employed is calculated as total operating profit before impairments for the year divided by the average total capital less other investments and adjusted for impairments. 7878v04_GC_Rp_p90-ibc#86609.qxp 3/3/05 10:23 pm Page 122 122 Anglo American plc Annual Report 2004 SUMMARY BY BUSINESS SEGMENT Turnover(1) TC/RCs(1) EBITDA(2) Operating profit/(loss) Headline earnings/(loss) US$ million (unless otherwise stated) 2004 2003 2004 2003 Platinum Platinum Exceptional items Gold Gold Exceptional items Diamonds Coal South Africa Australia South America Base Metals Copper Collahuasi Minera Sur Andes Mantos Blancos Palabora and other Nickel, Niobium, Mineral Sands Catalão Codemin Loma de Níquel Namakwa Sands Nkomati and other Zinc Black Mountain Hudson Bay Lisheen Skorpion Other Exceptional items Industrial Minerals Tarmac Copebrás Exceptional items Ferrous Metals and Industries Kumba Highveld Steel Scaw Metals Samancor Group Boart Longyear Tongaat-Hulett Terra Other Exceptional items Paper and Packaging Mondi Packaging Mondi Business Paper Other Exploration Exploration Exceptional items Corporate Gold Fields(3) Other Exceptional items Less TC/RC charges(1) 3,120 3,120 2,278 2,278 2,409 2,409 2,041 2,041 3,177 2,382 1,109 840 433 3,517 2,247 650 1,034 475 88 528 44 89 247 146 2 741 74 405 189 73 1 3,858 3,596 262 6,520 1,413 775 910 821 872 1,121 598 10 6,919 3,766 2,003 1,150 – – 90 90 – 2,967 1,851 843 739 269 2,126 1,247 323 587 277 60 372 39 56 136 124 17 506 62 294 150 – 1 3,318 3,129 189 4,367 332 488 670 499 665 994 654 65 5,628 2,885 1,693 1,050 – – 333 333 – – – – – – – – – – 197 94 39 44 11 – – – – – – – 103 25 – 78 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 169 79 34 33 12 – – – – – – – 90 22 – 68 – – – – – – – – – – – – – – – – – – – – – – – 2004 867 867 701 701 688 686 297 184 205 1,626 1,252 412 608 225 7 273 29 48 158 37 1 131 2 78 29 22 (30) 624 543 81 1,249 329 222 123 268 102 116 92 (3) 996 535 352 109 (120) (120) (207) 19 (226) 2003 673 673 642 642 638 505 175 219 111 569 447 162 216 65 4 151 23 26 73 19 10 (1) (5) (9) 13 – (28) 557 510 47 441 67 29 86 78 63 50 67 1 976 488 388 100 (104) (104) (112) 72 (184) 2004 537 537 – 262 263 (1) 586 487 244 79 164 1,038 1,046 345 511 195 (5) 224 26 44 137 16 1 38 (3) 37 17 (13) (33) (237) 337 280 66 (9) 1,050 205 168 101 236 67 69 53 (4) 155 559 284 209 66 (120) (120) – (256) 7 (263) – – 4,480 2003 433 447 (14) 326 369 (43) 562 333 133 130 70 78 269 106 129 35 (1) 106 20 22 52 3 9 (62) (7) (59) 4 – (27) (208) 325 290 35 – 208 33 11 70 41 33 10 14 (4) – 656 302 294 60 (125) (105) (20) (190) 28 (217) (1) – 2,606 2004 239 239 158 158 381 351 162 73 116 1,042 871 279 430 163 (1) 172 27 30 103 11 1 31 (2) 31 16 (14) (32) 267 238 29 480 72 92 72 162 35 21 29 (3) 381 193 148 40 (91) (91) 2003 205 205 167 167 386 232 79 94 59 206 216 78 111 28 (1) 76 18 16 41 (6) 7 (65) (6) (63) 4 – (21) 270 256 14 107 18 5 55 10 21 (10) 7 1 425 162 207 56 (83) (83) (519) 6 (525) (221) 35 (256) – 2,689 – 1,694 (197) – 31,795 24,909 – 197 – 169 – 7,110 – 4,785 (1) Turnover includes share of joint ventures and associates. Base Metals’ turnover is shown before deduction of treatment charges and refining charges (TC/RCs) in 2004. Refer to note 2 for further details. (2) EBITDA is operating profit before exceptional items plus depreciation and amortisation in subsidiaries and share of EBITDA of joint ventures and associates. (3) The Group disposed of its holding in Gold Fields Limited in March 2004. 7878v04_GC_Rp_p90-ibc#86609.qxp 4/3/05 1:22 pm Page 123 Anglo American plc Annual Report 2004 123 SHAREHOLDER INFORMATION ANNUAL GENERAL MEETING 11:00 am on Wednesday, 20 April 2005, at The Conference Centre Church House Dean’s Yard London SW1P 3NZ SHAREHOLDERS’ DIARY 2005/6 Interim results Interim dividend payable Financial year end Annual results announcement Annual Report Annual General Meeting Final dividend payable August 2005 September 2005 31 December 2005 February 2006 March 2006 April 2006 April 2006 ENQUIRIES Queries relating to Anglo American plc should be addressed to the Company Secretary or the Investor and Corporate Affairs Department at the following address: Registered and Head Office Anglo American plc 20 Carlton House Terrace London SW1Y 5AN, England Telephone +44 (0)20 7968 8888 Fax +44 (0)20 7968 8500 Registered number 3564138 Website: www.angloamerican.co.uk If you have any questions about your shareholding or dividend, please contact the Registrars at the relevant address below: UK Registrars Lloyds TSB Registrars The Causeway Worthing West Sussex BN99 6DA, England Telephone, from the UK 0870 609 2286 Telephone, from overseas +44 121 415 7558 Transfer Secretaries in South Africa Ultra Registrars (Pty) Limited 11 Diagonal Street Johannesburg 2001, South Africa (PO Box 4844, Johannesburg 2000) Telephone +27 (0)11 834 2266 7878v04_GC_Rp_p90-ibc#86609.qxp 4/3/05 1:00 pm Page 124 124 Anglo American plc Annual Report 2004 OTHER ANGLO AMERICAN PUBLICATIONS • 2004 Annual Report • 2004 Interim Report • 2004/5 Fact Book • 2004 Notice of AGM and Shareholder Information Booklet • 2004 Report to Society • Investing in the future – Black Economic Empowerment • Good Neighbours: Our Work With Communities • Good Citizenship: Our Business Principles • Optima – Anglo American’s current affairs journal If you would like to receive copies of Anglo American’s publications, please write to: Investor and Corporate Affairs Department Anglo American plc 20 Carlton House Terrace London SW1Y 5AN, England Alternatively, publications can be ordered online at: http://www.angloamerican.co.uk/investor/reqreport.asp The 2004 Annual Review and the booklet containing the Notice of AGM and other shareholder information are available free of charge from the Company, its UK Registrars and South African Transfer Secretaries. CHARITABLE PARTNERS This is just a selection of the charities which we have worked with in 2004: 7878v04_GC_Rp_p90-ibc#86609.qxp 2/3/05 10:29 pm Page IBC1 Anglo American plc Annual Report 2004 IBC1 Designed and produced by Addison Corporate Marketing. Printed by St. Ives Westerham Press. The paper used in this report is made from virgin wood fibre sourced from fully sustainable forests. It is a Totally Chlorine-Free (TCF) product. 7878v03_PH_Rp_FC-p27_020305.qxp 2/3/05 10:10 pm Page bc2 ANGLO AMERICAN plc 20 Carlton House Terrace London SW1Y 5AN England Telephone +44 (0)20 7968 8888 Fax +44 (0)20 7968 8500 Registered number 3564138 www.angloamerican.co.uk 

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