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Annual Report 2006
Anglo American:
Delivering
our strategic goals
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
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Anglo American –
a global leader
in mining
Our products are essential
parts of modern life
Anglo American is committed
to operating in a profi table,
sustainable and responsible way
Contents
Highlights of 2006
Anglo American at a glance
Chairman’s statement
Chief executive’s statement
Operating and fi nancial review
The Company – overview and strategy
Financial performance during the year
Resources
Principal risks and uncertainties
Directors’ report
Corporate governance
Remuneration report
Financial statements
Independent auditors’ report
Principal statements
Notes to fi nancial statements
Ore reserves and mineral resources
Production statistics
Exchange rates and commodity prices
Key fi nancial data
Summary by business segment
Shareholder information
Other Anglo American publications
01
02
04
06
09
10
33
49
52
56
59
66
86
88
92
128
150
155
156
157
159
160
Highlights
of 2006
(cid:36)(cid:41)(cid:54)(cid:41)(cid:36)(cid:37)(cid:46)(cid:36)(cid:51)(cid:0)(cid:48)(cid:37)(cid:50)(cid:0)(cid:51)(cid:40)(cid:33)(cid:50)(cid:37)
(cid:53)(cid:51)(cid:0)(cid:67)(cid:69)(cid:78)(cid:84)(cid:83)
(cid:53)(cid:46)(cid:36)(cid:37)(cid:50)(cid:44)(cid:57)(cid:41)(cid:46)(cid:39)(cid:0)(cid:37)(cid:48)(cid:51)
(cid:53)(cid:51)(cid:4)
(cid:37)(cid:34)(cid:41)(cid:52)(cid:36)(cid:33)
(cid:53)(cid:51)(cid:4)(cid:77)
15
36
15
39
19
51
28
33
62
67
75
33
1.25
1.20
1.87
2.58
3.73
4,792
4,785
7,031
8,959
12,197
•(cid:0) (cid:38)(cid:73)(cid:78)(cid:65)(cid:76)
•(cid:0) (cid:51)(cid:80)(cid:69)(cid:67)(cid:73)(cid:65)(cid:76)
•(cid:0) (cid:41)(cid:78)(cid:84)(cid:69)(cid:82)(cid:73)(cid:77)
(cid:16)(cid:18)
(cid:16)(cid:19)
(cid:16)(cid:20)
(cid:16)(cid:21)
(cid:16)(cid:22)
(cid:16)(cid:18)(cid:17)
(cid:16)(cid:19)(cid:17)
(cid:16)(cid:20)
(cid:16)(cid:21)
(cid:16)(cid:22)
(cid:16)(cid:18)(cid:17)
(cid:16)(cid:19)(cid:17)
(cid:16)(cid:20)
(cid:16)(cid:21)
(cid:16)(cid:22)
1 UK GAAP
• Record underlying earnings* of $5.5 billion, a 46% increase
over 2005
• Operating profi t* increased to $9.8 billion, up 54%, with
record production levels for platinum group metals, zinc, coal
and iron ore; highest ever profi t contributions from
Base Metals, Platinum and ongoing Ferrous Metals business
• Cost savings of $583 million achieved, despite ongoing
industry cost pressures
• Cash generation at a record level: EBITDA* of $12.2 billion,
up $3.2 billion. Net debt down 33% to $3.3 billion
• $6.9 billion approved project pipeline, includes the following
major projects:
• Coal: Dawson ($426 million), Lake Lindsay ($361 million)
• Platinum: Potgietersrust ($692 million), Amandelbult ($224 million)
• Diamonds: Snap Lake ($395 million), Victor ($375 million)
• Ferrous Metals: Sishen Expansion (SEP) ($754 million)
• Base Metals: Barro Alto ($1.2 billion)
• Normal dividends up 20% to 108 US cents per share
Special dividend up 103% to 67 US cents per share
• Additional buyback of $3 billion announced in early 2007,
following $7.5 billion announced in 2006, totalling $10.5 billion
* Basis of calculation of underlying earnings is set out in note 11 to the fi nancial statements. Operating profi t includes
share of associates’ operating profi t (before share of associates’ tax and fi nance charges) and is before special items and
remeasurements unless otherwise stated. EBITDA is operating profi t before special items, remeasurements, depreciation and
amortisation in subsidiaries and joint ventures and share of EBITDA of associates. EBITDA is reconciled to cash infl ows from
operations in the fi nancial statements below the consolidated statement of recognised income and expense.
Throughout this report 2002 and 2003 are presented under UK GAAP. 2004, 2005 and 2006 results are presented under
IFRS. Unless otherwise stated, throughout this report ‘$’ and ‘dollar’ denote US dollars.
Anglo American plc Annual Report 2006 | 01
ANGLO AMERICAN plc
ANNUAL REPORT 2006
ANGLO AMERICAN AT A GLANCE
Anglo American is a global
leader in mining, focused on
adding value for shareholders,
customers, employees and
the communities in which
it operates
The Group has a range of
high quality, core mining
businesses covering platinum,
diamonds, coal, base and
ferrous metals and industrial
minerals
OUR BUSINESSES
Platinum
Diamonds
Base Metals
Ferrous Metals
Business profi le
• The world’s largest primary
producer of platinum,
accounting for around 40%
of the world’s newly mined
platinum output.
Products and uses
• Primarily used in
autocatalysts and jewellery.
• Also used in chemical,
electrical, electronic, glass
and petroleum industries
and medical applications.
Business profi le
• De Beers accounts for about
40% by value of global
rough diamond production.
• The world’s largest supplier
and marketer of gem
diamonds.
Products and uses
• The majority of cuttable
diamonds are used in
jewellery.
• Some natural stones are
used for industrial purposes
such as cutting, drilling and
other applications.
Business profi le
• Comprises primarily copper,
nickel, zinc and mineral
sands operations.
• Operates in South America,
southern Africa and Ireland.
Products and uses
• Copper is used mainly in
wire and cable, as well as
in brass, tubing and pipes.
• Zinc is chiefl y used for
galvanising.
• Nickel is mostly used in the
production of stainless steel.
Business profi le
• Operations are mainly
in southern Africa,
South America, Canada
and Australia.
• Businesses produce iron
ore, manganese and steel
products for the mining
sector.
Products and uses
• Iron ore is the basic raw
material used in steel
production.
• Manganese and vanadium
are key components in
steelmaking.
02
| Anglo American plc Annual Report 2006
KEY
Geographical
locations
• Platinum
• Diamonds
• Base Metals
• Ferrous Metals
• Coal
• Industrial Minerals
• Gold
• Paper and Packaging
■ Indicates countries in which
exploration is currently
under way
Coal
Industrial Minerals
Exploration
Gold
EXPLORATION
OTHER BUSINESSES
Business profi le
• Anglo Coal is one of the
world’s largest private sector
coal producers and exporters.
• Its operations are in South
Africa, Australia, Colombia
and Venezuela.
Products and uses
• About 40% of all electricity
generated globally is
powered by coal.
• Around 66% of the world’s
steel industry uses coal and
it is an important fuel for
other industries.
Business profi le
• Tarmac is the No. 1 UK
producer of aggregates and
asphalt and a leading
producer of ready-mixed
concrete.
• Its operations are primarily
in the UK, continental Europe
and the Middle East.
Products and uses
• Tarmac is involved in the
production of crushed rock,
sand, gravel, concrete and
mortar, lime, cement and
concrete products.
• Copebrás is a Brazilian
producer of phosphate
fertilisers.
As one of the major diversifi ed
mining groups, Anglo
American’s exploration
activities cover many parts of
the globe. In its constant
search for minerals, Anglo
American is currently
prospecting in more than 30
countries. In addition to its
focus on areas surrounding its
existing mining operations,
Anglo American is now looking
at relatively unexplored new
frontiers, including in the Arctic
region through an arc stretching
from Alaska to the Russian far
east. During 2006, over
$250 million was spent on
exploration – $53 million on
base metals, $30 million on
platinum, $24 million on coal,
$9 million on ferrous metals
and $140 million by De Beers.
Business profi le
• AngloGold Ashanti is a
major world gold producer.
• It has 22 operations in
ten countries.
Products and uses
• Fabricated gold is used in
jewellery, electronics, dentistry,
decorations, medals and coins.
Paper and
Packaging
Business profi le
• Mondi is an integrated paper
and packaging group.
• Its operations and interests
are worldwide.
Products and uses
• Mondi makes packaging
and offi ce papers, board,
converted packaging and
newsprint.
Anglo American plc Annual Report 2006 | 03
ANGLO AMERICAN plc
ANNUAL REPORT 2006
CHAIRMAN’S STATEMENT
‘Another strong year for the
Group with record profi ts
and laying the foundation for
signifi cant future growth.’
2006 was another strong year for
Anglo American. The Group returned
record profi ts and laid the foundations for
further growth. A number of major projects
were initiated, adding to the strength of
the pipeline and a $7.5 billion return of
capital was announced in 2006, underlining
the Group’s strong balance sheet
Progress was made in delivering
on our strategy of becoming a
more focused mining group.
A number of the steps required
to complete the restructuring
involve complex regulatory
issues but I am confi dent that
these will be successfully
managed and substantive
further progress made by the
middle of 2007.
An important development
will be the appointment of
Cynthia Carroll, who will succeed
Tony Trahar as chief executive
on 1 March 2007. The Board
was seeking a candidate with
experience in a capital intensive
industry with long investment
horizons. It identifi ed three
critical factors: a track record of
operational excellence and of
growing a global business; an
ability to give new momentum
to our work in transforming the
culture of the Group, within South
Africa and beyond; and an ability
to work well with governments
and other stakeholders. Cynthia
Carroll met these criteria
admirably. She was the
unanimous choice of the Board
after a very rigorous process.
Tony Trahar has made a pivotal
contribution to Anglo American’s
growth and development at a
crucial time in its history. Over
the last seven years he has
presided over a major
streamlining of the Group’s
interests, including through
a signifi cant programme of
acquisitions and disposals.
Moreover, through some shrewd
acquisitions, organic growth
opportunities and improved cost
control, shareholder returns
have been signifi cantly
improved. He leaves the
Company in good health and
poised for a new phase in its
development. The Board is
grateful to him for his
contribution over many years
with the Group.
The fi rst three quarters of 2006
saw a signifi cant improvement
in our safety performance
but the record once again
deteriorated in the fi nal quarter.
Despite the strong focus on
safety during the year only
a small improvement in the
number of fatalities was
achieved and much remains
to be done. The Board expects
04
| Anglo American plc Annual Report 2006
that the intensive training drive
undertaken at all management
and supervisory levels during
the year to embed the Anglo
Safety Way will yield results
in 2007. Some 20 sites have
undertaken safety peer reviews.
The lessons emerging from
these will be acted upon across
the Group.
Perceptions of the need for a
more energetic response to
climate change grew
signifi cantly during 2006
amongst policy makers and
the public. Business must
play its part in driving more
effi cient energy use and in the
adoption of new technologies.
However, this involves
substantial long term investment
and greater certainty about the
post Kyoto policy framework is
urgently needed.
In the interim, Anglo American
is continuing to improve its
At a glance
• The Group achieved record profi ts and laid the
foundations for further growth
• Progress was made in delivering on our strategy
of becoming a more focused mining group
• Cynthia Carroll appointed as successor to
Tony Trahar
• Evolving strategies to combat climate change
IN DETAIL
Our performance
Anglo American’s share price
outperforms the FTSE 100
during 2006
Anglo American vs FTSE 100
2006 (Indexed)
• Anglo American
• FTSE 100
130
120
110
100
90
31/12/05
31/12/06
Anglo American’s lost time and
fatal injury frequency rates
LTIFR and FIFR
• LTIFR
2.5
2.0
1.5
1.0
0.5
0
• FIFR
0.04
0.03
0.02
0.01
0
00
01
02
03
04
05
06
– with major programmes in
South Africa and Chile – and
implementation of our Socio-
Economic Assessment Toolbox
(SEAT) process, which has
taken place at over 50 sites
in 15 countries.
At an international level, we were
the fi rst private sector investor
in the Investment Climate
Facility for Africa, have played
a leading role in the mining
sector in the Extractive Industries
Transparency Initiative and
participated in programmes
on business and development
through the International Council
on Mining & Metals and the
World Business Council for
Sustainable Development. We
see action to improve the
management of our impacts
and to contribute to good
governance as fundamental
to our licence to operate and
access to resources.
Many commentators expect
to see some softening of
commodity prices, and especially
of base metals, in 2007
compared with the highs
achieved in 2006. Nonetheless,
prices are likely to continue to be
relatively high for the immediate
future, underpinned by demand
from the BRIC economies and
the anticipated strength of the
world economy. (cid:1)
Sir Mark Moody-Stuart
Chairman
Anglo American plc Annual Report 2006 | 05
energy effi ciency with hundreds
of site level initiatives. We have
established two methane
capture and use projects in
Australia which between them
are achieving greenhouse gas
savings equivalent to removing
375,000 cars from the roads.
Also in Australia, we are
pursuing the Monash Energy
project through a new joint
venture with Shell. If it proves
feasible, Monash would produce
a signifi cant amount of
Australia’s diesel requirements
as well as a major investment in
carbon capture and storage. We
are also participating in the
FutureGen project to achieve
near zero emissions power
generation from coal.
We have continued to work on
projects designed to improve
our ability to contribute to
sustainable development. At
a local level this involves, for
example, business development
ANGLO AMERICAN plc
ANNUAL REPORT 2006
CHIEF EXECUTIVE’S STATEMENT
‘ We achieved operating profi t of
$9.8 billion, the highest ever recorded
for Anglo American, on the back of
increased production and higher
commodity prices.’
2006 was an important year
for Anglo American. We made
good progress in executing our
restructuring initiatives to become
a more focused mining group.
We reported our strongest ever
operating results, announced a
$7.5 billion capital return in
2006 and a further $3 billion in
2007, while also investing in
signifi cant growth opportunities
and progressing our $6.9 billion
of projects across our portfolio.
In addition, we were very pleased
to announce that Cynthia Carroll
will succeed me as chief
executive on 1 March 2007.
Cynthia brings a wealth of
highly relevant experience and
an excellent operational track
record and is ideally suited to
take Anglo American to the next
phase of its development.
Record fi nancial results
We achieved operating profi t
for the year of $9.8 billion –
Tony Trahar
Chief Executive
06
| Anglo American plc Annual Report 2006
During 2006
• Good progress was made in our restructuring
initiatives to become a more focused mining group
• Strongest ever operating results
• A record $7.5 billion returned to our shareholders
• Signifi cant investment in our project pipeline
our highest ever recorded – on
the back of increased production
and higher commodity prices.
While cost pressures persist in
the sector, Anglo American
successfully continued to limit
the impact. Underlying earnings
were $5.5 billion with record
EBITDA of $12.2 billion. The
strong cash generation from
our operations, as well as
proceeds from non-core
disposals, resulted in 2006
in the announcement of
a $7.5 billion return of capital in
the form of share buybacks and
special dividends – one of the
highest levels of capital return
in the industry – in addition to
$1.4 billion in ordinary dividends
paid in 2006 and a further
$1.1 billion fi nal dividend
recommended in 2007.
Focus on core mining
portfolio
Our strategic focus is clear:
(1) to further focus the Group
on its core mining portfolio
and in the process simplify
our structure and enhance
profi tability;
(2) to deliver on our signifi cant
$6.9 billion project pipeline;
and
(3) to return any excess capital
to our shareholders.
In 2006, we made signifi cant
progress restructuring our
portfolio. In April, we sold
$1 billion worth of AngloGold
Ashanti, reducing our
shareholding from 51% to 42%.
The decision to reduce and
ultimately exit our gold holding
relates to the higher relative
valuations attributable to pure-
play gold companies, rather than
as part of a diversifi ed mining
group. We will continue to
explore all available options to
exit AngloGold Ashanti in an
orderly manner.
Regarding Mondi, plans for a full
demerger are progressing. Approval
in principle has been received
from the regulatory authorities
in South Africa for a Dual Listed
Company Structure with primary
listings in Johannesburg and
London. Arrangements are being
fi nalised to enable a smooth and
effi cient transition to a fully
independent company. The senior
management team is in place
and a new board of directors is
being established. The listing of
Mondi is targeted for mid-2007.
Good progress was made in
restructuring our Ferrous Metals
and Industries business. In July
2006, we disposed of the
majority of our stake in Highveld
Steel, with Russia’s Evraz group
and Credit Suisse each acquiring
24.9% of Highveld’s share capital
for an aggregate consideration
of $412 million. Evraz has an
option to increase its stake in
Highveld, once regulatory
approvals are received, entitling
Evraz to purchase our remaining
29.2% shareholding. On
implementation of the option
arrangement, the aggregate
amount that will have been
realised by Anglo American for
its 79% interest in Highveld will
be $678 million.
In November 2006, we completed
the restructuring of Kumba
Resources with the listings on
the Johannesburg Stock Exchange
of Kumba Iron Ore as a pure-
play iron ore company in which
Anglo American holds 64%, and
Exxaro, which became South
Africa’s largest black economic
empowered (BEE) natural
resources company.
The unbundling of Tongaat-
Hulett’s aluminium business to
shareholders and simultaneous
introduction of broad based BEE
into both Tongaat Hulett and
Hulett Aluminium will occur
during the second quarter of
2007. This will reduce Anglo
American’s interest in Tongaat
Hulett to 38% and in Hulett
Aluminium to 39%.
Tarmac’s strategic review,
completed in early 2006,
clearly defi nes the scope of
its business as aggregates,
together with three routes to
market (asphalt, concrete
and concrete products) and
integration of cement where
appropriate. The disposals
announced in February 2006
have been largely completed
and good progress is being
made on delivering structural
operational improvements.
A profi table growth
platform over the next
decade
During 2006, we made excellent
progress in developing our
pipeline of growth opportunities
across numerous territories.
We currently have $6.9 billion
of projects under development
and are assessing a further
$10 billion to $15 billion of
unapproved opportunities that
will provide us with a profi table
growth platform over the
next decade.
Anglo Platinum expects refi ned
platinum production to be
between 2.8 and 2.9 million
ounces in 2007 in line with its
long term growth target of 5%
per annum. During 2006 the
company approved several major
projects, including the $692
million Potgietersrust Project,
the $224 million Amandelbult
expansion and the $316 million
Paardekraal 2 shaft replacement
project. These projects will
contribute 456,000 platinum
ounces to Anglo Platinum’s
production. The Townlands Ore
Replacement project, at a capital
cost of $139 million, was
approved in February 2007.
This will replace 70,000 ounces
of refi ned platinum per annum
by 2014 with production from
new Merensky and UG2 areas at
the Rustenburg Townlands shaft.
Anglo Coal has one of the most
extensive near term portfolios
of growth options in the coal
industry and is currently
developing four major projects
across three operating regions.
IN DETAIL
Strong performance in second half
(cid:47)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:80)(cid:82)(cid:79)(cid:70)(cid:73)(cid:84)
(cid:53)(cid:51)(cid:4)(cid:77)
(cid:18)(cid:16)(cid:16)(cid:22)(cid:0)(cid:40)(cid:18)(cid:0)(cid:48)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:41)(cid:78)(cid:67)(cid:82)(cid:69)(cid:65)(cid:83)(cid:69)
•(cid:0) (cid:18)(cid:16)(cid:16)(cid:22)
5,269
4,563
(cid:40)(cid:17)
(cid:40)(cid:18)
•(cid:0) (cid:41)(cid:82)(cid:79)(cid:78)(cid:0)(cid:79)(cid:82)(cid:69)
•(cid:0) (cid:39)(cid:79)(cid:76)(cid:68)
•(cid:0) (cid:48)(cid:76)(cid:65)(cid:84)(cid:73)(cid:78)(cid:85)(cid:77)
•(cid:0) (cid:35)(cid:79)(cid:80)(cid:80)(cid:69)(cid:82)
•(cid:0) (cid:35)(cid:79)(cid:65)(cid:76)
9%
5%
3%
15% 15%
(cid:5)
(cid:0)
(cid:41)
(cid:78)
(cid:67)
(cid:82)
(cid:69)
(cid:65)
(cid:83)
(cid:69)
(cid:0)
(cid:8)
(cid:40)
(cid:18)
(cid:0)
(cid:86)
(cid:0)
(cid:40)
(cid:17)
(cid:9)
Anglo American plc Annual Report 2006 | 07
ANGLO AMERICAN plc
ANNUAL REPORT 2006
CHIEF EXECUTIVE’S STATEMENT
‘Relatively strong
global growth will
provide a supportive
climate for commodities
in the coming year.’
In Australia, work is continuing
on the $835 million Dawson
project, which is planned to reach
full production in 2007, producing
12.7 million tonnes per annum
(Mtpa) for export markets. We
also began construction of the
$516 million Lake Lindsay
greenfi eld project at the German
Creek mine which will produce
3.7 Mtpa of metallurgical coal
and 0.3 Mtpa of thermal coal by
2008, most of it for the Pacifi c
Rim markets. In South Africa,
we started development of the
Mafube mine following the
granting of prospecting rights,
while the Isibonelo project, which
supplies 5 Mtpa to Sasol, reached
full production in 2006. In
Colombia, the fi rst phase of the
expansion to 28 Mtpa at the
Cerrejón mine reached completion
and a second expansion to
32 Mtpa is already under way.
In February 2007, Anglo Coal
announced the creation of Anglo
Inyosi Coal, an empowered coal
company housing key current
and future domestic and export
focused coal operations. Anglo
Coal has signed a Heads of
Agreement with Inyosi, a newly
formed broad based BEE company.
Inyosi will acquire 27% of Anglo
Inyosi Coal, creating a company
valued at $1 billion and
incorporating several key Anglo
Coal assets; namely Kriel
Colliery (an existing mine) and
the Elders, Zondagsfontein, New
Largo and Heidelberg projects.
Anglo Base Metals is currently
assessing a number of major
projects, which will drive
signifi cant production growth
well into the next decade. In
December, we approved the
$1.2 billion Barro Alto project in
Brazil which will produce an
average of 36,000 tonnes of
nickel per year in the form of
ferronickel over a minimum
26 year mine life. Construction
of the Barro Alto facilities is
scheduled to begin in 2007, with
production commencing in 2010
and ramping up to full capacity
during 2011. In addition, Anglo
Base Metals is continuing work
on feasibility and debottlenecking
studies at the two major Chilean
copper operations, Los Bronces
and Collahuasi, and a decision
to proceed with these expansions
is expected in 2007.
Kumba Iron Ore is well advanced
on the $754 million Sishen
expansion project in South Africa’s
Northern Cape, with fi rst output
due in 2007 and full ramp up to
13 Mtpa targeted for 2009. This
will take Kumba Iron Ore to 45
Mtpa of iron ore production, of
which 36 Mtpa will be exported.
Further brownfi eld and greenfi eld
projects offer the potential to
increase Kumba Iron Ore’s annual
production to over 70 Mtpa by
2015. Other iron ore growth
opportunities are being pursued.
Scaw produced a record
operating profi t for the year of
$160 million, up $39 million on
2005, driven by strong demand
for its range of products and the
acquisition of AltaSteel, a
manufacturer of value added
steel products in Canada.
Progress continues on De Beers’
Canadian projects at Snap Lake
and Victor. Despite project costs
rising, owing to higher energy
costs, technological challenges
and the impact of the early
closure of the winter road to
the sites, both developments
remain on track to open in the
fi nal quarters of 2007 and 2008
respectively. In 2006, De Beers
also approved two projects in
South Africa: the re-opening of
the dormant Voorspoed mine
and the South African Sea Areas
marine mining project for a total
capital expenditure of $315 million.
Safety
The most signifi cant challenge
remains our safety performance.
After several years of steady
safety improvement, the last
quarter of 2006 was marred by
a signifi cantly higher incidence of
fatal accidents. During the year,
44 employees and contractors
lost their lives. All loss of life at
the workplace is totally
unacceptable and we continue
to strive through a variety of
measures for the elimination of
any loss of life and injury.
During 2006, we introduced a
comprehensive new framework
of safety policies – the Anglo
Safety Way – and guidelines
which are based on the
principles of achieving zero
harm, of identifying key
learnings from each incident and
of using these to prevent repeat
incidents and of ensuring that
there is uniform adherence at
site level to a set of clear rules.
Sustainable development
In terms of sustainable
development, Anglo American
continues to be amongst the
leading companies in the
extractive sector, including
through a big improvement in the
proportion of employees coming
forward for voluntary counselling
and testing for HIV/AIDS, continued
success in improving our local
development impacts through
our Socio-Economic Assessment
Toolbox (SEAT) process and
through our position as the fi rst
private sector investor to commit
to fund the Investment Climate
Facility for Africa. We have
continued to be actively involved
in the development and promotion
of the Extractive Industries
Transparency Initiative (EITI),
including through representing
the mining sector on the EITI’s
governing body. The EITI
supports improved governance
in resource rich countries.
Outlook
Global economic growth was
especially rapid in the fi rst half of
2006, with all the major regions
of the world growing rapidly
over this period. Commodity
prices reacted positively to this
environment, with new highs
being recorded for a number of
products. In the second half,
global growth began to moderate,
particularly in the US.
European markets are now
improving and emerging markets
generally, and China and India in
particular, are growing strongly.
Continued growth in these regions
in 2007 is likely to largely offset
weaker US growth and thus the
decline in global economic activity
from the strong level achieved
in 2006 should be fairly modest.
The Group continues to progress
its strong project pipeline and
drive its operational excellence
to meet ongoing demand for its
commodities. Relatively strong
global growth will provide
a supportive climate for
commodities in the coming year.
I retire from Anglo American in
the knowledge that the Group
is today one of the largest and
strongest mining companies in
the world. Its people and assets
are second to none and I have
every confi dence that my
successor, Cynthia Carroll,
will continue to serve all our
stakeholders in a successful
and profi table way.
I would like to thank the Board
of directors, management and all
employees for their support during
my tenure as chief executive.(cid:1)
08
| Anglo American plc Annual Report 2006
Operating and fi nancial review
Basis of disclosure
This Operating and fi nancial review (OFR) describes the main trends and factors underlying the
development, performance and position of Anglo American plc during the year ended 31 December 2006,
as well as those likely to affect our future development, performance and position. It has been prepared
in line with the guidance provided in the Reporting statement on the Operating and fi nancial review issued
by the UK Accounting Standards Board in January 2006.
Forward looking statements
This OFR contains certain forward looking statements with respect to the fi nancial condition, results,
operations and businesses of Anglo American. These statements and forecasts involve risk and uncertainty
because they relate to events and depend on circumstances that occur in the future. There are a number of
factors that could cause actual results or developments to differ materially from those expressed or implied
by these forward looking statements.
Section contents
The Company – overview and strategy
The businesses
Business focus
Strategic focus
Key performance indicators
Project pipeline and major projects
Sustainable development
Safety
Energy use and reducing CO2 emissions
Community social investment
Key challenges
Financial performance during the year
Financial review of the Group’s results
Financial review of the businesses
Resources
Our people
Our knowledge and expertise
Exploration
Ore reserves and mineral resources estimates
Principal risks and uncertainties
Page
10
10
25
25
27
28
30
30
30
31
31
33
33
37
49
49
50
51
51
52
Anglo American plc Annual Report 2006 | 09
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW
The Company – overview and strategy
The businesses
Anglo American is one of the world’s largest mining
and natural resource groups. With its subsidiaries,
joint ventures and associates, it is a global leader in
platinum, gold and diamonds, with signifi cant interests
in coal, base and ferrous metals, industrial minerals
and paper and packaging. The Group is geographically
diverse with operations in Africa, Europe, South and
North America, Australia and Asia.
The performance of the businesses is reported according to the commodity group around which they focus.
The businesses are described below. Detail of their fi nancial performance in 2006 is found on pages 37 to 48.
Platinum
• World’s No. 1 primary
producer of platinum
• One of the biggest capital
expenditure programmes in
world mining
• Long term outlook is favourable
for platinum and other platinum
group metals
Business overview
Anglo American’s managed subsidiary, Anglo Platinum Limited, located in South Africa, is the world’s
leading primary producer of platinum accounting for about 40% of the world’s newly mined production.
Anglo Platinum mines, processes, refi nes and markets the entire range of platinum group metals (PGMs)
(platinum, palladium, rhodium, ruthenium, iridium and osmium).
Anglo Platinum wholly owns four mining operations, three smelters, a base metals refi nery and a precious
metals refi nery, all of which are located in the Limpopo and north west provinces of South Africa. Each of
Anglo Platinum’s mines operates its own concentrator facilities, with smelting and refi ning of the output
being undertaken at the Rustenburg Platinum Mines’ metallurgical facilities and the Polokwane smelter.
The group’s four wholly owned mining operations include Rustenburg Platinum Mines’ Rustenburg
and Amandelbult Sections, as well as Potgietersrust Platinums Limited (PPRust) and Lebowa Platinum
Mines Limited.
Anglo Platinum’s Union Section is 85% held following the recently concluded transaction with a black
economic empowerment (BEE) consortium, the Bakgatla-Ba-Kgafela traditional community, in terms of
which the community acquired a 15% interest in Union Section’s mining and concentrating business.
In addition, the group has a 50:50 joint venture with a historically disadvantaged South African (HDSA)
consortium, led by African Rainbow Minerals, over the Modikwa platinum mine; a joint venture with Royal
Bafokeng Resources, a HDSA partner, over the combined Bafokeng-Rasimone platinum mine and Styldrift
properties; and a joint venture with Xstrata over the Mototolo mine. Anglo Platinum also has pooling and
sharing agreements with Aquarius Platinum covering the shallow reserves of the Kroondal and Marikana
mines and portions of the reserves at Anglo Platinum’s Rustenburg Section.
The operations are situated in the world’s richest reserve of PGMs known as the Bushveld Complex, with
2006 production exceeding 2.8 million ounces of refi ned platinum, primarily from the Merensky, UG2 and
Platreef ores. Although PGMs are the primary products of Anglo Platinum’s operations, base metals such as
nickel, copper and cobalt sulphate are important secondary products and are signifi cant contributors to the
group’s earnings.
The group holds a 22.5% share in Northam Platinum Limited, acquired as a consequence of a mineral
rights swap. In Zimbabwe, the group is developing a mine, Unki, on the south chamber of the Great Dyke
Platinum deposit.
In addition to its current operations, Anglo Platinum has access to an excellent portfolio of ore reserves to
ensure that the company is well placed to strengthen its position as the world’s leading platinum producer
for many generations to come.
10
| Anglo American plc Annual Report 2006
Industry overview and demand drivers
PGMs have a wide range of industrial and high technology applications. Demand for platinum is driven by its
use in jewellery and in autocatalysts, for both petrol and diesel engine vehicles. These uses are responsible
for 75% of net total platinum consumption. However, platinum also has an enormous range of lesser-
known applications, predominantly in the chemical, electrical, medical, glass and petroleum industries.
The platinum jewellery market requires constant promotion and development to ensure that platinum
maintains its position as one of the most desirable metals for jewellery. Anglo Platinum is the major
supporter of the Platinum Guild International, which since its inception in 1975 has played a key role in
encouraging demand for platinum and establishing new platinum jewellery markets. Currently, the three
largest platinum jewellery markets are China, Japan and North America.
Industrial applications for platinum are driven by technology and, especially in the case of autocatalysts, by
legislation. Technological development continues to drive industrial demand and ongoing research into new
applications will create further growth in this sector. With the rapid spread of exhaust emissions legislation,
over 91% of new vehicles sold in the world now have autocatalysts fi tted. The intensifying stringency of
emissions legislation will drive growth in PGM demand for autocatalysts as new legislation is applied to
trucks and off-road vehicles in the US. The increasing popularity of diesel powered vehicles in Europe
continues. This has also intensifi ed the demand for platinum, as diesel powered cars can only use
autocatalysts that are predominantly platinum based. Interest in fuel cell technology has accelerated
dramatically over the past decade, largely on the back of rising concerns about environmental degradation
and energy costs. At present demand is small, but gradual medium to long term growth, fi rst in small
battery replacement applications and stationary fuel cells and later with the commercialisation of fuel cell
vehicles, is envisaged.
Palladium’s principal application is in autocatalysts (around 48% of net production). Palladium is also used
in electronic components, including multi-layer ceramic capacitators, in dental alloys and more recently as
an emerging jewellery metal. Palladium demand is expected to fl atten out against a backdrop of increasing
supply expected from South African expansions.
Rhodium is an important metal in autocatalysts. Nearly 85% of rhodium produced is used in catalytic
converters for the auto industry. Amounts are also consumed in industrial applications such as glass-making
for fl at panel display units. In the short to medium term the market supply/demand balance is expected to
remain tight, supported by autocatalyst growth and glass demand for fl at screen televisions. Thrifting (using
less metal, typically in thinner coatings to achieve the same catalytic effect) and increased supply from
UG2 expansions may ease the market balance in the longer term.
The other three PGMs produced are ruthenium, iridium and osmium. Ruthenium and iridium have been
mainly used in chemical and electronic applications and osmium is used as a catalyst in the pharmaceutical
industrial sector and to stain specimens for microscopic analysis. Recently, ruthenium has found an
application in magnetic memory storage devices, which has accelerated demand substantially.
Current high US dollar PGM market prices partly refl ect the up-cycle being enjoyed by most commodities,
but are supported by strong market fundamentals, in particular for platinum where metal supply has been in
defi cit for seven years and long term demand is robust, based on growth in existing applications and
emerging fuel cell technology.
Supplies of and demand for platinum are expected to grow and the market is expected to remain balanced
over the short to medium term. Palladium demand is also expected to grow but, against a backdrop of
increasing supply from South African expansions, remains adequately supplied. The increased supply of
rhodium from expansionary activity should place pressure on current prices in the longer term.
As a result of the current expansionary activity in the mining industry a key challenge that faces platinum
producers is the ability to manage and deliver capital projects as well as retaining and attracting skilled
staff. Anglo Platinum has focused on skills recruitment and retention and securing contractor capacity to
ensure its projects remain on time and within budget. This has placed increased pressure on costs and
organisational effi ciency. The company continues to focus on cost containment and savings so as to limit
the increase in unit costs.
Anglo American plc Annual Report 2006 | 11
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | THE BUSINESSES
Strategy and business development
Anglo Platinum’s strategy is to develop the market for PGMs, expand production into that growth
opportunity and conduct its business safely, cost-effectively and competitively.
Growing demand is achieved by substantial investment in research and development into new uses for
PGMs, through customers including Johnson Matthey plc, and global promotional campaigns for jewellery
through the Platinum Guild International. These investments enable Anglo Platinum to meet its objective of
growing the market.
In order to meet the increased demand, Anglo Platinum is targeting expanding operations at an average
compound growth target of 5% per annum. Much of this expansion will come from the development of
Anglo Platinum’s extensive resources.
Anglo Platinum expects to meet its long term growth profi le of 5% per annum by exploiting its own
reserves through direct investment in projects as well as with joint venture partners. This growth profi le
requires projects that will create additional new production as well as maintain existing production levels
owing to reserve depletion from current mining activities.
Overall mining production (as measured in equivalent refi ned platinum production) and purchase of
concentrate increased in 2006 by 5.4%, or 135,000 equivalent refi ned platinum ounces, in line with Anglo
Platinum’s strategy.
The implementation of Anglo Platinum’s extensive suite of mining and processing projects to expand and
maintain production continues on schedule. Projects that have increased production include Modikwa,
Kroondal and for the fi rst time in 2006, the Marikana and Mototolo ventures which have each added
12,800 equivalent refi ned platinum ounces for 2006. Marikana, approved in 2005, will produce 74,000
equivalent refi ned platinum ounces a year by 2009. Mototolo is set to reach steady state production by the
end of 2007, producing equivalent refi ned platinum production of 130,000 ounces per annum at steady state.
In 2006 the company approved capital expenditure totalling $1.6 billion, which included the PPRust North
expansion project. Work on this project, which aims to mill an additional 600,000 tonnes of ore per month,
producing an additional 230,000 refi ned platinum ounces per annum from 2009, has commenced.
Projects that contribute towards maintaining production levels include the Amandelbult 1 shaft optimisation
project which was successfully completed during the year, with the 75,000 tonnes per month (tpm) UG2
concentrator being fully commissioned and running at capacity. This concentrator processes UG2 ore as
Merensky production declines owing to the depletion of Merensky ore reserves.
The Amandelbult East Upper UG2 project which was approved in 2006 will conventionally mine the UG2 reef,
using existing mining infrastructure previously employed to extract Merensky reef, at the vertical number
2 shaft and at three decline shafts. The 75,000 tpm UG2 concentrator will be expanded to 210,000 tpm
and by 2012 the project will contribute an additional 106,000 ounces of refi ned platinum per annum.
The Rustenburg Paardekraal 2 shaft replacement project will access deeper Merensky reserves at a rate of
100,000 tpm. The project is expected to produce 120,000 ounces of refi ned platinum per annum by 2015
replacing decreasing production as a result of reserve depletion.
The Townlands Ore Replacement project at a capital cost of $139 million was approved in February 2007
and will replace 70,000 ounces of refi ned platinum per annum by 2014 with production from new Merensky
and UG2 areas at the Rustenburg Townlands shaft.
Anglo Platinum’s announced expansion programme and ore replacement projects underpin a sustained high
level of exploration activities. Exploration is mainly directed at accumulating geological data in areas where
PGM orebodies are known to occur and is thus primarily focused on quantifying ore reserves and mineral
resources in the Bushveld Complex, as opposed to seeking out unknown mineralisation.
Anglo Platinum is involved in exploring for PGMs on the Great Dyke of Zimbabwe. The Great Dyke is the
second largest known repository of platinum after the Bushveld Complex. Exploration work is focused on
new projects in the area, including the Unki mine, as well as establishing extensions to the resource base
for future projects.
In addition, Anglo Platinum is involved in exploration activities in Canada, Russia, Brazil and China.
12
| Anglo American plc Annual Report 2006
• De Beers is a global leader
in the world diamond industry
• Global retail sales continue
to rise
• De Beers group diamond
production surpasses
50 million carats
• Upcoming projects will add
3.3 million carats to De Beers’
annual production capacity
Diamonds
Business overview
De Beers is the world’s leading diamond exploration, mining and marketing company. Its expertise extends
to all aspects of the diamond pipeline, including prospecting, mining and recovery and, through its marketing
arm, the London based Diamond Trading Company (DTC), the sorting, valuing and sale of rough gem
diamonds. De Beers produces around 40% by value of total annual global diamond production from its
mines in South Africa and through its partnerships with the governments of Botswana, Namibia and
Tanzania. Through the DTC, De Beers markets around 45% of the world’s diamonds and has conducted
a renowned diamond advertising campaign based on its famous advertising promise, A diamond is forever,
for over half a century. De Beers and Moët Hennessy Louis Vuitton have established a high-end retail
jewellery joint venture, through De Beers Diamond Jewellers, with stores in the leading malls around
the world.
Anglo American’s diamond interests are represented by its 45% shareholding in De Beers Investments
(DBI). The other shareholders are Central Holdings Limited, an Oppenheimer family holding company
(40%), and the Botswana government (15%). DBI is the 100% owner of De Beers sa.
De Beers sa has a 50% interest in each of Debswana Diamond Company (Proprietary) Limited and Namdeb
Diamond Corporation (Proprietary) Limited, owned jointly with the governments of Botswana and Namibia
respectively; a 75% interest in Williamson Diamonds (Tanzania), a 74% interest in De Beers Consolidated
Mines Limited (Ponahalo Investments acquired a 26% indirect interest in De Beers Consolidated Mines in
April 2006) and owns 100% of the non-South African elements of the DTC.
Industry overview and demand drivers
The diamond industry can broadly be separated into two markets; one dealing in gem quality rough
diamonds, by far the more important of the two, and the other dealing with industrial quality diamonds.
Gem grade diamonds are sold for use in jewellery and valued for their size, shape, colour and clarity. Some
natural stones are used for industrial purposes such as cutting, drilling and other applications. 95% of
diamond material used in industrial applications is synthetic.
Roughly 65% of the world’s diamonds by value originate from southern and central Africa, although
signifi cant sources of the mineral have been discovered in Canada, Russia and Australia. Approximately 130
million carats of diamonds are mined each year and while the vast majority of natural diamond production
by value is gem quality, approximately 70% of mined diamonds by weight are unsuitable for use in
jewellery and are destined for industrial use.
Strategy and business development
From being regarded as the custodian of the diamond industry, De Beers now aims to be the partner of
choice. Upstream, the company is developing two new mines in Canada, Snap Lake and Victor, which will
enter production in late 2007 and at the end of 2008 respectively, while it is re-opening the long-dormant
Voorspoed mine in South Africa and increasing its marine mining operations off that country’s Atlantic
coast. Downstream in the pipeline, the DTC continues to successfully address the challenges of driving
consumer demand through its sales and marketing strategy; Supplier of Choice. This strategy has effectively
restimulated growth in the industry following the stagnation of the mid-late 1990s, resulting in both volume
and value gains in diamond demand. Global retail sales are estimated to have exceeded $68 billion in 2006
and were bolstered by an increase in advertising programmes by the DTC’s clients and its downstream trade
partners as well as the DTC’s own marketing initiatives.
To sustain the success of driving retail demand the DTC continues to develop further consumer
understanding on a market-by-market basis. With a global spend of more than $8 million each year on
research, it is continuously developing and researching new opportunities that have the potential to
stimulate retail growth for diamonds.
While developing these new programmes, the DTC executes existing scale marketing programmes which are
at present the primary vehicles for stimulating the diamond market to achieve its ambitious growth targets.
Increasing industry marketing remains a vital goal if the DTC is to achieve these targets and, while it has
been very successful to date, it continues to aim to increase marketing spend at approximately twice the
rate of diamond jewellery market growth over the next fi ve year period.
Anglo American plc Annual Report 2006 | 13
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | THE BUSINESSES
The launch of Value Added Services for clients marks the second phase of Supplier of Choice, focusing on
generating profi table value growth for clients in an increasingly competitive environment. The services are
based on DTC expertise in selling and marketing gem diamonds, and are designed to enable sightholders to
maximise the effectiveness of their businesses.
De Beers is conducting exploration activities in Canada within the Northwest Territories, Nunavut,
Saskatchewan, Manitoba, Ontario and Quebec. In South America a presence is maintained in Brazil, with an
indicator mineral laboratory in Brasilia and a small team to manage existing joint venture agreements and
assess other opportunities. Exploration continues in South Africa, Botswana and Zimbabwe. Botswana
continues to yield interesting results, particularly in the area surrounding the Orapa mine. Elsewhere in
Africa, exploration is taking place in highly prospective parts of Angola, the Democratic Republic of Congo
and the Central African Republic. The Partner of Choice strategy has been successful in the region, resulting
in a number of joint venture agreements with parastatal agencies and other privately and publicly owned
exploration and mining entities. De Beers is steadily increasing its exploration activities within Russia and
Ukraine and has signed a Memorandum of Understanding with Alrosa, Russia’s leading diamond producer,
which is expected to lead to joint diamond prospecting and exploration activities in Russia. In India,
exploration is under way in Karnataka, Andhra Pradesh, Orissa, Madhya Pradesh, Uttar Pradesh and
Chattisgarh, with encouraging results. In China, the representative offi ce in Beijing continues to seek
opportunities for partnership and some co-operative activities.
Base Metals
Business overview
Anglo Base Metals has interests in 13 operations in six countries:
• six copper operations in Chile – the wholly owned Los Bronces, El Soldado, Mantos Blancos and
Mantoverde mines, Chagres smelter and a 44% interest in the Collahuasi mine, producing copper and
associated by-products such as molybdenum and silver;
the Codemin nickel and Catalão niobium mines in Brazil and the Loma de Níquel mine in Venezuela;
the Namakwa mineral sands mine and plants in South Africa produce titanium dioxide, zircon and rutile,
together with associated by-products;
the Lisheen (in Ireland), Black Mountain and Skorpion (both in southern Africa) zinc mines, producing
zinc and associated by-products such as lead, copper and silver.
•
•
•
The $1.2 billion 36,000 tonnes per annum (tpa) Barro Alto nickel project in Brazil was approved in
December 2006 and will enter production in 2010.
Industry overview and demand drivers
Annual changes in demand for base metals are reasonably well correlated with changes in industrial
production. In general, however, the long term trend is for the intensity of use (consumption of metal per
unit of industrial production) to decline.
With the exception of nickel, base metals industry ownership is relatively fragmented. The global market
shares of the four largest copper, nickel and zinc metal producers are approximately 21%, 50% and 25%
respectively. Producers are price takers and there are relatively few opportunities for product differentiation.
The industry is highly capital intensive and is likely to become more so as high grade surface deposits are
exhausted and deeper and/or lower grade deposits, requiring greater economies of scale in order to be
commercially viable, are developed. Real prices of copper, nickel and zinc have declined over the long term,
although there have been material and sustained deviations from this trend, most recently and notably in
the present uptrend which began in 2004. The decline in prices over a lengthy period refl ects the long term
reduction in costs as a result of improvements in technology and lower input costs. Average margins,
therefore, have tended to be maintained.
In recent years one of the dominant features has been the increased demand for a range of commodities as
a result of industrialisation and urbanisation in China and other developing countries. China now comprises
an estimated 22%, 18% and 28% of global demand for copper, nickel and zinc respectively and these
markets have all benefi ted materially, with several of these commodities reaching their highest price levels
for many years in 2006. The infl ow of fund money from both speculative and longer term portfolio
investors has served to further exaggerate the upward movement in metal prices.
Use of base metals
Copper’s principal application is in the wire and cable markets (60%-65%), followed by brass. End users
rely on copper’s electrical conductivity, corrosion resistance and thermal conductivity. Applications making
use of copper’s electrical conductivity, such as wires, cables and electrical connectors, account for over
• One of the world’s leading
copper producers, with
important nickel and zinc assets
• $1.2 billion Barro Alto nickel
project gets go-ahead
• Signifi cant expansion potential
in copper
14
| Anglo American plc Annual Report 2006
50% of total offtake. Corrosion resistance makes up around 20% of demand, with applications in the
construction industry including plumbing pipe and roof sheeting. The metal’s thermal conductivity also
makes it suitable for use in heat transfer applications such as air conditioning and refrigeration, which make
up some 10% of total demand. Remaining applications include structural and aesthetic uses.
Around 60% of all refined nickel goes into stainless steel. Other uses include high corrosion-resistant alloys
for use in chemical plants, superalloys that can withstand elevated temperatures and which are
predominantly used in aviation, high tech electronic uses and as a substitute for chromium plating.
Zinc is used predominantly in galvanising and alloys. The electrochemistry of zinc is such that steel coated
with zinc (galvanised steel) exhibits high levels of corrosion resistance. This application is responsible for
around 60% of total refined demand. Zinc based alloys in die casting, ranging from automotive components
to toys and models, account for around 14% of refined demand, with copper based zinc alloys (brass)
accounting for 9%. Zinc semis are used as roofing products and in dry cell batteries. Chemical and other
applications make up the remainder of refined demand (approximately 10%), where zinc is used in a diverse
range of products and applications, including tyres, paints, pharmaceuticals and chemical processing.
Mineral sands sale
In January 2007 it was announced that black economic empowerment company Exxaro Resources Limited
had exercised an option in terms of which it had, subject to satisfaction of conditions precedent and
contractual price adjustments, agreed to acquire 100% of Namakwa Sands for $0.3 billion (R2.0 billion)
and 26% of each of Black Mountain and Gamsberg for a combined $26 million (R180 million). Black
Mountain and Gamsberg will remain subsidiaries of and continue to be managed and operated by Anglo
Base Metals.
Strategy and business development
Anglo Base Metals’ strategy is to find or acquire, develop and operate long life, low cost mines in a socially
and environmentally responsible manner, with a strong focus on efficient resource allocation, continuous
improvement and capital and operating excellence.
Options for growth are constantly being developed and evaluated from a combination of sources, including
greenfield and brownfield projects, acquisitions, exploration and technology development. The ability to
grow through acquisitions in a value additive manner at this point in the cycle is challenging. However,
a combination of exploration success, which has seen the division’s exploration and research and
development budgets materially increased, and a strong project pipeline provide material scope for organic
growth, including but not limited to:
the recently approved $1.2 billion Barro Alto nickel project which will enter production in 2010 and
increase existing nickel production by 36,000 tpa by 2011;
the Los Bronces expansion project feasibility study, which envisages increasing copper production by
170,000 tpa at a capital cost of approximately $1.2 billion, will be completed during 2007;
•
•
• Collahuasi has the potential to increase sulphide mill throughput from 130,000 tonnes per day (tpd) to
160,000 to 180,000 tpd through a debottlenecking programme, the conceptual study of which will be
completed in 2007;
the revised feasibility study on the Quellaveco project in Peru, which contemplates an operation producing
approximately 200,000 tpa of copper in concentrate at a capital cost of approximately $1.2 billion, will
be completed in 2008.
•
In 2006, Anglo Base Metals spent $53 million on exploration and has increased its exploration around its
Chilean copper mines, adding significant resources at Los Bronces. Exploration to the south of Los Bronces
continues to report significant intervals of copper mineralisation. In Brazil, further drilling at the Jacaré nickel
discovery has indicated the potential for a major new nickel asset for the company, while work continues in
the Philippines to complete a pre-feasibility study at Boyongan by the end of 2007. At Gamsberg, South
Africa, initial drilling of several key zinc targets has provided encouraging results. Copper exploration is
being undertaken in Brazil, Chile, Indonesia, Mexico, Peru and the US. Nickel sulphide mineralisation is
being sought in Arctic Canada, Russia and Scandinavia (through alliances) and zinc programmes continue
in Australia, South Africa and Namibia.
Anglo American plc Annual Report 2006 |
15
Anglo AmericAn plc
AnnuAl RePORT 2006
operAting And finAnciAl review | THe BuSIneSSeS
• Further progress in optimising
the asset base: formation of
Kumba Iron Ore as a pure-play
iron ore company
• Kumba Iron Ore has a
$754 million expansion
programme to boost
production by 40% by 2009
• Record iron ore production
• Scaw makes record operating
profit of $160 million
Ferrous Metals and Industries
Anglo Ferrous Metals and Industries principally comprises iron ore, carbon steel, manganese and vanadium
operations in South Africa, manganese operations in Australia and grinding media operations in north
America, South America and Australia. In Canada, steel and value added steel products are manufactured.
Business overview
Kumba iron ore – 64% holding
Kumba Iron Ore was born from the unbundling of Kumba Resources, through which exxaro, South Africa’s
largest empowered mining group, was also created. Kumba Iron Ore, which listed on the Johannesburg Stock
exchange on 20 november 2006, offers investors exposure to a pure-play iron ore company. Kumba Iron
Ore is the world’s fourth largest supplier of seaborne iron ore, and exported over 70% of its 31 million
tonnes per annum (Mtpa) production in 2006. Kumba Iron Ore supplies approximately 30 global customers,
mainly in europe and Asia. The group, through its subsidiary Sishen Iron Ore Company (Pty) ltd (SIOC),
currently operates two mines in South Africa – Sishen in the northern Cape, which achieved a record
production of 29 Mtpa in 2006, and Thabazimbi, in limpopo, which produced 2 Mtpa in 2006. Kumba Iron
Ore consolidates 80% of SIOC and, as a result of its 64% shareholding in Kumba Iron Ore, Anglo American
consolidates an effective 51% in SIOC.
Scaw – 100% holding
Scaw Metals is an international group, manufacturing a diverse range of steel products. Its principal
operations are located in South Africa as well as north and South America. Scaw produces rolled steel
products (bar, wire rod and sections), steel and high chromium white iron castings, cast high chromium and
forged steel grinding media, plain carbon and low alloy steel chain and fittings, steel wire rope, synthetic
and natural fibre rope and pre-stressed concrete wire and strand. Scaw products serve the construction,
railway, power generation, mining, cement, marine and offshore oil industries worldwide. Most of the South
African operations are based in or close to Germiston, 20 kilometres east of Johannesburg. Scaw’s
international grinding media business, Moly-Cop, is headquartered in Chile, with operations in Mexico, the
Philippines, Australia, Canada, Italy, Zambia and Zimbabwe. AltaSteel, a manufacturer of steel and value-
added steel products in Canada, was acquired by Scaw in February 2006.
Samancor – 40% holding
Samancor is the world’s largest integrated producer by sales of manganese ore and alloys. Anglo American
has a 40% shareholding in Samancor, with BHP Billiton holding the remaining 60% and having management
control. Samancor’s business encompasses the production of manganese ores and alloys. The company
supplies its worldwide customer base with commodities produced by its various mines and plants, which are
situated in South Africa and Australia. Samancor owns Australian manganese operations consisting of
Groote eylandt Mining Company Proprietary limited and Tasmanian electro Metallurgical Company
Proprietary limited.
Highveld Steel and vanadium – 29% holding
Highveld is a Johannesburg Stock exchange listed company producing vanadium products, steel, ferroalloys
and carbonaceous products, with its main operations situated in Witbank, South Africa. It is the largest
vanadium producer in the world. In addition, its steelworks have a current annual rated capacity of 1 Mtpa,
consisting of billets, blocks and slabs. Ore for the steelworks and Vanchem, Highveld’s main vanadium
operation, is sourced from Highveld’s Mapochs mine near Roossenekal in Mpumalanga, South Africa.
Hochvanadium is a wholly owned subsidiary, based in Austria, which processes and sells vanadium
products. Transalloys and Highveld’s Rand Carbide operate as divisions of Highveld, producing manganese
alloys and carbonaceous products respectively.
tongaat-Hulett – 50% holding
Tongaat-Hulett is listed on the Johannesburg Stock exchange. It comprises Hulett Aluminium (Hulamin) and
the Tongaat-Hulett agri-processing business which includes the essentially integrated components of land
management, agriculture and property development. Tongaat-Hulett is the second largest cane sugar
producer in southern Africa, with operations in South Africa, Zimbabwe, Mozambique and Swaziland. The
starch and glucose operations, based in Gauteng and Cape Town, South Africa, are the largest in southern
Africa. Moreland, which converts Tongaat-Hulett’s agricultural land to property developments at the
appropriate time, is the premier land developer on the prime coastal strip north of Durban, South Africa.
Hulamin, based in KwaZulu-natal, South Africa, is an independent niche producer of aluminium rolled,
extruded and other semi-fabricated and finished products.
16
| Anglo American plc Annual Report 2006
Industry overview and demand drivers
Steel
The most widely used of all metals, steel is used in the construction of buildings, bridges, machinery,
vehicles and many household appliances.
World crude steel production increased by 9% in 2006, to reach a total of 1.2 billion tonnes. China
accounted for most of the increase, with its share of world total production rising to 34% in 2006.
The coming year again promises to be a year of strong steel production growth with global world output in
2007 forecast to rise by over 6%. Further out, global steel growth rates are forecast to average 4.4%
between 2007 and 2010, with world steel production set to increase by almost 300 million tonnes between
2005 and 2010, to reach a total of 1.4 billion tonnes. Global steel prices peaked in mid-2006 but tailed off
by the end of 2006 largely due to a US stock overhang.
Iron ore
Global demand for iron ore in 2006 increased year on year by 15% to 1.7 billion tonnes. It is expected to
remain strong over the next two decades, with steady growth projected to 2020, particularly in the
seaborne market. This growth will be fuelled by the continuing development of the steel industry in China,
which is expected to exceed 50% of total iron ore demand by 2007 (up from 42% in 2005). Further steel
growth in the former Soviet Union and South America, in the short term, and India and other developing
markets in the longer term, contributes to this positive picture. Short to medium term scrap shortages
should ensure that iron ore demand growth is higher than steel production growth for at least the next ten
years. Iron ore supply is continuing to ramp up as major global producers bring capacity on line.
A further benchmark annual price increase of 9.5% has been achieved by major producers, effective 1 April
2007, after increases of 71.5% in 2005 and 19% in 2006.
Unit cost containment remains a major issue for commodity producers and Kumba Iron Ore has been no
exception, experiencing signifi cant cost pressures in 2006, with higher fuel, labour and project-linked
operating costs as well as increases in stripping and maintenance related activities.
Manganese
Manganese ore is smelted to produce manganese ferroalloys (such as ferromanganese and
silicomanganese). Manganese is not recycled and, since only very small amounts are present in fi nished
steel, steel scrap recycling does not signifi cantly impact on manganese demand.
World consumption of manganese ore rose by 10% in 2006, having dropped marginally in 2005. As around
91% of ore is consumed in ferroalloy production, the performance of the manganese alloy industry is the
key determinant for ore demand. Demand for manganese ore is generally robust, driven by steel production
increases in China and strong steel production in other market areas. While generally the market remains
oversupplied, the situation has improved from 2005 with some marginal suppliers pulling out of the market.
Ore prices are expected to show gradual improvements from those seen in 2006. The manganese alloy
market remains regionally different, but in general the global market remains well balanced for the fi rst half of
2007. The outlook for prices remains unclear owing to a combination of factors such as anti-dumping cases in
Europe, a further rise in Chinese duties and general capacity availability, although the effect of these changes
plus strong steel demand and increasing energy costs are expected to be generally positive for alloy prices.
Vanadium
Most vanadium produced is consumed in alloy form in the production of carbon and alloyed steel. Other
uses for vanadium are as an alloying agent in titanium-aluminium alloys, principally used in the aerospace
industry, and as a chemical for catalysts and pigments. Demand for vanadium depends largely on world
steel production. Important vanadium suppliers include South Africa, China and Russia. Vanadium prices in
2006 were off the record levels seen in 2005, with Highveld achieving an average ferrovanadium price of
$39/kgV in 2006, compared with the 2005 average of $66/kgV. The vanadium market in 2007 is expected
to remain similar to that seen in 2006.
Strategy and business development
The core strategy of the business remains that of growing Anglo American’s position in iron ore with a view
to consolidating it as the cornerstone of the reconfi gured Ferrous Metals portfolio.
Kumba Iron Ore has extensive brownfi eld and greenfi eld opportunities to expand its iron ore production
to 45 Mtpa by 2009 and to over 70 Mtpa by 2015. After completion of the detailed feasibility study for
the 10 Mtpa Sishen Expansion Project in late 2004, an investment decision on this project was made in
February 2005. In August 2006, this project was expanded to 13 Mtpa. Production is anticipated to
commence by mid-2007, ramping up to full capacity by the beginning of 2009.
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Anglo AmericAn plc
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operAting And finAnciAl review | THe BuSIneSSeS
A pre-feasibility study on a further expansion at Sishen mine of between 10 and 20 Mtpa is currently under
way and will be completed by mid-2007. This study evaluates the potential to increase utilisation of the
lower grade resources at Sishen mine. Depending on the outcome of the pre-feasibility study, a commitment
towards the execution of a detailed feasibility study is expected in 2007. The Sishen South Project involves
the development of a new opencast operation near the town of Postmasburg, approximately 70 kilometres
south of Sishen mine. The 9 Mtpa Sishen South Project will produce a range of products similar to the
Sishen expansion Project. An investment decision on this project is expected to be made during 2007.
Tongaat-Hulett is proceeding with a $158 million expansion of its sugar production and cane growing
activities in Mozambique at its Xinavane and Mafambisse sugar mills. Hulamin is currently undertaking a
$120 million expansion to increase its rolled products capacity by 20% to 250,000 tpa, focusing on high
margin products.
In line with the strategy of optimising the division’s asset base, further progress was made during 2006.
In July, Anglo American announced the sale of its 79% shareholding in Highveld Steel to evraz, an
international steel producer, and Credit Suisse, for a total aggregate consideration of $678 million.
Following the disposal of the initial 49.8%, for which Anglo American received $412 million, evraz has
an option to acquire Anglo American’s remaining 29.2% stake in Highveld Steel for $266 million once
regulatory approvals are received. This amount will be reduced by any dividends paid by Highveld Steel
prior to Anglo American selling its remaining shares. The deal represents a substantial foreign direct
investment in South Africa.
In november, the Kumba empowerment transaction was completed. This resulted in the listings on the
Johannesburg Stock exchange of Kumba Iron Ore, as a pure-play iron ore company in which Anglo American
holds 64%, and exxaro, which became South Africa’s largest black economic empowered natural resources
company.
In December, Tongaat-Hulett announced the proposed unbundling and listing of Hulamin, and simultaneous
introduction of broad based black economic empowerment (BBBee) into both companies. This transaction,
which is anticipated to take place by mid-2007, will result in BBBee groups acquiring 25% and 15% interests
in Tongaat-Hulett and Hulamin respectively. Anglo American’s shareholding in Tongaat-Hulett will reduce
from 50% to 38% and its shareholding in Hulamin will reduce from an effective 45% to 39%.
In line with Anglo American’s objective of consolidating its agri-processing businesses within Tongaat-Hulett,
it was announced in December that Tongaat-Hulett had acquired Anglo American’s 50% shareholding in the
Zimbabwe Stock exchange listed sugar producer, Hippo Valley estates, for $36 million.
Coal
Business overview
Anglo Coal is the world’s sixth largest private sector coal producer and a major exporter. In 2006, Anglo
Coal produced 96 million tonnes (mt) from three geographic regions: South Africa, Australia and South
America.
In South Africa, Anglo Coal owns and operates eight mines and has a 50% interest in Mafube mine, a joint
venture with eyesizwe. Four mines are trade mines in the Witbank coalfield which supply approximately 20
million tonnes per annum (Mtpa) of low ash metallurgical and thermal coals to the export and local markets.
Coal is exported through Richards Bay Coal Terminal, in which Anglo Coal has a 27% interest. Anglo Coal’s
new Vaal, new Denmark and Kriel mines supply around 35 Mpta of thermal coal to eskom, the South
African state owned electric power utility. Its coal supply contracts with eskom cover the delivery of
tonnages and qualities, generally for the expected life of the relevant power station. The eskom power
stations are mine mouth facilities, and coal is transported a short distance from the mine by conveyor to the
power station’s stockpiles. Anglo Coal’s Isibonelo mine produces some 5 Mtpa for Sasol Synthetic Fuels
under a 21 year supply contract.
In Australia, Anglo Coal has one wholly owned mine and has controlling interest in another four. The mines
are located in Queensland and new South Wales and produce approximately 25 Mtpa. Anglo Coal also
owns an effective 23% interest in the Jellinbah mine in Queensland. The mines produce high quality coking
• New capital expenditure
projects in Australia: Dawson
project ($835 million) set to
come on stream in late 2007
and Lake Lindsay ($516 million)
in 2008
• Cerrejón is ramping up to
32 Mtpa, with full production
scheduled for 2008
• Market remains strong for
thermal coal
18
| Anglo American plc Annual Report 2006
coal used for steel production, and export and domestic thermal coal used for power generation and
industrial applications. The company is the fourth largest producer of coal in Australia and also has signifi cant
undeveloped coal reserves. At Dawson mine, expansion of the mine to increase attributable production by
5.7 Mtpa is under way with completion expected in 2007, while at Capcoal, the Lake Lindsay development
is progressing with estimated completion during the second half of 2008. The additional production from
both Dawson and Lake Lindsay will increase Anglo Coal’s metallurgical coal production to approximately
16 Mtpa. Key future development prospects are Grosvenor and Moranbah South in Queensland and
Dartbrook and Saddlers Creek in New South Wales.
In South America, Anglo Coal has a 33% shareholding in Cerrejón Coal, which produces approximately
28 Mtpa, with approved expansion plans to increase production to 32 Mtpa. Cerrejón primarily produces
thermal coal which is exported to Europe and the Americas. In addition, Anglo Coal has a 25% interest
in Carbones del Guasare (CDG) which owns and operates the Paso Diablo mine in the state of Zulia, in
northern Venezuela. CDG produces around 6.2 Mtpa.
Industry overview and demand drivers
Coal is the most abundant source of fossil fuel energy in the world, considerably exceeding known reserves
of oil and gas. The bulk of coal produced worldwide is thermal coal used for power generation where it
competes with oil, gas, nuclear and hydro generation. Thermal coal is also supplied as a fuel to other industries
such as the cement sector. Metallurgical coal is a key raw material for 70% of the world’s steel industry.
Approximately 5 billion tonnes of hard coal is produced globally each year and the majority of this is used in
the country of production. A small volume is traded across land borders such as those between the US and
Canada or between the former Soviet Union countries. The international seaborne coal market comprises
some 0.7 billion tonnes. The thermal coal component in this sector comprises some 0.5 billion tonnes and
the metallurgical component some 0.2 billion tonnes.
Metallurgical coal is primarily used in the steelmaking industry and includes hard coking coal, semi-soft
coking coal and pulverised coal injection (PCI) coal. Metallurgical coal is produced in a relatively limited
number of countries. The chemical composition of the coal is fundamental to the steel producers’ raw
material mix and product quality. The market for this coal is generally characterised by large volume, longer
term, annually priced contracts.
Demand in this sector is fundamentally driven by economic, industrial and steel demand growth, but the
Med-Atlantic and Indo-Pacifi c markets have their own particular supply and demand profi les. Price
negotiations between Australian suppliers and Japanese steel producers generally, but not always, set the
trend that infl uences settlements throughout the market. Anglo Coal is a signifi cant supplier to virtually all
the major steel producing groups in the world.
Thermal coal is primarily used for power generation, although the cement industry is an important
secondary source of demand. The thermal coal market is supplied by a larger number of countries and
producers than the metallurgical coal market, spread across the world. Production companies vary in size
and operate in a highly competitive market.
Demand for thermal coal is driven by demand for electricity and is also affected by the availability and price
of competing fuels such as oil and gas, as well as nuclear power. Driven by the deregulation of the
electricity markets, customers focus increasingly on securing the lowest cost fuel supply at any particular
point in time. This has resulted in a move away from longer term contracts towards short term contracts,
spot pricing, the development of various price indices, hedging and derivative instruments.
Anglo Coal exports thermal coal from South Africa, South America and Australia to customers throughout
the Med-Atlantic and Indo-Pacifi c markets.
The balance of Anglo Coal’s production is sold domestically in Australia and South Africa. In South Africa a
large portion of domestic sales are made to the domestic power utility, Eskom, on long term (i.e. life of
mine) cost-plus contracts. Sales also take place to domestic industrial sector consumers. In Australia,
domestic sales are predominantly to power utilities under long and shorter term contractual arrangements.
Anglo American plc Annual Report 2006 |
19
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | THE BUSINESSES
Strategy and business development
Anglo Coal’s strategy is focused on globalisation to secure a balanced and profi table mix of metallurgical
and thermal coal assets, supplying international markets in the Med-Atlantic and Indo-Pacifi c basins and,
where appropriate, selected customers in the country in which the production takes place. This will be
achieved via the expansion of existing assets, acquisition of new assets and by strategic alliances that
facilitate, protect and augment the above strategy.
While Anglo Coal continues to grow and expand its operations in its existing geographies, it is looking
at potential opportunities in new regions, such as China, Indonesia, the US and Canada.
In South Africa, Anglo American has approved the $132 million development of the Mafube mine. The
Mafube mine will supply coal to Eskom, the local power utility, and to the export market. It is anticipated
that the mine will increase thermal coal production by a total of 5 Mtpa, atributable share being 2.5 Mtpa.
The current and forecast growth rates in the South African economy present numerous opportunities for the
coal industry, especially in connection with the supply and demand of electricity. Anglo Coal is evaluating a
number of opportunities in order to continue to participate in the domestic electricity supply sector and is
currently reviewing these opportunities with potential historically disadvantaged South African partners and
Eskom.
In Australia, the focus is on delivery of the expansion of Dawson Complex in 2007 and the development of
Lake Lindsay in 2008. In addition to the current developments, Anglo Coal is reviewing a number of studies
for Moranbah South, Grosvenor, Dartbrook and Saddlers Creek.
In Colombia, the approved expansion at Cerrejón from 28 to 32 Mtpa is on schedule and should be achieved
in 2008. Feasibility studies are currently under way reviewing possibilities of expanding the Cerrejón
operation beyond 32 Mtpa.
Anglo Coal has recently established a 60% interest in Peace River Coal, consisting of one operating
metallurgical coal mine and signifi cant coal resources in western Canada. Peace River Coal is expected to
produce approximately 2.0 Mtpa in 2007.
In China, Anglo Coal has a 60% interest in the Xiwan open cut coal lease area mine where the feasibility of
developing the mine with downstream partners is under evaluation.
The impact of climate change continues to be a focus area and Anglo Coal’s strategy is to participate where
appropriate to help address the issue of carbon emissions and climate change as the demand for energy
continues to grow. To this end, Anglo Coal formed an alliance with Shell to further advance the Monash
Energy clean coal-to-liquids project in the state of Victoria, Australia. The Monash Energy project will
involve the gasifi cation – via Shell’s proprietary coal gasifi cation process – of Anglo Coal’s brown coal from
Victoria’s Latrobe Valley for further conversion into clean transportation fuels, including virtually zero
sulphur, synthetic diesel using Shell’s proprietary gas-to-liquids technology.
In addition to the Monash Energy project, Anglo Coal is also a member of The FutureGen Industrial Alliance,
a body consisting of major energy and mining companies, who will partner with the US Department of Energy
to design, construct, and operate the world’s fi rst ‘near zero’ emissions coal-fuelled power generation plant.
Anglo Coal is a member of the World Coal Institute and in this capacity contributes to promoting the
interests and addressing the concerns of the wider coal industry.
Anglo Coal has spent $24 million in continuing to investigate resources for thermal and coking coal, coal
bed methane and oil sands, mainly looking in southern Africa, China and Australia. It has conducted
advanced resource evaluations of the Xiwan project in China and projects in Canada and Australia.
In February 2007, Anglo Coal announced the creation of Anglo Inyosi Coal, an empowered coal company
housing key current and future domestic and export focused coal operations. Anglo Coal has signed a Heads
of Agreement with Inyosi, a newly formed broad based black economic empowerment company. Inyosi will
acquire 27% of Anglo Inyosi Coal, creating a company valued at R7 billion and incorporating several key
Anglo Coal assets; namely Kriel Colliery an existing mine, and Elders, Zondagsfontein, New Largo and
Heidelberg projects.
20
| Anglo American plc Annual Report 2006
• Completion of strategic
review facilitates continuous
improvement both operationally
and commercially
• Tarmac acquires assets
in Turkey and Romania for
fi rst time
• Work under way on Tarmac’s
largest ever contract
– resurfacing a stretch of
England’s M1 motorway
Industrial Minerals
Business overview
Anglo Industrial Minerals (AIM) has two businesses – Tarmac and Copebrás. Tarmac is a leader in the
construction materials business in the UK and also has operations in continental Europe and the Middle
East. It is principally involved in the production of crushed rock, sand and gravel, asphalt, concrete and
mortar, concrete products, lime and cement. Copebrás is a leading Brazilian producer of phosphate
fertilisers, phosphoric acid and sodium tripolyphosphate (STPP).
Tarmac
Tarmac accounts for around 90% of AIM’s business and is well positioned with a long life asset and reserve
base. It is the UK market leader in aggregates, asphalt and mortar and is the second largest in ready-mixed
concrete.
Tarmac’s UK organisation comprises two business units: Aggregate Products and Building Products.
These units are supported by a shared service centre based in Wolverhampton, in central England.
Aggregate Products comprises aggregates, asphalt, contracting, recycling and ready-mixed concrete.
The organisation is based on seven geographical areas, enabling greater local customer focus.
Building Products comprises those businesses that have essentially national markets. These include cement,
lime, mortar and concrete products.
Tarmac’s International Business is a combination of seven different businesses operating in 11 countries,
with a centralised management team in Frankfurt. Tarmac is a leading producer of hard rock, sand and
gravel and concrete products in the countries in which it operates in central Europe, and of ready-mixed
concrete in the Madrid and Alicante areas of Spain. In France and Poland, it has important and growing
shares of the concrete products markets. Tarmac has recently entered Turkey and acquired a developing
business in Romania, involving interests in quarries and ready-mixed concrete.
Products
Sand and gravel
Used mostly in the production of ready-mixed concrete, sand and gravel are also used for fi lls and drainage.
Extracted from pits and dredged from coastal waters, materials are washed and graded prior to use.
Crushed rock
Crushed rock is predominantly used for road construction (where it is used both as a foundation and, when
heated and mixed with bitumen, as a surfacing material), other foundations, drainage, railway ballast and
concrete products. Extraction is generally from open pits, by drilling and blasting followed by various
crushing and screening processes to achieve specifi cations appropriate to the ultimate end use. Crushed rock
may also be used in ready-mixed concrete.
Ready-mixed concrete
Manufactured at production units located close to its market, ready-mixed concrete consists of sand, gravel,
crushed rock, water, cement, cement replacements and other components dependent upon the performance
required from the resultant mix. Ready-mixed concrete is transported to site in specialist truck mixers
designed to thoroughly mix the material during transit.
Mortar and screeds
Mortar and screeds consist of sand, cement, and various admixtures dependent on application and
performance requirements. Mortar is predominantly used for masonry applications such as bricklaying and
will often contain lime to improve working properties. Levelling screeds and self-smoothing fl owing screeds
are generally used to prepare fl oors to receive fi nal surfaces.
Asphalt
Manufactured by coating graded, crushed rock with bitumen, asphalt is the main product used for surfacing
roads. Applied hot or cold to road foundations, asphalt is either supplied to site or collected by contractors
from strategically located plants.
Anglo American plc Annual Report 2006 | 21
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | THE BUSINESSES
Concrete products
Utilising extracted materials, the concrete products sector provides the construction industry with a variety
of prefabricated products, including blocks for walling, pre-stressed structural fl ooring and engineered
precast elements.
Lime and cement
Using similar production processes, lime and cement are added value materials used widely within
construction. Lime is also an important product in the agricultural, environmental and industrial sectors.
Copebrás
Copebrás’ principal products are phosphoric acid, a range of phosphate based fertilisers and STPP.
Phosphoric acid is the raw material for the manufacture of phosphate fertilisers and STPP. Phosphate
fertilisers are used to supplement natural soil nutrients to achieve high agricultural yields. STPP is used in
water treatment and the manufacture of detergents, paints and ceramics.
Industry overview and demand drivers
The aggregates, asphalt and ready-mix markets in which Tarmac participates in the UK are heavily
consolidated, with the top fi ve players controlling over 70% of each market.
The cement market too is highly consolidated, with the leading fi ve companies accounting for nearly 90%
of the market.
The main aggregates players also compete, to a greater or lesser extent, in the concrete products market,
which is more fragmented.
A highly competitive marketplace, coupled with weak demand, resulted in the construction industry
experiencing diffi cult market conditions over the past few years. Market conditions in the UK are expected
to remain challenging with weak demand in some sectors, including roads and housing. The volatility of
energy prices and the impact on cement and distribution costs will also continue to affect the industry.
Tighter planning regimes are likely to lead to current holdings of consented mineral reserves becoming more
valuable over time.
Strategy and business development
Tarmac’s strategy is to maximise shareholder value by exploiting its core competitive advantage of
maintaining reserves in established territories and continuing acquisitive and organic growth in selected
territories. It will focus on the UK and Europe, with increasing emphasis on central and eastern Europe,
where it can develop businesses of scale; it will concentrate on aggregates and downstream activities
where the latter provide routes to market for aggregates. The company will continue to focus on the active
management of its portfolio to optimise its returns to shareholders.
During 2005, Tarmac was restructured to deliver improved and sustainable fi nancial performance by
creating an effective, effi cient and enterprising organisation that is reliable, straightforward, understanding
and responsive in its relationships with customers.
Tarmac continues to seek opportunities to add further value to its business. Several programmes are under
way across the UK and international businesses, which will deliver improvements in business performance
and lay the foundations of a culture of continuous improvement in all businesses.
Specifi c strategies are:
to become the supplier of choice across Tarmac’s full product range and through its various routes
to market;
to continue to develop innovative product and service solutions to differentiate it from competitors;
•
•
• strategic sourcing that is targeted to produce annual savings through economies of scale in company
• capital expenditure to reduce cost and improve productivity.
wide procurement;
22
| Anglo American plc Annual Report 2006
Gold
Business overview
AngloGold Ashanti is one of the world’s largest gold producers, with production of 5.64 million ounces of
gold in 2006 and has extensive reserves and resources. The company draws its production from four
continents. Its operations comprise open pit and underground mines and surface reclamation plants in
Argentina, Australia, Brazil, Ghana, Guinea, Mali, Namibia, South Africa, Tanzania and the US, and employs
approximately 61,000 people around the globe.
• Strategic alliances established
in Russia and are being pursued
in China
• Continuing investor interest
in gold
AngloGold Ashanti continues to enhance the value of the company through organic growth. The company
currently has several major capital projects in development that will be coming into production over the next
few years and currently has an extensive exploration programme in 15 countries.
The company has seven underground operations in South Africa, nine operations in East and West Africa,
an open pit operation in North America, three South American operations (one open pit, two underground)
and one open pit operation in Australia. The Boddington Expansion Project in Australia was approved by the
AngloGold Ashanti board in January 2006. Production is scheduled to commence during the third quarter
of 2008.
AngloGold Ashanti also continues to build on its strategy of seeking out partnerships with junior exploration
and mining companies in regions outside the world’s mainstream mining areas. In these partnerships, the
company, when possible, seeks to retain the right to convert its minority stakes into majority holdings if and
when a project reveals the potential to become a large deposit. Over the past year the company has
diversifi ed in this way into regions such as Laos, China, the Philippines and Alaska.
AngloGold Ashanti also focuses on developing the market for its product. Through its international gold
marketing initiatives on its own, and in collaboration with organisations such as the World Gold Council, it is
able to take advantage of downstream opportunities for potential value capture and help to ensure a healthy
customer base.
Industry overview and demand drivers
Gold is used primarily for fabrication and bullion investment and is traded on a worldwide basis. Fabricated
gold has a variety of uses, including jewellery, electronics, dentistry, decorations, medals and offi cial coins.
Central banks, fi nancial institutions and private individuals buy, sell and hold gold bullion as an investment
and as a store of value.
Apart from gold’s status as the ‘ultimate store of value’ (estimates are that the world’s central banks hold
approximately 33,000 tonnes), the overwhelming use for gold is in jewellery. On average, over the past
decade, demand for gold from the jewellery industry has consistently outstripped newly mined supply.
Strategy and business development
AngloGold Ashanti’s strategic objectives are to drive down costs, lower mining and geopolitical risk by
diversifi cation and invest directly in, or partner in, downstream retail operations.
Its value adding growth strategy will remain a core focus and the company will continue to look for
additional opportunities to grow its business organically, through focused exploration and a disciplined
approach to opportunistic asset acquisitions and mergers and acquisitions, not least in new regions such
as Russia, Laos, the Philippines, China and countries in South America such as Colombia.
AngloGold Ashanti is changing from being solely a gold mining company to one that is able to add value
at several stages of a supply chain from the geologist’s search for a deposit through to the consumer.
The company is committed to developing the market for gold. Its marketing programme aims to increase the
desirability of its product, to sustain and grow demand, and to support the deregulation of the market in key
economies.
During 2006, AngloGold Ashanti spent some $16 million on gold marketing initiatives, of which the
majority was spent through the World Gold Council. Gold marketing expenditure by AngloGold Ashanti in
2005 and 2004 amounted to $13 million and $15 million, respectively. Independently of its support for the
World Gold Council, AngloGold Ashanti is active in a number of other marketing projects that support gold.
It remains the only gold company in the world to have committed this level of resource to the marketing of
the metal it produces.
AngloGold Ashanti holds a 25% stake in OroAfrica, the largest manufacturer of gold jewellery in South
Africa, as an investment in the downstream benefi ciation of gold in South Africa. AngloGold Ashanti and
OroAfrica have co-operated in a number of projects, including OroAfrica’s development and launch of an
African gold jewellery brand. An important strategic step has been the establishment of a Jewellery Design
Centre at OroAfrica at a cost of $250,000. The purpose of the centre is to improve product standards
through technology, design and innovation.
Anglo American plc Annual Report 2006 | 23
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | THE BUSINESSES
AngloGold Ashanti and Mintek, South Africa’s national metallurgical research organisation, launched Project
AuTEK in 2002 to research and develop industrial applications for gold. Project AuTEK has developed a gold
based catalyst for the oxidation of carbon monoxide at ambient temperatures. Mintek has carried out pilot
scale catalyst production tests. Negotiations for the commercial production of the catalyst have commenced.
The company is now looking outside of the world’s mature gold regions and has exploration projects in
Africa in the Democratic Republic of Congo and in South America in Colombia. In Russia, AngloGold Ashanti
has announced the formation of a strategic alliance with Polymetal. Strategic alliances are being pursued in
China to allow the company to successfully extract value from a region undergoing signifi cant regulatory
change. Exploration partnerships in the Philippines and Laos have resulted in land positions being acquired
in several prospective areas.
Paper and Packaging
• Agreement in principle reached
for Mondi to become a Dual
Listed Company Structure,
with listings in London and
Johannesburg
• First phase of modernisation
programme at Syktyvkar in
Russia under consideration
• $365 million capital expenditure
in Poland or the Czech Republic
being considered
Business overview
Mondi is an integrated paper and packaging business with revenue of $7.5 billion in 2006. Its key
operations and interests are in western Europe, emerging Europe and South Africa and it is principally
involved in the manufacture of packaging paper, converted packaging products (including corrugated
packaging, bags and fl exible packaging) and offi ce paper. In addition, it has merchant operations which
focus on Austria and emerging Europe and newsprint operations in South Africa, the UK and Russia.
Mondi is integrated across the paper and packaging production process, from the growing of wood for pulp
production and the manufacture of pulp and paper, to the conversion of packaging papers into corrugated
packaging and industrial bags.
Mondi has production operations in around 115 locations across 35 countries, employing around 34,000
employees worldwide as at 31 December 2006.
Industry overview and demand drivers
Mondi operates in the following broad industry sectors:
•
•
the packaging sector, which includes packaging paper, paper based packaging (primarily corrugated
boxes, industrial bags and folding cartons) and non-paper based packaging made from materials
including metal, glass, rigid plastics and fl exible plastics; and
the graphic paper sector, which includes uncoated woodfree paper, uncoated mechanical paper, coated
woodfree paper, coated mechanical paper and newsprint.
Within the packaging sector, Mondi primarily competes in the global paper based packaging value chain.
In the graphic paper sector, Mondi primarily competes in the global uncoated woodfree paper value chain,
with a presence in selected geographic markets in newsprint.
Prices for Mondi’s products are affected by changes in capacity and production and by demand for its
products which is infl uenced by general economic conditions, changes in consumer preferences and inventory
levels maintained by its customers. Changes in these factors have, in the past, resulted in signifi cant
fl uctuations in the prices for Mondi’s products and can be expected to have a similar effect in the future.
The industry is currently undergoing broad rationalisation, with many of the large players having announced
signifi cant capacity closures, restructuring measures and cost saving programmes.
Strategy and business development
The strategic focus of Mondi is to add value through sustainable profi t growth over the course of the paper
cycle. In existing operations, the focus is on maintaining and developing its cost advantages over its major
competitors and achieving growth through a combination of its various business excellence initiatives and
selected capital expenditures focused around low-cost assets in emerging markets. A disciplined acquisition
programme is intended to supplement this organic growth, with the focus on targets offering clear market
and/or operations synergies with Mondi’s existing business.
Mondi continued to strengthen its global position within the paper and packaging industry in 2006 with
focused acquisitions, the more signifi cant being Akrosil (release liner), Stambolijski (kraft paper and bags)
and Schleipen & Erkens (release liner). Management closely monitors the existing asset base, and in 2006
took the decision to close or divest various underperforming assets, particularly within the corrugated
packaging business.
24
| Anglo American plc Annual Report 2006
• $1.6 billion has been realised
through the disposal of non-
core assets in 2006
• Mondi demerger planned for
mid-2007
• Phased exit of the AngloGold
Ashanti holding
Business focus
Anglo American’s strategy has been to become a more
focused mining group, in the process simplifying its
structure and enhancing returns
Strategic focus
In order to achieve its strategy, Anglo American has undertaken a major restructuring of its asset base.
Over the past seven years, disposals of non-core businesses have totalled $11.8 billion and acquisitions
amounted to $15.7 billion.
Following implementation of the restructuring programme, Anglo American will be focused around six
commodity groups: platinum, diamonds, base metals, coal, ferrous metals and industrial minerals. As a
more focused, cohesive group, further cost savings and synergies as well as technology and knowledge
sharing will be key priorities.
Platinum is one of the main differentiators of the Group. With platinum group metals enjoying an
unparalleled and expanding range of applications, and the prospect of buoyant demand for years to come,
Anglo Platinum, will continue to be a major part of the Group’s mining portfolio. The steady increase of
Anglo Platinum’s production over the last decade is testament to the major role Anglo Platinum will play
in the Group’s future.
De Beers, like Anglo Platinum, is a world leader in its fi eld. It has a market share of some 40% of rough
diamond production and is bringing on stream two new mines in Canada and one in South Africa over the
next two years to augment its overall output.
In little over a decade, Anglo Coal has become a leading producer and exporter, supplying coal from three
continents. In partnership with a number of major energy companies, Anglo Coal is examining the feasibility
of producing downstream products such as gas and synthetic fuels on a commercial scale and is gradually
moving from being a pure coal supplier to becoming a broader player in the energy fi eld.
Anglo American is consolidating its position as a major copper producer, with several expansions under way
or at the feasibility stage. With Anglo Platinum’s nickel production set to rise signifi cantly, combined with
Anglo Base Metals’ Barro Alto nickel project, the Group is set to become a signifi cant nickel producer with
around 100,000 tpa in 2012.
Kumba Iron Ore is becoming a major force in the consolidated iron ore industry, with current expansions
that will boost production by around 40% to 45 Mtpa, with further potential to raise this to over 70 Mtpa
by 2015.
Following an extensive review, Tarmac has restructured in the UK and reduced its downstream activities.
Tarmac has sold a number of small underperforming businesses in western Europe and is focusing on the
growth markets of eastern Europe. It is aiming to make a $50 million structural profi t improvement over
the next three years.
In terms of the restructuring, Anglo American has sold $1 billion of its stake in AngloGold Ashanti, reducing
its shareholding from 51% to 42%. We will continue to explore all available options to exit AngloGold
Ashanti in an orderly manner.
Regarding Mondi, plans for a full demerger are progressing. Approval in principle has been received from
the regulatory authorities in South Africa for a Dual Listed Company Structure with primary listings in
Johannesburg and London.
In 2006, the fi rst tranche of Anglo American’s 79% shareholding in Highveld Steel was sold to Evraz and
Credit Suisse. In November, Kumba was restructured. Anglo American now owns 64% in pure-play iron ore
company Kumba Iron Ore. The unbundling of Tongaat-Hulett’s aluminium business to shareholders and
simultaneous introduction of broad based BEE into both Tongaat-Hulett and Hulett Aluminium will occur
during the second quarter of 2007. This will reduce Anglo American’s interest in Tongaat-Hulett to 38%
and in Hulamin to 39%.
Anglo American plc Annual Report 2006 | 25
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | BUSINESS FOCUS
Anglo American’s principal objective is to maximise long term value creation for shareholders through the
effective development and operation of world class mining assets. In order to achieve this, the Group needs
to ensure it has the technical resources in place to manage operations effi ciently. High quality mining assets
are the lifeblood of any mining company, and Anglo American constantly seeks to replace and augment its
asset base through a combination of exploration, discovery and development, complementing this organic
growth process by value accretive acquisition.
In order to execute this strategy the Group has identifi ed the following areas as being of central importance.
Safety
The safety of all employees is of paramount importance to Anglo American and is one of its core values.
The Group’s approach to safety is based on three pillars. The instillation of a safety culture throughout the
Group with a zero injury tolerance mindset ensures that the Group learns from each incident and adheres to
a set of simple, non-negotiable safety standards.
Sustainable development
This means ensuring that all stakeholders in Anglo American’s mining operations are positively impacted by
those operations. The Group aims to respond to the fi ve key global challenges (wealth, energy, health, land
use and biodiversity) identifi ed at the Johannesburg World Summit on Sustainable Development in 2002 and
to incorporate the principles of sustainable development and social responsibility into all aspects of the
business cycle.
World class assets
Anglo American’s strategy is to seek to invest in opportunities that will deliver strong cash fl ows through
the cycle and which offer the greatest potential for optimisation and expansion. Consequently, the Group
concentrates on pursuing mining investments that will provide low cost and long life exposure to the
commodity price cycle. Furthermore, the Group aims to ensure that maximum value is gained from
ownership of these assets through a continual focus on cost savings and operating effi ciencies.
Project pipeline
Anglo American has one of the strongest organic growth pipelines in the mining industry, encompassing all
our business units across a wide range of geographies. This pipeline creates a distinctive platform for Anglo
American to deliver growth and value creation through the cycle. The Group will continue to invest in
growth projects in its core mining businesses of platinum, diamonds, coal, base metals and iron ore to
ensure that it is well positioned to deliver growth well into the future.
People
Anglo American’s employees are essential to the long term success of the Group. Anglo American continues
to invest in the development of its people and strives to ensure that it is positioned to attract and retain the
best mining and other talent.
26
| Anglo American plc Annual Report 2006
Key performance indicators
In order to measure and assess the achievement of its strategic objectives, Anglo American has put in place
a number of key performance indicators (KPIs). These encompass both fi nancial and non-fi nancial indicators
as well as quantitative and qualitative measures. While these KPIs are helpful in measuring the Group’s
performance, it should be stressed that they are not exhaustive and that many additional performance
measures are used to monitor progress.
Strategic objective
KPI
Description
Results and target (if applicable)
Long term value creation and
world class assets
Return on capital employed
Calculated as total operating profi t before impairments for the
year divided by the average total capital less other investments
and adjusted for impairments.
2006: 32.4%
2005: 19.2%
Year on year cost savings
Reduction in year on year operating costs is analysed between
operating effi ciencies, procurement savings and restructuring
and synergies.
Underlying earnings per
share
Underlying earnings are net profi t attributable to equity
shareholders, adjusted for the effect of special items and
remeasurements, and any related tax and minority interests.
2006: $3.73
2005: $2.58
Total shareholder
return (TSR)
TSR is defi ned as share price growth plus dividends reinvested
over the performance period. The Group uses a performance
period of three years and calculates TSR annually.
Please refer to Remuneration Committee
report on pages 66 to 83.
Optimise production volumes
Production and extraction of the Group’s prime commodities,
measured in industry standard units.
A full analysis of the Group’s production
is given on pages 148 to 152. Record
production levels achieved for platinum,
coal, iron ore, nickel (on continuing
operations basis) and zinc. Copper
production increased over 2005 levels.
Safety
Work related fatal injuries
and fatal injury frequency
rate (FIFR)
Lost time injury frequency
rate (LTIFR)
FIFR is calculated as the number of fatal injuries per 200,000
hours worked.
2006: 44 fatalities, 0.017 FIFR
2005: 46 fatalities, 0.017 FIFR
2007 target: zero incidents
The number of lost time injuries (LTIs) per 200,000 hours
worked. An LTI is an occupational injury which renders the
person unable to perform his/her duties for one full shift or more
the day following the one on which the injury was incurred,
whether a scheduled work day or not.
2006: 1.16
2005: 0.94
2007 target: 0.94
Sustainable development
Improve energy effi ciency
and reduce CO2 emission
intensity
Improvements in energy effi ciency and reduction in CO2 emission
per unit of production are measured from a 2004 baseline.
A 15% improvement in energy
effi ciency and 10% reduction in CO2
emissions per unit of production by
2014.
Community social investment Social investment as defi ned by the London Benchmarking Group
includes donations, gifts in kind and staff time for administering
community programmes or volunteering in company time.
2006: $50.3m, 0.6% of PBT
2005: $56.7m, 1.0% of PBT
New capital investment
Capital projects and
investment, optimising risk
rate of return
Optimise the pipeline of projects and ensure that new capital
is only committed to projects that show a positive net present
value on a risk adjusted basis.
A full analysis of the Group’s project
pipeline is on pages 28 and 29.
People
Please see the narrative on pages 49 to 50 describing the Group’s Human resources principles.
Anglo American plc Annual Report 2006 | 27
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | BUSINESS FOCUS
Project pipeline and major projects
Project pipeline
Anglo American has one of the strongest project pipelines in world mining. Across the Group, the platinum,
diamond, coal, base metals and iron ore projects that are under development total $6.9 billion.
This array of projects stretching into the future, building on Anglo American’s unique suite of existing
assets, has created formidable organic growth potential for the Group.
In South Africa, Anglo Platinum, the world leader in platinum, with considerable platinum reserves, is
implementing its extensive suite of projects to expand and maintain production, with $1.6 billion approved
in 2006. Against a background of positive fundamentals for the entire range of platinum group metals
(PGMs), the company plans to lift its platinum production in 2007 to between 2.8 and 2.9 million ounces,
as well as expand output of other PGMs. A $692 million project to add 230,000 platinum ounces per
annum at PPRust is under way, with a further $230 million allocated to maintaining existing production of
200,000 ounces per annum. The $224 million East Upper UG2 project at Amandelbult, to exploit mainly
the UG2 reef, will raise the mine’s platinum output by 106,000 ounces a year by 2012. Accessing Merensky
reef, the $316 million Paardekraal 2 shaft project, to replace 120,000 ounces of platinum annually by 2015,
has also been given the go ahead.
Anglo Base Metals has several projects in South America which will ensure that Anglo American retains its
signifi cant market position in copper, while the Group is also becoming a bigger player in nickel. At Minera
Sur Andes in Chile, the Chagres smelter is now operating at full capacity following the completion of a
recent expansion project. Los Bronces has a feasibility study under way on a $1.2 billion project to increase
copper production by 75%, while a debottlenecking opportunity is being evaluated at Collahuasi. A
feasibility study is being conducted on the Quellaveco project in Peru. A decision on whether to proceed
with the mine, which would produce in the region of 200,000 tonnes of copper a year, at a capital cost of
approximately $1.2 billion, is expected in 2008. In Brazil, the recently approved $1.2 billion Barro Alto
project will produce an average of 36,000 tonnes of nickel in ferronickel annually over a minimum 26 year
mine life. The mine should come on stream in 2010, ramp up to full production the following year and boost
the Group’s total nickel production to around the 100,000 tonnes per annum level by 2012.
Anglo Ferrous Metals, through Kumba Iron Ore, is well advanced on the 13 Mtpa $754 million Sishen
expansion project in South Africa’s Northern Cape, with fi rst output due in 2007 and full ramp up targeted
for 2009. Further brownfi eld and greenfi eld projects should increase Kumba Iron Ore’s annual production to
over 70 Mtpa by 2015. Other iron ore growth opportunities are being pursued.
Anglo Coal’s actual and approved thermal/domestic coal projects are scheduled to raise attributable
production to surpass 100 Mtpa early on in the next decade. In Australia, the $835 million Dawson mine
is planned to reach production in late 2007, producing 12.7 Mtpa of metallurgical and thermal coal for the
export market. Construction has also started on the $516 million Lake Lindsay greenfi eld project at the
German Creek mine. Annual saleable production will be 4.0 Mtpa, comprising mainly metallurgical coal. The
recent granting of prospecting rights to Anglo Coal by South Africa’s Department of Minerals and Energy is
an encouraging development. At Cerrejón in Colombia, capacity is being expanded from the current level of
28 Mtpa to 32 Mtpa in 2008, with further expansion potential to at least 50 Mtpa.
De Beers has a number of signifi cant projects to maintain its role as a leading global diamond producer.
The major expansion focus is in Canada, where it is spending about $1.7 billion to bring two advanced
projects to production. The technically and logistically challenging Snap Lake development close to the
Arctic Circle in the Northwest Territories is due to come on stream in 2007, producing 29 million carats over
the life of the project. In Ontario, the province’s fi rst diamond mine, Victor, is set to enter production in the
last quarter of 2008 and yield 7 million carats over a mine life of about 12 years. In South Africa, work is
under way on reopening the long dormant Voorspoed mine and on getting diamond mining under way off
South Africa’s Atlantic coast, for a total investment of $315 million.
28
| Anglo American plc Annual Report 2006
Major growth and replacement projects
Currently Anglo American has major projects under development amounting to $6.9 billion, on an
attributable basis, stretching across all business units and geographies. The Group is considering further
major projects with an estimated potential cost between $10 billion and $15 billion.
Selected major completed projects
Sector
Coal
Project
Grasstree
Isibonelo
Base Metals
El Soldado
Country
Australia
South Africa
Chile
Full
production
(1)
Capex
$m
2006
2006
2007
153
65
73
Full
production
Estimated
capex $m
(1)
Production volume(2)
4.5 Mtpa
5.0 Mtpa
17 year life extension
copper
Production volume(2)
230,000 oz refi ned Pt
130,000 oz refi ned Pt
replace 120,000 oz Pt
106,000 oz Pt
replace 70,000 oz Pt
replace 200,000 oz Pt
replace 108,000 oz Pt
145,000 oz Pt
5.7 Mtpa
4.0 Mtpa
5.0 Mtpa
3.0 Mtpa (2nd stage)
36,000 tpa nickel
13 Mtpa
2.5 M oz over life of project
4.7 M oz over life of project
692
100
316
224
139
230
179
18
835
516
264
129
1,200
754
272
432
878
29 m carats over life of project
833
7 m carats over life of project
170 8.3 m carats over life of project
145 4.6 m carats over life of project
2009
2007
2015
2012
2014
2009
2010
2009
2007
2008
2008
2008
2011
2009
2013
2009
2008
2009
2009
2008
Estimated full
production
Estimated
capex $m
(4)
Production volume(2)
2009
2011
2013
2013
2014
2017
2009
2011
2010
2012
2011
2013
2013
335
335
180
120
355
530
90
6.6 Mtpa
6.5 Mtpa
4.0 Mtpa
3.0 Mtpa
23.9 mmcf
13.7 Mtpa
2.7 Mtpa
1,200
170,000 tpa copper
300-500
60,000-120,000 tpa copper
1,200
200,000 tpa copper
420
145
560
9 Mtpa iron ore
1.5 Mtpa iron ore
10 Mtpa iron ore
Selected major approved projects
Sector
Project
Country
Platinum
PPRust North expansion
South Africa
Mototolo JV
Paardekraal 2 shaft
Amandelbult UG2
Townlands Ore
Replacement project
South Africa
South Africa
South Africa
South Africa
PPRust North Replacement
South Africa
Lebowa Merensky
Marikana JV
Coal
Dawson
Lake Lindsay
Mafube
Cerrejón
Base Metals
Barro Alto
South Africa
South Africa
Australia
Australia
South Africa
Colombia
Brazil
Ferrous Metals Sishen expansion
South Africa
Gold
Mponeng (below 120 level)
South Africa
Boddington(3)
Diamonds
Snap Lake
Victor
Voorspoed
Australia
Canada
Canada
South Africa
South African Sea Areas
South Africa
Selected major future unapproved projects
Sector
Coal
Project
Zondagsfontein
implementation
Elders Opencast
Elders Underground
Country
South Africa
South Africa
South Africa
Heidelberg Underground
South Africa
Waterberg
New Largo
MACWest
Base Metals
Los Bronces expansion
Collahuasi debottleneck
Quellaveco
Ferrous Metals Sishen South
Sishen Pellet
Sishen Expansion 2
South Africa
South Africa
South Africa
Chile
Chile
Peru
South Africa
South Africa
South Africa
(1) Shown on 100% basis unless otherwise stated.
(2) Production represents 100% of incremental or replacement production from the project.
(3) This represents AngloGold Ashanti’s 33.3% share of Boddington.
(4) Shown on 100% basis, approximate amounts.
Anglo Platinum also has a number of unapproved projects under evaluation: Amandelbult 4 shaft,
Booysendal JV, Der Brochen, Ga-Phasha JV, Pandora JV, Styldrift and Twickenham.
Anglo American plc Annual Report 2006 | 29
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | BUSINESS FOCUS
Sustainable development
The Group made a fi rm commitment to sustainable development in 2000. It has since worked to ensure that
its policies and strategies address the key economic, social and environmental risks and concerns which
underpin this agenda through daily good business practice as well as through work in partnership with other
industry leaders, international agencies and NGOs. This has highlighted real business opportunities.
The Group’s approach to sustainable development and measurement of its performance is reported in the
Report to Society. The report is published annually in April and is available both in printed form and
electronically on the Company website. The report provides extensive detail of the Group’s commitment to its
principles of sustainable development as well as analysis of its performance in 2006.
Sustainable development strategy
The sustainable development strategy is reviewed annually but has as a core theme the need to embed
sustainable development thinking into business practice and to systematically address risks and opportunities.
The sustainable development strategic process is constantly evolving and includes consultation at various
levels. The process includes input from area experts through Communities of Practice (COP) into the
various steering groups. Issues raised here are tabled at the SD Forum where all divisions are represented.
Priorities are then integrated into the strategy document which is submitted to the SD Council for
sanctioning prior to presentation to the Executive Board. This loop is cyclical, with the SD Council
highlighting priority actions to be addressed by the COPs, steering groups and SD Forum.
SD Council – A sustainable development council, made up of the leaders of corporate functions and
business units, takes the lead on strategy and agrees Group targets.
SD Forum – Senior managers with responsibility for sustainable development meet regularly during the year
to address constraints and opportunities in formulating and giving effect to the strategy and policies.
Sustainable development risks and opportunities are assessed and reported periodically through the Group’s
internal risk management procedure.
Safety
Anglo American’s vision of zero harm is built on three clear principles: all injuries and occupational illnesses
are preventable; all necessary steps must be taken to learn from incidents in order to prevent any
recurrence; and common, simple, non-negotiable standards must be consistently applied. During 2006
a peer review programme was instituted across the Group, and in 2007 the peer review fi ndings and
experience from others will be integrated to reinforce the safety strategy and to enhance the application
of the Company safety framework and principles.
The challenge of improving safety performance across the Group to meet Anglo American’s goal of zero
harm to the workforce has been the major focus of the year, with renewed efforts through both engineering
and behavioural interventions at every level of the organisation to understand and eliminate the root cause
of injuries.
During 2005 the Group’s Lost Time Injury Frequency Rate (LTIFR) was 0.94. The target for 2006 was 0.64,
or a 32% reduction. The fi gure achieved was 1.16. Anglo American’s core business going forward achieved
a LTIFR of 1.58 in 2006. A target of 0.94 is set for 2007.
Energy use and reducing CO2 emissions
Climate change is one of the most signifi cant global challenges. Anglo American reports energy use and
carbon emissions annually and is committed to ongoing operational efforts to reduce its impact. The
Company also actively engaged in long term international research and development programmes for zero
emissions power generation and carbon sequestration.
The Company is aiming to achieve a 10% reduction in CO2 emissions per unit of production (energy
intensity) by 2010 and increase energy effi ciency by 15% of the 2004 baseline by 2014.
The Group’s managed companies used 303.7 million Gigajoules (GJ) of energy in 2006 (2005: 298.5
million GJ). The Group’s managed companies’ CO2 equivalent emissions in 2006 were 32.6 million tonnes
(2005: 29.3 million tonnes).
30
| Anglo American plc Annual Report 2006
Community social investment
In addition to addressing core social issues at both corporate and operational levels, the Group annually
invests across the world in community development, education and youth, the arts, the environment and other
causes. In 2006 the investment was $50.3 million or 0.6% of pre-tax profi t (2005: $56.7 million or 1.0%).
Key challenges
Key challenges facing the mining industry
In pursuing its strategy, Anglo American, along with many of its peers in the mining industry, faces a
number of key challenges. The ability to respond to these challenges will play a key role in ensuring that
Anglo American is best placed to extract maximum benefi t from all of its future growth options. Anglo
American has identifi ed the following as being of particular importance.
Cost escalation
Although the last few years have seen dramatic increases in the prices of a wide range of commodities,
there has also been considerable pressure on operating and capital costs. Controlling this cost escalation
will ensure that Anglo American realises maximum value from its existing operations and that all future
projects benefi t from the best possible economics. As set out in more detail below, Anglo American remains
committed to an ongoing programme of cost savings, which has realised $583 million in 2006.
Mining skills
People remain Anglo American’s most important asset and it is the technical expertise in core mining and
engineering disciplines of these people that is the ultimate source of value creation in a mining company. As
an industry it is essential that this skills base is not depleted and that mining remains an attractive career
option for the next generation of university graduates. In responding to this challenge, Anglo American
remains committed to its programme of university sponsorship and support to ensure that it will retain the
skills necessary to secure all of its medium and long term growth opportunities.
Energy
There is now more focus than ever on the global demand for energy and the sustainability and impact of
meeting this ever increasing demand. As one of the world’s largest mining companies, Anglo American is
both a signifi cant consumer and supplier of energy. Consequently, Anglo American will continue to
participate fully in the ongoing global and industry wide dialogue on how best to respond to this challenge
and will continue to embed the principles of sustainable development into all of its operating practices.
Resource depletion
Anglo American, in common with all mining companies, must continually invest in its resource base to
ensure that it has a steady pipeline of new projects in place to replace production from those assets that
reach the end of their life. As existing operations become depleted, mining companies will have to access
new mineral deposits which may be geologically or metallurgically more complex than those of existing
assets. Anglo American has a programme of continuous investment to develop the technology and
productivity improvements that will allow Anglo American to develop these deposits in the most value
accretive manner.
Key challenges facing Anglo American – driving operational excellence
A key challenge is to drive the process of operational excellence throughout the business – from exploration
to procurement.
Operational excellence is very much a twin pronged thrust: driving a culture change through our continuous
improvement efforts that aim to get each employee involved in improving what they do and how they do it,
and the development or adoption of leading edge technology and of applying it quickly and intelligently.
Procurement and supply chain excellence has been a major element of the Group’s activities since 2000
with the inception of Project Angelo, which was designed to increase volume leverage for lower supplier
prices and maximise synergies Groupwide. In 2006, Anglo American businesses spent $14 billion with their
suppliers and achieved cost savings of $583 million in synergies, operating effi ciencies and negotiated
procurement savings.
At Anglo Platinum’s Waterval mine, trials of extra low profi le (XLP) trackless mining equipment, employed
in areas of severely restricted height, have shown a near tripling in cubic metres mined per month, with
improved productivity and safety. The exercise has also shown that it is possible to determine accurately
the structural life expectancy of heavy mining machinery such as load haul dumpers in different conditions,
which enables more accurate replacement strategies to be put in place. Modifi cations can now be designed
Anglo American plc Annual Report 2006 | 31
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | BUSINESS FOCUS
to extend the life of XLP and other equipment and it is intended to embed these design principles into the
equipment’s specifi cations by transferring the technology to the equipment manufacturers. Following its
success at Waterval mine, this new mining method will be implemented at other Anglo Platinum operations,
where practically and economically viable, during 2007-2008.
At Kumba Iron Ore’s Sishen mine the focus is on bringing about a sustained improvement in operating
margins by extracting ore from material previously defi ned as waste. The mining operation reduces waste
stripping by using smaller loaders in the ore waste contact areas. ‘Contact’ ore that would have been
discarded owing to excessive dilution is now separated and recovered by the smaller scale equipment. The
‘clean’ ore is then hauled to the crusher and the waste discarded. This selective mining process has yielded
two important benefi ts: ore that would have been discarded owing to dilution is recovered, while ‘contact’
waste, that would have claimed space in the benefi ciation plant, is removed before the material enters the
plant. During 2006, 2.7 million tonnes of ore was recovered from waste, with a near equivalent amount of
‘clean’ ore delivered to the plant.
At the Skorpion zinc mine, located in a remote and arid environment in southern Namibia, a novel solvent
extraction and electrowinning process was developed by Anglo Base in partnership with Anglo Research
and Spanish technology providers to treat an oxide zinc ore. Skorpion is now one of the lowest cost zinc
producers in the world – exploiting a deposit that was previously uneconomic to mine.
Open pit slope stability is an issue of growing importance to the mining industry due to the potential for
loss of life and serious injury – not to mention damage to equipment, leading to loss of production. Radar
based and laser based mobile systems, designed to detect sub-millimetre slope movements long before
they can be detected by the naked eye, and then generate alarms, are being installed where necessary at
open pit operations across the Group.
Vehicle related incidents are responsible for a disproportionately high number of deaths and serious injuries
at Group operations. Anglo Technical Division and business unit representatives have compiled a matrix of
technologies to examine various collision avoidance systems. Combinations of several technologies,
including radar, video cameras, ultrasonic, infrared and radio frequency, are being implemented at Group
operations. Information is being shared across the business units, while a joint working group is establishing
closer relationships with suppliers and investigating joint initiatives with other mining companies.
In South Africa, poor road conditions at Anglo Coal’s Landau colliery had been causing damage to haul
trucks and impacting productivity in wet weather. To counter this, and to ensure that there would be
sustained improvement, a detailed haul road design and construction standard was drawn up. Previously
discarded sandstone was used in the construction of the haul roads, which were properly cambered, with
improved drainage. The benefi ts include a 7% reduction in haul truck maintenance costs, increased tyre
life, improved productivity arising from shorter truck turnaround times and a saving of around $200,000
in diesel in 2006.
In the UK, Tarmac recently completed a review to evaluate the commercial activities of the Aggregate
Products business and to identify areas of opportunity. The project, which drew together people from all
major disciplines in Tarmac, has resulted in a signifi cant change in organisational structure and proposed
new ways of working that require retraining, upskilling and behavioural change. Post programme audits
have been undertaken to embed the new skills and knowledge gained and to continue the improvements
in working practices.
32
| Anglo American plc Annual Report 2006
Financial performance during the year
The Group produced record underlying earnings of
$5.5 billion, 46% higher than 2005, with record
production levels at many of its mining operations. With
strong cash fl ow, the Group announced during 2006 and
early 2007 the return of $10.5 billion to shareholders
through share buybacks and special dividends.
Financial review of the Group’s results
Underlying earnings per share for the year increased to $3.73 per share, an increase of 45% compared with
2005. Underlying earnings totalled $5,471 million, with strong contributions from Base Metals and Platinum
as well as a signifi cant increase in contribution from AngloGold Ashanti. Coal recorded lower underlying
earnings mainly due to a decline in export sales volumes and increased costs, while Paper and Packaging
recorded a lower earnings contribution and Industrial Minerals a fl at contribution, owing to continuing diffi cult
market conditions, although Paper and Packaging saw some improvement in overall market conditions in the
second half of the year. Underlying earnings at De Beers were below the prior year, principally refl ecting
lower sales by The Diamond Trading Company and increased exploration and development costs, as well as
lower preference share income arising from the June 2006 redemptions, and higher minorities as a result of
the Ponahalo black economic empowerment transaction which was completed in April 2006. Kumba’s
results showed a signifi cant increase over the prior year; however, Ferrous Metals as a whole recorded a
lower contribution chiefl y owing to lower manganese and vanadium prices, the impact of the increased
minorities as a result of the Highveld part disposal in July 2006, as well as the full year impact of the
disposal in mid-2005 of Boart Longyear and Samancor Chrome.
Underlying earnings
$ million
Profi t for the fi nancial year attributable to equity shareholders
Operating special items including associates
Operating remeasurements including associates
Net profi t on disposals including associates
Financing special item
Finance remeasurements including associates:
Fair value loss on convertible option
Exchange gain on De Beers’ preference shares
Unrealised gains and losses on non-hedge derivatives
Tax on special items and remeasurements including associates
Related minority interests on special items and remeasurements
including associates
Underlying earnings
Underlying earnings per share ($)
Year ended
31 Dec
2006
Year ended
31 Dec
2005
6,186
562
429
(1,367)
4
18
(40)
(8)
(124)
(189)
5,471
3.73
3,521
323
317
(185)
–
32
(72)
(2)
(15)
(183)
3,736
2.58
Profi t for the year after special items and remeasurements increased by 76% to $6,186 million compared
with $3,521 million in the prior year. This increase relates mainly to strong operational results, as discussed
above. There was a signifi cant increase in net profi ts on disposal which, including associates, was
$1,182 million higher than 2005, mainly as a result of the Group’s disposal of 19.7 million ordinary shares
in AngloGold Ashanti and the Group’s non-participation in the issue of ordinary shares by AngloGold
Ashanti ($909 million net profi t on disposal), as well as the profi t of $301 million on part disposal of
Highveld. This was largely offset by the $52 million loss on part disposal of Kumba’s non-iron ore assets as
well as operating special items and remeasurements losses of $991 million, including the impairment and
restructuring of certain Tarmac assets ($278 million), impairment and closure costs relating to the
Dartbrook coal mine in Australia ($125 million), impairment mainly of certain downstream converting
Packaging assets and certain Business Paper assets at Paper and Packaging ($104 million) and unrealised
losses on non-hedge derivatives ($429 million), recorded principally at AngloGold Ashanti.
The Group’s results are infl uenced by a variety of currencies owing to its geographic diversity. The South
African rand on average weakened slightly against the US dollar compared with the prior year, with an
average exchange rate of R6.77 compared with R6.37 in 2005. Currency movements positively impacted
underlying earnings by $129 million. Operating results benefi ted from weaker average rates for the rand
• Strong performance during the
year with underlying EPS of
$3.73, up 45% over 2005
• Base metals and Platinum
produced record results
• Increased production in most
commodities, with particularly
strong performances in second
half of the year
• Profi t for the fi nancial year up
76% over 2005
• During 2006 and early 2007,
Anglo American announced the
return of $10.5 billion capital to
its shareholders through three
share buyback programmes
totalling $9 billion and special
dividends of $1.5 billion
Underlying
earnings per share
US$
3.73
2.58
1.87
1.25
1.20
02*
03*
04
05
06
* UK GAAP
Anglo American plc Annual Report 2006 | 33
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | FINANCIAL PERFORMANCE DURING THE YEAR
and Australian dollar, although these were offset by the stronger Chilean peso and Brazilian real. There was
a signifi cant benefi cial effect on underlying earnings from increased prices amounting to $3,581 million,
particularly in respect of copper and platinum group metals.
Summary income statement
$ million (unless otherwise stated)
Operating profi t before special items and remeasurements
Operating special items
Operating remeasurements
Operating profi t from subsidiaries and joint ventures
Net profi t on disposals
Share of net income from associates(1)
Total profi t from operations and associates
Net fi nance costs before special items and remeasurements
Financing special items and remeasurements
Profi t before tax
Income tax expense
Profi t for the fi nancial year
Minority interests
Profi t for the fi nancial year attributable to equity shareholders
Basic earnings per share ($)
Group operating profi t including associates before special items and
remeasurements
(1) Operating profi t from associates before special items and remeasurements
Operating special items and remeasurements(2)
Net profi t on disposals(2)
Net fi nance costs (before remeasurements)
Financing remeasurements(2)
Income tax expense (after special items and remeasurements)
Underlying minority interest (after special items and remeasurements)
Share of net income from associates
(2) See note 7 to the fi nancial statements.
Special items and remeasurements
Year ended
31 Dec
2006
Year ended
31 Dec
2005
8,742
(524)
(344)
7,874
1,168
685
9,727
(165)
–
9,562
(2,640)
6,922
(736)
6,186
4.21
9,832
1,090
(123)
199
(101)
26
(368)
(38)
685
5,344
(186)
(301)
4,857
87
657
5,601
(428)
35
5,208
(1,275)
3,933
(412)
3,521
2.43
6,376
1,032
(153)
98
(51)
7
(274)
(2)
657
$ million
Excluding
associates
31 Dec
2006
Associates
31 Dec
2006
Operating special items
Operating remeasurements
(524)
(344)
(38)
(85)
Total
31 Dec
2006
(562)
(429)
Excluding
associates
31 Dec
2005
Associates
31 Dec
2005
(186)
(301)
(137)
(16)
Total
31 Dec
2005
(323)
(317)
Operating special items
and remeasurements
(868)
(123)
(991)
(487)
(153)
(640)
Operating special items and remeasurements, including associates, amounted to $991 million, with
$562 million operating special charges in respect of impairments, restructurings and mine and operation
closures. This included a $278 million combined impairment and restructuring charge relating to certain non-
core assets to be sold and other assets to be restructured at Industrial Minerals following the conclusion of
the strategic review, an impairment and related closure costs of $125 million at Anglo Coal Australia’s
Dartbrook mine, and a $104 million impairment at Paper and Packaging mainly of certain downstream
converting Packaging assets.
Operating remeasurements, including associates, of $429 million principally related to unrealised losses on
non-hedge commodity derivatives at AngloGold Ashanti. The loss in 2006 related to the revaluation of
non-hedge derivatives resulting from changes in the prevailing spot gold price, exchange rates and interest
rates compared with the equivalent period in 2005.
Net profi t on sale of operations, including associates, amounted to $1,367 million. This included the profi t
on sale of 19.7 million ordinary shares in AngloGold Ashanti, which resulted in $737 million profi t on
disposal as well as $172 million profi t on the deemed disposal of AngloGold Ashanti arising from the
non-participation in the issue of ordinary shares by AngloGold Ashanti. A gain of $301 million also arose
on the part disposal of Highveld, offset by a loss of $52 million on the part disposal of Kumba’s non-iron
ore assets. The Group also realised a $103 million profi t on the sale of an indirect 26% equity interest in
De Beers Consolidated Mines Limited to Ponahalo Holdings (Proprietary) Limited.
Operating profit
US$m
• 2006
5,269
4,563
First half
of year
Second half
of year
34
| Anglo American plc Annual Report 2006
Financing remeasurements, including associates, are made up of a $18 million fair value loss on the
AngloGold Ashanti convertible bond option, unrealised gains of $8 million on non-hedge derivatives and a
$40 million foreign exchange gain on De Beers dollar preference shares held by a rand denominated entity.
In line with IFRIC guidance, the option component of the AngloGold Ashanti convertible bond is fair valued
at each reporting period and held as a liability. Changes in fair value of the liability are taken to the income
statement.
The De Beers dollar preference shares (held by a rand functional currency entity) are classifi ed as ‘fi nancial
asset investments’ and are retranslated at each period end. The resulting rand:dollar foreign exchange gains
and losses are reported through the income statement as a remeasurement charge.
Net fi nance costs
Net fi nance costs, excluding special items and remeasurement gains of nil (2005: gain of $35 million),
decreased from $428 million in 2005 to $165 million. The decrease refl ects lower interest costs due to the
reduction in net debt.
Taxation
Before
special
items and
remeasure-
ments
31 Dec
2006
9,159
(2,763)
6,396
Associates’
tax and
minority
interests
31 Dec
2006
407
(369)
38
Before
special
items and
remeasure-
ments
31 Dec
2005
5,612
(1,283)
4,329
Associates’
tax and
minority
interests
31 Dec
2005
285
(281)
4
Including
associates
31 Dec
2006
9,566
(3,132)
6,434
32.7
Including
associates
31 Dec
2005
5,897
(1,564)
4,333
26.5
$ million (unless otherwise stated)
Profi t before tax
Tax
Profi t for the fi nancial year
Effective tax rate including
associates (%)
IAS 1 Presentation of Financial Statements requires income from associates to be presented net of tax on
the face of the income statement. Associates’ tax is therefore not included within the Group’s total tax
charge on the face of the income statement. Associates’ tax, before special items and remeasurements
included within ‘Share of net income from associates’ for the year ended 31 December 2006 is $369 million
(2005: $281 million).
The effective rate of taxation, before special items and remeasurements including share of associates’ tax
before special items and remeasurements, was 32.7%. This was an increase from the effective rate, on the
same basis, of 26.5% in the year ended 31 December 2005. The December 2005 tax rate benefi ted from
the one-off impact of a reduction in the statutory tax rates in South Africa and Ghana. Without this one-off
benefi t, the effective tax rate for the prior year would have been 29.7%. The December 2006 tax rate
refl ected the relative impact of the statutory tax rates, on a fully distributed basis where appropriate, of the
countries in which the Group’s operations are based. In future periods it is expected that the effective tax
rate, including associates’ tax, will remain at or above the UK statutory tax rate of 30%.
Balance sheet
Equity attributable to equity shareholders of the Company was $24,271 million compared with $23,621
million as at 31 December 2005.
During the year, the Group announced a share buyback programme totalling $6 billion. By the end of 2006,
$3.9 billion of this programme had been completed, with the programme due to complete fully in the fi rst
half of 2007. A further $3 billion share buyback has been announced in early 2007.
Net debt, excluding hedges but including balances that have been reclassifi ed as held for sale ($80 million),
was $3,324 million, a decrease of $1,669 million from 31 December 2005. The reduction was principally
due to reduction of debt from cash fl ows from operations and disposals, deconsolidation of AngloGold
Ashanti debt and conversion of $1.1 billion of the Group’s convertible debt, although this was partially
offset by $3.9 billion of share buyback and $1.5 billion special dividend as at 31 December 2006.
Net debt at 31 December 2006 comprised $6,304 million of debt, offset by $2,980 million of cash, cash
equivalents and current fi nancial asset investments. Net debt to total capital(1) as at 31 December 2006
was 12.9%, compared with 17.0% at 31 December 2005.
Cash fl ow
Net cash infl ows from operating activities were $8,310 million compared with $6,781 million in 2005.
EBITDA was $12,197 million, a substantial increase of 36% from $8,959 million in 2005.
(1) Net debt to total capital is calculated as net debt divided by total capital less investments in associates. Total capital is net
assets excluding net debt.
EBITDA
US$m
12,197
8,959
7,031
4,792
4,785
02*
03*
04
05
06
* UK GAAP
Anglo American plc Annual Report 2006 | 35
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | FINANCIAL PERFORMANCE DURING THE YEAR
Depreciation and amortisation decreased by $405 million to $2,036 million. Acquisition expenditure
accounted for an outfl ow of $344 million compared with $530 million in 2005. This included $76 million,
net of cash acquired, in respect of the Group’s investment in AltaSteel (Ferrous Metals and Industries) and
$65 million in respect of the Group’s investment in Akrosil and Stambolijski (Paper and Packaging).
Proceeds from disposals totalled $1,642 million, with net proceeds on the sale of 19.7 million ordinary
shares of AngloGold Ashanti of $839 million, and net proceeds of $412 million received on disposal of
49.8% of Anglo American’s shareholding in Highveld Steel.
Repayment of loans and capital from associates amounted to $394 million, and is attributable to capital
redemptions by De Beers, comprising the redemption of $175 million of preference shares and a further
$219 million in respect of a share premium redemption following the Ponahalo black economic empowerment
transaction. Purchases of tangible assets amounted to $3,686 million, an increase of $380 million. Increased
capital expenditure by Platinum, Coal, Ferrous Metals and Industries and Base Metals was partially offset by
a reduction in capital expenditure at Paper and Packaging, as well as the impact of including AngloGold
Ashanti’s capital expenditure up to 20 April 2006, after which it was accounted for as an associate.
Analysis of depreciation and amortisation by business segment
(subsidiaries and joint ventures)
$ million
Platinum
Gold
Coal
Base Metals
Industrial Minerals
Ferrous Metals and Industries
Paper and Packaging
Other
Analysis of capital expenditure on a cash fl ow basis by business
segment (subsidiaries and joint ventures)
$ million
Platinum
Gold
Coal
Base Metals
Industrial Minerals
Ferrous Metals and Industries
Paper and Packaging
Other
Purchase of tangible assets
Investment in biological assets
2006
444
183
172
338
244
199
439
17
2005
428
538
188
312
248
300
411
16
2,036
2,441
2006
2005
923
196
780
298
298
581
581
29
3,686
64
3,750
616
722
331
271
274
373
691
28
3,306
55
3,361
(cid:36)(cid:41)(cid:54)(cid:41)(cid:36)(cid:37)(cid:46)(cid:36)(cid:51)(cid:0)(cid:48)(cid:37)(cid:50)(cid:0)(cid:51)(cid:40)(cid:33)(cid:50)(cid:37)
(cid:53)(cid:51)(cid:0)(cid:67)(cid:69)(cid:78)(cid:84)(cid:83)
•(cid:0) (cid:38)(cid:73)(cid:78)(cid:65)(cid:76)
•(cid:0) (cid:51)(cid:80)(cid:69)(cid:67)(cid:73)(cid:65)(cid:76)
•(cid:0) (cid:41)(cid:78)(cid:84)(cid:69)(cid:82)(cid:73)(cid:77)
67
75
33
62
36
39
15
15
19
51
28
33
(cid:16)(cid:18)
(cid:16)(cid:19)
(cid:16)(cid:20)
(cid:16)(cid:21)
(cid:16)(cid:22)
Dividends
At the half year, an interim dividend of 33 US cents per share, plus a special dividend of 67 US cents per
share, paid together on 21 September 2006, was recommended. A fi nal dividend of 75 US cents per share,
to be paid on 3 May 2007, has been recommended.
Analysis of dividends
US cents per share
Interim dividend
Recommended fi nal dividend
Normal dividend
Special dividend previously paid
Total dividends
2006
33
75
108
67
175
2005
28
62
90
33
123
Return on capital employed
ROCE in 2006 was 32.4% compared to 19.2% in 2005. The increase was mainly due to strong operational
results, as discussed on page 33.
36
| Anglo American plc Annual Report 2006
Financial review of the businesses
Business review
In the operations review on the following pages, operating profi t includes associates’ operating profi t and
is before special items and remeasurements unless otherwise stated. Capital expenditure relates to cash
expenditure on tangible assets.
Platinum
$ million (unless otherwise stated)
Operating profi t
EBITDA
Net operating assets
Capital expenditure
Share of Group operating profi t
Share of Group net operating assets
(cid:47)(cid:48)(cid:37)(cid:50)(cid:33)(cid:52)(cid:41)(cid:46)(cid:39)(cid:0)(cid:48)(cid:50)(cid:47)(cid:38)(cid:41)(cid:52)
(cid:4)(cid:0)(cid:77)(cid:73)(cid:76)(cid:76)(cid:73)(cid:79)(cid:78)
(cid:48)(cid:76)(cid:65)(cid:84)(cid:73)(cid:78)(cid:85)(cid:77)
854
2,398
2006
2,398
2,845
7,078
923
24%
25%
2005
854
1,282
7,018
616
13%
20%
(cid:16)(cid:21)
(cid:16)(cid:22)
Anglo Platinum’s operating profi t reached a record $2,398 million, increasing 181% on 2005’s operating
profi t of $854 million. This was achieved on the back of a signifi cantly higher price achieved for the basket
of metals sold, increased production and a weaker average rand/US dollar exchange rate.
Markets
The average dollar price realised for the basket of metals sold equated to $2,030 per platinum ounce, 46%
higher than in 2005, with fi rmer platinum, rhodium and nickel prices making the largest contribution to the
increase. The average realised price for platinum of $1,140 per ounce was $246 higher than in 2005, while
nickel averaged $10.74 per pound against $6.77 in 2005. The price achieved for rhodium averaged $3,542
per ounce, an increase of $1,576 per ounce over 2005, and includes the effect of existing long term
contractual arrangements entered into with some customers to support and develop the rhodium market.
Technological development continues to drive industrial demand for platinum and ongoing research into new
applications will create further growth in this sector. With the rapid spread of exhaust emissions legislation,
over 91% of new vehicles sold in the world now have autocatalysts fi tted. The intensifying stringency of
emissions legislation will drive growth in PGM demand for autocatalysts as new legislation is applied to
trucks and off road vehicles in the US. The increasing popularity of diesel powered vehicles in Europe
continues and this has also intensifi ed the demand for platinum, as diesel powered cars can only use
autocatalysts that are predominantly platinum based.
Operating performance
Refi ned platinum production for the year rose by 15% to 2,816,500 ounces, primarily due to increased
production at mining operations and the release of metal from pipeline stocks, including the processing
of concentrate built up at the Polokwane Smelter in 2005. Platinum production from mining operations,
expressed in equivalent refi ned ounces (metal contained in concentrate net of smelting and refi ning losses)
increased by 5% to 2,638,600 ounces. The increase was mainly attributable to improved production
volumes at the Amandelbult, Kroondal, Modikwa, Bafokeng-Rasimone and Rustenburg operations as well
as new output from the Marikana and Mototolo operations. However, this was partly offset by lower output
from Potgietersrust and the Western Limb Tailings Retreatment plant.
The cash operating cost per equivalent refi ned platinum ounce in rand terms increased by 10.7%. Once-off
additional ground support work during 2006 at Union, equipping and development programmes to establish
a sustainable base for future production at Amandelbult and Rustenburg, cost increases in diesel, steel,
tyres and labour and the effect of lower grades as a consequence of a higher percentage of UG2 ore mined
were the principal reasons for the above infl ation unit cost increase.
Projects
Anglo Platinum remains confi dent of the robustness of demand for platinum and is continuing with its
expansion programme and expects to meet its stated average compound growth target of 5% per annum
by exploiting its own reserves through direct investment in projects as well as with joint venture partners.
This growth profi le requires projects that will create incremental new production as well as maintain existing
production levels due to reserve depletion from current mining activities.
The implementation of Anglo Platinum’s extensive suite of mining and processing projects to expand
and maintain production continues on schedule. Projects that have increased production include Modikwa,
Kroondal and, for the fi rst time in 2006, the Marikana and Mototolo ventures each added 12,800 equivalent
refi ned platinum ounces. Marikana, approved in 2005, will produce 74,000 refi ned platinum ounces a year
by 2009. Mototolo is set to reach steady state production by the end of 2007, producing refi ned platinum of
130,000 ounces per annum at steady state.
Anglo American plc Annual Report 2006 | 37
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | FINANCIAL PERFORMANCE DURING THE YEAR
In 2006 the company approved capital expenditure totalling $1.6 billion, which included the Potgietersrust
North expansion project. Work on this project, which aims to mill an additional 600,000 tonnes per month
(tpm) of ore, producing an additional 230,000 refi ned platinum ounces per annum from 2009, has commenced.
Projects that contribute towards maintaining production levels include the Amandelbult 1 shaft optimisation
project, which was successfully completed during the year, with the 75,000 tpm UG2 concentrator being
fully commissioned and running at capacity. This concentrator processes UG2 ore as Merensky production
declines due to the depletion of Merensky ore reserves.
The Amandelbult East Upper UG2 project, which was approved in 2006, will conventionally mine the UG2
reef, using existing mining infrastructure previously employed to extract Merensky reef, at the vertical number
2 shaft and at three decline shafts. The 75,000 tpm UG2 concentrator will be expanded to 210,000 tpm
and by 2012 the project will contribute an additional 106,000 ounces of refi ned platinum per annum.
The Rustenburg Paardekraal 2 shaft replacement project will access deeper Merensky reserves at a rate of
100,000 tpm. The project is expected to produce 120,000 ounces of refi ned platinum per annum by 2015,
replacing decreasing production as a result of reserve depletion.
The Townlands Ore Replacement project at a capital cost of $139 million was approved in February 2007
and will replace 70,000 ounces of refi ned platinum per annum by 2014 with production from new Merensky
and UG2 areas at the Rustenburg Townlands shaft.
In December, Anglo Platinum concluded a black economic empowerment transaction with the Bakgatla-Ba-
Kgafela traditional community, under which the community acquired a 15% interest in Anglo Platinum’s
Union Section mining and concentrating business as well as interests in the prospecting rights of certain
properties in the vicinity of Union Section.
Outlook
The demand for newly mined platinum continues to grow from the autocatalyst and industrial sectors,
offsetting the decline in demand from the jewellery sector. Autocatalyst demand is expected to continue
expanding in response to growth in the sales of diesel vehicles worldwide coupled with the advances in
emission legislation requiring the fi tment of catalyst systems and particulate fi lters containing platinum.
The application of platinum in a wide variety of uses in industry remains robust. In the jewellery sector,
the high price of platinum, but more importantly the volatility in the price, is limiting the levels of stock
held within the trade and hence demand is down. Additional development projects to support the Platinum
brand and the industry are being implemented in China, Japan and the US. These initiatives are expected
to sustain interest and assist in restoring demand even at current price levels.
The recovery of palladium demand in the industrial market continues particularly in the autocatalyst and
electronics sectors. Substitution of palladium for platinum in petrol engine emission control catalysts is a
continuing feature. Demand for palladium in the Chinese jewellery trade reduced from the exceptional peak
last year as the manufacturing and retail pipelines were established. Sustained demand will be dependent
on creating consumer desire for the product. The development of a differentiating image for palladium is in
its infancy, but being pursued. Investor interest is also supporting the market for palladium, which continues
to absorb additional supply from Russian stocks.
The markets for rhodium and ruthenium are supported by strong industrial demand and are expected to be
buoyant in the medium term.
Refi ned platinum production for 2007 is expected to be between 2.8 million and 2.9 million ounces. While
production and sales volumes will increase in 2007, the most signifi cant variable affecting earnings will be
metal prices and the rand/US dollar exchange rate.
(cid:47)(cid:48)(cid:37)(cid:50)(cid:33)(cid:52)(cid:41)(cid:46)(cid:39)(cid:0)(cid:48)(cid:50)(cid:47)(cid:38)(cid:41)(cid:52)
(cid:36)(cid:73)(cid:65)(cid:77)(cid:79)(cid:78)(cid:68)(cid:83)
583
463
(cid:4)(cid:0)(cid:77)(cid:73)(cid:76)(cid:76)(cid:73)(cid:79)(cid:78)
Diamonds
$ million (unless otherwise stated)
Share of associate’s operating profi t
EBITDA
Group’s share of De Beers’ net assets(1)
Share of Group operating profi t
2006
463
541
2,062
5%
2005
583
655
2,056
9%
(1) De Beers is an independently managed associate of the Group. The Group’s share of De Beers’ net assets is disclosed.
The Group’s share of operating profi t from De Beers declined by 21% to $463 million from the 2005 fi gure
of $583 million. This was largely attributable to lower sales by The Diamond Trading Company (DTC), the
marketing arm of De Beers, increased exploration and development costs, reduced earnings in the diamond
account, the impact of increased fi nance charges, and the dilution in earnings as a consequence of the sale
of 26% of De Beers Consolidated Mines to a black economic empowerment consortium.
(cid:16)(cid:21)
(cid:16)(cid:22)
38
| Anglo American plc Annual Report 2006
Markets
Solid consumer demand for diamond jewellery continued in 2006, with the US, and particularly China and
India, reporting strong sales growth. Sales by the DTC were $6.2 billion, slightly below the previous year
(2005: $6.5 billion), though still the second highest on record. The decline refl ected the reduced supply
available to the DTC and the continuing challenging environment in the wholesale market for rough diamonds,
where a lack of liquidity, margin pressure and increasing fi nancing costs impacted pipeline demand.
DTC marketing initiatives continue to effectively drive demand for diamond jewellery. Preliminary reports
point to global retail sales for 2006 rising by about 4%-5%, with India and China achieving double digit
growth. DTC marketing programmes such as Journey Diamond Jewellery and Trilogy were strong growth
drivers in 2006. Independently managed De Beers Diamond Jewellers (DBDJ), the De Beers retail joint
venture with Möet Hennessy Louis Vuitton, had an excellent year, with an encouraging performance in the
US, which accounts for around 50% of world jewellery sales by value. In 2007 DBDJ will introduce its fi rst
wristwatch collection and increase its presence in the US, the Middle East, Japan, Hong Kong and South
Korea.
Operating performance
In 2006 the De Beers group achieved its highest ever production of 51 million carats (2005: 49 million
carats). This was attributable mainly to Debswana raising output in Botswana from 31.9 million carats to
34.3 million carats. In Namibia, Namdeb lifted production by 18% to just over 2 million carats. Production
from the South African operations totalled 14.6 million carats. Element Six, De Beers’ industrial diamond
business, continues to achieve sustained growth, recording a satisfactory profi t for the year.
In Canada, De Beers is on target to start production at Snap Lake in the Northwest Territories in October
2007, while the Victor mine in Ontario is scheduled to come on stream in the last quarter of 2008.
In June 2006 De Beers announced that it had been granted a right to mine for diamonds at the long closed
Voorspoed mine in South Africa’s Free State province. As part of its $145 million South African Sea Areas
marine mining project, a mining vessel, now undergoing commissioning, will commence operations off the
west coast of South Africa in the third quarter of 2007. When all of these operations are in full production
they will contribute 3.3 million carats, valued at $700 million, to De Beers’ production capacity.
In 2006 De Beers positioned itself well to take advantage of exploration opportunities. The company has
been granted three new concessions in Angola, prospecting licences have been granted in Botswana around
the Jwaneng and Orapa areas, while De Beers is involved in a number of joint ventures to access promising
ground in the Democratic Republic of Congo. In Canada, De Beers has sold its 42% stake in the Fort à la
Corne project in Saskatchewan. In September 2006 De Beers and Alrosa, the leading Russian diamond
mining company, signed a Memorandum of Understanding which should lead to joint diamond prospecting
and exploration activities in Russia.
A groundbreaking empowerment transaction was concluded in April 2006, resulting in the sale of 26% of
De Beers Consolidated Mines, the South African mining arm of De Beers, to a black economic empowerment
consortium.
In May 2006 the Government of Botswana and De Beers signed the renewal of the mining licence for
Jwaneng, the world’s most valuable diamond mine. The licence will run for 25 years (effective from
1 August 2004), while the currently held licences for the Orapa, Letlhakane and Damtshaa mines were also
extended to 2029. The agreement also covered the sale of diamond production from Debswana (held 50:50
by the Government of Botswana and De Beers) to the DTC for a further fi ve years, and the establishment of
Diamond Trading Company Botswana (also equally owned by the two parties) to sort and value all
Debswana’s diamond production.
On 30 January 2007, the Government of Namibia and De Beers announced the extension of the DTC sales
contract for a further eight years (effective 1 January 2006), and the establishment of Namibia Diamond
Trading Company to sort, value and market Namibia’s diamond output.
Following the announcement in 2004 that De Beers had reached a settlement with the US Department
of Justice, De Beers announced a provisional agreement in March 2006 to settle and consolidate the
remaining class actions against De Beers for a total sum of $295 million. Proceedings to obtain fi nal judicial
approval of the settlement of the class actions are continuing.
On 31 January 2007 the European Commission formally announced that it had decided to reject all of the
outstanding complaints against De Beers and the DTC in respect of the DTC Sales and Marketing policy,
and the Russian Trade agreement.
Anglo American plc Annual Report 2006 | 39
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | FINANCIAL PERFORMANCE DURING THE YEAR
Outlook
The outlook for further growth in retail diamond jewellery sales remains positive, with India and China likely
to be the leading growth markets, and the US continuing its fi ve year growth trend. While DTC sales are
likely to be constrained by availability in 2007, due to the reduction in Russian purchases as agreed with the
European Commission, De Beers will benefi t from bringing new production on stream towards the end of
the third quarter of 2007. De Beers will focus on implementing its new vision of maximising the value of its
leadership position. This includes, in addition to new production, reviewing assets that do not fi t the
De Beers portfolio criteria, focusing exploration on the most prospective areas, continuing to improve cost
effi ciency and investing in DBDJ and the Forevermark marketing programmes.
(cid:47)(cid:48)(cid:37)(cid:50)(cid:33)(cid:52)(cid:41)(cid:46)(cid:39)(cid:0)(cid:48)(cid:50)(cid:47)(cid:38)(cid:41)(cid:52)
(cid:4)(cid:0)(cid:77)(cid:73)(cid:76)(cid:76)(cid:73)(cid:79)(cid:78)
Base Metals
(cid:34)(cid:65)(cid:83)(cid:69)(cid:0)(cid:45)(cid:69)(cid:84)(cid:65)(cid:76)(cid:83)
1,678
3,876
$ million (unless otherwise stated)
Operating profi t
Copper
Nickel, niobium and mineral sands
Zinc
Other
EBITDA
Net operating assets
Capital expenditure
(cid:16)(cid:21)
(cid:16)(cid:22)
Share of Group operating profi t
Share of Group net operating assets
2006
3,876
3,019
405
516
(64)
4,214
4,268
298
39%
15%
2005
1,678
1,381
249
102
(54)
1,990
4,785
271
26%
13%
Anglo Base Metals generated a record operating profi t of $3,876 million (2005: $1,678 million) on the back
of increased copper, zinc, lead and ferroniobium production and signifi cantly higher metal prices, partially
offset by signifi cant rises in the costs of energy and most key consumables. Although copper and zinc
treatment and refi ning charges eased, increases in metal price linked smelter deductions and price
participation saw a signifi cant increase in this component of costs. The strength of the Chilean and Brazilian
currencies against the dollar also adversely impacted operating profi ts.
Markets
Average LME prices (US cents/lb)
Copper
Nickel
Zinc
Lead
2006
305
1,095
148
58
2005
167
668
63
44
With global GDP growth remaining strong, average base metal prices moved signifi cantly upwards in 2006.
Although copper demand was slightly weaker than expected (with destocking by the Chinese and other
manufacturers) and price induced substitution (particularly in respect of copper and nickel) was also a feature,
aggregate demand growth for base metals was largely as expected at 5%-6%. The primary drivers of the
dramatic increase in prices were tight metal inventories (in turn, a refl ection of weak mine supply growth
arising from a lack of investment in new capacity and further supply side disruptions, particularly in the case
of copper) and the signifi cant and rapid infl ow of speculative and investor funds into commodities markets.
Operating performance
Copper division
Operating profi t ($m)
Attributable production (tonnes)
2006
3,019
2005
1,381
643,800
634,600
Los Bronces copper mine implemented measures to overcome the lower throughput experienced in the fi rst half
arising from unexpectedly hard ore encountered in the Donoso Este area. Production, which included a record
amount of cathode, was marginally lower at 226,000 tonnes (2005: 227,300 tonnes). El Soldado saw increasing
mining fl exibility and grade as the year progressed and delivered 68,700 tonnes (2005: 66,500 tonnes).
Mantoverde suffered some delays in dump construction early in the year and output decreased by 3% to 60,300
tonnes. Mantos Blancos reduced the dump leach area under irrigation but this was more than offset by improved
grades and recoveries in both the vat leach and sulphide ore circuits, resulting in a 5% rise in production to 91,700
tonnes. Notwithstanding intermittent production interruptions arising from the Rosario crushing and conveying
system and SAG Mill No. 3, Collahuasi lifted output to 440,000 tonnes (2005: 427,100 tonnes) largely as a
result of a 13% improvement in sulphide mill throughput. Molybdenum production rose materially to 3,400
tonnes (2005: 300 tonnes) in the fi rst full year of molybdenum plant production. Chagres increased production
by 26% to 173,400 tonnes following the completion of the expansion project at the end of 2005.
40
| Anglo American plc Annual Report 2006
The $80 million El Soldado pit extension project was completed on time and under budget. The Los Bronces
feasibility study, which contemplates increasing copper production by 75% at a cost of approximately
$1.2 billion, will be completed in mid-2007, while the Quellaveco revised feasibility study, examining
a project with production of copper of around 200,000 tonnes per annum (tpa) at a capital cost of
approximately $1.2 billion, will be complete in 2008. Evaluation of the progressive debottlenecking project
at Collahuasi will be undertaken this year.
The new Chilean mining tax was paid with effect from January 2006.
Nickel, niobium and mineral sands division
Operating profi t ($m)
Attributable nickel production (tonnes)
2006
405
2005
249
26,400
26,500
Production of 16,600 tonnes at Loma de Níquel was marginally down for the year. Codemin output rose to
9,800 tonnes (2005: 9,600 tonnes), but sales volumes were 11% higher owing to the timing of shipments.
In the fi rst full year of production following the completion of the scalping project, niobium output increased
a further 18% to a record 4,700 tonnes. Namakwa Sands’ zircon and rutile production was very similar to
2005 at 128,400 tonnes and 28,200 tonnes respectively, while slag tonnage, which had been at similar
levels until a major furnace burn out occurred in August, was 19% lower at 133,900 tonnes.
In December the $1.2 billion Barro Alto project, which will see the construction of a 36,000 tpa ferronickel
operation in Brazil, was approved. First production is scheduled for 2010.
Zinc division
Operating profi t ($m)
Attributable zinc production (tonnes)
Attributable lead production (tonnes)
2006
516
2005
102
334,700
324,200
71,400
63,000
Skorpion operated at design capacity until August when impurities in the electrowinning circuit caused a
hydrogen fi re, necessitating a 20 day shutdown. Although operations were again running at design capacity by
December, production for the year eased to 129,900 tonnes (2005: 132,800 tonnes). Increased production
from secondary mining (released by the backfi ll programme), improved grades (arising from the start up of
mining in the Bog Zone) and higher mill throughput and recoveries resulted in Lisheen producing 170,700
tonnes of zinc and 23,100 tonnes of lead (2005: 159,300 tonnes and 20,800 tonnes, respectively).
At Black Mountain the commissioning at the Deeps shaft and the phased redeployment from the Broken Hill
and Swartberg orebodies to, and the opening up of, the Deeps orebody has led to a gradual improvement
in grade. This, together with a modest improvement in mill throughput, saw an increase of 6% in zinc
production and 14% in lead output to 34,100 tonnes and 48,300 tonnes, respectively.
In January 2007 it was announced that black economic empowerment company Exxaro Resources Limited
had exercised an option under which it had, subject to the satisfaction of conditions precedent and
contractual price adjustments, agreed to acquire Namakwa Sands for $0.3 billion (R2.0 billion) and 26% of
each of Black Mountain and Gamsberg for a combined fi gure of $26 million (R180 million).
Anglo Base Metals continues to focus on operational excellence and delivering on the value adding growth
options that it is creating. Increases in zinc and ferroniobium production are forecast in 2007 while nickel
output should be maintained. Copper production, excluding Collahuasi, is forecast to increase modestly.
Collahuasi had forecast a rise in production of some 5%, but the taking down of a SAG mill for 65 days to
replace its stator motor (which is covered by insurance) will result in an attributable shortfall of
approximately 13,000 tonnes and a level of production in line with 2006.
Outlook
After four consecutive years of particularly strong growth in the world economy, the current consensus is
one of slightly lower growth in 2007 without undue pressure on infl ation rates and thus the level of interest
rates. Although fundamentals will continue to be positive and overall stock levels below normal, both the
zinc and the copper markets are likely to see some stock build up as they move into a surplus in 2007, the
extent of which (particularly in copper) will depend on supply side disruptions. Nickel markets will remain
very tight in 2007, but nickel and zinc markets will see further increases in supply in 2008. Fundamentals
are therefore supportive, but suggest an easing of prices. The full extent of any price moves and the pace
of such change will be dictated by fl uctuations in speculative and investment funds sentiment in what is
likely to be a volatile pricing environment.
Anglo American plc Annual Report 2006 | 41
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | FINANCIAL PERFORMANCE DURING THE YEAR
(cid:47)(cid:48)(cid:37)(cid:50)(cid:33)(cid:52)(cid:41)(cid:46)(cid:39)(cid:0)(cid:48)(cid:50)(cid:47)(cid:38)(cid:41)(cid:52)
(cid:4)(cid:0)(cid:77)(cid:73)(cid:76)(cid:76)(cid:73)(cid:79)(cid:78)
(cid:38)(cid:69)(cid:82)(cid:82)(cid:79)(cid:85)(cid:83)(cid:0)(cid:45)(cid:69)(cid:84)(cid:65)(cid:76)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:41)(cid:78)(cid:68)(cid:85)(cid:83)(cid:84)(cid:82)(cid:73)(cid:69)(cid:83)
1,456
1,360
Ferrous Metals and Industries
$ million (unless otherwise stated)
Operating profi t
Kumba
Highveld Steel
Scaw Metals
Samancor
Tongaat-Hulett
Boart Longyear
Other
(cid:16)(cid:21)
(cid:16)(cid:22)
EBITDA
Net operating assets
Capital expenditure (including biological assets)
Share of Group operating profi t
Share of Group net operating assets
2006
1,360
778
230
160
52
154
–
(14)
1,560
2,796
582
14%
10%
2005
1,456
568
436
121
144
131
67
(11)
1,779
4,439
373
23%
12%
Ferrous Metals and Industries’ operating profi t declined by 7% to $1,360 million (2005: $1,456 million),
mainly as a result of the sale of non-core businesses that contributed $94 million in 2005, as well as lower
vanadium and manganese prices, partially offset by higher iron ore prices.
Markets
World crude steel production increased by 9% in 2006, to reach a total of 1.2 billion tonnes. China
accounted for most of the increase, with its share of global output rising to 34% in 2006. The South
African steel market was characterised by strong demand, attributable to numerous major projects, among
them infrastructural preparations for the 2010 Soccer World Cup, as well as expansion by utilities and the
mining and chemical industries.
Operating performance
Kumba achieved an operating profi t of $778 million (2005: $568 million). Global iron ore demand remained
strong in 2006, fuelled by the continuing expansion of the steel industry in China. In addition to the
71.5% annual iron ore price increase achieved in April 2005, an annual increase of 19% was achieved with
effect from April 2006. Export sales volumes for the period grew in line with production improvements.
Kumba Iron Ore produced a record 31 million tonnes (mt) of iron ore for the period, exporting 21 mt.
A $754 million, three year expansion programme is currently under way at the Sishen mine which will
increase sales volumes by 40% to 45 million tonnes per annum. Ramp up will commence in 2007, with full
production expected in early 2009.
Scaw produced a record operating profi t of $160 million (2005: $121 million). The acquisition in February of
AltaSteel, a manufacturer of value added steel products in Canada, together with the acquisition of the
remaining 50% of Moly-Cop Canada, contributed $32 million for the year. Strong demand for rolled, cast
and wire rod products contributed to higher profi ts. The international grinding media operations achieved
higher sales volumes, although this benefi t was more than offset by negative exchange rate movements.
Anglo American’s attributable share of Samancor’s operating profi t was $52 million (2005: $144 million).
The 2005 operating profi t included a $16 million contribution from Samancor’s chrome business, which
was disposed of in June 2005. Although higher manganese ore sales volumes were achieved, lower alloy
volumes and lower selling prices negatively impacted profi ts. In 2006, the average manganese ore price
achieved was $2.2 per metric tonne unit (mtu), compared with the 2005 average price of $2.9/mtu.
Highveld reported a lower operating profi t of $230 million (2005: $436 million), although this performance
was still the second best in its history. An increased contribution from the steel business, driven by strong
South African steel demand, was more than counteracted by the easing of vanadium prices from the record
levels achieved in 2005. In 2006, the average ferrovanadium price achieved was $39 per kilogram of
vanadium (kgV) compared with the 2005 average of $66/kgV.
Tongaat-Hulett’s operating profi t grew to $154 million (2005: $131 million). The sugar operations benefi ted
from a higher world sugar price of 12.8 US cents per pound (c/lb) in 2006, compared with 9.0 c/lb in 2005,
while the 2006 South African sugar crop was the second lowest in ten years. Hulamin continued its
progress in increasing sales volumes, with record rolled product sales of 183,000 tonnes (2005: 173,000
tonnes). African Products’ margins were affected by pricing pressures on starch and glucose and increasing
maize input costs. Moreland benefi ted from increased contributions from its commercial, industrial and
resorts property development portfolios.
42
| Anglo American plc Annual Report 2006
Strategic review
Further progress was made on optimising asset base during the year.
In July, Anglo American announced the sale of its 79% shareholding in Highveld Steel to Evraz, an
international steel producer, and Credit Suisse, for an aggregate consideration of $678 million. Following the
disposal of the initial 49.8%, for which Anglo American received $412 million, Evraz has an option to acquire
Anglo American’s remaining 29.2% stake in Highveld Steel for $266 million once regulatory approvals are
received. This amount will be reduced by any dividends paid by Highveld Steel prior to Anglo American selling
its remaining shares. The deal represents a substantial foreign direct investment in South Africa.
In November the Kumba empowerment transaction was completed. This resulted in the listings on the
Johannesburg Stock Exchange of Kumba Iron Ore, as a pure-play iron ore company in which Anglo American
holds 64%, and Exxaro, which became South Africa’s largest black economic empowered natural resources
company.
In December the Tongaat-Hulett Group announced the proposed unbundling and listing of Hulett Aluminium
and simultaneous introduction of broad based black economic empowerment (BBBEE) into both companies.
This transaction, which is anticipated to be completed by mid-2007, will result in BBBEE groups acquiring
25% and 15% interests in Tongaat-Hulett and Hulett Aluminium, respectively. Anglo American’s
shareholding in Tongaat-Hulett will reduce from 50% to 38% and its shareholding in Hulett Aluminium from
an effective 45% to 39%.
In line with Anglo American’s objective of consolidating its agri-processing businesses within Tongaat-
Hulett, it was announced in December that Tongaat-Hulett had acquired Anglo American’s 50%
shareholding in the Zimbabwe Stock Exchange listed sugar producer, Hippo Valley Estates, for $36 million.
Outlook
Global economic growth looks set to continue in 2007, albeit at a slightly softer pace, with global steel
output forecast to rise by over 6% in 2007. The outlook for Ferrous Metals and Industries remains broadly
positive, given the benchmark annual iron ore price increase of 9.5% effective 1 April 2007 and a stable
rand. Earnings in 2007 will be infl uenced by the timing of the sale of Anglo American’s remaining Highveld
stake and the transaction unbundling the Tongaat-Hulett aluminium business.
Scaw’s volumes in the South African market are expected to grow, driven by infrastructural expansion and
construction and mining industry activity. Demand for Scaw’s products internationally is forecast to remain
strong, driven by mining demand in Latin America and buoyant economic growth in Alberta, Canada.
Samancor should benefi t from volume improvements and higher prices. Highveld’s performance in 2007
should be similar to that of 2006, depending largely on vanadium prices and continued strength in South
African steel demand. Tongaat-Hulett is expected to benefi t from higher sugar production and sales revenue,
while Hulett Aluminium plans to continue to grow its rolled product volumes and optimise its sales mix.
Coal
$ million (unless otherwise stated)
Operating profi t
South Africa
Australia
South America
Projects and corporate
EBITDA
Net operating assets
Capital expenditure
Share of Group operating profi t
Share of Group net operating assets
2006
864
380
279
227
(22)
1,082
2,862
780
9%
10%
2005
1,019
470
323
240
(14)
1,243
2,244
331
16%
6%
(cid:47)(cid:48)(cid:37)(cid:50)(cid:33)(cid:52)(cid:41)(cid:46)(cid:39)(cid:0)(cid:48)(cid:50)(cid:47)(cid:38)(cid:41)(cid:52)
(cid:4)(cid:0)(cid:77)(cid:73)(cid:76)(cid:76)(cid:73)(cid:79)(cid:78)
(cid:35)(cid:79)(cid:65)(cid:76)
1,019
864
(cid:16)(cid:21)
(cid:16)(cid:22)
Anglo Coal’s operating profi t decreased by 15% to $864 million. Coal production and sales for the fi rst half
of the year were adversely affected by a combination of poor weather in South Africa and rail and port
constraints in Australia. In the second half production and sales volumes recovered and were markedly
higher. Nevertheless for the year, operating profi t was lower due to an overall decline in export volumes
and a pull back in export prices from the very high levels of the year before. South Africa, Australia and
South America contributed 44%, 32% and 26% respectively to operating profi t.
Markets
Global demand and supply for thermal coal remained well balanced during 2006. The dampening effect
of mild winter temperatures in Europe and the US was mitigated by a series of worldwide logistical and
production constraints and a buoyant European energy market, bolstered by high oil and gas prices.
The combination of these factors maintained thermal coal prices at historically high levels. Metallurgical
coal prices softened in 2006 from the highs of 2005, particularly the semi-soft coking and pulverised
injection (PCI) coals.
Anglo American plc Annual Report 2006 | 43
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | FINANCIAL PERFORMANCE DURING THE YEAR
During 2006 geopolitical events demonstrated coal’s strategic importance to the overall energy mix.
Compared to oil and gas, coal’s security of supply from widely distributed reserves makes it one of the
world’s most reliable energy sources. This together with the development and implementation of clean coal
technologies will, over time, position coal to make a signifi cant contribution towards satisfying future global
energy demand while addressing environmental concerns.
Operating performance
Operating profi t for South African sourced coal, at $380 million, was 19% lower than the previous year’s
$470 million, refl ecting average realised export prices which were 6% lower in 2006 and a 1% decline in
export sales volumes. The rand continued to weaken in 2006, with a positive impact on operating profi t of
$28 million.
Production for the year increased by 2.5 million tonnes (mt), or 4.3%, to 59.3 mt, as Isibonelo went into
full production and output from Landau and New Denmark grew. Landau benefi ted from improved yields
arising from plant effi ciency improvements and favourable contractor performance, while New Denmark
benefi ted from strong longwall performance. Excessive rainfall during the fi rst quarter hampered production
at several operations, in particular New Vaal and Kleinkopje.
Total sales, bolstered by Isibonelo, reached 59.3 mt, 4.5% higher than prior year. Export sales decreased
by 0.2 mt or 1%. Sales to Eskom rose by 2.5% as increased economic activity continued to spur electricity
demand.
Operating profi t for the Australian operations reduced by 14% to $279 million (although the 2005 results
included $27 million from insurance proceeds pertaining to a roof fall at Moranbah North the previous year).
The decline in operating profi t was chiefl y on account of lower production volumes arising from the
cessation of mining at Dartbrook owing to diffi cult geological conditions, combined with commissioning
delays to the Grasstree longwall operation. These reductions were partly compensated by the staged
expansion at Dawson, resulting in an overall reduction of 0.9 mt for Anglo Coal Australia. Site costs rose,
with industry infl ation statistics reporting 11.7% increases year on year on the back of rising prices of
commodities globally and often poor local availability of scarce resources. Other cost increases came with
the expanding Dawson mine and the purchase of third party coal during the Grasstree transition phase at
Capcoal. Port and rail constraints impeded fi nal sales volumes and resulted in higher closing stock on hand
at all export mine sites.
Callide’s output increased by 0.3 mt to 9.8 mt. Dawson mine received additional heavy mining equipment
as part of its incremental expansion and increased production by 11%, with the coking coal proportion of its
coal mix rising to 45% from 30% in 2005. Drayton maintained output, although port constraints resulted in
the mine being stock bound at year end. During the year Capcoal moved its main underground operations to
the Grasstree mine, which experienced delays owing to conveyor and longwall commissioning problems,
resulting in an 11% reduction in production. In 2006 work got under way on the Lake Lindsay project, which
will extend open cut mining from the Capcoal operation. Moranbah North’s production was 0.5 mt lower,
primarily as a result of diffi cult geological challenges being experienced during the fi rst half of 2006.
In South America, operating profi t was 5% lower than 2005 at $227 million following a decline in export
selling prices, higher operating costs, particularly in respect of fuel prices, and a stronger Colombian peso.
The decrease in operating profi t was partly offset by an increase in production at Cerrejón of 9% to 28.4 mt
as the fi rst expansion project was completed. Sales volumes at Carbones del Guasare in Venezuela were
marginally below 2005 because of transportation diffi culties between the mine and the port.
In Australia, capital expenditure for the year was 190% higher at $537 million, principally attributable to
the ramp up of the $426 million Dawson and $361 million Lake Lindsay projects. Dawson is expected to
reach full production of 5.7 million tonnes per annum (Mtpa) in 2007. Lake Lindsay is proceeding to plan,
with fi rst coal scheduled for 2008.
In South Africa, the start of work at the $132 million Mafube mine, wash plant enhancements at
Goedehoop and completion of the Isibonelo mine represent the majority of the capital expenditure. Mafube
will increase Anglo Coal’s thermal coal production by a total of 5 Mtpa (Anglo Coal’s attributable share 2.5
Mtpa).
In South America the expansion of Cerrejón to 32 Mtpa is continuing and full production is scheduled for
2008. A pre-feasibility study is investigating additional capacity beyond 32 Mtpa.
44
| Anglo American plc Annual Report 2006
Outlook
The rand exchange rates and coal prices will continue to be the two main variables in 2007, with export
prices expected to be more stable in 2007, though with a somewhat softer bias.
Thermal coal prices for 2007 will continue to be subject to volatility, resulting from anticipated growth in
India and the Asian economies, increased incremental supply from major producing regions, unpredictable
fl uctuations in seasonal temperatures and the price of competing energy fuels. Hard coking coal prices have
decreased by up to 20% for 2007 contracts beginning in April. Early negotiations in thermal coal are
showing that the market is remaining strong, with similar prices set to be realised in 2007.
Substantial capital will continue to be invested in all regions, with accompanying increases in production,
particularly in South Africa and Australia.
In November 2006, Anglo Coal, Hillsborough Resources and North Energy Mining Incorporated created
Peace River Coal, of which Anglo Coal owns 60%. Peace River Coal is a metallurgical coal mine in Canada
that is expected to produce around 2.0 mt in 2007.
The agreement between Anglo Coal and Shell with respect to the joint development of Monash Energy
(coal-to-liquids project) advances and the conclusion of the concept study is anticipated in 2007.
In February 2007, Anglo Coal announced the creation of Anglo Inyosi Coal, an empowered coal company
housing key current and future domestic and export focused coal operations. Anglo Coal has signed a Heads
of Agreement with Inyosi, a newly formed broad based black economic empowerment company. Inyosi will
acquire 27% of Anglo Inyosi Coal, creating a company valued at $1 billion and incorporating several key
Anglo Coal assets, namely Kriel Colliery (an existing mine), and the Elders, Zondagsfontein, New Largo and
Heidelberg projects.
Industrial Minerals
$ million (unless otherwise stated)
Operating profi t
Tarmac
Copebrás
EBITDA
Net operating assets
Capital expenditure
Share of Group operating profi t
Share of Group net operating assets
(cid:47)(cid:48)(cid:37)(cid:50)(cid:33)(cid:52)(cid:41)(cid:46)(cid:39)(cid:0)(cid:48)(cid:50)(cid:47)(cid:38)(cid:41)(cid:52)
(cid:4)(cid:0)(cid:77)(cid:73)(cid:76)(cid:76)(cid:73)(cid:79)(cid:78)
(cid:41)(cid:78)(cid:68)(cid:85)(cid:83)(cid:84)(cid:82)(cid:73)(cid:65)(cid:76)(cid:0)(cid:45)(cid:73)(cid:78)(cid:69)(cid:82)(cid:65)(cid:76)(cid:83)
370
336
2006
336
315
21
580
4,524
298
3%
16%
2005
370
340
30
618
3,982
274
6%
11%
(cid:16)(cid:21)
(cid:16)(cid:22)
Anglo Industrial Minerals generated an operating profi t of $336 million. Tarmac group’s operating profi t was
7% lower than 2005 at $315 million. The UK profi t was down 10%, a robust performance in the face of
challenging market conditions, with lower volumes and weaker margins in some businesses exacerbated by
high energy costs for much of the year. Input cost pressures were partly mitigated by cost savings of some
$63 million as a result of operational effi ciencies, including Tarmac’s ongoing supply chain management
programme.
Markets and operating performance
Tarmac’s contribution from its international businesses increased by 5%, refl ecting strong performances by
the Middle East and improvements by Poland and Germany, offset by weaker demand in Spain. Copebrás’
operating profi t was down 30% from the prior year owing to the combined effects of the 11%
strengthening of the Brazilian real against the US dollar and weak demand from the agricultural sector.
In 2006 Tarmac completed its operational, commercial and organisational restructuring. The new business
structure facilitates continuous improvement both operationally and commercially. The scope of its activities
is also now clearly defi ned as aggregates, together with the three routes to market (asphalt, concrete and
concrete products), and integration of cement where appropriate. This strengthens Tarmac’s ability to
improve its results and grow. A special charge for impairment and restructuring costs of $278 million was
taken. This related to businesses sold ($46 million), businesses retained and restructured ($212 million)
and closure and other items ($20 million).
In addition to bolt-on acquisitions in France, the Czech Republic and Poland, Tarmac successfully entered
Turkey and acquired a developing business in Romania, involving interests in quarries and ready-mixed
concrete. These acquisitions enhance Tarmac’s ability to develop its business in central and eastern Europe,
identifi ed as a key focus of the company’s growth strategy.
2006 saw increased focus on improving the profi tability of underperforming businesses and on disposing
of non-core businesses, including the UK based Minerals and Materials business and the underperforming
TopPave business. Previously announced disposals of assets in Hong Kong and Germany were completed
in the second half of the year.
Anglo American plc Annual Report 2006 | 45
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | FINANCIAL PERFORMANCE DURING THE YEAR
Tarmac’s operating profi t in the UK declined owing largely to general market weakness, which caused
demand to fall, and to high and volatile energy related costs for much of the year. The Aggregate Products
business was impacted by weak demand and a highly competitive marketplace, with demand for coated
stone being 8% down on the previous year.
During 2006, additional resources were directed at improving commercial and operational processes in
Aggregate Products, and early results are encouraging. Work has started on Tarmac’s largest ever contract,
resurfacing a stretch of England’s M1 motorway – an example of new, long term, framework agreements
that now prevail in the marketplace.
Tarmac’s Building Products and International businesses experienced improved results compared with the
previous year. However this gain was offset by weak demand for aggregate products, particularly in the
road and housing sectors. Despite a substantial decline in demand from the housing sector for blocks,
underlying profi ts in Building Products were 23% better than 2005. This refl ects the benefi ts of operational
improvements in the Topblock and Precast businesses and the disposal of the underperforming TopPave
business. The Precast business also benefi ted from the work related to the construction programme for the
2012 London Olympic games.
Operating profi ts for Tarmac International improved 5% over the previous year owing to stronger markets in
France and benefi ts accruing from acquisitions and re-organisation and improved performance in Poland, the
fi rst full year benefi t of the Shawkah quarry in the Middle East (one of the largest in the Tarmac group) and
high demand in the Czech Republic and Germany. Profi ts in Spain were lower, largely refl ecting the impact
of higher cement costs despite strong demand in the Central Region.
Outlook
Market conditions in the UK are expected to remain challenging with weak demand in some sectors and high
cost pressures. The uncertainty of government spending on infrastructure is also a cause for concern, as is
the increasing impact of different types of construction materials such as steel and timber on the industry.
Volatility of energy prices and the impact that they have on Tarmac’s business in terms of cement and
distribution costs will also continue to affect performance and demand commensurate efforts to drive
further effi ciencies.
(cid:47)(cid:48)(cid:37)(cid:50)(cid:33)(cid:52)(cid:41)(cid:46)(cid:39)(cid:0)(cid:48)(cid:50)(cid:47)(cid:38)(cid:41)(cid:52)
(cid:4)(cid:0)(cid:77)(cid:73)(cid:76)(cid:76)(cid:73)(cid:79)(cid:78)
$ million (unless otherwise stated)
Gold
(cid:39)(cid:79)(cid:76)(cid:68)
332
467
Operating profi t
EBITDA
Net operating assets
Capital expenditure
Group’s aggregate investment in AngloGold Ashanti
Share of Group operating profi t
Share of Group net operating assets
2006(1)
467
843
–
196
1,623
5%
–
2005
332
871
6,982
722
–
5%
20%
(cid:16)(cid:21)
(cid:16)(cid:22)
(1) The results for 2006 are reported as a subsidiary up to 20 April and thereafter as an associate at 42% attributable (see note 2 to the fi nancial statements).
The Group’s share of AngloGold Ashanti’s net assets is disclosed.
Attributable operating profi t in 2006 climbed to $467 million, 41% higher than the fi gure for the previous
year (2005: $332 million), mainly due to the impact of a stronger gold price, partially offset by the Group
accounting for AngloGold Ashanti as an associate from 20 April 2006. At the end of 2006 the gold price
($604 per ounce) was more than 36% higher than at the beginning of the year ($445 per ounce), while
the average price received for the year was 31% higher than the prior year. Total cash costs were $27
per ounce higher, at $308 per ounce, mainly resulting from stronger operating currencies, infl ation and
lower grades.
Markets
Investor interest in gold continued throughout 2006. The average gold price received increased by $138 per
ounce to $577 per ounce. This momentum has continued into 2007, with the spot gold price currently well
above the $600 per ounce mark.
Operating performance
In 2006, AngloGold Ashanti’s production from ongoing operations declined by 9% to 5.64 million ounces
and was largely attributable to reductions of 305,000 ounces in Tanzania, 122,000 ounces in South Africa
and 88,000 ounces in Ghana. These decreases were only partly compensated by small increases in output
from assets in Australia, Argentina and Mali.
The review of AngloGold Ashanti’s assets has resulted in management implementing programmes to ensure
that these operations better their ore reserve, profi t margin and growth potential.
46
| Anglo American plc Annual Report 2006
During the year AngloGold Ashanti successfully raised $500 million of equity at a negligible discount to the
prevailing market price.
AngloGold Ashanti is focusing on growing the reserve and resource base, both through exploration and
through a disciplined, value adding mergers and acquisitions programme.
In respect of both of these activities, the company is now looking outside of the world’s mature gold regions
and has exploration projects in Africa in the Democratic Republic of Congo and in South America in
Colombia. In Russia, AngloGold Ashanti has announced the formation of a strategic alliance with Polymetal.
Strategic alliances are being pursued in China to allow the company to successfully extract value from a
region undergoing signifi cant regulatory change. Exploration partnerships in the Philippines, Laos and
Mongolia have resulted in land positions being acquired in several prospective areas.
Outlook
The gold price has now risen for six years in succession, which has not been seen since the deregulation
of the gold market in the developed markets in 1971. Ongoing strong demand from the growing economies
of China and India as well as continued investor speculation and offi cial sector activities are seen as being
supportive of the gold price.
Paper and Packaging
$ million (unless otherwise stated)
Operating profi t
Packaging
Business Paper
Other
EBITDA
Net operating assets
Capital expenditure (including biological assets)
Share of Group operating profi t
Share of Group net operating assets
2006
477
287
130
60
923
7,019
644
5%
25%
2005
495
293
163
39
916
6,365
746
8%
18%
In the second half of the year there was some improvement in overall market conditions. Operating profi t
for the second half of 2006 at $265 million was up on the comparable period for 2005. The second half
performance partially offset the impact of a poor fi rst six months with full year profi ts of $477 million,
4% down on 2005. Although operating rates for Mondi’s European upstream paper markets appear to have
improved, allowing for some price increases, input cost pressures (fi bre, chemicals and energy) and tough
trading conditions in downstream converting activities have continued to put margins under pressure. In
response, Mondi has focused on cost saving and profi t improvement initiatives, delivering $224 million of
benefi ts for the full year.
Markets and operating performance
Mondi Packaging’s operating profi t of $287 million was 2% below the previous year’s $293 million, the
strong upturn in packaging paper pricing was more than offset by higher input costs and continued margin
pressure in the converting operations. Mondi has been active in restructuring its converting operations to
improve effi ciencies and focus on high growth niche areas, with ten sites divested and one closed during the
year. In addition Mondi closed down two corrugators amounting to 8% of its capacity. The results of these
actions can be seen in productivity, measured in output per employee, which has improved by 9% across
the business.
There were several small acquisitions in the period, with Mondi further strengthening its position in the
higher growth niche release liner segment through the acquisition of Akrosil (mainly US and European
based), Schleipen & Erkens and NBG Special Coatings (both European based). The acquisition of Peterson
Barriere in Norway adds to the extrusion coating segment. The acquisition of the Bulgarian Kraft Paper
Factory Stambolijski was fi nalised during June 2006. Agreement to dispose of Mondi’s stake in Bischof + Klein,
an associate company specialising in polymer fi lms and fl exible packaging, was reached in December with
completion expected during the fi rst quarter of 2007.
Mondi is considering an investment in Poland or the Czech Republic in a new paper machine to produce
lightweight testliner and fl uting. This is a market which is growing rapidly and where there is a shortage of
product in eastern Europe. The cost of this investment is estimated at $365 million and will provide capacity
of 470,000 tonnes with fi rst production expected in the second half of 2009.
(cid:47)(cid:48)(cid:37)(cid:50)(cid:33)(cid:52)(cid:41)(cid:46)(cid:39)(cid:0)(cid:48)(cid:50)(cid:47)(cid:38)(cid:41)(cid:52)
(cid:4)(cid:0)(cid:77)(cid:73)(cid:76)(cid:76)(cid:73)(cid:79)(cid:78)
(cid:48)(cid:65)(cid:80)(cid:69)(cid:82)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:48)(cid:65)(cid:67)(cid:75)(cid:65)(cid:71)(cid:73)(cid:78)(cid:71)
495
477
(cid:16)(cid:21)
(cid:16)(cid:22)
Anglo American plc Annual Report 2006 | 47
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | FINANCIAL PERFORMANCE DURING THE YEAR
Mondi Business Paper’s operating profi t of $130 million was 20% down on the $163 million recorded in
2005. Tough trading conditions contributed to the decline in profi ts (particularly in the fi rst half), and were
compounded by the slow start up, at the Merebank South Africa operation, of the paper machine PM31
following a major rebuild, and expenses related to project development.
PM31 is now operating at a much improved run rate and is producing better grades of paper. Further
improvement is required, which may include some modifi cations to the machine in order that it can produce
at its design potential. In addition the South African operation is undergoing a major restructuring
programme to improve effi ciencies and lower costs. As a result of this restructuring and the improvement
in PM31 performance a better result is expected in 2007 from South Africa.
Within the rest of the business the non-integrated mills saw profi tability signifi cantly eroded by rising pulp
costs but both Syktyvkar and Ruzomberok recorded strong results on the back of increased sales volumes
and good cost control.
In response to weak European market conditions Mondi took 110,000 tonnes of annual production capacity
out of the business papers market in 2006 by irreversibly converting the Dunaujvaros mill in Hungary to
a speciality paper plant and selling the assets.
Overall product demand was positive with uncoated woodfree sales volumes up 10% also helped by
increased production from PM31. The increased demand has led to improved operating rates and some
improvement in pricing towards the end of the year (an average price increase of 4% was announced across
Mondi Business Paper’s key paper grades in January 2007). However pricing is still well below historical mid-
cycle levels and margins continue to be impacted by rising input costs, particularly for fi bre and energy.
Consideration is being given to a major modernisation programme for the Russian operation which could see
substantial investment over the next fi ve years in improving infrastructure, increasing capacity and reducing
costs through enhanced effi ciencies. This capital expenditure programme includes some elements that
would have been part of the previously announced major pulp expansion project (initial cost estimate of
$1.5 billion) and will allow the mill to be in a good position to reconsider this project once the modernisation
programme is complete.
Mondi Packaging South Africa had a better year with improved agricultural packaging volumes and good cost
control. Other operations which comprise the newsprint and merchant activities as well as corporate costs,
saw net operating profi ts well up on the comparable period. All major trading operations recorded improved
results with both newsprint operations performing well as a result of an improved pricing environment.
Outlook
The company enjoyed a strong fi nish to 2006 which will provide a good platform going into 2007. While the
trading environment has undoubtedly improved, concerns remain about the strength of the recovery and the
level of overcapacity in some of the markets in which Mondi operates. Mondi management is encouraged by
the number and scale of recent industry announcements regarding capacity closures and this bodes well for
the future. Overall Mondi expects a better fi nancial performance in 2007, despite rising corporate costs (in
anticipation of the demerger from Anglo American plc), as a result of improved pricing for its key products,
the focus on cost saving and the benefi ts of better PM31 performance.
48
| Anglo American plc Annual Report 2006
Development – during 2006
we provided entry level
development to over 6,500
individuals (1,150 bursars, 2,045
apprentices, 560 graduates and
over 2,700 other trainees).
Transformation – during 2006
we exceeded our targets in our
South African operations on
HDSA representation at
management levels (43%) and
gender diversity (14% females).
Resources
The resources we consider critical to achieving our strategic objectives include:
• our people
• our knowledge and expertise
• our proven and probable reserves
• our fi nancial strength together with the committed and uncommitted borrowing facilities available to us.
Our people
The Group’s strategy remains centred on achieving world beating performance in all areas of our business
with and through our people. We employ more than 125,000 people who are located in over 50 countries
around the globe (excluding joint ventures and our independently managed businesses).
Development
Many of our operations are labour intensive, providing employment and economic advancement for previously
disadvantaged communities. We invest in a number of local, regional and global schemes to offer training
and education support in our employment catchment areas and during 2006 we provided bursaries to
1,150 students, enrolled 2,045 apprentices and offered employment to 560 graduates and over 2,700
other trainees.
We entered a collaborative venture with the South African government and the South African technikons
during 2006, which will expand our successful local and global university student work experience
programmes to include over 200 additional trainee artisan placements per annum. The Group’s various work
placement schemes have also become an important part of the Group’s strategy in securing a steady entry
resourcing pipeline, particularly in scarce skills areas.
Talent management
During 2006 we conducted an audit of our talent management processes which are designed to plan for
succession into business critical roles and identify and develop the key leadership people in our business.
The outcome of the audit was a fundamental re-affi rmation of our three tier approach to talent management
(business level reviews feeding cross business functional reviews, which in turn inform our CEO led
biannual strategic group talent reviews).
The review processes have provided us with the opportunity to build our talent pools for succession into key
positions, to accelerate the development of key members of the talent population and identify timeously
where we need to supplement our internal resources with further breadth and depth of experience from
outside the Group.
Our portfolio of talent development programmes continues to grow in scope and sophistication as we
partner with world leading providers of executive development. During 2006 we introduced further
refi nements to our high potential and senior management and executive programmes designed to challenge
and equip our delegates at the intellectual, interpersonal and intercultural level.
We believe that event based development constitutes only 10% of the learning opportunities that our
Group has to offer, and have built in a rigorous requirement for our programme alumni and their sponsors to
commit to ongoing development through stretch assignments in current roles and broadening career moves
into different businesses and different geographies.
In order to further enhance our ability to deliver compelling career growth opportunities within the Group we
have embarked on a number of initiatives to facilitate cross business and cross country moves during 2007.
Reward and retention
The strength of demand in the commodity markets and the tight supply of key mining skills have meant that
we have continued to pay close attention to a variety of mechanisms to attract and retain our people. These
have included, but not been limited to, various pay and equity related schemes. During 2006 we have also
concentrated on developing many of our managers’ motivational and leadership skills and on providing
training and learning opportunities to our employees to enable them to enhance their own skills and careers.
One of our key measures of employee retention is percentage voluntary labour turnover. On a Groupwide
basis this has remained constant over the last three years (approximately 5%), and fell below 3% within
our Group talent population in 2006.
Anglo American plc Annual Report 2006 | 49
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | RESOURCES
While we have put in place some special reward retention measures for key targeted individuals, in general
our Group reward processes remain closely aligned to our performance contract and development cycle, and
our incentives are performance linked, at Board level and downwards. Our long term incentive programmes
are benchmarked externally and are subject to regular review by the Remuneration Committee to ensure
their ongoing appropriateness and effectiveness.
Transformation in Anglo American
We continue to make progress with our transformation programmes within our South African operations.
We have increased the representation of historically disadvantaged South Africans (HDSAs) at management
levels to 43% (target 40%). Women now constitute 14% of the workforce (target 10%) and 14% of the
management ranks within our South African businesses. Increased emphasis and attention will need to be
paid to the retention of our HDSA population. Within the Group as a whole our gender diversity profi le
continues to change, with increased numbers of female managers in 2006 (15%), and we recognise that
further progress in this area is needed during 2007.
During 2006 we followed up on the fi ndings from the 2005 Employee Communication Survey which had
indicated improvement in most of the indicators since the previous survey in 2002, but that further work
was still needed in developing our managers and leaders, in securing increased understanding by employees
of Company goals and targets, and in increasing internal collaboration and knowledge sharing. The further
development and roll out of the Group’s worldwide intranet during 2006 is playing an increasingly important
role in fostering wider understanding of the Group and encouraging networking and knowledge transfer
across different geographies and businesses.
Our knowledge and expertise
Anglo American draws heavily on technology and research to maintain a lead in its key mining activities.
Technology as a core competence adds signifi cant value to operations, thereby enhancing shareholder value.
It is important for signifi cant research and development activity to be undertaken in house, although
external partnerships are also of great value. The Anglo American Research Laboratory and the Anglo
Platinum Research Centre have recently merged to form Anglo Research. The organisations are coming
together on the same site, to derive maximum synergies and value adding benefi ts.
Anglo Research and Anglo Technical Division work closely alongside the operating divisions on continuous
improvement programmes. At the other end of the spectrum, research focuses on cutting edge innovation and
a number of pilot plants to test potential breakthrough technologies are in place or are at the design stage.
In one innovative study, fi nite-element analysis techniques are being used to identify potential areas of
weakness in underground mining vehicles. Another project is investigating the use of microwaves and radio
frequency heating to pre-condition ores before separation. A third is testing hyperspectral scanning
technology as an aid to ore sorting. Removing waste rock before crushing and separation can reduce
operating costs and boost throughput of value bearing ore.
Safety needs are often an important component of research and Anglo Technical Division is looking into
safety commissioning procedures for major processing plant such as mills, furnaces and solvent extraction
plants, where incidents are more likely during initial start up or after change interventions.
Other projects are aimed at improving energy effi ciency or reducing environmental impact. Notably, Anglo
Coal is studying a number of clean coal technologies to further the sustainable use of this fuel in long term
environmentally friendly applications.
50
| Anglo American plc Annual Report 2006
Exploration
Exploration is one of the key activities for the continued growth of Anglo American. The strong competition
for resources globally has led the Group into more remote regions, to create exploration alliances and to
apply new and innovative technology in its search for new mineral resources. In 2006, the Anglo American
Group was active across 33 countries, including 111 alliances with 103 different entities in 25 countries.
In 2006, Anglo Base Metals spent $53 million and has increased its exploration around its Chilean copper
mines, adding signifi cant resources at Los Bronces. Exploration to the south of Los Bronces continues to
report signifi cant intervals of copper mineralisation. In Brazil, further drilling at the Jacaré nickel discovery
has indicated the potential for a major new nickel asset for the Company, while work continues in the
Philippines to complete a pre-feasibility study at Boyongan by the end of 2007. At Gamsberg, South Africa,
initial drilling of several key zinc targets has provided encouraging results. Copper exploration is being
undertaken in Brazil, Chile, Indonesia, Mexico, Peru and the US. Nickel sulphide mineralisation is being
sought in Arctic Canada, Russia and Scandinavia (through alliances) and zinc programmes continue in
Australia, South Africa and Namibia.
Anglo Platinum ($30 million) is exploring in and around existing operations in South Africa’s Bushveld
Complex. Drilling continues at its Danba project in China, following encouraging exploration results.
Anglo Coal ($24 million) is continuing to investigate resources for thermal and coking coal, coal bed
methane and oil sands, mainly looking in southern Africa, China and Australia. Anglo Coal conducted
advanced resource evaluations of the Xiwan project in China and projects in Canada and Australia.
Anglo Ferrous Metals ($9 million) is exploring for iron ore in South Africa and other iron ore growth
opportunities are being pursued.
De Beers spent $140 million and is currently active in Angola, the Democratic Republic of Congo, Botswana,
Canada, India, South Africa and Namibia.
Ore reserves and mineral resources estimates
Full details of our ore reserves and mineral resources estimates are found on pages 128 to 149.
Anglo American plc Annual Report 2006 | 51
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW
Principal risks and uncertainties
Understanding our key risks and developing
appropriate responses to those risks is key to
Anglo American’s success
Anglo American is exposed to a variety of risks and uncertainties which may have a fi nancial or reputational
impact on the Group and which may also impact the achievement of social, economic and environmental
objectives. These risks include strategic, commercial, operational, compliance and fi nancial risks. The principal
risks and uncertainties facing the Group have been categorised into headline risk areas. The Group’s approach
to risk management is set out in the corporate governance section on pages 59 to 65.
The key headline risks identifi ed for 2006/7, potential impacts on the Group and the mitigation strategies
are summarised below.
Key headline risks
Safety, health and environment
Mining is a hazardous industry and failure to adopt high levels of safety management can result in a number
of negative outcomes; harm to our employees and the communities that live near our mines, harm to the
environment as well as fi nes and penalties, liability to employees and third parties for injury and loss of
reputation. Anglo American sets a very high priority on safety, health and environmental issues. Anglo
American recognises the HIV/AIDS epidemic in sub-Saharan Africa is a signifi cant threat to economic growth
and development. In 2002 the Group announced it would provide anti-retroviral therapy to employees with
HIV/AIDS. Anglo American also invests considerable resources in research and development to minimise the
impact the Group’s operations have on the environment, for example seeking ways to improve energy
effi ciency. The Group believes it must make an enduring contribution to the societies in which it operates,
and implements principles of sustainable development. In doing so the Group aspires to forge good
relationships with its local communities.
Treasury risk management
The Group’s principal treasury policies are set by the Board. The Board delegates responsibility for managing
fi nancial risk to the Executive Board. The Group treasury acts as a service centre and operates within clearly
defi ned guidelines that are approved by the Board. Treasury front offi ce and treasury back offi ce are
segregated and report to separate executive positions. 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 operations of the Group’s listed subsidiaries are managed independently within the scope of
the Group treasury policy. The treasury operations of the Group’s associates, De Beers and AngloGold
Ashanti, are independently managed.
The Group is exposed to liquidity risk arising from the need to fi nance its ongoing operations. As a
consequence of its global operations the Group is exposed to currency risk where transactions are not
conducted in US dollars, where assets and liabilities are not determined in US dollars or where assets and
liabilities are not US dollar denominated. Commodity prices determined primarily by international markets
and global supply and demand give rise to commodity price risk across the Group. Cash deposits and other
fi nancial instruments, including trade receivables due from third parties, give rise to counterparty credit risk.
Further details of these risks and their management are provided in note 24 to the fi nancial statements.
The main exchange rates giving rise to currency risk in the Group are shown on page 155.
52
| Anglo American plc Annual Report 2006
Sensitivity analysis in respect of currency and commodity prices
Set out below is the impact on underlying earnings of a 10% fl uctuation in some of the Group’s commodity
prices and exchange rates.
Commodity currency
Average price/rate (6)
10% sensitivity US$ million(1)
Gold
Platinum
Palladium
Coal
Copper
Nickel
Zinc
Iron ore
ZAR/USD
AUD/USD
CLP/USD
Euro/USD
GBP/USD
604 $/oz
1,142 $/oz
321 $/oz
51 $/t(2)
305 c/lb(3)
1,095 c/lb(3)
148 c/lb(3)
55 $/t(5)
6.77
1.33
530
0.80
0.54
± 107
± 159
± 24
± 186
± 276(4)
± 37
± 105
± 52
± 449
± 72
± 21
± 60
± 7
(1) Excludes the effect of any hedging activities. Stated after tax at marginal rate. Sensitivities are the average of the positive and negative and refl ect the impact
of a 10% change in the average prices received and exchange rates during 2006. Increases in commodity prices increase underlying earnings and vice versa.
A strengthening of the rand, Australian dollar and Chilean peso relative to the US dollar reduces underlying earnings and vice versa. A strengthening of the euro
and pound sterling relative to the US dollar increases underlying earnings and vice versa.
(2) Average price represents RSA-API 4 index. Sensitivity refl ects the impact of a 10% change in the average price across the entire Anglo Coal product portfolio.
(3) Being the average LME price. Sensitivity refl ects the impact of a 10% change in the average price received.
(4) Copper sensitivity excludes the impact of provisionally priced copper from 2005. At 31 December 2006 there were 140,098 tonnes of provisionally priced
copper sales, marked at 287 c/lb (2005: 136,095 tonnes, marked at 202 c/lb).
(5) Average price represents iron ore lump. Sensitivity refl ects the impact of a 10% change in the average price across lump and fi ne.
(6) ‘oz’ denotes ounces, ‘t’ denotes tonnes, ‘c’ denotes US cents, ‘lb’ denotes pounds.
Supplier risk
Supplier risk remains a concern for the mining industry. Procurement and supply chain excellence has been
a major element of the Group’s activities since 2000 with the inception of Project Angelo which is discussed
in more detail on page 31.
Political, legal and regulatory
Businesses may be affected by any political or regulatory developments in any of the countries and
jurisdictions in which they operate, including changes to fi scal regimes or other regulatory regimes,
which may result in restrictions on the export of currency, expropriation of assets and imposition of
royalties. The Group has no control over changes in local infl ation, market interest rates or political acts
or omissions which may deprive the Group of the economic benefi ts of ownership of its assets. The Group
actively monitors regulatory and policy developments.
Event risk
Damage to or breakdown of a physical asset including risk of fi re and explosion, can result in loss of
revenue or consequential losses. The Group’s operations can be exposed to natural risks such as extreme
weather conditions. Specialist consultants are engaged to provide information regarding key event
exposures and recommendations to reduce exposures. Anglo American seeks to purchase insurance
to protect against catastrophic event risk though conditions in global insurance markets mean this is not
always possible or economic at certain times.
Anglo American plc Annual Report 2006 | 53
ANGLO AMERICAN plc
ANNUAL REPORT 2006
OPERATING AND FINANCIAL REVIEW | PRINCIPAL RISKS AND UNCERTAINTIES
Reserves and resources
The Group’s mineral resources and ore reserves estimates are subject to a number of assumptions, including
the price of commodities, production costs and recovery rates. Fluctuations in these variables may have an
impact on the long term fi nancial condition and prospects of the Group. In South Africa, the Minerals and
Petroleum Resources Development Act (2002) provides for conversion of existing mining and exploration
rights to ‘new order rights’. Conversion of these rights is subject to a variety of conditions and undertakings
by the applicant, including employment, skills development and ownership by historically disadvantaged
South Africans (HDSAs), specifi cally 15% ownership by 2009 and 26% by 2014. Details of this conversion
process and the Group’s policy on reporting of Ore Reserves and Mineral Resources with reference to the
Act are expanded on in the specifi c section on Ore Reserves and Mineral Resources estimates.
Employees
The ability to recruit, develop and retain the appropriate skills for Anglo American is made diffi cult by global
competition for skilled labour amongst resource companies, particularly in periods of high commodity prices.
A number of strategies are implemented to mitigate this risk including attention to an appropriate suite of
reward and benefi t structures and ongoing refi nement of Anglo American as an attractive employee proposition.
Operational performance
Failure to meet production targets results in increased unit costs. The impact is more pronounced at
operations with a high level of fi xed costs. Mitigation strategies include efforts to secure strategic supplies
at competitive prices, energy reduction, increased use of green energy and sale of excess emission credits,
use of cheaper alternative inputs, application of group water management guidelines and business
improvement initiatives to reduce unit costs. In addition, the Group manages a strong project pipeline.
In doing so the Group must manage the associated risk of meeting project delivery times and costs.
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 benefi ts or synergies identifi ed 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.
Infrastructure
Inadequate supporting facilities, services, installations (water, power, transportation, etc.) may impact
the sustainability and/or growth of the business, leading to loss of competitiveness, market share and
reputation. Anglo American promotes early development of strategy and alignment with infrastructure
owner/operator, development of relationships, participation in industry groups and lobbying to ensure
effective provision of services by key utility providers.
Critical accounting judgements and key sources of estimation and uncertainty
In the process of applying the Group’s accounting policies, which are presented in note 1 to the fi nancial
statements, management necessarily makes judgements and estimates that have a signifi cant effect on the
amounts recognised in the fi nancial statements. Changes in the assumptions underlying the estimates could
result in a signifi cant impact on the fi nancial statements. The most critical of these are:
Useful economic lives of assets and ore reserves estimates
The Group’s mining properties, classifi ed within tangible assets, are depreciated over the respective life
of the mine using the unit of production (UOP) method based on proven and probable reserves. When
determining ore reserves, assumptions that were valid at the time of estimation may change when new
information becomes available. Any changes could affect prospective depreciation rates and asset
carrying values.
The calculation of the UOP rate of amortisation could be impacted to the extent that actual production
in the future is different from current forecast production based on proven and probable mineral reserves.
54
| Anglo American plc Annual Report 2006
These factors could include:
the grade of mineral reserves varying signifi cantly from time to time;
• changes of proven and probable mineral reserves;
•
• differences between actual commodity prices and commodity price assumptions used in the estimation
• unforeseen operational issues at mine sites; and
• changes in capital, operating mining, processing and reclamation costs, discount rates and foreign
exchange rates possibly adversely affecting the economic viability of mineral reserves.
of mineral reserves;
The majority of other tangible assets are depreciated on a straight line basis over their useful economic
lives. Management reviews the appropriateness of assets useful economic lives at least annually and,
again, any changes could affect prospective depreciation rates and asset carrying values.
Impairment of assets
The Group reviews the carrying amounts of its tangible and intangible assets to determine whether there
is any indication that those assets are impaired. In making the assessment for impairment, assets that
do not generate independent cash fl ows are allocated to an appropriate cash generating unit (CGU). The
recoverable amount of those assets, or CGU, is measured as the higher of their fair value less costs to sell
and value in use.
Management necessarily applies its judgement in allocating assets that do not generate independent cash
fl ows to appropriate CGUs, and also in estimating the timing and value of underlying cash fl ows within the
value in use calculation. Subsequent changes to the CGU allocation or to the timing of cash fl ows could
impact the carrying value of the respective assets.
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
income statement 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 profi ts as extraction progresses. Environmental costs are estimated using either
the work of external consultants or internal experts. Management uses its judgement and experience to
provide for and amortise these estimated costs over the life of the mine.
Retirement benefi ts
The expected costs of providing pensions and post retirement benefi ts under defi ned benefi t arrangements
relating to employee service during the period are charged to the income statement. Any actuarial gains and
losses, which can arise from differences between expected and actual outcomes or changes in actuarial
assumptions, are recognised immediately in the consolidated statement of recognised income and expense.
Assumptions in respect of the expected costs are set after consultation with qualifi ed actuaries. While
management believes the assumptions used are appropriate, a change in the assumptions used would
impact the earnings of the Group.
Special items
Operating special items are those that management considers, by virtue of their size or incidence, should be
disclosed separately to ensure that the fi nancial 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.
Anglo American plc Annual Report 2006 | 55
ANGLO AMERICAN plc
ANNUAL REPORT 2006
DIRECTORS REPORT
56
| Anglo American plc Annual Report 2006
Directors’ report
The directors have pleasure in submitting the statutory fi nancial statements of the Group for the year ended
31 December 2006.
Principal activities and business review
Anglo American plc is the holding company of the Anglo American Group, a global leader in mining with a
range of high quality core businesses covering platinum, diamonds, coal, base metals, ferrous metals and
industrial minerals.
More detailed information about the Group’s businesses, activities and fi nancial performance can be found
in the chairman’s and chief executive’s statements, and the operating and fi nancial review on pages 4 to 55.
The information required by the amendment to the Companies Act in respect of an Enhanced Business
Review is also set out in the operating and fi nancial review.
Going concern
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 UK, published in November 1994.
Dividends
An interim dividend (including a special dividend of 67 US cents per ordinary share) totalling 100 US cents
per ordinary share was paid on 21 September 2006. The directors are recommending that a fi nal dividend
of 75 US cents per ordinary share be paid on 3 May 2007 subject to shareholder approval at the AGM to be
held on 17 April 2007. This would bring the total dividend in respect of 2006 to 175 US cents per ordinary
share. However, in accordance with International Financial Reporting Standards (IFRS), the fi nal dividend will
be accounted for in the fi nancial statements for the year ended 31 December 2007.
Three shareholders have waived their rights to receive dividends. In each case, these shareholders act as
trustees/nominees holding shares for use solely in relation to the Group’s employee share plans. These
shareholders and the value of dividends waived during the year were;
Greenwood Nominees Limited
Security Nominees Limited
Rose Nominees Limited
$52,915,331
$174,219
$36,662
Share capital
The Company’s authorised and issued share capital as at 31 December 2006, together with details of
shares allotted during the year, is set out in note 28 on page 113.
The Company was authorised by shareholders at the 2006 AGM to purchase its own shares in the market
up to a maximum of 10% of the issued share capital. This authority will expire at the 2007 AGM and a
resolution to renew it for a further year will be proposed. As at 20 February 2007, 55,485,838 shares,
representing 3.73% of the issued share capital, had been purchased under this authority.
Material shareholdings
Details of interests of 3% or more in the ordinary share capital of the Company are shown within the
shareholder information section of the Notice of Meeting 2007.
Directors
Biographical details of the directors currently serving on the Board are given on pages 24 and 25 of the
Annual Review. Details of directors’ interests in shares and share options of any Group company can be
found in the remuneration committee’s report on pages 66 to 83.
Peter Woicke and Mamphela Ramphele joined the Board on 1 January 2006 and 25 April 2006 respectively.
Dr Maria Silvia Bastos Marques retired from the Board at the conclusion of the AGM on 25 April 2006.
Cynthia Carroll was appointed to the Board with effect from 15 January 2007 and will be proposed for
election at the forthcoming AGM. She will succeed Tony Trahar as Group chief executive on 1 March 2007.
Tony Trahar will retire from the Board at the conclusion of the AGM on 17 April 2007. Chris Fay,
Sir Rob Margetts and Nicky Oppenheimer will be proposed for re-election at the forthcoming AGM.
Sustainable development
The Anglo American Report to Society 2006 will be available in April. This report focuses on the safety,
sustainable development, health and environmental performance of the Group’s managed operations, their
performance with regard to the Company’s Good Citizenship: Our Business Principles and their community
development 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 under which transactions with their
suppliers are conducted, refl ecting local and industry norms. The Group expects its regular and signifi cant
suppliers to perform to standards comparable to those set out in the Good Citizenship: Our Business
Principles. The Group values its suppliers and recognises the benefi ts to be derived from maintaining good
relationships with them. Anglo American acknowledges the importance of paying invoices, especially those
of small businesses, promptly.
Value of land
Land is mainly carried in the fi nancial 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.
Post balance sheet events
Post balance sheet events are set out in note 39 to the fi nancial statements on page 124.
Audit information
Each director has confi rmed that, so far as they are aware, there is no relevant audit information of which
the auditors are unaware and that each director has taken all reasonable steps to make themselves aware
of any relevant audit information and to establish that the auditors are aware of that information.
Employment and other policies
The Anglo American Group 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 the Group’s businesses, the safe and effective performance of employees and the maintenance
of positive employee relations are of fundamental importance. Managers are charged with ensuring that the
following key principles are upheld:
punishment or other abuse;
• adherence, as a minimum, 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 or bonded labour, physical
• 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;
•
• adoption of fair and appropriate procedures for determining terms and conditions of employment.
recognition of the right of our employees to freedom of association; and
Copies of the Good Citizenship: Our Business Principles booklet are available from the Company and may
be accessed on the Company’s website – www.angloamerican.co.uk
As in previous years, numerous employee communication and education initiatives and workshops took
place covering, amongst others, safety, sustainable development, fi nancial results and Group strategy.
The aim was to inform and consult employees on matters of concern to them and to raise awareness of
fi nancial and economic factors affecting the performance of the Group.
Anglo American plc Annual Report 2006 | 57
ANGLO AMERICAN plc
ANNUAL REPORT 2006
DIRECTORS’ REPORT
In addition, the Company regularly publishes Optima (available on the Company’s website) and AngloWorld,
which contain items of news, current affairs and information relevant to Group employees. During the year,
the Company continued to enhance the new enterprise information portal – thesource – aimed at promoting
knowledge-sharing across the Group and keeping employees up to date with developments in those
business sectors in which the Group is active. The availability of thesource continues to grow and it is
now available to over 13,000 computer-connected employees across the Group. Following a Groupwide
communication and culture survey in 2005 measures have been implemented to address weaknesses
identifi ed and a number of business units also undertook climate surveys amongst their workforces in 2006.
Charitable donations
During the year, Anglo American and its subsidiaries made donations for charitable purposes or wider social
investments amounting to $50.3 million (0.6% of pre-tax profi t). Charitable donations of $2.7 million were
made in the UK, consisting of payments in respect of education, sport and youth $0.8 million (29%);
community development $0.4 million (15%); health and HIV/AIDS $0.3 million (11%); environment
$0.2 million (8%); arts, culture and heritage $0.2 million (8%); housing/homelessness $0.2 million (8%)
and other charitable causes $0.6 million (21%). These fi gures were compiled with reference to the London
Benchmarking Group model for defi ning and measuring social investment spending. A fuller analysis of the
Group’s social investment activities can be found in the 2006 Report to Society.
Political donations
No political donations were made during 2006. Anglo American has an established policy of not making
donations to, or incurring expenses for the benefi t of, any UK political party or any other EU political
organisation as defi ned in the Political Parties, Elections and Referendums Act 2000.
Annual general meeting
The AGM will be held on 17 April 2007. A separate booklet enclosed with this report contains the notice
convening the meeting together with a description of the business to be conducted.
By order of the Board
Nicholas Jordan
Company Secretary
20 February 2007
58
| Anglo American plc Annual Report 2006
CORPORATE GOVERNANCE
Corporate governance
Combined Code compliance
Anglo American is committed to the highest standards of corporate governance and complied fully with the
Combined Code on Corporate Governance (the ‘Code’) throughout the year under review.
Role of the Board
The Board of directors is accountable to shareholders for the performance of the Company. Its role includes
the establishment, review and monitoring of strategic objectives, approval of major acquisitions, disposals
and capital expenditure and oversight of the Group’s systems of internal control, governance and risk
management. A schedule of matters reserved for the Board’s decision details key aspects of the Company’s
affairs that the Board does not delegate (including, among other things, approval of business plans and
budgets, material expenditure and alterations to share capital).
Board composition and directors’ independence
The Board is chaired by Sir Mark Moody-Stuart. The Chairman is responsible for leading the Board and for
its effectiveness. And the Chief Executive is responsible for the execution of strategy and the day-to-day
management of the Group, supported by the Executive Board which the Chief Executive chairs.
Sir Rob Margetts is the senior independent non-executive director.
The Board has a strong independent element and currently comprises, in addition to the chairman, fi ve
executive and ten non-executive directors, eight of whom are independent according to the defi nition
contained in the Code. The independent directors are indicated within the table on the following page, and
full biographical details for each director are given in the Annual Review. The letters of appointment of the
non-executive directors are available for inspection at the registered offi ce of the Company.
The Company is conscious of the need to maintain an appropriate mix of skills and experience on the Board,
and to refresh progressively its composition over time. In this respect, 2006 saw the appointment of Peter
Woicke and Mamphela Ramphele as new independent non-executive directors. Maria Silvia Bastos Marques
retired from the Board at the 2006 AGM. Cynthia Carroll was appointed to the Board as an executive
director on 15 January 2007 and will succeed Tony Trahar as Chief Executive on 1 March 2007. Tony Trahar
will retire from the Board at the conclusion of the 2007 AGM.
Chris Fay and Sir Rob Margetts will be proposed for re-election at the AGM in 2007. Each has served two
three-year terms as an independent non-executive director, having been fi rst appointed during 1999, and
hence their nomination for re-election has been subject to particularly rigorous review. Chris Fay chairs the
Safety and Sustainable Development Committee and serves as a member of the Audit and Remuneration
Committees. Sir Rob Margetts is the senior independent non-executive director, chairs the Remuneration
Committee and is a member of the Nomination Committee. The Board values their wide experience and
contributions, which remain robustly independent. The last two years have seen the appointment of four
new executive directors and three new non-executive directors, and the retirement of two executive
directors and three non-executive directors. The Company therefore considers its programme of progressively
refreshing the composition of the Board remains effective.
Anglo American plc Annual Report 2006 | 59
ANGLO AMERICAN plc
ANNUAL REPORT 2006
CORPORATE GOVERNANCE
60
| Anglo American plc Annual Report 2006
Frequency of meetings
The Board met nine times in 2006, the Audit Committee three times, the Nomination Committee seven
times, the Safety and Sustainable Development Committees fi ve times and the Remuneration Committee
six times. The Company estimates that the non-executive directors devoted around 25 days each to the
Group during the year. Directors’ attendance was as follows:
Independent
in terms of
Code?
Board
(nine
meetings)
Audit
(three
meetings)
S&SD
(fi ve
meetings)
Remuneration
(six
meetings)
Nomination
(seven
meetings)
Sir Mark Moody-Stuart
A J Trahar
C B Carroll(1)
D A Hathorn
R Médori
S R Thompson(2)
R C Alexander(2)
D J Challen
C E Fay
R M Godsell(3)
Sir Rob Margetts(2)
M S Bastos Marques
K A L M Van Miert
N F Oppenheimer(3)
F T M Phaswana(3)
M Ramphele
P Woicke(3)
n/a
No
No
No
No
No
Yes
Yes
Yes
No
Yes
Yes
Yes
No
Yes
Yes
Yes
All
All
n/a
All
All
8
8
All
All
7
8
All(4)
8
6
7
All
8
n/a
n/a
n/a
n/a
n/a
n/a
n/a
All
All
n/a
All
n/a
All
n/a
2
n/a
1
All
All
n/a
n/a
n/a
n/a
4
n/a
4
3
n/a
1(4)
n/a
n/a
n/a
All
n/a
(4)
All
n/a
n/a
n/a
n/a
n/a
n/a
All
All
n/a
All
n/a
n/a
n/a
All
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
6
n/a
5
6
(4)
All
n/a
n/a
All
All(4)
All
(1) Cynthia Carroll was appointed with effect from 15 January 2007.
(2) Sir Rob Margetts, Simon Thompson and Ralph Alexander were unable to attend one meeting due to communications problems.
(3) Bobby Godsell, Nicky Oppenheimer, Fred Phaswana and Peter Woicke each missed one meeting, called at short notice, due to travel commitments.
(4) Meetings attended prior to retirement or since appointment.
Directors’ training
Anglo American’s directors have a wide range of expertise as well as signifi cant experience in strategic,
fi nancial, commercial and mining activities. Training and briefi ngs are also available to all directors on
appointment and subsequently, as necessary, taking into account existing qualifi cations and experience.
Directors also have access to management, and to the advice of the company secretary. Furthermore,
all directors are entitled to seek independent professional advice concerning the affairs of Anglo American
at its expense, although no such advice was sought during 2006. Presentations are made to the Board
by business management on the activities of operations. Directors undertake regular visits to operations
and projects and, in 2006, operations in Australia, China, the Middle East and South Africa were visited.
In addition, during the year directors attended a variety of courses/seminars on subjects including
international reporting standards, risk management, remuneration and pensions.
Following her appointment in January 2007, Cynthia Carroll undertook a wide-ranging programme to
introduce her to the Group’s operations across the world. This programme included visits to operations
in South America, Africa and Australia and intensive and detailed briefi ngs from senior operational
management. Mrs Carroll was also briefed on, inter alia, legal and regulatory matters affecting the Group
and the Group’s corporate responsibility agenda.
Board effectiveness
A formal evaluation of the performance of the Board, its committees and individual directors is carried
out annually by means of detailed questionnaires and interviews. Once again in 2006, the results of the
evaluation were collated and analysed by an independent reviewer (from the London Business School) and
were presented to the Board. The aim is to ensure continuous improvement in the functioning of the Board.
The analysis confi rmed that the Board and its committees were functioning correctly. As in past years,
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. As a result of this year’s evaluation
the Board has agreed to enhance the existing programme of activities aimed at updating the directors’
knowledge and familiarity with the management and operations of the Group.
Committees of the Board
Subject to those matters reserved for its decision, the Board delegates certain responsibilities to a number
of standing committees – the Audit, Remuneration, Nomination and Safety & Sustainable Development
Committees. The terms of reference for each of these committees are published on the Company’s website.
Remuneration Committee
The Remuneration Committee is responsible for establishing and developing the Group’s general policy
on executive and senior management remuneration and determining specifi c remuneration packages for
executive directors.
The directors’ remuneration report, setting out Anglo American’s policy on executive remuneration, is set
out on pages 66 to 83 of this Annual Report. A resolution to approve the remuneration report will be
proposed at the forthcoming AGM.
The Remuneration Committee presently comprises: Sir Rob Margetts (chairman), David Challen and
Chris Fay, all of whom are independent non-executive directors, and Sir Mark Moody-Stuart.
Safety & Sustainable Development Committee (S&SD)
The S&SD Committee is responsible for developing framework policies and guidelines for the management
of sustainable development issues, including safety, health and environment matters, and ensuring their
progressive implementation throughout the Group.
The S&SD Committee normally meets three or four times each year, including a visit to an operation, and all
directors and business unit heads are invited to attend Committee meetings. Each business unit head makes
a safety and sustainable development presentation to the Committee. A separate 2006 Report to Society
will be published in April. This report focuses on the safety, sustainable development, health and
environmental performance of the Group’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: Chris Fay (chairman), Ralph Alexander, Bobby Godsell, Sir Mark
Moody-Stuart, Bill Nairn, Tony Redman, Tony Trahar and Mamphela Ramphele.
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 and its
committees and the balance between executive and non-executive directors. The Nomination Committee
meets as and when required and engages external consultants to identify appropriate candidates, following
a transparent procedure designed to ensure that new appointments comply with the principles laid out in the
Combined Code. During the year, the Committee managed the selection and appointment of Cynthia Carroll
as the Group’s new chief executive, and of Mamphela Ramphele as a new independent non-executive director.
The selection of candidates for appointment to the Board is based on merit, experience and a series of
objective criteria set by the Committee at the inception of the process.
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.
The Nomination Committee presently comprises: Fred Phaswana (chairman), Sir Rob Margetts, Sir Mark
Moody-Stuart, Nicky Oppenheimer, Karel Van Miert, Mamphela Ramphele and Peter Woicke. In accordance
with the provisions of the Combined Code, the majority of members and the chairman of the Committee are
independent non-executive directors.
Audit Committee
The primary role of the Audit Committee is to ensure the integrity of fi nancial reporting and the audit
process, and that a sound risk management and system of internal control is maintained. In pursuing these
objectives, the Audit Committee oversees relations with the external auditors and reviews the effectiveness
of the internal audit function including their annual plan. The Committee also monitors developments in
corporate governance to ensure the Group continues to apply high and appropriate standards.
In fulfi lling its responsibility of monitoring the integrity of fi nancial reports to shareholders, the Audit
Committee has reviewed accounting principles, policies and practices adopted in the preparation of public
fi nancial 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 fi nancial statements was reviewed by the Audit Committee, as was the basis for signifi cant 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.
Anglo American plc Annual Report 2006 | 61
ANGLO AMERICAN plc
ANNUAL REPORT 2006
CORPORATE GOVERNANCE
The chief fi nancial offi cers of all operations have provided confi rmation, on a six monthly basis, that
fi nancial and accounting internal control systems operate satisfactorily. The Committee considered
summaries of the signifi cant risk and control issues arising from these reports. The 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 63.
External audit
Anglo American’s policy on auditors’ independence, which came into effect on 1 January 2003, is consistent
with the ethical standards published by the Auditing Practices Board in December 2004.
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:
the prohibition of selected services; and
• disclosure of the extent and nature of non-audit services;
•
• prior approval by the Audit Committee chairman of non-audit services where the cost of the proposed
assignment is likely to exceed $50,000.
Disclosure entails reporting non-audit services to the Group’s audit committees and inclusion of prescribed
detail, i.e. the breakdown of fees paid to external auditors for audit and non-audit work in the Annual
Reports of listed entities. The policy’s defi nition 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 UK. The standard period for rotation of the audit engagement partner is fi ve 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 external auditors are required to periodically assess, in their professional judgement, whether they
are independent from the Group;
the Audit Committee ensures that the scope of the auditors’ work is suffi cient 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; and
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.
•
•
•
•
The Audit Committee has satisfi ed 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 2006 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 their relationships with 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 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 2006 interim review, the annual audit and the applicable levels of materiality. Based on written reports
submitted, the Committee reviewed, with the external auditors, the fi ndings of their work and confi rmed
that all signifi cant matters had 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 2008. Resolutions to authorise the Board to re-appoint and
determine their remuneration will be proposed at the AGM on 17 April 2007.
62
| Anglo American plc Annual Report 2006
Internal audit
Internal audit functions operated in all of the Group’s principal divisions in the period under review.
Following the completion of an independent peer review of the internal audit function early in 2006 the
Board approved an overall strategy for internal audit which was implemented during the year under review.
The key outcomes were:
With the exclusion of non-managed businesses, notably AngloGold Ashanti, De Beers and select joint
ventures, internal audit has been restructured to form an integrated Group internal audit function to
strengthen internal audit independence.
Internal audit work is prioritised through an integrated, risk based and Group-wide assurance plan aimed
at providing assurance inclusive of the Group and divisional audit committees’ assurance requirements.
Internal audit coverage within the divisions continues to be approved by the relevant divisional audit
committees and each audit committee considers reports on the results of internal audit work performed.
Internal audit has been mandated to own the overall Group assurance plan and to coordinate assurance
provided by other parties which may necessitate additional review and validation of assurances to the
Board.
The revised internal audit arrangements will ensure comprehensive assurance coverage of key business
risks by all service providers, including internal audit. The new audit arrangements give internal auditors
signifi cantly enhanced prospects through improved career development opportunities, pooling of knowledge
and dissemination of best practice.
The internal audit activities are performed either by teams of appropriate, qualifi ed and experienced
employees, or through the engagement of external practitioners upon specifi ed and agreed terms.
Assurance regarding the accuracy and reliability of mineral resources and ore reserves disclosures is
provided through a combination of internal technically profi cient staff and independent third parties.
A summary of audit results and risk-management information was presented to the Committee at regular
intervals throughout the year.
The Group’s internal audit arrangements are independently reviewed every three years.
Composition
The Audit Committee presently comprises: David Challen (chairman), Chris Fay, Karel Van Miert,
Fred Phaswana and Peter Woicke, all of whom are independent non-executive directors. The Board,
in consultation with the Audit Committee chairman, makes appointments to the Committee. The Board
has determined that the Committee members have the skills and experience necessary to contribute
meaningfully to the Committee’s deliberations. In addition, the chairman has requisite experience in
accounting and fi nancial management.
The Committee met three times during 2006, and on two of those occasions the members held discussions
with the external audit partners and the head of internal audit in the absence of management.
Effectiveness of internal control and risk management
The Executive Board, as mandated by the Board, has established a Group-wide system of internal control
to manage signifi cant 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. Where appropriate, necessary action has been or is being
taken to remedy any failings or weaknesses identifi ed from review of the effectiveness of the internal
control system.
Internal control
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
defi ned 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 specifi c risks such as safety and capital investment and provide assurance to the Board on those
matters. The chief fi nancial offi cers provide confi rmation, on a six monthly basis, that fi nancial 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. A process is in place within the Group to ensure that all
internal audit fi ndings are cleared. The Group’s internal audit function has a formal collaboration process
in place with the external auditors to ensure effi cient 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 plc Annual Report 2006 | 63
ANGLO AMERICAN plc
ANNUAL REPORT 2006
CORPORATE GOVERNANCE
64
| Anglo American plc Annual Report 2006
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, as well as joint ventures, the directors who are represented on these organisations’ boards
seek assurance that signifi cant risks are being managed.
Risk management
The Board’s policy on risk management encompasses all signifi cant business risks to the Group, including,
fi nancial, 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 specifi c circumstances. This fl exible 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 headline risk areas and other
business-specifi c risk areas, provides the basis for regular and exception reporting to business management
and boards, the Executive Board and the Board.
Key headline risk areas have been elaborated upon in the operating and fi nancial review, set out on
page 9 to 55.
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.
In conducting its annual review of the effectiveness of risk management, the Board considers the key
fi ndings 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 profi le 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 satisfi ed 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 signifi cant 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 2006.
Accountability and audit
The Board is required to present a balanced and understandable assessment of Anglo American’s fi nancial
position and prospects. Such assessment is provided in the chairman’s and chief executive’s statements
and the operating and fi nancial review set out on pages 4 to 55 of this Annual Report. The respective
responsibilities of the directors and external auditors are set out on page 86. As referred to in the directors’
report on page 56, the directors have expressed their view that Anglo American’s business is a going concern.
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 confi dential 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, fi nancial 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
• any other legal or ethical concern; and
• concealment of any of the above.
or any similar policy;
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 and its managed operations. The multilingual communication facilities are operated by
independent service providers who remove all indications from information received as to the identity
of the callers before submission to designated persons in the Group.
During 2006, 181 reports were received via the global Speakup facility, covering a broad spectrum of
concerns, including ethical, criminal, supplier relationships, health and safety, and human resource-type
issues. Reports received were kept strictly confi dential and were referred to appropriate line managers
within the Group for resolution. Where appropriate, action was taken to address the issues raised.
Executive management
Executive Board
The Executive Board is 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: Tony Trahar (chairman), Cynthia Carroll, Philip Baum, David
Hathorn, Ralph Havenstein, Russell King, René Médori, Tony Redman and Simon Thompson. Cynthia Carroll
will become chairman of the Executive Board on 1 March 2007.
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 fi nancial 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: René Médori (chairman), Simon Thompson, Tony Redman
and Peter Whitcutt.
Relations with shareholders
The Company maintains an active dialogue with its key fi nancial 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 fi nal 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, Australia, the US and Canada to communicate the strategy and
performance of Anglo American. Executive directors as well as key corporate offi cers host such
presentations and meetings. The chairman, senior independent non-executive director and other non-
executive directors are also available to shareholders to discuss any matter they wish to raise. The
Company’s website provides the latest and historical fi nancial 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 on the UK register to receive communications
electronically rather than by mail and, for those unable to attend the meeting, to cast their AGM votes
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.
Anglo American plc Annual Report 2006 | 65
ANGLO AMERICAN plc
ANNUAL REPORT 2006
REMUNERATION REPORT
66
| Anglo American plc Annual Report 2006
Remuneration report
1. Remuneration Committee
This report sets out the Company’s remuneration policy and practice for executive directors. It provides
details of the remuneration and share interests of all executive directors and non-executive directors for the
year ended 31 December 2006.
1.1 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 specifi c remuneration packages for executive directors of the Company, including basic salary,
performance-based short and long term incentives, pensions and other benefi ts; 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 (www.
angloamerican.co.uk) and copies are available on request. The Committee met six times during 2006.
1.2 Membership of the Committee
The Committee comprised the following non-executive directors during the year ended 31 December 2006:
• Sir Rob Margetts (chairman);
• David Challen;
• Chris Fay;
• Sir Mark Moody-Stuart (from 1 December 2006); and
• Fred Phaswana (until 1 November 2006).
The Company’s chief executive attends the Committee meetings by invitation and assists the Committee in
its considerations, except when issues relating to his own compensation are discussed. No directors are
involved in deciding their own remuneration. In 2006, the Committee was advised by Russell King and Chris
Corrin (Group Human Resources) and the Company’s Finance function. It also took external advice from:
Advisers
Services provided to the Committee
Other services provided to the Company
Monks Partnership
(a subsidiary of
PricewaterhouseCoopers LLP)
PricewaterhouseCoopers LLP
Appointed by the Company, with the
agreement of the Committee, to provide
market remuneration data
Appointed by the Company, with the
agreement of the Committee, to provide
specialist valuation services
Linklaters
Hewitt Bacon and Woodrow LLP
Mercer Human Resource
Consulting Limited
Deloitte & Touche LLP
Appointed by the Company, with the
agreement of the Committee, to provide
legal advice on long term incentives and
directors’ service contracts
Appointed by the Company, with the
agreement of the Committee, to advise
on the pension arrangements of current
and prospective executive directors
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 the Committee has followed
are in line with the stated policy as set
out below and that the Committee has
operated within its Terms of Reference
Investment advisers, actuaries and
auditors for various pension schemes;
advisors on internal audit projects and
the adoption of International Financial
Reporting Standards; taxation, payroll
and executive compensation advice
Legal advice on certain corporate matters
Investment advisers and actuaries for
various pension schemes
Investment advisers and actuaries for
various pension schemes
In their capacity as Group auditors,
Deloitte undertakes an audit of sections
10 and 11 of the remuneration report
annually. However, no advice is provided
to the Committee
Certain overseas operations within the Group are also provided with audit and non-audit related services
from PricewaterhouseCoopers’ LLP and Mercer’s worldwide member fi rms.
A summary of the letter from Mercer containing the conclusions of their review of the Committee’s
executive remuneration processes for 2006 can be found on page 84, while the full letter can be found
on the Company’s website.
2. Remuneration policy on executive directors’ remuneration
The Company’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
continue to apply for 2007 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 suffi ciently 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
fi nancial 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.
3. Elements of executive director remuneration
3.1 Remuneration mix
Each executive director’s total remuneration consists of salary, annual bonus, long term incentives and
benefi ts. An appropriate balance is maintained between fi xed and performance-related remuneration and
between elements linked to short term fi nancial 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 2006, 69% of the chief
executive’s remuneration on an expected-value basis was performance-related; for the other executive
directors, on average, the fi gure was 64% (see illustrative charts).
The Bonus Share Plan (BSP) and the Long Term Incentive Plan (LTIP) are designed to align the longer term
interests of shareholders and executives and to underpin the Company’s performance culture. The
Committee monitors the relevance and appropriateness of the performance measures and targets applicable
to both plans. Further details of the BSP and of the LTIP are set out below and on page 68.
3.2 Basic salary
The basic salary of the executive directors is reviewed annually and is targeted at the market median of
companies of comparable size, market sector, business complexity and international scope. This is adjusted
either way based on experience and other relevant factors. The market for executives of main board calibre,
in large international resource companies in particular, is currently very competitive and it is therefore
deemed sensible to position basic salary for executive directors at no lower than the median point.
Company performance, individual performance and changes in responsibilities are also taken into
consideration in setting salary levels each year.
3.3 Bonus Share Plan (BSP)
The BSP was fi rst operated in 2004 and all executive directors are normally eligible to participate in it.
The BSP requires executive directors to invest a signifi cant proportion of their remuneration in shares,
thereby more closely aligning their interest 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;
• Bonus Shares as a conditional award to a value equal to the cash element; and
• an additional performance-related element in the form of Enhancement Shares.
CEO – expected values
34%
31%
35%
(cid:129) Fixed
(cid:129) Performance-related
annual bonus
(cid:129) Performance-related
long term incentives
Average other executive directors
– expected values
34%
36%
30%
(cid:129) Fixed
(cid:129) Performance-related
annual bonus
(cid:129) Performance-related
long term incentives
Anglo American plc Annual Report 2006 | 67
ANGLO AMERICAN plc
ANNUAL REPORT 2006
REMUNERATION REPORT
VESTING OF ENHANCEMENT SHARES
d
e
r
i
u
q
c
a
s
e
r
a
h
S
s
u
n
o
B
f
o
e
g
a
t
n
e
c
r
e
p
l
a
n
o
i
t
i
d
d
A
75%
33%
0%
RPI
+0%
RPI
+3%
RPI
+9%
RPI
+9%
RPI
+12%
RPI
+15%
RPI
+18%
Real EPS growth over three years
68
| Anglo American plc Annual Report 2006
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
which include measures of corporate (and, where applicable, business unit) performance as well as
the achievement of specifi c individual objectives. For executive directors, the corporate element is
based on stretching Earnings Per Share (EPS) targets which are calculated using underlying earnings
(reconciled in note 11 of the fi nancial statements). The key individual objectives are designed to
support the Company’s strategic priorities and in 2006 included safety improvement, strategy
implementation, production growth, people management, succession planning, cost reduction and
operational effi ciencies;
the Committee reviews these measures annually to ensure they remain appropriate and suffi ciently
stretching in the context of the economic and performance expectations for the Company and its
operating businesses;
in 2006, 60% of each annual bonus was based on the corporate or business measure and the remaining
40% on key personal performance measures. The level of bonuses payable is 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 payable in cash. The
maximum cash element has been 90% of basic salary in the case of the chief executive and 75% of
basic salary for the other executive directors (from 2007, the maximum cash element for the new chief
executive will be 75% as outlined on page 74). The maximum bonus would only be paid for meeting
targets which, in the opinion of the Committee, represent an exceptional performance for the Group.
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 regarded by the Committee as a ‘good leaver’); and
in order to encourage continuing focus on medium term performance, executive directors also receive
a conditional award of 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 68% of basic salary). Awards of
Enhancement Shares made in 2006 will vest after three years only to the extent that a challenging
performance condition (real EPS growth, based on earnings per share growth against growth in the UK
Retail Price Index (RPI)) is met (see illustrative chart).
Real EPS growth is viewed as the most appropriate performance measure for this element of the BSP
because it is a fundamental fi nancial performance indicator, both internally and externally, and links directly
to the Company’s long term objective of improving earnings. The targets have been approved by the
Committee after reviewing 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.
3.4 Share options and all-employee share schemes
No share options were granted to executive directors under the Company’s Executive Share Option Scheme
(ESOS) in 2006 and there is no intention to make future grants under the ESOS to executive directors.
However, the ESOS is retained for use in special circumstances relating to the recruitment or retention of
key executives.
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 offered to all UK employees, performance conditions
do not apply to them.
3.5 Long Term Incentive Plan (LTIP)
Grant levels
Conditional LTIP awards are made annually to executive directors. The maximum grant level under the LTIP
is 200% of basic salary. It is anticipated that in 2007, grants under the LTIP will be made at 175% of basic
salary for all the executive directors, including the new chief executive. The Committee is content that the
performance conditions that need to be satisfi ed for these awards to vest in full are suffi ciently stretching in
the context of the award levels. In determining annual award levels, the Committee also gives consideration
to market competitiveness and has set the levels taking account of median expected value of long term
incentives relative to other companies of a similar size. These awards are discretionary and considered on
a case-by-case basis.
Performance measures
As in previous years, vesting of the LTIP awards made during 2006 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 fi xed three-year period.
Half of each award is subject to a Group TSR measure while the other half is subject to a Group ROCE
measure. These performance measures were selected on the basis that they clearly foster the creation
of shareholder value and their appropriateness is kept under review by the Committee. 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 return and fi nancial performance and by encouraging executives to build up a shareholding
in the Company.
Total shareholder return (TSR)
The Committee considers comparative TSR to be a suitable long term performance measure for the
Company’s LTIP awards. Executives would benefi t only if shareholders have enjoyed returns on their
investment which are superior to those that could have been obtained in other comparable companies.
For awards made from 2005 onwards, the portion of each award that is based on TSR is measured 50%
against the Sector Index and 50% against the constituents of the FTSE 100. Maximum vesting on the TSR
element of an award will only be possible if Anglo American outperforms by a substantial margin both the
sector benchmark (as described below) and the largest UK companies across all sectors. Maximum vesting
of the whole LTIP award, would, in addition, depend on the Company’s performance exceeding demanding
ROCE targets (also as described below). Taken as a whole, vesting depends on a very challenging set of
performance hurdles.
Sector Index comparison
One half of the TSR element of an LTIP award vests according to the Company’s TSR over the performance
period, relative to a weighted basket of international natural resource companies (the Sector Index). Up until
the end of 2006, the Sector Index comprised three categories: the fi rst consisted of six international
diversifi ed mining companies, the second of four international paper and packaging companies, and the third
of four international industrial minerals companies. From the start of 2007 the paper and packaging element
will no longer be part of the Index because of the imminent demerger of the Group’s paper and packaging
division. The Committee may amend the list of comparator companies in the Sector Index, and relative
weightings, if circumstances make this necessary (for example, as a result of takeovers or mergers of
comparator companies). In calculating TSR it is assumed that all dividends are reinvested.
For awards made in 2006, the companies constituting the Sector Index were as follows (up until
31 December 2006. After this date the percentage attributable to Paper and Packaging will fall to zero):
Category weighting
Comparator companies
Mining
78%
BHP Billiton plc
CVRD
Rio Tinto plc
Teck Cominco
Vedanta Resources plc
Xstrata plc
Paper and Packaging
Industrial Minerals
13%
Sappi Limited
SCA
Stora Enso Oyj
UPM-Kymmene Group
9%
CRH plc
Hanson plc
Holcim Limited
Lafarge
Target performance for the Sector Index is assessed by calculating the median TSR performance within each
sub-sector category, and then weighting these medians by the category weightings shown above.
Shares contingent upon the Sector Index element of the TSR performance will vest as follows:
The Company’s relative TSR compared to the Sector Index
% Proportion of TSR element vesting
Below Target
Target (matching the weighted median of the Sector Index)
Target plus 5% per annum
Target plus 7.5% per annum (or above)
0
20
50
75
Shares will vest on a straight-line basis for performance between the levels shown in the table above.
Anglo American plc Annual Report 2006 | 69
FTSE 100 Comparison
The vesting of the other half of the TSR element of an LTIP award will depend on the Company’s TSR
performance over the performance period compared with the constituents of the FTSE 100 Index, as follows:
The Company’s relative TSR compared to the FTSE 100
% Proportion of TSR element vesting
Below the median TSR of the FTSE 100
Equal to the median TSR of the FTSE 100
Equal to the 90th percentile TSR of the FTSE 100
Above the 90th percentile TSR of the FTSE 100
0
20
50
75
Shares will vest on a straight-line basis for performance between the levels shown in the table above.
The targets above were calibrated such that for the TSR element of the award there is approximately a 10%
chance of achieving full vesting and a 25% chance of two-thirds vesting. These probabilities were assessed
by PricewaterhouseCoopers LLP using the same Monte Carlo model used for calculating fair values of the
LTIP under IFRS 2 Share-based payments. The estimated average fair value of an award under the TSR
element is 48% of the value of shares awarded.
Graphs showing the Company’s TSR performance against the weighted average of the Sector Index and
against the FTSE 100 for the fi ve years from 1 January 2002 to 31 December 2006 can be found on
page 73.
Return on capital employed
Group ROCE is the second performance measure for LTIP grants. The Committee 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. Unless certain minimum targets
for improvement in returns (on both capital employed for the fi nancial year preceding the start of the
performance period (existing capital employed) and on the additional capital employed during the
performance period (incremental capital employed)), no shares will vest under this performance measure.
The maximum ROCE targets are based on stretching levels of return on the existing capital employed.
The ROCE targets for each element conditionally awarded in 2006 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
Existing capital employed Incremental capital employed
21.3%
23.3%
10%
10%
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
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.
ANGLO AMERICAN plc
ANNUAL REPORT 2006
REMUNERATION REPORT
70
| Anglo American plc Annual Report 2006
3.6 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:
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;
• share options granted under the former ESOS may be exercised irrespective of whether the applicable
•
• Bonus Shares awarded under the BSP will be released, but Enhancement Shares awarded under the BSP
will vest on change of control, to the extent that the performance condition has been met at the time of
the change of control;
• 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 Matching
Shares may be forfeited in some circumstances).
In the event that a director’s employment is terminated, vesting of outstanding share options under the
former ESOS 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 such 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.
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 voluntarily 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.
3.7 Employee Share Ownership Trust and policy on provision of shares for incentive schemes
The Group established an Employee Share Ownership Trust (the Trust) in 1999 to acquire and hold shares
to facilitate the operation of the Company’s share schemes. As at 31 December 2006, the trust held
19,856,385 ordinary shares in the Company, registered in the name of Greenwood Nominees Limited.
Shares held by the trust are not voted at the Company’s general meetings. It is the Company’s current
policy and practice not to use newly issued shares to meet the requirements of share incentives. Such
shares are provided from the Trust or from Treasury or by market purchase.
3.8 Pensions
Pension and life insurance benefi ts for executive directors refl ect practice in the countries in which they
perform their principal duties. Details of individual pension arrangements are set out on pages 79 and 80.
During the year, in the light of the new UK pensions regime which applied from 6 April 2006, the
Committee decided that it would consider requests from executive directors that their contracts be altered
for future service, so that further pension benefi ts are reduced or cease to accrue and that a pension
allowance be paid having the same value as the defi ned contribution benefi ts forgone.
Similarly, the Committee decided that it would consider requests from executive directors (as is the case
for employees more generally) that their contracts be altered for future service, so that supplementary
pension contributions are made into their defi ned contribution pension arrangements, in return for
equivalent value reductions in their future basic salary and/or the cash element of the BSP.
3.9 Other benefi ts
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/fi nancial advice and reimbursement of reasonable business expenses. The
provision of these benefi ts is considered to be market-competitive in the appropriate locality for executive
director positions.
Anglo American plc Annual Report 2006 | 71
ANGLO AMERICAN plc
ANNUAL REPORT 2006
REMUNERATION REPORT
4. Executive shareholding targets
Within fi ve 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 Committee takes into consideration achievement against these targets when making grants under the
Company’s various long term incentive plans.
At 31 December 2006, all executive directors with more than one year’s service on the Board had met or
exceeded their shareholding targets.
5. External appointments
Executive directors are not permitted to hold external directorships or offi ces without the approval of the
Board; if approved, they may each retain the fees payable from one such appointment. During the year
ended 31 December 2006, René Médori retained fees from one such appointment, amounting to £47,000.
6. 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:
•
•
•
suffi cient 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 fl exibility to forgo all or part of such fees to acquire 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 BSP, share option schemes, LTIP 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 (SID).
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 Bobby 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.
7. Chairman’s fees
The chairman’s fees are reviewed periodically (on a different cycle from the review of non-executive
directors’ fees). A recommendation is then made to the Board (in the absence of the chairman) by the
Committee and chief executive, who take external advice on market comparators.
8. Directors’ service contracts
Cynthia Carroll and Simon Thompson are employed by Anglo American Services (UK) Limited; Tony Trahar
and David Hathorn have contracts with Anglo American International (IOM) Limited and with Anglo
Operations Limited and René Médori is employed by Anglo American International (IOM) Limited. It is
the Company’s policy that the period of notice for executive directors will not exceed 12 months and the
employment contracts of all executive directors except that of Cynthia Carroll are terminable at 12 months’
notice by either party. As part of Cynthia Carroll’s terms upon joining the Company, her initial notice period
will be 24 months, which will reduce to 12 months after the initial 12 month period.
Executive directors(1)
Cynthia Carroll (chief executive from 1 March 2007)
Tony Trahar (chief executive to 1 March 2007)(2)
David Hathorn(3)
René Médori (fi nance director)
Simon Thompson
Date of appointment
Next AGM re-election
or election
15 January 2007
18 March 1999
20 April 2005
01 June 2005
20 April 2005
April 2007
n/a
April 2008
April 2008
April 2008
(1) At each annual general meeting (AGM) all those directors who have been in offi ce for three years or more since their election or last re-election shall retire from
offi ce. Details of those retiring by rotation this year are contained in the notice of AGM.
(2) Tony Trahar has indicated his intention to resign from the Board with effect from the AGM to be held on 17 April 2007.
(3) David Hathorn will cease to be a director when Mondi, of which he is Chief Executive Offi cer, is demerged from the Company anticipated for later this year.
72
| Anglo American plc Annual Report 2006
The contracts of executive directors do not provide for any enhanced payments in the event of a change
of control of the Company, or for liquidated damages.
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 reappointment at the AGM. In addition to his letter of
appointment with the Company, Bobby Godsell has a service contract with AngloGold Ashanti Limited,
an independently managed associate 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)
Ralph Alexander
Date of appointment
16 July 2002
20 April 2005
David Challen (chairman, Audit Committee)
09 September 2002
Chris Fay (chairman, S&SD Committee)
Bobby Godsell
Sir Rob Margetts (SID and chairman, Remuneration
Committee)
19 April 1999
18 March 1999
18 March 1999
Next AGM re-election
or election
April 2009
April 2008
April 2009
April 2007
April 2008
April 2007
Maria Silvia Bastos Marques (resigned 20 April 2006)
09 December 2003
n/a
Nicky Oppenheimer
Fred Phaswana (chairman, Nomination Committee)
Mamphela Ramphele
Karel Van Miert
Peter Woicke
18 March 1999
12 June 2002
20 April 2006
19 March 2002
01 January 2006
April 2007
April 2009
April 2009
April 2008
April 2009
(1) At each annual general meeting (AGM) all those directors who have been in offi ce for three years or more since their election or last re-election shall retire from
offi ce. Details of those retiring by rotation this year are contained in the Notice of AGM.
(2) There is no fi xed 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 director from offi ce. The Company’s articles of association also permit the directors, under certain
circumstances, to remove a director from offi ce.
9. Historical comparative TSR performance graphs
The graphs on this page represent the comparative TSR performance of the Company from 1 January 2002
to 31 December 2006. In drawing these graphs it has been assumed that all dividends paid have been
reinvested.
(cid:48)(cid:37)(cid:50)(cid:38)(cid:47)(cid:50)(cid:45)(cid:33)(cid:46)(cid:35)(cid:37)(cid:0)(cid:39)(cid:50)(cid:33)(cid:48)(cid:40)(cid:51)
(cid:129)(cid:0) (cid:33)(cid:78)(cid:71)(cid:76)(cid:79)(cid:0)(cid:33)(cid:77)(cid:69)(cid:82)(cid:73)(cid:67)(cid:65)(cid:78)
(cid:129)(cid:0) (cid:38)(cid:52)(cid:51)(cid:37)(cid:0)(cid:17)(cid:16)(cid:16)(cid:0)(cid:41)(cid:78)(cid:68)(cid:69)(cid:88)
(cid:19)(cid:16)(cid:16)
The fi rst graph shows the Company’s performance against the performance of the FTSE 100 Index, chosen
as being a broad equity market index comprising companies of a comparable size and complexity to Anglo
American. 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 conditionally awarded in
2004. This graph gives an indication of how Anglo American is performing against the targets in place for
LTIP interests already granted, although the specifi cs of the comparator companies for each year’s interests
may vary to refl ect changes such as mergers and acquisitions amongst the Company’s competitors or
changes to the Company’s business mix.
In accordance with the LTIP rules, 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.
(cid:18)(cid:21)(cid:16)
(cid:18)(cid:16)(cid:16)
(cid:17)(cid:21)(cid:16)
(cid:17)(cid:16)(cid:16)
(cid:21)(cid:16)
(cid:18)(cid:16)(cid:16)(cid:18)
(cid:18)(cid:16)(cid:16)(cid:19)
(cid:18)(cid:16)(cid:16)(cid:20)
(cid:18)(cid:16)(cid:16)(cid:21)
(cid:18)(cid:16)(cid:16)(cid:22)
(cid:48)(cid:37)(cid:50)(cid:38)(cid:47)(cid:50)(cid:45)(cid:33)(cid:46)(cid:35)(cid:37)(cid:0)(cid:39)(cid:50)(cid:33)(cid:48)(cid:40)(cid:51)
(cid:129)(cid:0) (cid:33)(cid:78)(cid:71)(cid:76)(cid:79)(cid:0)(cid:33)(cid:77)(cid:69)(cid:82)(cid:73)(cid:67)(cid:65)(cid:78)
(cid:129)(cid:0) (cid:44)(cid:52)(cid:41)(cid:48)(cid:0)(cid:67)(cid:79)(cid:77)(cid:80)(cid:65)(cid:82)(cid:65)(cid:84)(cid:79)(cid:82)
(cid:21)(cid:16)(cid:16)
(cid:20)(cid:21)(cid:16)
(cid:20)(cid:16)(cid:16)
(cid:19)(cid:21)(cid:16)
(cid:19)(cid:16)(cid:16)
(cid:18)(cid:21)(cid:16)
(cid:18)(cid:16)(cid:16)
(cid:17)(cid:21)(cid:16)
(cid:17)(cid:16)(cid:16)
(cid:21)(cid:16)
2002
2003
2004
2005
2006
Anglo American plc Annual Report 2006 | 73
10. Remuneration outcomes during 2006
The information set out in this section and section 11 has been subject to audit.
10.1 Directors’ emoluments
The following tables set out an analysis of the pre-tax remuneration during the years ended 31 December
2006 and 2005, including bonuses but excluding pensions, for individual directors who held offi ce in the
Company during the year ended 31 December 2006.
Executive directors
Plus:
Basic salary
sacrifi ced
into Pension
Scheme(5)
Annual
performance
bonus – cash
element(5)
Total
basic salary
Basic salary
as paid
Benefi ts
in kind(6)
Total
Executive directors(1)(2)(3)(4)
2006
£000
2005
£000
2006
£000
2005
£000
2006
£000
2005
£000
2006
£000
2005
£000
2006
£000
2005
£000
2006
£000
2005
£000
Tony Trahar
David Hathorn
René Médori
Simon Thompson
786
520
485
495
855
335
303
335
239
95 1,025
–
75
25
–
–
–
520
560
520
950
335
303
335
830
277
370
316
627
216
164
213
112
54 1,967 1,631
50
25
34
17
13
17
847
568
955 480
870
565
(1) Subsequent to their retirement from the Board in 2001, Leslie Boyd and Mike King continue to hold non-executive directorships with certain listed subsidiaries of
the Group. They received fees of £36,000 (2005: £26,000) and £22,000 (2005: £17,000) respectively, for the provision of these services during the year.
(2) Subsequent to his retirement from the Board in 2004, Bill Nairn has provided consultancy services to Anglo American. He received £120,000 (2005: £130,000)
for the provision of these services during the year.
(3) Subsequent to his retirement from the Board in 2005, Barry Davison provided consultancy services to Anglo American, receiving £192,000 for the provision of
these services during the year. He also continued to hold non-executive directorships with certain listed subsidiaries of the Group. He received fees of £53,000
for the provision of these services during the year.
(4) Subsequent to his retirement from the Board in 2005, Tony Lea remained an employee until 24 March 2006 receiving total remuneration (including benefi ts and
pension contributions) of £597,000 (2005: £969,000). Thereafter (until 31 December 2006) he provided consultancy services to the Group, receiving
£441,000 for the provision of these services.
(5) Their employing companies have contractually agreed with the executive directors that supplementary pension contributions be made into their pension
arrangements in return for equivalent-value reductions in their base salaries and/or in the cash elements payable under the BSP.
(6) Each director receives a car allowance and a limited amount of personal taxation / fi nancial advice. All directors receive death and disability benefi ts and also
receive medical insurance. Tony Trahar and Simon Thompson also receive club membership.
Cynthia Carroll remuneration
As of 1 March 2007, Cynthia Carroll will be appointed as chief executive offi cer of the Company. She joined
the Board as an executive director with effect from 15 January 2007. Below is a summary of her
remuneration package.
Salary
Basic salary of £900,000 per annum.
Bonus Share Plan participation
The 2007 bonus will be a maximum of 150% of basic salary per annum, half paid in cash and half invested
in restricted shares (as discussed on page 67).
Long Term Incentive Plan participation
The grant level for the 2007 award will be made at 175% of basic salary.
Benefi ts
Normal executive director benefi ts including defi ned contribution pension (contribution rate 30%), car
allowance, medical and life insurance.
Buy out arrangements
Anglo American will compensate Cynthia Carroll for incentives forfeited at Alcan. This will be paid in a
combination of an initial cash payment of £400,000 and forfeitable share awards realisable over three
years to a value of £3,306,000.
ANGLO AMERICAN plc
ANNUAL REPORT 2006
REMUNERATION REPORT
74
| Anglo American plc Annual Report 2006
Non-executive directors
The fees and other emoluments paid to non-executive directors during the year ended 31 December 2006
amounted to £1,807,000 (2005: £1,683,000).
Non-executive directors(1)
Sir Mark Moody-Stuart
Ralph Alexander
(appointed 20 April 2005)
David Challen
Chris Fay
Bobby Godsell(2)(3)
Sir Rob Margetts
Maria Silvia Bastos Marques
(resigned 20 April 2006)
Nicky Oppenheimer(2)
Fred Phaswana(2)
Mamphela Ramphele
(appointed 20 April 2006)
Karel Van Miert
Peter Woicke (appointed 1 January 2006)
Fees
2005
£000
360
39
67
67
58
77
55
58
66
–
55
–
Other emoluments
2006
£000
2005
£000
–
–
–
–
–
–
–
–
698
747
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2006
£000
360
65
80
80
70
93
21
70
95
45
65
65
Total
2005
£000
360
39
67
67
805
77
55
58
66
–
55
–
2006
£000
360
65
80
80
768
93
21
70
95
45
65
65
(1) Each non-executive director, with the exception of Sir Mark Moody-Stuart, is paid a fee of £65,000 (2005: £55,000) per annum, and those non-executive
directors who act as chairmen of the Audit Committee, Safety and Sustainable Development Committee and Remuneration Committee are paid an additional sum
of £15,000 (2005: £12,000) per annum. The chairman of the Nomination Committee is paid an additional sum of £7,500 (2005: £6,000) per annum. Sir Rob
Margetts received additional fees of £13,000 (2005: £10,000) in his capacity as senior independent director.
(2) Bobby Godsell, Nicky Oppenheimer and Fred Phaswana received fees for their services as non-executive directors of Anglo American South Africa Limited
amounting to £5,000 (2005: £3,000), £5,000 (2005: £3,000) and £10,000 (2005: £5,000) respectively, which are included in the above table.
Fred Phaswana is the non-executive chairman of Anglo American South Africa Limited and of Anglo Platinum and received fees amounting to £12,000.
(3) Under Bobby Godsell’s service contract with AngloGold Ashanti, his basic salary was equivalent to £491,000 per annum (2005: £500,000) and he was
awarded a performance bonus equivalent to £192,000 (2005: £173,000). Bobby Godsell is also entitled to the provision of car allowance, medical insurance
and death and disability insurance. The total value of these benefi ts was equivalent to £15,000 (2005: £16,000).
10.2 Bonus Share Plan
10.2.1 Anglo American plc
Number of
Bonus Shares
conditionally
awarded
during 2006
Number of
Enhancement
Shares
conditionally
awarded
during 2006
Total
interest
at 31
December
2006
Market
price at
date of
2006
award
£
Date of
vesting of
Bonus Shares
awarded
during 2006
End date of
performance
period for
Enhancement
Shares awarded
during 2006
Total interest
at 1 January
2006
167,867
29,041
21,780
218,688
21.59
1/1/2009 31/12/2008
Bonus Share
Plan interests
Tony Trahar
David Hathorn
39,957
10,004
René Médori
–
8,724
Simon Thompson
52,525
11,352
7,503
6,542
8,513
57,464
15,266
21.59
1/1/2009 31/12/2008
21.59
1/1/2009 31/12/2008
72,390
21.59
1/1/2009 31/12/2008
10.2.2 AngloGold Ashanti
Bonus Share Plan interests(1)
Bobby Godsell
Number
of Shares
conditionally
awarded
during
2006(2)
Total
interest at
1 January
2006
Total
interest
at 31
December
2006
Market price
at date of
2006 award
rand
Date of
vesting of
2006 award
of Shares
10,135
6,140
16,275
308.00
8/3/2009
(1) The AngloGold Ashanti BSP was approved by shareholders in 2005, and replaces the previously granted performance related options. No BSP interests vested
during 2006.
(2) The value of the bonus under the AngloGold Ashanti BSP is calculated as a percentage of annual salary up to a maximum of 120%, of which 50% was paid in
cash and 50% by the granting of restricted shares. The market price of the shares at the date of award of Bonus Share options in 2006 was R308.00, being the
closing price of an AngloGold Ashanti share on the JSE on the day prior to the date of grant.
Anglo American plc Annual Report 2006 | 75
ANGLO AMERICAN plc
ANNUAL REPORT 2006
REMUNERATION REPORT
76
| Anglo American plc Annual Report 2006
10.3 Long Term Incentive Plan
10.3.1 Anglo American plc
Conditional awards of shares made to executive directors under the LTIP are shown below:
Total
benefi cial
interest in
LTIP at 1
January 2006
Number
of shares
conditionally
awarded
during 2006
Number
of shares
vested
during 2006
Number
of shares
lapsed
during 2006
Total
benefi cial
interest in
LTIP at 31
December
2006
Latest
performance
period
end date
336,141
98,938
(51,702)
(51,702)
331,675 31/12/2008
114,141
43,919
(15,750)
(15,750)
126,560 31/12/2008
61,993
53,421
–
–
115,414 31/12/2008
LTIP interests(1)(2)
Tony Trahar
David Hathorn
René Médori(3)
Simon Thompson
131,952
50,507
(15,750)
(15,750)
150,959 31/12/2008
(1) The LTIP awards made in 2006 are conditional on two performance conditions as outlined on pages 68 to 70: the fi rst based on the Company’s TSR relative to a
weighted group of international natural resource companies and to the constituents of the FTSE 100, and the second based on an underlying operating measure
which focuses on raising the Company’s ROCE in the medium term. Further details on the structure of the LTIP, the required level of performance for the 2006
award and how performance against targets is measured can be found on pages 68 to 70. The market price of the shares at the date of award was £20.72.
(2) The performance period applicable to each award is three years. The performance period relating to the 2003 LTIP awards (which were granted on 11 April 2003)
ended on 31 December 2005. Vesting was subject to two performance conditions: the fi rst 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.
Shares vested
Tony Trahar
David Hathorn
Simon Thompson
Number
of shares
vested
Date of
conditional
award
Market price
at date of
award £
Market price
at date of
vesting £
Money value
at date of
vesting £
51,702 11/4/2003
15,750 11/4/2003
15,750 11/4/2003
9.40
9.40
9.40
25.49 1,317,884
25.49
25.49
401,468
401,468
In the case of the LTIP awards granted in 2003, the determinants for vesting were 50% on relative TSR and 50% on meeting specifi ed Group 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 fi nal performance year are adjusted for movements in commodity prices,
certain foreign exchange rate effects (e.g. translation windfalls), capital in progress (to refl ect 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. signifi cant 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 performance period for the 2003 LTIP was 18.8% and the upper blended target
20.3%. The ROCE achieved was 21.1% and the outcome on this element of the LTIP was thus 100%. On the TSR measure, Anglo American achieved a TSR over
the three year performance period of 129% which generated a nil vesting in terms of the 2003 Comparator Group. The overall vesting level for those directors
with a 50% Group ROCE, 50% TSR split was therefore 50%.
(3) In addition to the LTIP award disclosed above, René Médori was in June 2005 granted 50,600 forfeitable shares, of which 30,360 were released to him on
1 May 2006 and 20,240 will be released to him on 1 May 2007. These awards are conditional on his continued employment in the Group and are in partial
compensation for long term incentives forgone at his previous employer. The market price of the shares at the date of this award was £13.34.
Benefi cial
interest in
forfeitable
shares at
1 January
2006
50,600
Number of
forfeitable
shares
awarded
during 2006
Number of
forfeitable
shares
vested
during 2006
Number of
forfeitable
shares
lapsed
during 2006
Total
benefi cial
interest in
forfeitable
shares at 31
December
2006
Latest
performance
period end
date
–
(30,360)
–
20,240
30/4/2007
Number
of shares
vested
Date of
conditional
award
Market price
at date of
award £
Market price
at date of
vesting £
Money value
at date of
vesting £
30,360
2/6/2005
13.34
23.74
720,746
Interests
René Médori
Shares vested
René Médori
(4) During the year, 16,104, 25,266, and 13,476 shares vested to Barry Davison, Tony Lea and Bill Nairn respectively under the 2003 LTIP with a money value at
date of vesting of £410,491, £644,030 and £343,503 respectively. The market price at dates of award and vesting are as disclosed in footnote 2 above.
10.3.2 AngloGold Ashanti Limited
Conditional awards of shares made to directors under the AngloGold Ashanti LTIP are shown below:
LTIP interests(1)(2)
Bobby Godsell
Total
benefi cial
interest
in LTIP at
1 January
2006
Number
of shares
conditionally
awarded
during
2006(3)
Number
of shares
vested
during 2006
Number
of shares
lapsed
during 2006
Total
benefi cial
interest in
LTIP at 31
December
2006
Latest
performance
period end
date
30,400
23,250
–
–
53,650
31/7/2009
(1) The AngloGold Ashanti LTIP was approved by shareholders in 2005, and replaces the previously granted performance related options. No LTIP interests vested
during 2006.
(2) The AngloGold Ashanti LTIP awards made in 2006 are conditional on the extent to which the following performance conditions are met:
– 40% of the awards will vest if AngloGold Ashanti’s TSR is superior to the TSR achieved by a group of gold-producing companies including; Barrick, Newmont,
Gold Fields and Harmony;
– 30% of share options will vest dependent on real growth in EPS over the performance period; and
– 30% of share options will vest dependent on the achievement of a number of strategic targets determined by the AngloGold Ashanti Remuneration Committee.
(3) The market price of an AngloGold Ashanti share at date of award was R327.00, being the closing price on the JSE on the day prior to the date of grant.
10.4 Directors’ share options
10.4.1 Anglo American plc
No executive share options have been granted to directors since 2003.
Roll-over
options(1)(2)
Benefi cial
holding at
1 January
2006
Granted
Exercised
Lapsed
Benefi cial
holding at
31
December
2006
Weighted
average
option price
£
Earliest date
from which
exercisable
Latest
expiry date
Tony Trahar
5,000
–
(5,000)
–
–
n/a
n/a
n/a
Anglo
American
options(2)(3)
Benefi cial
holding at
1 January
2006(4)
Tony Trahar
235,553
David
Hathorn
60,000
Granted(5)
Exercised
Lapsed
–
–
(230,000)
(60,000)
René Médori
–
951
–
Simon
Thompson
60,000
–
(60,000)
Benefi cial
holding at
31
December
2006
Weighted
average
option price
£
Earliest date
from which
exercisable
Latest expiry
date
5,553
6.53
1/7/2007 28/2/2013
–
951
–
17.97
1/9/2013 28/2/2014
–
–
–
–
–
(1) Tony Trahar was 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 options.
(2) Share options in respect of shares, the market price for which as at 31 December 2006 is equal to, or exceeds, the option exercise price. As at 31 December
2006, 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 the Company’s EPS (calculated in accordance with IAS 33 Earnings per share, 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 fi rst 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) Benefi cial holdings include SAYE options held by Tony Trahar, of 3,792 and 1,761 options, with option prices of £4.85 and £10.15 respectively. There are no
performance conditions attached to these options.
(5) Benefi cial holdings include SAYE options held by René Médori of 951 options with an option price of £17.97. There are no performance conditions attached to
these options.
Details of the share options exercised by the executive directors in 2006 are as follows:
Roll-over options
Tony Trahar
Anglo American options
Tony Trahar
David Hathorn
Simon Thompson
Number
exercised
Option price
rand
Market price
at date of
exercise rand
Gain rand
5,000
51.25
234.54
916,450
Number
exercised
115,000
115,000
60,000
60,000
Option
price £
Market price
at date of
exercise £
Gain £
9.28
9.28
9.28
9.28
21.51
1,406,450
22.75
1,549,050
23.67
23.65
863,400
862,200
The highest and lowest mid-market prices of the Company’s shares during the period 1 January 2006 to
31 December 2006 were £25.49 and £18.45 respectively. The mid-market price of the Company’s shares
at 29 December 2006 was £24.91.
Anglo American plc Annual Report 2006 | 77
10.4.2 AngloGold Ashanti Limited
Bobby Godsell has share options in AngloGold Ashanti; details of these share options are as follows:
AngloGold
Ashanti options(1)
Options
held at 1
January
2006(2)
Granted
Exercised Lapsed
Holding at
31 December
2006
Weighted
average
option
price rand
Earliest date
from which
exercisable
Latest
expiry date
Bobby Godsell
199,200
–
(9,200)
–
190,000
143.32 16/2/2000 13/10/2015
(1) The 2002, 2003 and 2004 options are subject to performance conditions, requiring at least a 7.5% real increase in EPS for 2002 options and 6% for 2003 and
2004 options, year-on-year for three consecutive years. The previous existing options vest over a fi ve-year period from the date of grant with no attached
performance criteria.
(2) Share options in respect of shares whose market price as at 29 December 2006 is equal to, or exceeds, the option exercise price.
Details of the share options exercised by Bobby Godsell in 2006 are as follows:
AngloGold Ashanti options
Bobby Godsell
Number
exercised
Option
price rand
Market price
at date of
exercise rand
Gain rand
9,200
104.00
343.62
2,204,504
The highest and lowest mid-market prices of AngloGold Ashanti’s shares during the period 1 January 2006
to 31 December 2006 were R387.00 and R247.00 per share respectively. The mid-market price of an
AngloGold Ashanti share at 29 December 2006 was R329.99.
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 and of AngloGold Ashanti, which are
open to inspection.
10.5 Deferred Bonus Plan and Share Incentive Plan
In 2003 and earlier years, under the Deferred Bonus Plan (DBP) executive directors were required to defer
50% of their annual bonus 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 have been made to directors under the DBP since 2003. The fi nal awards
made under the DBP vested during 2006.
The directors held interests in deferred bonus matching shares during the year as follows:
Deferred bonus share matching interests
Tony Trahar
David Hathorn
Simon Thompson
Total interest
at 1 January
2006
Number
of Shares
vested
during
2006(1)
Number
of shares
lapsed
during 2006
Total
interest
at 31
December
2006
Latest
vesting
period end
date
32,219
(32,219)
7,802
8,498
(7,802)
(8,498)
–
–
–
–
–
–
n/a
n/a
n/a
(1) During the year 5,267, 12,803 and shares vested to Barry Davison and Tony Lea under the 2003 DBP awards as follows:
Number of shares vested
Barry Davison
Tony Lea
Number of
shares vested
Date of
conditional award
Market price at
date of award
Market price at
date of vesting
Money value at
date of vesting
2,637
2,630
28/3/2003
28/3/2003
12,803
28/3/2003
£9.28
R117.95
£9.28
£20.40
R221.34
£20.40
£53,795
R582,124
£261,181
ANGLO AMERICAN plc
ANNUAL REPORT 2006
REMUNERATION REPORT
78
| Anglo American plc Annual Report 2006
Details of the deferred bonus matching shares vested in 2006 are as follows:
Number of shares vested
Number of
shares vested
Date of
conditional award
Market price at
date of award
Market price at
date of vesting
Money value at
date of vesting
Tony Trahar
22,572
28/3/2003
David Hathorn
Simon Thompson
9,647
2,540
5,262
8,498
28/3/2003
28/3/2003
28/3/2003
28/3/2003
£9.28
R117.95
£9.28
R117.95
£9.28
£20.40
£460,469
R221.34
R2,135,267
£20.40
£51,816
R221.34
R1,164,691
£20.40
£173,359
Tony Trahar purchased 67 shares under the Share Incentive Plan (SIP) scheme during the year in addition to
the 377 shares held by him at the beginning of the year. René Médori purchased 38 shares under the SIP
scheme during the year. Simon Thompson purchased 67 shares under the SIP scheme during the year, in
addition to the 240 shares held by him at 1 January 2006. 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 on these matching shares.
10.6 Pensions
10.6.1 Directors’ pension arrangements
Tony Trahar participated in defi ned contribution pension arrangements in terms of his contract with Anglo
American International (IOM) Limited, for services to be rendered outside South Africa. In 2006, normal
contributions were payable at the rate of 35% of the basic salary payable under this contract. He also
participated in the Anglo American Corporation Pension Fund (the Fund) in respect of his South African
contract, whereby he accrues an annual pension at the rate of 2.2% of pensionable salary (as defi ned in
the rules of that scheme) for each year of pensionable service. This scheme provides spouse’s benefi ts of
two-thirds of the member’s pension on the death of a member. It does not have provision for guaranteed
pension increases.
David Hathorn participated in defi ned contribution pension arrangements in terms of his contract with Anglo
American International (IOM) Limited, for services to be rendered outside South Africa. In 2006, normal
contributions were payable at the rate of 30% of the basic salary payable under this contract. He also
participated in the Fund in respect of his South African contract, on the same terms as above.
René Médori participated in defi ned contribution pension arrangements in terms of his contract with Anglo
American International (IOM) Limited. In 2006, normal contributions were payable on his behalf at the rate
of 30% of the basic salary payable under this contract.
Simon Thompson participated in defi ned contribution pension arrangements in terms of his contract with
Anglo American Services (UK) Limited. In 2006, contributions were payable on his behalf at the rate of
30% of the basic salary payable under this contract.
No pension costs were incurred in respect of the non-executive directors, with the exception of Bobby
Godsell, who continued to be a member of the AngloGold Ashanti Pension Fund (a defi ned benefi t pension
scheme) in his capacity as chief executive of that company.
10.6.2 Defi ned contribution pension schemes
The amounts paid into defi ned contribution pension schemes by the Group in respect of the individual
directors were as follows:
Directors
Tony Trahar(1)(2)
David Hathorn(2)
René Médori(1)
Simon Thompson(1)(3)
Normal contributions(4)
2006
£000
354
143
168
156
(1) Tony Trahar, René Médori and Simon Thompson have contractually agreed with their employing companies that supplementary pension contributions should be
made into their defi ned contribution pension arrangements in return for, reductions in their future basic salaries and/or reductions in the cash element awarded
under the BSP for performance in 2005. These supplementary contributions, of £866,000 (2005: £95,000), £145,000 (2005: £nil) and £242,000 (2005:
£nil) respectively, are included in the directors’ emoluments table on page 74.
(2) In addition to the contributions set out above, special pension contributions were made in 2006 in respect of the pension benefi ts of Tony Trahar and of David
Hathorn of £1,870,000 and £873,000 respectively. These special contributions were calculated by independent actuaries as being the amount necessary to
replace pension benefi ts forgone by Tony Trahar and David Hathorn in respect of their fi nal salary pension arrangements.
(3) Simon Thompson had accrued notional benefi ts in a UK unapproved unfunded retirement benefi t arrangement in respect of UK service prior to 6 April 2006.
Following the changes in legislation relating to pensions in the UK applicable from that date, his benefi ts accrued under this arrangement were paid by his employer
into his personal pension arrangements. Accordingly, in addition to the contributions set out above, a special pension contribution of £603,000 was made in 2006.
(4) Total contributions in 2005 amounted to £6,162,000 and further details are included in the 2005 Remuneration Report.
Anglo American plc Annual Report 2006 | 79
ANGLO AMERICAN plc
ANNUAL REPORT 2006
REMUNERATION REPORT
10.6.3 Defi ned benefi t pension schemes
Tony Trahar and David Hathorn are eligible for membership of the Anglo American Corporation Pension Fund
(the Fund) in respect of their South African remuneration. The Fund is a funded fi nal salary occupational
pension scheme approved by the Financial Services Board and the Commissioner of Inland Revenue in South
Africa. Bobby Godsell participates in the AngloGold Ashanti Pension Fund.
Additional benefi t
earned/(expended)
(excluding infl ation)
during the year
ended 31 December
2006
£000
Accrued
entitlement
as at
31 December
2006
£000
Transfer value
of accrued
benefi ts as at
31 December
2006
Transfer value
of accrued
benefi ts as at
31 December
2005
Increase/
(decrease)
transfer value
in the year less
any personal
contributions(1)
(36)
(40)
22
11
329
131
958
660
(631)
(531)
4
269
3,338
3,757
(409)
Executive directors
Tony Trahar
David Hathorn
Non-executive directors
Bobby Godsell(2)
(1) The transfer value, less any personal contributions, of the increase/(decrease) in additional benefi ts earned/(expended) during 2006 amounted for Tony Trahar,
David Hathorn and Bobby Godsell to £20,000, £9,000 and £30,000 respectively.
(2) In his capacity as Chief Executive of AngloGold Ashanti, Bobby 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.
10.6.4 Excess retirement benefi ts
No person who served as a director of the Company during or before 2006 has been paid or received
retirement benefi ts in excess of the retirement benefi ts to which he was entitled on the date on which
benefi ts fi rst became payable (or 31 March 1997, whichever is later).
11. 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/she 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 2006.
80
| Anglo American plc Annual Report 2006
12. Directors’ share interests
The interests of directors who held offi ce during the period 1 January 2006 to 31 December 2006 in
Ordinary Shares (Shares) of the Company and its subsidiaries were as follows:
Shares in Anglo American plc
As at 31 December 2006 (or, if earlier, date of resignation)
Directors
Tony Trahar
David Hathorn
René Médori(2)
Benefi cial
Conditional
Deferred
bonus share
match
SIP(1)
BSP
Bonus
Shares
BSP
Enhancement
Shares
LTIP
40,291
297
– 331,675 124,965
93,723
17,851
38
–
38
– 126,560 32,837
24,627
– 115,414
8,724
6,542 20,240
Other
–
–
Simon Thompson
78,655
297
– 150,959 41,366
31,024
Sir Mark Moody-Stuart(3)
24,167
Ralph Alexander
David Challen
Chris Fay
Bobby Godsell
Sir Rob Margetts(4)
784
2,000
7,503
92
12,346
Maria Silvia Bastos
Marques(5)
1,258
Nicky Oppenheimer(6) 42,126,048
Fred Phaswana
Mamphela Ramphele(5)
Karel Van Miert
Peter Woicke(5)
13,920
102
500
1,484
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Non-
benefi cial(7)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
As at 1 January 2006 (or, if later, date of appointment)
Benefi cial
Conditional
Deferred
bonus share
match
SIP(1)
BSP
Bonus
Shares
BSP
Enhancement
Shares
LTIP
Other
Non-
benefi cial(7)
51,227
377
32,219 336,141 95,924
71,943
– 367,778
23,431
–
–
–
7,802 114,141 22,833
17,124
–
–
61,993
–
– 50,600
Directors
Tony Trahar
David Hathorn
René Médori(2)
Simon Thompson
62,828
240
8,498 131,952 30,014
22,511
Sir Mark Moody-Stuart(3)
22,081
Ralph Alexander
David Challen
Chris Fay
Bobby Godsell
Sir Rob Margetts(4)
284
2,000
7,348
92
10,815
Maria Silvia Bastos
Marques(5)
Nicky Oppenheimer(6)
Fred Phaswana
Mamphela Ramphele(5)
Karel Van Miert
Peter Woicke(5)
752
59,126,045
11,514
–
500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 367,778
–
–
–
–
– 367,778
–
–
–
–
–
–
–
–
Anglo American plc Annual Report 2006 | 81
ANGLO AMERICAN plc
ANNUAL REPORT 2006
REMUNERATION REPORT
The following changes in the above interests occurred between 1 January 2007 and the date of this report:
Shares in Anglo American plc
As at 1 January 2007
Non-
benefi cial(7)
Directors
Tony Trahar
David Hathorn
René Médori(2)
Benefi cial
Conditional
Deferred
bonus share
match
SIP(1)
BSP
Bonus
Shares
BSP
Enhancement
Shares
LTIP
40,291
297
– 331,675 124,965
93,723
17,851
38
–
38
– 126,560 32,837
24,627
– 115,414
8,724
6,542 20,240
Other
–
–
Simon Thompson
78,655
297
– 150,959 41,366
31,024
Sir Mark Moody-Stuart(3)
24,167
Ralph Alexander
David Challen
Chris Fay
Bobby Godsell
Sir Rob Margetts(4)
784
2,000
7,503
92
12,346
Nicky Oppenheimer(6) 42,126,048
Fred Phaswana
Mamphela Ramphele(5)
Karel Van Miert
Peter Woicke(5)
13,920
102
500
1,484
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Benefi cial
Conditional
As at 20 February 2007
Non-
benefi cial(7)
Directors
Cynthia Carroll(5)
Tony Trahar
David Hathorn
René Médori(2)
Deferred
bonus share
match
SIP(1)
–
–
–
LTIP
–
BSP
Bonus
Shares
BSP
Enhancement
Shares
Other
–
–
40,321
287
– 331,675 124,965
93,723
17,851
48
–
48
– 126,560 32,837
24,627
– 115,414
8,724
6,542 20,240
–
–
–
Simon Thompson
78,685
287
– 150,959 41,366
31,024
Sir Mark Moody-Stuart(3)
24,603
Ralph Alexander
David Challen
Chris Fay
Bobby Godsell
Sir Rob Margetts(4)
900
2,000
7,503
92
12,678
Nicky Oppenheimer(6) 42,126,048
Fred Phaswana
Mamphela Ramphele(5)
Karel Van Miert
Peter Woicke(5)
14,443
303
500
1,950
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
82
| Anglo American plc Annual Report 2006
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1) Benefi cially held SIP matching shares “released” after 3 years are disclosed in the benefi cial interest total.
(2) René Médori received 50,600 forfeitable shares not included in any share plans upon joining Anglo American plc, 30,360 were released to him on 1 May 2006;
the remaining 20,240 will be released in May 2007, conditional upon his continued employment in the Group.
(3) Sir Mark Moody-Stuart’s benefi cial interest includes 12,500 Shares arising as a result of his interest in a family trust.
(4) Sir Rob Margetts’ benefi cial interest arises as a result of his wife’s interest in these Shares.
(5) Peter Woicke was appointed on 1 January 2006. Mamphela Ramphele was appointed and Maria Silvia Bastos Marques resigned on 25 April 2006. Cynthia Carroll
was appointed on 15 January 2007. Their interests are included up to or after that date as appropriate.
(6) Nicky Oppenheimer’s benefi cial interest in 42,126,048 of these Shares arises as a result of his interest in a discretionary trust which is treated as interested in
32,250,206 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. On 10 November 2006, E Oppenheimer & Son Holdings Limited disposed of 17,000,000 Shares by means of an off-market sale in London and
accordingly Nicky Oppenheimer’s interest was reduced by that amount. The 6,870,745 Shares referred to above are Shares held by Debswana Diamond Company
(Pty) Limited, in which Nicky 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.
(7) Bobby Godsell and Nicky Oppenheimer were deemed to be interested in The Ernest Oppenheimer Memorial Trust’s holding of 367,778 shares of virtue of being
Trustees and Tony Trahar was also deemed to be interested by virtue of his wife being a Trustee. Their interest ended upon the resignation of the Trustees on
15 March 2006. None of them is a benefi ciary of the Trust.
Shares in subsidiaries of Anglo American plc
AngloGold Ashanti Limited
Bobby Godsell
As at 1 January 2006
As at 31 December 2006
Benefi cial
Non-
benefi cial
Benefi cial
Non-
benefi cial
9,177
–
13,010
–
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
Sir Rob Margetts
20 February 2007
Anglo American plc Annual Report 2006 | 83
ANGLO AMERICAN plc
ANNUAL REPORT 2006
REMUNERATION COMMITTEE
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 fi nancial year 2006. 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 processes followed by the Committee during 2006
were 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 and pro-active approach to its work.
We note the Committee has refi ned its modus operandi each year taking into account any comments we
have made in our reviews.
In addition, the Committee has taken steps to improve its processes refl ecting areas for improvement
highlighted in the Evaluation of the Committee undertaken with input from external advisors.
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 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.
Belinda Hudson
Principal
Mercer Human Resource Consulting Limited
Tower Place
London EC3R 5BU
13 February 2007
84
| Anglo American plc Annual Report 2006
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
Statement of directors’ responsibilities
The directors are responsible for preparing the Annual Report and the fi nancial statements in accordance
with applicable law and regulations.
Company law requires the directors to prepare fi nancial statements for each fi nancial year. The directors
are required by the IAS Regulation to prepare the Group fi nancial statements under International Financial
Reporting Standards (IFRS) as adopted by the European Union. The Group fi nancial statements are also
required by law to be properly prepared in accordance with the Companies Act 1985 and Article 4 of the
IAS Regulation.
International Accounting Standard 1 requires that IFRS fi nancial statements present fairly for each fi nancial
year the Company’s fi nancial position, fi nancial performance and cash fl ows. This requires the faithful
representation of the effects of transactions, other events and conditions in accordance with the defi nitions
and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting
Standards Board’s ‘Framework for the preparation and presentation of fi nancial statements’. In virtually all
circumstances, a fair presentation will be achieved by compliance with all applicable IFRS. However,
directors are also required to:
comparable and understandable information; and
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides relevant, reliable,
• provide additional disclosures when compliance with the specifi c requirements in IFRS are insuffi cient
to enable users to understand the impact of particular transactions, other events and conditions on the
entity’s fi nancial position and fi nancial performance.
The directors have elected to prepare the parent company fi nancial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable
law). The parent company fi nancial statements are required by law to give a true and fair view of the state
of affairs of the Company. In preparing these fi nancial 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 UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the fi nancial statements.
The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy
at any time the fi nancial position of the Company and enable them to ensure that the parent company
fi nancial statements comply with the Companies Act 1985. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
Anglo American plc Annual Report 2006 | 85
We read the other information contained in the Annual Report as
described in the contents section and consider whether it is consistent
with the audited Financial statements. We 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 International Standards
on Auditing (UK and Ireland) 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 Remuneration report to be audited. It also includes an
assessment of the signifi cant estimates and judgements made by the
directors in the preparation of the Financial statements, and of whether
the accounting policies are appropriate to the Group’s and Company’s
circumstances, 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 suffi cient evidence to give reasonable assurance that the
Financial statements and the part of the Remuneration report to be
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 Remuneration report to be audited.
Opinion
In our opinion:
•
•
•
•
•
the Group fi nancial statements give a true and fair view,
in accordance with IFRSs as adopted by the European Union,
of the state of the Group’s affairs as at 31 December 2006
and of its profi t for the year then ended;
the Group fi nancial statements have been properly prepared in
accordance with the Companies Act 1985 and Article 4 of the
IAS Regulation;
the Company fi nancial statements give a true and fair view, in
accordance with United Kingdom Generally Accepted Accounting
Practice, of the state of the Company’s affairs as at 31 December
2006;
the Company fi nancial statements and the part of the Remuneration
report to be audited have been properly prepared in accordance
with the Companies Act 1985; and
the information given in the directors’ report is consistent with
the Financial statements.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
London
20 February 2007
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Independent auditors’ report to the
members of Anglo American plc
We have audited the Group and Company fi nancial statements
(the Financial statements) of Anglo American plc for the year ended
31 December 2006 which comprise the Consolidated income
statement, the Consolidated balance sheet, the Consolidated cash
fl ow statement, the Consolidated statement of recognised income
and expense, the Reconciliation from EBITDA to cash infl ows from
operations, the Accounting policies, the related notes 2 to 39, the
Company Balance Sheet and the related notes. These Financial
statements have been prepared under the accounting policies set out
therein. We have also audited the information in the Remuneration
report that is described as having been audited.
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
The directors’ responsibilities for preparing the Annual Report and
the Group fi nancial statements in accordance with applicable law
and International Financial Reporting Standards (IFRSs) as adopted
by the European Union, and for preparing the Company fi nancial
statements and the Remuneration report in accordance with applicable
law and United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice) are set out in the Statement
of directors’ responsibilities.
Our responsibility is to audit the Financial statements and the part
of the Remuneration report to be audited in accordance with relevant
legal and regulatory requirements and International Standards on
Auditing (UK and Ireland).
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 Remuneration report to be audited have been properly
prepared in accordance with the Companies Act 1985 and whether, in
addition, the Group fi nancial statements have been properly prepared
in accordance with Article 4 of the IAS Regulation. We also report
to you whether in our opinion the information given in the directors’
report is consistent with the Financial statements. The information
given in the directors’ report includes that specifi c information
presented in the operating and fi nancial review that is cross referred
from the business review section of the directors’ report.
In addition we report to you if, in our opinion, 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 specifi ed by law regarding directors’ remuneration
and other transactions is not disclosed.
We review whether the corporate governance statement refl ects
the Company’s compliance with the nine provisions of the 2003
Combined Code specifi ed 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.
86
| Anglo American plc Annual Report 2006
Financial statements
Contents
Page
Principal statements
Consolidated income statement
Consolidated balance sheet
Consolidated cash fl ow statement
Consolidated statement of recognised income and expense
Reconciliation from EBITDA to cash infl ows from operations
Notes to fi nancial statements
1 Accounting policies
2 Segmental information
3 Profi t for the fi nancial year
4 Group operating profi t from
subsidiaries and joint ventures
5 Exploration expenditure
6 Employee numbers and costs
7 Special items and remeasurements
8 Net fi nance costs
9 Tax on profi t on ordinary activities
10 Dividends
11 Earnings per share
12 Intangible assets
13 Tangible assets
14 Biological assets
15 Environmental rehabilitation trusts
16 Investments in associates
17 Joint ventures
18 Financial asset investments
19 Inventories
20 Trade and other receivables
21 Trade and other payables
22 Financial assets
23 Financial liabilities
24 Financial instrument risk exposure, risk management
and derivatives
25 Provisions for liabilities and charges
26 Deferred tax
27 Retirement benefi ts
28 Called-up share capital and share-based payments
29 Reconciliation of changes in equity
30 Consolidated cash fl ow analysis
31 Business combinations
32 Disposal of subsidiaries and businesses
33 Disposal groups and non-current assets held for sale
34 Capital commitments
35 Contingent liabilities and contingent assets
36 Operating leases
37 Related party transactions
38 Group companies
39 Events occurring after end of year
40 Financial statements of the parent company
88
89
90
91
91
92
96
98
99
99
99
100
102
102
102
103
103
104
104
104
105
105
105
106
106
106
106
106
108
110
110
111
113
118
119
120
120
122
122
122
122
122
123
124
125
Anglo American plc Annual Report 2006 | 87
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Consolidated income statement
for the year ended 31 December 2006
US$ million
Group revenue
Total operating costs
Note
2
Operating profi t from subsidiaries and joint ventures 2,4
7
Net profi t on disposals
2,16
Share of net income from associates
Total profi t from operations and associates
Investment income
Interest expense
Net fi nance costs
Profi t before tax
Income tax (expense)/income
Profi t for the fi nancial year
Attributable to:
Minority interests
Equity shareholders of the Company
Earnings per share (US$)
Basic
Diluted
Dividends
Proposed ordinary dividend per share (US cents)
Proposed ordinary dividend (US$ million)
Proposed special dividend per share (US cents)
Proposed special dividend (US$ million)
2
8
9
3
11
11
10
10
10
10
Ordinary dividends paid during the year
per share (US cents)
10
Ordinary dividends paid during the year (US$ million) 10
Special dividends paid during the year
per share (US cents)
Special dividends paid during the year (US$ million)
10
10
Before
special items
and
remeasurements
2006
Special
items and
remeasurements
(note 7)
2006
2006
Before
special items
Special
items and
and remeasurements
(note 7)
2005
remeasurements
2005
33,072
(24,330)
–
(868)
33,072
(25,198)
29,434
(24,090)
8,742
–
582
9,324
609
(774)
(165)
9,159
(2,763)
6,396
(868)
1,168
103
403
57
(57)
–
403
123
526
7,874
1,168
685
9,727
666
(831)
(165)
9,562
(2,640)
6,922
5,344
–
696
6,040
498
(926)
(428)
5,612
(1,283)
4,329
–
(487)
(487)
87
(39)
(439)
72
(37)
35
(404)
8
(396)
2005
29,434
(24,577)
4,857
87
657
5,601
570
(963)
(393)
5,208
(1,275)
3,933
925
5,471
(189)
715
736
6,186
593
3,736
(181)
(215)
412
3,521
4.21
4.12
75
1,107
–
–
95
1,391
100
1,448
2.43
2.36
62
903
33
480
79
1,137
–
–
Underlying earnings and underlying earnings per share are set out in note 11.
88
| Anglo American plc Annual Report 2006
Consolidated balance sheet
as at 31 December 2006
US$ million
Intangible assets
Tangible assets
Biological assets
Environmental rehabilitation trusts
Investments in associates
Financial asset investments
Deferred tax assets
Other fi nancial assets (derivatives)
Other non-current assets
Total non-current assets
Inventories
Trade and other receivables
Current tax assets
Current fi nancial asset investments
Other current fi nancial assets (derivatives)
Cash and cash equivalents
Total current assets
Assets classifi ed as held for sale
Total assets
Short term borrowings
Trade and other payables
Short term provisions
Current tax liabilities
Other current fi nancial liabilities (derivatives)
Total current liabilities
Medium and long term borrowings
Retirement benefi t obligations
Other fi nancial liabilities (derivatives)
Deferred tax liabilities
Provisions
Total non-current liabilities
Liabilities directly associated with assets classifi ed as held for sale
Total liabilities
Net assets
Equity
Called-up share capital
Share premium account
Other reserves
Retained earnings
Equity attributable to equity shareholders of the Company
Minority interests
Total equity
The fi nancial statements were approved by the Board of directors on 20 February 2007.
Tony Trahar
Chief executive
René Médori
Finance director
Note
2006
2005
12
13
14
15
16
18
26
24
19
20
18
24
30
33
23
21
25
24
23
27
24
26
25
33
28,29
29
29
29
29
2,134
23,498
324
197
4,780
1,973
372
–
173
33,451
2,974
5,312
225
–
329
3,004
11,844
1,188
46,483
(2,028)
(5,040)
(62)
(1,453)
(216)
(8,799)
(4,220)
(775)
(304)
(3,687)
(1,024)
2,572
30,796
350
288
3,165
899
337
183
153
38,743
3,569
5,174
211
16
747
3,430
13,147
–
51,890
(2,076)
(5,024)
(19)
(1,145)
(1,286)
(9,550)
(6,363)
(1,258)
(508)
(5,201)
(1,432)
(10,010)
(547)
(14,762)
–
(19,356)
(24,312)
27,127
27,578
771
2,713
1,049
19,738
24,271
2,856
27,127
747
1,637
1,330
19,907
23,621
3,957
27,578
Anglo American plc Annual Report 2006 | 89
Note
30a
31
14
32
16
30b
30b
2006
10,057
276
12
(2,035)
8,310
(286)
(11)
(7)
(3,686)
(64)
(40)
(72)
240
1,520
2
40
394
124
80
–
–
(39)
2005
7,265
461
9
(954)
6,781
(298)
(29)
–
(3,306)
(55)
(203)
–
210
419
2
11
370
327
245
1
(69)
(18)
(1,805)
(2,393)
5
71
259
(3,922)
(426)
(383)
(2,888)
197
386
(16)
42
13
73
240
–
(547)
(421)
(1,137)
(1,356)
(632)
–
(19)
(6,675)
(3,786)
(170)
602
3,319
(170)
(169)
2,980
2,781
602
(64)
3,319
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Consolidated cash fl ow statement
for the year ended 31 December 2006
US$ million
Cash infl ows from operations
Dividends from associates
Dividends from fi nancial asset investments
Income tax paid
Net cash infl ows from operating activities
Cash fl ows from investing activities
Acquisition of subsidiaries, net of cash and cash equivalents acquired
Investment in associates
Investment in joint ventures
Purchase of tangible assets
Investment in biological assets
Purchase of fi nancial asset investments
Loans granted to related parties
Interest received and other investment income
Disposal of subsidiaries, net of cash and cash equivalents disposed
Sale of interests in joint ventures
Sale of interests in associates
Repayment of loans and capital from associates
Proceeds from disposal of tangible assets
Proceeds from sale of fi nancial asset investments
Loan repayments from related parties
Utilised in hedge restructure
Other investing activities
Net cash used in investing activities
Cash fl ows from fi nancing activities
Cash infl ow from current fi nancial asset investments
Issue of shares by subsidiaries to minority interests
Sale of treasury shares to employees
Purchase of treasury shares
Interest paid
Dividends paid to minority interests
Dividends paid to Company shareholders
Receipt/(repayment) of short term borrowings
Receipt/(repayment) of medium and long term borrowings
Capital element of fi nance leases
Other fi nancing activities
Net cash used in fi nancing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at start of year
Cash movements in the year
Effects of changes in foreign exchange rates
Cash and cash equivalents at end of year
90
| Anglo American plc Annual Report 2006
Consolidated statement of recognised income and expense
for the year ended 31 December 2006
US$ million
Net gains on revaluation of available for sale investments
Impairment of available for sale investments
Loss on cash fl ow hedges
Loss on cash fl ow hedges – associates
Exchange losses on translation of foreign operations
Actuarial net gains/(losses) on post retirement benefi t schemes
Actuarial net gains/(losses) on post retirement benefi t schemes – associates
Deferred tax
Other movements
Net expense recognised directly in equity
Transferred to income statement: sale of available for sale investments
Transferred to income statement: impairment of available for sale investments
Transferred to income statement: cash fl ow hedges
Transferred to income statement: exchange differences on disposal of foreign operations
Tax on items transferred from equity
Total transferred to/(from) equity
Profi t for the year
Total recognised income and expense for the year
Attributable to:
Minority interests
Equity shareholders of the Company
Reconciliation from EBITDA to cash infl ows from operations
for the year ended 31 December 2006
US$ million
EBITDA(1)
Share of operating profi t of associates before special items and remeasurements
Underlying depreciation and amortisation in associates
Share-based payment charges
Fair value gains before special items and remeasurements
Additional pension contributions
Provisions
Increase in inventories
Increase in operating receivables
Increase in operating payables
Other adjustments
Cash infl ows from operations
(1) EBITDA is operating profi t before special items, remeasurements, depreciation and amortisation in subsidiaries and joint ventures and share of EBITDA of associates:
US$ million
Operating profi t including associates’ operating profi t before special items and remeasurements
Depreciation and amortisation
Subsidiaries and joint ventures
Associates
EBITDA
2006
492
(13)
(502)
(117)
(439)
102
3
60
–
(414)
(27)
13
148
9
(33)
110
2005
31
–
(316)
–
(2,182)
(171)
(24)
140
5
(2,517)
(32)
–
(8)
–
–
(40)
6,922
6,618
3,933
1,376
603
6,015
82
1,294
2006
2005
12,197
(1,090)
(329)
189
(152)
(232)
11
(377)
(625)
470
(5)
10,057
2006
9,832
2,036
329
12,197
8,959
(1,032)
(142)
92
(278)
–
113
(453)
(600)
539
67
7,265
2005
6,376
2,441
142
8,959
Anglo American plc Annual Report 2006 | 91
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Notes to the fi nancial statements
1. Accounting policies
Basis of preparation
The fi nancial statements have been prepared in accordance with International Financial
Reporting Standards (IFRS) and IFRIC interpretations adopted for use by the European
Union and with those parts of the Companies Act 1985 applicable to companies
reporting under IFRS. The fi nancial statements have been prepared under the historical
cost convention as modifi ed by the recording of pension assets and liabilities and the
revaluation of biological assets and certain fi nancial instruments. A summary of the
principal Group accounting policies is set out with an explanation of changes to previous
policies following adoption of new accounting standards and interpretations in the year.
The details of the elections made on conversion to IFRS were set out in the
31 December 2005 Annual Report.
The preparation of fi nancial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the fi nancial statements
and the reported amounts of revenues and expenses during the reporting period.
Although these estimates are based on management’s best knowledge of the
amount, event or actions, actual results ultimately may differ from those estimates.
Details of the Group’s signifi cant accounting policies and critical accounting estimates
are set out in the ‘operating and fi nancial review’ and form part of these fi nancial
statements; these are set out on pages 9 to 55.
Signifi cant areas of management uncertainty include:
• useful economic lives of assets and ore resources estimates;
•
•
•
impairment of assets;
restoration, rehabilitation and environmental costs; and
retirement benefi ts.
Early adoption of standards and changes in accounting policies
The Group has adopted early with effect from 1 January 2006 the following
standards and interpretations as at 31 December 2006:
•
•
•
•
IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting
in Hyperinfl ationary Economies;
IFRIC 8 Scope of IFRS 2;
IFRIC 9 Reassessment of embedded derivatives; and
IFRIC 10 Interim Financial Reporting and Impairment.
These have not had a material impact on the Group and there have not been any
other signifi cant changes in accounting policies in the period.
Basis of consolidation
The fi nancial statements incorporate a consolidation of the fi nancial statements
of the Company and entities controlled by the Company (its subsidiaries) made up
to 31 December each year. Control is achieved where the Company has the power
to govern the fi nancial and operating policies of an investee entity so as to obtain
benefi ts from its activities.
The results of subsidiaries acquired or disposed of during the year are included in
the consolidated income statement from the effective date of acquisition or up to
the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the results of subsidiaries, joint ventures
and associates to bring their accounting policies into line with those used by the
Group. Intra-group transactions, balances, income and expenses are eliminated
on consolidation, where appropriate.
For non-wholly owned subsidiaries, share of the net assets and profi t for the
fi nancial year is attributed to the minority interests as shown on the consolidated
income statement and balance sheet. Any losses applicable to the minority
interests in excess of the total recognised minority interests are allocated against
the interests of the parent until such time as future profi ts have exceeded the losses
previously absorbed.
Associates
Associates are investments over which the Group is in a position to exercise
signifi cant infl uence, but not control or joint control, through participation in the
fi nancial and operating policy decisions of the investee. Typically the Group owns
between 20% and 50% of the voting equity of its associates. Investments in
associates are accounted for using the equity method of accounting except when
classifi ed as held for sale.
92
| Anglo American plc Annual Report 2006
The Group’s share of associates’ net income is based on their most recent audited
fi nancial statements or unaudited interim statements drawn up to the Group’s
balance sheet date.
The total carrying values of investments in associates represent the cost of each
investment including the carrying value of goodwill, the share of post acquisition
retained earnings, any other movements in reserves and any long term debt interests
which in substance form part of the Group’s net investment. The carrying values
of associates are 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 identifi ed.
The Group’s share of an associate’s losses in excess of its interest in that associate
is not recognised unless the Group has an obligation to fund such losses.
Joint venture entities
A joint venture entity is an entity in which the Group holds a long term interest and
shares joint control over the strategic, fi nancial and operating decisions with one or
more other venturers under a contractual arrangement.
The Group’s share of the assets, liabilities, income, expenditure and cash fl ows of
such jointly controlled entities are accounted for using proportionate consolidation.
Proportionate consolidation combines the Group’s share of the results of the joint
venture entity on a line by line basis with similar items in the Group’s fi nancial
statements.
Joint venture operations
The Group has contractual arrangements with other participants to engage in
joint activities other than through a separate entity. The Group includes its assets,
liabilities, expenditure and its share of revenue in such joint venture operations
with similar items in the Group’s fi nancial statements.
Revenue recognition
Revenue is derived principally from the sale of goods and is measured at the fair
value of consideration received or receivable, after deducting discounts, volume
rebates, value added tax and other sales taxes. Sales of concentrate are stated
at their invoiced amount which is net of treatment and refi ning charges. A sale is
recognised when the signifi cant risks and rewards of ownership have passed. This
is usually when title and insurance risk has passed to the customer and the goods
have been delivered to a contractually agreed location.
Revenue from metal mining activities is based on the payable metal sold.
Sales of certain commodities are ‘provisionally priced’ such that the price is not
settled until a predetermined future date based on the market price at that time.
Revenue on these sales is initially recognised (when the above criteria are met) at
the current market price. ‘Provisionally priced’ sales are marked to market at each
reporting date using the forward price for the period equivalent to that outlined in
the contract. This mark to market adjustment is recorded in revenue.
Revenues from the sale of material by-products are included within revenue. Where
a by-product is not regarded as signifi cant, revenue may be credited against the cost
of sales.
Interest income is accrued on a time basis, by reference to the principal outstanding
and at the effective interest rate applicable.
Dividend income from investments is recognised when the shareholders’ rights to
receive payment have been established.
Business combinations and goodwill arising thereon
At the date of acquisition, the identifi able assets, liabilities and contingent liabilities
of a subsidiary, joint venture entity or an associate which can be measured reliably
are recorded at their provisional fair values at the date of acquisition. Any excess of
the cost of acquisition over the fair values of the identifi able net assets acquired is
attributed to goodwill. Provisional fair values are fi nalised within 12 months of the
acquisition date.
Goodwill in respect of subsidiaries and joint ventures is included within intangible
assets. Goodwill relating to associates is included within the carrying value of
the associate.
Where the fair values of the identifi able net assets acquired exceeds the cost of the
acquisition, the surplus, which represents the discount on the acquisition, is credited
to the income statement in the period of acquisition.
For non-wholly owned subsidiaries, minority interests are initially recorded at the
minorities’ proportion of the fair values for the assets and liabilities recognised at
acquisition.
1. Accounting policies continued
Tangible assets
Mining properties and leases include the cost of acquiring and developing mining
properties and mineral rights.
Mining properties are depreciated down to their residual values using the unit
of production method based on proven and probable reserves. Depreciation is
charged on new mining ventures from the date that 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 to the recoverable amount is charged to the income statement.
For open pit operations the removal of overburden or waste ore is required to obtain
access to the orebody. The costs associated with this process (known as stripping)
which are incurred during the production phase are deferred and charged to operating
costs using the expected average stripping ratio over the average life of the area
being mined. The average stripping ratio is calculated as the number of tonnes of
waste material expected to be removed during the life of mine, per tonne of ore
mined. The average life of mine cost per tonne is calculated as the total expected
costs to be incurred to mine the orebody divided by the number of tonnes expected
to be mined. The average life of mine stripping ratio and the average life of mine
cost per tonne is recalculated annually in light of additional knowledge and changes
in estimates. The cost of stripping in any period will therefore be refl ective of the
average stripping rates for the orebody as a whole. Changes in the life of mine
stripping ratio are accounted for prospectively as a change in estimate.
Land and properties in the course of construction are carried at cost, less any recognised
impairment. Depreciation commences when the assets are ready for their intended
use. Buildings and plant and equipment are depreciated down to their residual values
at varying rates, on a straight line basis over their estimated useful lives or the life of
mine, whichever is shorter. Estimated useful lives normally vary from up to 20 years
for items of plant and equipment to a maximum of 50 years for buildings.
Residual values and estimated useful lives are reviewed at least annually.
Assets held under fi nance leases are depreciated over the shorter of the lease term
and the estimated useful lives of the assets.
Any impairment is recognised immediately in the income statement. Impairments
of goodwill are not subsequently reversed.
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 is economically feasible and should be
developed for commercial production, all further directly attributable, pre-production
expenditure is capitalised within tangible assets. Capitalisation of pre-production
expenditure ceases when the mining property is capable of commercial production.
Capitalised pre-production expenditure prior to commercial production is assessed
for impairment in accordance with the Group accounting policy stated above.
Biological assets: afforestation and other agricultural activity
Afforestation and other agricultural assets are measured at their fair values less
estimated selling costs during the period of biological transformation, from initial
recognition up to the point of harvest. The fair values are determined based on
current market prices for the assets in their present location and condition.
Changes in fair value are recognised in the income statement within other gains and
losses for the period between planting and harvest. At point of harvest, the carrying
value of afforestation and other agricultural assets is transferred to inventory.
Directly attributable costs incurred during the period of biological transformation
are capitalised and the associated cash fl ows are presented within ‘cash fl ows from
investing activities’ in the cash fl ow statement.
Inventory
Inventory and work in progress are valued at the lower of cost and net realisable
value. The production cost of inventory 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 fi rst in, fi rst out (FIFO)
basis;
fi nished products are valued at raw material cost, labour cost and a proportion
of manufacturing overhead expenses; and
metal and coal stocks are included within fi nished products and are valued at
average cost.
Non-mining licences and other intangibles
Non-mining licences and other intangibles are measured initially at purchase cost and
are amortised on a straight line basis over their estimated useful lives. Estimated
useful lives vary between three and fi ve years.
At precious metals operations that produce ‘joint products’, cost is allocated
between products according to the ratio of contribution of these metals to gross
sales revenues.
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and
intangible assets to determine whether there is any indication that those assets are
impaired. If any such indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment, if any. Where the asset does not
generate cash fl ows that are independent from other assets, the Group estimates the
recoverable amount of the cash generating unit (CGU) to which the asset belongs.
An intangible asset with an indefi nite useful life is tested for impairment annually and
whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use.
In assessing value in use, the estimated future cash fl ows are discounted to their
present value using a pre-tax discount rate that refl ects current market assessments
of the time value of money and the risks specifi c to the asset for which estimates of
future cash fl ows have not been adjusted.
If the recoverable amount of an asset or CGU is estimated to be less than its carrying
amount, the carrying amount of the asset or CGU is reduced to its recoverable
amount. An impairment is recognised immediately as an expense.
Where an impairment subsequently reverses, the carrying amount of the asset
or CGU is increased to the revised estimate of its recoverable amount, but so that
the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment been recognised for the asset or CGU in prior
years. A reversal of an impairment is recognised as income immediately.
Impairment of goodwill
Goodwill arising on business combinations is allocated to the group of CGU that
are expected to benefi t from the synergies of the combination and represents the
lowest level at which goodwill is monitored by the Group’s Board of directors for
internal management purposes. Details of the CGU to which goodwill is allocated are
provided in note 12. The recoverable amount of the group of CGU to which goodwill
has been allocated is tested for impairment annually on a consistent date during each
fi nancial year, or when such events or changes in circumstances indicate that it may
be impaired.
Retirement benefi ts
The Group operates both defi ned benefi t and defi ned contribution schemes for its
employees as well as post retirement medical plans. For defi ned contribution schemes
the amount charged to the income statement is the contributions paid or payable
during the year.
For defi ned benefi t pension and post retirement medical plans, full actuarial
valuations are carried out every three years using the projected unit credit method
and updates are performed for each fi nancial year end. The average discount rate for
the plans’ liabilities is based on AA rated corporate bonds of a suitable duration and
currency or, where there is no ‘deep market’ for such bonds, based on government
bonds. Pension plans’ assets are measured using period end market values.
Actuarial gains and losses, which can arise from differences between expected and
actual outcomes or changes in actuarial assumptions, are recognised immediately
in the ‘Consolidated statement of recognised income and expense’. Any increase in
the present value of plan liabilities expected to arise from employee service during
the period is charged to operating profi t. The expected return on plan assets and
the expected increase during the period in the present value of plan liabilities are
included in investment income and interest expense.
Past service cost is recognised immediately to the extent that the benefi ts are
already vested and otherwise is amortised on a straight line basis over the average
period until the benefi ts become vested.
The retirement benefi t obligation recognised in the balance sheet represents the
present value of the defi ned benefi t obligation as adjusted for unrecognised past
service costs and as reduced by the fair value of scheme assets. Any asset resulting
from this calculation is limited to past service cost, plus the present value of
available refunds and reductions in future contributions to the plan.
Anglo American plc Annual Report 2006 | 93
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Notes to the fi nancial statements continued
1. Accounting policies continued
Taxation
The tax expense represents the sum of the current tax charge and the movement
in deferred tax.
The tax currently payable is based on taxable profi t for the year. Taxable profi t
differs from net profi t as reported in the income statement because it excludes items
of income or expense that are taxable or deductible in other years and it further
excludes items that are not taxable or deductible. The Group’s liability for current tax
is calculated using tax rates that have been enacted or substantively enacted by the
balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between
the carrying amount of assets and liabilities in the fi nancial statements and the
corresponding tax basis used in the computation of taxable profi t and is accounted
for using the balance sheet liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profi ts will be available
against which deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary differences arise from the initial
recognition of goodwill or an asset or liability in a transaction (other than in a
business combination) that affects neither the tax profi t nor accounting profi t.
Deferred tax liabilities are recognised for taxable temporary differences arising on
investments in subsidiaries, joint ventures, and associates, except where the Group
is able to control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date
and is adjusted to the extent that it is no longer probable that suffi cient taxable profi t
will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period
when the liability is settled or the asset is realised. Deferred tax is charged or
credited in the income statement, except when it relates to items charged or credited
directly to equity, in which case the deferred tax is also taken directly to equity.
Deferred tax assets and liabilities are offset when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its current tax assets
and liabilities on a net basis.
Leases
In addition to lease contracts, other signifi cant contracts are assessed to determine
whether, in substance, they are or contain a lease. This includes assessment of
whether the arrangement is dependent on use of a specifi c asset and right to use
that asset is conveyed through the contract.
Rental costs under operating leases are charged to the income statement in equal
annual amounts over the lease term.
Assets held under fi nance leases are recognised as assets of the Group on inception
of the lease at the lower of fair value or 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 profi t so as to produce a constant
periodic rate of interest on the remaining balance of the liability, unless it is directly
attributable to qualifying assets, in which case it is capitalised in accordance with
the Group’s general policy on borrowing costs (see below).
Non-current assets held for sale and discontinued operations
Non-current assets (and disposal groups) are classifi ed as held for sale if their
carrying amount will be recovered through a sale transaction rather than through
continuing use. This condition is regarded as met only when it is highly probable and
the asset (or disposal group) is available for immediate sale in its present condition.
Management must be committed to the sale which should be expected to qualify for
recognition as a completed sale within one year from the date of classifi cation.
Non-current assets (and disposal groups) are classifi ed as held for sale from the date
these conditions are met and are measured at the lower of carrying amount and fair
value less costs to sell. Any resulting impairment is reported through the income
statement as a special item. On classifi cation as held for sale the assets are no
longer depreciated. Comparative amounts are not adjusted.
Where an asset or business has been sold or is classifi ed as held for sale and is either
a, or part of a, single co-ordinated plan to dispose of either a separate major line of
business or geographical area of operation, or is a subsidiary acquired exclusively
with a view to sale, it is considered to be a ‘discontinued operation’. Once an
operation has been identifi ed as discontinued, its net profi t is separately presented
and comparative information is restated.
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 mining property. Such costs arising from the decommissioning 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 profi ts 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
profi ts as extraction progresses.
Changes in the measurement of a liability relating to the decommissioning of plant
or other site preparation work that result from changes in the estimated timing or
amount of the cash fl ow, or a change in the discount rate, are added to, or deducted
from, the cost of the related asset in the current period. If a decrease in the liability
exceeds the carrying amount of the asset, the excess is recognised immediately in
the income statement. If the asset value is increased and there is an indication that
the revised carrying value is not recoverable, an impairment test is performed in
accordance with the accounting policy above.
For some South African operations annual contributions are made to dedicated
environmental rehabilitation trusts to fund the estimated cost of rehabilitation
during and at the end of the life of the relevant mine. The Group exercises full
control of these trusts and therefore the trusts are consolidated. The trusts’ assets
are recognised separately on the balance sheet as non-current assets at fair value.
Interest earned on funds invested in the environmental rehabilitation trusts are
accrued on a time proportion basis and recognised as interest income.
Foreign currency transactions and translation
Foreign currency transactions by Group companies are booked in their functional
currencies at the exchange rate ruling on the date of transaction. At each balance
sheet date, monetary assets and liabilities that are denominated in foreign currencies
are retranslated at the rates prevailing on the balance sheet date. Gains and losses
arising on retranslation are included in profi t or loss for the period and are classifi ed
as either operating or fi nancing depending on the nature of the monetary item giving
rise to them.
On consolidation, the assets and liabilities of the Group’s overseas operations are
translated into the presentation currency of the Group at exchange rates prevailing
on the balance sheet date. Income and expense items are translated at the average
exchange rates for the period where these approximate the rates at the dates of
transactions. Exchange differences arising, if any, are classifi ed within equity and
transferred to the Group’s currency translation reserve. Exchange differences on
foreign currency loans that form part of the Group’s net investment in these foreign
operations are offset in the currency translation reserve.
Cumulative translation differences are recognised as income or expense in the period
in which the operation they relate to is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity
are treated as assets of the foreign entity and translated at the closing rate.
Borrowing costs
Interest on borrowings directly relating to the fi nancing of qualifying capital projects
under construction is added to the capitalised cost of those projects during the
construction phase, until such time as the assets are substantially ready for their
intended use or sale which, in the case of mining properties, is when they are
capable of commercial production. Where funds have been borrowed specifi cally
to fi nance a project, the amount capitalised represents the actual borrowing costs
incurred. Where the funds used to fi nance a project form part of general borrowings,
the amount capitalised is calculated using a weighted average of rates applicable to
relevant general borrowings of the Group during the period.
All other borrowing costs are recognised in profi t or loss in the period in which they
are incurred.
94
| Anglo American plc Annual Report 2006
1. Accounting policies continued
Share-based payments
The Group has applied the requirements of IFRS 2 Share-based Payment. In accordance
with the transitional provisions, IFRS 2 has been applied to all grants of equity
instruments after 7 November 2002 that had not vested as at 1 January 2005.
Financial liabilities and equity instruments
Financial liabilities and equity instruments are classifi ed and accounted for as debt or
equity according to the substance of the contractual arrangements entered into. An
equity instrument is any contract that evidences a residual interest in the assets of
the Group after deducting all of its liabilities.
The Group makes equity settled share-based payments to certain employees, which
are measured at fair value at the date of grant. For those share schemes, excluding
share options, which do not include non-market vesting conditions, the fair value
is determined using the Monte Carlo method at the grant date and expensed on a
straight line basis over the vesting period, based on the Group’s estimate of shares
that will eventually vest. The fair value of share options issued with non-market
vesting conditions has been calculated using the Black Scholes model. For all other
share awards, the fair value is determined by reference to the market value of the
share at the date of grant. For all share schemes with non-market related vesting
conditions, the likelihood of vesting has been taken into account when determining
the relevant charge. Vesting assumptions are reviewed during each reporting period
to ensure they refl ect current expectations.
Black economic empowerment (BEE) transactions
Where the Group disposes of a portion of a South African based subsidiary or
operation to a BEE Company at a discount to fair value, the transaction is considered
to be a share-based payment (in line with the principle contained in South
Africa interpretation AC 503 Accounting for Black Economic Empowerment (BEE)
Transactions). The discount provided or value given is calculated in accordance with
IFRS 2 and included in the determination of the profi t or loss on disposal.
Employee benefi t trust
The carrying value of shares held by the employee benefi t trust are recorded as
treasury shares, shown as a reduction in retained earnings within shareholders’ equity.
Presentation currency
As permitted by UK company law, the Group results are presented in US dollars,
the currency in which most of its business is conducted.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together
with short term, highly liquid investments that are readily convertible to a known
amount of cash and that are subject to an insignifi cant risk of changes in value.
Bank overdrafts are, however, shown within short term borrowings in current
liabilities on the balance sheet. Cash and cash equivalents in the cash fl ow statement
are shown net of overdrafts.
Trade receivables
Trade receivables do not carry any interest and are stated generally at their nominal
value as reduced by appropriate allowances for estimated irrecoverable amounts.
Such allowances are raised based on an assessment of debtor ageing, past
experience or known customer circumstances.
Trade payables
Trade payables are not interest bearing and are stated at their nominal value.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received,
net of direct issue costs.
Investments
Investments, other than investments in subsidiaries, joint ventures and associates,
are fi nancial asset investments and are initially recorded at fair value. At subsequent
reporting dates, fi nancial assets that the Group has the expressed intention and
ability to hold to maturity (‘held to maturity’) as well as loans and receivables are
measured at amortised cost, less any impairment. The amortisation of any discount
or premium on the acquisition of a held to maturity investment is recognised in the
income statement in each period using the effective interest method.
Investments other than those classifi ed as held to maturity or loans and receivables
are classifi ed as either fair value through profi t or loss (which includes investments
held for trading) or available for sale investments. Both sub-categories are measured
at each reporting date at fair value. Where investments are held for trading purposes,
unrealised gains and losses for the period are included in the income statement
for the period within other gains and losses. For available for sale investments,
unrealised gains and losses are recognised in equity until the investment is disposed
or impaired, at which time the cumulative gain or loss previously recognised in equity
is included in the income statement.
Current fi nancial asset investments consist mainly of bank term deposits and fi xed
and fl oating 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.
Convertible debt
Convertible bonds denominated in the functional currency of the entity issuing the
shares are regarded as compound instruments, consisting of a liability and an equity
component. At the date of issue, the fair value of the liability component is estimated
using the prevailing market interest rate for similar non-convertible debt and is recorded
within borrowings. The difference between the proceeds of issue of the convertible
bond and the fair value assigned to the liability component, representing the embedded
option to convert the liability into equity of the Group, is included in equity.
Where the embedded option is in a convertible bond denominated in a currency other
than the functional currency of the entity issuing the shares, the option is classifi ed
as a liability. The option is marked to market with subsequent gains and losses being
recorded through the income statement within net fi nance costs.
Issue costs are apportioned between the liability and equity components of the
convertible bonds where appropriate based on their relative carrying amounts at
the date of issue. The portion relating to the equity component is charged directly
against equity.
The interest expense on the liability component is calculated by applying the
effective interest rate for similar non-convertible debt to the liability component of the
instrument. The difference between this amount and the interest paid is added to the
carrying amount of the convertible bond.
Bank borrowings
Interest bearing bank loans and overdrafts are recorded at the proceeds received,
net of direct transaction costs. Finance charges, including premiums payable on
settlement or redemption and direct issue costs, are accounted for on an accruals
basis and charged to the income statement using the effective interest method.
They are added to the carrying amount of the instrument to the extent that they
are not settled in the period in which they arise.
Derivative fi nancial instruments and hedge accounting
In order to hedge its exposure to foreign exchange, interest rate and commodity
price risk, the Group enters into forward, option and swap contracts. The Group
does not use derivative fi nancial instruments for speculative purposes. Commodity
based (normal purchase or normal sale) contracts that meet the requirements of
IAS 39 Financial Instruments: Recognition and Measurement are recognised in
earnings when they are settled by physical delivery.
All derivatives are held at fair value in the balance sheet within other fi nancial assets
(derivatives) or other fi nancial liabilities (derivatives), and, when designated as
hedges, are classifi ed as current or non-current depending on the maturity of the
derivative. Derivatives that are not designated as hedges are classifi ed as current,
in accordance with IAS 1 Presentation of Financial Statements, even when their actual
maturity is expected to be greater than one year.
Changes in the fair value of derivative fi nancial instruments that are designated and
effective as hedges of future cash fl ows are recognised directly in equity. The gain
or loss relating to the ineffective portion is recognised immediately in the income
statement. If the cash fl ow hedge of a fi rm commitment or forecast transaction
results in the recognition of a non-fi nancial asset or a liability, then, at the time the
asset or liability is recognised, the associated gains or losses on the derivative that
had previously been recognised in equity are included in the initial measurement
of the asset or liability. For hedges that do not result in the recognition of a non-
fi nancial asset or a liability, amounts deferred in equity are recognised in the income
statement in the same period in which the hedged item affects profi t or loss.
For an effective hedge of an exposure to changes in fair value, the hedged item
is adjusted for changes in fair value attributable to the risk being hedged with the
corresponding entry in profi t or loss. Gains or losses from remeasuring the associated
derivative are recognised in profi t or loss.
The gain or loss on hedging instruments relating to the effective portion of a net
investment hedge is recognised in equity. The ineffective portion is recognised
immediately in the income statement. Gains or losses accumulated in equity are
included in the income statement when the foreign operations are disposed of.
Changes in the fair value of any derivative instruments that are not hedge accounted
are recognised immediately in the income statement and are classifi ed within other
gains and losses or net fi nance costs depending on the type of risk the derivative
relates to.
Anglo American plc Annual Report 2006 | 95
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Notes to the fi nancial statements continued
1. Accounting policies continued
Hedge accounting is discontinued when the hedging instrument expires or is sold,
terminated, exercised, revoked, or no longer qualifi es for hedge accounting. At that
time, any cumulative gain or loss on the hedging instrument recognised in equity is
retained in equity until the forecast transaction occurs. If a hedge transaction is no
longer expected to occur, the net cumulative gain or loss previously recognised in
equity is included in the income statement for the period.
Derivatives embedded in other fi nancial instruments or non-fi nancial host contracts
are treated as separate derivatives when their risks and characteristics are not closely
related to those of their host contracts and the host contracts themselves are not
carried at fair value with unrealised gains or losses reported in the income statement.
Derecognition of fi nancial assets and liabilities
Financial assets are derecognised when the rights to receive cash fl ows from
the asset have expired, the right to receive cash fl ows has been retained but an
obligation to on-pay them in full without material delay has been assumed or the
right to receive cash fl ows has been transferred together with substantially all the
risks and rewards of ownership.
Financial liabilities are derecognised when the associated obligation has been
discharged, cancelled or has expired.
New IFRS accounting standards and interpretations not yet adopted
IFRS 7 Financial Instruments: Disclosures replaces the disclosure requirements of
IAS 32 Financial Instruments: Presentation & Disclosure. This standard incorporates
many of the existing disclosures under IAS 32 as well as additional qualitative and
quantitative disclosures on the risks arising from fi nancial instruments. In addition
amendments to capital disclosures, within IAS 1, forming part of the IFRS 7 IASB
project will result in the disclosure of the Group’s objectives, policies and processes
for managing capital, quantitative data about the Group’s capital and statement of
compliance with capital requirements.
IFRS 8 Operating Segments replaces the segmental reporting requirements of
IAS 14 Segment Reporting. The key change is to align the determination of segments
in the fi nancial statements with that used by management in their resource allocation
decisions. This standard is yet to be adopted for use by the European Union and is
not expected to have signifi cant impact on existing disclosure.
IFRIC 11 Group and Treasury Share Transactions clarifi es that the manner in which an
entity obtains the shares to satisfy its obligations in terms of a share-based payment
transaction does not infl uence the classifi cation of that transaction as equity settled
or cash settled. In addition, where an entity satisfi es a share-based payment by
issue of its parent’s shares (rather than the parent making the share-based payment
directly) the interpretation requires that these be treated as cash settled rather
than equity settled. From the Group perspective this is not expected to have a
material impact.
IFRIC 12 Service Concession Arrangements is designed to provide clarifi cation on
the application of existing IFRS. This is not expected to have a material impact for
the Group.
2. Segmental information
Based on risks and returns the directors consider the primary reporting format is by
business segment and the secondary reporting format is by geographical segment.
The analysis of associates’ revenue by business segment is provided here for
completeness and consistency. The segmental analysis of associates’ net income is
shown below and the Group’s aggregate investment in those associates required by
IAS 14 Segment Reporting, is set out in note 16.
On 20 April 2006 the Group completed the sale of 19.7 million ordinary shares held in
AngloGold Ashanti Limited for cash of $978 million. This, together with the Group’s
non-participation in the issue of ordinary shares throughout the year by AngloGold
Ashanti, diluted the Group’s percentage investment from 50.9% to 41.7%.
As a result of this, the Group is no longer considered to ‘control’ AngloGold Ashanti
and therefore the investment is now refl ected in the Group accounts on an equity
accounted basis. This change in accounting treatment is effective from the date of the
sale and therefore the current year includes AngloGold Ashanti’s 100% consolidated
contribution to profi t for the period 1 January to 20 April 2006 and the appropriate
share of AngloGold Ashanti’s profi t for the period after 20 April 2006 until the year end.
96
| Anglo American plc Annual Report 2006
Primary reporting format – by business segment
US$ million
2006
2005
2006
2005
2006
2005
Segment result
Segment
after special items
revenue(1) and remeasurements(2) and remeasurements
Segment result
before special items
Subsidiaries and
joint ventures
5,766
Platinum
Gold
857
Coal
2,726
Base Metals
6,252
Industrial Minerals
4,274
Ferrous Metals and Industries 5,973
Paper and Packaging
7,224
Exploration
–
Corporate Activities
–
Total subsidiaries and
joint ventures
Revenue and net income
from associates
Platinum
Gold
Diamonds
Coal
Industrial Minerals
Ferrous Metals and Industries
Paper and Packaging
Total associates
Total Group operations
including net income
from associates
Net profi t on disposals
Total profi t from operations
and associates
95
883
3,148
607
17
546
269
5,565
3,646
2,629
2,766
3,647
4,043
6,030
6,673
–
–
2,337
228
607
3,876
334
1,303
466
(132)
(277)
835
332
752
2,337
(142)
482
1,678 3,884
37
1,324
374
(132)
(290)
366
1,308
484
(150)
(261)
835
(50)
753
1,667
350
1,312
401
(150)
(261)
33,072(3) 29,434(3) 8,742
5,344
7,874
4,857
68
15
3,316
583
30
743
283
5,038
40
113
199
185
1
38
6
582
12
–
386
192
3
96
7
696
40
72
337
185
1
44
6
685
12
(2)
257
192
3
189
6
657
38,637 34,472
9,324 6,040
8,559
1,168
5,514
87
9,727
5,601
For information, a segmental analysis of associates’ operating profi t is set out below
to show operating profi t for total Group operations including associates.
US$ million
Total subsidiaries and joint ventures
Associates
Platinum
Gold
Diamonds
Coal
Industrial Minerals
Ferrous Metals and Industries
Paper and Packaging
Total associates
Total Group operations
including operating profi t from associates
Operating profi t
before special items
and remeasurements
Operating profi t
after special items
and remeasurements
2006
2005
2006
2005
8,742
5,344
7,874
4,857
61
239
463
257
2
57
11
1,090
19
–
583
267
4
148
11
1,032
61
133
446
257
2
57
11
967
19
(2)
431
267
4
149
11
879
9,832
6,376
8,841
5,736
(1) By-product revenue credited to Group cost of sales for the year ended 31 December 2006 was $34
million (2005: $76 million) and related principally to AngloGold Ashanti’s contribution as a subsidiary;
AngloGold Ashanti credits sales of uranium, silver and acid to cost of sales in accordance with the Gold
Industry Standard on production cost.
(2) Segment result is defi ned as being segment revenue less segment expense; that is operating profi t and
gains and losses from foreign currency derivatives that have been recycled in the income statement
being cash fl ow hedges of sales and purchases. In addition ‘Share of net income from associates’ is
shown by segment. There are no material inter-segment transfers or transactions that would affect the
segment result. Special items and remeasurements are set out in note 7. Associates’ operating profi t is
reconciled to ‘Share of net income from associates’ as follows:
US$ million
Operating profi t from associates before special items and remeasurements
Operating special items and remeasurements
Operating profi t from associates after special items and remeasurements
Net profi t on disposals
Financing remeasurements
Net fi nance costs (before remeasurements)
Income tax expense (after special items and remeasurements)
Minority interests (after special items and remeasurements)
Share of net income from associates
2006
2005
1,090
(123)
1,032
(153)
967
199
26
(101)
(368)
(38)
685
879
98
7
(51)
(274)
(2)
657
(3) This represents segment revenue; the Group’s share of associates’ revenue fi gures are provided for
additional information.
2. Segmental information continued
The segment result and associates’ operating profi t before special items and
remeasurements, as shown above, is reconciled to ‘Profi t for the fi nancial year’
as follows:
US$ million
Operating profi t, including associates, before special items
and remeasurements
Operating special items and remeasurements
Subsidiaries and joint ventures
Gold
Coal
Base Metals
Industrial Minerals
Ferrous Metals and Industries
Paper and Packaging
Corporate Activities
Associates
Gold
Diamonds
Ferrous Metals and Industries
2006
2005
9,832
6,376
(868)
(370)
(125)
8
(297)
21
(92)
(13)
(123)
(106)
(17)
–
(487)
(382)
1
(11)
(16)
4
(83)
–
(153)
(2)
(152)
1
8,841
5,736
Operating profi t, including associates,
after special items and remeasurements
Net profi t on disposals
Subsidiaries and joint ventures
Associates
Associates’ net fi nance costs
Associates’ fi nancing remeasurements
Associates’ income tax expense
Associates’ tax on special items and remeasurements
Associates’ minority interests
Associates’ minority interests on special items and remeasurements
Total profi t from operations and associates
Net fi nance costs before special items and remeasurements
Financing special items
Financing remeasurements
Profi t before tax
Income tax expense
Profi t for the fi nancial year
1,168
199
(101)
26
(369)
1
(38)
–
9,727
(165)
(4)
4
87
98
(51)
7
(281)
7
(4)
2
5,601
(428)
–
35
9,562 5,208
(2,640) (1,275)
3,933
6,922
Primary segment disclosures for segment assets, liabilities and capital expenditure
are as follows:
US$ million
2006
2005
2006
2005
2006
2005
2006
2005
Segment
assets(1)
Segment
liabilities(2)
Net segment
assets
Capital
expenditure(3)
7,721 7,550
– 7,890
3,646 3,024
4,899 5,358
5,487 5,041
(643)
(532) 7,078
7,018
–
(908)
– 6,982
(784)
(780) 2,862 2,244
(631)
(573) 4,268
4,785
(963) (1,059) 4,524 3,982
(733)
3,529 5,341
4,439
8,113 7,400 (1,094) (1,035) 7,019 6,365
(3)
(902) 2,796
(3)
(2)
(1)
–
1
200
251
27
33,596 41,855 (5,254) (6,102) 28,342 35,753 4,013 3,428
(404)
(204)
(310)
(59)
29
935
196
789
298
402
660
704
–
685
721
331
273
312
376
703
–
(1) Segment assets at 31 December 2006 are operating assets and consist primarily of tangible assets
($23,498 million), intangible assets ($2,134 million), biological assets ($324 million), environmental
rehabilitation trusts ($197 million), inventories ($2,974 million), pension and post retirement healthcare
assets ($110 million) and operating receivables ($4,359 million). Segment assets at 31 December 2005
are operating assets and consist primarily of tangible assets ($30,796 million), intangible assets
($2,572 million), biological assets ($350 million), environmental rehabilitation trusts ($288 million),
inventories ($3,569 million), pension and post retirement healthcare assets ($77 million) and operating
receivables ($4,203 million).
(2) Segment liabilities at 31 December 2006 are operating liabilities and consist primarily of non-interest
bearing current liabilities ($3,732 million), restoration and decommissioning provisions ($747 million)
and provisions for post retirement benefi ts ($775 million). Segment liabilities at 31 December 2005
are operating liabilities and consist primarily of non-interest bearing current liabilities ($3,749 million),
restoration and decommissioning provisions ($1,095 million) and provisions for post retirement benefi ts
($1,258 million).
(3) Capital expenditure refl ects cash payments and accruals in respect of additions to tangible assets and
intangible assets of $3,711 million (2005: $3,377 million) (see notes 13 and 12 respectively) and includes
additions resulting from acquisitions through business combinations of $302 million (2005: $51 million).
Other primary segment items included in the income statement are as follows:
US$ million
2006
2005
2006
2005
2006
2005
Depreciation and
amortisation
(Impairments)/
reversals(1)
Other non-
cash expenses(2)
Platinum
Gold
Coal
Base Metals
Industrial Minerals
Ferrous Metals
and Industries
Paper and Packaging
Exploration
Corporate Activities
444
183
172
338
244
428
538
188
312
248
199
439
–
17
2,036
300
411
–
16
2,441
–
–
(115)
–
(283)
11
(100)
–
(13)
(500)
–
(96)
–
1
(16)
8
(83)
–
–
(186)
72
12
27
127
17
37
21
2
40
355
55
50
14
68
36
56
17
1
41
338
(1) See operating special items in note 7.
(2) Other non-cash expenses include share-based payment charges and charges in respect of environmental
rehabilitation provisions and other provisions.
Secondary reporting format – by geographical segment
The Group’s geographical analysis of revenue, allocated based on the country in
which the customer is located, is as follows. The geographical analysis of the Group’s
attributable revenue from associates is provided for completeness and consistency.
US$ million
Subsidiaries and joint ventures
South Africa
Rest of Africa
Europe
North America
South America
Australia and Asia
Total subsidiaries and joint ventures
Associates
South Africa
Rest of Africa
Europe
North America
South America
Australia and Asia
Total associates
Total Group operations including associates
Revenue
2006
2005
5,788
607
5,280
505
14,640 13,629
2,740
1,723
5,557
33,072 29,434
2,349
2,831
6,857
463
22
1,609
1,898
40
1,533
5,565
169
40
1,500
1,768
29
1,532
5,038
38,637 34,472
4,780 3,165
1,973
915
–
–
– 4,780
3,165
– 1,973
915
The Group’s geographical analysis of segment assets, liabilities and capital
expenditure, allocated based on where assets and liabilities are located, is:
Segment
assets
Segment
liabilities
Net segment
assets
Capital
expenditure
372
337 (3,687) (5,201) (3,315) (4,864)
US$ million
2006
2005
2006
2005
2006
2005
2006
2005
3,004 3,430
–
– 3,004 3,430
329
930
(520) (1,794)
(191)
(864)
2,429 1,258 (3,308) (2,420)
(356)
(339)
–
(879) (1,162)
(339)
(356)
– (6,248) (8,439) (6,248) (8,439)
46,483 51,890 (19,356) (24,312) 27,127 27,578
–
–
732
14,144 18,965
4,142
11,208 10,048
500
South Africa
Rest of Africa
Europe
North America
South America
4,594
Australia and Asia 2,530
5,124
388
3,076
33,596 41,855
(2,056) (2,689) 12,088 16,276
1,935
1,890
(82)
(298)
650
3,844
(1,858)
(1,926) 9,350
8,122
(108)
(646)
(504)
(59)
280
(543) 3,948
(587) 2,026
441
4,581
2,489
75
927
202
301
573
261
658
28
317
274
(5,254)
(6,102) 28,342 35,753
4,013
3,428
Anglo American plc Annual Report 2006 | 97
Platinum
Gold
Coal
Base Metals
Industrial Minerals
Ferrous Metals and
Industries
Paper and Packaging
Exploration
Corporate Activities
Unallocated
Investments in
associates
Financial asset
investments
Deferred tax assets/
(liabilities)
Cash and cash
equivalents
Other fi nancial assets/
(liabilities) – derivatives
Other non-operating
assets/(liabilities)
Other provisions
Borrowings
Net assets
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Notes to the fi nancial statements continued
2. Segmental information continued
Additional geographical analysis by origin is as follows:
US$ million
2006
2005
2006
2005
2006
2005
Operating profi t
before special items
and remeasurements(1) and remeasurements(1)
Operating profi t
after special items
Revenue
Subsidiaries and joint ventures
South Africa
Rest of Africa
Europe
North America
South America
Australia and Asia
Total subsidiaries and
joint ventures
Associates
South Africa
Rest of Africa
Europe
North America
South America
Australia and Asia
Total associates
Total Group operations
including associates
13,123 11,981
1,193
9,748
531
3,873
2,108
717
11,178
386
5,786
1,882
33,072 29,434
3,969
213
844
26
3,423
267
2,651
63
694
27
3,827
16
475
3
1,732 3,390
163
177
2,482
(156)
600
(11)
1,704
238
8,742
5,344
7,874
4,857
1,358
2,365
722
66
647
407
5,565
1,479
2,138
753
–
525
143
5,038
275
383
108
33
212
79
1,090
217
468
47
–
189
111
1,032
238
330
107
2
206
84
967
193
356
30
–
189
111
879
38,637 34,472
9,832
6,376
8,841
5,736
(1) Special items and remeasurements are set out in note 7.
3. Profi t for the fi nancial year
The table below analyses the contribution of each business segment to the Group’s operating profi t including operating profi t from associates for the fi nancial year and
its underlying earnings, which the directors consider to be a useful additional measure of the Group’s performance. A reconciliation from ‘Profi t for the fi nancial year’ to
‘Underlying earnings for the fi nancial year’ is given in note 11. Group operating profi t including operating profi t from associates is reconciled to ‘Profi t for the fi nancial year’
in the table below:
US$ million
Operating
profi t/(loss)
before special
items and
Operating
profi t/(loss)
after special
items and
remeasurements(1) remeasurements
Operating
special
items and
remeasurements(2)
Net
profi t on
disposals(2) remeasurements(2)
Financing
special
items and
By business segment
Platinum
Gold
Diamonds
Coal
Base Metals
Industrial Minerals
Ferrous Metals and Industries
Paper and Packaging
Exploration
Corporate Activities
Total/Underlying earnings
Underlying earnings adjustments
Profi t for the fi nancial year attributable to equity shareholders of the Company
2,398
467
463
864
3,876
336
1,360
477
(132)
(277)
9,832
2,398
(9)
446
739
3,884
39
1,381
385
(132)
(290)
8,841
–
476
17
125
(8)
297
(21)
92
–
13
991
(991)
–
–
–
–
–
–
–
–
–
–
–
1,367
–
–
–
–
–
–
–
–
–
–
–
26
US$ million
Operating
profi t/(loss)
before special
items and
Operating
profi t/(loss)
after special
items and
remeasurements(1) remeasurements
Operating
special
items and
remeasurements(2)
Net
profi t on
disposals(2) remeasurements(2)
Financing
special
items and
By business segment
Platinum
Gold
Diamonds
Coal
Base Metals
Industrial Minerals
Ferrous Metals and Industries
Paper and Packaging
Exploration
Corporate Activities
Total/Underlying earnings
Underlying earnings adjustments
Profi t for the fi nancial year attributable to equity shareholders of the Company
854
332
583
1,019
1,678
370
1,456
495
(150)
(261)
6,376
854
(52)
431
1,020
1,667
354
1,461
412
(150)
(261)
5,736
–
384
152
(1)
11
16
(5)
83
–
–
640
(640)
–
–
–
–
–
–
–
–
–
–
–
185
–
–
–
–
–
–
–
–
–
–
–
42
(1) Operating profi t includes associates’ operating profi t which is reconciled to ‘Share of net income from associates’ in note 2.
(2) Special items and remeasurements are set out in note 7.
Net
interest,
tax and
minority
interests
(1,133)
(289)
(236)
(224)
(1,229)
(70)
(777)
(203)
19
(219)
(4,361)
313
Net
interest,
tax and
minority
interests
(371)
(227)
(153)
(295)
(438)
(103)
(699)
(199)
35
(190)
(2,640)
198
2006
Total
1,265
178
227
640
2,647
266
583
274
(113)
(496)
5,471
715
6,186
2005
Total
483
105
430
724
1,240
267
757
296
(115)
(451)
3,736
(215)
3,521
98
| Anglo American plc Annual Report 2006
4. Group operating profi t from subsidiaries and joint ventures
US$ million
Group revenue
Cost of sales(1)
Gross profi t
Selling and distribution costs
Administrative expenses
Other gains and losses (see below)
Exploration expenditure (see note 5)
Group operating profi t from subsidiaries and joint ventures
2006
2005
33,072 29,434
(20,310) (20,015)
9,419
12,762
(2,184) (2,101)
(2,380) (2,288)
(23)
(150)
4,857
(192)
(132)
7,874
(1) Includes special items of $524 million loss (2005: $186 million loss), see note 7.
US$ million
Operating profi t is stated after charging:
Depreciation of tangible assets (see note 13)
Amortisation of intangible assets (see note 12)
Rentals under operating leases
Research and development expenditure
Operating special items(1)
Employee costs (see note 6)
Foreign currency gains
Other gains and losses comprise:
Fair value losses on derivatives – unrealised(1)
Fair value gains on derivatives – realised
Fair value gains on other monetary assets
Gains on valuation of biological assets (see note 14)
On initial recognition
Change in fair value less estimated point of sale costs
Total other gains and losses
Auditors’ remuneration(2)
Audit
United Kingdom
Overseas
Other services provided by Deloitte(3)
United Kingdom
Overseas
2006
2005
2,029
7
178
46
524
4,860
(32)
2,432
9
190
40
186
5,366
(116)
(344)
66
32
54
47
7
(301)
151
82
45
43
2
(192)
(23)
3
13
7
6
3
16
3
5
(1) For further information on special items and remeasurements see note 7.
(2) The 2005 comparative numbers have been reclassifi ed to align with current year presentation.
(3) Other services provided by Deloitte includes charges incurred in respect of the interim review.
A more detailed analysis of auditors’ remuneration for the year ended
31 December 2006 is provided below.
2006
US$ million
Statutory audit services
Anglo American plc Annual Report
Subsidiary entities
Comprises:
Services to Group (excluding pension schemes)
Services to Group pension schemes
Non-audit services
Other services pursuant to legislation
Corporate fi nance
Tax services
Tax advisory services
Other advisory services
Consultancy services
Internal audit services
Other
Comprises:
Services to Group (excluding pension schemes)
Services to Group pension schemes
Paid/payable Paid/payable to auditor
(if not Deloitte)
to Deloitte
United
United
Kingdom Overseas
Kingdom Overseas
1.7
1.4
3.1
3.1
– (1)
3.1
5.5
0.1
–
0.1
0.7
–
–
0.1
6.5
6.5
– (1)
6.5
5.8
4.6
10.4
10.3
0.1
10.4
1.9
–
0.5
1.2
0.3
1.3
0.1
0.4
5.7
5.7
– (1)
5.7
0.1
–
0.1
0.1
– (1)
0.1
–
0.5
–
–
–
–
–
–
0.5
0.5
– (1)
0.5
1.6
1.0
2.6
2.6
– (1)
2.6
1.2
0.2
–
0.2
–
0.8
0.9
0.3
3.6
3.6
– (1)
3.6
(1) Amounts paid/payable for services to Group pension schemes are less than $0.1 million.
US$ million
Statutory audit services
Anglo American plc Annual Report
Subsidiary entities
Comprises:
Services to Group (excluding pension schemes)
Services to Group pension schemes
Non-audit services
Other services pursuant to legislation
Corporate fi nance
Tax services
Tax advisory services
Other advisory services
Consultancy services
Information technology services
Internal audit services
Litigation services
Valuations and actuarial services
Other
Comprises:
Services to Group (excluding pension schemes)
Services to Group pension schemes
2005
Paid/payable Paid/payable to auditor
(if not Deloitte)
to Deloitte
United
United
Kingdom Overseas
Kingdom Overseas
1.8
1.4
3.2
5.8
4.6
10.4
0.1
–
0.1
3.4
2.3
5.7
3.2
–(1)
3.2
10.3
0.1
10.4
0.1
–(1)
0.1
5.7
–(1)
5.7
2.0
–
0.2
0.1
0.1
–
–
–
–
–
0.4
2.8
1.2
0.2
0.3
0.9
0.4
1.0
0.3
–
0.1
–
0.7
5.1
–
–
–
–
–
–
–
–
–
–
–
–
0.3
0.4
–
0.1
0.5
0.6
–
0.8
–
0.2
0.4
3.3
2.8
–(1)
2.8
5.1
–(1)
5.1
–
–(1)
–
3.3
–(1)
3.3
(1) Amounts paid/payable for services to Group pension schemes are less than $0.1 million.
Fees payable to Deloitte and their associates for non-audit services to the Company
are not required to be disclosed because the consolidated fi nancial statements are
required to disclose such fees on a consolidated basis.
5. Exploration expenditure
US$ million
By business segment
Platinum
Gold (1)
Coal
Base Metals
Ferrous Metals and Industries
2006
2005
30
16
24
53
9
132
21
45
13
50
21
150
(1) Relating to the period that AngloGold Ashanti was held as a subsidiary.
6. Employee numbers and costs
The average number of employees, excluding associates’ employees and including
a proportionate share of employees within joint venture entities, was:
Thousands
By business segment
Platinum
Gold (1)
Coal
Base Metals
Industrial Minerals
Ferrous Metals and Industries
Paper and Packaging
Corporate Activities
2006
2005
44
15
10
8
13
37
34
1
162
42
48
11
7
13
36
37
1
195
(1) Includes employee numbers for AngloGold Ashanti for the period it was held as a subsidiary pro rated
over the full year.
Anglo American plc Annual Report 2006 | 99
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Notes to the fi nancial statements continued
6. Employee numbers and costs continued
Subsidiaries and joint ventures
The average number of employees by principal location of employment was:
US$ million
2006
2005
Thousands
South Africa
Rest of Africa
Europe
North America
South America
Australia and Asia
2006
2005
94
16
39
1
7
5
162
118
22
40
1
9
5
195
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
Defi ned contribution pension plan costs
Defi ned benefi t pension plan costs
Share-based payments
2006
2005
4,069
317
7
210
68
189
4,860
4,627
399
8
203
37
92
5,366
In accordance with IAS 24 Related Party Disclosures, key management personnel
are those persons having authority and responsibility for planning, directing and
controlling the activities of the entity, directly or indirectly, including any director
(executive and non-executive) of the Group.
Compensation for key management was as follows:
US$ million
Salaries and short term employee benefi ts
Post employment benefi ts
Other long term benefi ts
National insurance and social security
Share-based payments
2006
2005
19
7
–
3
10
39
15
15
1
1
8
40
Disclosure of directors’ emoluments, pension entitlements, share options and long
term incentive plan awards required by the Companies Act 1985 and those specifi ed
for audit by the Directors’ Remuneration Report Regulations 2002 are included in the
Remuneration report.
7. Special items and remeasurements
‘Special items’ are those items of fi nancial performance that the Group believes
should be separately disclosed on the face of the income statement to assist in the
understanding of the underlying fi nancial performance achieved by the Group and
its businesses. Such items are material by nature or amount to the year’s results
and require separate disclosure in accordance with IAS 1 Presentation of fi nancial
statements paragraph 86. Special items that relate to the operating performance of
the Group are classifi ed as operating special items and include impairment charges
and reversals and other exceptional items, including signifi cant legal provisions.
Non-operating special items include profi ts and losses on disposals of investments
and businesses.
Remeasurements comprise other items which the Group believes should be reported
separately to aid an understanding of the underlying performance of the Group.
This category includes (i) unrealised gains and losses on ‘non-hedge’ derivative
instruments open at year end and the reversal of the historical marked to market
value of instruments settled in the year, such that the full realised gain or loss
is recorded in underlying earnings in the same year as the underlying transaction
for which such instruments provide an economic, but not formally designated,
hedge and (ii) foreign exchange gains and losses arising on the retranslation of
dollar denominated De Beers’ preference shares held by a rand functional currency
subsidiary of the Group. Remeasurements are defi ned as operating, non-operating
or fi nancing according to the nature of the underlying expense.
Operating special items
Impairment of Tarmac assets and restructuring costs
Impairment and closure costs of Dartbrook
Impairment of Packaging assets
Impairment of Business Paper assets
Impairment of Corrugated assets, goodwill and restructuring costs
Impairment of Bibiani
Closure of Ergo
Other
Total operating special items
Taxation
Minority interests
Net total attributable to equity shareholders of the Company
Operating remeasurements
Unrealised net losses on non-hedge derivatives
Taxation
Minority interests
Net total attributable to equity shareholders of the Company
Financing special items
Financing special items
Taxation
Minority interests
Net total attributable to equity shareholders of the Company
Financing remeasurements
Fair value loss on AngloGold Ashanti convertible bond
Foreign exchange gain on De Beers’ preference shares
Unrealised net gains/(losses) on non-hedge derivatives
Total fi nancing remeasurements
Taxation
Minority interests
Net total attributable to equity shareholders of the Company
Profi ts and (losses) on disposals
Part disposal of AngloGold Ashanti(1)
Deemed disposal of AngloGold Ashanti(1)
Part disposal of Highveld(1)
Part disposal of Kumba non-iron ore(1)
Bakgatla-Ba-Kgafela BEE transaction(1)
Part disposal of Western Areas
Disposal of mineral rights – Anglo American Brazil
Disposal of interests in Eyesizwe
Disposal of Ferroveld joint venture
Formation of Marikana joint venture
Disposal of Acerinox
Disposal of Wendt
Disposal of Boart Longyear
Disposal of Elandsfontein
Disposal of Columbus
Disposal of Hope Downs
Part disposal of Mondi Packaging South Africa
Other items
Net profi t on disposals(2)
Taxation
Minority interests
Net total attributable to equity shareholders of the Company
(278)
(125)
(80)
(24)
–
–
–
(17)
(524)
114
2
(408)
(344)
42
159
(143)
(4)
–
–
(4)
(43)
40
7
4
(1)
21
24
737
172
301
(52)
(84)
31
14
17
13
–
–
–
–
–
–
–
–
19
1,168
(32)
7
1,143
(12)
–
–
–
(77)
(38)
(31)
(28)
(186)
14
38
(134)
(301)
22
130
(149)
–
–
–
–
(32)
72
(5)
35
(2)
16
49
–
–
–
–
–
14
–
–
–
27
25
21
21
18
14
(57)
(12)
16
87
(26)
(3)
58
Total special items and remeasurements before
tax and minority interests
Taxation
Minority interests
Net total special items and remeasurements
attributable to equity shareholders of the Company
(1) See disposal of subsidiaries and businesses note 32.
(2) Includes associated IFRS 2 charges on BEE transactions of $34 million (2005: nil).
300
123
189
(365)
8
181
612
(176)
100
| Anglo American plc Annual Report 2006
7. Special items and remeasurements continued
Associates
US$ million
Associates’ special items and remeasurements
Share of De Beers’ class action payment and related costs
Unrealised net losses on non-hedge derivatives
Other impairments and restructuring costs
Operating special items and remeasurements
Associates’ fi nancing remeasurements
Fair value gain on AngloGold Ashanti convertible bond
Unrealised net gains on non-hedge derivatives
Total fi nancing remeasurements
Associates’ profi ts and (losses) on disposals
Part disposal of De Beers Consolidated Mines
Disposal of Fort à la Corne
Disposal of Samancor Chrome
Disposal of Wonderkop joint venture interest
Other items (net)
Net profi t on disposals
Total associates’ special items and remeasurements
Taxation
Minority interests
Net total associates’ special items and remeasurements
Group
US$ million
Operating special items
Operating remeasurements
Total operating special items and remeasurements
(excluding associates)
Associates’ operating special items
Associates’ operating remeasurements
Total associates’ operating special items and remeasurements
Total operating special items and remeasurements
(including associates)
Operating special items including associates
Operating remeasurements including associates
Total operating special items and remeasurements
(including associates)
Special items and remeasurements
Operating special items of $524 million (2005: $186 million) relate principally
to impairment, restructuring and closure costs.
Following the conclusion of its strategic review, Industrial Minerals has identifi ed
certain non-core assets which are to be sold and other assets which are to be
restructured and, as such, Tarmac has recorded a combined impairment and
restructuring charge of $278 million.
On 18 May 2006 the Group announced that due to ongoing geological diffi culties,
Anglo Coal intends to implement a phased reduction of operations at Dartbrook. As
such, an impairment charge and closure costs of $125 million have been recognised.
Paper and Packaging has recorded an additional impairment of $80 million mainly
of certain downstream Packaging assets as a result of continued challenging market
conditions and $24 million at Mondi Business Paper of fi xed assets at the Austrian
businesses.
The impairment of Tarmac assets brings the carrying value in line with fair value
(less costs to sell). Fair value was determined using detailed cash fl ow models.
The impairment of Dartbrook and Paper and Packaging assets were based on value in
use assessments of recoverable amount using a pre-tax, risk free discount rate which
equated to a post tax rate of 6%.
Unrealised net losses of $344 million (2005: $301 million) on non-hedge derivatives
have been included in operating remeasurements. These unrealised losses were
recorded principally at AngloGold Ashanti, during the period it was held as a subsidiary
prior to 20 April 2006, and relate to fair value movements on commodity derivatives.
Associates’ special items and remeasurements
2006
2005
(25)
(85)
(13)
(123)
(113)
(16)
(24)
(153)
Associates’ operating special items and remeasurements include $25 million for the
Group’s share of De Beers’ payment in respect of class action suits ($20 million) and
related legal costs ($5 million). Agreement has been reached, and a preliminary order
issued, to settle the majority of civil class action suits fi led against De Beers in the
United States. This settlement does not involve any admission of liability on the part
of De Beers and will, when concluded, bring to an end a number of outstanding class
actions. In 2005, De Beers paid $250 million ($113 million attributable share) into
escrow and an additional $45 million ($20 million attributable share) has been paid
by De Beers, in 2006, into escrow pending conclusion of the settlement process.
25
1
26
103
69
–
–
27
199
102
1
–
103
–
7
7
–
–
52
20
26
98
(48)
7
2
(39)
The Group’s share of unrealised net losses on non-hedge derivatives of AngloGold
Ashanti incurred during the period of ownership as an associate, partially offset by
gains at De Beers, totalled $85 million.
Financing remeasurements
The option element of AngloGold Ashanti’s convertible bond is recorded at fair value
with changes going through the income statement in accordance with IAS 32 Financial
Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition
and Measurement. As a result, a charge of $43 million (2005: $32 million) has been
included in fi nancing remeasurements, relating to the period it was held as a subsidiary.
The Group holds US dollar preference shares issued by De Beers which are held in
a rand functional currency subsidiary of the Group. These shares are classifi ed as
‘non-current investments’ and are retranslated at each period end. As a result, a gain
of $40 million (2005: $72 million) has been included in fi nancing remeasurements.
Associates’ fi nancing remeasurements
2006
2005
(524)
(344)
(186)
(301)
The Group’s share of the associates’ fi nancing remeasurements includes a share of
the fair value movement of the option element of the AngloGold Ashanti convertible
bond which generated a gain of $25 million during the period that this investment
was recorded as an associate, and a share of the net unrealised gains on non-hedge
fi nancing derivatives of $1 million in De Beers.
(868)
(487)
Profi ts and losses on disposals
(38)
(85)
(123)
(137)
(16)
(153)
(991)
(640)
(562)
(429)
(323)
(317)
(991)
(640)
On 20 April 2006 the Group completed the sale of 19.7 million ordinary shares
held in AngloGold Ashanti for cash of $978 million. This, together with the Group’s
non-participation in the issue of additional ordinary shares throughout the year
by AngloGold Ashanti, diluted the Group’s percentage investment from 50.9%
to 41.7%. As such the Group has recorded a profi t on disposal of $737 million in
respect of shares sold and a profi t on the deemed disposal of $172 million, arising
from the non-participation in the issue of ordinary shares by AngloGold Ashanti.
On 14 July 2006, the Group announced the sale of Anglo American’s 79% stake in
Highveld Steel and Vanadium Corporation Limited (Highveld) to Evraz Group SA and
Credit Suisse for a total consideration of $678 million. An initial 49.8% was sold for
$412 million, with Evraz Group SA and Credit Suisse each acquiring a 24.9% holding.
Evraz Group SA has an option to acquire Anglo American’s remaining 29.2% in
Highveld for $266 million. Anglo American and Credit Suisse have agreed that Anglo
American will retain the voting rights in respect of the shares acquired by Credit
Suisse until such time as Anglo American disposes of all of its shares in Highveld.
As a result, the Group continues to consolidate Highveld (while recording an increase
in minority interests) and has recorded a profi t on the disposal of $301 million.
On 28 November 2006 the Kumba Resources BEE transaction was effected. Kumba
Iron Ore was accordingly unbundled from Kumba Resources, with the remainder of
the entity being renamed Exxaro. The Group disposed of part of its investment in
Exxaro through a share buyback and sale of shares and recorded a loss on disposal
of $52 million.
Platinum has recorded a loss of $84 million on the conclusion of the BEE transaction
with the Bakgatla-Ba-Kgafela traditional community, announced on 8 November
2006, in which the Bakgatla has acquired a 15% interest in Anglo Platinum’s
Rustenburg Platinum Mines’ Union section mining and concentrating business
and interests in the prospecting rights of the Rooderand 46 JQ, portion 2 and
Magazynskraal 3 JQ properties.
Associates’ profi ts and losses on disposals
In April 2006, De Beers announced that agreements had been signed in respect
of the implementation of the De Beers BEE transaction resulting in the sale of an
indirect 26% equity interest in De Beers Consolidated Mines Limited to Ponahalo
Holdings (Proprietary) Limited. The total agreed proceeds for the transaction
were $585 million. The Group’s share of the profi t realised on the transaction was
$103 million.
De Beers Canada disposed of its interest in the Fort à la Corne joint venture for
C$180 million in September 2006. A profi t of $155 million (attributable share
$69 million) was generated on the disposal.
Anglo American plc Annual Report 2006 | 101
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Notes to the fi nancial statements continued
8. Net fi nance costs
Finance costs and exchange gains/(losses) are presented net of effective cash fl ow
hedges for respective interest bearing and foreign currency borrowings. Fair value
gains/(losses) on derivatives, presented below, include the mark to market value
changes of interest rate and currency derivatives designated as fair value hedges,
net of fair value changes in the associated hedged risk; and fair value changes of
non-hedge derivatives of non-operating items.
US$ million
Before special
items and
remeasurements
2006
After special
items and
remeasurements
2006
Before special
items and
remeasurements
2005
After special
items and
remeasurements
2005
b) Factors affecting tax charge for the year
The effective tax rate for the year of 27.6% (2005: 24.5%) is lower than the
standard rate of corporation tax in the United Kingdom (30%). The differences are
explained below:
US$ million
Profi t on ordinary activities before tax
Tax on profi t on ordinary activities calculated at
United Kingdom corporation tax rate of 30%
2006
9,562
2005(1)
5,208
2,869
1,562
Tax effect of share of net income from associates
(206)
(197)
Investment income
Interest and other
fi nancial income
Expected return on defi ned
benefi t arrangements
Foreign exchange gains
Dividend income from fi nancial
asset investments
Fair value gains on derivatives
Other fair value gains
Total investment income
Interest expense
Amortisation discount
relating to provisions
Bank loans and overdrafts
Other loans
Interest paid on
convertible bonds
Unwinding of discount on
convertible bonds
Interest on defi ned benefi t
arrangements
Foreign exchange losses
Dividend on redeemable
preference shares
Fair value losses on derivatives
Other fair value losses
Less: interest capitalised
Total interest expense
Net fi nance costs
269
265
54
14
–
7
609
(39)
(294)
(122)
(5)
(13)
(274)
(19)
(22)
(2)
–
(790)
16
(774)
(165)
269
265
94
14
17
7
666
(39)
(294)
(122)
(5)
(13)
(274)
(20)
(22)
(11)
(47)
(847)
16
(831)
(165)
227
241
20
10
–
–
498
(42)
(320)
(167)
(71)
(53)
(270)
(33)
–
(19)
–
(975)
49
(926)
(428)
227
241
92
10
–
–
570
(42)
(320)
(167)
(71)
(53)
(270)
(33)
–
(24)
(32)
(1,012)
49
(963)
(393)
The weighted average interest rate applicable to interest on general borrowings
capitalised was 8.2% (2005: 8.7%).
Financing remeasurements are set out in note 7.
9. Tax on profi t on ordinary activities
a) Analysis of charge for the year from continuing operations
US$ million
United Kingdom corporation tax at 30%
South Africa tax
Other overseas tax
Current tax (excluding tax on special items
and remeasurements)
Total deferred tax (excluding tax on special items
and remeasurements)
Total tax on special items and remeasurements
Total tax charge
2006
28
894
1,558
2005
15
580
721
2,480
1,316
283
(123)
2,640
(33)
(8)
1,275
Tax effects of:
Expenses not deductible for tax purposes
Operating special items and remeasurements
Exploration expenditure
Other non-deductible expenses
Non-taxable income
Profi ts and losses on disposals and remeasurements
Other non-taxable income
Temporary difference adjustments
Changes in tax rates
Movements in tax losses
Other temporary differences
Other adjustments
South African secondary tax on companies
Effect of differences between local and UK rates
Other adjustments
Tax charge for the year
104
13
79
(317)
(66)
–
(80)
(13)
228
53
(24)
2,640
110
21
92
(9)
(113)
(187)
(30)
(23)
160
(108)
(3)
1,275
(1) The 2005 comparative numbers have been reclassifi ed to align with current year presentation.
IAS 1 requires income from associates to be presented net of tax on the face of
the income statement. The associates’ tax is therefore not included within the
Group’s total tax charge. Associates’ tax included within ‘Share of net income from
associates’ for the year ended 31 December 2006 is $368 million ($369 million
excluding special items and remeasurements) (2005: $274 million; $281 million
excluding special items and remeasurements).
The effective rate of taxation before special items and remeasurements including
share of associates’ tax before special items and remeasurements was 32.7%.
This was an increase from the equivalent effective rate of 26.5% in the year ended
31 December 2005. The December 2005 tax rate benefi ted from the one-off impact
of a reduction in the statutory tax rates in South Africa and Ghana. Without this
one-off benefi t the effective tax rate for the prior year would have been 29.7%.
In future periods it is expected that the effective tax rate, including associates’ tax,
will remain at or above the UK statutory tax rate of 30%.
10. Dividends
US$ million
Final ordinary paid – 62 US cents per ordinary share
(2005: 51 US cents)
Final special paid – 33 US cents per ordinary share
(2005: nil)
Interim ordinary paid – 33 US cents per ordinary share
(2005: 28 US cents)
Interim special paid – 67 US cents per ordinary share
(2005: nil)
2006
2005
918
734
488
–
473
403
960
2,839
–
1,137
The directors are proposing a fi nal dividend in respect of the fi nancial year ending
31 December 2006 of 75 US cents per share. Based on shares eligible for dividends
at 31 December 2006, this will result in an estimated distribution of $1,107 million
of shareholders’ funds. These fi nancial statements do not refl ect this dividend
payable, in accordance with UK Companies Act and IFRS, as it is still subject
to shareholder approval.
As stated in note 28, the employee benefi t trust has waived the right to receive
dividends on the shares it holds.
102
| Anglo American plc Annual Report 2006
11. Earnings per share
US$
Profi t for the fi nancial year attributable to equity shareholders
Basic earnings per share
Diluted earnings per share
Headline earnings for the fi nancial year(1)
Basic earnings per share
Diluted earnings per share
Underlying earnings for the fi nancial year(1)
Basic earnings per share
Diluted earnings per share
2006
2005
4.21
4.12
2.43
2.36
3.58
3.50
3.73
3.64
2.43
2.36
2.58
2.50
(1) Basic and diluted earnings per share are shown based on headline earnings, which is a Johannesburg
Stock Exchange Limited (JSE Limited) defi ned performance measure and underlying earnings, which the
directors believe to be a useful additional measure of the Group’s performance. Both earnings measures
are further explained below.
The calculation of the basic and diluted earnings per share is based on the
following data:
US$ million (unless otherwise stated)
2006
2005
Earnings
Basic earnings, being profi t for the fi nancial year attributable
to equity shareholders
Effect of dilutive potential ordinary shares
Interest on convertible bonds (net of tax)
Unwinding of discount on convertible bonds (net of tax)
Diluted earnings
Number of shares (million)
Basic number of ordinary shares outstanding(1)
Effect of dilutive potential ordinary shares(2)
Share options
Convertible bonds
Diluted number of ordinary shares outstanding(1)
6,186
3,521
4
3
6,193
29
20
3,570
1,468
1,447
23
13
1,504
18
48
1,513
(1) Basic and diluted number of ordinary shares outstanding represent the weighted average for the year.
The average number of ordinary shares in issue excludes the shares held by the employee benefi t trust,
Epoch and Tarl.
(2) Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in
issue on the assumption of conversion of all potentially dilutive ordinary shares.
‘Underlying earnings’ is an alternative earnings measure, which the directors believe
provides a clearer picture of the underlying fi nancial performance of the Group’s
operations. Underlying earnings is presented after minority interests and excludes
special items and remeasurements (see note 7). Underlying earnings is distinct from
‘Headline earnings’, which is a JSE Limited defi ned performance measure.
The calculation of basic and diluted earnings per share, based on headline and
underlying earnings, uses the following earnings data:
Profi t for the fi nancial year attributable
to equity shareholders
Special items: operating
Special items: fi nancing
Net profi t on disposals(1)
Special items: associates(2)
Related tax
Related minority interests
Headline earnings for the fi nancial year
Unrealised losses on non-hedge derivatives
Fair value loss on AngloGold Ashanti
convertible bond
Exchange gain on DBI preference shares
Share of De Beers’ legal settlement
IFRS 2 charges on BEE transactions
Related tax
Related minority interests
Underlying earnings for the fi nancial year
(1) Excluding associated IFRS 2 charges on BEE transactions.
(2) Excluding legal settlements.
Earnings
(US$ million)
Basic earnings
per share (US$)
2006
2005
2006
2005
6,186
524
4
(1,202)
(186)
(57)
(9)
5,260
421
18
(40)
25
34
(67)
(180)
5,471
3,521
186
–
(87)
(74)
6
(36)
3,516
315
32
(72)
113
–
(21)
(147)
3,736
4.21
0.36
–
(0.81)
(0.13)
(0.04)
(0.01)
3.58
0.29
0.01
(0.03)
0.02
0.02
(0.04)
(0.12)
3.73
2.43
0.13
–
(0.06)
(0.05)
–
(0.02)
2.43
0.22
0.02
(0.05)
0.08
–
(0.02)
(0.10)
2.58
All outstanding share options and awards are potentially dilutive and have been
included in the calculation of diluted earnings per share. No instruments are anti-
dilutive for the year ended 31 December 2006 (2005: nil).
12. Intangible assets
US$ million
2006
Licences
and other
intangibles Goodwill(1)
Licences
and other
Total intangibles Goodwill(1)
2005
Total
139
Cost
At 1 January
Acquired through business
combinations
4
Additions
9
Impairments
–
Transfer to assets held for sale(2) (13)
Disposal of assets
(1)
Disposal of businesses(3)
(49)
Reclassifi cations
3
Currency movements
(4)
At 31 December
88
Accumulated amortisation
81
At 1 January
Charge for the year
7
Impairments
–
Transfer to assets held for sale(2) (3)
Disposal of assets
–
Disposal of businesses(3)
(24)
Reclassifi cations
–
Currency movements
(6)
55
At 31 December
33
Net book value
2,514
2,653
113
2,576
2,689
41
–
(21)
(6)
–
(562)
(8)
143
2,101
–
–
–
–
–
–
–
–
–
2,101
45
9
(21)
(19)
(1)
(611)
(5)
139
2,189
81
7
–
(3)
–
(24)
–
(6)
55
2,134
–
4
–
–
–
(2)
24
–
139
46
9
24
–
(1)
(2)
(1)
6
81
58
24
–
(20)
(37)
(15)
(6)
72
(80)
2,514
–
–
–
–
–
–
–
–
–
2,514
24
4
(20)
(37)
(15)
(8)
96
(80)
2,653
46
9
24
–
(1)
(2)
(1)
6
81
2,572
(1) The goodwill balances provided are net of cumulative impairment charges of $45 million as at
31 December 2006 (2005: $24 million).
(2) Intangible assets transferred to assets held for sale in 2005 were sold prior to the 2005 year end.
(3) Includes cost of $604 million and accumulated amortisation of $24 million which were transferred to
‘Investments in associates’.
The increase in goodwill relating to acquisition of subsidiaries represents the excess
of fair value of the purchase price over the fair value of the net assets, including
mining reserves, of businesses acquired. Further detail is given in note 31.
Impairment tests for goodwill
a)
Goodwill is allocated for impairment testing purposes to cash generating units
(CGU) which refl ect how it is monitored for internal management purposes. This
allocation largely represents the Group’s primary reporting segments set out below.
Any goodwill associated with CGU subsumed within these primary segments is not
signifi cant when compared to the goodwill of the Group, other than in Paper and
Packaging where the goodwill associated with CGU subsumed within the primary
segment is split out below.
US$ million
Gold
Platinum
Coal
Base Metals
Industrial Minerals
Ferrous Metals and Industries
Paper and Packaging
Mondi Business
Mondi Packaging
Mondi – other
2006
2005
–
230
88
157
970
16
555
230
88
152
894
12
49
552
39
2,101
43
502
38
2,514
The recoverable amount of a CGU is determined based on a fair value or value in use
calculation as appropriate. Value in use calculations use cash fl ow projections based
on fi nancial budgets and life of mine or non-mine production plans covering a fi ve
year period that are based on latest forecasts for commodity prices and exchange
rates. Cash fl ow projections beyond fi ve years are based on life of mine plans where
applicable and internal management forecasts and assume constant long term real
prices for sales revenue.
Cash fl ow projections are discounted using pre-tax discount rates equivalent to a
real post tax discount rate of 6%, that have been adjusted for any risks that are not
refl ected in the underlying cash fl ows. Where the recoverability of goodwill allocated
to CGU is supported by fair value less costs to sell, market observable data (in the
case of listed subsidiaries, market share price at 31 December of the respective listed
entity) or detailed cash fl ow models are used.
Anglo American plc Annual Report 2006 | 103
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Notes to the fi nancial statements continued
12. Intangible assets continued
Expected future cash fl ows are inherently uncertain and could materially change over
time. They are signifi cantly affected by a number of factors including reserves and
production estimates, together with economic factors such as commodity prices,
discount rates, currency exchange rates, estimates of costs to produce reserves
and future capital expenditure. Management believes that any reasonably possible
change in the key assumptions on which the recoverable amount is based would not
cause the carrying amounts to exceed their recoverable amounts.
13. Tangible assets
US$ million
Cost
At 1 January 2006
Additions
Acquired through business
combinations
Transfer to assets held for sale
Disposal of assets
Disposal of businesses(2)
Reclassifi cations
Currency movements
At 31 December 2006
Accumulated depreciation
At 1 January 2006
Charge for the year
Impairments
Transfer to assets held for sale
Disposal of assets
Disposal of businesses(2)
Reclassifi cations
Currency movements
At 31 December 2006(3)
Net book value
At 31 December 2006
At 31 December 2005
Mining
properties Land and Plant and
buildings equipment
and leases
Other(1)
Total
18,942
292
3,955 18,607
648
83
2,595 44,099
3,702
2,679
2
(498)
(28)
(9,672)
294
(82)
9,250
4,542
507
133
(76)
(12)
(3,038)
48
32
2,136
46
157
(221) (1,180)
(301)
(34)
(64)
(52)
(76) 1,243
290
132
3,833 19,400
935
140
115
(41)
(25)
(7)
(23)
57
7,582
1,288
214
(177)
(257)
(33)
1
283
1,151 8,901
52
257
(237) (2,136)
(487)
(124)
(1) (9,789)
33
285
3,481 35,964
(1,428)
(55)
94
17
5
(60)
244 13,303
2,029
479
(289)
(354)
(1) (3,079)
–
377
278 12,466
(26)
5
7,114
14,400
2,682 10,499
3,020 11,025
3,203 23,498
2,351 30,796
(1) Other tangible assets include $3,002 million of properties in the course of construction, which are not
depreciated.
(2) Includes cost of $9,085 million and accumulated depreciation of $3,012 million which were transferred to
‘Investments in associates’.
(3) $421 million (2005: $1,297 million) tangible assets have been pledged as security for liabilities.
Mining
properties Land and Plant and
buildings equipment
and leases
Other(1)
Total
Included in the additions above is $16 million of interest (2005: $49 million) incurred
on qualifying assets which has been capitalised during the year. Aggregate interest
capitalised included in the cost above totals $277 million (2005: $261 million).
The net book value and depreciation charges relating to assets held under fi nance
leases comprise:
US$ million
Mining properties and leases
Land and buildings
Plant and equipment
Other
2006
Net book
value
Depreciation
Net book
value
2005
Depreciation
19
61
51
1
132
2
6
6
–
14
–
91
172
1
264
–
8
63
–
71
The net book value of land and buildings comprises:
US$ million
Freehold
Leasehold – long
Leasehold – short (less than 50 years)
14. Biological assets
US$ million
Forest Agriculture
At 1 January
Capitalised expenditure
Harvesting
Fair value adjustments
Disposal of assets
Disposal of businesses
Transfer to assets held for sale
Currency movements
At 31 December
317
63
(72)
47
(1)
(18)
(16)
(29)
291
33
1
–
7
(1)
(2)
–
(5)
33
Biological assets comprise:
US$ million
Mature
Immature
Forest Agriculture
137
154
291
16
17
33
15. Environmental rehabilitation trusts
2006
2005
2,619
60
3
2,682
2,961
43
16
3,020
2006
Total
350
64
(72)
54
(2)
(20)
(16)
(34)
324
2006
Total
153
171
324
Forest Agriculture
335
55
(78)
43
–
(1)
–
(37)
317
39
–
(1)
2
(1)
–
–
(6)
33
Forest Agriculture
142
175
317
17
16
33
2005
Total
374
55
(79)
45
(1)
(1)
–
(43)
350
2005
Total
159
191
350
19,008
772
4,226 20,226
608
51
2,615 46,075
3,373
1,942
The Group makes voluntary contributions to controlled funds that were established
to meet the cost of some of its decommissioning, restoration and environmental
rehabilitation liabilities in South Africa.
US$ million
Cost
At 1 January 2005
Additions
Acquired through business
combinations
Transfer to assets held for sale(2)
Disposal of assets
Disposal of businesses
Reclassifi cations
Currency movements
At 31 December 2005
Accumulated depreciation
At 1 January 2005
Charge for the year
Impairments
Impairment losses reversed
Transfer to assets held for sale(2)
Disposal of assets
Disposal of businesses
Reclassifi cations
Currency movements
At 31 December 2005
Net book value
At 31 December 2005
At 31 December 2004
5
–
(239)
–
703
(1,307)
18,942
1
6
(44)
(340)
(106)
(594)
(45)
(79)
659
261
(389) (1,879)
3,955 18,607
15
(2)
(43)
(2)
(1,607)
27
(386)
(982)
(126)
16
(323) (3,898)
2,595 44,099
3,933
836
56
(18)
–
(48)
–
45
(262)
4,542
1,001
143
3
–
(22)
(81)
(13)
8
(104)
935
7,945
1,350
34
–
(234)
(553)
(63)
(88)
(809)
7,582
197 13,076
2,432
103
93
–
(18)
–
(257)
(1)
(714)
(32)
(1)
(77)
–
35
(57) (1,232)
244 13,303
14,400
15,075
3,020 11,025
3,225 12,281
2,351 30,796
2,418 32,999
US$ million
At 1 January
Contributions made during the year
Interest earned during the year
Disposal of business(1)
Transfer to assets held for sale
Reclassifi cations
Currency movements
At 31 December
2006
2005
288
26
26
(101)
(28)
–
(14)
197
237
34
23
–
–
19
(25)
288
(1) Relates entirely to amounts transferred to ‘Investments in associates’.
The funds are administered by independent trustees, and comprise the following
investments:
US$ million
Equity
Bonds
Cash
2006
16
51
130
197
2005
57
76
155
288
These funds are not available for the general purposes of the Group. All income
from these assets is reinvested to meet specifi c environmental obligations. These
obligations are included in environmental rehabilitation costs under long term
provisions (see note 25).
(1) Other tangible assets include $2,037 million of properties in the course of construction, which are not
depreciated.
(2) Tangible assets transferred to assets held for sale in 2005 were sold prior to the 2005 year end.
104
| Anglo American plc Annual Report 2006
Aggregate
investment
2006
2005
1,860
1,442
(126)
549
687
368
4,780
1,231
1,243
(493)
404
514
266
3,165
By geographical segment
South Africa
Rest of Africa
Europe
North America
South America
Australia and Asia
16. Investments in associates
US$ million
2006
2005
US$ million
At 1 January
Net income from associates
Dividends received
Other equity movements
Share of cash injection from associates’ share issues
Transfer to assets held for sale
Loss on cash fl ow hedges
Reversal of impairment
Actuarial gain/(loss) on post retirement benefi ts
Acquired
Disposed
Transfer from subsidiary
Repayments of capitalised loans(1)
Currency movements
At 31 December(2)
3,165
685
(276)
(23)
225
(64)
(24)
–
3
11
(40)
1,451
(219)
(114)
4,780
3,486
657
(461)
(1)
–
–
–
(1)
(24)
29
–
(63)
(195)
(262)
3,165
(1) Excludes the $175 million (2005: $175 million) redemption by De Beers of preference shares included
within fi nancial asset investments.
(2) The fair value of the investment in AngloGold Ashanti at year end is $5,420 million based on the closing
share price. With effect from 20 April 2006 the Group began accounting for the investment as an
associate under the equity method.
The Group’s total investments in associates comprise:
US$ million
Equity(1)
Loans(2)
Total investments in associates
2006
2005
4,369
411
4,780
2,720
445
3,165
(1) Investments in associates at 31 December 2006 include $515 million of goodwill (2005: $394 million).
(2) The Group’s total investments in associates include long term debt interests which in substance form
part of the Group’s net investments. These loans are not repayable in the foreseeable future.
The Group’s share of associates’ contingent liabilities incurred jointly by investors is
$158 million (2005: $48 million).
Details of principal associates are set out in note 38.
17. Joint ventures
The Group’s share of the summarised fi nancial information of joint venture entities
that is proportionately consolidated in the Group fi nancial statements is as follows:
US$ million
2006
2005
Total non-current assets
Total current assets
Total current liabilities
Total non-current liabilities
Group’s share of joint venture entities’ net assets
Revenue
Operating costs
Net fi nance costs
Income tax expense
Group’s share of joint venture entities’ profi t for the fi nancial year
1,296
455
(315)
(681)
755
1,951
(883)
(22)
(209)
837
1,468
832
(357)
(785)
1,158
1,331
(797)
(28)
(85)
421
The Group’s share of the summarised fi nancial information of principal associates is
as follows:
The Group’s share of joint venture entities’ contingent liabilities incurred jointly with
other venturers is nil (2005: nil) and its share of capital commitments is nil (2005:
$8 million).
US$ million
Total non-current assets
Total current assets
Total current liabilities
Total non-current liabilities
Group’s share of associates’ net assets
Revenue
Operating costs
Net profi t on disposals
Other special items and remeasurements
Net fi nance costs
Income tax expense
Minority interests
Group’s share of associates’ net income
2006
2005
4,653
7,919
2,715
1,669
(1,961) (1,053)
(3,893) (2,104)
3,165
4,780
5,565
5,038
(4,598) (4,159)
98
7
(51)
(274)
(2)
657
199
26
(101)
(368)
(38)
685
Segmental information is provided for primary and secondary reporting segments
as follows:
US$ million
By business segment
Platinum
Gold
Diamonds
Coal
Industrial Minerals
Ferrous Metals and Industries
Paper and Packaging
Net income
Aggregate
investment
2006
2005
2006
2005
40
72
337
185
1
44
6
685
135
12
(2) 1,623
2,062
647
2
302
9
4,780
257
192
3
189
6
657
107
36
2,056
528
5
390
43
3,165
Details of principal joint ventures are set out in note 38.
18. Financial asset investments
The following table sets out the movement of the Group’s fi nancial asset
investments, which are accounted for as ‘available for sale’, ‘at fair value through
profi t or loss’, ‘held to maturity’ or ‘loans and receivables’ as defi ned by IAS 39 and
in accordance with the Group accounting policy set out in note 1. No items were
classifi ed as ‘at fair value through profi t or loss’ or ‘held to maturity’ during the year.
US$ million
At 1 January 2006
Movements in fair value
Additions
Impairments
Net repayments
Disposals
Disposal of businesses(1)
Transfer from subsidiary(2)
Transfer to assets held for sale
Reclassifi cations
Currency movements
At 31 December 2006
Less: non-current portion
Current portion
Loans and
receivables
Available
for sale
investments
538
–
–
–
(130)
–
(12)
–
(15)
27
(4)
404
404
–
377
492
453
(13)
–
(88)
(9)
370
(36)
(25)
48
1,569
1,569
–
Total
915
492
453
(13)
(130)
(88)
(21)
370
(51)
2
44
1,973
1,973
–
(1) Relates entirely to amounts transferred to ‘Investments in associates’.
(2) See disposal of subsidiaries and businesses note 32.
Anglo American plc Annual Report 2006 | 105
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Notes to the fi nancial statements continued
The exposure of the Group’s fi nancial assets (excluding intra-group loan balances)
to interest rate and currency risk is as follows:
Fixed rate
fi nancial assets
US$ million
(unless otherwise stated)
fi nancial
assets
Total
assets investments
Equity fi nancial
assets
Floating
rate Fixed rate
fi nancial
Weighted
average
Non- Weighted
interest
period for
average
bearing effective which the
interest rate is fi xed
in years
rate %
2,128 1,673
1,767 1,044
154
86
6
253
4,977 3,216
191
124
11
756
At 31 December 2006
US$
SA rand
Sterling
Euro
Australian $
Other currencies
Total
Trade and other
receivables(1)
5,197
329
Derivatives
Total fi nancial assets 10,503
2,998 2,004
386
318
169
20
115
4,345 3,012
550
345
208
45
199
At 31 December 2005
US$
SA rand
Sterling
Euro
Australian $
Other currencies
Total
Trade and other
receivables(1)
5,015
Derivatives
930
Total fi nancial assets 10,290
391
1
3
22
–
46
463
650
14
4
15
16
33
732
60
683
1
4
5
416
1,169
4
39
33
12
–
41
129
204
77
–
8
8
14
311
140
73
23
16
1
37
290
7.1
–
4.3
0.9
–
3.1
6.4
5.6
2.5
–
1.6
5.4
2.3
3.7
1.6
–
0.1
0.1
–
0.4
1.4
2.2
0.5
–
–
0.1
5.0
2.0
(1) Excludes prepayments.
23. Financial liabilities
The carrying amounts and fair values of fi nancial liabilities are as follows:
2006
2005
US$ million
Trade and other payables(1)
Current borrowings
Convertible bonds
Other non-current borrowings
Other fi nancial liabilities (derivatives)
Total fi nancial liabilities
Estimated Carrying Estimated Carrying
value
fair value
fair value
value
4,986 4,986
2,028
–
4,220
520
4,946
4,946
2,076
2,032
2,084
1,975
4,416 4,388
1,794
1,794
11,768 11,754 15,272 15,179
2,028
–
4,234
520
(1) Excludes taxation and social security and deferred income.
The fair values of current and other non-current borrowings are determined by
reference to quoted market prices for similar issues, where applicable, otherwise
the carrying values approximate to the fair values. The fair values of the convertible
bond liabilities are determined using their quoted market values.
18. Financial asset investments continued
US$ million
At 1 January 2005
Movements in fair value
Additions
Disposals
Transfer to assets held for sale(1)
Reclassifi cations
Currency movements
At 31 December 2005
Less: non-current portion
Current portion
Loans and
receivables
Available
for sale
investments
581
–
–
(173)
(20)
148
2
538
522
16
563
39
163
(187)
–
(153)
(48)
377
377
–
Total
1,144
39
163
(360)
(20)
(5)
(46)
915
899
16
(1) Financial asset investments transferred to assets held for sale in 2005 were sold prior to the 2005
year end.
19. Inventories
US$ million
Raw materials and consumables
Work in progress
Finished products
2006
2005
1,032
733
1,209
2,974
1,181
1,124
1,264
3,569
The cost of inventories recognised as an expense and included in cost of sales
amounted to $18,286 million (2005: $19,440 million).
20. Trade and other receivables
2006
US$ million
Trade receivables
Amounts owed by
related parties
Other receivables
Prepayments and
accrued income
2005
Total
Due within Due after
one year
one year
Due within Due after
one year
one year
Total
4,341
18
4,359
4,042
11
4,053
14
714
–
110
14
824
26
768
93
5,162
22
150
115
5,312
157
4,993
1
167
2
181
27
935
159
5,174
21. Trade and other payables
US$ million
Trade payables
Amounts owed to related parties
Taxation and social security
Other payables
Accruals and deferred income
2006
2005
3,263
–
51
1,257
469
5,040
3,138
26
71
1,211
578
5,024
22. Financial assets
The carrying amounts and fair values of fi nancial assets are as follows:
2006
US$ million
Trade and other receivables(1)
Cash and cash equivalents
Financial asset investments
Current fi nancial asset investments
Other fi nancial assets (derivatives)
Total fi nancial assets
(1) Excludes prepayments.
2005
Carrying
value
Estimated Carrying Estimated
fair value
fair value
value
5,197
5,197
3,004 3,004
1,973
–
329
5,015
3,430
899
16
930
10,507 10,503 10,229 10,290
4,981
3,403
899
16
930
1,977
–
329
The fair value of fi nancial asset investments represents the market value of quoted
investments and directors’ valuation for other, non-listed investments.
106
| Anglo American plc Annual Report 2006
23. Financial liabilities continued
The maturity of the Group’s borrowings is as follows:
The Group’s borrowings are presented on an unhedged basis. The fair value of
associated derivatives is recorded separately within ‘Other fi nancial assets (derivatives)’
and ‘Other fi nancial liabilities (derivatives)’, (see note 24).
US$ million
Secured
Bank loans and overdrafts
Obligations under
fi nance leases(1)
Other loans(2)
Unsecured
Convertible bonds(3)
Bonds issued under
EMTN programme(4)
Bank loans and
overdrafts
Obligations under
fi nance leases(1)
Other loans(2)
Total
2006
Due within Due after
one year
one year
Due within Due after
one year
one year
Total
2005
Total
121
300
421
176
336
512
1
–
122
72
93
465
73
93
587
27
232
435
147
224
707
174
456
1,142
–
–
–
–
1,975
1,975
25 2,080
2,105
106
1,887
1,993
1,843
1,170
3,013
1,468
1,390
2,858
4
34
1,906
2,028
26
22
517
483
3,755
5,661
4,220 6,248
3
64
1,641
2,076
15
389
5,656
6,363
18
453
7,297
8,439
(1) The minimum lease payments under fi nance leases fall due as follows:
US$ million
Not later than one year
Later than one year but not more than fi ve years
More than fi ve years
Future fi nance charges on fi nance leases
Present value of fi nance lease liabilities
2006
2005
13
40
120
173
(74)
99
42
97
162
301
(109)
192
(2) Other loans comprise loans from joint ventures and associates and project fi nance.
(3) 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. During the current year bondholders elected to
convert their bonds to equity. No fi nancial liability remains at 31 December 2006 in respect of the
Anglo American plc convertible bond (2005: $1,058 million).
A convertible bond was issued in February 2004 by AngloGold Holdings plc, a wholly-owned subsidiary
of AngloGold Ashanti (AGA). The fair value of the conversion option within AGA’s bond at the date of
issue ($79 million) was separated from the carrying value of the debt. Because the conversion option is
in a bond denominated in a currency other than the functional currency of the entity issuing the shares,
the option value is classifi ed as a derivative, within liabilities. The option is marked to market with
subsequent gains and losses being recorded through the income statement.
AGA became an associate on 20 April 2006 and therefore the convertible bond is not held within
liabilities on the Group balance sheet at 31 December 2006 (2005: $917 million).
Within 1 year Between Between
or on demand 1-2 years 2-5 years
After
5 years
Total
US$ million
At 31 December 2006
Secured
Bank loans and overdrafts
Obligations under fi nance leases
Other loans
Unsecured
Bonds issued under EMTN programme
Bank loans and overdrafts
Obligations under fi nance leases
Other loans
25
1,843
4
34
1,906
Total borrowings (excluding hedges) 2,028
Effect of interest rate swaps
(see note 30c)
Effect of currency derivatives
(see note 30c)
(6)
Borrowings after the effect of hedges 2,022
–
121
1
–
122
40
1
47
88
1,315
201
4
14
1,534
1,622
132
3
45
180
765
745
7
13
1,530
1,710
128
68
1
197
421
73
93
587
2,105
–
3,013
224
26
11
517
456
691
5,661
888 6,248
19
18
–
37
(146)
1,495
(78)
1,650
–
888
(230)
6,055
US$ million
At 31 December 2005
Secured
Bank loans and overdrafts
Obligations under fi nance leases
Other loans
Unsecured
Convertible bonds(1)
Bonds issued under EMTN programme
Bank loans and overdrafts
Obligations under fi nance leases
Other loans
Total borrowings (excluding hedges)
Effect of interest rate swaps
(see note 30c)
Effect of currency derivatives
(see note 30c)
(13)
Borrowings after the effect of hedges 2,063
–
Within 1 year Between Between
or on demand 1-2 years 2-5 years
After
5 years
Total
176
27
232
435
–
106
1,468
3
64
1,641
2,076
60
17
38
115
1,058
25
268
2
55
1,408
1,523
98
36
86
220
917
1,862
1,046
5
331
4,161
4,381
178
94
100
372
–
–
76
8
3
87
459
512
174
456
1,142
1,975
1,993
2,858
18
453
7,297
8,439
–
–
(4)
(4)
–
1,523
–
4,381
4
459
(9)
8,426
The movement in the carrying value of the convertible bonds from the prior year is:
(1) Includes $917 million of convertible bonds issued by listed subsidiaries.
US$ million
At 1 January 2006
Unwinding of discount on bonds
Movement in fair value
Converted
Transfer to associate
At 31 December 2006
2006
1,975
13
4
(1,068)
(924)
–
(4) The Group issued no bonds under the EMTN programme in 2006 (2005: $174 million). All notes are
guaranteed by Anglo American plc.
Anglo American plc Annual Report 2006 | 107
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Notes to the fi nancial statements continued
23. Financial liabilities continued
Credit risk
The Group’s principal fi nancial assets are bank balances and cash, trade and other
receivables and investments. The Group’s credit risk is primarily attributable to its trade
receivables, however it also arises on liquid funds and derivative fi nancial instruments.
Non-
interest
bearing
Fixed rate fi nancial
borrowing liabilities
Floating
interest effective
interest
bearing
rate Fixed rate
rate %
Total borrowings borrowings borrowings
Non-
Weighted
Weighted
average Weighted
average
period
period
average for which
the rate
until
is fi xed maturity
in years
in years
125
573
569
1,649
1
250
–
10
33
15
–
3
5.8
9.9
5.2
3.5
8.6
5.2
2.3
7.8
1.1
1.4
1.4
1.3
–
1.1
3.6
4.6
–
1.0
3,167
61
5.2
2.5
3.3
US$ million
(unless otherwise stated)
At 31 December 2006(1)
US$
SA rand
Sterling
Euro
Australian $
Other currencies
Gross borrowings
(excluding hedges)
Trade and other
payables(2)
4,986
Derivatives
520
Total fi nancial liabilities 11,754
1,222
1,097
1,886 1,303
67
303
–
250
669
1,967
1
503
6,248 3,020
1,099
1,513
30
553
–
168
2,143
550
518
1,408
1
269
21
106
39
17
–
4
2.8
11.1
0.9
1.9
9.3
6.4
2.1
4.6
0.8
1.4
0.8
1.1
0.4
5.4
1.6
1.1
–
0.5
8,439 3,363 4,889
187
3.4
2.0
3.5
3,263
2,169
587
1,978
1
441
At 31 December 2005(1)
US$
SA rand
Sterling
Euro
Australian $
Other currencies
Gross borrowings
(excluding hedges)
Trade and other
payables(2)
4,946
Derivatives
1,794
Total fi nancial liabilities 15,179
(1) Borrowings exclude any derivatives and include the fair value of risks that are hedged in a fair value
hedge relationship.
(2) Excludes taxation and social security and deferred income.
Interest on fl oating rates is based on the relevant national inter-bank rates.
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
2006
2005
3,345
80
2,527
5,952
3,962
75
3,528
7,565
In addition the Group had the following Commercial Paper programmes:
•
•
a $1.3 billion Canadian Commercial Paper Programme established a number
of years ago. The programme was undrawn at 31 December 2006.
a $1 billion European Commercial Paper Programme established in October
2004. Drawings of $10 million were made under this programme as at
31 December 2006.
The Group limits exposure to credit risk on liquid funds and derivative fi nancial
instruments through adherence to a policy of:
•
•
•
•
minimum acceptable counterparty credit ratings assigned by international
credit rating agencies (including long term ratings of A- (Standard & Poor’s),
A3 (Moody’s) or A- (Fitch) or better);
daily counterparty settlement limits (which are not to exceed three times the
credit limit for an individual bank);
exposure diversifi cation (the aggregate group exposure to key relationship
counterparties cannot exceed 5% of the counterparty’s shareholders’ equity);
custody restriction on securities held by banks and other institutions (must
have an AA (or better) credit rating or have specifi c approval of the Group’s
Executive Board).
Further, given the diverse nature of the Group’s operations (both in relation
to commodity markets and geographically) it also does not have signifi cant
concentration of credit risk in respect of trade receivables, with exposure spread over
a large number of customers. An allowance for impairment for trade receivables is
made where there is an identifi ed loss event which, based on previous experience,
is evidence of a reduction in the recoverability of the cash fl ows.
Liquidity risk
The Group ensures that there are suffi cient committed loan facilities in order to
meet short term business requirements, after taking into account cash fl ows from
operations and the Group’s holding of cash and cash equivalents, as well as any
distribution restrictions that exist. It is believed that these facilities and cash
generation will be suffi cient to cover the likely short and long term cash requirements
of the Group. At 31 December 2006, the Group had available undrawn committed
borrowing facilities of $5,952 million (see note 23).
The Group is assigned short term ratings of P-1 and A-1, and long term ratings of
A2 (stable outlook) and A (stable outlook), from Moody’s and Standard & Poor’s
respectively.
Non-wholly owned subsidiaries in general will arrange and maintain their own
fi nancing and funding requirements. In most cases the fi nancing will be non-recourse
to Anglo American plc. In addition, certain projects are fi nanced by means of limited
recourse project fi nance.
The maturity of the Group’s borrowings is included in note 23.
Market risk
The signifi cant market risk exposures to which the Group is exposed are foreign currency
risk, interest rate risk and commodity price risk. These are discussed further below:
Foreign exchange risk
As a global group, Anglo American plc is exposed to many currencies principally as
a result of non-US dollar operating costs incurred by US dollar functional companies
and to a lesser extent, from non-US dollar revenues. The Group’s policy is generally
not to hedge such exposures as hedging is not deemed appropriate given the
diversifi ed nature of the exposures.
Nevertheless, the Group does use forward exchange contracts, currency swaps and
option contracts to limit the effects of movements in exchange rates on foreign
currency denominated assets and liabilities as well as to hedge future transactions
and cash fl ows.
24. Financial instrument risk exposure, risk management
and derivatives
The exposure of the Group’s fi nancial assets and liabilities (excluding intra-group loan
balances) to currency risk is provided in notes 22 and 23.
Financial instrument risk exposure and management
The Group is exposed in varying degrees to a variety of fi nancial instrument related
risks. The Board approves and monitors the risk management processes, inclusive
of documented treasury policies, counterparty limits, controlling and reporting
structures. The risk management processes of the Group’s independently listed
subsidiaries are in line with the Group’s own policy.
The types of risk exposure and the way in which such exposure is managed, including
the use of derivative instruments is provided as follows (sub-categorised into credit
risk, liquidity risk and market risk).
Interest rate risk
Fluctuations in interest rates impact on the value of short term investments and
fi nancing activities, giving rise to interest rate risk. Exposure to interest rate risk is
particularly with reference to changes in US dollar, rand, sterling and euro interest rates.
The Group policy is to borrow funds at fl oating rates of interest as this is considered
to give a partial natural hedge against commodity price movements, given the
correlation to economic growth (and industrial activity) which in turn shows a high
correlation with commodity price fl uctuation. The Group also uses interest rate swap
and option contracts to manage its exposure to interest rate movements on a portion
of its existing debt. Also, strategic hedging using fi xed rate debt may be undertaken
from time to time if considered appropriate.
108
| Anglo American plc Annual Report 2006
24. Financial instrument risk exposure, risk management
and derivatives continued
In respect of fi nancial assets, the Group’s policy is to invest cash at fl oating
rates of interest and cash reserves are to be maintained in short term investments
(less than one year) in order to maintain liquidity, while achieving a satisfactory
return for shareholders.
The exposure of the Group’s fi nancial assets and liabilities (excluding intra-group loan
balances) to interest rate risk is provided in notes 22 and 23.
Floating rate fi nancial assets consist mainly of cash and bank term deposits. Interest
on fl oating rate assets is based on the relevant national inter-bank rates. Fixed rate
fi nancial assets consist mainly of cash. Equity investments are fully liquid and have
no maturity period.
Commodity price risk
Group operations are primarily exposed to movements in the prices of the
commodities they produce. Commodity price risk can be reduced through the
negotiation of long term contracts or through the use of fi nancial derivatives.
Certain year end fi nancial instruments (subject to provisional pricing) are exposed
to commodity price movements as they are to be settled in the future, based on a
commodity price current at that time. These exposures are all short term.
In respect of the use of derivative instruments, the Group policy is generally not
to hedge price risk, although some hedging may be undertaken for strategic reasons.
In such cases, the Group generally uses forward contracts to hedge the price risk.
In 2005, the Group fi nancial instruments included those of AngloGold Ashanti, who
undertook a more active hedging policy with respect to its gold sales. Following the
reclassifi cation of AngloGold Ashanti to an associate (previously a subsidiary), these
instruments are no longer refl ected in the Group fi nancial assets and liabilities.
Derivatives
In accordance with IAS 32 and IAS 39, the fair value of all derivatives are separately
recorded on the balance sheet within ‘Other fi nancial assets (derivatives)’ and ‘Other
fi nancial liabilities (derivatives)’. Derivatives that are designated as hedges are classifi ed
as current or non-current depending on the maturity of the derivative. Derivatives that
are not designated as hedges are classifi ed as current in accordance with IAS 1 even
when their actual maturity is expected to be greater than one year.
The Group utilises derivative instruments to manage its market risk exposures
as explained above. The Group does not use derivative fi nancial instruments for
speculative purposes, however it may choose not to designate certain derivatives
as hedges. Such derivatives that are not hedge accounted are classifi ed as
non-hedges and fair valued through the income statement.
The use of derivative instruments is subject to limits and the positions are regularly
monitored and reported to senior management.
Embedded derivatives
Derivatives embedded in other fi nancial instruments or non-fi nancial host contracts
are treated as separate derivatives when their risks and characteristics are not closely
related to those of their host contract and the host contract is not carried at fair
value. Embedded derivatives may be designated as a hedge and are accounted
for in accordance with the Group’s accounting policy set out in note 1.
Cash fl ow hedges
The Group classifi es the majority of its forward exchange and commodity price
contracts, hedging highly probable forecast transactions, as cash fl ow hedges.
Subsequent changes in fair value are recognised in equity until the hedged
transactions occur, at which time the respective gains or losses are transferred to the
income statement in accordance with the Group’s accounting policy set out in note 1.
Fair value hedges
The majority of interest rate swaps taken out to protect the Group’s fi xed rate
borrowings against future interest rate movements have been designated as fair
value hedges. The respective carrying values of the hedged borrowings are adjusted
to refl ect the fair value of the interest rate risk being hedged. Subsequent changes in
the fair value of the hedged risk are offset against fair value changes in the interest
rate swap and classifi ed within net fi nance costs, in the income statement.
Non-hedges
The Group may choose not to designate certain derivatives as hedges, for example
certain forward contracts that economically hedge forecast commodity transactions
and relatively low value or short term derivative contracts where the potential mark to
market impact on the Group’s earnings is not considered material. Where derivatives
have not been designated as hedges, fair value changes are recognised in the income
statement in accordance with the Group’s accounting policy set out in note 1 and
are classifi ed as fi nancing or operating depending on the nature of the associated
hedged risk.
Cross currency swaps are also taken out to protect the Group’s non-US dollar debt
against future currency movements. The respective carrying values of the related
borrowings are translated at the closing exchange rate in accordance with the Group’s
accounting policy and as such a natural hedge of the currency risk is achieved.
The fair value of the Group’s open derivative position (excluding normal purchase
and sale contracts held off-balance sheet), recorded within ‘Other fi nancial assets
(derivatives)’ and ‘Other fi nancial liabilities (derivatives)’ is as follows:
US$ million
Current
Cash fl ow hedge
Forward foreign currency contracts
Gold commodity instruments(1)
Forward commodity contracts(2)
Other(3)
Fair value hedge
Forward foreign currency contracts
Other
Non-hedge (held for trading)(4)
Forward foreign currency contracts
Gold commodity instruments(1)
Cross currency swaps
Other
Total current derivatives
Non-current
Cash fl ow hedge
Forward foreign currency contracts
Gold commodity instruments(1)
Forward commodity contracts(2)
Other(3)
Fair value hedge
Interest rate swaps
Non-hedge (held for trading)
Other
Total non-current derivatives
2006
2005
Asset
Liability
Asset
Liability
11
–
2
–
1
4
14
–
242
55
329
(2)
–
(162)
–
(1)
(1)
(2)
–
(19)
(29)
(216)
21
32
3
1
7
–
(19)
(140)
(5)
(69)
(11)
–
53
588
–
42
747
(94)
(900)
–
(48)
(1,286)
–
–
–
–
–
–
–
–
–
(140)
(126)
1
37
–
140
–
(275)
–
(143)
(38)
5
(2)
–
(304)
–
183
(88)
(508)
(1) At the end of 2005, 10.8 million delta ounces of gold related to forward pricing commitments that matured
over periods to December 2015. The total mark to market value of these contracts at 31 December 2005
was negative $2,425 million based on a contracted gold price of $310/oz to $403/oz, market gold price
of $517/oz, exchange rates of $/ZAR 6.305 and AUD/$ 0.734 and the prevailing market conditions at
that date. Amounts included here in respect of gold commodity contracts represent the portion of these
commitments which are not treated as normal purchase and normal sale agreements as discussed below.
(2) Forward commodity contracts include forward copper derivatives taken out to hedge the future prices
of sales from Mantos Blancos. The contracted forward price of 116 US cents/lb covers 3,338 tonnes
per month for three years starting January 2006. At 31 December 2006 there are two years left on this
contract which represents some 45% of Mantos Blancos sales over the next two years.
(3) Other cash fl ow hedges include a derivative instrument embedded in a long term purchase power
agreement which is considered to hedge market risk exposure on sales (commodity price risk).
(4) $289 million (2005: $29 million) of derivative assets and $36 million (2005: $92 million) of derivative
liabilities not designated as hedges that are classifi ed as current in accordance with IAS 1 are due to
mature after more than one year.
These marked to market valuations are in no way predictive of the future value of the
hedged position, nor of the future impact on the profi t of the Group. The valuation
represents the cost of buying or selling all hedge contracts at year end, at market
prices and rates available at the time.
Normal purchase and normal sale contracts
Commodity based contracts that meet the requirements of IAS 39 in that they are
settled through physical delivery of the Group’s production or are used within the
production process are classifi ed as normal purchase and normal sale contracts.
In accordance with IAS 39 these contracts are not marked to market when they are
settled through physical delivery.
At the end of 2006, 10.2 million delta ounces of gold related to forward pricing
commitments that matured over periods to December 2015. The mark to market
value of these contracts at 31 December 2006 was negative $2,903 million based
on contracted gold prices of $284/oz to $723/oz, market gold price of $636/oz,
exchange rates of $/ZAR 7.001 and AUD/$ 0.789 and the prevailing market
conditions at that date. AngloGold Ashanti became an associate on 20 April 2006.
Anglo American plc Annual Report 2006 | 109
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Notes to the fi nancial statements continued
25. Provisions for liabilities and charges
The amount of deferred taxation provided in the accounts is as follows:
US$ million
At 1 January 2006
Acquired through business combinations
Disposal of businesses(2)
Transfer to liabilities directly associated with
assets held for sale
Charged to the income statement
Capitalised
Reclassifi cations
Unwinding of discount
Unused amounts reversed to the income
statement
Amounts applied
Currency movements
At 31 December 2006
Maturity analysis of total provisions:
Environmental Decommi-
restoration(1) ssioning(1)
706
20
(201)
389
2
(151)
(94)
64
(1)
37
22
–
(23)
1
531
(30)
5
7
(21)
17
–
(2)
–
216
US$ million
Current
Non-current
At 31 December
Other
Total
356
1
(24)
1,451
23
(376)
(4)
171
–
(10)
–
(128)
240
6
6
39
(31)
(125)
5
339
(31)
(150)
6
1,086
2006
2005
19
62
1,024
1,432
1,086 1,451
(1) The Group makes voluntary contributions to controlled funds to meet the cost of some of its
decommissioning, restoration and environmental rehabilitation liabilities in South Africa (see note 15).
(2) Includes environmental restoration of $200 million, decommissioning of $151 million and other of $22
million which were transferred to ‘Investments in associates’.
Environmental restoration
The Group has an obligation to incur restoration, rehabilitation and environmental
costs when environmental disturbance is caused by the development or ongoing
production of a mining property. A provision is recognised for the present value of
such costs. It is anticipated that these costs will be incurred over a period in excess
of 20 years.
Decommissioning
Provision is made for the present value of costs relating to the decommissioning of
plant or other site preparation work. It is anticipated that these costs will be incurred
over a period in excess of 20 years.
Other
Other provisions are made primarily for the present value of costs relating to
cash settled share-based payments, indemnities, warranties and legal claims. It is
anticipated that these costs will be incurred over a fi ve year period.
26. Deferred tax
Deferred tax assets
US$ million
At 1 January
Credited to the income statement
Credited to the statement of recognised income and expense
Credited directly to equity
Acquired through business combinations
Transfer to assets held for sale
Disposal of businesses(1)
Reclassifi cations
Currency movements
At 31 December
2006
2005
337
43
35
39
3
(58)
(59)
41
(9)
372
127
139
21
18
–
–
(23)
66
(11)
337
US$ million
Deferred tax assets
Tax losses
Other temporary differences
Deferred tax liabilities
Capital allowances in excess of depreciation
Fair value adjustments
Tax losses
Convertible bond equity component
Other temporary differences
2006
2005
53
319
372
176
161
337
2,448 3,280
2,294
(324)
11
(60)
5,201
1,160
(66)
–
145
3,687
The amount of deferred taxation charged/(credited) to the income statement is
as follows:
US$ million
Capital allowances in excess of depreciation
Fair value adjustments
Tax losses
Convertible bond equity component
Other temporary differences
2006
2005
297
(38)
(54)
(1)
(132)
72
44
(31)
30
(8)
(90)
(55)
The current expectation regarding the maturity of deferred tax balances is:
US$ million
Deferred tax assets
Recoverable within 12 months
Recoverable after 12 months
Deferred tax liabilities
Payable within 12 months
Payable after 12 months
2006
2005
103
269
372
105
232
337
67
3,620
3,687
82
5,119
5,201
The Group has the following balances at 31 December 2006 in respect of which no
deferred tax asset has been recognised:
US$ million
Within one year
One to fi ve years
After fi ve years
No expiry date
Tax
losses –
revenue
11
36
21
2,867
2,935
Tax
Other
losses – temporary
capital differences
–
–
5
714
719
–
–
–
–
–
Total
11
36
26
3,581
3,654
The Group had the following balances at 31 December 2005 in respect of which no
deferred tax asset was recognised:
US$ million
Within one year
One to fi ve years
After fi ve years
No expiry date
Tax
losses –
revenue
157
57
247
2,988
3,449
Tax
Other
losses – temporary
capital differences
22
–
–
653
675
–
–
4
80
84
Total
179
57
251
3,721
4,208
Deferred tax liabilities
US$ million
The Group also has unused tax credits of $65 million (2005: $10 million) for which
no deferred tax asset is recognised in the balance sheet. These tax credits have no
expiry date.
2006
2005
5,201
At 1 January
Charged to the income statement
115
Charged/(credited) to the statement of recognised income and expense 8
Acquired through business combinations
12
Transfer to liabilities directly associated
with assets held for sale
Disposal of businesses(1)
Reclassifi cations
Currency movements
At 31 December
(298)
(1,268)
35
(118)
3,687
5,718
84
(119)
(2)
(46)
–
80
(514)
5,201
(1) Includes a $59 million deferred tax asset and $1,267 million deferred tax liability which were transferred
to ‘Investments in associates’.
110
| Anglo American plc Annual Report 2006
No liability has been recognised in respect of temporary differences associated with
investments in subsidiaries, branches and associates and interests in joint ventures,
where the Group is in a position to control the timing of the reversal of the temporary
differences and it is probable that such differences will not reverse in the foreseeable
future. The aggregate amount of temporary differences associated with investments
in subsidiaries, branches and associates and interests in joint ventures, for which
a deferred tax liability has not been recognised is $16,946 million (2005: $17,897
million), on which tax may be payable up to $5,084 million (2005: $5,369 million).
27. Retirement benefi ts
The Group operates defi ned contribution and defi ned benefi t 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 benefi ts is included in note 1.
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 suffi cient to cover 104%
(2005: 95%) of the benefi ts that had accrued to members after allowing for
expected increases in future earnings and pensions. Companies within the Group
are paying contributions as required in accordance with local actuarial advice.
Defi ned contribution plans
The defi ned contribution pension cost represents the actual contributions payable
by the Group to the various plans. At 31 December 2006, 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.
The assets of the defi ned contribution plans are held separately in independently
administered funds. The charge in respect of these plans is calculated on the basis
of the contribution payable by the Group in the fi nancial year.
Defi ned benefi t pension plans and post retirement medical plans
The majority of the defi ned benefi t 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 post retirement medical arrangements provide health benefi ts to retired
employees and certain dependants. Eligibility for cover is dependent upon certain
criteria. The majority of these plans are unfunded.
The Group’s provision of anti-retroviral therapy to HIV positive staff has not
signifi cantly impacted the post retirement medical plan liability.
Independent qualifi ed actuaries carry out full valuations every three years
using the projected unit method. The actuaries have updated the valuations to
31 December 2006.
The Group’s plans in respect of pension and post retirement healthcare are
summarised as follows:
2006
2005
Southern
The
Africa Americas
Europe
Total
Southern
The
Africa Americas
Europe
Total
107
–
107
–
–
–
3
–
3
110
72
–
110
3
75
–
–
–
2
–
2
(1) Amounts are included in ‘Other non-current assets’.
2006
Southern
The
Africa Americas
Europe
Total
Southern
The
Africa Americas
74
3
77
2005
US$ million
Assets(1)
Defi ned benefi t
pension plans
in surplus
Post retirement
medical plans
Total
US$ million
Liabilities
Defi ned benefi t
pension plans
in defi cit
Post retirement
medical plans
Total
–
116
253
369
9
104
514
627
381
381
25
141
–
253
406
775
629
638
2
106
–
631
514 1,258
US$ million
Defi ned benefi t pension plan
Present value of liabilities
Fair value of plan assets
Net defi cit
Surplus restriction
Actuarial gain on plan assets
Actuarial loss on plan liabilities
Post retirement medical plan
Present value of liabilities
Fair value of plan assets
Defi cit
Actuarial gain/(loss) on plan liabilities
2006
2005
2004
(4,256) (3,985) (4,041)
3,479
3,539
(562)
(446)
–
(107)
(562)
(553)
163
438
(198)
(435)
4,160
(96)
(163)
(259)
308
(156)
(422)
16
(406)
15
(650)
22
(628)
(67)
(654)
15
(639)
(22)
As the majority of the defi ned benefi t pension plans are closed to new members,
it is expected that contributions will increase as the members age. The benefi t
obligations in respect of the unfunded plans at 31 December 2006 were $254 million
(2005: $253 million).
The actual return on plan assets in respect of defi ned benefi t pension schemes was
$577 million (2005: $679 million).
The net experience loss on plan liabilities was $77 million.
Income statement
The amounts recognised in the income statement are as follows:
US$ million
Post
retirement
Pension medical
plans
plans
2006
Total
plans
Post
retirement
Pension medical
plans
plans
2005
Total
plans
Analysis of the amount
charged to operating profi t
Current service costs
Past service costs
Other amounts charged
to the income statement
(curtailments and settlements)
Total within operating costs
Analysis of the amount
charged to net fi nance costs
Expected return on
plan assets(1)
Interest costs on
plan liabilities(2)
Net (credit)/charge to other
net fi nance costs
Total charge to the
income statement
(1) Included in investment income.
(2) Included in interest expense.
68
1
(1)
68
7
–
–
7
75
1
67
(5)
8
2
75
(3)
(1)
75
(25)
37
(2)
8
(27)
45
(264)
(1)
(265)
(241)
–
(241)
241
33
274
229
41
270
(23)
32
9
(12)
41
45
39
84
25
49
29
74
Actuarial assumptions
The principal assumptions used to determine the actuarial present value of
benefi t obligations and pension costs under IAS 19 are detailed below (shown as
weighted averages):
Southern
The
Africa Americas
%
%
Southern
The
Africa Americas
%
%
Europe
%
Defi ned benefi t pension plan(1)
Average discount rate
for plan liabilities
Average rate of infl ation
Average rate of increase
in salaries
Average rate of increase
of pensions in payment
Average long term rate
of return on plan assets
Post retirement medical plan(1)
Average discount rate
for plan liabilities
Average rate of infl ation
Expected average increase
in healthcare costs
7.9
4.5
7.7
3.6
4.8
2.6
7.7
4.1
8.4
4.1
5.5
4.7
3.3
5.1
4.6
4.5
2.1
2.9
2.9
2.8
9.2
9.6
6.0
8.7
11.3
7.9
4.7
5.0
–
n/a
n/a
7.8
4.5
5.5
n/a
5.7
4.4
n/a
5.4
n/a
2005
Europe
%
4.7
2.7
3.0
2.9
6.5
n/a
n/a
n/a
(1) The mortality assumptions have been based on published mortality tables in the relevant jurisdiction.
Anglo American plc Annual Report 2006 | 111
Europe
Total
2006
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Notes to the fi nancial statements continued
27. Retirement benefi ts continued
The market value of the pension assets in defi ned benefi t pension plans and long term expected rate of return as at 31 December 2006 and 31 December 2005 are detailed below:
At 31 December 2006
Equity
Bonds
Other
Present value of unfunded obligations
Present value of funded obligations
Present value of pension plan liabilities
Surplus/(defi cit) in the pension plans
Surplus restriction related to pension plans
Recognised pension plan assets/(liabilities)
Amounts in the balance sheet
Pension assets
Pension liabilities
At 31 December 2005
Equity
Bonds
Other
Present value of unfunded obligations
Present value of funded obligations
Present value of pension plan liabilities
Surplus/(defi cit) in the pension plans
Surplus restriction related to pension plans
Recognised pension plan assets/(liabilities)
Amounts in the balance sheet
Pension assets
Pension liabilities
Rate of
return
%
11.0
7.4
6.9
Rate of
return
%
10.7
6.7
6.5
Southern Africa
Fair value
US$
million
1,016
649
337
2,002
–
(1,737)
(1,737)
265
(158)
107
107
–
107
Southern Africa
Fair value
US$
million
1,094
333
635
2,062
(9)
(1,887)
(1,896)
166
(103)
63
72
(9)
63
Rate of
return
%
10.4
5.8
8.9
Rate of
return
%
–
6.3
5.0
The Americas
Fair value
US$
million
44
132
10
186
(87)
(215)
(302)
(116)
–
(116)
–
(116)
(116)
The Americas
Fair value
US$
million
–
81
4
85
(88)
(101)
(189)
(104)
–
(104)
–
(104)
(104)
Rate of
return
%
7.5
4.7
4.2
Rate of
return
%
7.7
4.5
5.7
Europe
Fair value
US$
million
1,042
555
375
1,972
(167)
(2,050)
(2,217)
(245)
(5)
(250)
3
(253)
(250)
Europe
Fair value
US$
million
825
490
77
1,392
(156)
(1,744)
(1,900)
(508)
(4)
(512)
2
(514)
(512)
Movement analysis
The changes in the present value of defi ned benefi t obligations are as follows:
The changes in the fair value of plan assets are as follows:
US$ million
Post
retirement
Pension medical
plans
plans
2006
Total
plans
Post
retirement
Pension medical
plans
plans
2005
Total
plans
US$ million
Post
retirement
Pension medical
plans
plans
At 1 January
Current service costs
Business combinations and
disposals of subsidiaries(1)
Transfer to assets held for sale
Past service costs and
effects of settlements
and curtailments
Interest costs
Actuarial (losses)/gains
Benefi ts paid
Contributions paid by
other members
Reclassifi cations
Currency movements
At 31 December
(3,985)
(68)
(650) (4,635) (4,035)
(67)
(75)
(7)
(658) (4,693)
(75)
(8)
153
15
165
18
318
33
51
–
8
–
59
–
6
(241)
(156)
155
–
(33)
15
24
6
(274)
(141)
179
54
(229)
(435)
178
–
(41)
(67)
36
54
(270)
(502)
214
(14)
(7)
(114)
(4,256)
(1)
5
42
(16)
(15)
(11)
(2)
(72)
525
(422) (4,678) (3,985)
(2)
–
82
(18)
(11)
607
(650) (4,635)
At 1 January
Expected return
Actuarial gains
Business combinations and
disposals of subsidiaries(1)
Transfer to assets held for sale
Contributions paid
by employer
Contributions paid
by other members
Benefi ts paid
Effects of settlements
and curtailments
Reclassifi cations
Currency movements
At 31 December
3,539
264
308
22
1
–
2006
Total
plans
3,561
265
308
Post
retirement
Pension medical
plans
plans
3,479
241
438
15
–
–
–
–
(173)
(15)
(6)
–
(179)
(15)
(2)
–
309
25
334
88
37
125
14
(155)
1
(24)
15
(179)
16
(178)
2
(36)
18
(214)
(6)
6
69
4,160
–
–
(3)
16
(6)
6
66
4,176
(16)
9
(536)
3,539
–
–
4
22
(16)
9
(532)
3,561
Total
Fair value
US$
million
2,102
1,336
722
4,160
(254)
(4,002)
(4,256)
(96)
(163)
(259)
110
(369)
(259)
Total
Fair value
US$
million
1,919
904
716
3,539
(253)
(3,732)
(3,985)
(446)
(107)
(553)
74
(627)
(553)
2005
Total
plans
3,494
241
438
(2)
–
(1) Includes $435 million which was transferred to ‘Investments in associates’.
(1) Includes $246 million which was transferred to ‘Investments in associates’.
Assumed healthcare trend rates have a signifi cant effect on the amounts recognised
in the income statement. A 1% change in assumed healthcare cost trend rates would
have the following effects:
1%
increase
1%
decrease
US$ million
2006
2005
2006
2005
Effect on the sum of service
costs and interest costs
Effect on defi ned benefi t obligations
6
53
8
76
(5)
(44)
(5)
(54)
The Group expects to contribute approximately $65 million to its defi ned benefi t
pension plans and $29 million to its post retirement medical plans in 2007.
112
| Anglo American plc Annual Report 2006
28. Called-up share capital and share-based payments
Called-up share capital
Authorised:
5% cumulative preference
shares of £1 each
Ordinary shares of
50 US cents each
Number of shares US$ million
Number of shares US$ million
2006
2005
50,000
–
50,000
–
2,000,000,000
1,000 2,000,000,000
1,000
1,000
1,000
Called-up, allotted and fully paid:
5% cumulative preference
shares of £1 each
Ordinary shares of
50 US cents each:
At 1 January
Convertible bonds
Other
At 31 December
50,000
–
50,000
–
1,493,855,896
47,789,096
8,615
1,541,653,607
747 1,493,839,387
24
3,892
12,617
–
771 1,493,855,896
747
–
747
During 2006 8,615 ordinary shares of 50 US cents each were allotted to certain non-
executive directors by subscription of their after tax directors’ fees (2005: 12,617).
47,789,096 ordinary shares of 50 US cents each were allotted upon the conversion
of Anglo American plc convertible bonds due 2007 (2005: 3,892).
In 2006 45,621,369 ordinary shares of 50 US cents each were purchased by the
Company and held in treasury (2005: nil). Excluding these the number of called-up,
allotted and fully paid ordinary shares as at 31 December 2006 was 1,496,032,238;
$748 million (2005: 1,493,855,896; $747 million).
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.
No ordinary shares of 50 US cents were allotted on exercise of employee share
option plans (2005: nil).
Tenon
Tenon Investment Holdings (Pty) Limited (Tenon), a wholly owned subsidiary
of Anglo American South Africa Limited (AASA), has entered into agreements
with Epoch Investment Holdings Limited (Epoch) and Tarl Investments Holdings
Limited (Tarl), each owned by an independent charitable trust whose trustees
are independent of the Anglo American (AA) Group. Under the terms of these
agreements, Epoch and Tarl have purchased AA plc shares on the market and
have granted to Tenon the right to nominate a third party (which may include AA
plc but not any of its subsidiaries) to take transfer of the AA plc shares each has
purchased on the market. Tenon paid Epoch and Tarl 80% of the cost of the AA
plc shares including associated costs for this right to nominate which together with
subscriptions by Tenon for non-voting participating redeemable preference shares in
Epoch and Tarl provided all the funding required to acquire the AA plc shares through
the market. These payments by Tenon are sourced from the cash resources of AASA.
Tenon is able to exercise its right of nomination at any time up to 31 December 2050
against payment of an average amount of $7.99 per share to Epoch and $9.14 per
share to Tarl which will be equal to 20% of the total costs respectively incurred by
Epoch and Tarl in purchasing shares nominated for transfer to the third party. These
funds will then become available for redemption of the preference shares issued by
Epoch and Tarl. The amount payable by the third party on receipt of the AA plc shares
will accrue to Tenon and, in accordance with paragraph 33 of IAS 32, any resulting
gain or loss recorded by Tenon will not be recognised in the income of AA plc.
Under the agreements, Epoch and Tarl will receive dividends on the AA plc shares
they hold and have agreed to waive the right to vote on those shares. The preference
shares issued to the charitable trusts are entitled to a participating right of up to 10%
of the profi t after tax of Epoch and 5% of the profi t after tax of Tarl. The preference
shares issued to Tenon will carry a fi xed coupon of 3% plus a participating right of
up to 80% of the profi t after tax of Epoch and 85% of the profi t after tax of Tarl.
Any remaining distributable earnings in Epoch and Tarl, after the above dividend,
are then available for distribution as ordinary dividends to the charitable trusts.
The structure effectively provides Tenon with a benefi cial interest in the price risk
on these shares together with a participation in future dividend receipts. Epoch and
Tarl will retain legal title to the shares until Tenon exercises its right to nominate
a transferee.
At 31 December 2006, Epoch and Tarl together held 45,569,127 AA plc shares with
a market value of $2,226 million and which represented 3% of the ordinary shares in
issue (excluding treasury shares). Epoch and Tarl are not permitted to hold more than
an aggregate of 10% of the issued share capital of AA plc at any one time.
Although the Group has no voting rights in Epoch and Tarl and cannot appoint
or remove trustees of the charitable trusts, Epoch and Tarl meet the accounting
defi nition of a subsidiary in accordance with IAS 27 Consolidated and Separate
Financial Statements. As a result, Epoch and Tarl are consolidated in accordance with
the defi nitions of IAS 27 and the principles set out in SIC 12 Consolidation – Special
Purpose Entities.
Employee benefi t trust
The provision of shares to certain of the Company’s share option and share incentive
schemes is facilitated by an employee benefi t trust. During 2006, 17,764,975
(2005: 17,516,652) shares were sold to employees on exercise of their options, and
provisional allocations were made to options already awarded. The employee benefi t
trust has waived the right to receive dividends on these shares.
The market value of the 19.8 million shares held by the trust at 31 December 2006
was $966 million. At 31 December 2005 the market value of the 37.7 million shares
held by the trust was $1,285 million.
The costs of operating the trust are borne by the Group but are not material.
Share-based payments
During the year ended 31 December 2006, the Group had seven share-based payment
arrangements with employees, the details of which are described in the remuneration
report. All of the Group’s schemes are equity settled, either by award of options to
acquire ordinary shares (ESOS, SAYE and former AAC Executive Share Incentive
Scheme) or award of ordinary shares (BSP, LTIP, SIP and Deferred Bonus Matching
schemes). The Deferred Bonus Matching scheme and the share option schemes are
now closed to new participants, the latter schemes having been replaced with the BSP.
The provision of shares to certain of the Group’s schemes is facilitated by an
employee benefi t trust. The employee benefi t trust has waived the right to receive
dividends on these shares. The costs of operating the trust are borne by the Group
but are not material. The cost of shares purchased by the trust is presented against
retained earnings in accordance with IAS 32 (see note 29).
The total share-based payment charge relating to Anglo American shares for the year
was made up as follows:
US$ million
ESOS
BSP
LTIP
Other schemes
Total share-based payment charge
2006
2005
17
25
31
6
79
30
15
18
6
69
Anglo American plc Annual Report 2006 | 113
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Notes to the fi nancial statements continued
28. Called-up share capital and share-based payments continued
The fair values of options granted under the ESOS and SAYE schemes, being the more material option schemes, were calculated using a Black Scholes model. No ESOS
awards were granted in 2006. The assumptions used in these calculations for the current and prior years are set out in the tables below:
Arrangement
Date of grant
Number of instruments
Exercise price (£)
Share price at the date of grant (£)
Contractual life
Vesting conditions(2)
Expected volatility
Expected option life
Risk free interest rate
Expected departures
Expected outcome of meeting performance criteria (at date of grant)
Fair value per option granted (weighted average) (£)
ESOS(1)
–
–
–
–
–
–
–
–
–
–
–
–
2006
SAYE(1)
27/04/06
476,417
17.97
22.46
3.5 – 7.5
3 – 7
30%
3.5 – 7.5
4.6%
5%pa
n/a
7.54
ESOS(1)
05/01/05 – 28/02/05
58,429
12.12 – 12.96
12.12 – 12.96
10
3
25%
5
4.5 – 4.8%
5%pa
100%
2.69
2005
SAYE(1)
28/04/05
773,541
10.15
11.30
3.5 – 7.5
3 – 7
25%
3.5 – 7.5
4.5%
5%pa
n/a
2.78
The fair value of ordinary shares awarded under the BSP and LTIP – ROCE, being the more material share schemes, was calculated using a Black Scholes model. The fair value
of shares awarded under the LTIP – TSR scheme was calculated using a Monte Carlo model. The assumptions used in these calculations for the current and prior years are set
out in the tables below(4):
Arrangement
Date of grant
Number of instruments
Exercise price (£)
Share price at the date of grant (£)
Contractual life
Vesting conditions
Expected volatility
Expected option life
Risk free interest rate
Expected departures
Expected outcome of meeting performance
criteria (at date of grant)
Fair value per option granted (weighted average) (£)
BSP(1)
LTIP – ROCE(1)
LTIP – TSR(1)
BSP(1)
LTIP – ROCE(1)
LTIP – TSR(1)
2006
2005
06/03/06
1,861,834
–
21.59
3
(3)
30%
3
4.3%
5%pa
44 – 100%
20.04
29/03/06
749,826
–
20.72
3
(4)
30%
3
4.4%
5%pa
65%
19.46
29/03/06
749,826
–
20.72
3
(5)
30%
3
4.4%
5%pa
08/03/05
2,533,220
–
13.12
3
(3)
25%
3
4.8%
5%pa
02/04/05
1,100,000
–
12.68
3
(4)
25%
3
4.7%
5%pa
n/a
13.10
44 – 100%
12.21
65%
11.59
02/04/05
1,100,000
–
12.68
3
(5)
25%
3
4.7%
5%pa
n/a
3.51
(1) The number of instruments used in the fair value models differs to the total number of instruments awarded in the year due to awards made subsequent to the fair value calculations taking place.
The fair value calculated per the assumptions above has been applied to the total number of awards. The difference in income statement charge is not considered signifi cant.
(2) Number of years continuous employment.
(3) Three years continuous employment with enhancement shares having variable vesting based on non-market based performance conditions.
(4) Variable vesting dependent on three years continuous employment and Group ROCE target being achieved.
(5) Variable vesting dependent on three years continuous employment and market based performance conditions being achieved.
The expected volatility is based on historic volatility over the last fi ve years. The expected life is the average expected period to exercise. The risk free rate of return is
the yield on zero-coupon UK government bonds with a term similar to the expected life of the option.
The charges arising in respect of the other employee share schemes that the Group operated during the year are not considered material.
A progressive dividend growth policy is assumed in all fair value calculations.
114
| Anglo American plc Annual Report 2006
28. Called-up share capital and share-based payments continued
A reconciliation of option movements for the more signifi cant share-based payment arrangements over the year to 31 December 2006 and the prior period is shown below.
All options outstanding at 31 December 2006 with an exercise date on or prior to 31 December 2006 are deemed exercisable. Options were exercised regularly during the
year and the weighted average share price for the year ended 31 December 2006 was £22.36 (2005: £14.36).
Executive Share Option Scheme
Options to acquire ordinary shares of 50 US cents were outstanding under the terms of this scheme as follows:
At 31 December 2006
Year of grant
Date exercisable
1999
1999
2000
2000
2000
2001
2001
2002
2002
2003
2003
2003
2004
2004
2004
2005
2005
2005
2005
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 January 2008 to 4 January 2015
28 February 2008 to 27 February 2015
1 August 2008 to 31 July 2015
19 August 2008 to 18 August 2015
At 31 December 2005
Year of grant
Date exercisable
1999
1999
2000
2000
2000
2001
2001
2002
2002
2003
2003
2003
2004
2004
2004
2005
2005
2005
2005
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 January 2008 to 4 January 2015
28 February 2008 to 27 February 2015
1 August 2008 to 31 July 2015
19 August 2008 to 18 August 2015
Option price
per share £
Options
outstanding
1 Jan 2006
Options
granted during
the year
Options
exercised
in year
6.98
8.00
7.66
7.66
10.19
10.03
8.00
11.50
8.05
9.28
11.41
10.81
13.43
11.52
12.73
12.12
12.96
14.40
13.94
1,844,354
63,504
2,244,700
23,000
68,000
3,290,348
63,350
3,659,521
68,102
11,729,915
237,053
70,000
7,419,462
212,031
11,147
37,579
20,850
18,000
5,500
31,086,416
748,548
–
25,504
–
764,484
–
18,000
–
39,000
–
1,452,290
–
36,600
–
1,737,862
–
52,102
–
7,442,843
–
150,863
–
60,000
–
353,806
–
4,000
–
–
–
–
–
20,850
–
–
–
–
–
– 12,906,752
Option price
per share £
Options
outstanding
1 Jan 2005
Options
granted during
the year
Options
exercised
in year
2,885,866
6.98
201,972
8.00
3,582,552
7.66
69,816
7.66
137,112
10.19
6,833,964
10.03
115,200
8.00
7,152,218
11.50
8.05
117,890
9.28 12,506,385
242,398
11.41
70,000
10.81
7,720,769
13.43
212,031
11.52
11,147
12.73
–
12.12
–
12.96
–
14.40
–
13.94
41,859,320
1,041,512
–
138,468
–
1,337,852
–
46,816
–
69,112
–
3,543,616
–
51,850
–
3,476,369
–
49,788
–
746,970
–
5,345
–
–
–
296,307
–
–
–
–
–
–
37,579
–
20,850
–
18,000
5,500
–
81,929 10,804,005
Options
forfeited
in year
–
–
–
–
–
–
–
–
–
–
–
–
268,680
13,709
–
–
–
–
–
282,389
Options
forfeited
in year
–
–
–
–
–
–
–
7,600
–
29,500
–
–
5,000
–
–
–
–
–
–
42,100
Options
expired
in year
19,000
–
34,000
–
–
92,400
–
72,959
5,000
264,674
26,430
–
–
–
–
–
–
–
–
514,463
Options
expired
in year
–
–
–
–
–
–
–
8,728
–
–
–
–
–
–
–
–
–
–
–
8,728
Options
outstanding
31 Dec 2006
1,076,806
38,000
1,446,216
5,000
29,000
1,745,658
26,750
1,848,700
11,000
4,022,398
59,760
10,000
6,796,976
194,322
11,147
37,579
–
18,000
5,500
17,382,812
Options
outstanding
31 Dec 2005
1,844,354
63,504
2,244,700
23,000
68,000
3,290,348
63,350
3,659,521
68,102
11,729,915
237,053
70,000
7,419,462
212,031
11,147
37,579
20,850
18,000
5,500
31,086,416
Anglo American plc Annual Report 2006 | 115
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Notes to the fi nancial statements continued
28. Called-up share capital and share-based payments continued
SAYE Share Option Scheme(1)
Options to acquire ordinary shares of 50 US cents were outstanding under the terms of this scheme as follows:
At 31 December 2006
Year of grant
Date exercisable
1999
2000
2000
2001
2001
2002
2002
2002
2003
2003
2003
2004
2004
2004
2005
2005
2005
2006
2006
2006
1 September 2006 to 28 February 2007
1 July 2005 to 31 December 2005(2)
1 July 2007 to 31 December 2007
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
1 September 2008 to 28 February 2009
1 September 2010 to 28 February 2011
1 September 2012 to 28 February 2013
1 September 2009 to 28 February 2010
1 September 2011 to 28 February 2012
1 September 2013 to 28 February 2014
At 31 December 2005
Year of grant
Date exercisable
1999
1999
2000
2000
2001
2001
2001
2002
2002
2002
2003
2003
2003
2004
2004
2004
2005
2005
2005
1 September 2004 to 28 February 2005
1 September 2006 to 28 February 2007
1 July 2005 to 31 December 2005
1 July 2007 to 31 December 2007
1 July 2004 to 31 December 2004(2)
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
1 September 2008 to 28 February 2009
1 September 2010 to 28 February 2011
1 September 2012 to 28 February 2013
Former AAC Executive Share Incentive Scheme(1)
At 31 December 2006
Year of grant
Date exercisable
1990-1997 1 January 1999 to 15 December 2007
1 January 2000 to 4 December 2008
1998
4 January 2001 to 4 January 2009
1999
At 31 December 2005
Year of grant
Date exercisable
1990-1997 1 January 1999 to 15 December 2007
1 January 2000 to 4 December 2008
1998
4 January 2001 to 4 January 2009
1999
Option price
per share £
Options
outstanding
1 Jan 2006
Options
granted during
the year
6.38
4.85
4.85
8.45
8.45
9.23
9.23
9.23
7.52
7.52
7.52
10.81
10.81
10.81
10.15
10.15
10.15
17.97
17.97
17.97
24,292
19,667
337,199
181,426
52,084
7,517
120,423
37,086
444,260
193,406
54,309
190,004
106,383
25,741
374,272
321,011
62,208
–
–
–
2,551,288
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
276,978
150,153
49,286
476,417
Option price
per share £
Options
outstanding
1 Jan 2005
Options
granted during
the year
6.38
6.38
4.85
4.85
8.45
8.45
8.45
9.23
9.23
9.23
7.52
7.52
7.52
10.81
10.81
10.81
10.15
10.15
10.15
5,580
30,740
1,279,300
359,896
13,763
201,350
55,868
202,906
137,962
45,372
503,209
218,548
60,914
221,544
123,361
29,742
–
–
–
3,490,055
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
387,357
323,089
63,095
773,541
Weighted average
option price
per share £
3.69
3.96
3.31
Weighted average
option price
per share £
4.72
4.57
3.82
Options
outstanding
1 Jan 2006
163,300
5,357,700
120,100
5,641,100
Options
outstanding
1 Jan 2005
419,200
8,397,100
239,500
9,055,800
Options
exercised
in year
22,451
9,880
5,806
176,766
2,977
2,548
7,118
1,294
427,353
5,299
177
6,321
3,021
418
5,236
1,396
40
13
–
–
678,114
Options
exercised
in year
3,692
5,918
1,259,008
8,875
2,491
7,415
1,088
183,513
1,847
326
12,222
3,311
200
1,464
376
325
110
30
–
1,492,211
Options
exercised
in year
107,100
2,721,620
24,600
2,853,320
Options
exercised
in year
255,900
3,039,400
119,400
3,414,700
Options
forfeited
in year
113
–
1,370
2,331
4,070
–
5,667
1,739
5,627
10,537
3,928
14,948
10,465
1,013
43,531
27,143
1,261
11,363
3,203
1,483
149,792
Options
forfeited
in year
1,888
228
–
13,017
11,272
10,149
2,305
10,981
13,923
7,665
37,632
16,674
5,945
26,529
14,351
2,373
11,407
1,363
887
188,589
Options
forfeited
in year
4,400
–
–
4,400
Options
forfeited
in year
–
–
–
–
Options
expired
in year
–
9,787
–
798
–
4,969
1,754
349
4,340
872
377
1,027
302
260
1,938
4,392
352
104
–
95
31,716
Options
expired
in year
–
302
625
805
–
2,360
391
895
1,769
295
9,095
5,157
460
3,547
2,251
1,303
1,568
685
–
31,508
Options
expired
in year
2,000
–
–
2,000
Options
expired
in year
–
–
–
–
Options
outstanding
31 Dec 2006
1,728
–
330,023
1,531
45,037
–
105,884
33,704
6,940
176,698
49,827
167,708
92,595
24,050
323,567
288,080
60,555
265,498
146,950
47,708
2,168,083
Options
outstanding
31 Dec 2005
–
24,292
19,667
337,199
–
181,426
52,084
7,517
120,423
37,086
444,260
193,406
54,309
190,004
106,383
25,741
374,272
321,011
62,208
2,551,288
Options
outstanding
31 Dec 2006
49,800
2,636,080
95,500
2,781,380
Options
outstanding
31 Dec 2005
163,300
5,357,700
120,100
5,641,100
The above share option prices have been calculated using a weighted average option price based on the shares outstanding at 31 December 2006 and converted to sterling
using an exchange rate of £1.00 = ZAR 12.51 (2005: £1.00 = ZAR 11.57).
See following page for footnotes.
116
| Anglo American plc Annual Report 2006
28. Called-up share capital and share-based payments continued
Long Term Incentive Plan(1)(3)
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:
At 31 December 2006
Year of grant
Date exercisable
2002
2003
2004
2004
2004
2005
2005
2006
25 May 2005 to 24 May 2006
11 April 2006 to 10 April 2007
25 March 2007 to 24 March 2008
26 April 2007 to 25 April 2008
1 September 2007 to 31 August 2008
2 April 2008 to 1 April 2009
1 June 2008 to 30 June 2009
29 March 2009 to 28 March 2010
At 31 December 2005
Year of grant
Date exercisable
2001
2002
2003
2004
2004
2004
2005
2005
15 April 2004 to 14 April 2005
25 May 2005 to 24 May 2006
11 April 2006 to 10 April 2007
25 March 2007 to 24 March 2008
26 April 2007 to 25 April 2008
1 September 2007 to 31 August 2008
2 April 2008 to 1 April 2009
1 June 2008 to 30 June 2009
Shares
outstanding
1 Jan 2006
64,829
1,866,963
1,608,079
170,323
10,000
2,098,393
61,993
–
5,880,580
Shares
outstanding
1 Jan 2005
82,692
1,341,783
1,879,163
1,617,079
171,468
10,000
–
–
5,102,185
Shares
conditionally
awarded during
the year
–
–
–
–
–
–
–
1,499,652
1,499,652
Shares
conditionally
awarded during
the year
–
–
–
–
–
–
2,177,993
61,993
2,239,986
Shares
vested
in year
64,829
765,702
–
–
–
–
–
–
830,531
Shares
vested
in year
82,692
916,769
–
–
–
–
–
–
999,461
Shares
forfeited
in year
–
982,360
35,600
–
–
40,200
–
7,400
1,065,560
Shares
forfeited
in year
–
360,185
12,200
9,000
1,145
–
79,600
–
462,130
Bonus Share Plan(4)
Ordinary shares of 50 US cents may be awarded under the terms of this scheme. The number of shares outstanding is as shown below:
At 31 December 2006
Year of grant
Performance period end date
2004
2005
2006
31 December 2006
31 December 2007
31 December 2008
At 31 December 2005
Year of grant
Performance period end date
2004
2005
31 December 2006
31 December 2007
Shares
outstanding
1 Jan 2006
497,738
2,418,612
–
2,916,350
Shares
conditionally
awarded during
the year
–
–
1,861,834
1,861,834
Shares
outstanding
1 Jan 2005
511,860
–
511,860
Shares
conditionally
awarded during
the year
–
2,534,492
2,534,492
Shares
vested
in year
38,001
73,749
12,209
123,959
Shares
vested
in year
11,129
89,770
100,899
Shares
forfeited
in year
–
51,157
34,163
85,320
Shares
forfeited
in year
2,993
26,110
29,103
Shares
expired
in year
–
–
–
–
–
–
–
–
–
Shares
expired
in year
–
–
–
–
–
–
–
–
–
Shares
expired
in year
–
–
–
–
Shares
expired
in year
–
–
–
Shares
outstanding
31 Dec 2006
–
118,901
1,572,479
170,323
10,000
2,058,193
61,993
1,492,252
5,484,141
Shares
outstanding
31 Dec 2005
–
64,829
1,866,963
1,608,079
170,323
10,000
2,098,393
61,993
5,880,580
Shares
outstanding
31 Dec 2006
459,737
2,293,706
1,815,462
4,568,905
Shares
outstanding
31 Dec 2005
497,738
2,418,612
2,916,350
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
Share incentive plan
Awards outstanding at
31 December 2006
Awards outstanding at
31 December 2005
–
1,112,139
1,112,139
124,331
1,040,505
1,164,836
Latest release date
–
7 December 2007
(1) The early exercise of share options is permitted at the discretion of the Company upon the termination of employment, ill health or death.
(2) The maturity period has been extended due to missed payments in terms of the scheme rules.
(3) 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.
(4) The Bonus Share Plan (‘BSP’) was approved by shareholders in 2004 as a replacement for the ESOS and the Deferred Bonus Plan. Further information in respect of the BSP, including performance conditions, is shown
in the remuneration report.
Anglo American plc Annual Report 2006 | 117
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Notes to the fi nancial statements continued
29. Reconciliation of changes in equity
US$ million
Balance at 1 January 2005
Total recognised income and expense
Dividends paid
Shares issued
Share-based payments
Disposal of businesses
Issue of shares to minority interests
Dividends paid to minority interests
Exercise of employee share options
Purchase of minority interests
Balance at 1 January 2006
Total recognised income and expense
Dividends paid
Dividends paid to minority interests
Shares issued and reclassifi cation on conversion of bond(3)
Convertible debt reserve transfer to retained earnings
Acquisition and disposal of businesses(4)
Issue of shares to minority interests
Share buybacks
Purchase of shares for share schemes
Current tax on exercised employee share awards
Share-based payments
Issue of treasury shares under employee share schemes
IFRS 2 charge arising on BEE transaction
Transfer to legal reserve
Revaluation reserve arising from acquisition of minority interests
Defi cit on conversion of Platinum’s preference shares
Tax charge directly to equity relating to transactions with shareholders
Tax credit on transactions with equity holders
Other
Balance at 31 December 2006
Total
share
capital(1)
2,380
–
–
4
–
–
–
–
–
–
2,384
–
–
–
1,100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,484
Retained
earnings(2)
17,440
3,364
(1,137)
–
–
–
–
–
240
–
19,907
6,256
(2,839)
–
–
109
–
–
(3,951)
(19)
34
–
286
28
(3)
–
(62)
(8)
–
–
19,738
Attributable to equity shareholders of the Company
Share-
based
payment
reserve
Cumulative
translation
adjustment
reserve
Fair value
and other
reserves
55
–
–
–
100
–
–
–
–
–
155
–
–
–
–
–
–
–
–
–
–
94
(31)
–
–
–
–
–
29
–
247
2,247
(1,908)
–
–
–
–
–
–
–
–
339
(377)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(38)
998
(162)
–
–
–
–
–
–
–
–
836
136
–
–
(32)
(109)
–
–
–
–
–
–
–
–
3
(4)
–
–
10
–
840
Minority
interests
4,466
82
–
–
6
(3)
16
(421)
–
(189)
3,957
603
–
(383)
–
–
(1,454)
37
–
–
–
14
–
6
–
–
62
(3)
–
17
2,856
Total
equity
27,586
1,376
(1,137)
4
106
(3)
16
(421)
240
(189)
27,578
6,618
(2,839)
(383)
1,068
–
(1,454)
37
(3,951)
(19)
34
108
255
34
–
(4)
–
(11)
39
17
27,127
(1) Total share capital comprises called-up share capital of $771 million (2005: $747 million) and the share premium account of $2,713 million (2005: $1,637 million).
(2) Retained earnings is stated after deducting $4,218 million (2005: $456 million) of treasury shares. Treasury shares comprise shares of Anglo American plc held in the employee benefi t trust, own shares held by
Anglo American plc and other Group companies and treasury shares held by Epoch Investment Holdings Limited (Epoch) and Tarl Investments Holdings Limited (Tarl) as referred to in Note 28. As at 31 December 2006,
the following treasury shares were held: shares held by the employee benefi t trust $247 million (2005: $456 million), own shares held by Anglo American plc $2,010 million (2005: nil), own shares held by other
Group companies $20 million (2005: nil) and treasury shares held by Epoch and Tarl $1,941 million (2005: nil).
(3) During the year ended 31 December 2006, the whole of the Anglo American plc convertible bond was converted to equity by bondholders. This has resulted in a reduction in the discounted balance sheet liability of
$1,068 million and a corresponding increase in issued share capital and share premium. A further reserve transfer of $32 million has been made from the convertible bond reserve to share premium to refl ect the total
fair value of shares issued to bondholders. During the year ended 31 December 2006, the number of shares converted was 47,789,096, at a conversion price of $23.12 to May 2006 and $22.76 subsequently.
(4) Includes $1,101 million which was transferred to ‘Investments in associates’.
118
| Anglo American plc Annual Report 2006
Fair value and other reserves comprise:
US$ million
Balance at 1 January 2005
Total recognised income and expense
Balance at 1 January 2006
Total recognised income and expense
Reclassifi cation on conversion of bond
Convertible debt reserve transfer to retained earnings
Transfer to legal reserve
Revaluation reserve arising from acquisition of minority interests
Tax credit on transactions with equity holders
Balance at 31 December 2006
Convertible
debt
reserve
Available
for sale
reserve
Cash fl ow
hedge
reserve
Other
reserves(1)
Total fair
value and
other reserves
128
3
131
–
(32)
(109)
–
–
10
–
48
6
54
437
–
–
–
–
–
491
50
(171)
(121)
(301)
–
–
–
–
–
(422)
772
–
772
–
–
–
3
(4)
–
771
998
(162)
836
136
(32)
(109)
3
(4)
10
840
(1) Other reserves comprise $693 million (2005: $690 million) legal reserve and $82 million (2005: $82 million) capital redemption reserve, partially offset by negative revaluation reserve of $4 million (2005: nil).
30. Consolidated cash fl ow analysis
a) Reconciliation of profi t before tax to cash infl ows from operations
US$ million
Profi t before tax
Depreciation and amortisation
Share-based payment charge
Special items and remeasurements of subsidiaries and joint ventures
Net fi nance costs before remeasurements
Fair value gains before special items and remeasurements
Share of net income from associates
Additional pension contributions
Provisions
Increase in inventories
Increase in operating receivables
Increase in operating payables
Other adjustments
Cash infl ows from operations
b) Reconciliation to the balance sheet
US$ million
Balance sheet
Continuing operations
Disposal groups(2)
Bank overdrafts
Continuing operations
Disposal groups(2)
Net debt classifi cations
2006
9,562
2,036
189
(300)
165
(152)
(685)
(232)
11
(377)
(625)
470
(5)
10,057
2005
5,208
2,441
92
365
428
(278)
(657)
–
113
(453)
(600)
539
67
7,265
Cash and cash equivalents
Short term borrowings(1) Medium and long term borrowings
2006
2005
2006
2005
2006
2005
3,004
63
(87)
–
2,980
3,430
–
(111)
–
3,319
(2,028)
(135)
87
–
(2,076)
(2,076)
–
111
–
(1,965)
(4,220)
(8)
–
–
(4,228)
(6,363)
–
–
–
(6,363)
(1) Short term borrowings on the balance sheet include overdrafts which are included within cash and cash equivalents for net debt.
(2) Disposal group balances are shown as ‘assets classifi ed as held for sale’ and ‘liabilities directly associated with assets classifi ed as held for sale’ on the balance sheet.
c) Movement in net debt
US$ million
Balance at 1 January 2005
Cash fl ow
Acquisition and disposal of businesses
Unwinding of discount on convertible debt
Reclassifi cations
Movement in fair value
Other non-cash movements
Currency movements
Balance at 1 January 2006
Cash fl ow
Acquisition and disposal of businesses(4)
Conversion to equity
Unwinding of discount on convertible debt
Reclassifi cations
Movement in fair value
Other non-cash movements
Currency movements
Balance at 31 December 2006
Debt due within
one year
Debt due after
one year
Cash and
cash equivalents(1)
2,781
602
–
–
–
–
–
(64)
3,319
(170)
–
–
–
–
–
–
(169)
2,980
Carrying
value
(3,272)
1,356
2
–
(300)
–
–
249
(1,965)
(193)
224
311
–
(509)
–
6
50
(2,076)
Hedge(2)
55
25
–
–
–
(67)
–
–
13
–
–
–
–
–
(7)
–
–
6
Carrying
value
(7,961)
632
5
(53)
299
12
–
703
(6,363)
(374)
1,480
757
(13)
438
5
(13)
(145)
(4,228)
Current
fi nancial asset
investments
Hedge(2)
302
–
–
–
–
(302)
–
–
–
–
–
–
–
–
187
–
–
187
2
(13)
–
–
1
–
29
(3)
16
(5)
(1)
–
–
–
–
(14)
4
–
Total
net debt(3)
(8,093)
2,602
7
(53)
–
(357)
29
885
(4,980)
(742)
1,703
1,068
(13)
(71)
185
(21)
(260)
(3,131)
(1) The Group operates in certain countries (principally South Africa and Venezuela) where the existence of exchange controls may restrict the use of certain cash balances. These restrictions are not expected to have any
material effect on the Group’s ability to meet its ongoing obligations.
(2) Derivative instruments that have been designated as hedges of assets and liabilities are included above to refl ect the true net debt position of the Group at the year end. These instruments are classifi ed within other
fi nancial assets and liabilities on the balance sheet.
(3) Net debt excluding the impact of hedges is $3,324 million (2005: $4,993 million) and consists of cash and cash equivalents of $2,980 million (2005: $3,319 million), short term borrowings of $2,076 million
(2005: $1,965 million), medium and long term borrowings of $4,228 million (2005: $6,363 million), and current fi nancial asset investments of nil (2005: $16 million).
(4) Includes net debt of $1,917 million which was transferred to ‘Investments in associates’.
Anglo American plc Annual Report 2006 | 119
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Notes to the fi nancial statements continued
30. Consolidated cash fl ow analysis continued
d) EBITDA by business segment
US$ million
By business segment
Platinum
Gold
Diamonds
Coal
Base Metals
Industrial Minerals
Ferrous Metals and Industries
Paper and Packaging
Exploration
Corporate Activities
EBITDA
EBITDA is stated before special items and remeasurements and is reconciled to ‘Total profi t from operations and associates’ as follows:
US$ million
Total profi t from operations and associates
Operating special items and remeasurements (including associates)
Net profi t on disposals (including associates)
Associates’ fi nancing remeasurements
Depreciation and amortisation: subsidiaries and joint ventures
Share of associates’ interest, tax, depreciation, amortisation and minority interests
EBITDA
2006
2005
2,845
843
541
1,082
4,214
580
1,560
923
(132)
(259)
12,197
2006
9,727
991
(1,367)
(26)
2,036
836
12,197
1,282
871
655
1,243
1,990
618
1,779
916
(150)
(245)
8,959
2005
5,601
640
(185)
(7)
2,441
469
8,959
31. Business combinations
32. Disposal of subsidiaries and businesses
The Group made one material acquisition in the year ended 31 December 2006.
The Group acquired a 100% interest in AltaSteel, including the remaining 50% of
Moly-Cop Canada, on 1 February 2006, for a total cash consideration of $84 million
(including transaction costs).
US$ million
Net assets acquired
Intangible assets
Tangible assets
Deferred tax assets
Other fi nancial assets (derivatives)
Other non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Short term borrowings
Overdrafts
Trade and other payables
Medium and long term borrowings
Retirement benefi t obligations
Deferred tax liabilities
Provisions for liabilities and charges
Other non-current liabilities
Equity minority interests
Revaluation on acquisition of
minority interests
Net assets acquired
Goodwill arising on acquisition
Negative goodwill arising
on acquisition
Total cost of acquisition
Satisfi ed by
Net cash acquired
Deferred consideration
Net cash paid
AltaSteel(1)
Carrying
value
Fair
value
Carrying
value
Other
Fair
value
Total fair
value
2006
–
74
–
40
1
30
27
8
–
–
(21)
–
(46)
(11)
–
–
–
–
102
3
75
–
40
1
30
27
8
–
–
(21)
–
(46)
(4)
(21)
–
–
–
92
–
(8)
84
8
–
76
5
116
1
–
–
41
55
11
(36)
(20)
(35)
(10)
(4)
(1)
(2)
(1)
15
–
135
1
182
3
–
–
41
55
11
(36)
(20)
(37)
(10)
(6)
(8)
(2)
(1)
3
4
180
41
(2)
219
(9)
18
210
4
257
3
40
1
71
82
19
(36)
(20)
(58)
(10)
(52)
(12)
(23)
(1)
3
4
272
41
(10)
303
(1)
18
286
(1) The revenue and operating profi t for the year ended 31 December 2006 of AltaSteel, including the
remaining 50% of Moly-Cop Canada, if the acquisition date had been at the beginning of the year, would
have been $93 million and $34 million respectively. The operating profi t for the period since acquisition
was $32 million.
There was one material acquisition made during the year to 31 December 2005.
The Group acquired the remaining 48.75% minority interest in Ticor Ltd for a total
cash consideration of $177 million. Net assets acquired in the transaction totalled
$191 million.
US$ million
2006
2005
Net assets disposed
Tangible assets
Other non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Minority interests
Group’s share of net assets immediately prior to disposal
Less: Retained investment in an associate
Less: Retained fi nancial asset investment
Less: Movement in share of assets arising on deemed disposal
Add: Purchase price adjustment
Add: Liabilities retained
Net assets disposed
Cumulative translation differences recycled from reserves
Increase in minority share
Fair value losses arising on transaction
Other
Net gain on disposal
Net sale proceeds
Net cash and cash equivalents disposed
Non-cash proceeds
Other
Net cash infl ow on disposals
7,925
1,027
3,115
(2,878)
(4,683)
4,506
(1,679)
2,827
(1,451)
(370)
(170)
10
–
846
(9)
220
52
13
1,072
2,194
(283)
(393)
2
1,520
178
87
408
(231)
(87)
355
(3)
352
–
–
–
–
95
447
–
–
–
–
30
477
(58)
–
–
419
Disposals recorded during the year principally include the partial disposal of AngloGold
Ashanti, disposal of the non-iron ore operations of Kumba Resources, disposal of a
49.8% interest in Highveld Steel and Vanadium and the disposal of a 15% interest in
Anglo Platinum’s Rustenburg Platinum Mines’ Union section mining and concentrating
business and interests in prospecting rights. Details of these disposals are included
below. The prior year disposals principally relate to Boart Longyear.
a) AngloGold Ashanti
On 20 April 2006 the Group completed the sale of 19.7 million ordinary shares held
in AngloGold Ashanti Limited for cash of $978 million. This, together with the Group’s
non-participation in the issue of additional ordinary shares, throughout the year, by
AngloGold Ashanti, diluted the Group’s percentage investment from 50.9% to 41.7%.
With effect from that date, the Group ceased to account for AngloGold Ashanti as a
subsidiary and began accounting for it as an associate under the equity method.
120
| Anglo American plc Annual Report 2006
32. Disposal of subsidiaries and businesses continued
a) AngloGold Ashanti continued
The net asset position at the date of disposal, together with the reclassifi cation to
an associate and resulting gain on disposal of shares and related net cash infl ow are
shown below:
US$ million
Tangible assets
Other non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Minority interest
Group’s share of AngloGold Ashanti net assets
immediately prior to disposal
Less: Retained investment in an associated
undertaking immediately after disposal
Net assets disposed
Cumulative translation differences recycled from reserves
Net gain on disposal
Net sale proceeds
Net cash and cash equivalents disposed
Other
Net cash infl ow from partial disposal of AngloGold Ashanti
c) Highveld Steel and Vanadium Corporation (Highveld)
On 14 July 2006, the Group announced the sale of Anglo American’s 79%
stake in Highveld to Evraz Group SA and Credit Suisse for a total consideration of
$678 million. The disposal of the initial 49.8%, for which Anglo American received
$412 million, followed certain regulatory approvals. Evraz has an option to acquire
Anglo American’s remaining 29.2% stake in Highveld for $266 million. This amount
will be reduced by any dividends paid by Highveld prior to Anglo American selling
its remaining shares. Anglo American and Credit Suisse have agreed that Anglo
American will retain the voting rights in respect of the shares acquired by Credit
Suisse until such time as Anglo American disposes of all its shares in Highveld. As
a result, the Group continues to consolidate Highveld (while recording an increased
minority interest).
The net asset position at the date of the initial disposal, 14 July 2006, together with
the resulting gain on disposal of shares and related net cash infl ow are shown below:
1,701
US$ million
Increase in minority share
Cumulative translation differences recycled from reserves
Other
Net gain on disposal
Net cash infl ow from partial disposal of Highveld
2006
100
5
6
301
412
2006
6,613
856
2,162
(2,596)
(4,233)
2,802
(1,101)
(1,451)
250
(9)
737
978
(147)
8
839
The non-participation in the issue of additional shares by AngloGold Ashanti further
diluted the percentage investment and thereby resulted in a deemed disposal. The
gain on deemed disposal is:
US$ million
Movement in share of net assets as a result of share issue
Deemed disposal of goodwill and mining properties
Cumulative translation differences recycled from reserves
Deemed gain on disposal
2006
187
(17)
2
172
b) Kumba (non-iron ore)
On 28 November 2006 the Kumba Resources BEE transaction was effected. Kumba
Iron Ore was accordingly unbundled from Kumba Resources (leaving the non-iron ore
operations) which was renamed Exxaro. The Group retained a 64% interest in Kumba
Iron Ore. The Group disposed of part of its investment in Exxaro through a share
buyback and sale of shares. The Group retains an interest of 23% in Exxaro over
which it does not exercise signifi cant infl uence and accordingly this has been held
as an available for sale fi nancial asset since 28 November 2006.
The net asset position of Exxaro at 28 November 2006, together with the resulting
loss on disposal of shares and related net cash infl ow are shown below:
US$ million
Tangible assets
Other non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Minority interest
Group’s share of Exxaro net assets immediately prior to disposal
Less: Retained fi nancial asset investment
Net assets disposed
Cumulative translation differences recycled from reserves
Increase in minority share
Fair value loss arising on transaction
Other
Net loss on disposal
Net sale proceeds
Net cash and cash equivalents disposed
Non-cash proceeds
Net cash infl ow from partial disposal of Exxaro
2006
1,186
145
887
(248)
(438)
1,532
(564)
968
(370)
598
(4)
50
36
9
(52)
637
(123)
(393)
121
d) Anglo Platinum’s Rustenburg Platinum Mines
On 8 November 2006, Anglo Platinum announced the conclusion of the BEE
transaction with the Bakgatla-Ba-Kgafela (Bakgatla) traditional community. In
terms of this transaction the Bakgatla acquired a 15% interest in Anglo Platinum’s
Rustenburg Platinum Mines’ Union section mining and concentrating business and
interests in prospecting rights of the Rooderand 46 JQ, portion 2 and Magazynskraal
3 JQ properties. The agreements became unconditional on 1 December 2006.
The net assets disposed together with the resulting loss and related cash infl ow are
shown below:
US$ million
Net assets disposed
Increase in minority share
Fair value charge arising on transaction
Net loss on disposal
Purchase price adjustment
Net cash infl ow from partial disposal of Union mine
2006
47
70
16
(84)
10
59
Anglo American plc Annual Report 2006 | 121
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Notes to the fi nancial statements continued
33. Disposal groups and non-current assets held for sale
36. Operating leases
Net assets relating to Kumba (non-iron ore) which were previously classifi ed as held
for sale at 30 June 2006, were disposed of on 28 November 2006 as disclosed in
note 32.
At 31 December 2006, the Group had the following outstanding commitments under
non-cancellable operating leases:
US$ million
Expiry date
Within one year
One to two years
Two to fi ve years
After fi ve years
2006
2005
93
71
202
500
866
88
85
112
321
606
37. Related party transactions
The Group has a related party relationship with its subsidiaries, associates and joint
ventures (see note 38).
At 31 December 2006, Anglo American holds $175 million (2005: $350 million)
of 10% non-cumulative redeemable preference shares in DBI.
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.
Dividends received from associates during the year totalled $276 million (2005:
$461 million), as disclosed in the consolidated cash fl ow statement.
During the year Anglo Coal made payments of $13 million in respect of wharfage
charges to the Richards Bay Coal Terminal, an associate of Anglo Coal. Additionally,
Anglo Coal made a long term loan to the Richards Bay Coal Terminal of $4 million to
fund operational and capital expenditure.
The directors of the Company and their immediate relatives control 3% (2005: 3%)
of the voting shares of the Company.
Remuneration and benefi ts received by directors is disclosed in the directors’
remuneration report. Remuneration and benefi ts of other key management personnel
is given in note 6.
Information relating to pension fund arrangements is disclosed in note 27.
The following assets and liabilities relating to disposal groups are classifi ed as held
for sale at 31 December 2006. The Group expects to complete the sale of these
businesses within 12 months of year end.
US$ million
Intangible assets
Tangible assets
Biological assets
Environmental rehabilitation trusts
Investments in associates
Financial asset investments
Other non-current assets
Total non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Short term borrowings
Trade and other payables
Other current fi nancial liabilities
Total current liabilities
Medium and long term borrowings
Provisions
Deferred tax liabilities
Retirement benefi t obligations
Total non-current liabilities
Total liabilities
Net assets
Namakwa
Highveld(1)
Sands(2)
–
322
–
–
–
15
–
337
116
160
60
336
673
(134)
(166)
(4)
(304)
(3)
(23)
(43)
(15)
(84)
(388)
285
2
278
–
2
–
–
1
283
38
41
–
79
362
–
(21)
–
(21)
–
(5)
(72)
(3)
(80)
(101)
261
Other
Total
4
42
16
–
47
5
–
114
12
24
3
39
153
(1)
(46)
–
(47)
(5)
(2)
(4)
–
(11)
(58)
95
6
642
16
2
47
20
1
734
166
225
63
454
1,188
(135)
(233)
(4)
(372)
(8)
(30)
(119)
(18)
(175)
(547)
641
(1) The Highveld disposal group is included in the Ferrous Metals and Industries business. Details of the
impending sale are included in note 32c.
(2) The Namakwa Sands disposal group is included in the Base Metals business. Details of the impending
sale are included in note 39.
The net carrying amount of assets and associated liabilities reclassifi ed as held for
sale during the year was written down by $28 million (after tax) (2005: $36 million)
in the current period to their fair value less costs to sell.
34. Capital commitments
US$ million
Contracted but not provided
2006
2005
1,886
1,247
35. Contingent liabilities and contingent assets
The Group is subject to various claims which arise in the ordinary course of business.
Having taken appropriate legal advice, the Group believe that the likelihood of a
material liability arising is remote. Contingent liabilities comprise aggregate amounts
of $214 million (2005: $163 million) in respect of loans and performance guarantees
given to banks and other third parties and are primarily in respect of environmental
restoration and decommissioning obligations.
At 31 December 2006, contingent liabilities of nil (2005: $2 million) were secured
on the assets of the Group.
There were no signifi cant contingent assets in the Group at either 31 December 2006
or 31 December 2005.
122
| Anglo American plc Annual Report 2006
38. Group companies
The principal subsidiaries, joint ventures, associates and proportionately consolidated joint arrangements of the Group at 31 December 2006, 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 fi nancial 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.
Subsidiary undertakings
Platinum
Anglo Platinum Limited
Coal
Anglo Coal(2)
Anglo Coal Holdings Australia Limited
Base Metals
Black Mountain Mineral Development(2)
Namakwa Sands(2)
Gamsberg Zinc Corporation(2)
Anglo American Brasil Limitada (Barro Alto)
Ambase Exploration (Namibia) Proprietary Limited (Skorpion)
Anglo American Brasil Limitada (Catalão)
Minera Sur Andes Limitada
Empresa Minera de Mantos Blancos SA
Anglo American Brasil Limitada (Codemin)
Minera Loma de Níquel, CA
Minera Quellaveco SA
Lisheen
Industrial Minerals
Tarmac Group Limited
Tarmac France SA
Lausitzer Grauwacke GmbH
Tarmac Iberia SA
WKSM SA
Tarmac CZ a.s.
Copebrás Limitada
Midland Quarry Products Limited
Tarmac SRL
Koca Beton Agrega Mining and Construction Industry
and Trading Company Limited
Ferrous Metals and Industries
Scaw Metals(2)/Moly-Cop/AltaSteel
Highveld Steel and Vanadium Corporation Limited(3)
Kumba Iron Ore Limited(4)
The Tongaat-Hulett Group Limited
Paper and Packaging
Mondi Business Papers SARL
Mondi South Africa Limited
Mondi Packaging SARL
Mondi Packaging Paper Swiecie SA
Mondi Packaging South Africa(5)
Europapier AG Austria(6)
Country of incorporation
Business
Percentage of equity owned(1)
2006
2005
South Africa
Platinum
75.4%
74.5%
South Africa
Australia
South Africa
South Africa
South Africa
Brazil
Namibia
Brazil
Chile
Chile
Brazil
Venezuela
Peru
Ireland
UK
France
Germany
Spain
Poland
Czech Republic
Brazil
UK
Romania
Turkey
Coal
Coal
100%
100%
100%
100%
Copper, zinc and lead
Mineral sands
Zinc project
Nickel project
Zinc
Niobium
Copper
Copper
Nickel
Nickel
Copper project
Zinc and lead
100%
100%
100%
100%
100%
100%
100%
99.9%
100%
91.4%
80.5%
100%
Construction materials
100%
100%
Construction materials
100%
Construction materials
100%
Construction materials
100%
Construction materials
100%
Construction materials
Fertilisers and sodium tripolyphosphate 73%
50%
Construction materials
60%
Construction materials
100%
Construction materials
100%
100%
100%
100%
100%
100%
100%
99.9%
100%
91.4%
80%
100%
100%
100%
100%
100%
100%
100%
73%
50%
–
–
South Africa/Chile/Canada
South Africa
South Africa
South Africa
Luxembourg
South Africa
Luxembourg
Poland
South Africa
Austria
Steel, engineering works and forged
grinding media
Steel, vanadium and ferroalloys
Iron ore
Sugar, starch and aluminium
Business paper
Business paper
Packaging
Packaging
Packaging
Paper merchanting
100%
100%
29.2%
64.1%
50.3%
100%
100%
100%
71%
55%
90%
79.0%
–
51.6%
100%
100%
100%
71%
55%
90%
(1) The proportion of voting rights of subsidiaries held by the Group is the same as the proportion of equity owned, unless stated below.
(2) A division of Anglo Operations Limited, a wholly owned subsidiary.
(3) Highveld Steel and Vanadium continues to be consolidated in the Group due to an additional 24.9% of the voting rights that Anglo American plc controls through shares held by Credit Suisse.
(4) During 2006 Kumba Iron Ore Limited was unbundled from Kumba Resources Limited (subsequently renamed Exxaro), which is now held as a fi nancial asset investment.
(5) Shareholding is shown on the basis that the commitments for employee share ownership in Mondi Packaging South Africa are fi nalised.
(6) Consolidated at 100% as the Group has a contractual agreement with the shareholder for the remaining 10%.
Anglo American plc Annual Report 2006 | 123
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Notes to the fi nancial statements continued
38. Group companies continued
Joint ventures
Aylesford Newsprint Holdings Limited
Compania Minera Dona Ines de Collahuasi SCM
Mondi Shanduka Newsprint (Pty) Ltd(8)
United Marine Holdings Ltd
AI Futtain Tarmac Quarry Products Limited
Associates
DB Investments SA
AngloGold Ashanti Limited
Queensland Coal Mine Management (Pty) Ltd
Cerrejón Zona Norte SA
Carbones del Cerrejón LLC
Carbones del Guasare SA
Samancor Holdings (Pty) Ltd(9)
Groote Eylandt Mining Company (Pty) Ltd (Gemco)
Tasmanian Electro Metallurgical Company (Pty) Ltd (Temco)
Bischof + Klein GmbH
(7) All equity interests shown are ordinary shares.
Country of incorporation
Business
Percentage of equity owned(7)
2006
2005
UK
Chile
South Africa
UK
Dubai
Luxembourg
South Africa
Australia
Colombia
Anguilla
Venezuela
South Africa
Australia
Australia
Germany
Newsprint
Copper
Newsprint
Construction materials
Construction materials
Diamonds
Gold
Coal
Coal
Coal
Coal
Manganese
Manganese
Manganese
Packaging
50%
44%
50%
50%
49%
45%
41.7%
33.3%
33.3%
33.3%
24.9%
40%
40%
40%
40%
50%
44%
50%
50%
49%
45%
50.9%
33.3%
33.3%
33.3%
24.9%
40%
40%
40%
40%
Percentage owned
2006
2005
88%
88%
70%
51%
88%
88%
70%
51%
(8) Shareholding is shown on the basis that the commitments for employee share ownership in Mondi Shanduka Newsprint are fi nalised.
(9) This entity has a 30 June year end.
Proportionately consolidated jointly controlled operations(10)(11)
Drayton
Moranbah North
German Creek
Dawson
Location
Business
Australia
Australia
Australia
Australia
Coal
Coal
Coal
Coal
(10) The wholly owned subsidiary Anglo Coal Holdings Australia Limited holds the proportionately consolidated jointly controlled operations.
(11) Dartbrook ceased to be a signifi cant joint venture in the year.
39. Events occurring after end of year
On 18 January 2007, Exxaro (formerly the non-iron ore operations of Kumba Resources) exercised its option (included in the original Kumba restructuring agreement effected
on 28 November 2006, refer to note 32) to acquire 100% of Namakwa Sands as well as a 26% interest in each of Black Mountain and Gamsberg. Sale proceeds include
a base price of $314 million (ZAR 2,195 million) as well as adjustments for working capital, exploration expenditure, capital expenditure and tax recoupments. The sale is
contingent on conversion of old order mining rights.
On 8 February 2007, Anglo Coal announced the creation of Anglo Inyosi Coal, an empowered coal company housing key future domestic and export focused coal operations.
Anglo Coal has signed a Heads of Agreement (HoA) with Inyosi, a newly formed broad based BEE company through which Inyosi will acquire 27% of Anglo Inyosi Coal.
This will create a company valued at ZAR 7 billion incorporating several key Anglo Coal assets, namely the existing Kriel colliery and the greenfi eld projects of Elders,
Zondagsfontein, New Largo and Heidelberg. Anglo Coal South Africa will retain the following collieries: Greenside, Goedehoop, Isibonelo, Kleinkopje, Landau, New Denmark,
New Vaal and Mafube, a 50:50 joint venture with Eyesizwe. Anglo American will own 73% of Anglo Inyosi Coal.
With the exception of the above and the proposed fi nal dividend for 2006, disclosed in note 10, there have been no material reportable events since 31 December 2006.
124
| Anglo American plc Annual Report 2006
40. Financial statements of the parent company
a) Balance sheet of the Company, Anglo American plc
US$ 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
Amounts owed to subsidiaries
Other creditors
Net current liabilities
Total assets less current liabilities
Long term liabilities
Convertible bond
Deferred tax liabilities
Net assets
Capital and reserves
Called-up share capital
Share premium account
Capital redemption reserve
Other reserves
Share-based payment reserve
Convertible debt reserve
Profi t and loss account
Total shareholders’ funds (equity)
The fi nancial statements were approved by the Board of directors on 20 February 2007.
Tony Trahar
Chief executive
René Médori
Finance director
Note
40c
40b
40b
40b
40b
40b
40b
40b
2006
2005
12,875
12,875
630
124
2
756
337
158
33
528
(70)
(3,946)
(4)
(37)
(3,534)
(9)
(4,020)
(3,580)
(3,264)
(3,052)
9,611
9,823
–
–
9,611
771
2,713
82
1,955
15
–
4,075
9,611
(1,058)
(11)
8,754
747
1,637
82
1,955
9
131
4,193
8,754
Anglo American plc Annual Report 2006 | 125
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Notes to the fi nancial statements continued
40. Financial statements of the parent company continued
b) Reconciliation of movements in equity shareholders’ funds
US$ million
Balance at 1 January 2005
Profi t for the fi nancial year
Issue of treasury shares under employee
share schemes
Share-based payments
Shares issued
Transfers
Dividends paid(2)
Balance at 1 January 2006
Pro it for the fi nancial year
Issue of treasury shares under employee
share schemes
Share-based payments
Shares issued and reclassifi cation on
conversion of bond
Convertible debt reserve transfer to
retained earnings
Deferred tax recognised in reserves
Share buybacks
Dividends paid(2)
Balance at 31 December 2006
Called-up
share
capital
Share
premium
account
Capital
redemption
reserve
Other
reserves
Share-based
payment
reserve
Convertible
debt
reserve
747
–
1,633
–
–
–
–
–
–
747
–
–
–
–
–
4
–
–
1,637
–
–
–
24
1,076
–
–
–
–
–
–
–
–
82
–
–
–
–
–
–
82
–
–
–
–
–
–
–
–
1,955
–
–
–
–
–
–
1,955
–
–
–
–
–
–
–
–
4
–
–
5
–
–
–
9
–
–
6
–
–
–
–
–
128
–
–
–
–
3
–
131
–
–
–
(32)
(109)
10
–
–
Profi t
and loss
account(1)
906
3,720
240
–
–
(3)
(670)
4,193
3,511
265
–
Total
5,455
3,720
240
5
4
–
(670)
8,754
3,511
265
6
–
1,068
109
(2)
(2,010)
(1,991)
–
8
(2,010)
(1,991)
9,611
771
2,713
82
1,955
15
–
4,075
(1) At 31 December 2006, $358 million (2005: $316 million) of the Company profi t and loss account of $4,075 million (2005: $4,193 million) was not distributable under
the Companies Act 1985.
(2) Dividends paid relate only to shareholders on the United Kingdom principal register excluding dividends waived by Greenwood Nominees Limited as nominees for
Butterfi eld 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.
The audit fee in respect of the parent company was $28,000 (2005: $27,000).
c) Fixed asset investments
US$ million
Cost
At 1 January
Acquisitions
Disposals
Transfer of long term loans to amounts due from subsidiaries
At 31 December
Provisions for impairment
At 1 January
Charge for the year
At 31 December
Net book value
At 31 December
2006
Investments
in subsidiaries’
equity
2005
Investments
in subsidiaries’
equity
12,883
–
–
–
12,883
(8)
–
(8)
12,459
1,408
(885)
(99)
12,883
(8)
–
(8)
12,875
12,875
126
| Anglo American plc Annual Report 2006
Investments
Investments represent equity holdings in subsidiaries, joint ventures and associates
and are held at cost.
Convertible debt
Convertible bonds denominated in the functional currency of the entity issuing the
shares are regarded as compound instruments, consisting of a liability and an equity
component. At the date of issue, the fair value of the liability component is estimated
using the prevailing market interest rate for similar non-convertible debt and is
recorded within borrowings. The difference between the proceeds of issue of the
convertible bond and the fair value assigned to the liability component, representing
the embedded option to convert the liability into equity of the Company, is included
in equity.
Issue costs are apportioned between the liability and equity components of the
convertible bonds where appropriate based on their relative carrying amounts at
the date of issue. The portion relating to the equity component is charged directly
against equity.
The interest expense on the liability component is calculated by applying the
effective interest rate for similar non-convertible debt to the liability component of
the instrument. The difference between this amount and the interest paid is added
to the carrying amount of the convertible bond.
Bank borrowings
Interest bearing bank loans and overdrafts are recorded at the proceeds received,
net of direct transaction costs. Finance charges, including premiums payable on
settlement or redemption and direct issue costs, are accounted for on an accruals
basis and charged to the income statement using the effective interest method and
are added to the carrying amount of the instrument to the extent that they are not
settled in the period in which they arise.
d) Accounting policies: Anglo American plc, the Company
The Anglo American plc (the Company) balance sheet and related notes have
been prepared in accordance with United Kingdom Generally Accepted Accounting
Principles (UK GAAP) and in accordance with UK company law. The fi nancial
information has been prepared on a historical cost basis as modifi ed by the
revaluation of certain fi nancial instruments.
A summary of the principal accounting policies is set out below.
The preparation of fi nancial statements in accordance with UK GAAP requires the
use of estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the fi nancial statements and the reported amounts
of revenues and expenses during the period. Although these estimates are based
on management’s best knowledge of the amount, event or actions, following
implementation of these standards, actual results may differ from those estimated.
As permitted by section 230 of the Companies Act, the profi t and loss account
of the Company is not presented as part of these fi nancial statements. The profi t after
tax for the year of the Company amounted to $3,511 million (2005: $3,720 million).
Signifi cant accounting policies
Retirement benefi ts
The Company operates both defi ned benefi t and defi ned contribution schemes for its
employees as well as post retirement medical plans. As the Company has elected to
take advantage of the exemption included in FRS 17 Retirement Benefi ts in respect of
multi-employer defi ned benefi t pension schemes, these schemes are accounted for
as though they were defi ned contribution schemes. For defi ned contribution schemes
the amount charged to the income statement is the contributions paid or payable
during the year.
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.
Share-based payments
The Company has applied the requirements of FRS 20 Share-based Payment. In
accordance with the transitional provisions, FRS 20 has been applied to all grants of
equity instruments after 7 November 2002 that had not vested as at 1 January 2005.
The Company makes equity settled share-based payments to the directors, which are
measured at fair value at the date of grant. For those share schemes which do not
include non-market vesting conditions, the fair value is determined using the Monte
Carlo method at the grant date and expensed on a straight line basis over the vesting
period, based on the Company’s estimate of shares that will eventually vest. The fair
value of share options issued with non-market vesting conditions has been calculated
using the Black Scholes model. For all other share awards, the fair value is determined
by reference to the market value of the share at the date of grant. For all share
schemes with non-market related vesting conditions, the likelihood of vesting has
been taken into account when determining the associated charge. Vesting assumptions
are reviewed during each reporting period to ensure they refl ect current expectations.
Accounting for share-based payments is the same as under IFRS 2 and details on the
schemes and option pricing models relevant to the charge included in the Company
fi nancial statements is set out in note 28 to the consolidated fi nancial statements of
the Group for the year ended 31 December 2006.
Anglo American plc Annual Report 2006 | 127
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Ore Reserves and Mineral Resources estimates
Introduction
The Ore Reserve and Mineral Resource estimates presented in this report are prepared in accordance with the Anglo American 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 subsidiaries 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
2000 edition (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 defi nitions in both the JORC (2004) and SAMREC (2000) Codes.
The information on Ore Reserves and Mineral Resources was prepared by or under the supervision of Competent Persons as defi ned in the
JORC or SAMREC Codes. All Competent Persons have suffi cient experience relevant to the style of mineralisation and type of deposit under
consideration and to the activity which they are 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 Anglo
American 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 suitably qualifi ed Competent Persons from within a particular division, another
division of the Company or from independent consultants. The frequency and depth of the audits is a function of the risks and/or uncertainties
associated with a particular Ore Reserve and Mineral Resource, the overall value thereof and time that has lapsed since an independent third
party audit has been conducted. Those operations/projects subject to independent, third party audits during the year 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 forecasts
which are prepared by in-house specialists largely using estimates of future supply and demand and long term economic outlooks. Ore
Reserve estimates are dynamic and are infl uenced by changing economic conditions, technical issues, environmental regulations and relevant
new information and therefore can vary from year to year. Mineral Resource estimates also change and tend to be infl uenced mostly by new
information pertaining to the understanding of the deposit and secondly by the conversion to Ore Reserves.
The estimates of Ore Reserves and Mineral Resources are as at 31 December 2006. Unless otherwise stated, Mineral Resources are additional
to those resources which have been modifi ed to produce the Ore Reserves. The fi gures in the tables have been rounded and, if used to derive
totals and averages, could cause minor computational differences. Ore Reserves in the context of this report have the same meaning as ‘Mineral
Reserves’ as defi ned by the SAMREC Code. Metric units are used throughout the report. In addition alternative units are also used for Anglo
Platinum and AngloGold Ashanti.
* A ‘Mineral Resource’ is a concentration or occurrence of material of intrinsic economic interest in or on the Earth’s crust in such form, quality and quantity that there
are reasonable prospects for eventual economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known,
estimated or interpreted from specifi c geological evidence and knowledge. Mineral Resources are sub-divided, in order of increasing geological confi dence, into Inferred,
Indicated and Measured categories.
An ‘Inferred Mineral Resource’ is that part of a Mineral Resource for which tonnage, grade and mineral content can be estimated with a low level of confi dence. It is
inferred from geological evidence and assumed but not verifi ed geological and/or grade continuity. It is based on information gathered through appropriate techniques
from locations such as outcrops, trenches, pits, workings and drill holes which may be limited or of uncertain quality and reliability.
An ‘Indicated Mineral Resource’ is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be
estimated with a reasonable level of confi dence. It is based on exploration, sampling and testing information gathered through appropriate techniques from locations
such as outcrops, trenches, pits, workings and drill holes. The locations are too widely or inappropriately spaced to confi rm geological and/or grade continuity but are
spaced closely enough for continuity to be assumed.
A ‘Measured Mineral Resource’ is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be
estimated with a high level of confi dence. It is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques
from locations such as outcrops, trenches, pits, workings and drill holes. The locations are spaced closely enough to confi rm geological and grade continuity.
An ‘Ore Reserve’ is the economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may
occur when the material is mined. Appropriate assessments and studies have been carried out, and include consideration of and modifi cation by realistically assumed
mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that
extraction could reasonably be justifi ed. Ore Reserves are sub-divided in order of increasing confi dence into Probable Ore Reserves and Proved Ore Reserves.
A ‘Probable Ore Reserve’ is the economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource. It includes diluting materials and
allowances for losses which may occur when the material is mined. Appropriate assessments and studies have been carried out, and include consideration of and
modifi cation by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors These assessments demonstrate
at the time of reporting that extraction could reasonably be justifi ed.
A ‘Proved Ore Reserve’ is the economically mineable part of a Measured Mineral Resource. It includes diluting materials and allowances for losses which may occur
when the material is mined. Appropriate assessments and studies have been carried out, and include consideration of and modifi cation by realistically assumed mining,
metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could
reasonably be justifi ed.
128
| Anglo American plc Annual Report 2006
In South Africa, the Minerals and Petroleum Resources Development Act, Number 28 of 2002 (MPRDA) was implemented on 1 May 2004, and
effectively transferred custodianship of the previously privately held mineral rights to the State. Mining companies were given up to two years to
apply for prospecting permit conversions and fi ve years to apply for mining licence conversions for existing operations.
A Prospecting Right is a new order right that is valid for up to fi ve years, with the possibility of a further extension of three years, that can
be obtained either by the conversion of existing old order prospecting permits or through new applications. An Exploration Right is identical to
a Prospecting Right, but is commodity specifi c in respect of petroleum and gas and is valid for up to three years which can be renewed for a
maximum of 3 periods not exceeding two years each.
A Mining Right is a new order right valid for up to 30 years obtained either by the conversion of an old order mining licence, or as a new order right
pursuant to the exercise of the exclusive right of the holder of a new order Prospecting Right, or pursuant to an application for a new Mining Right.
A Production Right is identical to a Mining Right, but is commodity specifi c in respect of petroleum and gas.
In preparing the Ore Reserve and Mineral Resource statement for South African assets, Anglo American plc has adopted the following reporting
principles in respect of Prospecting Rights and Mining Rights:
•
•
•
Where applications for new order Mining Rights and Prospecting Rights have been submitted and these are still being processed by the
relevant regulatory authorities, the relevant reserves and resources have been included in the statement;
Where applications for the conversion of old order mining licenses to new order Mining Rights have not yet been submitted and the required
deadline (typically April 2009) for submission has not passed, the relevant reserves and resources have been included in the statement;
Where applications for new order Prospecting Rights have been initially refused by the regulatory authorities, but are the subject of ongoing
legal process and discussions with the relevant authorities and where Anglo American plc has reasonable expectations that the Prospecting
Rights will be granted in due course, the relevant resources have been included in the statement (any associated comments appear in the
footnotes).
Anglo American plc Annual Report 2006 | 129
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Ore Reserves and Mineral Resources estimates continued
(stated as at 31 December 2006)
Platinum
The 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).
Rounding of fi gures may cause computational discrepancies. The Mineral Resources are additional to the Ore Reserves. Mineral Resources are
reported over an economic and mineable resource cut appropriate to specifi c ore deposits which form the basis of the consolidated reef fi gures.
The fi gures reported represent 100% of the Mineral Resources and Ore Reserves attributable to Anglo Platinum Limited unless otherwise noted.
Anglo American plc’s interest in Anglo Platinum is 75.37%.
Anglo Platinum
Ore Reserves
Merensky Reef(4)
Classifi cation
2006
UG2 Reef(5)
Platreef(6)
All Reefs
Tailings(8)
Proved
Probable
Total
Proved
Probable
Total
Proved
Proved (stockpiles) (7)
Probable
Total
95.5
105.9
201.4
347.2
403.5
750.7
319.6
16.4
110.8
446.9
Proved
Probable
778.7
620.3
Tonnes(1)
million
2005
98.6
118.7
217.3
279.5
420.8
700.3
276.9
12.4
59.1
348.3
667.4
598.6
Grade(2)
g/t
2005
Contained metal
tonnes
2006
2005
4E PGE
5.42
5.70
5.57
4E PGE
4.03
4.12
4.09
4E PGE
3.21
2.76
3.29
3.21
4E PGE
3.87
4.35
529.1
612.4
1,141.5
534.4
676.8
1,211.2
1,585.1
1,761.6
3,346.7
1,127.4
1,735.6
2,863.0
1,045.5
43.7
406.9
1,496.0
889.8
34.1
194.1
1,118.0
3,203.3
2,781.0
2,585.7
2,606.5
4.10
5,984.2
5,192.2
2006
4E PGE
5.54
5.78
5.67
4E PGE
4.57
4.37
4.46
4E PGE
3.27
2.66
3.67
3.35
4E PGE
4.11
4.48
4.28
Total
1,399.0
1,265.9
Total (alternative units) (3) 1,542.1Mton 1,395.5Mton 0.125oz/t 0.120oz/t
Proved
Probable
Total
–
43.6
43.6
–
48.2
48.2
4E PGE
–
1.00
1.00
4E PGE
–
0.98
0.98
–
43.7
43.7
–
47.2
47.2
Total (alternative units) (3)
48.1Mton
53.2Mton 0.029oz/t 0.029oz/t
Contained metal
million troy ounces
2006
Moz
17.0
19.7
36.7
Moz
51.0
56.6
107.6
Moz
33.6
1.4
13.1
48.1
Moz
103.0
89.4
192.4
Moz
–
1.4
1.4
2005
Moz
17.2
21.8
38.9
Moz
36.2
55.8
92.0
Moz
28.6
1.1
6.2
35.9
Moz
83.1
83.8
166.9
Moz
–
1.5
1.5
A Joint Venture (JV) agreement has been fi nalised with the Bakgatla-Ba-Kgafela tribe affecting the Merensky and UG2 Ore Reserves of Union Section.
(1) Tonnage: quoted as metric tonnes.
(2) Grade: 4E PGE is the sum of platinum, palladium, rhodium and gold grades in grammes per tonne (g/t).
(3) Alternative units: tonnage in million short tons (Mton) and grade in troy ounces per short ton (oz/t).
(4) Merensky Reef: The 2006 exploration programme at Amandelbult Section lead to an increase in the estimate of the geological losses and a decrease in the stope width
which accounts for the decrease in Probable Ore Reserves.
(5) UG2 Reef: Increases are mainly due to the conversion of Mineral Resources to Ore Reserves at Twickenham Platinum Mine Project (pre-feasibility study completed) and
additional drilling at both Amandelbult Section and Lebowa Platinum Mine.
(6) Platreef: Geo-technical constraints imposed in 2005 at PPRust North were reviewed and revised by an independent consultant. As a result the pit was re-designed,
accounting for the increase in the Ore Reserves and a subsequent decrease in Measured Mineral Resources.
(7) Platreef stockpiles: These are reported separately as Proved Ore Reserves and aggregated into the summation tabulations.
(8) Tailings: These are reported separately as Ore Reserves but are not aggregated in the total Ore Reserve fi gures.
The following operations/projects were reviewed during 2006 by an external third party consulting fi rm: Ga-Phasha PGM Project, Der Brochen Project, Booysendal Project,
BRPM JV (Styldrift).
130
| Anglo American plc Annual Report 2006
Anglo Platinum
Mineral Resources
Merensky Reef(4)
Classifi cation
2006
UG2 Reef(5)
Platreef(6)
All Reefs
Tailings(7)
Measured
Indicated
Measured and Indicated
Inferred
Total
96.4
248.3
344.7
1,095.9
1,440.6
Measured
Indicated
Measured and Indicated
Inferred
Total
312.3
634.3
946.6
1,321.4
2,268.0
Measured
Indicated
Measured and Indicated
Inferred
Total
158.8
791.2
950.0
1,449.4
2,399.4
Measured
Indicated
Measured and Indicated
Inferred
567.6
1,673.8
2,241.4
3,866.7
Tonnes(1)
million
2005
68.4
250.0
318.4
1,057.8
1,376.2
262.7
660.7
923.4
1,394.3
2,317.7
206.1
715.0
921.2
1,472.5
2,393.7
537.2
1,625.8
2,163.0
3,924.6
Grade(2)
g/t
2005
Contained metal
tonnes
2006
2005
4E PGE
5.62
5.30
5.37
5.54
5.50
4E PGE
5.48
5.45
5.46
5.41
5.43
4E PGE
2.58
2.46
2.48
1.79
2.05
4E PGE
4.38
4.11
4.18
4.09
523.0
1,337.8
1,860.7
6,010.9
7,871.6
384.7
1,326.2
1,710.9
5,863.5
7,574.4
1,725.3
3,404.9
5,130.3
7,325.5
1,438.1
3,601.6
5,039.6
7,550.2
12,455.7 12,589.8
303.2
1,757.7
2,061.0
2,643.9
4,704.9
531.2
1,757.1
2,288.3
2,629.2
4,917.5
2,551.5
6,500.5
9,052.0
15,980.3
2,354.0
6,684.9
9,038.9
16,042.9
4.12 25,032.3 25,081.8
2006
4E PGE
5.42
5.39
5.40
5.48
5.46
4E PGE
5.52
5.37
5.42
5.54
5.49
4E PGE
1.91
2.22
2.17
1.82
1.96
4E PGE
4.50
3.88
4.04
4.13
4.10
Total
6,108.1
6,087.6
Total (alternative units) (3) 6,732.9Mton 6,710.4Mton 0.120oz/t
0.120oz/t
Measured
Indicated
Measured and Indicated
Inferred
Total
–
152.3
152.3
–
152.3
–
161.9
161.9
–
161.9
4E PGE
–
1.06
1.06
–
1.06
4E PGE
–
1.05
1.05
–
1.05
–
160.9
160.9
–
160.9
–
170.2
170.2
–
170.2
Total (alternative units) (3)
167.9Mton 178.5Mton 0.031oz/t 0.031oz/t
Contained metal
million troy ounces
2006
Moz
16.8
43.0
59.8
193.3
253.1
Moz
55.5
109.5
164.9
235.5
400.5
Moz
9.7
56.5
66.3
85.0
151.3
Moz
82.0
209.0
291.0
513.8
804.8
Moz
–
5.2
5.2
–
5.2
2005
Moz
12.4
42.6
55.0
188.5
243.5
Moz
46.2
115.8
162.0
242.7
404.8
Moz
17.1
56.5
73.6
84.5
158.1
Moz
75.7
214.9
290.6
515.8
806.4
Moz
–
5.5
5.5
–
5.5
A new Joint Venture (JV) agreement has been fi nalised with the Bakgatla-Ba-Kgafela tribe affecting the Merensky and UG2 Mineral Resources of Union Section, Rooderand 46
JQ - Portion 2 and Magazynskraal 3 JQ.
(1) Tonnage: quoted as metric tonnes.
(2) Grade: 4E PGE is the sum of platinum, palladium, rhodium and gold grades in grammes per tonne (g/t).
(3) Alternative units: tonnage in million short tons (Mton) and grade in troy ounces per short ton (oz/t).
(4) Merensky Reef: Measured Resource tonnes increase as a result of additional drilling and higher geo-scientifi c confi dence in the estimates at BRPM JV (Styldrift) and
Modikwa JV.
(5) UG2 Reef: The increase in the UG2 Measured Resource is mainly due to increased confi dence in the estimates obtained through an extensive drilling programme and
updated resource evaluation modelling at Rustenburg Section, Amandelbult Section, Lebowa Platinum Mine, BRPM JV and Modikwa JV.
(6) Platreef: Measured Mineral Resources decrease is due to conversion to Ore Reserves at PPRust North (new pit design). Additional drilling information at Zwartfontein
North identifi ed structural complexities resulting in a reallocation to Indicated Resources. These decreases are offset by an increased planned pit-depth at Zwartfontein
South.
(7) Tailings: These are reported separately as Mineral Resources but are not aggregated in the total Mineral Resource fi gures.
Where applications for new order Prospecting Rights have been initially refused by the relevant authorities and are still the subject of ongoing judicial review and Anglo
Platinum has a reasonable expectation that the Prospecting Rights will be granted in due course, the relevant resources have been included in the statement. Approximately
66Moz of Mineral Resources are affected.
Anglo American plc Annual Report 2006 | 131
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Ore Reserves and Mineral Resources estimates continued
(stated as at 31 December 2006)
Anglo Platinum
Ore Reserves
Other Projects
Zimbabwe
Unki – Great Dyke
Classifi cation
2006
Proved
Probable
Total
5.2
43.2
48.4
Tonnes(1)
million
2005
5.2
43.2
48.4
2006
4E PGE
3.60
3.81
3.78
Grade(2)
g/t
2005
4E PGE
3.81
3.81
3.81
Contained metal
tonnes
Contained metal
million troy ounces
2006
2005
2006
2005
18.8
164.5
183.3
19.9
164.5
184.4
Moz
0.6
5.3
5.9
Moz
0.6
5.3
5.9
Total (alternative units) (3)
53.4Mton
53.4Mton 0.110oz/t
0.111oz/t
Anglo Platinum
Mineral Resources
Other Projects
Zimbabwe
Classifi cation
2006
Unki – Great Dyke
Measured
Indicated
Measured and Indicated
Inferred
7.9
11.7
19.5
98.7
Tonnes(1)
million
2005
7.9
11.7
19.5
98.7
Total
118.2
118.2
Grade(2)
g/t
2005
4E PGE
4.08
4.28
4.20
4.29
4.28
2006
4E PGE
4.08
4.28
4.20
4.29
4.28
Total (alternative units) (3)
130.3Mton 130.3Mton 0.125oz/t
0.125oz/t
South Africa
Anooraq – Anglo Platinum JV(4)
Platreef
Measured
Indicated
Measured and Indicated
Inferred
–
88.3
88.3
52.0
–
88.3
88.3
52.0
Total
140.4
140.4
3E PGE
3E PGE
–
1.35
1.35
1.23
1.31
–
1.35
1.35
1.23
1.31
Total (alternative units) (3)
154.7Mton 154.7Mton 0.038oz/t 0.038oz/t
Sheba’s Ridge(5)
Measured
Indicated
Measured and Indicated
Inferred
Total
143.1
109.6
252.7
18.7
271.4
143.1
109.6
252.7
18.7
271.4
3E PGE
0.74
0.80
0.77
0.71
0.77
3E PGE
0.74
0.80
0.77
0.71
0.77
Total (alternative units) (3)
299.1Mton 299.1Mton 0.022oz/t 0.022oz/t
Canada
River Valley(6)
Measured
Indicated
Measured and Indicated
Inferred
Total
4.3
11.0
15.3
1.2
16.5
4.3
11.0
15.3
1.2
16.5
3E PGE
1.79
1.20
1.37
1.24
1.36
3E PGE
1.79
1.20
1.37
1.24
1.36
Total (alternative units) (3)
18.2Mton
18.2Mton 0.040oz/t 0.040oz/t
Brazil
Pedra Branca(7)
Measured
Indicated
Measured and Indicated
Inferred
Total
–
–
–
6.6
6.6
–
–
–
6.5
6.5
3E PGE
–
–
–
2.27
2.27
3E PGE
–
–
–
2.27
2.27
Total (alternative units) (3)
7.3Mton
7.2Mton 0.066oz/t 0.066oz/t
Contained metal
tonnes
2006
2005
32.1
49.9
82.1
423.5
505.6
–
119.3
119.3
64.0
183.3
106.3
88.1
194.4
13.3
207.7
7.6
13.3
20.9
1.5
22.4
–
–
–
15.0
15.0
32.1
49.9
82.1
423.5
505.6
–
119.2
119.2
64.0
183.3
106.3
88.1
194.4
13.3
207.7
7.6
13.3
20.9
1.5
22.4
–
–
–
14.7
14.7
Contained metal
million troy ounces
2006
Moz
1.0
1.6
2.6
13.6
16.3
Moz
–
3.8
3.8
2.1
5.9
Moz
3.4
2.8
6.3
0.4
6.7
Moz
0.2
0.4
0.7
0.0
0.7
Moz
–
–
–
0.5
0.5
2005
Moz
1.0
1.6
2.6
13.6
16.3
Moz
–
3.8
3.8
2.1
5.9
Moz
3.4
2.8
6.3
0.4
6.7
Moz
0.2
0.4
0.7
0.0
0.7
Moz
–
–
–
0.5
0.5
132
| Anglo American plc Annual Report 2006
Platinum continued
(1) Tonnage: quoted as metric tonnes.
(2) Grade: 4E PGE is the sum of platinum, palladium, rhodium and gold grades in grammes per tonne (g/t).
3E PGE is the sum of platinum, palladium and gold grades in grammes per tonne (g/t).
(3) Alternative units: tonnage in million short tons (Mton) and grade in troy ounces per short ton (oz/t).
(4) Anooraq-Anglo Platinum JV: Anglo Platinum holds an attributable interest of 50%. A cut-off of US$20 gross metal value per tonne was applied.
(5) Sheba’s Ridge: Anglo Platinum holds an attributable interest of 35%. A cut-off of US$10.5 per tonne total revenue contribution from the constituent metals was applied.
(6) River Valley: Anglo Platinum holds an attributable interest of 50%. A cut-off of 0.7 g/t (platinum + palladium) was applied.
(7) Pedra Branca: Anglo Platinum holds an attributable right of 51%. A cut-off of 0.7 g/t (3E) was applied.
Anglo American plc Annual Report 2006 | 133
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Ore Reserves and Mineral Resources estimates continued
(stated as at 31 December 2006)
Gold
The 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).
Rounding of fi gures may cause computational discrepancies. AngloGold Ashanti reports Mineral Resources ‘as inclusive of those Mineral Resources
modifi ed to produce the Ore Reserve’ (JORC), i.e. the Ore Reserves are included in the Mineral Resource fi gures. The fi gures reported represent
100% of the Mineral Resources and Ore Reserves attributable to AngloGold Ashanti. Anglo American plc’s interest in AngloGold Ashanti is 41.67%.
AngloGold Ashanti
Ore Reserves
South Africa
Argentina(3)
Australia(4)
Brazil
Ghana
Guinea
Mali(5)
Namibia(6)
Tanzania
USA(7)
Total
Classifi cation
2006
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
15.5
181.6
197.2
0.9
6.9
7.7
54.9
133.2
188.0
3.7
10.3
14.0
50.8
74.5
125.3
18.2
52.7
70.9
15.7
20.8
36.4
5.3
10.1
15.5
4.0
74.9
79.0
93.4
35.6
129.0
262.4
600.6
863.0
Tonnes(1)
million
2005
14.5
188.7
203.2
1.6
4.5
6.0
47.7
102.5
150.2
2.7
9.8
12.5
39.5
46.7
86.1
23.6
36.7
60.3
9.7
9.3
18.9
1.2
8.9
10.1
22.1
40.4
62.4
87.4
31.8
119.1
249.8
479.2
729.0
2006
7.86
3.99
4.29
7.09
6.22
6.32
1.18
1.02
1.06
5.60
7.40
6.92
2.13
3.10
2.71
0.60
0.85
0.79
1.79
2.85
2.39
1.08
1.63
1.44
0.97
3.47
3.34
0.93
0.91
0.93
1.74
2.70
2.41
Grade
g/t
2005
7.54
3.84
4.10
7.99
6.53
6.91
1.16
1.17
1.17
6.01
7.45
7.14
1.94
5.44
3.84
0.62
1.00
0.85
2.75
3.95
3.34
1.85
1.65
1.67
3.40
4.69
4.23
0.86
0.86
0.86
1.86
3.14
2.70
Contained metal
tonnes
Contained metal
million troy ounces(2)
2006
122.0
724.7
846.7
6.1
42.7
48.8
64.7
135.4
200.1
20.8
76.3
97.1
108.2
231.3
339.5
10.8
45.0
55.8
28.0
59.1
87.1
5.8
16.5
22.3
3.9
259.6
263.5
87.0
32.5
119.5
2005
109.0
725.0
834.0
12.6
29.2
41.8
55.2
120.2
175.3
16.2
73.2
89.4
76.7
254.0
330.7
14.5
36.6
51.1
26.5
36.5
63.1
2.2
14.7
16.9
75.1
189.2
264.3
75.4
27.4
102.7
457.3
1,623.1
463.4
1,506.0
2,080.4
1,969.4
2006
3.9
23.3
27.2
0.2
1.4
1.6
2.1
4.4
6.4
0.7
2.5
3.1
3.5
7.4
10.9
0.3
1.4
1.8
0.9
1.9
2.8
0.2
0.5
0.7
0.1
8.3
8.5
2.8
1.0
3.8
14.7
52.2
66.9
2005
3.5
23.3
26.8
0.4
0.9
1.3
1.8
3.9
5.6
0.5
2.4
2.9
2.5
8.2
10.6
0.5
1.2
1.6
0.9
1.2
2.0
0.1
0.5
0.5
2.4
6.1
8.5
2.4
0.9
3.3
14.9
48.4
63.3
Total (alternative units) (2)
951.3Mton 803.6Mton 0.070oz/t 0.079oz/t
(1) Tonnage: quoted as metric tonnes.
(2) Alternative 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) Argentina: Cerro Vanguardia – increase in Moz due to a successful exploration programme and increased gold price.
(4) Australia: Boddington – increase in Moz due to a successful exploration programme resulting in an upgrade of Inferred Mineral Resources in the pit as well as increased gold
and copper prices, Sunrise Dam – increase in Moz due to the inclusion of North-Wall Cutback and Cosmo Ore-bodies as a result of an increased gold price.
(5) Mali: Sadiola – increase in Moz due to the inclusion of the Deep Sulphide Project, Yatela – increase in Moz due to the inclusion of an additional cutback, Morila – increase in
Moz as marginal ore is now economic due to the increased gold price.
(6) Namibia: Navachab – increase in Moz as marginal ore is now economic and the pit is larger due to the increased gold price.
(7) USA: Cripple Creek and Victor – increase in Moz due to a planned extension of life.
134
| Anglo American plc Annual Report 2006
Gold continued
AngloGold Ashanti
Mineral Resources
South Africa
Argentina(3)
Australia(4)
Brazil
Ghana(8)
Guinea(9)
Mali(10)
Namibia(11)
Tanzania(12)
USA
Total
Classifi cation
2006
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
27.3
528.5
28.4
584.2
11.4
17.5
10.4
39.2
71.2
213.9
233.3
518.4
8.6
18.5
25.7
52.8
82.1
93.3
43.9
219.3
18.7
74.1
131.4
224.1
18.8
23.4
16.7
59.0
11.4
53.8
33.7
98.9
4.0
114.2
24.3
142.5
180.3
95.7
14.1
290.0
433.7
1,232.8
561.9
Tonnes(1)
million
2005
31.4
435.3
29.7
496.4
10.8
15.3
6.5
32.6
62.4
164.5
143.0
369.9
8.2
16.2
28.5
52.9
101.2
64.9
41.9
208.0
23.6
58.7
90.4
172.7
17.3
32.5
36.0
85.8
10.3
27.9
6.0
44.2
25.8
63.0
7.5
96.2
146.0
72.9
8.2
227.2
437.1
951.1
397.8
Total
2,228.5
1,786.0
Grade
g/t
2005
13.66
4.76
6.68
5.44
Contained metal
tonnes
2006
2005
381.0
2,054.4
160.7
2,596.1
429.4
2,073.9
198.3
2,701.6
2.35
3.54
3.49
3.14
1.15
1.04
1.01
1.05
6.60
7.71
7.04
7.18
3.33
4.83
5.82
4.30
0.62
1.03
0.63
0.77
2.02
2.58
1.93
2.19
0.88
1.42
1.20
1.26
3.40
4.56
5.23
4.30
0.95
0.91
0.73
0.93
2.75
3.44
2.49
3.06
26.7
56.6
31.4
114.7
76.6
186.3
170.3
433.2
52.7
136.3
182.9
371.9
295.7
445.4
284.2
1,025.3
11.2
61.5
86.4
159.1
35.7
65.6
41.5
142.8
9.3
69.1
38.9
117.3
3.9
379.2
75.2
458.3
148.3
71.5
8.3
228.1
25.2
54.2
22.7
102.2
71.9
171.5
144.7
388.1
54.0
125.0
200.7
379.8
336.6
313.7
244.0
894.4
14.7
60.3
57.2
132.3
35.1
83.7
69.6
188.3
9.1
39.5
7.1
55.8
87.7
287.1
39.1
413.9
138.2
66.1
6.0
210.3
1,041.1
3,525.9
1,079.8
1,202.0
3,275.1
989.5
5,646.8
5,466.6
Contained metal
million troy ounces(2)
2006
12.2
66.1
5.2
83.5
0.9
1.8
1.0
3.7
2.5
6.0
5.5
13.9
1.7
4.4
5.9
12.0
9.5
14.3
9.1
33.0
0.4
2.0
2.8
5.1
1.1
2.1
1.3
4.6
0.3
2.2
1.3
3.8
0.1
12.2
2.4
14.7
4.8
2.3
0.3
7.3
33.5
113.4
34.7
181.6
2005
13.8
66.7
6.4
86.9
0.8
1.7
0.7
3.3
2.3
5.5
4.7
12.5
1.7
4.0
6.5
12.2
10.8
10.1
7.8
28.8
0.5
1.9
1.8
4.3
1.1
2.7
2.2
6.1
0.3
1.3
0.2
1.8
2.8
9.2
1.3
13.3
4.4
2.1
0.2
6.8
38.6
105.3
31.8
175.7
2006
13.97
3.89
5.66
4.44
2.35
3.24
3.03
2.92
1.08
0.87
0.73
0.84
6.16
7.35
7.11
7.04
3.60
4.77
6.47
4.67
0.60
0.83
0.66
0.71
1.90
2.80
2.48
2.42
0.81
1.29
1.16
1.19
0.97
3.32
3.09
3.22
0.82
0.75
0.59
0.79
2.40
2.86
1.92
2.53
Total (alternative units) (2) 2,456.4Mton 1,968.7Mton 0.074oz/t 0.089oz/t
(8) Ghana: Obuasi – increase in Moz due to exploration and changes in estimation methodology below 50 level area.
(9) Guinea: Siguiri – increase mainly in Inferred Mineral Resources due to successful exploration and increased gold price.
(10) Mali: Sadiola – decrease in Moz due to a change in modelling methodology when compared to the 2005 Mineral Resource.
(11) Namibia: Navachab – increase in Moz due to successful exploration and increased gold price.
(12) Tanzania: Geita – increase in Moz due to updated Mineral Resource Models, successful exploration and increased gold price.
In accordance with its external Audit policy it is AngloGold Ashanti’s intention to audit the 2006 Mineral Resources and Ore Reserves
for the following operations early in 2007: Geita, Morila, Sadiola, Yatela, AGA Minceraçäo (Cuiaba only), Cripple Creek and Victor, Obuasi.
An external audit of the 2006 Mineral Resources and Ore Reserves at Mponeng was completed in October 2006.
Anglo American plc Annual Report 2006 | 135
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Ore Reserves and Mineral Resources estimates continued
(stated as at 31 December 2006)
Coal
The 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).
Rounding of fi gures may cause computational discrepancies. The Coal Resources are additional to those resources which have been modifi ed
to produce the Coal Reserves.
Anglo Coal
Coal Reserves(1)
Export Metallurgical
Australia
South Africa
Export Thermal
Australia
Colombia
South Africa
Venezuela
Total Export
Domestic Power Generation
Australia
South Africa
Domestic Synfuels
South Africa
Total Domestic
Total Coal Reserves
Reported(2) Attributable(2)
%
%
Classifi cation
100
68.1
100
100
100
63.6
33.3
33.3
97.6
97.6
24.9
24.9
100
100
100
100
100
100
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
Proved
Probable
Total
Tonnes
million(3)
2005
ROM(1)
381
252
633
5
3
8
152
70
222
239
75
314
204
246
450
39
–
39
2006
ROM(1)
387
224
611
5
2
7
129
29
158
208
65
272
187
283
470
37
–
37
951
603
1,555
1,020
646
1,666
211
32
243
551
194
745
99
–
99
861
226
1,087
1,813
829
2,642
221
32
253
554
270
824
106
–
106
882
302
1,184
1,902
948
2,850
Saleable
Saleable
Yield(4) Heat content(5)
%
2006
77
69
74
61
61
61
87
89
88
100
100
100
61
60
60
100
–
100
81
69
76
98
98
98
95
100
96
100
–
100
96
100
97
88
77
85
kcal/kg
2006
GAR(5)
7,410
7,130
7,310
6,530
6,470
6,510
6,440
6,430
6,440
6,130
6,220
6,150
6,210
6,190
6,200
7,120
–
7,120
6,740
6,570
6,680
4,610
4,530
4,600
4,080
4,870
4,290
5,240
–
5,240
4,350
4,820
4,450
5,510
5,970
5,640
Tonnes
million(3)
2005
SALEABLE(1)
305
185
490
2006
SALEABLE(1)
311
163
474
3
1
4
115
26
141
211
66
277
114
172
287
38
–
38
3
2
5
134
59
193
241
76
317
122
141
263
40
–
40
793
428
1,221
845
463
1,308
206
32
238
537
194
730
99
–
99
842
225
1,067
1,635
654
2,288
216
31
247
538
270
808
106
–
106
860
301
1,161
1,705
764
2,469
Footnotes appear at the end of the section.
Export Metallurgical refers to operations where the main product is coking coal and/or coal for pulverised coal injection (PCI), primarily for the export market.
Export Thermal refers to operations that primarily produce thermal coal for the export market.
Domestic Power Generation refers to operations that produce coal for, and are typically tied to power stations.
Domestic Synfuels refers to operations in South Africa that produce coal for supply to Sasol for the production of synthetic fuel and chemicals.
136
| Anglo American plc Annual Report 2006
Anglo Coal
Coal Resources(6)
Mine Leases
Export Metallurgical
Australia
South Africa
Export Thermal
Australia
Colombia
South Africa
Venezuela
Total Export
Domestic Power Generation
Australia
South Africa
Domestic Synfuels
South Africa
Total Domestic
Total Mine Leases
Reported(2)
Attributable(2)
%
%
Classifi cation
100
73.7
100
100
100
82.7
33.3
33.3
96.4
96.4
24.9
24.9
100
100
100
100
100
100
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan(7)
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan(7)
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan(7)
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan(7)
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan(7)
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan(7)
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan(7)
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan(7)
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan(7)
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan(7)
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan(7)
Tonnes(3)
million
2005
MTIS(6)
171
170
341
54
9
16
25
–
47
22
69
6
68
280
348
1
303
191
494
85
–
33
33
–
2006
MTIS(6)
150
172
323
14
9
16
25
–
1
15
17
3
68
330
398
1
170
170
340
60
–
28
28
–
398
731
1,129
78
598
712
1,310
147
251
353
604
1
109
91
200
66
–
26
26
–
360
470
830
67
253
354
607
1
131
92
223
45
–
26
26
–
384
472
856
46
Footnotes appear at the end of the section.
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan(7)
758
1,201
1,959
144
982
1,184
2,166
192
Heat content(5)
kcal/kg
2006
GAR(5)
6,990
6,890
6,940
7,120
6,930
7,080
7,030
–
6,520
6,520
6,520
6,540
6,520
6,210
6,270
7,220
5,970
5,890
5,930
6,530
–
7,880
7,880
–
6,470
6,390
6,420
6,650
5,000
4,800
4,880
3,770
4,170
4,900
4,500
4,640
–
5,330
5,330
–
4,750
4,850
4,810
4,620
5,650
5,790
5,730
5,710
2005
GAR (5)
6,970
6,980
6,980
6,870
6,920
7,080
7,030
–
6,420
6,140
6,330
6,540
6,600
6,350
6,400
7,420
5,900
6,100
5,970
5,850
–
7,590
7,590
–
6,340
6,500
6,430
6,270
5,000
4,670
4,810
3,770
4,200
5,060
4,560
5,070
–
5,330
5,330
–
4,730
4,780
4,760
5,040
5,710
5,810
5,770
5,960
Anglo American plc Annual Report 2006 | 137
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Ore Reserves and Mineral Resources estimates continued
(stated as at 31 December 2006)
Coal continued
Anglo Coal
Coal Resources(6)
Projects
Australia
China
South Africa
Total Projects
Mine Leases and Projects
Total Coal Resources
Reported(2)
Attributable(2)
%
%
Classifi cation
2006
100
81.0
100
60.0
100
100
Measured
Indicated
Measured and Indicated
Measured
Indicated
Measured and Indicated
Measured
Indicated
Measured and Indicated
Measured
Indicated
Measured and Indicated
MTIS(6)
489
734
1,223
110
389
499
285
1,311
1,596
883
2,435
3,318
Classifi cation
2006
Tonnes(3)
million
2005
MTIS(6)
370
390
760
–
–
–
210
2,245
2,455
580
2,635
3,215
Tonnes(3)
million
2005
MTIS(6)
MTIS(6)
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan(7)
1,641
3,636
5,277
144
1,562
3,819
5.381
192
Heat content(5)
2006
GAR(5)
6,280
6,390
6,350
6,540
6,600
6,590
4,830
4,640
4,670
5,840
5,480
5,580
kcal/kg
2005
GAR (5)
6,310
6,500
6,410
–
–
–
5,080
4,430
4,490
5,860
4,740
4,940
Heat content(5)
2006
GAR(5)
5,760
5,580
5,640
5,710
kcal/kg
2005
GAR(5)
5,770
5,070
5,280
5,970
Brown Coal Resources
Australia
Reported(2)
Attributable(2)
%
%
100
100
Classifi cation
Measured
Indicated
Measured and Indicated
2006
MTIS(6)
4,028
2,448
6,476
Tonnes(3)
million
2005
MTIS(6)
–
–
–
Heat content(5)
2006
GAR(5)
1,820
1,790
1,810
kcal/kg
2005
GAR(5)
–
–
–
Gas
The Gas Reserve estimates are compiled in accordance with the Society of Petroleum Engineers and World Petroleum Council guidelines.
Anglo Coal
Gas Reserves(8)
Coal Bed Methane
Australia
Reported(2)
%
Attributable(2)
%
100
51.0
Classifi cation
2006
Proved: 1P
Probable: 2P-1P
Total 2P
SALEABLE(8)
1,814
2,875
4,689
Volume(8)
million m3
2005
SALEABLE(8)
456
724
1,180
Energy Content(8)
2006
SALEABLE(8)
68
107
175
PJ
2005
SALEABLE(8)
17
27
44
(1) Coal Reserves are quoted on a Run Of Mine (ROM) reserve tonnage basis, which represent the tonnes delivered to the plant, and on a Saleable reserve tonnage basis,
which represent the product tonnes produced.
(2) Reported (%) and Attributable (%) refers to 2006 only. For the 2005 Reported and Attributable fi gures, please refer to the previous Annual Report.
(3) 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%, then 100% of the reserves and resources are reported. The tonnage is quoted as metric tonnes and abbreviated as Mt for million tonnes.
(4) Yield (%) represents the ratio of saleable reserve tonnes to ROM reserve tonnes and is quoted on a constant moisture basis or on an air dried to air dried basis.
(5) The coal quality for the Coal Reserves is quoted as a weighted average of the heat content of all saleable coal products on a Gross As Received (GAR) basis. The coal
quality for the Coal Resources is reported on an in situ heat content Gross As Received (GAR) basis.
Coal quality parameters for the Coal Reserves for Metallurgical and Thermal Collieries meet the contractual specifi cations for coking coal, PCI, metallurgical coal, steam coal
and domestic coal.
Coal quality parameters for the Coal Reserves for Power Generation and Synfuels Collieries meet the specifi cations of the individual supply contracts.
(6) Coal Resources are quoted on a Mineable Tonnage In Situ (MTIS) basis in addition to those resources which have been modifi ed to produce the reported Coal Reserves.
(7) Inferred in Mine Plan refers to Inferred Coal Resources that are included in the life of mine schedule of the respective Collieries but which are not reported as Coal Reserves.
(8) Gas Reserves are reported in terms of saleable volume (million cubic metres) and saleable energy (Petajoules (PJ), or one thousand trillion Joules).
138
| Anglo American plc Annual Report 2006
Material changes to Run of Mine (ROM) Coal Reserves from 2005 to 2006 (excluding depletion by mining):
Export Thermal – Australia: The decrease is due mainly to the closure of Dartbrook and the re-allocation of Coal Reserves to Coal Resources (55 Mt).
Export Thermal – Colombia: The decrease is mainly due to a reduction in recovery extraction factors applied to the life of mine plan at Cerrejon (25 Mt).
Domestic Power Generation – South Africa: The decrease is primarily due to a decrease in New Denmark extraction factors (27 Mt) and the transfer of Mafube reserves
from Domestic Power Generation to Export Thermal (23 Mt).
Material changes to Coal Resources (Mine Leases) from 2005 to 2006:
Export Metallurgical – Australia: The decrease is attributed mainly to the exclusion of Inferred Resources in the mine plan due to change in mining layout at Dawson
North (40 Mt).
Export Thermal – Australia: The decrease is mainly due to the closure of Dartbrook and the transfer to Projects (69 Mt).
Export Thermal – Colombia: The increase is as a result of the inclusion of Cerrejón Sur resources (50 Mt).
Export Thermal – South Africa: The decrease is brought about by the rationalisation of resources in the Elders Block (52 Mt), the conversion of Coal Resources to Coal
Reserves at Goedehoop (25 Mt) and at Greenside (42 Mt), the exclusion of resources as a result of a change in economic assumptions at Kleinkopje (64 Mt) and at Landau
(22 Mt). This is offset by the transfer of resources at Mafube from Domestic Power Generation to Export Thermal (29 Mt).
Export Thermal – Venezuela: The decrease is as a result of resource block refi nement following exploration drilling at Guasare (5 Mt).
Material changes to Coal Resources (Projects) from 2005 to 2006:
Australia: The increase is due mainly to the inclusion of resources at Theodor South (262 Mt) and Dartbrook (222 Mt).
China: The increase is the result of the JV with the Shanxi Geological Bureau and initial assessment of the Xiwan resources (499 Mt).
South Africa: The decrease is attributed to:
Elders: Change in cut-off parameters and resource sterilisation by wetland (80 Mt);
Mafube: Transfer to Export Thermal with the approval of the Mafube Project (51 Mt);
Vaalbank: Re-allocation from Indicated Coal Resources to Inferred Coal Resources due to re-evaluation of the coal quality model in line with Anglo Coal standards (744 Mt);
South Rand: Inclusion of resources (18 Mt).
Material changes to Brown Coal Resources from 2005 to 2006:
Australia: The increase is due to the initial evaluation of the Brown Coal Resources at Monash Energy (6,476 Mt).
Material changes to Gas Reserves from 2005 to 2006:
Australia: The increase in Coal Bed Methane Gas Reserves is due to the acquisition of the Origin gas properties. (3,509 million m3).
Impact of the Minerals and Petroleum Resources Development Act (MPRDA) on the reporting of Coal Resources and Coal Reserves in South Africa
As at 31 December 2006, a total of 40.1 million tonnes of the reported Coal Resources in Projects were associated with two applications for new order Prospecting Rights
that have been initially refused and are now the subject of ongoing legal process and discussions with the relevant authorities. Anglo Coal currently expects that the outcome
of such review and discussions will be favourable and accordingly the relevant resources have been included in the statement.
Audits
Audits were carried out in 2006 on the following operations and project areas:
South Africa: Isibonelo, Maccauvlei East, Elders, Vaalbank.
Australia: Callide Coalfi elds (Boundary Hill Ext.), German Creek, Grosvenor.
Anglo American plc Annual Report 2006 | 139
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Ore Reserves and Mineral Resources estimates continued
(stated as at 31 December 2006)
Base Metals
The 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. Rounding of fi gures may cause computational discrepancies. The Mineral
Resources are additional to the Ore Reserves. The fi gures reported represent 100% of the Ore Reserves and Mineral Resources, the percentage
attributable to Anglo American plc is stated separately.
Attributable
%
100
Copper Division
Ore Reserves
Los Bronces (OP)
Sulphide (TCu)
Flotation
Sulphide (TCu)
Dump Leach
El Soldado (OP and UG)(1)
100
Sulphide (TCu)
Flotation
Mantos Blancos (OP)
Sulphide (ICu)(2)
Flotation
Oxide (ASCu)(3)
Vat Leach
Oxide (ASCu)
Dump Leach
Mantoverde (OP)
Oxide (ASCu)
Heap Leach
Oxide (ASCu)
Dump Leach
100
100
Collahuasi (OP)
Oxide and Mixed (TCu)(4)
Heap Leach
44.0
Sulphide (TCu)
Flotation – direct feed
Low Grade Sulphide (TCu)
Flotation – stockpile
Classifi cation
2006
Proved
Probable
Total
Proved
Probable
Total
581.3
190.3
771.6
583.6
553.8
1,137.4
Tonnes
million
2005
588.1
194.8
782.9
569.9
567.0
1,136.9
Proved
Probable
Total
76.1
49.9
126.0
77.1
62.2
139.3
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
8.0
24.8
32.8
1.1
28.7
29.8
0.5
8.2
8.7
56.5
10.7
67.2
32.3
11.6
43.9
14.3
16.9
31.2
3.1
17.4
20.5
0.9
17.1
18.0
0.3
7.3
7.6
56.2
9.9
66.1
35.2
11.9
47.1
16.0
19.2
35.2
193.5
1,145.8
1,339.3
–
380.5
380.5
229.3
1,154.3
1,383.6
–
385.3
385.3
Grade
%Cu
2005
0.93
0.75
0.89
0.42
0.34
0.38
1.04
0.86
0.96
1.47
0.94
1.02
0.98
0.77
0.78
0.30
0.32
0.32
0.63
0.55
0.62
0.37
0.38
0.37
1.06
1.01
1.03
1.10
0.97
1.00
–
0.53
0.53
Contained metal
thousand tonnes
2006
2005
5,348
1,408
6,756
2,393
1,883
4,276
796
415
1,211
90
217
307
10
160
170
1
24
25
360
63
423
120
45
165
142
164
306
5,469
1,461
6,930
2,394
1,928
4,321
802
535
1,337
46
164
209
9
132
140
1
23
24
354
54
409
130
45
175
170
194
364
2,108
11,164
13,272
–
2,003
2,003
2,525
11,248
13,773
–
2,027
2,027
2006
0.92
0.74
0.88
0.42
0.34
0.38
1.05
0.83
0.96
1.13
0.88
0.94
0.85
0.56
0.57
0.26
0.29
0.29
0.64
0.59
0.63
0.37
0.39
0.38
0.99
0.97
0.98
1.09
0.97
0.99
–
0.53
0.53
Mining method: UG = Underground, OP = Open Pit.
TCu = total copper, ICu = insoluble copper (total copper less acid soluble copper), ASCu = acid soluble copper.
140
| Anglo American plc Annual Report 2006
Copper Division
Mineral Resources
Los Bronces (OP)
Sulphide (TCu)
Flotation
Sulphide (TCu)
Dump Leach
Sulphide (ICu)
Flotation
Oxide (ASCu)
Vat Leach
Oxide (ASCu)
Dump Leach
Mantoverde (OP)
Oxide (ASCu)(5)
Heap Leach
Oxide (ASCu)
Dump Leach
Attributable
%
100
Classifi cation
2006
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
El Soldado (OP and UG)
100
Sulphide (TCu)
Flotation
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
Mantos Blancos (OP)
100
Tonnes
million
2005
54.0
542.1
596.1
21.6
–
–
–
112.3
54.8
37.8
92.6
39.9
18.6
92.7
111.3
1.3
1.0
10.3
11.3
0.8
–
–
–
0.7
47.8
48.2
96.0
–
1.2
1.5
2.7
–
0.1
1.8
1.9
0.5
12.3
189.1
201.5
202.2
36.3
238.8
275.0
106.9
Grade
%Cu
2005
0.57
0.50
0.51
0.64
–
–
–
0.31
0.82
0.75
0.79
0.72
0.85
0.77
0.78
1.12
0.62
0.61
0.61
0.65
–
–
–
0.29
0.42
0.38
0.40
–
0.32
0.30
0.31
–
0.97
1.09
1.09
0.74
0.86
0.89
0.89
0.93
0.45
0.46
0.46
0.48
Contained metal
thousand tonnes
2006
2005
584
4,411
4,995
120
308
2,711
3,018
138
–
–
–
218
287
363
650
101
105
595
700
29
6
72
78
11
–
–
–
2
197
210
407
2
4
5
9
2
1
20
21
4
–
–
–
347
449
284
733
287
158
714
872
15
6
63
69
5
–
–
–
2
201
183
384
–
4
5
8
–
1
20
20
4
105
1,680
1,785
1,878
157
1,108
1,265
510
106
1,680
1,785
1,878
162
1,110
1,272
510
2006
0.50
0.46
0.46
0.67
–
–
–
0.33
0.67
0.74
0.71
0.71
0.83
0.83
0.83
1.02
0.66
0.57
0.58
0.67
–
–
–
0.27
0.39
0.37
0.38
0.60
0.32
0.31
0.31
0.34
0.97
1.09
1.09
0.74
0.86
0.89
0.89
0.93
0.45
0.46
0.46
0.48
118.1
958.9
1,077.0
17.9
–
–
–
66.3
42.9
48.8
91.7
14.2
12.6
71.7
84.3
2.8
1.0
12.6
13.6
1.7
–
–
–
0.8
50.6
56.8
107.4
0.3
1.2
1.7
2.9
0.4
0.1
1.8
1.9
0.5
12.3
189.1
201.4
202.2
35.0
238.3
273.3
106.9
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
100
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
Collahuasi (OP)
44.0
Oxide and Mixed (TCu)
Heap Leach
Sulphide (TCu)
Flotation – direct feed
Low Grade Sulphide (TCu)
Flotation – stockpile
Mining method: UG = Underground, OP = Open Pit.
TCu = total copper, ICu = insoluble copper (total copper less acid soluble copper), ASCu = acid soluble copper.
(1) El Soldado: Decreases are attributable to depletion, additional drilling information, changes in economic assumptions and appropriately modifi ed pit design.
(2) Mantos Blancos Sulphide (ICu) Flotation: Increases are attributable to a lower cut-off grade, positively affecting the resource defi nition and consequently the Ore
Reserves.
(3) Mantos Blancos Oxide (ASCu) Vat Leach: Additional exploration, a lower cut-off and a new pit design account for the additional Ore Reserves.
(4) Collahuasi Oxide and Mixed (TCu): Decreases are due to depletion.
(5) Mantoverde Oxide (ASCu) Heap Leach: Gains are due to a decrease in the cut-off grade and successful exploration.
The Ore Reserves and Mineral Resources of the following operations were audited during 2006 by third party, independent auditors: Los Bronces, El Soldado, Mantoverde.
Anglo American plc Annual Report 2006 | 141
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Ore Reserves and Mineral Resources estimates continued
(stated as at 31 December 2006)
Base Metals continued
Zinc Division
Ore Reserves
Black Mountain (UG)
Deeps(1)
Zinc
Attributable
%
100
Copper
Lead
Lisheen (UG)(2)
Zinc
Lead
Skorpion (OP)(3)
Zinc
100
100
Classifi cation
2006
Tonnes
million
2005
0.2
11.5
11.7
–
12.8
12.8
7.5
3.8
11.3
6.8
3.7
10.6
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
7.7
5.2
13.0
8.4
6.1
14.5
2006
%Zn
2.34
3.88
3.84
%Cu
0.25
0.76
0.75
%Pb
3.27
3.92
3.91
%Zn
11.61
12.69
11.97
%Pb
2.07
1.43
1.85
%Zn
12.72
9.68
11.49
Grade
2005
%Zn
–
3.79
3.79
%Cu
–
0.73
0.73
%Pb
–
3.90
3.90
%Zn
13.20
15.58
14.04
%Pb
2.30
1.92
2.16
%Zn
12.73
9.35
11.31
Contained metal
thousand tonnes
2006
2005
6
446
452
1
88
89
8
451
459
869
487
1,356
155
55
210
–
483
483
–
93
93
–
497
497
902
583
1,485
157
72
229
982
506
1,488
1,070
570
1,640
Mining method: UG = Underground, OP = Open Pit.
For the polymetallic deposits, the tonnage fi gures apply to each metal.
(1) Black Mountain (Deeps): Decrease is due to depletions. Reserves include 11,748 kt of silver ore at 56.21 g/t as a by product.
(2) Lisheen: Decrease is due to depletions partially offset by a gain due to conversion of resources to reserves.
(3) Skorpion: The decrease is primarily due to mining depletions partially offset by a gain due to new grade control information.
142
| Anglo American plc Annual Report 2006
Zinc Division
Mineral Resources
Black Mountain (UG)
Deeps(4)
Zinc
Attributable
%
100
Classifi cation
2006
Tonnes
million
2005
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
1.8
6.1
7.8
–
1.7
4.3
6.0
–
Copper
Lead
Swartberg(5)
Zinc
Copper
Lead
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
–
17.3
17.3
–
–
17.2
17.2
–
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
Lisheen (UG) (6)
Zinc
100
Lead
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
1.0
0.6
1.6
0.5
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
Skorpion (OP) (7)
Zinc
100
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
0.0
0.2
0.2
0.8
1.4
1.0
2.4
0.9
–
–
–
0.3
2006
%Zn
2.00
3.59
3.23
–
%Cu
0.43
0.74
0.67
–
%Pb
2.22
3.74
3.40
–
%Zn
–
0.63
0.63
–
%Cu
–
0.70
0.70
–
%Pb
–
2.87
2.87
–
%Zn
12.84
12.68
12.78
17.16
%Pb
2.38
1.55
2.08
2.84
%Zn
6.99
6.94
6.95
9.18
Grade
2005
%Zn
2.93
4.36
3.95
–
%Cu
0.54
0.85
0.76
–
%Pb
3.80
4.30
4.16
–
%Zn
–
0.62
0.62
–
%Cu
–
0.70
0.70
–
%Pb
–
2.85
2.85
–
%Zn
13.80
12.11
13.09
16.56
%Pb
2.39
1.54
2.04
2.80
%Zn
–
–
–
9.19
Contained metal
thousand tonnes
2006
2005
35
218
253
–
8
45
52
–
39
227
266
–
–
109
109
–
–
121
121
–
–
497
497
–
132
74
206
81
24
9
34
13
2
15
17
72
50
185
235
–
9
36
45
–
65
183
248
–
–
107
107
–
–
121
121
–
–
491
491
–
194
122
317
150
34
16
49
25
–
–
–
31
Mining method: UG = Underground, OP = Open Pit.
For the polymetallic deposits, the tonnage fi gures apply to each metal.
(4) Black Mountain (Deeps): Resource gain is due to new information from exploration drilling. Mineral Resources contain 7,833 kt of silver ore at 45.95 g/t as a by product.
(5) Black Mountain (Swartberg): The Swartberg mine has been placed on care and maintenance from January 2007. As a result the ore reserves have accordingly been
removed from the mine plan and converted to mineral resources. Mineral Resources contain 17,323 kt of silver ore at 35.00 g/t as a by product.
(6) Lisheen: Mineral Resources decrease due to conversion to Ore Reserves, reclassifi cation and sterilisation of fi nal support pillars.
(7) Skorpion: Increase due to inclusion of Measured and Indicated Resources located outside the current pit limit and changes to the method of classifi cation of Inferred
Resources.
The Ore Reserves and Mineral Resources of the following operations were audited during 2006 by third party, independent auditors: Lisheen and Skorpion.
Anglo American plc Annual Report 2006 | 143
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Ore Reserves and Mineral Resources estimates continued
(stated as at 31 December 2006)
Base Metals continued
Nickel Division
Ore Reserves
Loma de Níquel (OP)
Laterite
Codemin (OP)
Laterite
Attributable
%
91.4
100
Nickel Division
Mineral Resources
Loma de Níquel (OP)(1)
Laterite
Attributable
%
91.4
Classifi cation
2006
Tonnes
million
2005
Proved
Probable
Total
11.9
22.6
34.5
12.7
23.3
36.0
Proved
Probable
Total
3.2
0.5
3.7
Classifi cation
2006
Codemin (OP)
Laterite
Niobium
Ore Reserves
Catalão (OP)
Niobium
Carbonatite
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
100
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
1.0
4.6
5.7
1.6
3.3
3.5
6.9
–
Attributable
%
100
Classifi cation
2006
Proved
Probable
Total
7.0
6.8
13.8
7.0
7.6
14.6
Grade
2005
%Ni
1.52
1.46
1.48
%Ni
1.33
1.33
1.33
Grade
2005
%Ni
1.40
1.45
1.44
–
%Ni
1.29
1.25
1.27
–
Grade
2005
Contained metal
thousand tonnes
2006
2005
180
329
509
42
7
49
193
340
533
42
7
49
Contained metal
thousand tonnes
2006
2005
15
67
81
22
43
44
87
–
11
70
81
–
43
44
87
–
Contained metal
thousand tonnes
2006
2005
%Nb2O5
1.15
1.45
1.30
80
98
178
80
110
189
2006
%Ni
1.51
1.46
1.48
%Ni
1.33
1.33
1.33
2006
%Ni
1.41
1.44
1.44
1.38
%Ni
1.29
1.25
1.27
–
2006
%Nb2O5
1.15
1.44
1.29
3.2
0.5
3.7
Tonnes
million
2005
0.8
4.8
5.6
–
3.4
3.5
6.9
–
Tonnes
million
2005
Mining method: OP = Open Pit.
(1) Loma de Níquel: Inferred in Mine Plan not reported in 2005.
144
| Anglo American plc Annual Report 2006
Heavy Minerals
Ore Reserves
Namakwa Sands (OP)(1)
Attributable
%
100
Classifi cation
2006
Tonnes
million
2005
Ilmenite
Zircon
Rutile
79.9
268.9
348.8
168.3
168.9
337.2
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
Heavy Minerals
Mineral Resources
Namakwa Sands (OP)(2)
Attributable
%
100
Ilmenite
Classifi cation
2006
Measured
Indicated
Measured and Indicated
Inferred in mine plan
116.5
143.6
260.1
175.7
Tonnes
million
2005
177.8
106.1
283.9
181.1
Zircon
Rutile
Measured
Indicated
Measured and Indicated
Inferred in mine plan
Measured
Indicated
Measured and Indicated
Inferred in mine plan
2006
%Ilm
5.0
3.7
4.0
%Zir
1.2
0.9
1.0
%Rut
0.2
0.2
0.2
2006
%Ilm
3.5
3.4
3.5
2.7
%Zir
0.7
0.7
0.7
0.6
%Rut
0.2
0.2
0.2
0.1
Grade
2005
%Ilm
4.2
3.4
3.8
%Zir
1.1
0.8
0.9
%Rut
0.2
0.2
0.2
Grade
2005
%Ilm
3.4
2.9
3.2
2.2
%Zir
0.8
0.8
0.8
0.6
%Rut
0.1
0.2
0.2
0.1
Contained metal
million tonnes
2006
2005
4.0
9.9
13.9
1.0
2.5
3.5
0.2
0.5
0.7
7.1
5.8
12.9
1.8
1.4
3.2
0.4
0.3
0.7
Contained metal
million tonnes
2006
2005
4.1
4.9
9.0
4.7
0.8
1.0
1.8
1.1
0.2
0.2
0.4
0.2
6.0
3.0
9.0
4.0
1.3
0.8
2.1
1.0
0.2
0.2
0.4
0.3
Mining method: OP = Open Pit.
For the multi-product deposits, the tonnage fi gures apply to each product.
(1) Namakwa Sands: Gains are due to the conversion of resources to reserves and an increase in resources resulting from reinterpretation of the geological model based on
improved assay information.
(2) Namakwa Sands: Decrease due to conversion of resources to reserves and downgrading of resources to Inferred not in Mine Plan (which are not reported) partially offset
by gains from reclassifi cation based on new drilling and improved assay information.
Anglo American plc Annual Report 2006 | 145
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Ore Reserves and Mineral Resources estimates continued
(stated as at 31 December 2006)
Base Metals continued
Projects
Ore Reserves
Quellaveco (OP)(1)
Copper
Sulphide
Flotation
Barro Alto (OP)(2)
Nickel
Laterite
Attributable
%
80.0
100
Gamsberg (OP)(3)
100
Zinc
Projects
Mineral Resources
Quellaveco (OP)
Attributable
%
80.0
Classifi cation
2006
Tonnes
million
2005
Proved
Probable
Total
250.1
688.3
938.4
250.1
688.3
938.4
Proved
Probable
Total
13.2
27.2
40.4
22.6
7.0
29.6
Proved
Probable
Total
34.4
110.3
144.7
Classifi cation
2006
Grade
2005
%Cu
0.76
0.59
0.64
%Ni
1.85
1.79
1.83
%Zn
7.55
5.55
6.03
Grade
2005
%Cu
0.53
0.46
0.46
–
%Ni
1.63
1.36
1.37
–
Contained metal
thousand tonnes
2006
2005
1,901
4,061
5,962
1,901
4,061
5,962
216
492
708
418
125
542
2,597
6,124
8,721
2,613
6,124
8,737
Contained metal
thousand tonnes
2006
2005
8
813
821
–
–
230
230
585
8
813
821
–
13
288
301
–
2006
%Cu
0.76
0.59
0.64
%Ni
1.64
1.81
1.75
%Zn
7.55
5.55
6.03
2006
%Cu
0.53
0.46
0.46
–
%Ni
–
1.36
1.36
1.56
34.6
110.3
144.9
Tonnes
million
2005
1.5
176.7
178.2
–
0.8
21.2
22.0
–
Copper
Sulphide
Flotation
Barro Alto (OP)(4)
Nickel
Laterite
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
1.5
176.7
178.2
–
100
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
–
16.9
16.9
37.5
Mining method: OP = Open Pit.
(1) Quellaveco: Based on a feasibility study completed in 2000.
(2) Barro Alto: Based on a feasibility study completed in 2006. Ore Reserve gains due to conversion of existing resources to reserves based on new drilling information. Small
volumes of ore from Barro Alto are currently being processed at the Codemin plant.
(3) Gamsberg: Based on a feasibility study completed in 2000 and reviewed in 2006 to account for current economic and fi nancial assumptions. The Mine Plan includes an
additional 54,200 kt at 4.10 %Zn of Inferred Mineral Resources.
(4) Barro Alto: Resource gain based on new drilling information and inclusion of Inferred in Mine Plan, which was not reported in 2005.
146
| Anglo American plc Annual Report 2006
Ferrous Metals and Industries
The Ore Reserve and Mineral Resource estimates were compiled in accordance with The South African Code for Reporting of Mineral Resources
and Mineral Reserves (The SAMREC Code, 2000). Rounding of fi gures may cause computational discrepancies. The fi gures reported represent
100% of the Ore Reserves and Mineral Resources, the percentage attributable to Anglo American plc via Kumba Iron Ore is stated separately.
Mineral Resource estimates for Kumba are inclusive of those resources which have been modifi ed to produce the Ore Reserve estimates.
Kumba Iron Ore
Iron Ore
Ore Reserves
Sishen Iron Ore Mine (OP)(1)
Attributable
% Classifi cation
2006
37.3
Thabazimbi Iron Ore Mine (OP)(2)
47.5
Sishen South Iron Ore Project (OP)
47.5
Kumba Iron Ore
Iron Ore
Mineral Resources
Sishen Iron Ore Mine (OP and UG)
Open Pit(3)
Attributable
%
37.3
Underground(4)
Thabazimbi Iron Ore Mine (OP and UG) 47.5
Open Pit(5)
Underground
Sishen South (OP)(6)
Advanced project
47.5
Zandrivierspoort (OP)
23.7
Project
Tonnes
million
2005
727
294
1,021
10
4
14
101
66
167
2006
% Fe
58.1
57.2
57.9
% Fe
61.6
60.9
61.4
% Fe
65.4
64.2
65.2
Proved
Probable
Total
813
241
1,054
Proved
Probable
Total
Proved
Probable
Total
7
2
10
134
31
166
Classifi cation
2006
Measured
Indicated
Measured and Indicated
Measured
Indicated
Measured and Indicated
1,398
422
1,819
115
266
381
Measured
Indicated
Measured and Indicated
Measured
Indicated
Measured and Indicated
Measured
Indicated
Measured and Indicated
Measured
Indicated
Measured and Indicated
8
3
11
12
14
27
156
150
306
–
447
447
Grade
2005
% Fe
59.3
58.1
59.0
% Fe
61.2
60.2
60.9
% Fe
64.8
63.3
64.2
Tonnes
million
2005
1,477
480
1,957
94
223
316
11
4
15
12
14
27
140
108
248
–
447
447
Saleable product
million tonnes
2006
2005
567@65.8 %Fe
600@65.7 %Fe
243@64.0 %Fe
226@63.9 %Fe
793@65.3 %Fe 843@65.2 %Fe
6@64.5 %Fe
2@63.9 %Fe
8@64.3 %Fe
9@64.1% Fe
3@63.6% Fe
13@63.9% Fe
2006
%Fe
57.0
56.2
56.8
64.6
64.3
64.4
%Fe
62.1
61.4
61.9
62.2
61.8
62.0
%Fe
65.4
64.8
65.1
%Fe
–
34.9
34.9
Grade
2005
%Fe
57.4
56.5
57.2
64.9
64.7
64.8
%Fe
62.1
61.6
62.0
62.1
61.3
61.7
%Fe
65.4
64.4
65.0
%Fe
–
34.9
34.9
Mining method: UG = Underground, OP = Open Pit.
The tonnage is quoted as metric tonnes and abbreviated as Mt for million tonnes.
(1) Sishen Iron Ore Mine – DMS and jig plant: The increase in Proved Ore Reserve tonnes is the result of a new optimising programme that allowed for the blending of
previously stockpiled material. The decrease in saleable product tonnes is mainly due to the reduction of ROM Reserves as a result of geological re-interpretation as well
as a slight drop in plant yield brought about by the exclusion of selective mining tonnes due to changes in mine planning criteria. 17Mt Inferred Mineral Resource tonnes fall
within the fi nal pit layout; these are not included in the Ore Reserve fi gure.
(2) Thabazimbi Iron Ore Mine – within current pit layouts: Mining depletion accounts for most of the decrease along with an updated geological model, and as a result of an
external review of the drill hole spacing, a portion of the reserve has been re-allocated to Inferred Resources. 4Mt Inferred Mineral Resource tonnes fall within the fi nal pit
layout; these are not included in the Ore Reserve fi gure.
(3) Sishen Iron Ore Mine – Open Pit (DMS and jig plant): Resources decrease mainly as a result of a re-interpretation of the solids model, mining depletion and stockpile growth.
(4) Sishen Iron Ore Mine – Underground: Resources increase due to conglomeratic ore now being included.
(5) Thabazimbi Iron Ore Mine – Open Pit: The major decrease in the resources is due to mining depletion and the re-allocation of Indicated Resources to Inferred Resources.
(6) Sishen South: Advanced Project – Additional exploration drilling, an updated mineral resource model and pit design account for the increased tonnage.
The Ore Reserves and Mineral Resources of the following operation was audited during 2006 by third party, independent auditors: Thabazimbi Iron Ore Mine.
Anglo American plc Annual Report 2006 | 147
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Ore Reserves and Mineral Resources estimates continued
(stated as at 31 December 2006)
Ferrous Metals and Industries continued
The 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).
Rounding of fi gures may cause computational discrepancies. The Manganese Mineral Resources are reported as inclusive of those Mineral
Resources modifi ed to produce the Ore Reserve fi gures, i.e. the Ore Reserves are included in the Mineral Resource fi gures. The fi gures reported
represent 100% of the Ore Reserves and Mineral Resources, the percentage attributable to Anglo American plc is stated separately.
Manganese
Ore Reserves
%
Hotazel Manganese Mines (OP)(1) 40.0
Mamatwan
Attributable
Wessels
GEMCO (OP)(2)
40.0
Classifi cation
2006
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
42.3
6.7
49.0
2.4
11.6
14.0
55.5
36.0
91.5
Classifi cation
2006
Manganese
Mineral Resources
%
Hotazel Manganese Mines (OP)(3) 40.0
Mamatwan
Attributable
Measured
Indicated
Measured and Indicated
53.1
10.6
63.7
4.8
19.6
24.4
Wessels
Measured
Indicated
Measured and Indicated
GEMCO (OP)(4)
40.0
Measured
Indicated
Measured and Indicated
61.2
42.7
103.9
Vanadium
Ore Reserves
Highveld (OP)(5)
Attributable
%
29.2
Vanadium
Mineral Resources
Highveld (OP)
Attributable
%
29.2
Classifi cation
2006
Proved
Probable
Total
19.7
3.0
22.7
Classifi cation
2006
Measured
Indicated
Measured and Indicated
–
244.0
244.0
2006
% Yield
2005
53.4
51.0
52.5
51.3
47.0
49.1
2006
% Yield
2005
42.0
38.0
40.4
42.0
38.0
38.9
Tonnes
million
2005
22.4
15.0
37.4
1.9
9.3
11.2
61.7
39.6
101.2
Tonnes
million
2005
29.5
21.0
50.5
3.6
20.4
24.0
63.8
50.2
113.9
Tonnes
million
2005
21.9
3.1
24.9
Tonnes
million
2005
–
244.0
244.0
2006
%Mn
37.6
37.2
37.5
48.0
48.0
48.0
%Mn
48.5
47.2
48.0
2006
%Mn
37.6
37.2
37.5
48.1
48.0
48.0
%Mn
48.9
47.3
48.2
2006
%V2O5
1.68
1.70
1.68
2006
%V2O5
–
1.70
1.70
Grade
2005
%Mn
37.9
37.7
37.8
48.0
48.0
48.0
%Mn
48.5
47.2
48.0
Grade
2005
%Mn
37.9
37.7
37.7
48.1
47.9
47.9
%Mn
48.3
46.9
47.0
Grade
2005
%V2O5
1.68
1.70
1.69
Grade
2005
%V2O5
–
1.70
1.70
Mining method: OP = Open Pit.
Mamatwan tonnages stated as Wet Metric Tonnes. Wessels tonnages stated as Dry Metric Tonnes.
(1) Hotazel Managanese Mines: The changes are due to a new improved 3D resource model which was constructed during 2006 and a change in the classifi cation criteria.
(2) GEMCO: The Ore Reserves reported are stated with total tonnage but report the grade values only above the nominated cut-off of 40% Mn product grade. The grade
is reported using benefi ciated grades, as benefi ciated grades are used; in mine scheduling, quality control and blending (rather than in situ grades). Changes are due to
depletion and a signifi cant drop in price assumptions.
(3) Hotazel Manganese Mines: The changes are due to a new improved 3D resource model which was constructed during 2006 and a change in the classifi cation criteria.
(4) GEMCO: The primary cause of change in the resource estimate was depletion. A second effect was a more detailed methodology in which the plan areas for resource
determination were generated, explicitly excluding mined out and off lease areas.
(5) Highveld: The Ore Reserve grades and tonnages are reported after crushing, washing and screening.
148
| Anglo American plc Annual Report 2006
Industrial Minerals
The 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. The Mineral Resources are additional to the Ore Reserves. The fi gures reported
represent 100% of the Ore Reserves and Mineral Resources, the percentage attributable to Anglo American plc is stated separately.
Phosphate products
Ore Reserves
Copebrás (OP)(1)
Attributable
%
73.0
Phosphate products
Mineral Resources
Copebrás (OP)(2)
Attributable
%
73.0
Classifi cation
2006
Proved
Probable
Total
84.3
152.3
236.6
Classifi cation
2006
Measured
Indicated
Measured and Indicated
Inferred in Mine Plan
0.5
20.3
20.9
15.8
Tonnes
million
2005
48.0
69.7
117.7
Tonnes
million
2005
4.4
27.8
32.2
–
2006
%P2O5
13.3
13.4
13.3
2006
%P2O5
12.4
11.4
11.4
12.9
Grade
2005
%P2O5
12.9
13.6
13.3
Grade
2005
%P2O5
12.9
13.6
13.5
–
(1) Copebrás: The majority of the increase is due to exploration, subsequent model update to include area FFG04 (mining permit application submitted, but not yet approved)
and conversion of resources to reserves from areas 5 and Old Mine.
(2) Copebrás: Decrease in Measured and Indicated Resources due to updated modelling and the conversion of resources to reserves. Inferred in Mine Plan not reported in 2005.
Anglo Paper and Packaging
The Mondi Group in South Africa owns and manages an attributable 269,692 (2005: 295,067) hectares of sustainable man-made forests. All of
its producing forests have been certifi ed by the Forestry Stewardship Council. The planned average annual harvest is currently 4.2 Mt.
The reduction in hectares from 2005 to 2006 is mainly due to the sale of NECF.
Anglo American plc Annual Report 2006 | 149
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Production statistics
The fi gures below include the entire output of consolidated entities and the Group’s share of joint ventures, joint arrangements and associates
where applicable, except for De Beers and Collahuasi in Base Metals which are quoted on a 100% basis.
2006
2005
Anglo Platinum (troy ounces)(1)(2)
Platinum
Palladium
Rhodium
Nickel (tonnes)(3)
Gold
AngloGold Ashanti (gold in troy ounces)(2)(4)
South Africa
Argentina
Australia
Brazil
Ghana
Guinea
Mali
Namibia
Tanzania
USA
De Beers (diamonds recovered – carats)
100% basis (Anglo American 45%)
Debswana
Namdeb
De Beers Consolidated Mines
Williamson
Anglo Coal (tonnes)
South Africa
Eskom
Trade – Thermal
Trade – Metallurgical
Australia(5)
Thermal
Metallurgical
South America
Thermal
Total
Anglo Coal (tonnes)
South Africa
Bank
Greenside
Goedehoop
Isibonelo
Kriel
Kleinkopje
Landau
New Denmark
New Vaal
Nooitgedacht
Mafube
2,863,900
1,563,000
331,700
4,758,600
21,700
115,400
1,506,500
128,900
260,900
193,200
359,200
146,400
318,400
51,500
187,900
164,300
3,317,200
34,293,000
2,084,800
14,568,900
189,400
51,136,100
34,821,200
22,754,000
1,768,200
59,343,400
15,258,400
9,195,600
24,454,000
11,008,900
94,806,300
477,600
2,778,100
8,534,500
4,020,100
12,318,400
3,898,400
4,102,400
5,508,500
16,275,000
711,000
719,400
59,343,400
2,502,000
1,376,700
333,500
4,212,200
20,900
119,100
2,676,000
211,000
455,000
346,000
680,000
246,000
528,000
81,000
613,000
330,000
6,166,000
31,890,000
1,774,000
15,156,000
190,000
49,010,000
34,327,900
20,281,100
2,268,800
56,877,800
15,214,800
9,390,300
24,605,100
10,066,000
91,548,900
3,202,200
2,730,000
6,298,600
1,358,300
12,030,900
4,483,500
3,682,900
4,139,400
17,100,000
794,400
1,057,600
56,877,800
(1) Includes Anglo Platinum’s share of Northam Platinum Limited: 76,700 ounces platinum, palladium and rhodium; 1,800 ounces gold; and 400 tonnes nickel (2005: 77,700
ounces platinum, palladium and rhodium; 1,600 ounces gold; and 400 tonnes nickel).
(2) See the published results of Anglo Platinum Limited, Northam Limited and AngloGold Ashanti Limited for further analysis of production information.
(3) Also disclosed within total attributable nickel production of Anglo Base Metals.
(4) Gold production for AngloGold Ashanti refl ects 100% of that company’s production to 20 April 2006 and the Group’s share of production thereafter. 100% production for
AngloGold Ashanti in 2006 was 5,635,000 ounces (2005: 6,166,000 ounces).
(5) 2006 and 2005 exclude Dartbrook which was closed in the year. Production for Dartbrook was 792,000 tonnes in 2006 and 1,495,500 tonnes in 2005.
150
| Anglo American plc Annual Report 2006
Anglo Coal (tonnes) (continued)
Australia(1)
Callide
Drayton
German Creek (Capcoal)
Jellinbah East
Moranbah
Dawson Complex
South America
Carbones del Guasare
Carbones del Cerrejón
Total
Anglo Base Metals
Copper
Collahuasi
100% basis (Anglo American 44%)
Ore mined
Ore processed
Ore grade processed
Oxide
Sulphide
Oxide
Sulphide
Production
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
Ore processed
Production
El Soldado mine
Ore mined
Ore processed
Ore grade 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
Production
Copper concentrate
Copper cathode
Copper in concentrate
Total
2006
2005
9,816,100
4,136,300
3,165,400
887,400
2,928,500
3,520,300
24,454,000
1,531,700
9,477,200
11,008,900
94,806,300
9,500,000
4,099,000
3,560,000
851,100
3,432,800
3,162,200
24,605,100
1,409,700
8,656,300
10,066,000
91,548,900
45,843,300
6,390,300
41,347,700
1.0
1.0
40,705,000
6,461,000
36,659,000
0.9
1.0
1,312,400
1,234,000
59,800
380,200
440,000
22,346,200
35,538,000
20,514,700
1.0
88.1
555,900
42,500
183,500
226,000
5,812,300
110,800
2,028,600
7,951,700
654,200
7,527,700
1.4
1.0
222,900
6,500
62,200
68,700
60,700
366,400
427,100
22,146,000
27,936,000
21,034,000
1.0
88.3
510,000
38,800
188,500
227,300
2,907,000
384,000
1,996,000
5,287,000
665,000
7,004,000
1.3
1.1
210,500
6,500
60,000
66,500
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
(1) 2006 and 2005 exclude production at Dartbrook which was closed in the year. Production for Dartbrook was 792,000 tonnes in 2006 and 1,495,500 tonnes in 2005.
Anglo American plc Annual Report 2006 | 151
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Production statistics continued
Anglo Base Metals (continued)
Chagres Smelter
Copper concentrate smelted
Production
Copper blister/anodes
Acid
Total copper production for the Minera Sur Andes group
Mantos Blancos
Mantos Blancos mine
Ore processed
Ore grade processed
Production
Mantoverde mine
Ore processed
Ore grade processed
Production
Black Mountain
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
Total Anglo Base Metals copper production
Anglo Platinum
Production(1)
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
Total Anglo Base Metals nickel production
Anglo Platinum
Production(1)
Total attributable nickel production
Niobium
Catalão
Ore mined
Ore processed
Ore grade processed
Production
(1) Includes Anglo Platinum’s share of Northam production.
152
| Anglo American plc Annual Report 2006
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
tonnes
%Ni
tonnes
tonnes
tonnes
%Ni
tonnes
tonnes
tonnes
tonnes
tonnes
tonnes
Kg Nb/tonne
tonnes
2006
2005
183,200
173,400
499,200
294,700
144,800
138,100
371,900
293,800
4,533,800
3,979,800
6,307,300
4,535,000
3,954,000
5,337,000
0.8
1.1
0.8
123,800
49,100
42,600
91,700
0.8
1.1
0.4
105,300
48,600
39,100
87,700
9,502,300
4,879,900
9,439,000
3,625,000
0.7
0.3
60,300
3,400
643,800
11,400
655,200
487,600
518,600
2.1
9,800
0.7
0.3
62,000
3,200
634,600
11,500
646,100
528,600
521,400
2.1
9,600
1,324,300
1,205,000
1,317,000
1,169,000
1.6
16,600
26,400
21,700
48,100
795,400
813,900
10.9
4,700
1.6
16,900
26,500
20,900
47,400
723,100
672,300
11.0
4,000
Anglo Base Metals (continued)
Mineral Sands
Namakwa Sands
Ore mined
Production
Smelter production
Zinc and Lead
Black Mountain
Ore mined
Ore processed
Ore grade processed
Production
Lisheen
Ore mined
Ore processed
Ore grade processed
Production
Skorpion
Ore mined
Ore processed
Ore grade processed
Production
Total attributable zinc production
Total attributable lead production
Ilmenite
Rutile
Zircon
Slag tapped
Iron tapped
Zinc
Lead
Copper
Zinc in concentrate
Lead in concentrate
Copper in concentrate
Zinc
Lead
Zinc in concentrate
Lead in concentrate
Zinc
Zinc
2006
2005
17,382,700
18,100,000
272,200
28,200
128,400
133,900
88,900
316,100
29,100
128,600
164,400
105,400
1,544,500
1,403,800
1,413,000
1,350,000
3.4
4.1
0.4
34,100
48,300
3,400
1,605,900
1,527,600
12.3
2.1
170,700
23,100
1,456,500
1,311,800
11.8
129,900
334,700
71,400
3.3
3.7
0.4
32,100
42,200
3,200
1,527,000
1,461,000
12.0
2.0
159,300
20,800
1,199,000
1,280,000
12.4
132,800
324,200
63,000
tonnes
tonnes
tonnes
tonnes
tonnes
tonnes
tonnes
tonnes
%Zn
%Pb
%Cu
tonnes
tonnes
tonnes
tonnes
tonnes
%Zn
%Pb
tonnes
tonnes
tonnes
tonnes
%Zn
tonnes
tonnes
tonnes
Anglo American plc Annual Report 2006 | 153
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Production statistics continued
Anglo Industrial Minerals
Aggregates
Lime products
Concrete
Sodium tripolyphosphate
Phosphates
Anglo Ferrous Metals and Industries
Kumba Iron Ore Limited (unbundled from Kumba Resources Limited)(1)
Iron ore production
Lump
Fines
Total iron ore
Scaw Metals
Rolled products
Cast products
Grinding media
Highveld Steel
Rolled products
Continuous cast blocks
Vanadium slag
Samancor
Manganese ore
Manganese alloys
Tongaat-Hulett(2)
Sugar
Aluminium
Starch and glucose
Anglo Paper and Packaging
Mondi Packaging
Packaging papers
Corrugated board and boxes
Paper bags
Coating and release liners
Pulp – external
Mondi Business Paper
Uncoated wood free paper
Newsprint
Pulp – external
Wood chips
Mondi Packaging South Africa
Packaging papers
Corrugated board and boxes
Newsprint joint ventures
Newsprint (attributable share)
tonnes
tonnes
m3
tonnes
tonnes
tonnes
tonnes
tonnes
tonnes
tonnes
tonnes
tonnes
tonnes
tonnes
mtu m
tonnes
tonnes
tonnes
tonnes
tonnes
m m2
m units
m m2
tonnes
tonnes
tonnes
tonnes
bone dry tonnes
tonnes
m m2
tonnes
2006
2005
92,268,200
1,428,900
8,526,800
71,100
901,500
85,887,000
1,428,100
8,353,200
106,000
1,036,200
18,639,800
12,470,300
31,110,100
18,747,000
12,240,000
30,987,000
409,000
166,900
481,800
767,300
863,100
65,000
109
256,300
897,300
203,300
573,100
2,894,700
2,103
3,606
2,360
180,200
2,012,300
187,100
114,100
886,600
369,300
328
320,900
386,500
133,900
461,400
684,000
874,900
66,800
88
309,000
1,055,000
192,000
595,000
2,705,700
2,081
3,282
1,681
174,700
1,890,000
186,900
127,700
1,142,100
373,000
330
316,500
(1) 2006 and 2005 data shown above exclude production from Kumba Resources Limited (Exxaro) which ceased to be a subsidiary during the year and is now held as
a fi nancial asset investment.
(2) Includes Hippo Valley’s production, which was acquired by a subsidiary of Tongaat-Hulett during the year.
154
| Anglo American plc Annual Report 2006
Exchange rates and commodity prices
US$ exchange rates
Average spot prices for the year
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 year
Gold
Platinum
Palladium
Rhodium
Copper
Nickel
Zinc
Lead
European eucalyptus pulp price (CIF)
2006
2005
6.77
0.54
0.80
1.33
530
7.00
0.51
0.76
1.27
533
6.37
0.55
0.80
1.31
559
6.35
0.58
0.85
1.36
512
2006
2005
604
1,142
321
4,571
305
1,095
148
58
638
445
897
201
2,056
167
668
63
44
582
US$/oz
US$/oz
US$/oz
US$/oz
US cents/lb
US cents/lb
US cents/lb
US cents/lb
US$/tonne
Anglo American plc Annual Report 2006 | 155
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Key fi nancial data
US$ million (unless otherwise stated)
2006
2005
2004
US$ million (unless otherwise stated)
2003(7)
2002(7)(8)
Group revenue including associates
Less: share of associates’ revenue
38,637 34,472 31,938
(5,565) (5,038) (5,670)
33,072 29,434 26,268
Group revenue
Operating profi t including associates
before special items and remeasurements 9,832
Special items and remeasurements (excluding
fi nancing special items and remeasurements)
Net fi nance costs (including remeasurements),
taxation and minority interests of associates
376
(481)
6,376 4,697
(455)
933
(320)
(399)
Group turnover including share
of joint ventures and associates
Less: Share of joint ventures’ turnover
Share of associates’ turnover
24,909 20,497
(1,060) (1,066)
(5,212) (4,286)
Group turnover – subsidiaries
Operating profi t before exceptional items
Operating exceptional items
18,637 15,145
3,332
(81)
2,892
(286)
Total operating profi t
Non-operating exceptional items
Net interest expense
2,606
386
(319)
3,251
64
(179)
Profi t on ordinary activities
before taxation
Taxation on profi t on ordinary activities
Taxation on exceptional items
Equity minority interests
Profi t for the fi nancial year
Underlying earnings(1)
Earnings per share ($)
Underlying earnings per share ($)
Dividend per share (US cents)
Basic number of shares
outstanding (million)
EBITDA(2)
EBITDA interest cover(3)
Operating margin
(before exceptional items)
Dividend cover
(based on underlying earnings)
Balance Sheet
Intangible and tangible fi xed assets
Investments
Working capital
2,673
3,136
(749) (1,042)
(3)
(528)
13
(345)
1,592
1,563
1,694
1,759
1.13
1.20
54.0
1.11
1.25
51.0
1,415
1,411
4,785
9.3
4,792
50.5
11.6% 16.3%
2.2
2.5
26,646 18,841
6,746
822
7,206
1,903
Provisions for liabilities and charges
Net debt
(3,954) (2,896)
(8,633) (5,578)
9,727
5,601 5,231
(165)
(393)
(367)
9,562 5,208 4,864
(923)
(2,640) (1,275)
6,922
(736)
3,933 3,941
(440)
(412)
6,186
3,521
3,501
5,471
3,736 2,684
4.21
3.73
108.0
67.0
2.43
2.58
90.0
33.0
2.44
1.87
70.0
–
1,468
1,447 1,434
12,197
45.5
8,959
20.0
7,031
18.5
25.4% 18.5% 14.7%
3.5
2.9
2.7
25,632 33,368 35,816
5,375 5,375
7,819
3,719 3,715
3,246
(1,177) (1,492)
(611)
(5,790) (8,399) (8,339)
(3,324) (4,993) (8,243)
–
721
–
27,127 27,578 27,713
(2,856) (3,957) (4,588)
24,271 23,621 23,125
30,451 32,571 35,956
10,057
7,265
5,291
288
470
396
32.4% 19.2% 14.6%
38.7% 26.0% 21.2%
12.9% 17.0% 25.4%
Equity minority interests
(3,396) (2,304)
Total shareholders’ funds (equity)
Total capital(4)
Net cash infl ow from operating activities
Dividends received from joint
ventures and associates
Return on capital employed(5)
EBITDA/average total capital(4)
Net debt to total capital(6)
19,772 15,631
31,801 23,513
3,184
3,618
426
258
10.7% 17.5%
17.3% 24.4%
32.0% 27.9%
Total profi t from operations
and associates
Net fi nance costs (including special items
and remeasurements)
Profi t before tax
Income tax expense
Profi t for the fi nancial year
Minority interests
Profi t attributable to equity
shareholders of the Company
Underlying earnings(1)
Earnings per share ($)
Underlying earnings per share ($)
Ordinary dividend per share (US cents)
Special dividend per share (US cents)
Weighted average number of shares
outstanding (million)
EBITDA(2)
EBITDA interest cover(3)
Operating margin (before
special items and remeasurements)
Ordinary dividend cover (based on
underlying earnings per share)
Balance Sheet
Intangible and tangible assets
Other non-current assets and investments
Working capital
Other net current liabilities
Other non-current liabilities and obligations
Net debt
Net assets classifi ed as held for sale
Net assets
Minority interests
Equity attributable to the equity
shareholders of the Company
Total capital(4)
Cash infl ows from operations
Dividends received from associates
and fi nancial asset investments
Return on capital employed(5)
EBITDA/average total capital(4)
Net debt to total capital(6)
Years 2004, 2005 and 2006 are prepared under IFRS. Years 2002 and 2003 are prepared under UK GAAP.
(1) Underlying earnings is net profi t attributable to equity shareholders, adjusted for the effect of special items and remeasurements, and any related tax and minority interests.
(2) EBITDA is operating profi t before special items, operating remeasurements (2002 to 2003: exceptional items), depreciation and amortisation in subsidiaries and joint
ventures and share of EBITDA of associates.
(3) EBITDA interest cover is EBITDA divided by net fi nance costs excluding other net fi nancial income, exchange gains and losses on monetary assets and liabilities, amortisation
of discounts on provisions, special items and fi nancial remeasurements (2002 to 2003: exceptional items), but including share of associates’ net interest expense.
(4) Total capital is net assets excluding net debt.
(5) Return on capital employed is calculated as total operating profi t before impairments for the year divided by the average of total capital less other investments and
adjusted for impairments.
(6) Net debt to total capital is calculated as net debt divided by total capital less investments in associates.
(7) 2002 and 2003 have been restated to refl ect the adoption of UITF abstract 38 Accounting for ESOP trusts.
(8) 2002 has been restated for the adoption of FRS 19 Deferred Tax.
156
| Anglo American plc Annual Report 2006
Summary by business segment
US$ million
Platinum
Gold
Diamonds
Coal
South Africa
Australia
South America
Projects and corporate
Base Metals
Copper
Collahuasi
Minera Sur Andes(4)
Mantos Blancos(4)
Other
Nickel, Niobium, Mineral Sands
Catalão
Codemin
Loma de Níquel
Namakwa Sands
Zinc
Black Mountain
Lisheen
Skorpion
Other
Industrial Minerals
Tarmac
Copebrás
Ferrous Metals and Industries
Kumba
Highveld Steel
Scaw Metals
Samancor Group
Tongaat-Hulett
Boart Longyear
Other
Paper and Packaging
Mondi Packaging
Mondi Business Paper
Other
Exploration
Corporate Activities
2006
5,861
1,740
3,148
3,333
1,394
1,398
541
–
6,252
4,537
1,442
2,219
876
–
799
66
219
334
180
916
148
396
372
–
4,291
4,009
282
6,519
2,259
1,023
1,233
425
1,572
–
7
7,493
4,132
2,215
1,146
–
–
Revenue(1)
2005
3,714
2,644
3,316
3,349
1,441
1,383
525
–
3,647
2,597
712
1,306
579
–
609
49
136
249
175
441
80
147
214
–
4,073
3,784
289
6,773
1,936
1,127
1,029
634
1,423
618
6
6,956
3,798
2,050
1,108
–
–
2006
2,845
843
541
1,082
437
397
271
(23)
4,214
3,238
1,037
1,640
563
(2)
451
26
144
229
52
588
42
280
266
(63)
580
539
41
1,560
879
247
188
51
207
–
(12)
923
528
297
98
(132)
(259)
EBITDA(2)
2005
Operating profi t/(loss)(3) Underlying earnings/(loss)
2005
2006
2006
2005
1,282
2,398
871
655
1,243
525
459
273
(14)
1,990
1,590
468
824
299
(1)
296
20
75
153
48
157
12
62
83
(53)
618
570
48
1,779
734
472
145
164
188
87
(11)
916
528
310
78
(150)
(245)
467
463
864
380
279
227
(22)
3,876
3,019
962
1,533
526
(2)
405
25
136
209
35
516
31
265
220
(64)
336
315
21
1,360
778
230
160
52
154
–
(14)
477
287
130
60
(132)
(277)
854
332
583
1,019
470
323
240
(14)
1,678
1,381
397
724
261
(1)
249
18
69
132
30
102
10
50
42
(54)
370
340
30
1,456
568
436
121
144
131
67
(11)
495
293
163
39
(150)
(261)
1,265
178
227
640
279
216
163
(18)
483
105
430
724
333
224
174
(7)
2,647
1,240
1,908
586
996
328
(2)
270
15
96
134
25
525
38
287
200
(56)
266
258
8
583
302
79
106
38
55
–
3
274
208
51
15
(113)
(496)
983
257
529
195
2
202
17
68
92
25
100
10
54
36
(45)
267
256
11
757
261
232
85
103
49
35
(8)
296
194
100
2
(115)
(451)
38,637
34,472
12,197
8,959
9,832
6,376
5,471
3,736
(1) Revenue includes the Group’s share of revenue of joint ventures and associates. Base Metals’ revenue is shown after deduction of treatment charges
and refi ning charges (TC/RCs).
(2) EBITDA is operating profi t before special items, remeasurements, depreciation and amortisation in subsidiaries and share of EBITDA of associates.
(3) Operating profi t includes operating profi t before special items and remeasurements from subsidiaries and joint ventures and share of operating profi t (before interest, tax,
minority interests, special items and remeasurements) of associates.
(4) Revenue in 2006 and 2005 includes intercompany sales from Mantos Blancos to Minera Sur Andes. The external revenue in 2006 is $2,372 million (2005: $1,386
million) for Minera Sur Andes and $723 million (2005: $499 million) for Mantos Blancos.
Anglo American plc Annual Report 2006 | 157
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Reconciliation of subsidiaries’ and associates’ reported earnings to the
underlying earnings included in the consolidated fi nancial statements
for the year ended 31 December 2006 – note only key reported lines are reconciled
AngloGold Ashanti Limited
IFRS adjusted headline earnings (published)
Exploration
Depreciation on assets fair valued on acquisition
Deferred tax on depreciation on assets fair valued on acquisition
Other
Minorities’ share of profi t during subsidiary period up to 20 April 2006
Share of earnings not attributable to Anglo American’s 41.7% shareholding from 20 April 2006
Contribution to Anglo American plc underlying earnings
Anglo Platinum Limited
IFRS headline earnings (US$ equivalent of published)
Exchange rate difference
Exploration
Adjustment to profi t on disposal(1)
Other adjustments
Minority interest
Depreciation on assets fair valued on acquisition (net of tax)
Contribution to Anglo American plc underlying earnings
2006
US$ million
413
16
(26)
8
10
(69)
(174)
178
1,771
(40)
30
16
(6)
1,771
(454)
(52)
1,265
(1) The BEE cost included in the current year transaction in respect of the disposal of 15% of Union section by Anglo Platinum is calculated in accordance with IFRS 2 Share-
based Payment. This is excluded from Anglo American’s ‘Underlying earnings’ as it is considered to be part of the profi t or loss on disposal, however this amount is
included in Anglo Platinum’s ‘Headline earnings’ as defi ned by the Johannesburg Stock Exchange.
DB Investments (DBI)
DBI underlying earnings before class action payment (100%)(1)
Adjustments(2)
DBI underlying earnings – Anglo American plc basis (100%)
Anglo American plc’s 45% ordinary share interest
Income from preference shares
Contribution to Anglo American plc underlying earnings
425
18
443
199
28
227
(1) DBI underlying earnings is stated before costs of $57 million in relation to the amended class action settlement agreement, and profi ts of $229 million and $105 million
relating to the Ponahalo BEE transaction and sale of interest in Fort à la Corne, respectively.
(2) Adjustments include the reclassifi cation of the actuarial gains and losses booked to the income statement by DBsa under the corridor mechanism of IAS 19 Employee Benefi ts.
Kumba Iron Ore Limited (KIO)
IFRS pro forma headline earnings (US$ equivalent of published)(1)
Depreciation on assets fair valued on acquisition (net of tax)
Adjustment to profi t on disposal(2)
Other adjustments
Minority interest
KIO contribution to Anglo American plc underlying earnings
Add contribution from Kumba non-iron ore
Kumba contribution to Anglo American plc underlying earnings
314
(6)
23
(3)
328
(66)
262
40
302
(1) The KIO IFRS pro forma headline earnings for the year ended 31 December 2006 assume a minority interest of 20% in KIO’s underlying mining assets.
(2) The BEE cost in respect of KIO’s disposal of 3% of the issued share capital of Sishen Iron Ore Company (Pty) Limited (SIOC) to the SIOC Community Development Trust,
as part of the conditions of the Kumba Resources empowerment transaction, is calculated in accordance with IFRS 2 Share-based Payment. This is excluded from Anglo
American’s ‘Underlying earnings’ as it is considered to be part of the Kumba empowerment transaction. This amount, however, is included in KIO’s ‘Headline earnings’ as
defi ned by the Johannesburg Stock Exchange.
Highveld Steel and Vanadium Corporation Limited
IFRS headline earnings (US$ equivalent of published)
Adjustment in respect of disposal group accounting(1)
Other adjustments
Minority interest
Contribution to Anglo American plc underlying earnings
(1) Highveld was reclassifi ed as ‘Assets classifi ed as held for sale’ during the year and, therefore, in accordance with IFRS 5 Non-current assets held for sale and discontinued
operations, the Group ceased recording depreciation from the point of reclassifi cation.
The Tongaat-Hulett Group Limited
IFRS headline earnings (US$ equivalent of published)
Minority interest
Add Anglo American plc’s share of Hulamin
Contribution to Anglo American plc underlying earnings
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154
13
(7)
160
(81)
79
104
(54)
50
5
55
Shareholder information
Annual General Meeting
Will be held at 11:00 am on Tuesday 17 April 2007, at The Royal
Society, 6-9 Carlton House Terrace, London, SW1Y 5AG.
Shareholders’ diary 2007/8
Interim results announcement
Interim dividend payment
Annual results announcement
Annual report
AGM
Final dividend
August 2007
September 2007
February 2008
March 2008
April 2008
May 2008
Shareholding enquiries
Enquiries relating to shareholdings should be made to the
Company’s UK Registrars, Lloyds TSB or the South African Transfer
Secretaries, Link Market Services South Africa (Pty) Ltd, at the
relevant address below:
UK Registrars
Lloyds TSB Registrars
The Causeway
Worthing
West Sussex BN99 6DA
England
Telephone:
In the UK: 0870 609 2286
From outside the UK: +44 121 415 7558
Transfer Secretaries in South Africa
Link Market Services South Africa (Pty) Ltd
11 Diagonal Street
Johannesburg 2001, South Africa
(PO Box 4844 Johannesburg 2000)
Telephone: +27 (0) 11 834 2266
Enquiries on other matters should be addressed to the
Company Secretary at the following address:
Registered and Head Offi ce
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
Additional information on a wide range of shareholder services
can be found in the Shareholder Information section of the Notice
of Annual General Meeting and on the Group’s website.
Anglo American plc Annual Report 2006 | 159
ANGLO AMERICAN plc
ANNUAL REPORT 2006
Other Anglo American publications
• 2006 Annual Review
• 2006 Interim Report
• 2006/7 Fact Book
• 2006 Notice of AGM and Shareholder Information Booklet
• 2006 Report to Society
• Optima – Anglo American’s current affairs journal
• Good Neighbours: Our Work With Communities
• Good Citizenship: Our Business Principles
• Investing in the future – Black Economic Empowerment
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/newsandmedia/reportsand
publications/request/requestreportpopup/
The 2006 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 2006:
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Annual Report 2006
Anglo American:
Delivering
our strategic goals
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