Anglo American
Annual Report 2009

Plain-text annual report

Anglo American plc 20 Carlton House Terrace London SW1Y 5AN England Tel +44 (0)20 7968 8888 Fax +44 (0)20 7968 8500 Registered number 3564138 www.angloamerican.co.uk l A n g o A m e r i c a n p c l A n n u a l R e p o r t 2 0 0 9 Annual Report 2009 A strategy for A strategy for unlocking value unlocking value Annual Report 2009 Our mission Anglo American aims to be the leading global mining company – through world class assets in the most attractive commodities, operational excellence and a resolute commitment to safe and sustainable mining. Find out more Within this report we have included references to find out more information on certain sections, either within the report itself or online. For more information within this report For more information online Cover photo Mantos Blancos in the Atacama Desert in Chile has been in operation for nearly 50 years. In 2009, the mine produced more than 90 kt of copper. This page Load haul trucks in the open pit at Los Bronces in Chile. The mine, which lies at 3,000-3,500 metres above sea level, and has extensive reserves, produced more than 238 kt of copper in 2009. 02 Group overview 04 Highlights 06 Chairman’s statement 08 Chief executive’s statement 12 The investment of choice 16 Key performance indicators (KPIs) 18 Performance against KPIs 28 Resources 30 Group financial performance 34 Platinum 38 Diamonds 42 Copper 46 Nickel 50 54 Metallurgical Coal 58 Thermal Coal 62 Other Mining and Industrial 64 Principal risks and uncertainties Iron Ore and Manganese 68 The Board 70 Executive management 71 Directors’ report 75 Corporate governance 80 Remuneration report 91 Independent remuneration report review Statement of directors’ responsibilities 92 Independent auditors’ report 94 Responsibility statements 95 96 Principal statements 100 Notes to the financial statements 148 Introduction 149 Platinum 152 Copper 155 Nickel 156 Niobium and Phosphate products 157 Zinc 159 Iron Ore 161 Manganese 162 Coal Exchange rates and commodity prices 171 Production statistics 178 179 Key financial data 181 Summary by business operation 182 Reconciliation of earnings by segment 183 Reconciliation of reported earnings 184 The business – an overview 187 Shareholder information 188 Other Anglo American publications Anglo American plc Annual Report 2009 01 A b o u t l A n g o A m e r i c a n O p e r a t i n g a n d fi n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s O r e R e s e r v e s & M n e r a i l R e s o u r c e s O t h e r i n f o r m a t i o n About Anglo American Our mission Group overview Rio de Janeiro São Paulo Santiago For more information, see pages 34-63 For more information, visit www.angloamerican.co.uk Key Corporate and representative offices Platinum Diamonds Copper Nickel Iron Ore and Manganese Metallurgical Coal Thermal Coal Other Mining and Industrial In addition to its operations, Anglo American’s exploration activities and projects cover many parts of the globe. Since 2002... 2002 Anglo Base Metals acquires the Disputada copper operations in Chile from Exxon Mobil. 2006 Restructuring of Kumba Resources to separately list Kumba Iron Ore (with Anglo American holding 64%) and Exxaro, which became South Africa’s largest black economic empowered (BEE) natural resource company. 2007 Demerger of Mondi sees Anglo American’s former paper and packaging business become a dual-listed company in London and Johannesburg. 2003 Anglo American acquires a major stake in Kumba Resources. 2006 Shareholding in AngloGold Ashanti reduced from 51% to 42%. 2007 Cynthia Carroll appointed chief executive in March. 02 Anglo American plc Annual Report 2009 London Luxembourg Beijing New Delhi A b o u t l A n g o A m e r i c a n São Paulo Johannesburg Brisbane Precious Platinum Base Copper Bulk Iron Ore and Manganese Thermal Coal Business profile • The world’s leading primary producer of platinum, accounting for around 40% of newly mined platinum output Operations based in South Africa • Business profile • Six operations in Chile account for the majority of current copper output Significant future growth from approved expansion at Los Bronces • Business profile • Comprises operations in South Africa, Brazil and Australia Minas Rio project to begin production of high grade pellet feed in 2012 • Product details • • Primarily used in autocatalysts and jewellery Also employed in chemical, electrical, electronic, glass and petroleum industries and medical applications Product details • • Used mainly in wire and cable, brass, tubing and pipes Copper’s thermal conductivity also makes it suitable for use in heat transfer applications such as air conditioning and refrigeration Product details • • Key component in steel, the most widely used of all metals Global steel consumption forecast to grow in excess of 5% pa over the next 3 years Business profile • • Thermal Coal operations managed out of South Africa Coal is exported from South Africa, South America and Australia throughout the Med-Atlantic and Indo-Pacific markets Product details • About 40% of all electricity generated globally is powered by thermal coal About 5.8 billion tonnes of hard coal are produced globally each year • Diamonds Nickel Metallurgical Coal Other Mining and Industrial Business profile • • Anglo American owns 45% of De Beers De Beers produces about 40% of the world’s diamonds by value and is the world’s largest supplier and marketer of rough gem diamonds Product details • The most important diamond jewellery market is the United States, followed by China and Japan Some stones are used for industrial purposes such as cutting and drilling • Business profile • • Major operations in Brazil and Venezuela Barro Alto project in Brazil is expected to more than double nickel production by 2012 Business profile • Metallurgical Coal operations managed out of Australia Project pipeline includes more than 20 mining prospects • Product details • • About 60% of all nickel is used in the production of stainless steel Around 25% is used to make other types of steel and for super-alloys, which can withstand extreme temperatures Product details • Key raw material for 70% of the world’s steel industry Demand driven by economic, industrial and steel growth • Business profile • Assets include: Tarmac, the Group’s portfolio of zinc assets, Scaw Metals, Copebrás, Catalão, Peace River Coal and the Group’s share in the Carbones del Guasare coal assets Accounted for approximately 13% of 2009 Group EBITDA Preparatory work for the separation of these businesses has commenced • • 2007 Purchase of a 49% stake in the Minas Rio iron ore project in Brazil. 2007 Acquisition of the Michiquillay copper project in northern Peru. 2008 Anglo American acquires control of the Minas Rio iron ore project. 2009 Major restructuring of the Group to further focus on core commodities and improve operational delivery. 2007 Cynthia Carroll appointed chief executive in March. 2007 Disposal of remaining 29% holding in Highveld Steel and Vanadium. 2008 Acquisition of a 70% interest in the Foxleigh coal mine in Australia. 2009 Anglo American sells its remaining shareholding in AngloGold Ashanti. 2009 Anglo American achieves record safety performance. Anglo American plc Annual Report 2009 03 About Anglo American Highlights A strategy for unlocking value For more information, see page 12 > Delivering operational efficiencies > Asset optimisation and procurement delivered more than $1.6 billion of benefits in 2009 ($1.4 billion from core operations), exceeding target > Asset optimisation and procurement target of $2 billion now to be delivered from core businesses alone by 2011 > Anglo Platinum – significant restructuring achieved, flat cash operating costs target met, 3 high cost shafts on care and maintenance, labour productivity up 21% in 2 years > Significant cash cost reduction of $712 million (5%) and productivity improvements achieved across the Group – headcount reduced by 23,400 > Creating a more effective, focused business > Major Group reorganisation completed, creating new generation of leadership within a leaner, more effective structure > Board strengthened and refreshed – new chairman and 3 new non-executive directors to bring further mining, commercial and financial expertise > Divestment programme under way – running businesses to maximise value; sales of Tarmac’s European aggregates and Polish concrete products businesses agreed with expected proceeds of approximately $400 million; Zinc sale process initiated with significant buyer interest > Clear strategy driving targeted, high quality growth of selected commodities > $17 billion of approved projects in most attractive commodities to drive organic production growth of more than one third by 2013 – copper to grow by 33%; iron ore by 82%; nickel by 139% > Development of four key strategic projects on track – Minas Rio, Los Bronces, Barro Alto and Kolomela (Sishen South) > New growth projects: Quellaveco (copper) and Grosvenor (metallurgical coal) – first stage approvals expected in 2010 04 Anglo American plc Annual Report 2009 Operating profit (2008: $10.1 bn) $5.0 bn Underlying earnings (2008: $5.2 bn) $2.6 bn Underlying earnings per share (2008: $4.36) $2.14 A b o u t l A n g o A m e r i c a n Capital expenditure $ bn Dividends per share Cents Underlying earnings per share $ Interim Final Special Excludes discontinued operations 5.1 4.6 4.1 3.7 3.3 86 75 67 62 44 38 33 28 33 4.40 4.18 4.36 3.73 3.42 2.58 2.30 2.14 05 06 07 08 09 05 06 07 08 09 05 06 07 08 09 2009 operating profit by business unit $ million Precious Base Bulk Other Mining and Industrial Platinum Diamonds Copper Nickel Iron Ore and Manganese Metallurgical Coal Thermal Coal Other Mining and Industrial 2,010 1,489 Operating profit includes share of associates’ operating profit (before share of associates’ tax, finance charges and minority interests) and is before special items and remeasurements, unless otherwise stated. See notes 2 and 3 to the financial statements for operating profit on a total Group basis. For definition of special items and remeasurements, see note 7 to the financial statements. See note 12 to the financial statements for basis of calculation of underlying earnings. Operations considered core to the Group are Platinum, Diamonds, Copper, Nickel, Iron Ore and Manganese, Metallurgical Coal and Thermal Coal. Unless otherwise stated, ‘tonnes’ are metric tons, ‘Mt’ denotes million tonnes, ‘kt’ denotes thousand tonnes and ‘koz’ denotes thousand ounces. Unless otherwise stated, ‘$’ and ‘dollars’ denote US dollars and ‘cents’ denotes US cents. 721 451 506 32 64 2 For more information on our business unit performance, see pages 34 to 63 Anglo American plc Annual Report 2009 05 About Anglo American Chairman’s statement Delivering on our commitments We are committed to key projects to maximise our long term returns. Sir John Parker Chairman, appointed August 2009 Career in brief 1964 Joins the ship design team 2002 Appointed chairman of National at Harland & Wolff as a naval architect and engineer Grid Transco when the Lattice Group and National Grid merge. Becomes chairman of RMC Group, Aggregates and Cement. He is also knighted for services to the defence and shipbuilding industries 2004 Appointed Chair of the Court of the Bank of England 2005 Appointed chairman of P&O, leading the sale to Dubai’s DP World 2009 Joins Anglo American as chairman 1978 Joins the board of British Shipbuilders Corporation 1983 Returns to Harland & Wolff as chairman and chief executive, leading a transfer from the public to the private sector 1986 Joins British Coal Corporation as a non-executive director 1993 Joins Babcock International as CEO (becoming chairman the following year) 1997 Becomes a non-executive director of British Gas, which leads to him becoming chairman of the Lattice Group when it demerges from BG Group 06 Anglo American plc Annual Report 2009 A world class combination of resources and people In this, my first year as chairman of Anglo American, I am pleased to report on a very creditable overall performance during an extremely volatile year in our markets. Your company is in very good shape to meet the challenges ahead: we have a formidable portfolio of top quality assets and projects, we are a more fit for purpose and lean organisation, our business is adequately funded, our Board has been refreshed and we are enthusiastically executing our clear strategy for delivering value. In my first few months, I have travelled extensively around the Group. I have been impressed not only by Anglo American’s asset quality but also by the professionalism of its people. We have a top class team, with an unparalleled record of innovation and leadership in exploration, in engineering, and in mining operations. A clear strategy for delivering value In 2009, we increasingly reaped the benefit from initiatives we put in place to create greater shareholder value. An important element is our asset optimisation programme, which aims to unlock value from existing assets and achieve operational excellence through ongoing cost and productivity improvements. Another significant initiative is a streamlined supply chain in order to capitalise on the scale of the Group and to deliver cost savings by forming strategic global partnerships with key suppliers. Furthermore, a far-reaching and bold restructuring of the Group has enabled it to become a more effective organisation. The new operating model is designed to make Anglo American nimble, lean and fit to execute our business strategy. All these actions in combination have led to a new sense of purpose for our Group. We are now very clear on our strategic priorities. We are focused on those commodities we consider will give Anglo American the best mix for the future, we know where we are headed, and we are well positioned for the next commodity upcycle and beyond. Safety No company can ever be ranked as truly great if it has an unsatisfactory safety record. As your new chairman, I would like to state categorically that safety will have my unremitting attention as it has always been my number one agenda item. My philosophy is that the people who come to work for you each day have the right to return home safe to their families each night. It is encouraging to report that Anglo American is making further inroads in improving its safety performance. In 2009, there was another significant decline in the number of people who lost their lives on company business, accompanied by a similar downward trend in lost-time injuries. Over the past three years, under Cynthia Carroll’s leadership, the number of fatalities has been reduced by nearly 60% – a most encouraging development – but we remain intent on a zero-injuries objective. A b o u t l A n g o A m e r i c a n Sustainable development Operating our businesses in a socially and environmentally responsible way, and earning and deserving trust, are fundamental to our licence to operate and to delivering long term value to our investors. Our commitment to excellence in this field is not a function of the economic cycle. Indeed, in difficult economic times the responsibility on us to demonstrate that we are a consistent, supportive partner for sustainable development is all the greater. We continued to integrate sustainable development into our business processes in 2009. We launched two major policies: the Anglo Environment Way, and the Anglo Social Way, which establish demanding environmental and social management standards. We assessed our social performance against the standards in the Social Way at the end of 2009, identifying many examples of best practice but also some gaps which we aim to close in 2010. We also launched a new version of our Good Citizenship Business Principles – our corporate code of conduct. Alongside a greater focus on environmental issues, this emphasises an increased commitment to our already extensive programmes on HIV/AIDS treatment as well as to diversity and family life. It also strengthens our stance against corruption: in 2009 we developed a comprehensive Business Integrity Policy, accompanied by detailed anti-corruption Performance Standards. This will be rolled out through the business in 2010. Climate change took centre stage at the end of 2009. Although the Copenhagen Accord fell short of expectations, we remain committed – as both a major consumer of energy and a major coal producer – to minimise our own carbon emissions, play a proactive role in the ongoing international debate, and work to develop our technological response. An example of this is our investment in methane capture in Australia, where we have helped develop two mine gas power stations, which together will reduce carbon dioxide emissions by around 2.3 Mtpa. More broadly, Anglo American continues to support leading international initiatives to promote responsible corporate activity. We remain committed to the United Nations Global Compact and the Extractives Industry Transparency Initiative, and have been pleased to see the latter steadily gain traction. We continue to support the Investment Climate Facility for Africa, to which we have contributed $1.5 million to date. We are also actively engaged in discussions around the review of the OECD Guidelines for Multinational Enterprises, and continue to play an active role in support of the Voluntary Principles on Security and Human Rights. Outlook The world economy has recovered after the severe recession of late 2008 and early 2009. Unprecedented policy stimulus and, more recently, a turn in the inventory cycle have contributed to the upturn. In the major advanced economies there are some significant headwinds that will probably restrain growth in 2010 and 2011. Financial systems are fragile, households and companies are rebuilding balance sheets, and policymakers are under pressure to withdraw extreme stimulus measures. Prospects are much brighter in the major emerging economies. China and India are growing strongly as increases in infrastructure spending have offset the weakness of export markets. While policymakers will probably seek to curb overheating risks, longer term economic fundamentals remain sound. Economic growth in the emerging economies will continue to outpace that in the advanced economies over the next decade. Refreshing the Board I believe it is the Board’s job to set the drumbeat for the business by owning the strategy, empowering management to execute it, and hold them accountable for delivery. Thus, the Board needs to be fit for purpose, with the right range of skill sets to be capable of tackling any issue that comes through the boardroom door. It is against that background that I welcome Sir Philip Hampton, with his wealth of financial, strategic and boardroom experience; Jack Thompson, a lifelong successful mining executive; and Ray O’Rourke, who has spent a lifetime of achievement in large scale complex construction projects. I would also like to take this opportunity to thank Sir Rob Margetts, Chris Fay and Fred Phaswana for the valuable contributions they have made over the years to the success of Anglo American. I also wish to pay tribute to Karel Van Miert, who passed away in June last year. He is greatly missed. My final words go to my predecessor, Sir Mark Moody-Stuart. He achieved so much in his nearly seven years as chairman to embed sustainability and good corporate governance, both in our own business and in the global arena. On behalf of the Board, I wish all of those stepping down a long and active retirement. I also wish to thank all our employees and pay tribute to their dedication and their loyalty to Anglo American. Dividend The resumption of the dividend at the earliest possible time remains a key priority for the Board. Assuming that the commodity price environment and outlook continue to improve and the business performance remains robust, the Board would expect to be able to announce the resumption of a dividend in respect of the current financial year. Anglo American plc Annual Report 2009 07 Sir John Parker Chairman About Anglo American Chief executive’s statement Aligning the organisation with our strategy Cynthia Carroll Group Finance Director René Médori (UK) Group Director of Mining and Technology Brian Beamish (UK) Group Director of Business Performance and Projects David Weston (UK) Group Director of HR and Communications Mervyn Walker (UK) Group Director Strategy and Business Development Peter Whitcutt (UK) New Executive Committee Chief Executive Cynthia Carroll Anglo Platinum CEO Neville Nicolau (South Africa) Copper CEO John MacKenzie (Chile) Nickel CEO Walter De Simoni (Brazil) Kumba Iron Ore CEO Chris Griffith (South Africa) Iron Ore Brazil CEO Stephan Weber (Brazil) Metallurgical Coal CEO Seamus French (Australia) Thermal Coal CEO Norman Mbazima (South Africa) Other Mining and Industrial Group Director Duncan Wanblad (UK) Corporate Finance | Finance and Performance Management | Tax | Treasury | Investor Relations | Information Management | Legal | Internal Audit | Company Secretarial Global Shared Services | Procurement Technical Services | Exploration | Research and Development | Business Support – Platinum, Copper and Nickel Asset Optimisation | Project Management | Commercial Co-ordination | Safety and Sustainable Development | Energy | Business Support – Iron Ore, Metallurgical Coal and Thermal Coal Human Resources | Organisational Transformation | Communications | Government Relations Group Strategy | Business Development 08 Anglo American plc Annual Report 2009 Aligning the organisation with our strategy Delivering operational efficiencies Cash cost reduction in 2009 $712 million Asset optimisation and procurement target to be delivered by 2011 from core operations alone $2 billion Anglo American is now a more focused and performance oriented international mining company. A b o u t l A n g o A m e r i c a n Financial performance 2009 was another extraordinary year for the mining industry and one of great change and significant delivery for Anglo American. The early part of the year saw a continuation of the very considerable global economic uncertainty that engulfed the world in late 2008, though I am pleased to report that the decisive measures we put in place to position the Group through the downturn were certainly effective. As the year progressed, varying degrees of confidence returned to the world markets and the prices of many commodities increased steadily in line with demand recovery, continuing to be driven principally by the emerging economies of China and India. Against what has been an unpredictable economic background, Anglo American delivered a solid operating performance, with operating profit of $5.0 billion and underlying earnings of $2.6 billion, with strong performances across our businesses. Profit attributable to equity shareholders at $2.4 billion was 55% lower, reflecting our trading performance, and includes the $1.1 billion gain on the disposal of our residual shares in AngloGold Ashanti and the $1.5 billion (after tax and minority interest) impairment of Amapá. Delivering value through operational excellence Anglo American is now a more focused and performance oriented international mining company. We have a clear strategy in place and are driving harder than ever in pursuit of our ambition of being the investment, partner and employer of choice in the mining industry. In 2009, we made significant progress on several fronts, delivering on and exceeding our targets – achieving a step change in safety performance, restructuring the Group and laying the foundation for significant cultural change, while continuing our highly successful cost and efficiency initiatives, taking Anglo American into a new, more dynamic era of value delivery. In October, we announced a major corporate reorganisation to ensure delivery of a clear corporate strategy, to create a more streamlined and efficient management structure and further focus the Group on its core mining businesses. Through our redesign of the Group’s structure, we have created seven focused commodity businesses, with their management teams located in the area of core geographic focus for each commodity, responsible for operational performance and project delivery. The rationalised corporate centre will be responsible for providing strategic support to the businesses and will be focused on delivering synergies, technology and business performance. We have worked quickly to implement these new structures and we expect full implementation by the end of the first quarter of 2010, with associated annualised cost savings of approximately $120 million. Taken together with our overall Group restructuring and efficiency initiatives, this has resulted in a reduction of our total headcount of 23,400* during 2009. Two areas of synergy where we are continuing to deliver clear and substantial value are in our asset optimisation and global procurement programmes. We are now well advanced towards delivering our stated combined target of $2 billion of uplift in 2011, generating more than $1.6 billion in 2009, ahead of expectations. Based on our excellent progress to date, we now expect to achieve our $2 billion asset optimisation and procurement targets from our core businesses alone on the same timeline. Cost control continues to be a major focus for Anglo American. Anglo Platinum has a clear strategy to move the cost position of its operations to the first and second quartile while, in 2009, it achieved flat cash operating unit costs and significant further productivity improvements. Furthermore, following a full restructuring of the operations at Rustenburg and Amandelbult to enable greater operational control and flexibility, the company has removed 140 koz (annualised) of high cost production by placing three shafts on care and maintenance. We have delivered cost reductions across the Group, most notably at our Diamonds and Metallurgical Coal businesses. * Headcount reduction includes contractors and 100% of De Beers. Asset optimisation(1) Sustainable operating profit improvements Procurement(2) Cost savings (opex and capex) Total Group (excl. Tarmac) Core businesses Total Group (excl. Tarmac) Core businesses FY 09 target Revised FY 2011 target FY 09 target Revised FY 2011 target FY 2009 $863 m .......... . . . . . . . . . . . . . . . . . . . . . . . . ...... Revised FY 2011 target $1,000 m Core $749 m FY 2009 target $700 m H1 2009 $335 m Core $279 m $m 1,000 800 600 400 200 0 9 0 0 2 1 H 9 0 0 2 Y F 0 1 0 2 Y F 1 1 0 2 Y F Notes: 1. Excludes one-off benefits of $209 million and Tarmac $86 million 2. Excludes Tarmac $16 million Anglo American plc Annual Report 2009 $m 1,000 800 600 400 200 0 . .............................. . . . . Core $445 m FY 2009 target $330 m FY 2009 $510 m H1 2009 $131 m Core $99 m 9 0 0 2 1 H 9 0 0 2 Y F 0 1 0 2 Y F . . . . . . . . . . . . .. . Revised FY 2011 target $1,000 m 1 1 0 2 Y F 09 About Anglo American Chief executive’s statement continued Health We have been dedicated to the issue of HIV and AIDS since the 1990s – 94% of permanent workers have been tested for HIV since the programme began – and in 2008 we extended our policy commitment to include the dependants of all our employees. Our pioneering work was recognised in 2009 by the Global Business Coalition on HIV/AIDS, Tuberculosis and Malaria, awarding the Business Excellence Award for Best Workplace Programme to our South African coal business for their ground breaking work. Outlook The medium and long term outlook for the mining industry remains strong. Demand for commodities is expected to remain robust with the continuing shift in the pattern of economic growth towards fast-growing emerging economies. In order to sustain its growth potential, we anticipate that China will continue to upgrade and develop its infrastructure, while the longer term potential of India and Brazil is expected to provide further support. These economies also have the greatest scope for strong consumer spending growth, the principal long term demand driver for platinum group metals and diamonds. In 2009, huge policy stimulus and a turn in the inventory cycle drove the rebound in industrial activity. In 2010, the positive effects of these factors are likely to start to fade. The economic headwinds are most noticeable in the advanced economies, where continuing balance sheet repair will constrain demand prospects. However, the outlook for the emerging economies is much brighter. China and India are likely to grow strongly, though the potential for setbacks remains as a weak external environment combines with intensifying domestic inflation pressures. Cynthia Carroll Chief executive Anglo American has provided strong support to the recapitalisations of both Anglo Platinum and De Beers, positioning them to take full advantage of economic recovery and the delivery of their long term growth prospects as respective industry leaders. We also made excellent progress during 2009 disposing of other interests. As we reported at the half year, Anglo American disposed of its residual shareholding in AngloGold Ashanti in the first quarter and in Hulamin and Tongaat Hulett in July and August respectively, generating total proceeds of $2.4 billion. During the first quarter of 2010, Anglo American agreed the sale of Tarmac’s aggregates businesses in France, Germany, Poland and the Czech Republic and its Polish concrete products business, with expected total proceeds of approximately $400 million. Driving targeted, high quality growth Anglo American has a clear strategy of deploying capital in those commodities that deliver long term, through-the-cycle returns for our shareholders, which have strong fundamentals and have the most attractive risk-return profiles. We have developed a portfolio of world class, low cost, long life operating assets and growth projects focused on those most structurally attractive commodities. Our decision to continue the development of several of our key strategic growth projects during the economic downturn positions us to capitalise on the next phase of global economic growth and to deliver our projected organic production growth of over one third by 2013. Four major projects – the Minas Rio iron ore project and the Barro Alto nickel project, both in Brazil, the Los Bronces copper expansion project in Chile and the Kolomela (previously Sishen South) iron ore project in South Africa – are all well placed on their respective industry cost curves, have long resource lives, further expansion potential and are on track to enter production, some from next year onwards, in what we expect to be a growing commodity demand environment. We will be driving forward these and other projects during 2010, investing $4.2 billion in projects out of a total planned capital expenditure investment of $6.0 billion for the year. We are also modernising our project management processes and standards to ensure they not only capture lessons from previous projects but that they provide us with world class tools for the future allocation of capital and control of major projects. Safety We have continued to deliver further reductions in lost time injuries and fatalities by taking a more focused, risk based approach and driving implementation and compliance with the Fatal Risk Standards for the top five safety risks across the business. Anglo American’s safety record when I joined the Group was unacceptable. Our lost time injury frequency rate (LTIFR) is now 27% lower than in 2008 and shows a 52% like-for-like improvement since 2006. We are also encouraged by the continuing reduction in fatalities and, while still unacceptable until we reach zero, these are now 32% fewer than 2008 and nearly 60% fewer than 2006. Regrettably, however, 19 people lost their lives while on company business in 2009. The majority of our sites operate without any fatalities – 92% during 2009, and we have many examples of exceptional safety performance. At Kumba Iron Ore, for example, Thabazimbi has achieved two years LTI-free; our base metals businesses were fatality free for the first time since 2005 and Iron Ore Brazil delivered a 98% improvement in its LTIFR. In January 2010, Anglo Platinum also achieved a significant milestone of operating for four consecutive months without a fatal incident – a first for the company. Sustainable development Our sustainable development agenda progressed on several fronts during the year, including ensuring that our foundations for effective water management are aligned and in place across all of our operations. These systems, processes and tools are essential for the delivery of our Group’s water strategy and to identify opportunities for managing and utilising water more effectively in the communities and catchment areas where we operate. We launched the Anglo Environment Way (AEW) in March 2009, which sets out a consistent approach to responsible environmental management, supporting our vision for minimising harm to the environment by designing, operating and closing all of our operations in an environmentally responsible manner. Our Mine Closure Toolbox, a world leading approach, supports delivery against the AEW standards and is currently being used in more than 30 operations in South America, South Africa, Namibia and Europe. There were 13 biodiversity peer reviews conducted during 2009, four in conjunction with Flora and Fauna International as part of our global strategic partnership. Given the increasingly energy intensive nature of our operations, our efforts to improve energy efficiency continue to be a major focus. 10 Anglo American plc Annual Report 2009 1 2 A b o u t l A n g o A m e r i c a n 3 1 Diamond sorters in the new Debswana sorting facility in Gaborone, Botswana. 2 Two of Sishen Mine’s custom-built 254 t capacity haul trucks being assembled on site. The new model truck was developed jointly over a five year period by Kumba and Komatsu. 3 Relobohile Tsiame (left) and Mbonelwa Mafikwana are mining operators at Thermal Coal’s Goedehoop colliery in South Africa. In 2009, we achieved a year on year reduction of 27% in the lost time injury frequency rate at our operations. LTIFR (2008: 1.04) 0.76 Percentage of employees undertaking voluntary counselling and testing for HIV/AIDS (2008: 77%) 82% Anglo American plc Annual Report 2009 11 Operating and financial review The investment of choice Clear strategic priorities 1 12 Anglo American plc Annual Report 2009 Anglo American plc Annual Report 2009 1 A field officer receiving camp supplies at the Los Sulfatos exploration site, close to the Los Bronces copper mine in Chile, at an altitude of between 4,000 and 4,500 metres above sea level. 2 At Anglo Platinum’s Mogalakwena open pit in South Africa, a water cannon suppresses dust during ore loading operations. 2 Anglo American is one of the world’s largest diversified mining groups, producing precious, base and bulk commodities and operating predominantly in southern Africa, Australia, Brazil and Chile. Anglo American’s ambition is ‘to be the leading global mining company’ – the investment, partner and employer of choice. The most attractive commodities In order to realise its ambition of being the investment of choice, Anglo American has a clear strategy of deploying its capital in those commodities that deliver superior long term, through-the-cycle returns for its shareholders. The Company has identified copper, diamonds, iron ore, metallurgical coal, nickel, platinum and thermal coal as having the most attractive fundamentals. In many of these commodities, Anglo American has a leading position, such as in platinum and diamonds, where the Group is the clear world leader, and iron ore and metallurgical coal, in which it is expanding its market share. Anglo American is also focused on those commodities most leveraged to demand growth in the emerging economies, in particular China, Brazil and India. China, which continues to be the great driver of growth in mining and metals, still has relatively low per capita consumption levels, as well as a structural deficit in such commodities, particularly iron ore, copper and the platinum group metals – while in 2009 the country became a net importer of both thermal and metallurgical coal for the first time. Meanwhile, India, the world’s second most populous nation, is likely to have a growth rate approaching double digits in 2010 as manufacturing industries and infrastructure investment become major parts of its expanding economy, thus boosting demand for natural resources. A world class asset portfolio Anglo American has a world class asset portfolio with an extensive resource base that is complemented by brownfield expansions and a strong pipeline of approved projects. > It owns many Tier 1* assets, being among the largest and highest quality producing mines of their respective commodities, characterised by economies of scale, expandable resource bases and attractive industry cost positions. > Anglo American’s extensive resource base is expected to continue to deliver attractive growth options from mine life extensions, brownfield expansions and greenfield projects. Across its core mining portfolio, the Group’s mines have sufficient resources to support current production levels for at least 20 years. > Many of Anglo American’s operations produce high quality products. For example, Sishen produces one of the best quality iron ore lump products globally. Minas Rio’s high iron content (>68%) and low levels of impurities mean that it will produce the highest quality pellet feed ore in the market. Anglo American also has a strong presence in all major seaborne metallurgical coal products, with more than 60% of production being premium hard coking coal. > Furthermore, Anglo American’s attractive cost curve position allows for more stable production and sustainable margins, thus enhancing Anglo American’s profitability through the cycle in its core commodity markets. O p e r a t i n g a n d fi n a n c a i l r e v e w i * A Tier 1 asset is defined as a large, expandable, long life (>20 years) mine with favourable mineralogy and geographic location and in the lower half of the cost curve. China’s share of world production and consumption (2009E–2013E Aggregate) Bulk commodities1 Production share Consumption share Consumption rank Iron ore Manganese3 Metallurgical coal Thermal coal 0% 0% 55% 42% 1% 4% 5% 6% #1 #1 #5 #5 Exchange traded commodities2 Production share Consumption share Consumption rank Platinum3 Copper Nickel Zinc 0% 20% 6% 5% 29% 28% 25% 35% #1 #1 #1 #1 Notes: 1. Iron ore represents share of world traded market (predominantly seaborne); thermal and metallurgical coal represent share of internationally traded market; manganese represents share of seaborne export market 2. Nickel, copper and zinc represent share of world mined product markets 3. Platinum and manganese data for 2008 Source: AME, Johnson Matthey (platinum) and International Institute (manganese) for production and consumption data Anglo American plc Annual Report 2009 13 Operating and financial review The investment of choice continued At the Minas Rio project’s port of Açu on the Atlantic coast, a 300 tonne Cantitraveller crane is engaged in incrementally launching the port jetty which, on completion, will be 2.9 km in length, including 400 m on land. Anglo American has a leading position in attractive commodities. 14 Anglo American plc Annual Report 2009 Unlocking further value from the portfolio In 2009, further initiatives were put in train to drive shareholder value. An important element is the Group’s asset optimisation programme which aims to unlock value from existing assets and achieve project delivery excellence through ongoing cost and productivity improvements. Another significant initiative has been the formation of a streamlined supply chain in order to capitalise on the scale of the Group and to deliver cost savings by forming strategic global partnerships with key suppliers. Already in 2009, the Group’s asset optimisation and procurement programmes have delivered more than $1.6 billion ($1.4 billion from core operations) of benefits, ahead of expectations. The $2 billion asset optimisation and procurement targets are expected to be reached from core operations alone by 2011. To ensure delivery of the sustainable growth required from Anglo American’s portfolio and to achieve the efficiencies and performance required to outperform its competitors, a far-reaching restructuring of the Group was announced at the end of 2009. This has enabled it to become a more effective, efficient and agile organisation, with increased clarity over decision making and greater speed of implementation. The new structure creates a focus on operational performance and project delivery through seven business units focused on the core commodities in the portfolio and located in the areas of key geographic focus for each commodity. These are: Anglo Platinum (South Africa), Iron Ore Brazil, Kumba Iron Ore (South Africa), Copper (Chile), Nickel (Brazil), Metallurgical Coal (Australia) and Thermal Coal (South Africa). The reorganisation has resulted in a lean corporate centre focused on activities that increase shareholder value beyond that which the commodity business units could achieve alone. These include providing overall strategic direction and governance, establishing and maintaining common processes and standards, and helping to transfer best practice, capturing economies of scale and facilitating synergies in key value driving functions, such as procurement, asset optimisation, project management and logistics. Towards the end of 2009, Anglo American announced its intention to divest of the following assets: international steel products manufacturer Scaw Metals, Brazilian phosphates producer Copebrás and ferroniobium producer Catalão, as well as the Group’s portfolio of zinc assets. Together with Tarmac, already identified for divestment, these assets accounted for approximately 13% of 2009 Group EBITDA. The proceeds of these divestments, which will be timed to maximise value, will help to strengthen the balance sheet and to deliver the Group’s world class projects. O p e r a t i n g a n d fi n a n c a i l r e v e w i Anglo American project pipeline to lift organic growth output by over a third by 2013 Indexed production growth (2009 = 100) 140 130 120 110 100 90 80 2009 2010 2011 2012 2013 Current operations Barro Alto Los Bronces expansion Minas Rio phase 1 Kolomela Source: Anglo American Life of mine per commodity Years, minimum to maximum Platinum 10 to 60 Copper Nickel Metallurgical coal Thermal coal 5 to 39 6 to 27 2 to 29 3 to 31 Iron ore 6 to 28 Range (years) 0 10 20 30 40 50 60 In 2009, four major bond transactions raising a total of $5.9 billion refinanced the Group’s short term debt position. Simultaneously, capital expenditure for 2009 was cut by more than half, though not at the expense of the Group’s most important growth projects. Further progress continues to be made to focus the Group on its core mining portfolio. During 2009, Anglo American disposed of investments considered as not being core to the Company’s strategy for the future, including its residual 16.2% shareholding in AngloGold Ashanti for $1.8 billion, realising a total of $2.4 billion. During the first quarter of 2010, Anglo American agreed the sale of Tarmac’s aggregates businesses in France, Germany, Poland and the Czech Republic and its Polish concrete products business, with expected total proceeds of approximately $400 million. Developing four world class projects Anglo American’s $17 billion pipeline of approved projects spans the most structurally attractive commodities of platinum, iron ore, copper and nickel. The decision to preserve the development of its four key near term strategic growth projects – the Minas Rio and Kolomela (formerly Sishen South) iron ore projects in Brazil and South Africa respectively, the Barro Alto nickel development in Brazil and the Los Bronces copper expansion in Chile – during the economic downturn positions the Group to capitalise on the next phase of global economic growth. The four projects are all well placed on their respective industry cost curves, have long lives, and are on track to enter production from 2011 onwards, in what is expected to be a growing commodity demand environment. Anglo American’s Los Bronces copper expansion project is on schedule, with first production planned in the fourth quarter of 2011 and output expected to increase from the fourth quarter of 2012 to an average of 490 ktpa over the first three years of full production (an average of over 400 ktpa over the first 10 years). At peak production levels, Los Bronces is expected to be the fifth largest copper mine in the world, with reserves that support a mine life of 30 years. Resource and mineralisation studies carried out by Anglo American’s technical teams support further potential expansion. Two very significant high quality discoveries have been made at Los Sulfatos and San Enrique Monolito, close to Los Bronces, which together have increased the Group’s copper resources (excluding reserves) by approximately 50%. The Barro Alto nickel project is also on schedule towards start-up in early 2011, with the overall development almost 80% complete at the year end. This project, which has further potential from an extensive resource base, leverages an existing operation and proven technology and will produce an average 36 ktpa of nickel in full production with a cost position in the lower half of the curve. Kumba Iron Ore’s Kolomela project, previously known as the Sishen South project, is on track and progressing well towards first production during the first half of 2012. Kolomela is situated 80 km to the south of Kumba’s world class Sishen mine and, when full production is achieved in 2013, will produce 9 Mtpa of high quality iron ore, with further potential for expansion. The acquisition of the Minas Rio iron ore project represented a unique opportunity to gain control of a multi-billion tonne resource in the highly attractive seaborne iron ore market, with the benefit of an integrated logistics system. Anglo American obtained a series of important licences for the first phase of the project during 2009, most notably the first part of the Installation Licence for the mine and beneficiation plant, awarded in December, following the earlier award of the federal permit for land clearance at the mine. The second part of the Installation Licence is expected to be approved during the early part of 2010. Construction of the port at Açu is well advanced and the earthworks for the beneficiation plant and pipeline are progressing towards first production in the second half of 2012, with ramp up to annual iron ore production of 26.5 Mtpa in 2013. The size of the Minas Rio orebody and the project’s dedicated logistics infrastructure means that it has considerable expansion potential, with studies under way for the expansion of the project to up to 80 Mtpa. Anglo American acquired the Minas Rio project in two transactions in 2007 and 2008 and at the end of 2007 declared a resource of 476 Mt (Measured and Indicated) and an additional 770 Mt of Inferred resource. After considerable geological work, this total resource has increased fourfold since 2007 to 5.0 billion tonnes, including 843 Mt of Inferred resource. Anglo American’s forecast attributable share of the post-acquisition capital expenditure for the first phase of the project has increased by $1.1 billion, from $2.7 billion to $3.8 billion, owing to scoping changes at the mine, pipeline and port, as well as foreign exchange movements. These four major expansion projects are the key components in driving the Group’s organic production growth by more than one third by 2013. By that time, the Group’s production of copper will have increased by 33%, iron ore by 82% and nickel by 139%. In addition, Anglo American expects to make first stage approval decisions in relation to the development of two further high quality growth projects during 2010 – the 225 ktpa Quellaveco copper project in Peru and the 4.3 Mtpa Grosvenor metallurgical coal project in Australia. Anglo American plc Annual Report 2009 15 Operating and financial review Key performance indicators (KPIs) Anglo American uses KPIs to help measure its performance. The KPIs are aligned to the three key strategic aims of the Group Anglo American’s strategy is to become the leading global mining company. During 2008, three key aims that should underpin this ambition were identified: > investment of choice; > partner of choice; and > employer of choice. In implementing its strategy, Anglo American measures performance with reference to the KPIs set out in the adjacent table. These KPIs are aligned to its key aims and are employed across the Group. The KPIs encompass both financial and non-financial indicators as well as quantitative and qualitative measures. While these KPIs are helpful in measuring the Group’s performance, it is recognised that they are not exhaustive and many additional performance measures are also used to monitor progress. Strategic aims Strategic focus KPI Description Results and target (if applicable) Investment of choice Anglo American seeks to outperform its competitors in delivering value to shareholders. Everything that the Group hopes to achieve for all other stakeholders – particularly host governments, communities and employees – must be built on a platform of sector leading financial performance. Asset optimisation and financial performance Total shareholder return (TSR) Share price growth plus dividends reinvested over the Please refer to the Remuneration report on performance period. A performance period of three years pages 80 to 90 is used and TSR is calculated annually New capital investments Sustainable development Partner of choice Anglo American has a history of successful collaboration with its stakeholders, including governments, communities, and non-governmental organisations (NGOs). The Group understands that it can only thrive if it is welcomed and respected in the countries and communities in which it operates. Employer of choice Becoming the employer of choice for Anglo American begins with an aim to provide a safe and supportive working environment for everyone who works for the organisation. The Group’s commitment to zero harm remains its primary focus. The organisation offers a range of career paths for both technical and professional people. With its global footprint and growth aspirations, Anglo American can offer both an exciting and a fulfilling employment proposition. Safety People 16 Anglo American plc Annual Report 2009 *Reflects managed operations Return on capital employed (ROCE) Total operating profit before impairments for the year divided by the average total capital less other investments 2008: 36.8% 2009: 14.6% and adjusted for impairments Asset optimisation (AO) Sustainable operating profit benefit from optimised performance of the asset base of the core businesses 2009: $749 million Target: $1 billion by 2011 One Anglo Supply Chain Cost savings to the Group resulting from centralised (OASC) procurement from core businesses 2009: $445 million Target: $1 billion by 2011 Underlying earnings Underlying earnings are net profit attributable to equity 2008: $4.36 2009: $2.14 per share Capital projects and investment shareholders, adjusted for the effect of special items and remeasurements and any related tax and minority interests Optimise the pipeline of projects and ensure that new capital is only committed to projects that deliver the best value to the Group on a risk adjusted net present value basis Energy efficiency* Improvements in energy efficiency are measured Total water use* Total water use includes only water used for primary from a 2004 baseline activities CO2 emission intensity* Reduction in CO2 emissions per unit of production is measured from a 2004 baseline A summary of the Group’s capital projects and investments is on pages 20 to 21 2008: 105 million GJ total energy used 2009: 105 million GJ total energy used Target: A 15% improvement by 2014 2008: 124.8 million m3 2009: 125.3 million m3 Target: Business units are currently setting operational targets 2008: 19.7 Mt CO2 equivalent 2009: 19.0 Mt CO2 equivalent Target: A 10% reduction by 2014 Corporate social investment Social investment as defined by the London Benchmarking 2008: Spend – $76.2 million, 1.11% of profit Group includes donations, gifts in kind and staff time for administering community programmes and volunteering in Company time before tax before tax 2009: Spend – $82.5 million, 2.23% of profit Enterprise development Number of companies supported and number of jobs sustained by companies supported by Anglo American enterprise development initiatives 2008: Number of businesses supported 3,012; number of jobs sustained 13,431 2009: Number of businesses supported 3,720; number of jobs sustained 12,982 Target: Number of businesses supported 3,500; number of jobs sustained 18,000 2008: 28 fatalities, 0.015 FIFR 2009: 19 fatalities, 0.010 FIFR 2010 target: zero incidents 2008: 1.04 2009: 0.76 2010 target: zero incidents The ultimate goal of zero harm remains Work related fatal injury frequency rate (FIFR) FIFR is calculated as the number of fatal injuries to employees or contractors per 200,000 hours worked Lost time injury frequency The number of lost time injuries (LTIs) per 200,000 rate (LTIFR) 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 after the injury was incurred, whether a scheduled workday or not Voluntary labour turnover Number of permanent employee resignations as a percentage of total permanent employees 2008: 3.9% 2009: 6.8% Gender diversity Percentage of women and female managers employed 2008: 12% females, 17% female managers 2009: 12% females, 19% female managers by the Group Voluntary counselling and testing (VCT) for HIV/AIDS Percentage of employees undertaking voluntary annual HIV tests with compulsory counselling support 2008: 77% 2009: 82% 2010 target: 100% VCT in high disease burden countries (100% is the long term goal) Investment of choice Anglo American seeks to outperform its competitors in delivering value to shareholders. Everything that the Group hopes to achieve for all other stakeholders – particularly host governments, communities and employees – must be built on a platform of sector leading financial performance. Asset optimisation and financial performance New capital investments Sustainable development Partner of choice Anglo American has a history of successful collaboration with its stakeholders, including governments, communities, and non-governmental organisations (NGOs). The Group understands that it can only thrive if it is welcomed and respected in the countries and communities in which it operates. Employer of choice Safety Becoming the employer of choice for Anglo American begins with an aim to provide a safe and supportive working environment for everyone who works for the organisation. The Group’s commitment to zero harm remains its primary focus. The organisation offers a range of career paths for both technical and professional people. With its global footprint and growth aspirations, Anglo American can offer both an exciting and a fulfilling employment proposition. People *Reflects managed operations Strategic aims Strategic focus KPI Description Results and target (if applicable) Total shareholder return (TSR) Return on capital employed (ROCE) Share price growth plus dividends reinvested over the performance period. A performance period of three years is used and TSR is calculated annually Please refer to the Remuneration report on pages 80 to 90 Total operating profit before impairments for the year divided by the average total capital less other investments and adjusted for impairments 2008: 36.8% 2009: 14.6% Asset optimisation (AO) Sustainable operating profit benefit from optimised performance of the asset base of the core businesses 2009: $749 million Target: $1 billion by 2011 One Anglo Supply Chain (OASC) Cost savings to the Group resulting from centralised procurement from core businesses 2009: $445 million Target: $1 billion by 2011 O p e r a t i n g a n d fi n a n c a i l r e v e w i Underlying earnings per share Capital projects and investment Energy efficiency* Total water use* Underlying earnings are net profit attributable to equity shareholders, adjusted for the effect of special items and remeasurements and any related tax and minority interests 2008: $4.36 2009: $2.14 Optimise the pipeline of projects and ensure that new capital is only committed to projects that deliver the best value to the Group on a risk adjusted net present value basis A summary of the Group’s capital projects and investments is on pages 20 to 21 Improvements in energy efficiency are measured from a 2004 baseline Total water use includes only water used for primary activities 2008: 105 million GJ total energy used 2009: 105 million GJ total energy used Target: A 15% improvement by 2014 2008: 124.8 million m3 2009: 125.3 million m3 Target: Business units are currently setting operational targets 2008: 19.7 Mt CO2 equivalent 2009: 19.0 Mt CO2 equivalent Target: A 10% reduction by 2014 CO2 emission intensity* Reduction in CO2 emissions per unit of production is measured from a 2004 baseline Corporate social investment Social investment as defined by the London Benchmarking Group includes donations, gifts in kind and staff time for administering community programmes and volunteering in Company time 2008: Spend – $76.2 million, 1.11% of profit before tax 2009: Spend – $82.5 million, 2.23% of profit before tax Enterprise development Number of companies supported and number of jobs sustained by companies supported by Anglo American enterprise development initiatives Work related fatal injury frequency rate (FIFR) FIFR is calculated as the number of fatal injuries to employees or contractors per 200,000 hours worked Lost time injury frequency rate (LTIFR) 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 after the injury was incurred, whether a scheduled workday or not 2008: Number of businesses supported 3,012; number of jobs sustained 13,431 2009: Number of businesses supported 3,720; number of jobs sustained 12,982 Target: Number of businesses supported 3,500; number of jobs sustained 18,000 2008: 28 fatalities, 0.015 FIFR 2009: 19 fatalities, 0.010 FIFR 2010 target: zero incidents 2008: 1.04 2009: 0.76 2010 target: zero incidents The ultimate goal of zero harm remains Voluntary labour turnover Gender diversity Voluntary counselling and testing (VCT) for HIV/AIDS Number of permanent employee resignations as a percentage of total permanent employees 2008: 3.9% 2009: 6.8% Percentage of women and female managers employed by the Group 2008: 12% females, 17% female managers 2009: 12% females, 19% female managers Percentage of employees undertaking voluntary annual HIV tests with compulsory counselling support 2008: 77% 2009: 82% 2010 target: 100% VCT in high disease burden countries (100% is the long term goal) Anglo American plc Annual Report 2009 17 Operating and financial review Performance against KPIs KPIs are employed across the Group to assess how well the strategic aims are being met Investment of choice Financial performance The Group’s financial performance in the year and the KPIs used to measure it are discussed on pages 30 to 33. Asset optimisation The Company’s structured approach to optimise business operations, known as asset optimisation (AO), is now a well established process across the Group and is yielding significant value. A clear framework financial reporting policy has been developed and deployed Group-wide to ensure that AO targets and value delivery are measured, monitored and audited consistently. Anglo American’s Internal Audit team provides independent assurance on the AO value reported. During the first half of 2008, Anglo American announced a Group-wide delivery target for the AO programme of $1 billion operating profit from sustainable projects by the end of 2011. Following the reorganisation of the Group’s assets announced in the fourth quarter of 2009, this target has been retained and has now been set as a stretch target for the Group’s identified core asset portfolio alone. In terms of the Group’s core assets, $749 million of operating profit had been delivered from sustainable projects by the end of 2009. A further amount of $201 million was delivered during the year from one-off projects that had been identified as a result of the AO programme. The total value of $950 million from the core businesses was derived from both revenue enhancing (46%) and direct cost reduction activities (54%). In respect of the Other Mining and Industrial asset portfolio (excluding Tarmac), $114 million of benefit from sustainable projects and $9 million of one-off benefits had been delivered by end-2009. Cathode washing at the San Francisco cathode plant in Los Bronces. Asset optimisation in action Copper Los Bronces – SELE (Selective Electrode position Enhancement) aims to improve the efficiency of the electrowinning plant through the use of innovative technology. The project has increased current density in the electrowinning operation, yielding an additional 3.8 kt of copper in 2009 at a value of $17 million. 18 Anglo American plc Annual Report 2009 AO sustainable operating profit benefit contributions by business unit: Business unit Anglo Platinum Copper Nickel Kumba Iron Ore Metallurgical Coal Thermal Coal Total core assets Other Mining and Industrial* Total *Excluding Tarmac $m 233 157 1 128 171 59 749 114 863 A portfolio in excess of 500 projects has now been developed. These projects are prioritised for resourcing and implementation on a value adding basis and currently 90% of the value delivered is contained in the top 10 projects per business unit. > Projects that are delivering significant value Platinum Smelter Capacity Increase aims to improve installed smelting capacity and reduce unit smelting cost. A number of different actions, from a comprehensive programme, have been instituted and benefits of $82 million have already been delivered. > The Dawson coal loss improvement project in Australia is an example of AO in action. The project involves reducing the amount of coal lost during mining by applying innovative blasting techniques and best practice during the mining operation to improve recovery. The return on every dollar invested in exposing and mining the coal is therefore optimised. Coal loss has been substantially reduced since the project commenced, delivering in excess of $42 million during 2009. > Copper Los Bronces – Changes made to the equipment configuration in the milling discharge pebble circuits aim to significantly increase circuit availability, thus eliminating a bottleneck and, as a result, increasing throughput by 115 kt of ore per month. The additional throughput resulted in a benefit of $38 million during 2009. > Kumba Iron Ore – Improving the overall equipment effectiveness of the truck and shovels fleet through a series of deliberate actions, including changes to work patterns and improved maintenance procedures, yielded benefits of $8 million in 2009. Supply Chain: Cost savings from centralised procurement In February 2008, the Group set out a programme aimed at transforming Anglo American’s procurement and supply chain operations globally, with the ambitious, though achievable, target to become the industry leader and global benchmark for supply chain value creation. At the heart of this strategy is working more closely together as a single, integrated organisation. Supply Chain aims to create $1 billion of additional value by 2011 through more effective management of purchased materials and services; working with cross-functional teams; implementing best practice policies; developing processes that can be consistently applied across the Group; and improving internal capability through better teamwork and individual competencies. In 2009, $445 million from core operations ($510 million total Group excluding Tarmac) of supply chain benefits were delivered against a target of $330 million. The progress made implementing initiatives across the Group over the past year has been the result of effective collaboration between global strategic sourcing teams, cross-functional representatives from asset optimisation and engineering, and mine site personnel across all business unit operations. Collaboration between the business unit and central teams that make up Supply Chain has been fundamental in the successful implementation of initiatives. Mobilisation of the centralised operating model has meant approximately 80% of Anglo American’s annual addressable spend figure is now managed through 21 materials and services categories by strategic sourcing teams. These teams are responsible for developing the most effective value creating strategy for Anglo American globally, driving global sourcing savings opportunities and supporting local business unit initiatives. This centralised procurement model has proved to be a strong contributor towards the savings delivered by Supply Chain. Initiatives have ranged from tactical – delivering consolidation and efficiency improvements, to strategic – focused on longer term value creating partnerships with suppliers. Rationalising the Group’s supply base has helped in developing better relationships with selected suppliers. This has yielded practical advantages such as Anglo American’s demands of suppliers that they become more transparent, and reducing the number of contracts to be administered. With their global approach, strategic sourcing teams have been able to develop a deeper understanding of the materials and services purchased by the Group; this has identified cost levers and opportunities for waste avoidance and total cost of ownership improvements. Improvements to supply chain processes and systems have also been delivered, aimed at engaging suppliers more effectively through: > through adoption of common Standardisation: policies, practices and methodologies to create a simpler way of doing business with Anglo American. > by enhancing the Group’s Efficiency: sourcing processes, from tendering through to transaction and payments. > Transparency: making clearer the link between supplier performance and the award of new business. O p e r a t i n g a n d fi n a n c a i l r e v e w i Fuels and lubricants With Anglo American spending more than $800 million each year in the fuels and lubricants (F&L) category, improvement opportunities and value initiatives are a high priority for Supply Chain. Instead of going out to tender globally or regionally, however, the F&L category team turned to aligning with particular suppliers on a global basis. Most of the value identified came not from price reduction, but in the technical expertise that potential suppliers could bring to Group operations. From a list of about 10 suppliers, some 80% of the Group’s current spend is now with two companies, Shell and BP. These two global suppliers demonstrated the ability to offer the added value that was needed at the operations. After months of negotiations with the companies, global framework agreements were set up, giving Anglo American preferred supplier status to them. Barrels of high quality lubricant at a blending plant are prepared for delivery. (Photo courtesy of Shell) As preferred suppliers, the companies are able to have their supply agreement terms extended if they achieve the value targets agreed in the global framework agreements. Under the agreements, Shell and BP are now allocating more technical resources to the Group’s operations and are providing Anglo American with technical expertise. They are working with Anglo American mine teams to ensure optimal lubricants and lubrication practices are used in order to extend equipment life. Fuel additives are now being employed to increase the energy efficiency of fuels, which reduces the amount of fuel used to do the same work. In turn, Shell and BP have given Anglo American ‘customer of choice’ status, meaning that they will accord the Company the highest level of recognition given to customers of similar size with global agreements in place. This means enhanced security of supply, and improvements in commercial arrangements, innovation and global collaboration at the business units being supplied by these companies. A project team dedicated to delivering standardised policies, processes and systems to improve management of contracts and efficiency of transactions has made excellent progress. In September 2009, a web-based solution was implemented for Supply Chain to engage suppliers and conduct sourcing events online. This solution provides the link between sourcing, contract and business systems for the Group and is a key element in improving efficiency. Supply Chain Sustainable Development (SCSD) is a core aspect of the way in which the Group works and is aligned to Anglo American’s ambition of being a partner of choice. The aim of SCSD is to buy from suppliers that follow the sound principles and practices outlined in the Group’s SCSD policy and code. The benefits include mitigation of risk for customers, suppliers and the communities close to Group operations while also supporting Anglo American’s safety target of zero harm. Sustainable Development (SD) criteria are now part of the Group’s supplier assessment process. On-site audits have been completed at supplier factories across China, South Africa, Brazil and Australia, while improvement plans have been developed to address issues identified as an SD risk. 2009 has set a high benchmark for value delivery. Initiatives implemented during the year have delivered immediate benefits, while others have been instrumental in establishing longer term partnerships that will support the Group’s overall target of creating $1 billion of additional annual value from core operations alone by 2011. Anglo American plc Annual Report 2009 19 Operating and financial review Performance against KPIs continued Kumba Iron Ore’s Kolomela project, previously known as Sishen South, is progressing well towards first production in the first half of 2012. Kolomela is situated 80 km to the south of Kumba’s world class Sishen mine and, when full production is achieved in early 2013, will produce 9 Mtpa of high quality iron ore, with further potential for expansion. Across Anglo American’s iron ore interests in Brazil and South Africa, the Group has the potential to increase iron ore production to in excess of 150 Mtpa within 10 years. In Australia, the $726 million Lake Lindsay coking and thermal coal project reached implementation phase and will be optimised ahead of achieving full production in 2012. A decision is expected in relation to the first stage approval of the 4.3 Mtpa Grosvenor metallurgical coal project in Australia in 2010, the first step in potentially creating a large scale operational cluster around the existing Moranbah North operation. Mining commenced during the third quarter of 2009 at the $512 million Zibulo (formerly Zondagsfontein) thermal coal project, which includes a 50:50 joint venture plant with BHP Billiton Energy Coal South Africa. Full production of 6.6 Mtpa of thermal coal is expected from 2012. The Mafube project was completed on schedule and marginally below budget in the third quarter of 2009. The MacWest and Landau Navigation West projects reached full production of 2.7 Mtpa and 1.2 Mtpa respectively in the first half of the year. In Colombia, full production capacity of 32 Mtpa of thermal coal was achieved for the $42 million expansion at Cerrejón during 2009. Feasibility studies to expand the operation to around 40 Mtpa by 2014 continue. In late 2009, the shareholders of Debswana (the Government of the Republic of Botswana and De Beers), approved a major extension project at Jwaneng, the world’s flagship diamond mine. The project, also known as Cut-8, will ensure profitable and continuous production at the mine until at least 2025 and is the largest ever single capital commitment in the private sector in Botswana. Debswana will provide $500 million of the $3 billion project investment over the next 15 years. At Anglo Platinum, the major restructuring of the Rustenburg and Amandelbult section into smaller new mining entities during 2009 has provided the flexibility in its production system to react to short term market changes in demand for platinum, while retaining options to expand production should demand for platinum increase. The $922 million Mogalakwena North project, expected to deliver 350-400 kozpa refined platinum in the first quartile of the cost curve, is progressing on schedule and within budget with ramp up to full production continuing from the second quarter of 2010. The $224 million Dishaba (formerly Amandelbult) East Upper UG2 expansion project is on track to raise the mine’s platinum output by 100 kozpa by 2012. Over the longer term, a range of major projects, including Styldrift Merensky phase 1, will provide Anglo Platinum with organic growth options in excess of 650 kozpa of refined platinum. The Minas Rio iron ore project in Brazil is a multi billion tonne resource, with the benefit of an integrated logistics system, that will supply the highly attractive seaborne iron ore market. Anglo American obtained a series of important licences for the first phase of the project during 2009, most notably the first part of the Installation Licence for the mine and beneficiation plant, awarded in December, following the earlier award of the federal permit for land clearance at the mine. The second part of the Installation Licence is expected to be approved during the early part of 2010. The construction of the port at Açu is well advanced and the earthworks for the beneficiation plant and pipeline are progressing towards first production in the second half of 2012, with ramp up to annual iron ore production of 26.5 Mtpa in 2013. The large size of the Minas Rio orebody and the project’s dedicated logistics infrastructure means that it has considerable expansion potential, with studies under way for the expansion of the project to up to 80 Mtpa. Anglo American acquired the Minas Rio project in two transactions in 2007 and 2008 and at the end of 2007 declared a resource of 476 Mt (Measured and Indicated) and an additional 770 Mt of Inferred resource. After considerable geological work, this resource has increased fourfold since 2007 to 5.0 billion tonnes including 843 Mt of Inferred resource. The anticipated final product Fe grade over the life of the mine is particularly high compared to other products on the market, expected to be above 68%, and benefits from extremely low alumina, silica and phosphorus contaminants. New capital investments Anglo American’s $17 billion pipeline of approved projects spans its core commodities and is expected to deliver organic production growth of more than one third by 2013. The Company’s decision to preserve the development of its key near term strategic growth projects during the economic downturn positions the Group to capitalise on the next phase of global economic growth. For the longer term, the Group has an array of projects under active consideration at the pre-feasibility or feasibility stages. This pipeline of projects stretches well into the future, ensuring the Group maintains a high degree of flexibility with regards to its organic growth potential. Anglo American’s Los Bronces copper mine is well advanced with its expansion project with first production scheduled for the fourth quarter of 2011 and is expected to increase from the fourth quarter of 2012 to an average exceeding 490 ktpa over the first three years of full production (an average of more than 400 ktpa over the first 10 years). At peak production levels, Los Bronces is expected to be the fifth largest copper mine in the world, with reserves that support a mine life of 30 years. Resource and mineralisation studies carried out by Anglo American’s technical teams support further potential expansion. Anglo American has also announced two very significant and high quality new discoveries at Los Sulfatos and San Enrique Monolito close to the Los Bronces mine in Chile. These two new prospects together increase the Group’s copper resources (excluding reserves) by approximately 50%. The phased expansion of the Collahuasi copper mine continues with the first phase expansion to 150 ktpd due for completion early in 2011, while significant potential for subsequent phased expansions continues to be evaluated. Outside Chile, several unapproved projects provide significant scope for future organic growth. In Peru, Anglo American expects to make a decision regarding the approval and development of the 225 ktpa Quellaveco copper project during 2010. An exploration and a conceptual study are also now under way at the 155 ktpa Michiquillay project. In Alaska, the pre-feasibility study for the Pebble copper project, in which the Group has a 50% stake, is ongoing. The Barro Alto nickel project in Brazil is on track towards start-up in early 2011, with overall development almost 80% complete at the year end. This project, which has further potential from an extensive resource base, leverages an existing operation and proven technology and will produce an average 36 ktpa of nickel in full production with a position in the lower half of the cost curve. The Jacaré and Morro Sem Bone projects, also in Brazil, provide Anglo American with significant nickel production expansion options from 2015 onwards. 20 Anglo American plc Annual Report 2009 (1) Capital expenditure shown on 100% basis in nominal terms. Anglo Platinum projects reflect approved capital expenditure. (2) Represents 100% of average incremental or replacement production, at full production, unless otherwise stated. (3) Debswana will provide $500 million of the $3 billion project investment over the next 15 years ($225 million attributable). (4) Pebble will produce molybdenum and gold by-products, Michiquillay will produce molybdenum, gold and silver by-products and other projects will produce molybdenum and silver by-products. Selected major projects Completed in 2009 Sector Project Country Completion date Iron Ore and Manganese Sishen expansion Metallurgical Coal Lake Lindsay Thermal Coal Mafube Goedehoop Fines MacWest Navigation West Cerrejón South Africa Q4 2009 Australia Q1 2009 South Africa Q3 2009 South Africa Q4 2008 South Africa Q1 2009 South Africa Q2 2009 Colombia Q1 2009 Capex $ m(1) 657 726 230 20 49 32 Production volume(2) 13.0 Mtpa iron ore 4.0 Mtpa 5.4 Mtpa 0.4 Mtpa 2.7 Mtpa 1.2 Mtpa 130 3.0 Mtpa (2nd stage) Approved Sector Platinum Project Country First production date Full production date Capex $ m(1) Production volume(2) MC Plant Capacity Expansion – phase 1 South Africa Q3 2009 Q1 2010 80 11 ktpa waterval converter matte O p e r a t i n g a n d fi n a n c a i l r e v e w i Mogalakwena North South Africa Q4 2007 2012 Mainstream inert grind projects South Africa Q4 2009 Bokoni (Lebowa Brakfontein Merensky) South Africa Q1 2009 Base metals refinery expansion South Africa Q4 2011 Dishaba (Amandelbult) East Upper UG2 South Africa Q3 2007 Thembelani 2 Shaft (Paardekraal) South Africa Q3 2011 Twickenham South Africa Q4 2011 Styldrift Merensky phase 1 South Africa Q2 2017 Diamonds Copper Unki Mine Jwaneng – Cut-8 Los Bronces expansion Collahuasi 150 ktpd Nickel Barro Alto Iron Ore and Manganese Minas Rio phase 1 Zimbabwe Q3 2010 Botswana 2010 Chile Chile Brazil Brazil Q4 2011 Q1 2011 Q1 2011 H2 2012 Thermal Coal Zibulo (previously Zondagsfontein) South Africa Q3 2009 Kolomela (previously Sishen South) South Africa Q2 2012 Future unapproved Q3 2010 Q1 2011 Q1 2012 Q4 2012 Q2 2015 Q4 2018 Q2 2018 Q4 2013 2024 922 188 179 279 224 316 800 350-400 kozpa refined platinum Improve process recoveries Replace 108 kozpa refined platinum 11 ktpa nickel 100 kozpa refined platinum Replace 120 kozpa refined platinum 180 kozpa refined platinum 1,621 245 kozpa refined platinum 457 65 kozpa refined platinum 3,000(3) 95 million carats Q4 2012 2,300-2,500 200 ktpa copper(4)(5) Q2 2011 92 Expansion to 150 ktpd capacity Q3 2012 1,800-1,900 36 ktpa nickel Q3 2013 Q1 2013 Q4 2012 3,796(6) 26.5 Mtpa iron ore pellet feed (wet basis) 1,022 9.0 Mtpa iron ore 512 6.6 Mtpa thermal Sector Copper Nickel Project Quellaveco Collahuasi expansion phase 1 Michiquillay Pebble Jacaré phase 1 Morro Sem Bone Iron Ore and Manganese Sishen Expansion Project phase 1B Sishen Expansion Project 2 Sishen Concentrate Minas Rio expansion Metallurgical Coal Grosvenor Thermal Coal Heidelberg underground Elders opencast Elders underground New Largo Cerrejón P40 Country Peru Chile Peru United States Brazil Brazil South Africa South Africa South Africa Brazil Australia South Africa South Africa South Africa South Africa Colombia First production date Full production date 2014 2012 2017 TBD 2015 2015 2011 2017 2017 TBD 2013 2013 2013 2013 2012 2012 2015 2012 2018 TBD 2016 2016 2012 2019 2018 TBD 2016 2017 2013 2017 2016 2014 Production volume(2) 225 ktpa copper(4) 510 ktpa copper(4)(7) 155 ktpa copper(4)(8) 350 ktpa copper(4) 34 ktpa nickel 32 ktpa nickel 0.7 Mtpa iron ore 10.0 Mtpa iron ore 2.0 Mtpa iron ore pellets Up to 53 Mtpa iron ore pellet feed (wet basis) 4.3 Mtpa metallurgical 4.2 Mtpa thermal 6.4 Mtpa thermal 3.2 Mtpa thermal 14.7 Mtpa thermal 8.0 Mtpa thermal (1) Capital expenditure shown on 100% basis in nominal terms. Anglo Platinum projects reflect approved capital expenditure. (2) Represents 100% of average incremental or replacement production, at full production, unless otherwise stated. (3) Debswana will provide $500 million of the $3 billion project investment over the next 15 years ($225 million attributable). (4) Pebble will produce molybdenum and gold by-products, Michiquillay will produce molybdenum, gold and silver by-products and other projects will produce molybdenum and silver by-products. (5) Production represents average over first 10 years of the project. Production over the first three years of the project will average 278 ktpa. (7) Total production of mine when project has ramped up to full production. Further phased expansions have the potential to increase production to 1 Mtpa. (6) Capital expenditure, post acquisition of Anglo American’s (8) Expansion potential to 300 ktpa. shareholding in Minas Rio, for 100% of the mine and pipeline, and 49% share of the port. The aggregate cost of 100% of the mine, pipeline and port – and capital expenditure incurred both before and after Anglo American’s shareholding in Minas Rio – has increased from $3.6 billion to $5 billion. Anglo American plc Annual Report 2009 21 Operating and financial review Performance against KPIs continued Energy consumption GJ (million) Year 05 06 07 08 09 203 197 92 96 107 105 103 2 105 0 0 50 100 150 200 250 300 Group excluding divested businesses Divested businesses CO2e emissions Tonnes (million) Year 05 06 07 08 09 16.5 15.9 20.1 16.3 19.4 5.1 19.1 0.6 19.0 0 0 6 12 18 24 30 36 Group excluding divested businesses Divested businesses Partner of choice Sustainable development Anglo American’s sustainable development performance is fundamental to its investment, partner and employer of choice agenda. The Company is committed to operating safely, sustainably and responsibly and embeds this into every part of the business. It fulfils this commitment by respecting the environment through effective stewardship of land and resources; supporting the development of communities where it operates and ensuring the safety of employees, contractors and local communities. Behaving in this way is essential for earning and maintaining trust with stakeholders – governments, communities, customers, suppliers and employees – and creates value which is fundamental to Anglo American’s ability to deliver long term sustainable returns to shareholders. A revised version of Anglo American’s Good Citizenship Business Principles was launched at the end of the year. These apply to every business and to every employee and are integral to the way Anglo American operates. They include a greater focus on environmental issues such as water conservation, climate change and biodiversity, a reinforced stance against corruption, an increased commitment on HIV/AIDS treatment, the importance of family life and work life balance, and the promotion of diversity. The Business Principles are embedded in policies, projects and commitments and reflect the Company’s determination to live by its core values. In addition, the Company has strong governance, systems and risk management processes in place to implement its commitment to sustainable development. During 2009, considerable progress was made on embedding global standards for environment, safety, health and social issues that are designed to drive performance improvement. Energy Anglo American’s overall objective is to secure affordable, reliable and sustainable supplies of energy. In 2009, the Group undertook a detailed review of its exposure to energy security risks and costs, after related concerns arose the previous year, particularly in South Africa and Brazil. In response to these key risks, Anglo American will continue to optimise energy consumption efficiencies, develop projects which offer cost effective and sustainable sources of energy, while ensuring availability of emergency power supplies for the safety of the workforce as well as critical operational needs. Energy consumption During 2009, Anglo American consumed 105 million gigajoules (GJ) of energy (2008: 103 million GJ(1)). This 2.0 million GJ increase is almost wholly attributable to Anglo American’s Iron Ore Brazil business reporting on its energy use for the first time since acquisition. Energy efficiency Improving energy efficiency has an economic, security of supply and environmental context and is a core element of the Company’s climate change strategy. In 2004, Anglo American set a target to reduce its energy intensity by 15% by 2014, based on a 2004 baseline. The majority of Anglo American’s electrical power consumption is coal fired, which is why it is seeking efficiency gains in electrical power usage through asset optimisation and continuous improvement programmes. Climate change Anglo American recognises its responsibility to take meaningful action towards mitigating the effects of climate change, and to help protect its employees and assets, as well as the communities and environments linked to its operations, against its potential impacts. There are a number of strategic principles that underpin Anglo American’s approach to climate change. These include a focus on energy efficiency through asset optimisation, carbon reducing ‘synergy’ projects, low carbon technologies and adaptation to climate change. Climate change also represents a commercial opportunity and, guided by these principles, the Company is looking to leverage its knowledge and assets into generating additional value for stakeholders. Carbon dioxide emissions Over the decade to 2014, the Group is aiming for a 10% reduction in emissions per unit of production. During 2009, Anglo American emitted 19.0 Mt of carbon dioxide equivalents (CO2e) (2008: 19.1 Mt)(2). Carbon abatement Anglo American’s goal to reduce CO2 emissions extends beyond improving energy consumption efficiencies to implementing carbon abatement projects, in particular those that have synergies with operational activities. Such projects include Anglo American’s coal-seam methane-fired power stations at Moranbah North and Capcoal in Queensland, Australia. Powered by mine waste gas, these facilities currently generate a combined 77 megawatts (MW) of power – equalling a reduction of approximately 2.3 Mt of CO2e annually, which is the equivalent of planting 3.6 million trees or taking 580,000 cars off the road. Similar opportunities for the Group’s South African coal operations are limited 22 Anglo American plc Annual Report 2009 Water consumption Million m3 Year 05 06 07 08 09 513 456 116 126 128 123 123 2 125 0 0 100 200 300 400 500 600 700 Group excluding divested businesses Divested businesses O p e r a t i n g a n d fi n a n c a i l r e v e w i owing to the significantly lower inherent methane content of Highveld coal seams. The Company, however, has started on a smaller scale methane flaring project at New Denmark colliery, which is expected to reduce its CO2e emissions by an estimated 100 ktpa. Low carbon technology Advancing low carbon technologies, which affect Anglo American’s operational and product related CO2 emissions performance, is critical to the Group’s success in the long term. In this regard, the Company participates in a number of downstream related carbon research and advocacy initiatives. Adaptation Anglo American is keenly aware of the risks climate change pose to the business, as well as its potential to undermine corporate socio-economic development efforts. The Company’s focus will be on developing regional climate change impact models to provide a better understanding of business and societal exposure to climate change and associated adaptation requirements. The Group also has an enormous opportunity to combine carbon reduction initiatives with its socio-economic development activities, thus achieving dual benefits. Exposure to climate policy The Group’s most immediate focus is on Australia, which during the second half of 2008 released its green and white papers on an emissions trading scheme entitled the Carbon Pollution Reduction Scheme (CPRS). It will come into force in 2011 if the federal government is able to pass legislation through the Senate, but the likelihood of this is currently uncertain. If the legislation is passed it could have significant financial implications for all Australian coal companies. Anglo American is holding discussions with the government on the design of the CPRS, as well as the possibility of co-ordinated research and development opportunities and clean coal technologies. Metallurgical Coal has established a team to ensure that the business is prepared for the introduction of the scheme and to identify further opportunities to implement carbon reduction measures. Water Security of water supply is of vital importance to the Company and the communities and countries in which it operates. The threat posed by climate change is also requiring the Group to look at new approaches to managing water at its operations, many of them located in some of the most water stressed regions of the world. Water consumption In 2009, Anglo American consumed 125.3 million cubic metres (m3) of water for primary activities. While this represents a relatively small year- on-year increase (2008: 122.7(3) million m3), it includes 3.8 million m3 of water from the Brazilian iron ore operations that have begun reporting for the first time since acquisition, as well as an additional 5.7 million m3 of harvested rainfall that Anglo Platinum had not previously reported in its consumption figures. On a like-for-like basis, Anglo American achieved a 6% water saving between 2008 and 2009. Although the Group’s overall water use has remained largely unchanged despite acquisitions, Anglo American aims to improve its performance through the continued implementation of its WaterWays programme. The WaterWays programme has provided the Group with a water vision and framework that outlines Anglo American’s approach to managing water. These are supported by a water performance standard, which was formally launched in 2009 as part of the global Anglo Environment Way roll-out. A common set of water reporting definitions has been implemented, and models for determining the true value of water, and understanding water balances, have been developed. The water balance journey model is an operational tool for understanding water balances and the quality of water management systems. The information is used in conjunction with the outcomes of social and environmental impact assessments and the Socio-Economic Assessment Toolbox (SEAT, the Group’s principal social impact assessment and management tool for existing operations) to identify improvement opportunities and to understand how any changes may affect operations and other parties that share common water resources. The ‘true value of water’ model is designed to help operations calculate their own unique value of water. The model takes into account the actual unit cost of water, as well as an extended set of environmental and socio-economic considerations. Testing will continue during 2010, after which it is envisaged that this ‘true’ value of water will be used to support decision making related to water efficiency/reduction initiatives and the design of new projects. A Group water guideline, due for release in early 2010, will link in to the water performance standard and provide clarity on the various elements of water management at an operational level. The inclusion of measures to adapt to the potential impacts of climate change will also be required in this process. (1) Including Namakwa Sands and Tarmac Iberia, which were divested in 2008, total energy consumed during 2008 was 105 million GJ. (2) Including Namakwa Sands and Tarmac Iberia, which were divested in 2008, total CO2e emissions were 19.7 Mt. (3) 124.8 million m3 was reported in 2008, which includes Namakwa Sands and Tarmac Iberia, whose numbers were included up until the point of divestment. Not including these, water used for primary activities during 2008 was 122.7 million m3. Anglo American plc Annual Report 2009 23 Operating and financial review Performance against KPIs continued 2009 Global social investment expenditure $ m 1.1 15.5 3.4 25.1 0.2 2.4 34.8 Health/HIV Education and youth Environment Community development Arts, culture and heritage Housing Other 2009 Global social investment expenditure by region $ m 0.1 0.3 16.7 0.9 1.8 1.8 60.9 South Africa Rest of Africa United Kingdom Rest of Europe The Americas Australia/Asia Other Social and community Anglo American’s ability to manage community issues to a high standard continues to be an important factor in delivering on its growth projects. The Company continues to win numerous awards for its community development programmes and is maintaining its investment in raising standards across the Group. During 2009, the Company’s new social management standards were approved and were published in the Anglo Social Way. The Social Way completes the suite of four ‘Way’ documents (including the Safety, Occupational Health and Environment Ways) to form a comprehensive suite of sustainable development standards. The Social Way sets out demanding minimum standards across more than 20 dimensions of social performance. Through implementation of the Social Way, Anglo American will meet or exceed a number of best practice benchmarks, including the International Finance Corporation’s environmental and social Performance Standards and the recommendations for companies arising from the UN Special Representative on Business and Human Rights’ work. A self-assessment process was completed across all current mining operations at the end of 2009, a process that will be repeated for exploration and development projects during 2010. At the end of 2009, the performance against the Social Way requirements was assessed as: 10% significant gaps to close; 21% minor gaps to close; 42% fully compliant; 17% good practice; and 10% best practice. During 2010, the objective is to eliminate all non-compliances. The Company continues to invest heavily in training and education on social performance issues, both for community relations staff and for other senior managers. During 2009, the number of managers trained in the use of SEAT exceeded 500. The Company also supported the establishment of a new postgraduate diploma for site based practitioners at the University of Cape Town’s Graduate School of Business. In partnership with the University of Cambridge and the University of Queensland, a unique senior management programme was developed that was delivered to 36 senior staff from Anglo American and an NGO partner during 2009. Implementation of the second version of SEAT has continued, with several sites completing their reports during 2010. The Company remains on track to finalise the roll-out of SEAT2 in 2011. Corporate social investment Anglo American and its managed subsidiaries and joint ventures contributed $82.5 million (2.23% of pre-tax profit) to charitable causes and community development initiatives in 2009 compared with $76.2 million (1.11% of pre-tax profit) in 2008. These figures include cash donations, gifts in kind and staff time spent delivering community benefit programmes. In 2009, the geographical distribution of social investment was 76% in Africa, 20% in the Americas, 3% in the UK and Europe and 1% in Australia, Asia and other countries. The majority of the Company’s social investment is undertaken at site level and is informed by stakeholder inputs through the implementation of the SEAT process. National foundations or funds have been established to support community development and other charitable causes in Brazil, Chile, Namibia and South Africa. A new foundation will also be established in Peru in 2010. In South Africa, the Anglo American Chairman’s Fund has implemented a new strategy and is refocusing its giving to projects with national impact, including large projects and innovative demonstration projects. Contributions to the Chairman’s Fund totalled $9.5 million in 2009. Anglo American has also established the Anglo American Group Foundation, which distributes grants to charities around the world where Anglo American has a presence. The purpose of the Foundation is to develop sustainable livelihoods through the projects that it supports, with particular areas of interest being education, health, HIV/AIDS, local community, international development and the environment. Enterprise development A cornerstone of Anglo American’s approach to delivering sustainable development is to build the capacities and life chances of the communities where the Company operates. Experience shows that one of the most effective and durable ways of achieving this is through targeted enterprise development programmes. Enterprise development can involve potential suppliers and companies outside the mining value chain. Anglo American established a small and medium enterprise (SME) development and empowerment initiative, known as Anglo Zimele, in South Africa 20 years ago to empower black entrepreneurs through the creation and transformation of SMEs. 24 Anglo American plc Annual Report 2009 Representatives from Anglo American and the NGO, CARE Brazil, meet with a local community close to the Barro Alto mine to discuss a rural development programme. O p e r a t i n g a n d fi n a n c a i l r e v e w i Barro Alto Project Social Programme The programme is a long term one, but early results are already encouraging. To date, more than 260 entrepreneurs have been trained both in rural and urban areas through CARE’s support programmes and hundreds of schoolchildren have been given additional help with reading skills and supported to take part in cultural activities. In addition to this partnership, Anglo American is also working with other NGOs in helping the municipality to build public sector capacity using a methodology known as ‘School of Government’, and also to share a strategic plan for meeting the United Nations Millennium Development Goals together with the community. Located in rural Goiás state in Brazil, the Barro Alto nickel project is one of Anglo American’s four strategic growth projects. The development of the project poses both challenges to the local community as the local population and economy grows rapidly, but also unprecedented opportunities to build lasting capacity for self-sustainability. Supporting the development of host communities has been a key priority for the Barro Alto team. A comprehensive package of assistance to the town of Barro Alto is being implemented. Much of the support focuses on improving the infrastructure of the town, so that it becomes a safe and attractive community. Anglo American has made major investments in: upgrading roads; building a technical training institute; improving water and sanitation; schools and providing a new hospital. To complement these infrastructure improvements, Anglo American has worked with government and NGOs, including the Company’s global partner CARE, to deliver refresher training for teachers, micro-credit loans, capacity building for the local municipality and support to hundreds of local entrepreneurs. Anglo Zimele is divided into three separate funds – the Supply Chain Fund, the Anglo Khula Mining Fund and the Small Business Start-up Fund. The funds operate on a commercial basis, albeit with the social purpose of creating sustainable and economically viable enterprises by providing equity/loans, mentoring and access to value enhancing opportunities. Anglo Zimele management services provides hands on support to all three funds and delivers strategic input in areas such as corporate governance, management, legal, accounting, company secretarial, public relations, safety, health and the environment. In 2009, the 509 businesses in Anglo American’s various enterprise development initiatives in South Africa were collectively responsible for employing 9,570 staff members. Turnover for the year reached R1.6 billion ($186 million) – a 23% growth from R1.3 billion ($157 million) in 2008. Anglo Zimele, invested R318 million ($38 million) in these businesses. Inspired by Anglo Zimele, Anglo American’s Emerge programme was launched in 2006 to contribute to economic development and the well-being of communities near the Company’s operations in Chile. The Emerge programme has developed a two tiered approach: it helps medium sized enterprises to grow their businesses by offering training, technical support, financial assistance and mentoring; and it has entered into an alliance with Fondo Esperanza, an institution that grants micro-credit and business education to small businesses. More than 100 medium sized business entrepreneurs have already completed the Emerge programme and obtained their certificate from Universidad Adolfo Ibáñez, and over 4,000 small business entrepreneurs are taking part in the programme. Anglo American’s goal is to support 7,000 entrepreneurs by 2010. Anglo American’s Barro Alto project in Brazil has completed the first year of a three year social improvement plan with NGO, CARE Brazil. The partnership, established in October 2008, was developed with the aim of enhancing local economic flows, improving the quality of public education and strengthening social capital in the communities surrounding the operation in the state of Goiás. Through CARE Brazil, local residents have been encouraged to take part in a free entrepreneurial management course in an effort to develop business ideas and opportunities in the region. The first group of small business owners has now completed the course and CARE has supported 249 businesses and associations in the area, ranging from agribusiness and the production of milk and honey, to the sale of bread and providing access to internet radio in rural areas (see case study opposite). Anglo American plc Annual Report 2009 25 Operating and financial review Performance against KPIs continued Lost time injury frequency rate (LTIFR) and fatal injury frequency rate (FIFR)* LTIFR 1.2 1.0 0.8 0.6 0.4 0.2 0 FIFR 0.03 0.025 0.02 0.015 0.01 0.005 0 Year 05 06 07 08 09 LTIFR FIFR *See KPI table on page 17 for definitions of LTIFR and FIFR Note: The basis for reporting LTIs became more inclusive in 2003, when Anglo American began to include restricted work cases as LTIs. This was fully implemented by 2006. Anglo American voluntary labour turnover % Year 05 06 07 08 09 4.9 5.4 4.3 3.9 6.8 0 1 2 3 4 5 6 7 Anglo American diversity % Female Year 05 06 07 08 09 12.5 13.0 14.2 15.2 15.3 10.6 12.0 12.0 17.0 19.0 0 5 10 15 20 % Female managers % Females Employer of choice Safety Safety remains Anglo American’s number one priority. Everyone who works at Anglo American has the right to return home injury free and the Company’s role is to make this a consistent reality. The Group’s vision is to eliminate fatal and other injuries in the workplace, thus achieving zero harm. Certain mining activities are of significantly higher risk than others, while many on-site employees work under challenging conditions. Anglo American has worked consistently to understand these risks, learn from previous incidents and implement risk mitigating strategies, including systems, processes, infrastructure and behaviour. During 2009, 19 people lost their lives on Company business(1). While any loss of life is unacceptable, this nevertheless represents an encouraging 32% improvement on 2008 (28)(2). The Group’s fatal injury frequency rate (FIFR) also showed a 33% improvement from 0.015 in 2008 to 0.010 in 2009. In 2009, there were longer periods of safe operation throughout the Group. The Copper, Nickel, Metallurgical Coal, Kumba Iron Ore and Exploration business units remained fatality free, fatalities at the Thermal Coal business dropped by 50% year-on-year, and Anglo Platinum recorded its first ever fatality free four months from October 2009 to January 2010. Despite reductions in the total number of all leading causes of deaths, transportation (six; 32%) and falls of ground (five; 26%) were once again the primary causes of most fatal injuries. Both these high risk areas are receiving priority attention. During the year, Anglo American conducted a global transportation safety audit at 13 mines across all business units in order to gain a detailed understanding of the related challenges. The findings and recommendations from the audit have provided a clear understanding and definition of the nature and scale of the attendant risks. A task force is being established with the aim of achieving lasting improvements to the overall management of transport risks. Anglo Platinum has identified falls of ground management as a major strategic focus and a system has been developed to integrate and refine existing efforts to eliminate falls of ground. The system is supported by a ‘no rock will fall uncontrolled’ policy and consists of six pillars designed to cater for the different aspects and phases of risks associated with falls of ground. Anglo American’s 2009 lost time injury frequency rate (LTIFR) of 0.76 has continued its downward trend, showing a 27% year-on-year improvement (2008: 1.04). The most frequent risks associated with LTIs vary from operation to operation, and are addressed through operational safety improvement plans. The Anglo Safety Way details the Company’s safety vision, principles, policy, and safety management system standards. It is complemented by a concise set of safety golden rules and fatal risk standards and outlines what is expected of the Group’s leadership and its operations. Each site implements operation- specific safety improvement plans with progress tracked via, inter alia, the Group safety and sustainable development assurance programme. During 2009, some 2,300 people received training on the Company’s award winning safety risk management programme, bringing the total since inception to 3,600. Anglo American will continue to drive further standardisation and consistency of systems, processes and procedures with the aim of consolidating them all into a single integrated global safety, health and environment management system by the end of 2010. To check the effectiveness of management controls put in place to reduce safety risks, the Group sustainable development risk and assurance team will conduct audits throughout 2010 across all business units on falls of ground, contractor management, and electricity isolation. (1) In addition to the 19 recorded fatalities, a further incident was recorded at Kumba Iron Ore’s Sishen Mine, and is pending final classification. (2) In 2008, Anglo American reported 27 fatal incidents and indicated that one security-related fatality was still pending investigation at the time of going to print. That incident has since been formally recorded, bringing the 2008 total to 28 and the FIFR to 0.015. People In an early response to the global economic downturn, the Group conducted a global review of its operations in late 2008 and initiated a substantial rationalisation programme with the anticipated reduction of 19,000 employees through to the end of 2009. In addition, in early 2009, the Group commenced an extensive operating model review to optimise the effectiveness and efficiency of its organisational structure to deliver its strategic objectives. The operational headcount reductions, together with the organisational restructures and the decision to divest a number of assets, constituted a primary focus for the Group’s Human Resource activities during the year. Organisational development The operating model review was completed in October 2009 and resulted in an organisational simplification and delayering across the Group, with the divisional co-ordinating level across Base Metals, Coal and Ferrous Metals being removed. This has resulted in a leaner organisation with shorter lines of communication and clearer accountabilities. Profit accountable business units are complemented by a lean corporate centre focused on essential governance activities 26 Anglo American plc Annual Report 2009 O p e r a t i n g a n d fi n a n c a i l r e v e w i The system is based on intensive monitoring of the working environment by all levels of employee and the reporting of incidents. All incidents will be followed up and the control measure that has failed reinstated. The objective is to ensure that exposure to health hazards does not exceed the target level. The definition of an incident ranges from employee observations, through to medical and occupational hygiene measurements. This is part of a wider approach to occupational health risk management so that consistent standards for hazard management are rolled out and audited across the Group. HIV/AIDS Anglo American continues to be a leader on the HIV/AIDS front. During 2009, the Global Business Coalition on HIV/AIDS, Tuberculosis (TB) and Malaria recognised Anglo Thermal Coal’s South African mines with a business excellence award for the best workplace HIV/AIDS programme. The thrust of the Company’s HIV/AIDS response continues to be early diagnosis and early access to treatment, coupled with intensive HIV-prevention campaigns and, in many instances, compulsory individual HIV counselling. Anglo American exceeded its target of 80% of employees undergoing voluntary HIV testing in southern Africa during 2009, a significant achievement. The challenges remain in converting early diagnosis to early treatment uptake, ensuring long term adherence to anti-retroviral therapy, preventing new HIV infections and encouraging employees to bring their spouses or partners to participate in the Company’s HIV/AIDS prevention, care and treatment programmes. At the end of 2009, more than 3,000 employees were receiving anti-retroviral therapy and nearly all of them were able to continue with their normal work. The escalating TB epidemic in South Africa, as a direct consequence of the high burden of HIV disease in the country, is a source of ongoing concern at all Anglo American operations there. The Group’s TB control programmes, based on similar principles to the HIV/AIDS programmes, are being stepped up to ensure that this emerging threat is actively managed and properly controlled. and the capture of synergies across the Group through collaborative working and best practice sharing in the areas of asset optimisation, project management, procurement and supply chain and shared services. As part of the operating model review, an overall 25% reduction in overhead support headcount was targeted at the corporate centre and in the business units. By the end of December, almost 60% of the targeted reduction had already been achieved. Maintaining progress towards the ambition of becoming the employer of choice by ‘living’ and being seen by employees to ‘live the values’ was critical. Continuing to motivate and engage the Company’s people throughout the change programmes, with a positive and motivational environment for those who remained was a key objective. Further progress on transformation was another key requirement. Accordingly, extensive employee consultation, regular communication and individual support were a consistent feature throughout the restructuring and employee downsizing programmes. The vast majority of the targeted reductions were progressed through voluntary severance, but where additional reductions beyond those achieved through voluntary means was necessary, a thorough, fair and transparent assessment and selection process was undertaken. The organisational delayering that was announced towards the end of October impacted directly upon more than 300 employees within the divisional layers and the Group functions, mainly based in Johannesburg and London, with extensive redeployment and outplacement support provided for those adversely affected. Talent management During 2009, the talent audit and Group-wide collaborative development processes continued in parallel with change activities and refreshed assessment tools and processes, which played an important role in preparing employees for new responsibilities and in informing decisions around staffing the new organisation. Upgrading and retaining key talent remained a major focus during the change initiatives. Reward and performance The Group’s comprehensive reward strategies have assisted in attracting and retaining talented and skilled employees in specific sectors of the specialist labour market that has remained competitive despite the economic downturn. The Group-wide reward and evaluation framework has also enabled the calibration and integration of new roles and facilitated the departure of employees through the recent downsizing and restructuring programmes, largely through a successful voluntary separation process. Fixed costs have been tightly controlled through the exercise of general pay restraint appropriate to the economic climate prevailing across different geographies. As a result of the restructuring activities, the Group delayed the introduction of a new performance measurement and management system during 2009; this will now be tailored to the new organisation structure and implemented in 2010. Transformation 2009 marked a year of continued steady progress in terms of transformation. The composition of the management ranks within South Africa with respect to the historically disadvantaged sector grew to 46% (2008: 45%). The number of women in management rose to 19% (2008: 17%). The Group continues to grow in strength and diversity as it supports initiatives such ‘Women in Mining’ and the overall proportion of females increased to 13% (against 10% Mining Charter target, which was raised from 8% in 2005). Anglo American as a Group has achieved good success with respect to the Mining Charter. Targets were achieved in seven of the eight pillars of the Mining Charter except in the area of beneficiation where this was not clearly defined by the Department of Mineral Resources in terms of measurement. Health Health in Anglo American has a broad focus and, depending on the country of operation, ranges from complete medical care (hospitals and medical insurance) through to engineering and design of the workplace. At all operations there are wellness programmes aimed at keeping people healthy and improving health. Occupational health Anglo American’s occupational health programmes cover all employees and are aimed at preventing occupational disease through prevention of exposure at source. This involves input from a number of experts, including occupational hygienists, engineers and medical doctors. Despite a declining trend in occupational disease statistics, Anglo American continues to report cases of noise induced hearing loss and occupational lung disease each year. A new approach is thus required. As occupational disease mostly has a long latent period, the use of current statistics to measure the effectiveness of the prevention control strategy is questionable. For this reason, a new system of monitoring based on the effectiveness and availability of controls is being introduced. Anglo American plc Annual Report 2009 27 Operating and financial review Resources The resources Anglo American considers critical to achieving its strategic aims include: • Knowledge and expertise • Proved and probable reserves Full details of the Group’s Ore Reserves and Mineral Resources estimates are found on pages 148 to 170 Mining and Technology has developed and implemented a comprehensive and industry leading structural inspection and maintenance management programme (SIMM) to ensure employee safety and prevent asset value destruction. SIMM accurately assesses the condition of critical structures (including shaft steelwork) and recommends appropriate intervention strategies. This is of particular importance to long life assets. The novel metallurgical process developed for the Skorpion Zinc refinery in Namibia is just one example in Anglo American‘s long history of taking new ideas and developing them into working solutions. Currently, Anglo Research is developing a process for atmospheric leaching of nickel laterite ores. The concept has been refined, tested at laboratory scale and piloted at mini-plant scale. A fully integrated pilot plant is currently under construction and will be in operation towards the end of 2010. A demonstration plant will be developed based on the outcome of a successful pilot campaign. The state-of-the-art Anglo American developed Spectrem airborne electromagnetic system is being deployed in Australia following a series of successful surveys in Canada and Alaska. Mining and Technology continues to improve other technologies aimed at ensuring the safety of vertical transport through the development of significantly improved digital electronic and detection algorithms in order to identify defects in steel wire ropes, and through the adaptation of leading edge non-destructive testing technologies for shaft winding systems. An underground rail inspection system has also been developed and implemented, aimed at improving the safety and efficiency of such facilities. The Mining and Technology developed best practice guideline for shaft design, based on the experience and expertise built up over decades in Group design offices and operations, is aimed at enhancing the effectiveness of future shafts and at optimising their life cycle cost and effectiveness. The document will assist designers by means of guidelines, specifications, examples and checklists. The focus on optimising Anglo American’s project structures and processes is continuing with the implementation of the Group Asset Development Standard and associated guidelines and tools. Knowledge and expertise Technology capability Anglo American’s strong in-house technology capability continues to provide world class solutions to the Group and its operations globally. Mining and Technology is the custodian of specialised engineering skills employed throughout the Group, while Anglo Research identifies and develops emerging technologies. Anglo American’s technology strategy is regularly reviewed to meet the Group’s changing needs, with the focus on safety, sustainable development, asset optimisation, the development of value adding technologies and on nurturing technical talent. Mining and Technology has developed the Anglo Fatal Risk Standards and Guidelines and provides technical support to Group operations to ensure their optimal application and implementation. Anglo Major Risk Standards and Guidelines are currently being finalised to address high consequence, low probability risks for diverse areas such as shafts, flooding and structures. The quality of the organisation’s technical support is exemplified by Mining and Technology becoming a leader in the field of roll-over protection structures (ROPS) through numerical crash simulation and physical testing, and it has developed the first ROPS standard for light vehicles employed in mining operations globally. Mining and Technology plays an integral role in sustainable development related work within the Group, having developed the Anglo Environmental Way with its associated guidelines and performance standards. The technical team played a key role in the formation of a partnership with the NGO, Fauna and Flora International, and in its participation in Anglo American’s Biodiversity Action Plan Peer Review programme, which serves to assist operations to identify key biodiversity risks and opportunities. In addition, Mining and Technology developed the Mine Closure Toolbox, which focuses on the long term planning and management of environmental and closure liabilities, thus influencing and guiding the way operations are designed, planned and managed. The toolbox is being implemented at more than 30 operations across the globe. The organisation is equipped with a world class measurement and testing laboratory as well as highly skilled engineers to support the Group on failure analysis and vibration issues, which include structural and human vibration matters. The measured data is used, inter alia, for the prediction or anticipation of failures of critical machines, for process optimisations and to measure and address exposure limits to prevent operator fatigue, which contributes to safer and more effective operations. Input is also provided to original equipment manufacturers in order to address certain design issues, thus enhancing the final product. 28 Anglo American plc Annual Report 2009 Exploration Anglo American continued its exploration activities in a range of frontier areas to more mature greenfield locations globally as well as in brownfield environments in close proximity to the Group’s existing operations. The Company’s exploration geoscientists are also involved in the identification and evaluation of properties for potential acquisition or alliance opportunities. Anglo American teams continued to advance exploration on recent discoveries, sole funded projects and alliances with other companies. Through 2009, the Group, excluding De Beers, spent $172 million (2008: $212 million) on exploration in 21 countries. De Beers’ own exploration expenditure amounted to $48 million (2008: $96 million). Anglo Platinum exploration costs of $17 million were incurred during 2009, with a specific focus on supplying geological information and mitigating resource risk on current operations. Although partly curtailed owing to the current economic downturn, exploration activities included considerable surface diamond drilling. 3D seismic surveys continue to provide exceptional detail on the structural deformation of the orebodies, which is not discernible from borehole data alone. Aeromagnetic surveys, geophysical logging and borehole radar are also used to supplement geological knowledge. Foreign exploration continued in 2009, with projects in Brazil, Canada, Russia and Zimbabwe. Exploration operations in China were shut down during 2009, while options to dispose of the organisation’s interest in the Canadian projects were being reviewed at year end. Extensive exploration continues on the Great Dyke in Zimbabwe to supply resource information especially in the Unki area. Copper exploration across the Group totalled $43 million with focused exploration around its Chilean copper mines. Advanced project work further evaluated the West Wall and Michiquillay copper projects in Chile and Peru respectively. Near mine exploration efforts centred on the San Enrique-Monolito and Los Sulfatos copper projects in Chile as well as other near mine opportunities. Nickel exploration of $22 million was incurred strengthening the project pipeline, with continued work around a nickel-copper discovery in Finland, while advanced project works further evaluated the Jacaré project in Brazil and West Raglan in Canada. Iron Ore exploration expenditure was principally at the Minas Rio project in Brazil and the Kumba Iron Ore projects in South Africa. In Brazil, programmes tested iron ore targets close to the principal resources as well as evaluation targets within the project’s infrastructure corridor. In South Africa, pre-feasibility resource evaluation drilling of the Zandrivierspoort project in the Limpopo Province was completed and exploration activities for the Kolomela In the open pit of Thermal Coal’s New Vaal colliery in South Africa, a dragline removes overburden to expose the near-surface coal deposits. O p e r a t i n g a n d fi n a n c a i l r e v e w i An integrated geospatial solution Mining and metals professionals strive to shorten project schedules and lower operating costs through improved access to mission- critical information. Effectively managing and controlling the costs of a 20 Mtpa coal mining operation requires statistical evaluation of multiple databases. Thermal Coal’s New Vaal colliery required a system to link spatial information to various databases to allow analysis of possible outcomes based on changing variables. Because most of this information is inextricably linked to the Survey Department, an integrated geospatial solution that encompassed the entire mining cycle was created by a team comprising mine and Mining and Technology experts as well as a software solutions provider. An information repository and manipulation tool with a primary focus on linking production data with spatial referencing was identified and tested. Thereafter, fixed and dynamic reporting was integrated with a web publisher to web-enable the solution. The tool will be expanded to other functional areas in due course. The integrated geospatial solution will ultimately enable management to have immediate access through the web to multiple databases and imagery which would otherwise have been inaccessible. (formerly Sishen South) project in the Northern Cape Province were concluded, with mine construction commencing in 2009. A number of brownfield targets between the Sishen and Kolomela mines were explored as part of the Falcon/Sibelo project. Pre-feasibility drilling and exploration activities on the Phoenix project at the Thabazimbi Mine in the North West Province commenced at the end of the third quarter of 2009. Greenfield exploration activities on the project in Guinea ceased in early 2009 and the project was terminated. Coal exploration expenditure of $35 million was concentrated on evaluating, assessing and extending resources for export thermal and coking coal, domestic thermal coal and coal bed methane (CBM). In South Africa, further exploration was undertaken on the South Rand, Standerton East and Kriel East projects, with new project drilling commencing on the Elders Underground Extension and Vaal Basin projects. Feasibility related drilling was carried out on the New Largo resource, planned to supply Eskom’s Kusile power station. Exploration drilling was also intensified in Thermal Coal’s Limpopo area for coking coal, as well as in the Waterberg Coal project area. The Lephalale CBM resource continued to be evaluated utilising results from gas yield testing and regional exploration drilling. The project is currently generating approximately 140 kW of electricity from a fuel cell pilot project, which represents a clean energy technology initiative between Thermal Coal and Anglo Platinum. CBM exploration activities in Botswana continued to evaluate the prospectivity of the Eastern Karoo Basin through a reconnaissance drilling programme which has identified areas for future exploration. In Australia, exploration targeted coking coal and export thermal coal in the Drayton South (Saddlers Creek), Moranbah South, Grosvenor, Rolfe and Carlo Creek Projects. In Canada, Peace River Coal remained focused on defining hard coking coal in the Roman Mountain project adjacent to the existing Trend colliery. Additional resource definition exploration was carried out on the Belsax project south east of the colliery. Zinc exploration expenditure of $10 million related to exploration conducted on a recent discovery in Namibia as well as works adjacent to operations in Ireland and advanced project works at the Gamsberg East zinc project in South Africa. Other activity included exploration around the Brazilian phosphate mines. Anglo American plc Annual Report 2009 29 Operating and financial review Group financial performance Group operating profit was $4,957 million, with operating profit from core operations of $4,451 million Financial review of Group results Group operating profit was $4,957 million, with operating profit from core operations of $4,451 million, 51% lower than 2008. This decline in operating profit was driven by significant decreases in realised prices of all commodities, with the exception of copper. Price decreases included a 38% reduction in the platinum basket, an average 40% reduction in benchmark export iron ore, a 30% decline in average nickel and a more than 20% decline in export metallurgical coal. Copper operating profit was 6% higher than for 2008, with record production and a 2% increase in the realised price of copper, partially due to favourable final settlements of sales into a rising market. Nickel profits declined due to a combination of the lower price, with destocking in the stainless steel sector and a 25% inflation rate in Venezuela. Platinum was impacted by significantly lower average prices compared with 2008. Kumba Iron Ore maintained a strong operating profit margin despite a 40% decline in average benchmark export iron ore prices, achieved through increased volumes, principally sold to China. Samancor’s profit declined due to the decrease in global steel demand. Metallurgical Coal and Thermal Coal profits were impacted by the decline in export demand and prices, partially offset by cost reduction programmes. Diamonds saw Diamond Trading Company (DTC) revenues fall by $2.7 billion and, through production holidays and restructuring, De Beers cut its production and operating costs by $900 million. However, despite these measures operating profit fell by 87%. Other Mining and Industrial’s operating profit increased in the zinc and niobium businesses, with growth in sales volumes. This was more than offset by lower profits from Tarmac due to the housing market decline in Europe and significant volume decline for Scaw Metals’ products. Other Mining and Industrial’s operating profit in 2009 relative to 2008 was lower following the sale of Tongaat Hulett and Hulamin in the third quarter of 2009 and also the sale of Namakwa Sands in October 2008. Group underlying earnings were $2,569 million, 51% lower than 2008, which reflected the operational results discussed above. The net finance costs charge, before remeasurements of $273 million, was $179 million lower than 2008. The effective tax rate, before special items and remeasurements and including attributable share of associates’ tax, reduced in the year from 33.4% to 33.1%. Group underlying earnings per share were $2.14 compared with $4.36 in 2008, a 51% reduction. The Group’s results are influenced by a variety of currencies owing to the geographic diversity of the Group. In 2009, there was a negative exchange variance in underlying earnings of $68 million. The Group’s results benefited from the weaker Australian dollar, Chilean peso and Brazilian real. Despite the average rand rate in 2009 being 2% weaker than 2008, there was a negative rand exchange impact on underlying earnings. This reflected a significantly stronger rand in the second half of the year when operating activities increased with stronger demand. There was a negative impact on underlying earnings from a significant decline in prices amounting to $2,290 million, reflecting lower prices across almost all commodities. Special items and remeasurements Operating special items and remeasurements, including associates, amounted to a charge of $1,840 million. Included in operating special items, including associates, were impairments totalling $2,130 million. This included an impairment charge against the Amapá iron ore system. Amapá was acquired in 2008 as an operating asset as part of the acquisition of Underlying earnings $ million Profit for the financial year attributable to equity shareholders of the Company Operating special items including associates Operating remeasurements including associates Net profit on disposals including associates Financing special items including associates Financing remeasurements including associates: Exchange loss/(gain) on De Beers preference shares Unrealised net losses/(gains) on non-hedge derivatives related to net debt Other financing remeasurements Tax special items including associates Tax remeasurements Tax on special items and remeasurements including associates Minority interests on special items and remeasurements including associates Underlying earnings Underlying earnings per share ($) Year ended 31 Dec 2009 Year ended 31 Dec 2008 2,425 2,574 (734) (1,632) 7 21 94 13 152 (469) 180 (62) 2,569 2.14 5,215 477 880 (1,027) – (28) (8) – – 153 (264) (161) 5,237 4.36 30 Anglo American plc Annual Report 2009 the Minas Rio project. During 2009, Amapá experienced significant operational challenges across its mine, plant and logistics chain, producing 2.7 Mt compared with the design capacity of 6.5 Mtpa. Management’s focus has been, and remains, on seeking to markedly improve performance from the existing operations, rather than investing to expand the operation. The Amapá system is currently believed to have capacity to increase production to 5 Mtpa without significant further capital expenditure. Due to the focus on improving operational performance and preserving cash, limited exploration drilling was undertaken in 2009 and the anticipated growth potential of surrounding licence areas remains untested. Given these operational difficulties and delays in increasing production, the Group recorded an impairment charge of $1.5 billion (after tax and minority interest) against the carrying value of the asset. In January 2008, the Venezuelan Ministry of Basic Industries and Mining (MIBAM) published a resolution cancelling 13 of Minera Loma de Níquel’s (MLdN) 16 exploration and exploitation concessions due to MLdN’s alleged failure to fulfil certain conditions of the concessions. The current mining and metallurgical facilities are located on the three concessions that have not been cancelled. MLdN believes that it has complied with the conditions of these concessions and has lodged administrative appeals against the notices of termination and is waiting for a response from MIBAM. MLdN may in the future undertake further appeals, including with Venezuela’s Supreme Court, if the MIBAM’s ruling does not adequately protect its interests. An impairment and associated adjustments of $114 million have been recorded due to increased uncertainty over the renewal of the three concessions that have not been cancelled but that expire in 2012 and over the restoration of the 13 concessions that were cancelled. At 31 December 2009, Anglo American’s interest in the book value of MLdN, including its mineral rights, was $285 million (as included in the Group’s balance sheet). In the 12 months to December 2009, MLdN’s production and contribution to Group operating profit were respectively 10,400 tonnes of nickel in ferronickel and a $7 million loss. The average price of nickel in 2009 was 667 c/lb. As of 17 February 2010, the price of nickel was 910 c/lb. Due to the nature of the assets, the effects of the strengthening Canadian dollar and the impact of the global recession on pricing and production levels, De Beers recorded an impairment of $595 million (attributable share: $267 million) in respect of its Canadian asset portfolio and has written off $101 million (attributable share: $45 million) of Canadian deferred tax assets. Also included in special items and remeasurements were one-off redundancy costs at the corporate centre of $47 million, Summary income statement $ million Operating profit before special items and remeasurements Operating special items Operating remeasurements Operating profit from subsidiaries and joint ventures Net profit on disposals Share of net income from associates(1) Total profit from operations and associates Net finance costs before remeasurements Financing remeasurements Profit before tax Income tax expense Profit for the financial year Minority interests Profit for the financial year attributable to equity shareholders Basic earnings per share ($) Group operating profit including associates before special items and remeasurements(2) (1) Operating profit from associates before special items and remeasurements Operating special items and remeasurements Net profit on disposals Net finance costs (before special items and remeasurements) Financing special items Financing remeasurements Income tax expense (after special items and remeasurements) Minority interests (after special items and remeasurements) Share of net income from associates O p e r a t i n g a n d fi n a n c a i l r e v e w i Year ended 31 Dec 2009 Year ended 31 Dec 2008 4,377 (2,275) 638 2,740 1,612 84 4,436 (273) (134) 4,029 (1,117) 2,912 (487) 2,425 2.02 7,981 (352) (779) 6,850 1,009 1,113 8,972 (452) 51 8,571 (2,451) 6,120 (905) 5,215 4.34 4,957 10,085 580 (203) 20 (28) (7) 6 (286) 2 84 2,104 (226) 18 (147) – (15) (606) (15) 1,113 (2) Operating profit before special items and remeasurements from subsidiaries and joint ventures was $4,377 million and attributable share from associates was $580 million. For special items and remeasurements, see note 7 to the Financial statements. Special items and remeasurements $ million Operating special items Operating remeasurements Operating special items and remeasurements Year ended 31 Dec 2009 Year ended 31 Dec 2008 Excluding associates Associates Total Excluding associates Associates Total (2,275) (299) (2,574) (352) (125) (477) 638 96 734 (779) (101) (880) (1,637) (203) (1,840) (1,131) (226) (1,357) Operating profit by business unit $ million Platinum Diamonds Copper Nickel Iron Ore and Manganese Metallurgical Coal Thermal Coal Exploration Corporate activities and unallocated costs Operating profit including associates before special items and remeasurements – core operations Other Mining and Industrial Operating profit including associates before special items and remeasurements Underlying earnings – core operations (1) (1) See note 3 to the Financial statements. Year ended 31 Dec 2009 Year ended 31 Dec 2008 32 64 2,010 2 1,489 451 721 (172) (146) 4,451 506 2,169 508 1,892 123 2,554 1,110 1,078 (212) (219) 9,003 1,082 4,957 10,085 2,166 4,503 Anglo American plc Annual Report 2009 31 Operating and financial review Group financial performance continued Taxation $ million (unless otherwise stated) Profit before tax Tax Profit for the financial year Effective tax rate including associates (%) Year ended 31 Dec 2009 Year ended 31 Dec 2008 Before special items and remeasure- ments Associates’ tax and minority interests Including associates Before special items and remeasure- ments Associates’ tax and minority interests 4,422 (1,305) 234 (235) 4,656 (1,540) 8,832 (2,545) 654 (623) Including associates 9,486 (3,168) 3,117 (1) 3,116 6,287 31 6,318 and within Anglo Platinum, Metallurgical Coal and Thermal Coal of $136 million. There were operating remeasurement gains of $734 million, which principally related to net gains on non-hedge capital expenditure derivatives held by Iron Ore Brazil and Los Bronces, and an unrealised gain on an embedded derivative at MLdN. Net profit on disposals of $1,632 million, including associates, comprised a profit on the disposal of the residual shareholdings in AngloGold Ashanti of $1,139 million, $247 million on Anglo Platinum’s disposal of its 50% share in Booysendal and $69 million relating to the disposal of 51% of Anglo Platinum’s 100% share in Lebowa Platinum Mines. Financing remeasurements including associates were made up of an unrealised net loss of $94 million on non-hedge derivatives and a $21 million foreign exchange loss on retranslating De Beers US dollar preference shares held by a rand denominated entity. Tax remeasurements amounted to a gain of $469 million related to foreign currency translation of deferred tax balances. Net finance costs Net finance costs, excluding a net remeasurement loss of $134 million (2008: gain of $51 million), decreased to $273 million (2008: $452 million). This was due to a $70 million reduction in the total interest expense and a $184 million reduction in other financing losses (principally exchange losses), partially offset by a $75 million reduction in total investment income. Taxation 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 income tax expense. Associates’ tax included within ‘Share of net income from associates’ for the year ended 31 December 2009 was $286 million (2008: $606 million). Excluding special items and remeasurements, this amounted to $235 million (2008: $623 million). The effective rate of tax before special items and remeasurements, including attributable share of associates’ tax for the year ended 31 December 2009, was 33.1%. This was broadly in line with 32 Anglo American plc Annual Report 2009 33.1 33.4 the equivalent effective rate of 33.4% for the year ended 31 December 2008. In future periods, it is expected that the effective tax rate, including associates’ tax, will remain above the United Kingdom statutory tax rate. Balance sheet Equity attributable to equity shareholders of the Company was $26,121 million compared with $20,221 million at 31 December 2008. This increase reflected additional tangible assets of $5,653 million with capital investment, principally in the Group’s core commodity assets. Cash at the end of 2009 was $498 million higher than 2008, which included a $316 million benefit of a weak dollar on non-US cash holdings. A weaker dollar, higher commodity prices than at 31 December 2008 as well as a stronger trading performance in the later stages of 2009 compared with the prior year have contributed to a $929 million increase to inventories and current receivables. This was offset by an increase in short, medium and long term borrowings, which were $320 million greater than 2008, reflecting refinancing in 2009 and the impact of a stronger rand on rand denominated debt. Deferred tax liabilities also increased in the year by $637 million. Investments in associates were $300 million lower as a result of De Beers impairing its Canadian assets, a demand driven decline in earnings at Samancor and the disposal of Tongaat Hulett and Hulamin. Cash flow Net cash inflows from operating activities were $4,087 million compared with $8,065 million in 2008. EBITDA was $6,930 million, a decrease of 42% from $11,847 million in 2008. Proceeds from the sale of financial asset investments totalled $2,041 million, including net cash inflows on the sale of the Group’s residual interest in the shares of AngloGold Ashanti and proceeds received on the sale of preference shares as part of the disposal of the Booysendal joint venture. Purchases of tangible assets amounted to $4,607 million, a decrease of $539 million. This spend was focused on the four key near term strategic growth projects (Los Bronces, Barro Alto, Minas Rio and Kolomela). The overall reduction reflected the planned reduction on capital investment outside these key projects. Net cash used in financing activities was $1,605 million compared with net cash inflows in 2008 of $3,542 million. During the year, the Group used cash to repay $6,624 million of short term borrowings and the payment of $741 million of interest. This was partially offset by the proceeds from four bond issuances completed in the year totalling $5,892 million. Liquidity and funding Net debt, excluding hedges, was $10,995 million, a decrease of $48 million from 31 December 2008. Cash and cash equivalents, excluding the impact of exchange, increased by $259 million. This reflected operating cash flows, the sale of financial asset investments and investment in associates, purchase of tangible assets and movement in financing activities as detailed in the cash flow section. Net debt at 31 December 2009 comprised $14,317 million of debt, partly offset by $3,319 million of cash and cash equivalents (net of bank overdrafts) and $3 million current financial asset investments. As a result of refinancing activities outlined below the debt aging profile changed, with 90% of the total debt being due after more than one year, compared with 52% at 31 December 2008. Net debt to total capital(1) at 31 December 2009 was 30.8%, compared with 37.8% at 31 December 2008. In 2009, Anglo American conducted four major bond transactions, raising a total of $5.9 billion, which refinanced the Group’s short term debt position. In April, $2 billion was raised in a dual tranche issuance, with $1.25 billion maturing in 2014 and $0.75 billion in 2019. In May, a convertible bond was issued, maturing in 2014, which raised $1.7 billion. In September and December, two separate Eurobonds were issued, each raising —750 million ($1.1 billion), maturing in 2013 and 2016 respectively. At 31 December 2009, Anglo American had undrawn bank facilities of $9.5 billion, cash deposits of $3.3 billion and commercial paper maturing throughout 2010 of $67 million. Anglo American’s only significant facilities maturing in 2010 are a £300 million ($500 million) Eurobond which matures in December 2010 as well as the Amapá facilities of $538 million. In addition the Group has undrawn rand facilities equivalent to $1.9 billion with 364 day maturities which roll automatically on a daily basis, unless notice is served. (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. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance and the refinancing of the facilities above, show that the Group will be able to operate within the level of its current facilities for the foreseeable future. Dividends The resumption of the dividend at the earliest possible time remains a key priority for the Board. Assuming that the commodity price environment and outlook continue to improve and the business performance remains robust, the Board would expect to be able to announce the resumption of a dividend in respect of the current financial year. Return on capital employed (ROCE) ROCE in 2009 was 14.6% compared with 36.8% in 2008. The decrease was mainly due to the operating results discussed in this financial review of Group results and in the business unit overviews on pages 34 to 63. Group corporate cost allocation As a result of the Group announcement on 22 October 2009 to streamline its management structure and remove a layer of global management, certain activities previously performed within the divisions are now to be undertaken at the corporate centre, certain will be undertaken in the new business units and the remainder will no longer be performed. At the same time, it has been decided that the figure presented externally as Group corporate costs will only comprise costs associated with parental or direct shareholder related activities and that costs associated with activities which are value adding to the business units will be reported within the business units. As a result, a proportion of corporate costs which are believed to be value adding to the business units will be allocated to each business unit. The Group corporate costs, as included within the notes to the accounts, can be reconciled to the historical basis for presentation as in the table below. Corporate costs (on a consistent basis with those reported in the 2008 Annual Report) of $272 million (2008: $345 million) were incurred in 2009, a reduction of $73 million. The reduction was due in part to the strengthening dollar but principally resulted from stringent cost reduction measures across the corporate offices. Group corporate costs $ million Corporate costs as previously reported Costs previously reported within divisional results Corporate costs allocated to business units Corporate costs as reported under new structure Anglo American plc Annual Report 2009 Analysis of depreciation and amortisation by segment (subsidiaries and joint ventures) $ million Platinum Copper Nickel Iron Ore and Manganese Metallurgical Coal Thermal Coal Other Mining and Industrial Exploration Corporate activities and unallocated costs Year ended 31 Dec 2009 Year ended 31 Dec 2008 636 244 26 81 249 107 360 – 507 212 27 52 205 78 404 – O p e r a t i n g a n d fi n a n c a i l r e v e w i 22 1,725 24 1,509 Analysis of capital expenditure on a cash flow basis by segment (subsidiaries and joint ventures)(1) $ million Year ended 31 Dec 2009 Year ended 31 Dec 2008 Platinum Copper Nickel Iron Ore and Manganese Metallurgical Coal Thermal Coal Other Mining and Industrial Exploration Corporate activities and unallocated costs 1,150 1,068 554 1,044 96 400 268 – 1,563 808 530 783 467 365 603 1 26 5,146 (1) Cash capital expenditure excludes cash flow on related derivatives. 27 4,607 2009 272 76 (202) 146 2008 345 102 (228) 219 33 Operating and financial review Platinum Neville Nicolau CEO Platinum No 1 primary producer of platinum in the world 9 wholly owned mining operations in South Africa, with three smelters and two refineries 2.5 m platinum ounces production target for 2010 Financial highlights: Platinum $ million (unless otherwise stated) Operating profit EBITDA Net operating assets Capital expenditure Share of Group operating profit Share of Group net operating assets 2009 2008 32 677 12,141 1,150 1% 31% 2,169 2,675 9,045 1,563 22% 27% Platinum demand (koz) 2009 610 1,160 2,340 1,890 2008 555 1,685 1,365 2,580 Autocatalyst: net* Jewellery Industrial† Investment Source: Anglo Platinum * Autocatalyst net represents gross autocatalyst demand less recovered autocatalyst volumes † Industrial includes chemical, electrical, glass, petroleum refining and other industrial demand 34 Anglo American plc Annual Report 2009 Operating profit (2008: $2,169 m) $32 m Share of Group operating profit (2008: 22%) 1% EBITDA (2008: $2,675 m) $677 m Business overview Anglo Platinum, based in South Africa, is the world’s leading primary producer of platinum, accounting for around 40% of global output. It mines, processes and refines the entire range of platinum group metals (PGMs): platinum, palladium, rhodium, ruthenium, iridium and osmium. In addition to the PGMs, base metals such as nickel, copper and cobalt sulphate are important secondary products and are significant contributors to earnings. Anglo Platinum’s operations exploit the world’s richest reserve of PGMs, known as the Bushveld Complex, which contains PGM-bearing Merensky, UG2 and Platreef ores. The company’s access to an excellent portfolio of ore reserves ensures that it is well placed to be the world’s major platinum producer for many years to come. Anglo Platinum wholly owns nine mining operations currently in production, a tailings re-treatment facility, three smelters, a base metals refinery and a precious metals refinery. It also has 100% ownership of the Unki project in Zimbabwe. Each of its mines operates its own concentrator facilities, with smelting and refining of the output being undertaken at Rustenburg Platinum Mines’ metallurgical facilities. A restructuring of mining operations into more efficient, stand-alone units involved the splitting of the largest mines into smaller new mining entities so as to ensure a sustainable reduction in the unit cost of production and to extract maximum value from the assets employed. Rustenburg Section was divided into five new mines – Khomanani, Bathopele, Siphumelele, Thembelani and Khuseleka – while Amandelbult Section was split into the Tumela and Dishaba mines. Three high cost shafts, namely Siphumelele 3 and 2 shafts (formerly known as Bleskop and Brakspruit) and Khuseleka 2 shaft (formerly known as Boschfontein), were also placed on care and maintenance. The company’s 100% owned mining operations now consist of the five mines at Rustenburg Section and the two mines at Amandelbult Section, as well as Mogalakwena and Twickenham mines. Union Mine is 85% held, with a black economic empowerment (BEE) partner, the Bakgatla-Ba-Kgafela traditional community holding the remainder. Anglo Platinum also has 50:50 joint ventures with: a BEE consortium, led by African Rainbow Minerals, at Modikwa platinum mine; BEE partner Royal Bafokeng Resources over the combined Bafokeng-Rasimone platinum mine (BRPM) and Styldrift properties; and XK Platinum Partnership in respect of the Mototolo mine. In addition, Anglo Platinum has 50:50 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 Thembelani and Khuseleka mines. O p e r a t i n g a n d fi n a n c a i l r e v e w i During 2009, Anglo Platinum successfully completed three BEE transactions: Mvela: All of the conditions precedent in respect of the disposal of Anglo Platinum’s 50% interest in the Booysendal project and of its 22.4% interest in Northam Platinum Limited to Mvela, for a total consideration of R3.7 billion, were fulfilled, with the final part of the transaction becoming effective in June 2009. Anooraq: All of the conditions precedent to the acquisition by Anooraq of an effective 51% interest in Lebowa Platinum Mine and 1% interest in the Ga Phasha, Boikgantsho and Kwanda projects have been fulfilled and the transaction became effective on 30 June 2009. The transaction facilitated Anooraq’s strategy of becoming a major historically disadvantaged South African (HDSA) managed and controlled PGM producer and illustrates Anglo Platinum’s commitment to broad based BEE as a strategic transformation initiative. Anooraq now controls the third largest PGM resource base in South Africa, with a combination of high quality exploration, development and production mineral properties. Royal Bafokeng Resources (RBR): The transaction whereby RBR obtained a majority interest in the Bafokeng-Rasimone Platinum Mine Joint Venture became unconditional and, therefore, effective 7 December 2009. Industry overview PGMs have a wide range of industrial and high technology applications. Demand for platinum is driven by its use in autocatalysts to control emissions from both petrol and diesel engine vehicles, and in jewellery. These uses are responsible for 70% of net total platinum consumption. Platinum, however, 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. Anglo Platinum is the major supporter of the Platinum Guild International (PGI), which plays a key role in encouraging demand for platinum and in establishing new platinum jewellery markets. China has been the leading platinum jewellery market since 2000, followed by Europe, Japan and North America. Industrial applications for platinum are driven by technology and, especially in the case of autocatalysts, by legislation. With the rapid spread of exhaust emissions legislation, more than 94% of new vehicles now have autocatalysts fitted. The intensifying stringency of emissions legislation will drive growth in PGM demand. Palladium’s principal application is in autocatalysts (around 45% of net demand). It is also used in electronic components, in dental alloys and, more recently, as an emerging jewellery metal in markets such as China. Palladium demand is expected to rebound in 2010, together with supply that is expected to increase from recycling of spent autocatalysts. Rhodium is an important metal in autocatalytic activity, which accounts for nearly 80% of net demand. With the global economic slowdown depressing production of new vehicles, demand for rhodium declined in 2009. Declining demand in the autocatalyst sector, coupled with increased supplies from South Africa, are likely to keep the market in surplus in the short to medium term. Strategy and growth Anglo Platinum’s objective is to maintain its position as the leading primary producer of platinum. In order to do this, the company aims to be a highly cost effective producer, to develop the market for PGMs and to expand production into that growth opportunity. In the second half of 2008 and in 2009, in response to the unprecedented rapid decline in PGM prices caused chiefly by rapidly slowing vehicle sales in North America, Europe and Japan, the company implemented a number of initiatives to reduce costs and improve operational productivity and also undertook a critical examination of capital expenditure. Project capital spend is now directly related to Anglo Platinum’s long term ounce requirements and the reduction in the rate of spend resulted in a number of projects being delayed, including Tumela (Amandelbult) 4 Shaft, Twickenham Platinum Mine and the Styldrift Merensky phase 1 project. However, the Thembelani 2 Shaft (formerly Paardekraal 2), Dishaba (formerly Amandelbult) East Upper UG2 and Khuseleka 1 Shaft (formerly Townlands Ore Replacement) projects are all progressing without delay. Anglo Platinum is involved in developing mining activity for PGMs on the Great Dyke of Zimbabwe, the second largest known repository of platinum after the Bushveld Complex. Development and exploration work is focused on new projects in the area, including Unki, as well as establishing extensions to the resource base for future projects. In February 2010, Anglo Platinum announced a rights offer of R12.5 billion (approximately $1.6 billion) which will be used to repay long term debt, therefore securing future financial and operational flexibility and creating capacity for growth. Anglo American announced its intention to subscribe in full to its entitlement to the rights offer. Anglo American plc Annual Report 2009 35 Operating and financial review Platinum continued Financial overview Anglo Platinum generated an operating profit of $32 million, a 99% decrease compared with 2008. Key contributory factors included a 38% reduction in the dollar price realised on the basket of metals sold, offset by higher sales volumes and proceeds received from a business interruption insurance claim at Amandelbult. The average dollar price achieved for platinum was $1,199 per ounce for the year, a 24% decrease compared with $1,570 in 2008. The average prices achieved for palladium and rhodium sales for the year were $257 per ounce (2008: $355) and $1,509 per ounce (2008: $5,174) respectively. The average price achieved on nickel sales for 2009 was $6.54 per pound (2008: $9.79). The overall basket price achieved for the year of $1,715 per platinum ounce sold compared with $2,764 achieved in 2008. Markets Average market prices ($/oz) 2009 2008 Platinum Palladium Rhodium 1,211 1,585 266 355 1,592 6,564 The unprecedented volatility in platinum demand and price experienced in 2008 was followed by a period of consolidation in 2009. The inherent strength in the structure of the platinum business saw the platinum market return to balance during 2009, as jewellery and investment demand increased, reacting to lower price levels in the first half of the year, and as investor sentiment improved. These increases offset lower demand for use in autocatalysts and from the industrial sector. Developments in 2009 again highlight the importance of Anglo Platinum’s continued commitment to market development which supports the maintenance of existing, and the development of new, industrial (including autocatalyst) applications, and the maintenance of healthy jewellery markets. Market development for by-product metals, most specifically palladium and rhodium, maximises the contribution to the total revenue from the basket of metals sold. Autocatalysts Demand for PGMs in the autocatalyst industry declined in 2009 due to lower levels of automobile production. The reduction in metal purchased by auto manufacturers was exacerbated, in the first half of the year, by their need to decrease vehicle inventory levels, therefore restricting production and selling from available stock. Some rebuilding of these inventories, together with widespread government incentive schemes, saw a firming in PGM demand in the second half of 2009. Incentive schemes resulted in an increase in the sale of smaller gasoline vehicles and a consequent reduction in diesel vehicle demand in Europe. Industrial Demand for platinum in the industrial sector reduced in line with the global economic decline in 2009. Low utilisation rates in the chemical and petroleum sectors further reduced demand for new metal as companies reduced inventory levels. Glass demand was negatively affected by excess capacity and a return of metal from decommissioned plants. Jewellery As expected, demand for platinum jewellery fabrication responded quickly and strongly to the lower platinum prices in the latter part of 2008 and the first half of 2009. The increased demand was most notable in the unsaturated Chinese market. Total demand for jewellery in 2009 was 70% higher than in 2008. Investment Investor inflow into the platinum and palladium Exchange Traded Funds (ETFs) continued strongly throughout the year. Platinum holdings increased by just over 380 koz to 680 koz and palladium by just over 500 koz to 1,170 koz in 2009. The expected launch of the US based ETFs supported firm investment demand towards the end of 2009. Anglo Platinum makes use of its extensive knowledge of the PGM market to form the basis of its operating strategy, thereby enhancing the company’s ability to forecast the market’s needs and, consequently, the level of production required to ensure long term market sustainability. Operating performance Anglo Platinum achieved a significant milestone in January 2010 when it recorded four consecutive months without a fatal incident at its operations, including the entire fourth quarter of 2009. Anglo Platinum’s continued focus on safety also resulted in a further 21% improvement in its lost time injury frequency rate to 1.37, from 1.74 in 2008. Despite these improvements, sadly 13 employees lost their lives at Anglo Platinum’s managed operations during the year. The major restructuring of mining operations announced early in 2009 was completed by the end of the year. The two largest operations, Rustenburg and Amandelbult, were split into more efficient stand-alone units, of five and two mines respectively. This new structure ensures a sustainable reduction in the unit cost of production and underpins the commitment to extracting maximum value from the assets. As part of the restructuring process, the source of ounces across the portfolio was optimised, including placing three high cost shafts on to care and maintenance indefinitely: Siphumelele 3 shaft and Siphumelele 2 shaft in April and August respectively; and Khuseleka 2 shaft at Khuseleka Mine in August. Union and Mogalakwena remain untouched by these changes. Production Refined platinum production for the year was 3% higher at 2.45 million ounces, in line with the company’s 2009 target. Equivalent refined platinum production (equivalent ounces are mined ounces expressed as refined ounces) was 2.46 million ounces. Sales of refined platinum for the year were 2.57 million ounces compared with 2.22 million ounces in 2008, an increase of 16%. This increase was due to unsold metal at the end of 2008 being available for sale in 2009 and the achievement of higher refined production volumes. Costs Costs were tightly controlled during 2009. The focus on cost management, inbound supply chain projects and asset optimisation initiatives began to bear fruit and resulted in the cash operating cost per equivalent refined platinum ounce remaining flat at R11,236. This was achieved despite upward inflationary pressure caused by wage and electricity tariff increases in excess of consumer price inflation. Cost increases were curbed through improved productivity and numerous cost management initiatives, including: > Placing the high cost Siphumelele 3 (Bleskop), Siphumelele 2 (Brakspruit) and Khuseleka 2 (Boschfontein) shafts on to care and maintenance; > Early renegotiation with suppliers for reduced prices on key input commodities such as diesel, steel, tyres and reagents; > Changing Mogalakwena’s mining production levels without sacrificing concentrator throughput; > Completing the restructuring processes at the Rustenburg and Amandelbult mines; and > Reducing overhead costs at the corporate and regional offices. Anglo Platinum reduced its head office and regional office headcount by 724 people in 2009, bringing the total reduction since July 2008 to 1,150. Overall headcount was reduced by 15,752 during the year, and by 18,786 since October 2008. Productivity levels increased by 13% compared with 2008, to 6.33 m2 per total operating employee on average per month. Projects Capital expenditure for 2009, excluding capitalised interest, was 26% lower at $1,150 million, of which $708 million was spent on projects and $442 million on stay-in-business capital. Total expected capital expenditure for 2010 has been reduced to approximately $1 billion, excluding capitalised interest. 36 Anglo American plc Annual Report 2009 The 65 kozpa Unki platinum project in Zimbabwe is progressing towards the commissioning of its concentrator in the fourth quarter of 2010. The development of the underground declines is 64% complete and the supporting infrastructure is 80% complete. Outlook Anglo Platinum expects the platinum market in 2010 to return to a position of deficit as a result of a moderate increase in supply but a significant recovery in demand. South African production is expected to remain constrained as producers adapt to a safer working environment and because lower rand metal prices resulted in production in 2009 being restricted at high cost operations across the industry. Vehicle sales in 2010 are expected to be similar to those seen in 2009, though production is likely to increase as fewer sales from stock are expected in 2010. Higher sales of larger sedan vehicles are expected as diesel fleet purchases recover. While demand for industrial products is expected to recover slowly, platinum demand is expected to be enhanced by a substantial element of restocking. Another good year is expected from the investment segment, particularly following the launch of the US ETF. Jewellery demand is expected to decrease in 2010 in the absence of the extra demand that rebuilt supply chain inventory levels in 2009. While the higher price may discourage new jewellery demand in mature markets, the Chinese jewellery market continues to react positively to gradual price increases and remains the largest market for platinum jewellery. The platinum price in 2010 is expected to remain above $1,500 per ounce on average as improvements in the global economic recovery and restocking are likely to further increase the expected demand recovery in 2010. Firm investment demand for palladium and the strong reliance by gasoline engines, more typical in smaller engines and in the growing Chinese market, are likely to see the price of metal strengthen. Rhodium remains in demand for its particular catalytic properties, but suffered a reduction in demand owing to thrifting at the very high prices during 2008. Given the prevailing market conditions, the company has targeted 2010 production of 2.5 million ounces of refined platinum and to produce this volume at a unit cost marginally above R11,000 per platinum ounce, the same level as in the preceding two years. O p e r a t i n g a n d fi n a n c a i l r e v e w i Hydropower equipment (HPE) raise rig drill at Twickenham Mine. HPE forms part of Anglo Platinum’s mechanisation programme which is leading to higher quality raise development than through using conventional drilling and blasting, and faster rates of development, as well as safety benefits as fewer employees are needed in the critical drilling areas. Monthly average basket price Rand basket price per Pt ounce US$ basket price per Pt ounce 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Year 2007 H1 2008 H2 2008 H1 2009 H2 2009 US$ Rand Source: Anglo Platinum Anglo American plc Annual Report 2009 5,000 4,000 3,000 2,000 1,000 0 37 Operating and financial review Diamonds Gareth Penny MD De Beers No 1 name in the world diamond industry 17 mining operations in three southern African countries and in Canada 15 years – mine life extension at Jwaneng, the world’s flagship diamond mine Forecast demand by region (%) Financial highlights: Diamonds $ million (unless otherwise stated) 2008 40% 26% Share of associate’s operating profit EBITDA Group’s associate investment in De Beers(1) 7% Share of Group operating profit 8% 2016 35% 20% 11% 16% 2009 2008 64 215 1,353 508 665 1,623 1% 5% (1) Excludes shareholder loans of $367 million and preference shares of $88 million (2008: $118 million and 11% $88 million respectively). 9% 8% 9% USA Gulf China Japan India Taiwan Hong Kong Italy Rest of world Source: De Beers De Beers annual operating costs 2003-09 ($ m) Demand by region (%) 2008 2016 F 1,142 1,013 1,035 983 866 817 402 18% 4% 2% 2% 7% 11% 40% 14% 2% 2% 2% 11% 9% 35% 8% 8% 9% 16% 03 04 05 06 07 08 09 1,200 1,000 800 600 400 200 0 Year Source: De Beers Source: De Beers USA Gulf China Japan India Taiwan Hong Kong Italy Rest of world 38 Anglo American plc Annual Report 2009 Share of associate’s operating profit (2008: $508 m) Share of Group operating profit (2008: 5%) $64 m 1% EBITDA (2008: $665 m) $215 m Business overview Anglo American’s diamond interests are represented by its 45% shareholding in De Beers. The other shareholders in De Beers are Central Holdings (owned by the Oppenheimer family) with an effective 40% and the Government of the Republic of Botswana (GRB) with 15%. De Beers is the world’s leading diamond business and with its joint venture partners operates in more than 20 countries across five continents, employing over 15,000 people. De Beers produces around 40% of the world’s rough diamonds by value from its mines in Botswana, Canada, Namibia and South Africa. De Beers holds a 50% interest in Debswana Diamond Company and in Namdeb Diamond Corporation, owned jointly with the GRB and the Government of the Republic of Namibia (GRN) respectively, and a 70% shareholding in De Beers Marine Namibia. In addition, De Beers has a 74% shareholding in South African based De Beers Consolidated Mines Limited, with a broad based black economic empowerment consortium (the Ponahalo group) holding the balance. De Beers owns 100% of The Diamond Trading Company (DTC), the sales and rough diamonds distribution arm of De Beers. It also has a 50% interest with the GRB in Diamond Trading Company Botswana and a 50% ownership, along with the GRN’s matching shareholding, in Namibia Diamond Trading Company. 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 most fashionable areas of some of the world’s great cities, including New York, Los Angeles, London, Paris, Tokyo and Dubai. De Beers, through Element Six, is the world’s leading supplier of industrial diamond supermaterials. Element Six operates internationally, with 10 manufacturing sites worldwide and a comprehensive global sales network. It is the leading player in the markets in which it operates. O p e r a t i n g a n d fi n a n c a i l r e v e w i In consequence, diamond production was reduced by 49%, or 23.5 million carats, in comparison with 2008. This reduction was achieved through a series of production holidays and extended maintenance shifts at the company’s mines in Botswana, South Africa and Canada through the first half of the year. De Beers continued to drive demand in 2009 through its highly regarded marketing campaigns in the US and Asia. In the US, De Beers developed its latest Big Idea concept, creating a new model in which it launched the Everlon Diamond Knot Collection, along with a full scale integrated marketing campaign. For the first time with such a programme, funding is also being undertaken with a select set of participating sightholders and retailers. In February 2010, the shareholders of De Beers agreed, as part of the De Beers group’s refinancing, that additional equity was required by De Beers. The shareholders of De Beers have accordingly all agreed to subscribe, in proportion to their current shareholding, for $1 billion of additional equity in De Beers. The Group’s share of such additional equity, in line with its equity holding in De Beers, amounts to $450 million. Industry overview Up to two-thirds of the world’s diamonds by value originate from southern and central Africa, while significant sources have been discovered in Russia, Australia and Canada. Most diamonds come from the mining of kimberlite deposits. Another important source of gem diamonds, however, has been secondary alluvial deposits formed by the weathering of primary kimberlites and the subsequent deposition of released diamonds in rivers and beach gravels. Rough or uncut diamonds are broadly classified either as gem or industrial quality diamonds, with gem being overwhelmingly (>99%) the larger of the two markets by value. The primary world market for gem diamonds is in retail jewellery, where aspects such as size, colour, shape and clarity have a large impact on valuation. De Beers, through the DTC, and its partners in Botswana, South Africa and Namibia, supplies its clients – known as ‘Sightholders’ – with parcels of rough diamonds that are specifically aligned to their respective cutting and polishing needs. Strategy and growth During 2009, De Beers, in order to withstand the most severe and prolonged downturn in the diamond industry for decades, took bold action to remain profitable at a far lower level of sales, and to place itself in a robust position to benefit from the eventual recovery. The strategy focused on lowering production levels to match sharply reduced sightholder demand, identifying cost savings and operating efficiencies across the business, and seeking ways to stimulate consumer demand. De Beers ownership structure 45% 40% Anglo American Group Central Holdings Group 100% DB Investments (Lux) De Beers sa (Lux) Government of the Republic of Botswana 15% 50% De Beers Diamond Jewellers 100% Element Six 50% 50% 74% 100% 100% 100% 100% Debswana Diamond Company Namdeb Diamond Corporation De Beers Consolidated Mines De Beers Canada De Beers UK De Beers Group Services (RSA) Diamdel operations 50% 50% DTC Botswana Namibia DTC DTC Forevermark DTC South Africa De Beers and shareholders Owned and controlled subsidiaries and divisions Joint ventures and independently managed subsidiaries Anglo American plc Annual Report 2009 39 Operating and financial review Diamonds continued Rough demand and market sentiment began to improve during the year. Financial overview Anglo American’s share of operating profit from De Beers decreased by 87% to $64 million. DTC sales totalled $3.23 billion, significantly below the previous year (2008: $5.93 billion) owing to the impact of the global economic downturn. The DTC employed a flexible approach in response to the volatile levels of client demand for rough diamonds during the year. This agility enabled the DTC to continue making sales, albeit at a reduced level, throughout the year and to steadily increase levels of supply as rough demand and market sentiment began to improve during the year. Markets In line with most products in the luxury sector, the diamond industry was severely affected in 2009 by the global recession. The impact of high stock levels throughout the diamond pipeline constricted liquidity in the cutting centres and lower consumer demand led to lower demand for rough diamonds from the DTC Sightholders. The market was hit most acutely in the first quarter and, as the year progressed, industry sentiment improved, which allowed the DTC to increase prices and sales volumes throughout the second half of the year. Debswana’s flagship Jwaneng mine. A recently announced expansion project will extend the mine’s life to at least 2025 and will create access to an estimated 95 million carats of diamonds. 40 Anglo American plc Annual Report 2009 At the retail level, the 2009 holiday period took place amidst continued economic weakness, with American consumers continuing to spend less than previous years. The luxury goods and high-end jewellery sector appeared to perform slightly above expectations, outperforming other categories. In the emerging markets of India and China, demand for diamond jewellery remained positive in the face of a weaker economic climate. In accordance with the strategy to stimulate demand, the Forevermark programme continued to expand in China, Hong Kong, Japan and Macau. The brand is now available in 245 stores across Asia and achieved over $100 million in retail sales in its first 12 months. In the US, De Beers partnered with Sightholders and retailers to roll out an integrated marketing campaign for the holiday shopping season. The Everlon Diamond Knot Collection was marketed by leading major retailers and over 300 independent outlets in the US. Although sales figures have yet to be released, anecdotal reports from participating retailers and Sightholders described the campaign as being one of the few successes in an otherwise difficult marketplace. Operating performance At the beginning of 2009 and in response to reduced demand from DTC Sightholders, De Beers reduced production across its portfolio of mines. Through production holidays and extended maintenance shifts, output was significantly reduced in the first quarter, resulting in a 91% reduction in carats produced compared with the same period in 2008. As Sightholder demand increased gradually in the second quarter, which continued throughout the rest of the year, De Beers increased production to 18.0 million carats in the second half (2008: 23.9 million carats), an increase of 173% compared with the first six months and a reduction of 49% year on year. For 2009 as a whole, De Beers produced 24.6 million carats (2008: 48.1 million carats). Production from Debswana totalled 17.7 million carats (2008: 32.3 million carats), Namdeb produced 0.9 million carats from land and sea operations (2008: 2.1 million carats), while the output from South African operations also decreased to 4.8 million carats (2008: 12.0 million carats). The Canadian mines produced 1.1 million carats (2008: 1.6 million carats). De Beers tackled costs aggressively, achieving a $1.1 billion reduction in operating and capital expenditure, a 45% reduction in production and operating costs and a 23% reduction in its global workforce. The effects of the strengthening Canadian dollar, the impact of global recession on pricing and production levels at Snap Lake have led to a non-cash impairment charge of $595 million (attributable: $267 million) against the value of De Beers’ Canadian assets and written off $101 million (attributable: $45 million) of deferred tax assets. O p e r a t i n g a n d fi n a n c a i l r e v e w i Projects At the end of 2009, Debswana announced a major expansion project at Jwaneng, the world’s flagship diamond mine in Botswana. This project, also known as Cut-8, will extend the mine life to 2025. Debswana will invest $500 million in capital expenditure, while the estimated project investment is likely to total $3 billion over the next 15 years. At its peak, the project will create more than 1,000 jobs and create access to a further 95 million carats, which could be worth in excess of $15 billion over the life of the mine. Outlook De Beers will continue to take a cautious approach to production, sales and cost management in 2010, whilst anticipating a steady recovery of the industry. As the world economy recovers, the global market for polished diamonds has stabilised and is also recovering. De Beers is encouraged by initial stronger levels of demand compared with those it witnessed at the same stage in 2009, and history has shown that demand generally rebounds strongly in post-recessionary periods as manufacturers and retailers look to rebuild their inventories. De Beers remains cautious as the global consumer demand for luxury goods is yet to fully recover to pre-crisis levels and will continue, therefore, to take a prudent approach to production during 2010. While production is planned to increase above 2009 levels, it is not expected to return to historical highs for the foreseeable future. De Beers will continue to focus on cost and capital management, further increasing efficiencies and reducing costs. China and India are the two priority growth markets for diamonds and are expected to collectively account for one-third of global demand by the middle of the decade. De Beers launched the Forevermark programme in both the Chinese and Indian markets to support its partners in driving demand for diamonds. In the US, consumers were particularly hard hit by the economic downturn. However, the fourth quarter Everlon marketing initiative was received well and trends indicate the downturn has bottomed out, with growth over the Christmas season providing encouragement for the world’s largest diamond consumer market. De Beers’ exploration maintained a high discovery rate in 2009, adding 45 kimberlites, up from the 37 discoveries in 2008. Anglo American plc Annual Report 2009 41 Operating and financial review Copper John MacKenzie CEO Copper 670 kt – record attributable copper production in 2009 6 copper operations (five wholly owned) in Chile 400 ktpa copper from an expanded Los Bronces Financial highlights: Copper $ million (unless otherwise stated) Operating profit EBITDA Net operating assets Capital expenditure Share of Group operating profit Share of Group net operating assets 2009 2008 2,010 2,254 4,763 1,068 41% 12% 1,892 2,104 3,148 808 19% 10% Group potential copper production* (kt) Refined copper consumption per capita (first use) (kg/capita by US$ GDP (PPP)/capita) 1,200 1,000 800 600 400 200 0 Year 18 16 14 12 10 8 6 4 2 0 09 10 11 12 13 F 0 2 4 6 8 10 12 14 16 18 Existing and approved Major unapproved growth pipeline Forecast conceptual production 10+ year outlook F Source: Anglo American *From the Copper business unit Source: Anglo American analysis Germany USA Japan S Korea China 42 Anglo American plc Annual Report 2009 Operating profit (2008: $1,892 m) $2,010 m Share of Group operating profit (2008: 19%) 41% EBITDA (2008: $2,104 m) $2,254 m Business overview Copper has interests in six operations in Chile. These operations comprise the wholly owned Los Bronces, El Soldado, Mantos Blancos and Mantoverde mines, the Chagres smelter and a 44% interest in the Collahuasi mine. The mines also produce associated by-products such as molybdenum and silver. In addition, the business unit has controlling interests in two projects in Peru (Quellaveco and Michiquillay) and a 50% interest in the Pebble project in Alaska. Industry overview The majority of copper produced is used by the wire and cable markets on account of the metal’s electrical conductivity and corrosion resistance. Applications that make use of copper’s electrical conductivity, such as wires (including wiring used in buildings), cables and electrical connectors, make up around 60% of total demand. About 20% of demand comes principally from the construction industry which uses copper to produce plumbing pipe and roof sheeting, owing to the metal’s corrosion resistance qualities. Copper’s thermal conductivity also makes it suitable for use in heat transfer applications such as air conditioning and refrigeration, which constitute some 10% of total demand. Other applications include structural and aesthetic uses. Copper is an attractive industry, with moderate concentration of customers and suppliers, relatively high barriers to entry and a track record of good average profitability over the long term. The approximate global market share of the five largest copper producers is 38%. Producers are price-takers and there are relatively few opportunities for product differentiation. No fundamental technological shifts are expected in the short to medium term, with access to quality orebodies continuing to be the key distinguishing factor. Forecast long term demand is underpinned by robust growth in copper’s electrical uses, particularly wire and cable in construction, automobiles and electricity infrastructure. The key growth area will continue to be the developing world, led by China and India with their massive industrialisation and urbanisation programmes, and where per capita copper consumption remains substantially lower than that of the advanced economies of the US, Japan and Europe. Copper’s tightening fundamentals are also defined by perennial constraints on the supply side, driven by continuing declines in ore grades at both maturing existing operations and new projects in the pipeline, a lack of capital investment and under-exploration in the industry and political and environmental challenges in new copper areas. The industry is capital intensive and is likely to become more so as high grade surface deposits are exhausted and deeper and/or lower grade deposits are developed, requiring greater economies of scale in order to be commercially viable. Scarcity of water in some geographies is also enforcing the construction of capital- and energy-intensive desalination plants. China has increased its share of first use refined metal consumption from 12% in 2000 to an estimated 35% in 2009. Copper prices increased very strongly through 2009 – even as refined metal inventories trended higher and global demand looked weak. However, speculative and investment funds moved aggressively into commodities, thereby propelling prices higher and this was further supported by a cautious but growing confidence in the second half of the year that the global economy was showing signs of recovery. Strong Chinese imports also played a powerful role, while the numerous incidents of industrial action and technical difficulties leading to output losses also helped support the price. O p e r a t i n g a n d fi n a n c a i l r e v e w i Strategy and growth Copper’s 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. The business is constantly developing and evaluating growth options from a combination of sources, including greenfield and brownfield projects, acquisitions, exploration, technology development and asset optimisation programmes. Significant future growth will come from approved expansions at Los Bronces, while studies are at an advanced stage into further growth potential at Quellaveco in Peru and Collahuasi in Chile. In addition, work continues on evaluating the potential and development options for the resources acquired in 2007 at Michiquillay in Peru and Pebble in Alaska. In August 2009, Anglo American announced the discoveries of two high quality copper prospects at Los Sulfatos and San Enrique Monolito in Chile. These two prospects together increase the Group’s copper resources (excluding reserves) by approximately 50%. Development work at the Los Bronces expansion project. The expansion is due to come on stream in late 2011, with production increasing to an average of over 400 ktpa of copper during the first 10 years of its expected 30 year life. Anglo American plc Annual Report 2009 43 Operating and financial review Copper continued Record total copper production of 669.8 kt was achieved in 2009. Financial overview Copper generated an operating profit of $2,010 million, an increase of 6%, underpinned principally by record production and lower operating costs, as well as the benefit of a marginally higher realised copper price and the weaker Chilean peso. This was partly offset by the impact of a lower molybdenum price. Markets Average market price (c/lb) Copper 2009 234 2008 315 Copper prices rose steadily during the year, reflecting improving global economic conditions, and ended the year at a high of 333 c/lb. This price increase was driven initially by speculative and investment fund inflows and Chinese stock building, before gaining further ground in the second half as a number of operating incidents and industrial action impacted global supply. Despite the price increase from 132 c/lb at the end of 2008, the average price for the year was 26% lower than in 2008, although 2% higher on a realised price basis, partially due to the favourable final settlements of sales prices into a rising market. Operating performance Attributable production (tonnes) 2009 2008 Copper 669,800 639,800 Record total copper production of 669.8 kt was achieved in the year, an increase of 5%, driven by annual production records at both Los Bronces and Collahuasi. Los Bronces production was affected in the first half by lower sulphide grades and recoveries, before improved operating efficiencies and ore grades in the second half lifted full year production to a record high. At Collahuasi, despite production having been impacted for 44 days following the failure of a conveyor electrical control centre, attributable production rose by 15% to 235.8 kt. Operating costs benefited from improved operational efficiencies and price reductions achieved for key consumable items such as sulphuric acid, diesel and power. Lower freight costs were offset by higher concentrate treatment and refining charges. Projects Construction of the Los Bronces expansion project is progressing according to schedule, with its target date for commissioning in late 2011. Engineering design was substantially completed by the end of 2009 and construction work on the various sites is on schedule. A significant milestone, the opening of the Los Bronces section of the conveyor tunnel from the mine through to the grinding plant at Confluencia, was achieved in November 2009. Production at Los Bronces is scheduled to increase to 490 ktpa over the first three years of full production (an average of over 400 ktpa over the first 10 years). At peak production levels, Los Bronces is expected to be the fifth largest producing copper mine in the world, with highly attractive cash operating costs and reserves that support a mine life of 30 years. Resource and mineralisation studies carried out by Anglo American’s technical teams support further potential expansion. At Collahuasi, an expansion project is under way to increase sulphide processing capacity to 150 kt per day by early 2011, while the significant potential for subsequent phased expansions continues to be evaluated. At Mantoverde, pre-feasibility studies are currently under way for a sulphide ore life extension. In Peru, good progress was made in the year on a revised feasibility study for the 225 ktpa Quellaveco project. This study is targeted for completion during 2010. The focus at the Michiquillay project, also in Peru, has been on building relationships with the local communities and, in this respect, land access negotiations were completed in June 2009. The geological exploration programme that began in July had completed 16,000 metres of drilling by the end of the year. Drilling was suspended in late 2009 pending resolution of issues currently under discussion with local communities. Baseline environmental and hydrological studies also commenced during the second half of the year. Conceptual engineering studies have been completed and a decision to award the pre-feasibility engineering studies will be taken during 2010. Activities at the Pebble project in Alaska advanced on all fronts during 2009. In 2010, the project team will work towards finalising the engineering design, completing the environmental baseline document and carry out additional exploration drilling within the claim area. 44 Anglo American plc Annual Report 2009 Outlook Increased throughput is not expected to fully compensate for lower ore grades putting pressure on production levels in 2010 prior to the commissioning of the Los Bronces expansion project, which together with targeted throughput improvements at Collahuasi and El Soldado, will deliver a step increase in attributable copper production in 2011. While a continued strong copper price through 2010 would put pressure on the Chilean peso and labour costs, further cost and operating efficiency benefits are expected to be delivered through the Group’s global supply chain and asset optimisation initiatives. Demand for copper from China is expected to continue growing at a healthy rate, while demand in North America and Europe is also showing signs of recovery. On the supply side, production is anticipated to continue to be constrained by industrial action, declining grades, increasing social and environmental demands and other political risks. Notwithstanding Chinese government measures to restrict short term credit and the high level of restocking in 2009 giving rise to potential price volatility in 2010, the strong long term fundamentals for copper remain in place. Stacker/reclaimer in action at the Mantoverde mine, which produced over 60 kt of copper cathode in the year. O p e r a t i n g a n d fi n a n c a i l r e v e w i Estimated global copper mine production (Excludes possible projects) (Mt copper) 20 15 10 5 0 Year 09 10 11 12 13 14 15 16 17 18 19 20 Base case production capability Highly probable BF* Highly probable GF† Probable BF Probable GF Source: Copyright Brook Hunt, a Wood Mackenzie company: Metals Market Service – Long Term Outlook Copper December 2009 *BF: Brownfield †GF: Greenfield Anglo American plc Annual Report 2009 45 Operating and financial review Nickel Walter De Simoni CEO Nickel 19.9 kt total nickel production (excluding Anglo Platinum) 2 ferronickel operations and one approved ferronickel project 36 ktpa average nickel output of Barro Alto from 2012 Financial highlights: Nickel $ million (unless otherwise stated) Operating profit EBITDA Net operating assets Capital expenditure Share of Group operating profit Share of Group net operating assets 2009 2008 2 28 1,787 554 0.04% 5% 123 150 1,401 530 1% 4% Group potential nickel production* (kt) Estimated global primary nickel consumption (kt) 160 120 80 40 0 Year 12% [CAGR] 2,500 2,000 1,500 1,000 500 0 2003-2009 CAGR 0.6% 18.5% (0.2)% (4.2)% (3.8)% 2009-2020 F CAGR 4.8% 9.0% 2.7% 2.4% 2.1% 09 10 11 12 13 F Year 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Existing and approved Major unapproved growth pipeline Forecast conceptual production 10+ year outlook F Source: Anglo American *Including nickel production from Anglo Platinum Asia excl. China Europe Rest of world China Source: Copyright Brook Hunt, a Wood Mackenzie company: Metals Market Service – Long Term Outlook Nickel December 2009 46 Anglo American plc Annual Report 2009 Operating profit (2008: $123 m) $2 m Share of Group operating profit (2008: 1%) 0.04% EBITDA (2008: $150 m) $28 m O p e r a t i n g a n d fi n a n c a i l r e v e w i Strategy and growth Nickel’s strategy is in line with the Group’s overall strategy of finding or acquiring, developing and operating world class, low cost mines in a socially and environmentally responsible manner, with an increasing focus on safety and asset optimisation. Although prone to its own price volatility and metal cycle movements generally, nickel’s medium and long term demand fundamentals are being driven by the ongoing development of the so-called BRIC nations (Brazil, Russia, India and China). The restructuring of the Anglo American Group has brought with it the opportunity to have a new management team dedicated to the nickel business. With this team now in place, there is a sharpened focus on optimisation initiatives at the operations as well as on the successful execution of the Barro Alto project. Beyond Barro Alto, the business unit has significant optionality to develop the Jacaré and Morro Sem Bone projects, which would make Anglo American a growing player in the nickel market and one that is well positioned on the lower half of the industry cost curve. Business overview Nickel comprises two ferronickel operations: Codemin in Brazil and Loma de Níquel in Venezuela as well as the world class Barro Alto ferronickel project in Brazil. In addition, within the business unit’s portfolio, there are two promising projects, both in Brazil, at the unapproved stage: Jacaré and Morro Sem Bone. These have the potential to significantly strengthen Anglo American’s position in the worldwide nickel market, adding at least 66 ktpa to the Group’s present annual total nickel production (including Anglo Platinum’s nickel output) of 39.4 kt. Industry overview Nickel is the fifth most common element found on earth. It is found in about 20 countries, with known reserves estimated to last around 100 years at the present mining rate. The metal occurs as two main deposits: sulphides that are found underground, and laterites that can be mined by open pit methods. Nickel is a hard, ductile metal with high resistance to corrosion and oxidation. Nickel’s main use is as an alloying metal, along with chromium and other metals, in the production of stainless and heat resisting steel. About 60% of nickel is used to manufacture stainless steel and 25% in other steel and non-ferrous alloys. In a more recent development, the Chinese stainless steel industry, which has been absorbing growing volumes of nickel pig iron (NPI), is looking to a potential annual offtake of 100 kt of nickel in NPI form. Primary nickel is used in the form of pure nickel metal, ferronickel, nickel oxide and other chemicals. Nickel is also recycled in many of its applications and large volumes of scrap nickel are used to supply the steel industry. Over the past decade, nickel usage has grown as developing nations have increased the pace of their industrialisation and urbanisation programmes. Demand has risen from about 1.1 Mt in 1999 to about 1.3 Mt in 2009, a compound average growth rate of 2% per annum. This growth, however, has not been uniform, with short-lived peaks typically being followed by extended periods of relative weakness. The nickel market experienced its highest offtake in recent years in 2006 when demand reached in the order of 1.4 Mt; thereafter, demand declined every year up to and including 2009 when it was an estimated 1.3 Mt. A recovery in the nickel market is expected in 2010 and forecasts are that consumption could reach approximately 1.4 Mt. On the production side, primary refined nickel output in recent years has been broadly in line with the strong growth of the world economy, with around 1.4 Mt of the metal being produced in 2007. The economic crisis in 2008 led to a production decline to just below 1.4 Mt, with output falling further in 2009 to an estimated 1.3 Mt. In spite of the overall fall in world production in 2009, China, Norway and the European Union achieved modest increases in output, though declines were experienced in Russia, Australia and New Caledonia. The supply/demand balance has been affected by the very high levels of Chinese imports during the year and also by strikes at Vale-Inco in Canada. Despite continuing strike action, demand from the stainless steel sector has started to weaken and London Metal Exchange (LME) stocks had risen significantly to a forecast level of around nine weeks’ consumption by the end of 2009. Anglo American plc Annual Report 2009 47 Operating and financial review Nickel continued The Barro Alto project in Brazil was nearly 80% complete at the year end and is on schedule. Financial overview Nickel generated an operating profit of $2 million, strongly impacted by the 30% decrease in average nickel prices for the year and Venezuelan inflation of approximately 25%. Sales volumes of 23,635 tonnes were 32% higher, mainly due to the drawing down of stockpiles at Loma de Níquel and Codemin following the weakening in the nickel market in the fourth quarter of 2008. Markets Average market price (c/lb) Nickel 2009 667 2008 953 Nickel demand increased during the second half of the year, mainly due to higher Chinese stainless steel output and imports, after being negatively affected in the first half by price-led substitution, destocking in the stainless steel sector and weak global economic conditions. The nickel price reached a low of 427 c/lb during March, increased to 956 c/lb in August and ended the year at 838 c/lb. Metal pour in the ferronickel smelter at Codemin, which produced 9,500 tonnes of nickel in 2009. 48 Anglo American plc Annual Report 2009 Operating performance Attributable production (tonnes)(1) 2009 2008 Nickel 19,900 20,000 (1) Excludes Anglo Platinum nickel production. Nickel production decreased marginally to 19,900 tonnes owing to lower production at Loma de Níquel, partially offset by higher production at Codemin. Loma de Níquel produced 10,400 tonnes of nickel, a decrease of 5%. Production was impacted in January by the non-renewal of the environmental permit to dispose of slag from the smelting process while studies were finalised to find disposal alternatives, an estimated impact of 1,100 tonnes. In May, a metal run-out from the EF2 furnace resulted in its closure for the rest of the year, with a loss of approximately 4,500 tonnes of production during 2009. Reconstruction of the furnace was completed in January 2010 and full production is expected during the second quarter. While only 50% of smelting capacity was available between June and December, production achieved 59% of budget through optimisation of the remaining plant processes. Operating costs were kept under tight control despite Venezuelan inflation and the artificially pegged exchange rate. Port congestion difficulties faced in the first half were overcome through the use of an alternative port and shipping route. In January 2008, the Venezuelan Ministry of Basic Industries and Mining (MIBAM) published a resolution cancelling 13 of Minera Loma de Níquel’s (MLdN) 16 exploration and exploitation concessions due to MLdN’s alleged failure to fulfil certain conditions of the concessions. The current mining and metallurgical facilities are located on the three concessions that have not been cancelled. MLdN believes that it has complied with the conditions of these concessions and has lodged administrative appeals against the notices of termination and is waiting for a response from MIBAM. MLdN may in the future undertake further appeals, including with Venezuela’s Supreme Court, if the MIBAM’s ruling does not adequately protect its interests. An impairment and associated adjustments of $114 million have been recorded due to increased uncertainty over the renewal of the three concessions that have not been cancelled but that expire in 2012 and over the restoration of the 13 concessions that were cancelled. At 31 December 2009, Anglo American’s interest in the book value of MLdN, including its mineral rights, was $285 million (as included in the Group’s balance sheet). In the 12 months to December 2009, MLdN’s production and contribution to Group operating profits were respectively 10,400 tonnes of nickel in ferronickel and a $7 million loss. The average price of nickel in 2009 was 667 c/lb. As of 17 February 2010, the price of nickel was 910 c/lb. O p e r a t i n g a n d fi n a n c a i l r e v e w i Codemin’s production increased by 4% to 9,500 tonnes, primarily as a result of improved equipment availability. Cash operating costs were reduced by 11%, aided by higher production and lower fuel oil prices. Projects The Barro Alto project was nearly 80% complete at the year end and is on schedule towards producing its first metal in early 2011 and full production in the second half of 2012. This project makes use of an existing operation and proven technology and will produce an average 36 ktpa of nickel in full production (41 ktpa over the first five years), with a cost position in the lower half of the curve. Further asset optimisation initiatives are under way which are expected to improve its cost positioning further. When Barro Alto reaches full production in 2012, Anglo American’s nickel production (excluding nickel production from Anglo Platinum) will reach 61 ktpa, while additional potentially world class projects in the pipeline could increase production to 120 ktpa, with further upside potential, leveraging the Group’s considerable nickel laterite technical expertise. Barro Alto has an approved life of mine of more than 25 years from its extensive resource base. The unapproved Jacaré and Morro Sem Bone projects submitted their PAE (Economic Exploitation Plan) to the Brazilian mining authorities during 2009. Outlook In 2010, Loma de Níquel’s production is expected to substantially increase following the start-up of the rebuilt EF2 furnace and the implementation of various process improvements. Production at Codemin is expected to decrease to approximately 8,400 tonnes (12%) due to its planned furnace relining. The long term outlook for nickel is for robust growth, underpinned by stainless steel uses for applications where corrosion resistance, hygiene and strength are required, such as in the automotive and construction industries, nickel alloys for the energy and electronic (batteries) Global nickel mine production sectors and the broader industrialisation of the (Excludes possible projects) (Kt) emerging economies, led by China. Construction work on the ferronickel plant at the Barro Alto project, which is due to produce its first metal in 2011, ramping up to an annual production of 41 kt over the first five years of a forecast 25 year life. Estimated global nickel refinery production capability (Excludes possible projects) (kt nickel) 2,500 2,000 1,500 1,000 500 0 2,500 2,000 1,500 1,000 500 0 03 05 07 09 11 13 15 17 20 Year 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Mine production capability Probable projects Highly probable projects Mine production capability Highly probable projects Probable projects Source: Copyright Brook Hunt, a Wood Mackenzie company Source: Copyright Brook Hunt, a Wood Mackenzie company: Metals Market Service – Long Term Outlook Nickel December 2009 Anglo American plc Annual Report 2009 49 Operating and financial review Iron Ore and Manganese Chris Griffith CEO Kumba Iron Ore Stephan Weber CEO Iron Ore Brazil 42 Mt – iron ore output at Kumba in 2009 >80% Proportion of iron ore for export at Kumba 5.0 Mt – Measured, Indicated and Inferred resources for Minas Rio phase 1 Financial highlights: Iron Ore and Manganese $ million (unless otherwise stated) Operating profit Kumba Iron Ore Iron Ore Brazil Samancor EBITDA Net operating assets Capital expenditure Share of Group operating profit Share of Group net operating assets 2009 2008 1,489 1,487 (141) 143 1,593 10,370 1,044 2,554 1,583 (9) 980 2,625 10,457 783 30% 27% 25% 32% Group potential iron ore production (Mt) Estimated global seaborne iron ore demand by product (Mt) 150 120 90 60 30 0 1,400 1,200 1,000 800 600 400 200 0 2009-2013 F [CAGR] 20.2% 20.5% 5.7% 7.4% Year 09 10 11 12 13 F Year 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Existing and approved Major unapproved growth pipeline Forecast conceptual production 10+ year outlook F Source: Anglo American Fines Lump Pellets Pellet feed Source: Anglo American 50 Anglo American plc Annual Report 2009 Operating profit (2008: $2,554 m) $1,489 m Share of Group operating profit (2008: 25%) 30% EBITDA (2008: $2,625 m) $1,593 m O p e r a t i n g a n d fi n a n c a i l r e v e w i Strategy and growth The core strategy of the business is to grow Anglo American’s position in iron ore and to supply premium, high quality iron ore products in the face of the declining quality of global iron ore supplies. Anglo American has a unique iron ore resource footprint, with large, high quality resource bases in South Africa and Brazil. Kumba produces a leading quality lump and is well positioned to supply the high growth Asia-Pacific and Middle East markets. It is also geographically well positioned to supply European steel markets in the light of an expected decline in lump supplies from other sources. Minas Rio will capture a significant part of the high growth pellet feed market with its premium product featuring high iron content and low impurities. Significant future growth will come from the expansion projects at Minas Rio and Kolomela (previously Sishen South). Minas Rio phase 1 will produce 26.5 Mtpa, with first production scheduled for the second half of 2012, and has the potential to be expanded to up to 80 Mtpa. Resources have increased from 1.2 billion tonnes in 2007 to 5.0 billion tonnes (Measured, Indicated and Inferred) in 2009, with further resource potential. Studies for the expansion of the project have continued to be evaluated during 2009. The Kolomela project is expected to produce 9 Mtpa of iron ore, with initial production scheduled for the first half of 2012 and ramping up to full capacity in 2013. The manganese strategy is to focus on upstream resources businesses, despite their low-cost alloy smelters having been significant contributors to profit in recent years. In addition, alloy smelters add value to the overall manganese business as they enable Samancor to access markets with an optimal mix of ore and alloy, to optimise production to best suit market conditions and provide ongoing information on the performance of their ores in the smelting process. Business overview Iron Ore includes a 62.76% shareholding in Kumba Iron Ore in South Africa. Iron Ore Brazil has a 100% interest in the Minas Rio iron ore project, a 49% shareholding in LLX Minas Rio, which owns the port of Açu (currently under construction) from which iron ore from the Minas Rio project will be exported, and a 70% interest in the Amapá iron ore system. Kumba, listed on the Johannesburg Stock Exchange, operates two mines – Sishen in the Northern Cape, which produced 39.3 Mt of iron ore in 2009, and Thabazimbi in Limpopo, which had a production of 2.6 Mt in 2009. Kumba is a leading supplier of seaborne iron ore, and exported more than 80% of its total iron ore sales volumes in 2009, with 75% of these exports destined for China and the remainder to Europe, Japan and South Korea. The Minas Rio iron ore project is located in the states of Minas Gerais and Rio de Janeiro and will include open pit mines and a beneficiation plant in Minas Gerais producing high grade pellet feed. The completion of phase 1 will see transportation of ore through a slurry pipeline more than 500 kilometres to the port of Açu in Rio de Janeiro state. Amapá, located in Amapá state in northern Brazil, is in the process of ramping up its pellet feed and sinter feed production and expects to produce 4.0 Mt in 2010. Amapá production could increase to 6.5 Mtpa with further capital investment. Manganese comprises a 40% shareholding in Samancor Holdings, which owns Hotazel Manganese Mines and Metalloys, both situated in South Africa, and a 40% shareholding in each of the Australian-based operations Groote Eylandt Mining Company (GEMCO) and Tasmanian Electro Metallurgical Company (TEMCO), with BHP Billiton owning 60% and having management control. Samancor is the world’s largest producer of seaborne manganese ore and is among the top three global producers of manganese alloy. Its operations produce a combination of ores, alloys and metal from sites in South Africa and Australia. In July 2009, Samancor sold 26% of Hotazel Manganese Mines in a series of transactions designed to comply with South Africa’s black economic empowerment requirements. Industry overview Steel is the most widely used of all metals. In 2009, despite the world economic slowdown, world crude steel production reached 1.2 billion tonnes, a decrease of only 8% on 2008, as China, the world’s principal steelmaker, ratcheted up crude steel production on the back of the Chinese government’s substantial fiscal stimulus package. Chinese crude steel output for 2009 was 567.8 Mt, an increase of 67.5 Mt or 13.5% year on year. In response to returning demand, steel producers across the industry began bringing dormant production capacity online, with multiple blast furnace restarts being reported in the second half of the year. Global steel capacity utilisation reflected these trends, rising from a low of 58.3% in December 2008 to 71.5% in December 2009 – though still significantly below the peaks of over 90% recorded in early 2008. In 2009, total seaborne iron ore supply increased by 3% from 797 Mt to 819 Mt, largely driven by strong Chinese steel production, with Chinese imports showing a 41% year-on-year rise to 628 Mt. In the early part of the year, Chinese domestic steel production dropped off drastically for a time when spot prices were insufficient to support the high cost, low quality output, but recovered in the second half of the year on the back of higher iron ore prices. Spot iron ore fines prices recovered from their lows of late 2008 and early 2009. Prices reached their highest 2009 levels in December 2009 of $112/t (for cost and freight (CFR) 63.5% Fe delivered China), thus applying upward pressure on the pending 2010 benchmark price negotiations. As 96% of manganese ore is smelted to produce manganese ferroalloys (such as ferromanganese and silicomanganese), which are used in steel alloying applications, the performance of the manganese alloy industry is the key determinant of ore demand. The early part of 2009 was characterised by significant demand contraction with underlying demand trends masked by stocking and destocking activities across the value chain. Market conditions progressively recovered during the third quarter and continued to improve as global steel production maintained an upward trend. Manganese ore and alloy prices declined significantly during the first half of the year, but increased progressively in the third and fourth quarter owing to improved market conditions, allied with the restocking phase. Manganese alloy prices, however, will be influenced by supply responses resulting from latent capacity in the industry, and both ore and alloy prices will be influenced by steel production trends and the stocking and destocking cycles. Anglo American plc Annual Report 2009 51 Operating and financial review Iron Ore and Manganese continued Financial overview Iron Ore and Manganese generated an operating profit of $1,489 million, some 42% lower than 2008. This was as a result of lower iron ore prices, partly offset by higher iron ore sales volumes, and lower manganese ore and alloy volumes and prices. Markets World crude steel production continued to increase during the second half of 2009 compared with both the first half of 2009 and the second half of 2008, with most major steel producing countries posting an increase in output. World crude steel production of 1.2 billion tonnes was, however, markedly lower than the 1.3 billion tonnes produced in 2008. Steel production in China in 2009 increased by 13.5% to 568 Mt. China’s economic growth continues to be robust on the back of strong domestic focused consumption and infrastructure-based stimulus spending. The increase in steel production, coupled with lower Chinese domestic iron ore production, resulted in record seaborne iron ore imports into China. In the second half of 2009, the European, Japanese and South Korean markets saw a tentative recovery, with an improvement in iron ore demand following some production increases and restocking by the steel industry. The manganese ore and alloy market reflected the decline in world crude steel production. The market was characterised by uncertainty in ore and alloy demand, masked by stocking and destocking activities and, consequently, prices for ore and alloy declined significantly during the year. Supply cutbacks swept the manganese sector in an effort to match the reduced levels of demand, which were maintained into the third quarter of 2009. Demand began to improve during the second half of the year, when producers responded to the improved order levels by announcing furnace restarts. Operating performance Kumba Iron Ore’s strong financial performance for the year was underpinned by a solid operational performance. The company reported operating profit of $1,487 million, a decrease of 6%, mainly as a result of lower average export sales prices, mostly offset by higher export sales volumes. Despite lower benchmark iron ore export prices, which decreased on average by 40% for the 2009-10 iron ore year, Kumba maintained a strong operating profit margin of 53%. Total sales volumes increased by 21% from 33.0 Mt to 40.0 Mt. Export sales volumes from Sishen Mine increased by 37% from 24.9 Mt to 34.2 Mt as volumes ramped up from the jig plant (Sishen expansion), the successful introduction of a new blended fines product and an increase in demand from China. Total domestic sales volumes decreased by 28%, or 2.3 Mt, owing to lower demand from ArcelorMittal SA. Total production at Sishen Mine increased by 16% from 34.0 Mt to 39.4 Mt, principally as a result of the continued ramp up of the jig plant which achieved production of 10.4 Mt in 2009 and remains on schedule to achieve approximately 13 Mt during 2010. The Amapá iron ore system produced 2.7 Mt during the year, compared with 1.2 Mt in 2008 (of which 712 kt was produced after the Group’s acquisition in August 2008). The production rate ramped up during the second half of the year and, in the fourth quarter, monthly average production was 314 kt. Amapá was acquired in 2008 as an operating asset as part of the acquisition of the Minas Rio project. During 2009, Amapá experienced significant operational challenges across its mine, plant and logistics chain, producing 2.7 Mt compared with the design capacity of 6.5 Mtpa. Management’s focus has been, and remains, on seeking to markedly improve performance from the existing operations, rather than investing to expand the operation. The Amapá system is currently believed to have capacity to increase production to 5 Mtpa without significant further capital expenditure. Due to the focus on improving operational performance and preserving cash, limited exploration drilling has been undertaken in 2009 and the anticipated growth potential of surrounding licence areas remains untested. Given these operational difficulties and delays in increasing production, the Group has recorded an impairment charge of $1.5 billion (after tax and minority interest) against the carrying value of the asset. Samancor achieved an operating profit of $143 million, an 85% decrease, due to lower manganese ore and alloy sales volumes and prices following the decline in global steel demand. Projects The development of the 9 Mtpa Kolomela mine continues and remains on budget and on schedule to deliver first production during the first half of 2012, ramping up to full capacity in 2013. Mining operations commenced during the year, with the first blast carried out on 17 September 2009. To date, 4 Mt of material has been moved. Since the start of construction activities on the project in 2008, capital expenditure has totalled $367 million, of which $290 million was incurred during 2009. The pace of construction and project expenditure at Minas Rio is, in large part, dependent upon receiving a number of environmental licences and other permits. A total of 21 licences and permits were granted in the year, key among these were the first part of the Mine and Beneficiation Plant Installation Licence (granted in December), the federal permit for land clearance at the mine and the approvals of specific permits for the port road modifications. The second part of the Installation Licence is expected to be approved during the early part of 2010. Anglo American continues to work with local, state and federal authorities and landowners to ensure that the timing of licence and permit receipts and land acquisitions does not further impact the overall timing of the project. Project development on the plant and pipeline in 2009 has been focused on the areas of earthworks and civil works. Filtration plant ground improvement works were commenced. At the port, offshore works have continued with the construction of the main trestle, now 2.5 km in length, and dredging works, while the temporary jetty for breakwater construction is nearing completion. Onshore, the quarry for production of the breakwater rock is operational and the quarry-to-port road modifications and construction are progressing. First iron ore production is scheduled for the second half of 2012, with a planned annual capacity in the first phase of 26.5 Mtpa of iron ore pellet feed. Anglo American’s forecast attributable share of the post-acquisition capital expenditure for the first phase of the project has increased by $1.1 billion, from $2.7 billion to $3.8 billion owing to scoping changes at the mine, pipeline and port, as well as foreign exchange movements. Studies for the expansion of the Minas Rio project continued during 2009. The latest resource statement resulting from geological work, provides a total resource volume (Measured, Indicated and Inferred) of 5.0 billion tonnes, with further upside potential supporting the envisaged expansion of the project. 52 Anglo American plc Annual Report 2009 Outlook Analyst forecasts indicate that global steel consumption should grow in excess of 5% per annum over the next three years, which would lead to increasing iron ore demand. Chinese demand for iron ore is expected to grow by at least 5% during 2010. With recovery beyond China expected during 2010, the supply pressures on seaborne iron ore continue to increase. Overall, the global seaborne iron ore market remains structurally tight. Kumba expects to further increase production volumes during 2010. Export sales volumes into China are expected to normalise at around 60% of the geographical sales mix. Although global steel demand is expected to return to growth in 2010, this is likely to be moderate and the sustainability of the increase in demand from developed countries remains uncertain. Domestic sales volumes remain dependent upon ArcelorMittal SA’s offtake requirements, which declined in 2009. The market for manganese ore and alloys is dependent upon the carbon steel industry. Improvements in demand and prices will be underpinned by strengthening steel production trends, the rate of furnace restarts and the level of Chinese exports. The product screening facility under construction at Kumba Iron Ore’s Kolomela project. The mine is on schedule to start production in the first half of 2012, ramping up to full capacity of 9 Mtpa in 2013. O p e r a t i n g a n d fi n a n c a i l r e v e w i Anglo American plc Annual Report 2009 53 Operating and financial review Metallurgical Coal Seamus French CEO Metallurgical Coal 26.7 Mt – Metallurgical Coal attributable production in 2009 6 mines in Australia (all majority owned) 14% increase in coal production in 2010 following asset optimisation and productivity improvements Financial highlights: Metallurgical Coal $ million (unless otherwise stated) 2009 2008 Operating profit Australia Projects and corporate EBITDA Net operating assets Capital expenditure Share of Group operating profit Share of Group net operating assets 451 474 (23) 706 3,407 96 9% 9% 1,110 1,144 (34) 1,319 2,669 467 11% 8% Metallurgical Coal potential attributable production* (Mt) Estimated seaborne metallurgical coal demand (Mt) 45 40 35 30 25 20 15 10 5 0 300 250 200 150 100 50 0 Year 09 10 11 12 13 F Year 04 05 06 07 08 09 Existing and approved Major unapproved growth pipeline Forecast conceptual production 10+ year outlook F Source: Anglo American * Includes metallurgical and thermal coal from Australia. China India USA EU 15 Japan Rest of world Source: AME 54 Anglo American plc Annual Report 2009 Operating profit (2008: $1,110 m) $451 m Share of Group operating profit (2008: 11%) 9% EBITDA (2008: $1,319 m) $706 m Business overview Metallurgical Coal is Australia’s fourth biggest producer of coal and its number three exporter of metallurgical coal. The company’s operations are based relatively close to the country’s east coast, from where it serves a range of customers throughout Asia and as far as Europe and South America. Metallurgical Coal operates six mines, one wholly owned and five in which it has a controlling interest. Five of the mines are located in Queensland’s Bowen Basin: Moranbah North (metallurgical coal), Capcoal (metallurgical and thermal coal), Foxleigh (metallurgical coal), Dawson (metallurgical and thermal coal) and Callide (thermal coal). Drayton mine (thermal coal) is in the Hunter Valley in New South Wales. All of the mines are in well established locations and have direct access to rail and port facilities at Dalrymple Bay, Gladstone or Newcastle. Moranbah North is an underground longwall mining operation with a mining lease covering 100 square kilometres. Coal is mined from the Goonyella Middle Seam, approximately 200 metres below the surface. The mine produced 2.6 Mt (attributable) of high fluidity, hard coking coal for steel manufacturers in 2009. Metallurgical Coal recently commissioned a coal seam methane power station at Moranbah North that will reduce its carbon dioxide (CO2) emissions by around 1.3 Mtpa. Capcoal operates two longwall underground mines and an open cut mine. Together, these mines produce around 4.6 Mt (attributable) annually of prime quality hard coking coal, pulverised coal injection (PCI) and thermal coal. Capcoal supplies methane-rich seam gas to Energy Developments Limited’s waste coal mine gas power station, eliminating 1 Mt of CO2 emissions per annum. Foxleigh is an open cut operation with an annual output exceeding 1.6 Mt (attributable) of high quality PCI coal. Its operations will be debottlenecked to increase production to 2.2 Mtpa over the next three years. Dawson is an open cut operation that produced 7.4 Mt in total (3.8 Mt attributable) of hard and soft coking coal and thermal coal in 2009. Metallurgical Coal owns an effective 23% interest in the Jellinbah mine in Queensland which produces metallurgical coal. In 2009, excluding Jellinbah, Metallurgical Coal’s mines produced 12.6 Mt (attributable) of metallurgical coal, all of which was exported, and 14.1 Mt (attributable) of thermal coal, of which 42% was exported. Metallurgical Coal’s resource base totals some 3.4 billion tonnes of coal. These include high quality greenfield metallurgical coal reserves that are close to existing infrastructure. Strategy and growth Metallurgical Coal’s strategy is to be a large, low cost, reliable exporter of quality coal to steel producers worldwide from Queensland’s well established Bowen Basin. Operational excellence is driven through a structured programme of asset optimisation that benchmarks performance for key activities to drive performance across the business to best practice standards. Growth is driven both from optimising output from existing mines and from the ongoing development of a project pipeline underpinned by a comprehensive exploration and planning process. O p e r a t i n g a n d fi n a n c a i l r e v e w i Key to securing Metallurgical Coal’s future is the development of long term relationships with major customers in order to cultivate a stable market for its products. These relationships proved their worth during a period of uncertain demand in early 2009 when Metallurgical Coal’s product continued to be ordered in preference to that of a number of other producers. Anglo American is committed to reducing the Group’s carbon emissions by supporting world leading technologies. As an example of this, Metallurgical Coal recently became a cornerstone investor in Australian based MBD Energy, acquiring a 29% shareholding in the business. MBD Energy will soon commence trials of its leading-edge carbon capture and conversion technology, using algal synthesisers at three of Australia’s largest greenhouse gas emitting, coal fired power plants. Industry overview Metallurgical coal is a key raw material for 70% of the world’s steel industry. Each year, the world produces over 5 billion tonnes of hard coal, most of which is used in the country of origin. A small volume is traded across land borders such as those between the US and Canada or between the countries of the former Soviet Union. The international seaborne metallurgical coal market comprises some 200 Mt of metallurgical coal. Produced in a relatively limited number of countries, metallurgical coal is primarily used in the steelmaking industry and includes hard coking coal, semi-soft coking coal and PCI coal. The chemical composition of the coal is fundamental to the steel producers’ raw material mix and product quality. The market for metallurgical coal has a bigger proportion of longer term, annually priced contracts, though increasingly, some steel companies are using short term contracts to meet the balance of their requirements. Demand in the sector is fundamentally driven by economic, industrial and steel demand growth. Price negotiations between Australian suppliers and Japanese steel producers have traditionally, though not always, set the trend that influences settlements throughout the market. Metallurgical Coal is a significant supplier to virtually all the world’s major steel producing groups. Anglo American plc Annual Report 2009 55 Operating and financial review Metallurgical Coal continued The second half of the year saw a significant increase in demand. Financial overview Metallurgical Coal delivered an operating profit of $451 million, a 59% decrease, primarily due to lower prices as a result of weaker demand conditions, partially offset by lower mining costs. Operating performance Attributable production (thousand tonnes) 2009 2008 Export metallurgical 12,623 13,145 Thermal 14,052 14,696 Markets Anglo American weighted average achieved FOB prices ($/tonne) 2009 2008 Export metallurgical 141.04 187.36 Export thermal Domestic thermal 73.82 83.22 26.75 20.75 Attributable sales volumes (thousand tonnes) 2009 2008 Export metallurgical 11,542 13,147 Export thermal Domestic thermal 6,239 8,604 5,780 9,682 Following a year of tight market conditions and record prices in 2008, demand for coal was severely constrained in the first quarter as steelmaker inventories were wound down, particularly impacting the PCI coal market. Benchmark metallurgical coal prices retreated from their c.$300 per tonne peak in 2008 by up to 60%, reducing the average selling price for the year by 22%. Metallurgical coal markets improved in the second quarter owing to significant buying from China, initially of hard coking coal and subsequently a wider range of metallurgical coals, including PCI, thereby underpinning traditional benchmark prices at levels second only to those seen in 2008. The second half of the year saw a significant increase in demand from traditional customers in Japan, South Korea, India and Europe as steel industry production units ramped up. Estimated global crude steel production (Mt) Metallurgical coal production of 12.6 Mt was 4% lower than in 2008 in response to weaker demand from steel customers. However, the business was well positioned to weather the volatile market due to its diversified product positioning across all market segments and its strong long term relationships with key customers, enabling market share to be gained during the period. Total attributable coal production was 26.7 Mt, a 4% decrease. In response to the market downturn in late 2008, Metallurgical Coal acted swiftly to restructure its operations and reduce its cost base while continuing development of key strategic projects. Marginal activities were closed, headcount was reduced by 20%, a new streamlined organisational model was implemented and significant reductions were made in maintenance and supply costs. These initiatives resulted in significantly lower unit costs, by more than $10 per tonne, compared with the cost base in the second half of 2008, and a 24% productivity increase over 2008. In recent years, logistics constraints in the rail to port chain have hindered business performance. The co-ordinated three year programme to expand system capacity at Dalrymple Bay Coal Terminal has proceeded well, with the port expansion complete, the track expansion to be completed by March 2010 and the last of the rolling stock to be delivered by mid-2010. This action has improved capacity in the logistics system. Metallurgical Coal continues to manage the port queuing challenges by building flexibility into its logistics planning. 1,400 1,200 1,000 800 600 400 200 0 Year 00 01 02 03 04 05 06 07 08 09 China India USA EU 15 Japan Rest of world Source: AME 56 Anglo American plc Annual Report 2009 The initiatives taken across the business, including through asset optimisation and a 50% reduction in required stay in business capital, resulted in a more competitive cost position for the business and position it well to capitalise on the more buoyant market conditions expected in 2010. Projects Production from the brownfield expansion projects at Dawson and Capcoal (Lake Lindsay) mines will continue to increase over the next two to three years as equipment productivity is raised to benchmark standards. Significant greenfield projects continue to be studied at Grosvenor, Moranbah South and Dartbrook to meet expectations for growing demand for both metallurgical and thermal coal over the next decade. It is expected that a first stage approval decision in relation to the approval and development of the 4.3 Mtpa Grosvenor metallurgical coal project in Australia will be taken during 2010. Outlook The positive trend seen from the steel industry in both China and the traditional markets during the second half of 2009 is expected to continue in 2010, with a return to 2008 steel production levels providing positive momentum for metallurgical coal prices. Capcoal – Exploration and Development – Surveyor Nigel Atkinson and trainee surveyor Shannon Coppard review plans. Great care is exercised in early stage exploration programmes to ensure that areas of cultural significance are not disturbed. O p e r a t i n g a n d fi n a n c a i l r e v e w i Life of Mine and Reserves and Resources Moranbah North Dawson Callide Capcoal 29 26 21 21 Year 00 10 20 30 Reserves* 336 Mt Resources* 1,537 Mt 297 Mt 1,765 Mt Source: Anglo American * Includes Australian export thermal, coking coal, domestic power and metallurgical coal reserves. The figures reported represent 100% of the Saleable Ore Reserves and Mineral Resources; the percentage attributable to Anglo American plc is stated separately on pages 162 and 163. Coal Reserves are additional to Coal Resources. Proved Probable Measured Indicated Anglo American plc Annual Report 2009 57 Operating and financial review Thermal Coal Norman Mbazima CEO Thermal Coal 69.3 Mt 2009 production from Thermal Coal 9 wholly owned mines in South Africa 512 $ m – cost of Zibulo project due to come fully on stream in 2012 Financial highlights: Thermal Coal $ million (unless otherwise stated) 2009 2008 Operating profit South Africa South America Projects and corporate EBITDA Net operating assets Capital expenditure Share of Group operating profit Share of Group net operating assets 721 442 305 (26) 875 1,707 400 15% 4% 1,078 736 375 (33) 1,200 1,018 365 11% 3% Thermal coal potential attributable production (Mt) Estimated seaborne thermal coal demand (Mt) 100 80 60 40 20 0 700 600 500 400 300 200 100 0 Year 09 10 11 12 13 F Year 03 04 05 06 07 08 09 Existing and approved Major unapproved growth pipeline Forecast conceptual production 10+ year outlook F Source: Anglo American China India USA EU 15 Japan Rest of world Source: AME 58 Anglo American plc Annual Report 2009 Operating profit (2008: $1,078 m) $721 m Share of Group operating profit (2008: 11%) 15% EBITDA (2008: $1,200 m) $875 m Business overview In South Africa, Thermal Coal owns and operates nine mines and has a 50% interest in the Mafube colliery and Phola washing plant. Five of the mines together supply 22 Mtpa of thermal coal to both export and local markets. New Vaal, New Denmark and Kriel collieries are domestic product operations supplying 32 Mtpa of thermal coal to Eskom, the state-owned power utility. Isibonelo mine produces 5 Mtpa of thermal coal for Sasol Synthetic Fuels, the coal to liquids producer, under a 20 year supply contract. Anglo Inyosi Coal, a broad-based black economic empowerment (BBBEE) company valued at approximately $1 billion, is 73% held by Anglo American, with the remaining 27% held by Inyosi, a BEE consortium led by the Pamodzi and Lithemba consortia (66%), with the Women’s Development Bank and a community trust holding the remaining equity. Anglo Inyosi Coal, in turn, holds Kriel colliery, the new Zibulo multi-product project (previously known as the Zondagsfontein project) and the greenfield projects of Elders, New Largo and Heidelberg. The outstanding conditions precedent to the Anglo Inyosi Coal transaction are expected to be fulfilled in the first half of 2010, following which the transaction will complete. Thermal Coal’s South African operations currently route all export thermal coal through the Richards Bay Coal Terminal (RBCT), in which it has a 27% shareholding, to customers throughout the Med-Atlantic and Asia-Pacific regions. Within South Africa, 61% of total sales are made to Eskom on long term (i.e. life of mine) cost-plus contracts. A further 9% is sold to Sasol and 3% to industrial sector consumers. The remaining 27% is exported through RBCT. In South America, Anglo American has a 33.3% shareholding in Cerrejón, a 32 Mtpa capacity (10.7 Mtpa attributable) opencast operation in Colombia. Cerrejón owns and operates its own rail and deep water port facilities and sells into the export thermal and PCI coal markets. Industry overview 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, which is used as a fuel for power generation and other industries, notably the cement sector. The seaborne thermal coal market comprises nearly 700 Mt and is supplied from a large number of countries, with coal producers operating in a highly competitive global marketplace. Thermal coal usage is driven by the demand for electricity and is influenced by the price of competing fuels, such as oil and gas and, increasingly, the cost of carbon. Global thermal coal demand is also affected by the availability of alternative generating technologies, including gas, nuclear, hydroelectricity and renewables. The market for export thermal coal is further impacted by the varying degrees of privatisation and deregulation in electricity markets, with customers focused on securing the lowest cost fuel supply in order to produce power at a competitive price. This has resulted in a move away from longer term contracts towards shorter term contracts priced against various coal price indices, which has given rise to the development of an increasingly active financial market for hedging and derivative instruments. The extent to which these pricing instruments are used, however, varies from region to region. Strategy and growth Thermal Coal’s strategy is focused on serving the power generation and industrial sectors from large, low cost coal basins. The business unit has a diverse, high quality asset portfolio in South Africa and South America and aims to be a long term, reliable supplier. It also strives to be an industry leader in the pursuit of cleaner coal solutions to the world’s energy needs. Thermal Coal is focused on expanding its strong standing in the export market, while maintaining a significant position in the domestic market in South Africa. This strategy will be delivered through its extensive portfolio of expansion projects, supported by targeted acquisitions. In addition, it has substantially completed a major programme of investment, which includes expansions at Cerrejón and the development of Zibulo. The business unit is in the process of completing its pre-feasibility study on New Largo, which has been identified by Eskom as a primary coal supplier to its Kusile power station which is under construction. Kusile’s first units are scheduled to be operating in 2013 and Thermal Coal is confident that it will be able to deliver coal on time. India is an ever growing market for South African-sourced coal, with 2009 showing a pronounced swing from the Med-Atlantic to the Asia-Pacific market. For the year as a whole, 29% of South Africa’s coal exports, and a similar proportion of Thermal Coal’s own exports, through the RBCT were destined for India. Thermal Coal is evaluating opportunities to increase its exports to India by producing lower quality products suitable for the Indian market to supplement the higher grade product currently being sold to the country. O p e r a t i n g a n d fi n a n c a i l r e v e w i At Cerrejón, the growth strategy encompasses multiple options based on the capital investment for expansion that will be required by the port and logistics chain and thereafter for pit expansion and reserve access. Expansions such as the P40 (targeting 40 Mtpa) and P500 (targeting 50-60 Mtpa) projects are currently under consideration by the operation’s shareholders. Although Thermal Coal continues to develop operations in its existing geographies, it is also continually evaluating potential opportunities in new regions. Following the establishment of an office in Gaborone to manage its coal bed methane (CBM) exploration programme in Botswana in 2008, the business unit spent $20 million in 2009 on exploration and new business development activities, investigating thermal and coking coal and CBM resources mainly in southern Africa. Thermal Coal continues to pursue business development opportunities on a range of projects that offer potential exposure to the broader energy markets, while building on the business’s core capability in coal, namely CBM exploration in South Africa and Botswana. Although these projects remain at an early stage and have demanding economics, they ensure that Thermal Coal is equipped with a diverse range of options to meet changing market demands over the long term. Internationally traded thermal coal export production by company (2009) (%) 8.7% 4.4% 2.9% 4.7% 79.3% World estimated 2009 seaborne thermal coal = 673.1 Mt Anglo American BHP Billiton Rio Tinto Xstrata Other Notes: 1. Anglo American market share shown relative to diversified majors peer group 2. 2009 forecast based on equity holdings and production estimates as at January 2010 Source: AME Anglo American plc Annual Report 2009 59 Operating and financial review Thermal Coal continued Underlying demand remains relatively strong, supported by economic growth in the Asia-Pacific region. Financial overview Thermal Coal generated an operating profit of $721 million, a 33% decrease, predominantly as a result of lower thermal coal prices, mitigated in part by the benefits of tighter cost discipline across the business. Markets Anglo American weighted average achieved FOB prices ($/tonne) RSA export thermal RSA domestic thermal South American export thermal 2009 2008 64.46 18.48 84.54 20.41 72.98 81.33 was 41%, compared with 18% in 2008, with 29% going to India. In the absence of European demand, this ability to deploy coal eastwards gave support to both South African export volumes and prices. With the Pacific market driving the API4 price as 2009 progressed, the flow of coal away from the Atlantic became increasingly evident. Colombian and US exports were generally not as competitive in the Asian markets as in the Atlantic market due to comparatively higher freight costs during the year. Operating performance South Africa Attributable sales volumes (thousand tonnes) 2009 2008 Attributable production (thousand tonnes) RSA export thermal 15,857 15,916 RSA thermal RSA domestic thermal South American export thermal 10,854 11,568 6,251 7,046 RSA Eskom 2009 2008 22,186 22,287 36,225 36,158 Operating profit from South African sourced coal decreased by 40% to $442 million, mainly due to the 24% decrease in export prices, coupled with lower sales volumes and rand strength. Domestic sales prices were 2% lower. Despite the economic downturn, annual production remained steady at some 59 Mt, driven mainly by higher output at Mafube as it reached full capacity during 2009, offset by lower production at New Denmark, where major geological challenges suspended the longwall operations. A new longwall has been commissioned during the first quarter of 2010 and is ramping up. 2009 saw considerable price and market trend changes compared with 2008. The average 2009 FOB index price for South African thermal coal exports (API4) was $65 per tonne, compared with $120 per tonne in 2008. Driven by a suppressed industrial sector, European power demand in 2009 decreased significantly. The softer oil price and an abundance of cheap gas contributed to lower demand for imported coal, resulting in increased stockpiles. In contrast, the Pacific market continued to see growth, with increasing demand for imported thermal coal. As China was able to accommodate large volumes of Indonesian and Australian exports, India turned to South Africa to meet its escalating demand for thermal coal. The proportion of South African coal exports shipped to Asia in 2009 Life of Mine and Thermal Coal Reserves and Resources Reserves* 1,366 Mt Resources* 2,094 Mt New Denmark 31 Cerrejón Mafube New Vaal Isibonelo Zibulo 23 20 18 17 17 Year 0 5 10 15 20 25 30 35 Source: Anglo American 417 Mt 1,126 Mt Proved Probable Measured Indicated * Saleable tonnes including Colombian export thermal and South African export thermal, other metallurgical, domestic power and Synfuel coal reserves. The figures reported represent 100% of the Saleable Ore Reserves and Mineral Resources; the percentage attributable to Anglo American plc is stated separately on pages 165-168. Coal Reserves are additional to Coal Resources. 60 Anglo American plc Annual Report 2009 Miners discuss plant operations at Greenside colliery, which mined 3.3 Mt of thermal coal in 2009, predominantly destined for the export market. O p e r a t i n g a n d fi n a n c a i l r e v e w i South America Attributable production (thousand tonnes) South American export thermal 2009 2008 10,190 10,410 Operating profit from Cerrejón decreased by 19% to $305 million, driven primarily by less favourable market conditions as average sales prices decreased by 8% and total sales volumes by 4%. The impact of the $98 million decrease in turnover was partly offset by reduced input costs arising from lower fuel prices and price associated royalties, as well as cost control measures. Although significant improvements in 2009 coal recovery rates continued to reflect positively in all aspects of the operation, saleable production was reduced in response to Cerrejón’s perception of a weaker market. Projects In South Africa, the $512 million, 6.6 Mtpa Zibulo project is under construction, including the building of a 50:50 joint venture coal washing plant with BHP Billiton Energy Coal South Africa. The project is on schedule, with first coal produced during the third quarter of 2009 and it will continue to ramp up during the course of 2010, reaching full production in 2012. In Colombia, the $130 million expansion at Cerrejón to 32 Mtpa was completed and full production was achieved early in 2009. Feasibility studies are under way to expand the operation to around 40 Mtpa. Outlook Underlying demand remains relatively strong, supported by economic growth in the Asia-Pacific region, in particular from India and China, the steady increase in the oil price and the cold European and Asian winter. A significant portion of 2010 sales is exposed to market pricing. Potential exists for market prices to increase during the first quarter and for the remainder of 2010, with current forward prices trending significantly above those seen in 2009. Anglo American plc Annual Report 2009 61 Operating and financial review Other Mining and Industrial Duncan Wanblad Group Director Other Mining and Industrial 150.4 kt of zinc from Skorpion – a record production year 350 kt Group total zinc production in 2009 1.4 Mt – output of steel products at Scaw Metals in 2009 Financial highlights: Other Mining and Industrial $ million (unless otherwise stated) 2009 2008 Operating profit Tarmac Zinc Scaw Metals Copebrás Catalão Coal – Americas Other EBITDA Net operating assets Capital expenditure Share of Group operating profit Share of Group net operating assets 506 101 175 131 (40) 106 (8) 41 878 5,029 268 10% 13% 1,082 229 136 274 217 78 29 119 1,513 5,231 603 11% 16% 62 Anglo American plc Annual Report 2009 Operating profit (2008: $1,082 m) $506 m Share of Group operating profit (2008: 11%) 10% EBITDA (2008: $1,513 m) $878 m O p e r a t i n g a n d fi n a n c a i l r e v e w i Copebrás Copebrás delivered an operating loss of $40 million, due principally to reduced fertiliser prices, partially offset by a 30% increase in sales volumes to 1.06 Mt following good weather conditions in the second half and the depressed fertiliser prices, leading farmers to either restock or increase consumption. Catalão Catalão generated an operating profit of $106 million, 36% higher than the previous year, with sales volumes of 5.2 kt, a 12% increase, resulting from increased capacity at the tailings operation. Coal – Americas Canada Peace River Coal generated an operating profit of $13 million for the year, having successfully completed its $102 million transition to owner operated mining, resulting in a 16% improvement in mined waste volumes, part of which constituted overburden waste pre-stripping for 2010 and 2011. Metallurgical coal sales increased by 14%, though lower average realised prices, arising from generally weaker market conditions, offset the tonnage increase. Drilling, definitional modelling and environmental approval work were substantially progressed on the Roman Mountain project, which targets the construction of the 4 Mtpa brownfield operation adjacent to the existing Trend Mine. Venezuela Carbones del Guasare (CdG) was subject to further economic uncertainty and delivered an operating loss of $21 million in 2009. Sales and production volumes of 0.7 Mt were 30% lower than 2008 and significantly below the performance potential of the mine. Tarmac Tarmac generated an operating profit of $101 million, a 56% decrease, reflecting a $1.5 billion, or 35%, decrease in turnover resulting from both a fall in demand and the weaker sterling exchange rate, mitigated by significant cost reductions. Volumes showed a further significant decline in the year, with overall demand 20% lower, although Tarmac’s leading market positions were maintained. Capacity was mothballed and production curtailed to align with falling demand, which resulted in considerable reductions in fixed costs. In addition, improvements in operating efficiency and a programme of overhead reductions were deepened and accelerated, helping to maintain the EBITDA margin at 11%. Total fixed and support costs were reduced by $464 million, or 29%. Despite the substantial decline in turnover, Tarmac generated net cash inflow from operating activities after capital expenditure of $88 million, compared with $97 million in 2008. 2009 saw a deepening of the difficult market conditions faced by the construction industry in the UK. Driven by the wider economic issues, industrial and commercial construction spending decreased significantly. Continental Europe did not suffer as severely as the UK in 2008, but in 2009 saw declines in construction activity comparable with those in the UK. Significantly lower demand in the housing and commercial sectors resulted in UK volumes declining by 24%, including asphalt volumes, which had shown more resilience in 2008 than other products. On a like-for-like basis, UK operating profits decreased by 71%. On a like-for-like basis, Tarmac International’s underlying operating profits were 52% lower, with worsening market conditions in France, Poland and the Czech Republic offsetting resilience in Germany and cost savings of $9 million. Total cost savings of $82 million were achieved by Tarmac in 2009, including headcount reductions of more than 1,200 made across Tarmac during the year, representing a reduction of 11%. During the first quarter of 2010, Anglo American agreed the sale of Tarmac’s aggregates businesses in France, Germany, Poland and the Czech Republic and its Polish concrete products business, with expected total proceeds of approximately $400 million. Zinc Average market price (c/lb) 2009 2008 Zinc Lead 75 78 85 95 Attributable production (tonnes) 2009 2008 Zinc Lead 350,400 340,500 68,300 62,900 Zinc generated a 29% increase in operating profit to $175 million, despite lower zinc and lead prices during the year, largely as a result of improved production and sales, as well as lower costs. Production at Skorpion increased by 3% to 150.4 kt, a record production year, where nameplate production was exceeded. While electricity constraints, cathode crane failure and cell repairs were again experienced, the combined impact was negated by various asset optimisation initiatives. Tight cost control and record production resulted in mine operating unit costs being 9% lower than 2008. At Lisheen, zinc production increased by 3% to 171.8 kt due to higher grades and tonnage mined, while lead output increased by 21% due to higher grades, improved recoveries and tonnes mined. Asset optimisation initiatives in the mine and mill resulted in a record production year. At Black Mountain, tonnes milled increased by 7% as a result of increased ore production from the Deeps mine. Zinc production was 1% higher at 28.2 kt, while lead production increased by 5% to 49.1 kt with the higher tonnes milled being offset by lower feed grades. Zinc and lead metallurgical recoveries, however, improved by 1% and 3% respectively. Scaw Metals Despite the tough operating conditions in the steel industry during the year, Scaw Metals generated an operating profit of $131 million. The 52% decrease in operating profit was due to the difficult economic environment across all operations, with reduced demand in some key markets resulting in downward pressure on prices. Lower steel prices and the impact of high input and consumable costs resulted in pressure on margins. However, the integrated nature of Scaw Metals enabled the rolling mills to continue to supply the downstream businesses with product, at a time when most major steel mills were curtailing capacity and running at losses. In addition, the careful management of working capital and capital expenditure resulted in strong cash generation. Total production of steel products was 1,411 kt, with the South African operations producing 693 kt and the balance of 718 kt from the international operations. Anglo American plc Annual Report 2009 63 Operating and financial review Principal risks and uncertainties Understanding its key risks and developing appropriate responses to those risks is crucial to Anglo American’s success Anglo American is exposed to a variety of risks and uncertainties which can have a financial, operational or reputational impact on the Group and which may also impact the achievement of social, economic and environmental objectives. 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 75 to 79. Key headline risks Commodity prices Commodity prices are determined primarily by international markets and global supply and demand. Fluctuations in commodity prices give rise to commodity price risk across the Group. Historically, such prices have been subject to substantial variation as illustrated by the volatility of prices in key commodities over the last two years shown below. The impact of such volatility can result in material and adverse movement in the Group’s operating results, asset values, revenues and cash flows. If the global economic environment remains weak for the medium to long term, the ability of the Group to deliver growth in future years may be adversely affected. Falling commodity prices could prevent the Group from carrying out certain transactions that are important to the Group’s business which may have an adverse effect on the Group’s financial condition. An example would be the inability to find buyers for businesses or assets the Group may wish to sell. Leveraging the diversified nature of the Group, the general policy is not to engage in commodity price hedging. The Group manages this risk through constant monitoring of the markets Average commodity prices and currency sensitivity analysis in respect of currency and commodity prices Average price(1) 2008 Commodity Platinum(2) Metallurgical Coal(3) Thermal Coal(3) Copper(4) Nickel(4) Iron Ore(5) Palladium(2) ZAR/USD AUD/USD CLP/USD GBP/USD (1) ‘oz’ denotes ounces, ‘t’ denotes tonnes, ‘c’ denotes US cents, ‘lb’ denotes pounds. $1,585/oz $190/t $79/t 315 c/Ib 953 c/Ib $88/t $355/oz 8.27 1.17 524 0.54 2009 $1,211/oz $142/t $68/t 234 c/lb 667 c/lb $65/t $266/oz 8.41 1.26 559 0.64 10% sensitivity US$ million(6) 137 103 147 222 39 80 17 293 110 29 32 (2) Source: Johnson Matthey plc. (3) Group average realised FOB price of metallurgical coal and thermal coal. (4) Being the average LME price. (5) Average price represents average iron ore export price achieved. (6) Excludes the effect of any hedging activities. Stated after tax at marginal rate. Sensitivities are the average of the positive and negative and reflect the impact of a 10% change in the average prices received and exchange rates during 2009. Increases in commodity prices increase underlying earnings and vice versa. A strengthening of the South African rand, pound sterling, Australian dollar and Chilean peso relative to the US dollar reduces underlying earnings and vice versa. 64 Anglo American plc Annual Report 2009 in which it operates and continuous review of capital expenditure programmes to ensure they reflect market conditions. A continuous focus on operating expenditure is also an important method of mitigating this risk. Liquidity and counterparty risk The Group is exposed to liquidity risk arising from the need to finance its ongoing operations and growth. If the Group is unable to obtain sufficient credit due to capital market conditions, the Group may not be able to raise sufficient funds to develop new projects, fund acquisitions or meet the Group’s ongoing financing needs and, as a result, revenues, operating results, cash flows or financial position may be adversely affected. The Group is also exposed to counterparty risk from customers or holders of cash that could result in financial losses should those counterparties become unable to meet their obligations to the Group. Cash deposits and other financial instruments, including trade receivables due from third parties, give rise to counterparty credit risk. The Group has an experienced Treasury team who are responsible for managing the funding requirements of the Group and managing liquidity risk. Treasury also has a role to play in managing counterparty risk, particularly with banks where Anglo American places cash deposits. The Treasury operations of joint ventures and associates, including De Beers, are independently managed and may expose the Group to liquidity and other financial risks. Currency risk Because of the global nature of its business, the Group is exposed to currency risk where transactions are not conducted in US dollars or where assets and liabilities are not US dollar denominated. Fluctuations in the exchange rates of the most important currencies influencing operating costs and asset valuations (the South African rand, Chilean peso, Brazilian real, Australian dollar, euro and pound sterling) may adversely affect financial results to a material extent. Foreign exchange hedging is limited to debt instruments and capital expenditure on major projects. Inflation As the Group is unable to control the market price at which the commodities it produces are sold (except for any forward sales or derivative contracts), it is possible that significantly higher future inflation in the countries in which Anglo American operates may result in an increase in future operational costs without a concurrent depreciation of the local currency against the dollar or an increase in the dollar price of the applicable commodities. Cost inflation in the mining sector is more apparent during periods of high commodity prices as demand can exceed supply. In addition, any lag in the reduction of O p e r a t i n g a n d fi n a n c a i l r e v e w i input costs against falls in commodity prices will have a negative impact on profit margins and financial results. face fines and penalties, statutory liability for environmental remediation and other financial consequences which may be significant. The Group manages costs very closely and during 2009 has reduced costs through a combination of headcount reduction, asset optimisation and supply chain initiatives. Health and safety Mining is a hazardous industry and is therefore highly regulated by safety, health and environmental laws. The failure to maintain the required high levels of safety management can result in harm to the Group’s employees and communities near the mines and damage to the environment. This could result in fines and penalties, liability to employees and third parties for injury, impairment of the Group’s reputation, industrial action or inability to recruit and retain skilled employees. Failure to provide a safe working environment may result in government authorities forcing closure of mines on either a temporary or permanent basis or refusing mining right applications. Changes in laws, regulations or community expectations can result in increased compliance and remediation costs. Occupational health risks to employees and contractors include noise induced hearing loss, occupational lung diseases and tuberculosis. The Group provides occupational health services and continues to implement measures to monitor and limit the incidence and severity of such diseases. Anglo American sets a very high priority on safety and health matters, investing considerable resources in seeking to improve the safety performance of the Group’s operations. The Group is constantly reviewing practices to improve safety performance and works closely with unions and governments, striving to produce a safer mining industry. The Group recognises that the HIV/AIDS epidemic in sub-Saharan Africa is a significant threat to economic growth and development in that region. There is a risk that the recruitment and retention of skilled people required to meet growth aspirations may be adversely affected. Anglo American provides anti-retroviral therapy to employees with HIV/AIDS and also undertakes education and awareness programmes to help prevent employees and their families becoming infected or spreading infection. Environment Certain of the Group’s operations do create environmental risk in the form of dust, noise or leakage of polluting substances from site operations and uncontrolled breaches of tailings dam facilities. Failure to manage environmental risks may result in harm to the Group’s employees, the communities near the Group’s operations and the environment, government authorities forcing closure of mines on a temporary or permanent basis or refusing future mining right applications. The Group could The Group is a large user of energy and one of the key commodities it produces is coal. Regulatory measures aimed at reducing emissions of climate changing gases may affect energy prices, demand for carbon intensive products such as coal and reduced margins on sales of coal. Policy developments at an international, regional, national and sub-national level, including those related to the 1997 Kyoto Protocol and subsequent international agreements and emissions trading schemes such as the Emissions Trading System of the European Union, could adversely affect the profitability of the Group. Assessment of the impact of climate change regulation is uncertain. The impact of climate change on the Group’s operations is also uncertain and will depend on circumstances at individual sites. Potential impacts could include increased rainfall, flooding, water shortages and higher average temperatures. These may increase costs, reduce production levels or impact the results of operations. The Group implements a number of initiatives to monitor and limit the impact its operations have on the environment. It also continually seeks to reduce energy input levels into its operations and the asset optimisation programme includes a number of energy saving initiatives. Political, legal and regulatory The Group’s businesses may be affected by political or regulatory developments in any of the countries and jurisdictions in which the Group operates, including changes to fiscal regimes or other regulatory regimes which may result in restrictions on the export of currency, expropriation of assets, imposition of royalties and requirements for local ownership or beneficiation. Political instability can also result in civil unrest, nullification of existing agreements or mining leases and permits. Any of these threats may adversely affect the Group’s operations or the results of those operations. The Group has no control over changes in local market interest rates or political acts which may deprive the Group of the economic benefits of ownership of its assets. In January 2008, Minera Loma de Níquel (MLdN) was notified of the intention of the Venezuelan Ministry of Basic Industries and Mining (MIBAM) to cancel 13 of its exploration and exploitation concessions due to MLdN’s alleged failure to fulfil certain conditions of the concessions. Further details are provided in the Nickel business unit overview section. The Group recognises that its licence to operate through mining rights is dependent on a number of factors, including compliance with regulations. For example in South Africa, the Mineral and Petroleum Resources Development Act 2002 (MPRD) provides for conversion of existing mining rights (referred to as ‘Old Order Rights’) to ‘New Order Rights’, subject to the implementation of certain conditions. Failure to fulfil the specific terms of any of its licences, permits or other authorisations may result in withdrawal of mining rights, with resultant impact on financial performance. The Group actively monitors regulatory and political developments on a continuous basis. Supplier risk The inability to obtain strategic consumables, raw materials, mining and processing equipment in a timely manner could have an adverse impact on results of operations and the Group’s financial condition. During strong commodity cycles, increased demand can be experienced for such supplies, resulting in periods when supplies are not always available to meet demand or cost increases above normal inflation rates materialise. Any interruption to the Group’s supplies or increase in costs adversely affects the Group’s financial position and future performance. Anglo American has limited influence over manufacturers and suppliers, but takes a proactive approach to developing relationships with critical suppliers and improving the effectiveness of the Group’s purchasing leverage through the One Anglo Supply Chain initiative. Reserves and resources The Group’s mineral resources and ore reserves are subject to a number of assumptions, particularly the price of commodities, production costs and recovery rates. Fluctuations in these variables may have an impact on the long term financial condition and prospects of the Group. The Group’s policy on reporting of ore reserves and mineral resources is expanded on pages 148 to 170. Exploration Exploration and development are speculative activities with no guarantee of success, but they are necessary for future growth. Failure to discover new reserves of sufficient magnitude could adversely affect future results and the Group’s financial condition. Anglo American invests considerable sums each year in focused exploration programmes to enable resource discovery and development to reserves. Event risk Damage to or breakdown of a physical asset, including risk of fire, explosion or natural catastrophe, can result in a loss of assets and subsequent financial losses. The Group’s operations are exposed to natural risks such as earthquakes, extreme weather conditions, as well as the failure of mining pit slopes and tailings dam walls, fire, explosion and machinery breakdown. Anglo American plc Annual Report 2009 65 Operating and financial review Principal risks and uncertainties continued Specialist consultants are engaged to analyse such event risks on a rotational basis and provide recommendations for management action to prevent or limit the effects of such a loss. In addition, the Group seeks to purchase insurance to protect against the financial consequences of catastrophic event, subject to the availability and cost of such insurance. Employees The ability to recruit, develop and retain appropriate skills for the Group is made challenging by global competition for skilled labour. The failure to retain skilled employees or to recruit new staff may lead to increased costs, interruptions to existing operations and delay in new projects. A number of strategies are implemented to mitigate this risk, including attention to an appropriate suite of reward and benefit structures for existing employees and ongoing refinement of Anglo American as an attractive employee proposition. Employees in the key countries where Anglo American operates are unionised and the risk of strike or other industrial relations disputes may have an adverse effect on the results of operations. Anglo American mitigates this risk through a process of constructive dialogue with trade unions and the maintenance of effective working relationships. Contractors Mining contractors are used at a number of the Group’s operations to mine and deliver ore to processing plants, for example. In periods of high commodity prices, demand for contractors may exceed supply, resulting in increased costs or lack of availability of key contractors. Disruption of operations or increased costs can occur should there be disputes with contractors or unavailability of certain skills. Business integrity Many countries where the Group’s operations are located have increased their emphasis on enforcement of laws to which the Group is subject, including safety, environmental, antitrust and anti-corruption. The Group has provided clear standards of conduct to promote full compliance with laws; however, non-compliance with these standards may lead to prosecution and other litigation and adverse effects on the Company’s profits, licences and reputation. Operational performance and project delivery Failure to meet production targets can result in increased unit costs, which are pronounced at operations with higher levels of fixed costs. Variable unit costs may also exceed forecasts, adversely affecting performance and the results of operations. Failure to meet project delivery times and costs could have a negative effect on operational performance and lead to increased costs or reductions in revenue and profitability. Increasing regulatory, environmental, land access and social approvals can result in significant increases in construction costs and/or significant delays in construction. These increases could materially and adversely affect the economics of a project, the Group’s asset values, costs, revenues, earnings and cash flows. A number of strategies have been implemented to mitigate these risks, including management oversight of operating performance and project delivery through regular executive management briefings, increased effectiveness of procurement activities through the One Anglo Supply Chain and other business improvement initiatives to reduce unit costs and improve delivery of capital projects. Acquisitions The Group has undertaken a number of acquisitions in the recent past. With any such transaction there is the risk that any benefits or synergies identified at the time of acquisition may not be achieved as a result of changing or incorrect assumptions or materially different market conditions or deficiencies in the due diligence process, resulting in adverse effects on financial performance, production volumes or product quality. Furthermore, the Group could find itself liable for past acts or omissions of the acquired business without any adequate right of redress. Rigorous guidelines are applied to the evaluation and execution of all acquisitions that require the approval of the Investment Committee and Group Management Committee and, subject to size, the Board. Infrastructure Inadequate supporting facilities, services and installations (water, power, transportation, etc.) may affect the sustainability and growth of the business, leading to a loss of competitiveness, market share and reputation. The potential disruption of the ongoing generation and supply of power is a risk faced by the Group in a number of countries in which it operates, including South Africa. Anglo American’s approach to addressing this risk is to work jointly on developing sustainable solutions to these problems with suppliers of infrastructure services and facilities. Anglo American relies upon effective rail and port facilities for its products and will be expected to provide shipment of product in some circumstances to customers’ premises. Failure of rail or port facilities may result in delays and increased costs as well as lost revenue and reputation with customers. Failure to procure shipping costs at market rates may reduce profit margins, thus reducing profit levels. 66 Anglo American plc Annual Report 2009 The Group seeks to work closely with suppliers of rail and port infrastructure to mitigate the risk of failure and establish contingency arrangements. Services are provided to customers who require product to be delivered to them and purchase of shipping capacity is aligned to the needs of Group companies. Community relations The Group operates in several countries where ownership of rights in respect of land and resources is uncertain and where disputes in relation to ownership or other community matters may arise. These disputes are not always predictable and may cause disruption to projects or operations. The Group’s operations can have an impact on local communities, including the need, from time to time, to relocate communities or infrastructure networks such as railways and utility services. Failure to manage relationships with local communities, government and non-governmental organisations may disrupt operations and adversely affect the Group’s reputation, as well as its ability to bring projects into production. The Group has developed comprehensive processes to enable its business units to effectively manage relationships with communities and actively seeks engagement with all affected communities impacted by the Group’s operations. Joint venture relationships Some of the Group’s operations are controlled and managed by joint venture partners, associates or by other companies. Management of non-controlled assets may not comply with the Group’s standards, for example, on safety, health and environment. This may lead to higher costs, lower production and have a negative bearing on operational results, asset values or the Group’s reputation. Anglo American seeks to mitigate this risk by way of a thorough evaluation process before committing to any joint venture and implementation of ongoing governance processes in existing joint ventures. Critical accounting judgements and key sources of estimation and uncertainty In the course of preparing financial statements, management necessarily makes judgements and estimates that can have a significant impact on the financial statements. The most critical of these relate to estimation of the useful economic lives of assets and ore reserves, impairment of assets, restoration, rehabilitation and environmental costs and retirement benefits. These are detailed on page 67. The use of inaccurate assumptions in calculations for any of these estimates could result in a significant impact on financial results. Useful economic lives of assets and ore reserves estimates The Group’s mining properties, classified 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. Factors which could impact useful economic lives of assets and ore reserve estimates include: > > > > > > changes to proven and probable mineral reserves; the grade of mineral reserves varying significantly from time to time; differences between actual commodity prices and commodity price assumptions used in the estimation of mineral reserves; renewal of mining licences; unforeseen operational issues at mine sites; and adverse changes in capital, operating, mining, processing and reclamation costs, discount rates and foreign exchange rates used to determine 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 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 flows are allocated to an appropriate cash generating unit (CGU). The recoverable amount of an asset, or CGU, is measured as the higher of fair value less costs to sell and value in use. Management necessarily applies its judgement in allocating assets that do not generate independent cash flows to appropriate CGUs, and also in estimating the timing and value of underlying cash flows within the value in use calculation. Factors which could impact underlying cash flows include: > Commodity prices and exchange rates; > Timelines of granting of licences and permits; > Capital and operating expenditure; and > Available reserves and resources. O p e r a t i n g a n d fi n a n c a i l r e v e w i Basis of disclosure This operating and financial review (OFR) describes the main trends and factors underlying the development, performance and position of Anglo American plc (the Group) during the year ended 31 December 2009, as well as those likely to affect the future development, performance and position. It has been prepared in line with the guidance provided in the reporting statement on the operating and finance 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 financial condition, results, operations and businesses of the Group. 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. Subsequent changes to the CGU allocation or to the timing of or assumptions used to determine cash flows 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 profits 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 benefits The expected costs of providing pensions and post retirement benefits under defined benefit 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 comprehensive income. Assumptions in respect of the expected costs are set after consultation with qualified actuaries. While management believes the assumptions used are appropriate, a change in the assumptions used would impact the earnings of the Group going forward. Anglo American plc Annual Report 2009 67 Governance The Board E Executive director N Non-executive director 1 7 2 8 9 1. Sir John Parker N FREng DSc (Eng), ScD (Hon), DSc (Hon), D.Univ (Hon), FRINA 67, joined the Board as a non-executive director on 9 July 2009 and became chairman of Anglo American plc on 1 August 2009. He succeeded Sir Mark Moody-Stuart, who retired from the Board after seven years as chairman. Sir John is also chairman of the Nomination Committee and is a member of the S&SD Committee. He is chairman of National Grid plc, a non-executive director of Carnival Corporation, EADS and deputy chairman of DP World. He is a former joint chairman of the Mondi Group and recently stepped down as senior non-executive director (Chair) of the Court of the Bank of England. Sir John is a Fellow of the Royal Academy of Engineering, Chancellor of the University of Southampton and a Visiting Fellow of the University of Oxford. He is a recipient of honorary doctorates from a number of universities in the UK and Ireland. Sir John is being proposed for election at the AGM on 22 April 2010. 2. Cynthia Carroll E MSc, MBA 53, was appointed chief executive on 1 March 2007, having joined the Board on 15 January 2007. Cynthia Carroll chairs the Group Management Committee (GMC) and the Executive Committee (ExCo) and sits on the S&SD Committee. She is the former president and chief executive officer of Alcan’s Primary Metals Group and a former director of AngloGold Ashanti Limited and the Sara Lee Corporation. She is a non-executive director of BP plc, Anglo Platinum Limited and De Beers. Cynthia Carroll is being proposed for re-election at the AGM on 22 April 2010. 3. René Médori E Doctorate in Economics 52, was appointed to the Board on 1 June 2005, becoming finance director on 1 September 2005. René Médori is a member of GMC and ExCo and chairman of the Investment Committee. He is a former finance director of The BOC Group plc and is a non-executive director of Scottish and Southern Energy plc, De Beers and Anglo Platinum Limited. 4. David Challen CBE N MA, MBA 66, joined the Board on 9 September 2002 and was appointed as the senior independent non-executive director in April 2008. He is chairman of the Audit Committee and a member of the Nomination and Remuneration Committees. David Challen is currently vice- chairman of Citigroup European Investment Bank, senior non-executive director of Smiths Group plc and a non-executive director of the Classical Opera Company. Previously he was chairman of J. Henry Schroder & Co. Limited, where he spent most of his professional career. He is currently deputy chairman of the UK’s Takeover Panel. 5. Sir C K Chow N DEng (Hon), CEng, FREng, HonFHKIE, FIChemE 59, was appointed to the Board on 15 April 2008 and is a member of the Nomination and Remuneration Committees. He is currently chief executive officer of the MTR Corporation in Hong Kong, a position he has held since December 2003. He was formerly chief executive of Brambles Industries and GKN PLC. Prior to joining GKN PLC he worked for the BOC Group PLC for 20 years, becoming chief executive of its Gases Division and joining its board in 1993. He is the non-executive chairman of Standard Chartered Bank (Hong Kong) Limited. 68 Anglo American plc Annual Report 2009 3 4 5 6 10 11 12 13 G o v e r n a n c e 12. Jack Thompson N BSc, PhD 59, joined the Board on 16 November 2009 and is a member of the S&SD Committee. He is currently a non-executive director of Centerra Gold Inc., Century Aluminum Co., Molycorp Minerals LLC and Tidewater Inc. He was previously chairman and CEO of Homestake Mining Co., vice chairman of Barrick Gold Corp. and has served on the boards of Phelps Dodge Corp., Rinker Group Ltd and Stillwater Mining. Jack Thompson is being proposed for election at the AGM on 22 April 2010. 13. Peter Woicke N MBA 67, joined the Board on 1 January 2006 and is a member of the Nomination, Remuneration and S&SD Committees. From 1999 to January 2005 he was chief executive officer of the International Finance Corporation (IFC). He was also a managing director of the World Bank. Prior to joining the IFC, Peter Woicke held numerous positions over nearly 30 years with J.P. Morgan. He is currently chair of the trustees of the Ashesi University Foundation, a member of the Saudi Aramco board and a member of the Institute for Human Rights and Business board. 6. Dr Chris Fay CBE N BSc, PhD, FREng, FRSE, FICE, FEI 64, joined the Board on 19 April 1999. He is chairman of the S&SD Committee and a member of the Audit Committee. He is a non-executive chairman of Brightside Group plc, Iofina plc and Stena International S.àr.l. Chris Fay is a former non-executive director of BAA plc and a former chairman of Shell UK and of the British government’s Advisory Committee on Business and the Environment. After serving three three-year terms on the Board, Chris Fay will be stepping down at the conclusion of the AGM on 22 April 2010. 7. Sir Philip Hampton N MA, ACA, MBA 56, joined the Board on 9 November 2009. He is a member of the Audit and Remuneration Committees. Sir Philip is chairman of The Royal Bank of Scotland and has recently stepped down as chairman of J Sainsbury plc, a position he had held since 2004. Previously, he was group finance director of Lloyds TSB Group plc, BT Group plc, BG Group plc, British Gas plc, British Steel plc, an executive director of Lazards and a non-executive director of RMC Group plc. Sir Philip is the former chairman of UK Financial Investments Limited, the company established to manage the British government’s shareholding in banks subscribing to its recapitalisation fund, and has also been a non-executive director of Belgacom SA. Sir Philip is being proposed for election at the AGM on 22 April 2010. 8. Sir Rob Margetts CBE N BA, FREng 63, joined the Board on 18 March 1999 and is chairman of the Remuneration Committee. He is chairman of Legal & General Group Plc, Ensus Limited, Ordnance Survey and the Energy Technologies Institute. He is also a director of Falck Renewables and Neochimiki SA. He was formerly chairman of The BOC Group plc and vice-chairman of ICI PLC. Sir Rob was also chairman of the UK Natural Environment Research Council and a member of the UK Council for Science and Technology. After serving three three-year terms on the Board, Sir Rob will be stepping down at the conclusion of the AGM on 22 April 2010. 9. Nicky Oppenheimer N MA 64, joined the Board on 18 March 1999. Nicky Oppenheimer joined the Group in 1968 and subsequently became an executive director and a deputy chairman of Anglo American Corporation of South Africa Limited. He became deputy chairman of De Beers Consolidated in 1985 and has been chairman of De Beers since 1998. Mr Oppenheimer is being proposed for re-election at the AGM on 22 April 2010. 10. Ray O’Rourke N FICE 63, joined the Board on 11 December 2009. Ray O’Rourke founded the O’Rourke Group in 1977, having begun his career at Kier and J Murphy & Sons. In 2001, the O’Rourke Group acquired John Laing, to form Laing O’Rourke, now Europe’s largest privately owned construction company, of which Ray O’Rourke is chairman and chief executive. Mr O’Rourke is being proposed for election at the AGM on 22 April 2010. 11. Dr Mamphela Ramphele N PhD, BComm, MB Ch B 62, joined the Board on 25 April 2006. She is a member of the Nomination and S&SD Committees. Mamphela Ramphele is the executive chair of Letsema Circle, a specialist transformation advisory company and the chair of the Technology & Innovation Agency of South Africa. She is a non-executive director of Mediclinic and Business Partners S.A., a trustee of the Nelson Mandela and Rockefeller Foundations, and an adviser to the Veolia Institute. She was formerly co-chair of the Global Commission on International Migration, a World Bank managing director and vice-chancellor at the University of Cape Town. Anglo American plc Annual Report 2009 69 Governance Executive management The Company has two principal committees. The Group Management Committee (GMC) is responsible for formulating strategy (for discussion and approval by the Board), monitoring performance and managing the Group’s portfolio. The Executive Committee (ExCo) is responsible for developing and implementing Group-wide policies and programmes and for the adoption of best practice standards across the Group. 1 6 11 2 7 3 4 5 8 9 10 12 13 14 GMC and ExCo members ExCo members 1. Cynthia Carroll See page 68 for biographical details. 2. René Médori See page 68 for biographical details. 3. Brian Beamish BSc (Mechanical Engineering) 53, is Group director mining and technology. He held the position of chief executive of Base Metals between 2007 and 2009 and has more than 30 years of mining industry experience in various commodities and geographies. He spent 20 years at Anglo Platinum, including four years as executive director, operations between 1996 and 1999. 4. Mervyn Walker MA (Oxon) 50, is Group director of human resources and communications. He is a solicitor by training and joined Anglo American in 2008 from Mondi, where he was group HR and legal director. Mervyn Walker spent 19 years at British Airways, where he held a series of senior roles, including HR director, legal director, director of purchasing and director of UK airports. He is also non-executive chairman of pension schemes for AMEC plc. 5. David Weston MBA, BSc (Eng) 51, is Group director business performance and projects. He spent 25 years with Shell and was president, Shell Canada Products before joining the Anglo American Group in 2006 as chief executive of Industrial Minerals (Tarmac). David Weston served as the Group’s technical director between April and October 2009. He is also a non-executive director at International Power plc. 6. Walter De Simoni BSc (Mining Eng) 54, is CEO of Nickel. Walter De Simoni joined the Anglo American Group in 1978. He was appointed president of Anglo Base Metals Brazil in 2005. He became Anglo American Brazil CEO in 2006 and CEO of Nickel in October 2009. 7. Seamus French B Eng (Chemical) 47, is CEO of Metallurgical Coal and joined the Group as regional CEO of Anglo Coal Australia in 2007. He was previously on the BHP Billiton Executive Committee as global vice-president business excellence from 2005. 8. Chris Griffith B Eng (Mining) Hons, Pr Eng 44, is CEO of Kumba Iron Ore. He has been with Anglo American for almost two decades. He was Anglo Platinum’s head of operations for joint ventures before being appointed CEO of Kumba Iron Ore in 2008. 9. John MacKenzie M.Sc Eng, MBL 41, is CEO of Copper. He joined the Anglo American Gold and Uranium Division in January 1990 and was promoted to vice-president of Anglo Coal, South American Operations in 1999. In 2004, he became general manager of Base Metals’ Minera Loma de Níquel operation in Venezuela. John MacKenzie was appointed CEO of Base Metals’ Zinc operations in November 2006, becoming CEO of Copper in October 2009. 10. Norman Mbazima FCCA 51, is CEO of Thermal Coal. He joined the Anglo American Group in April, 2001, where he began his career at Konkola Copper Mines PLC. He was previously global chief financial officer for Anglo Coal and became executive director of finance at Anglo Platinum in June 2006, and later stepped in as joint acting chief executive. Norman Mbazima was appointed CEO of Scaw Metals in May 2008 and was appointed CEO of Thermal Coal in October 2009. 11. Neville Nicolau BT (Mining Engineering), MBA 50, is CEO Platinum. He joined the Anglo American Group in January 1979, subsequently working in the Gold and Uranium Division at different managerial levels in all the major operating areas in South Africa. In 2000-2001, he was the technical director of AngloGold’s South American operations, based in Brazil. He became chief operating officer (Africa) of AngloGold Ashanti in May 2004 and was appointed CEO of Anglo Platinum in June 2008. 12. Duncan Wanblad BSc (Eng) Mech, GDE (Eng Management) 43, is Group director Other Mining and Industrial. He joined Johannesburg Consolidated Investment Company Limited in 1990. Duncan Wanblad was appointed to the board of Anglo Platinum and various of its subsidiaries in 2004 – becoming the executive director in charge of projects and engineering. He was appointed joint acting chief executive of Anglo Platinum in August 2007, before taking over as CEO copper operations of Anglo American in May 2008. 13. Stephan Weber M.Sc 48, is CEO of Iron Ore Brazil. He worked for Rio Tinto from 2002 to 2008, serving on its Iron Ore Executive Committee from 2006 to 2008. Stephan Weber joined Anglo American in January 2009 as chief technical officer within Anglo Ferrous Metals and was appointed CEO of of Iron Ore Brazil in October 2009. 14. Peter Whitcutt BCom (Hons), CA (SA), MBA 44, is Group director strategy and business development. He joined Anglo American in 1990 within the Corporate Finance division. Peter Whitcutt worked on the merger of Minorco, the listing of Anglo American in 1999 and the subsequent unwinding of the cross-holding with De Beers. He was appointed chief financial officer of Base Metals in August 2008 and to his present position in October 2009. 70 Anglo American plc Annual Report 2009 Directors’ report G o v e r n a n c e The directors have pleasure in submitting the statutory financial statements of the Group for the year ended 31 December 2009. Principal activities and business review Anglo American plc is one of the world’s largest mining companies, is headquartered in the UK and listed on the London and Johannesburg stock exchanges. Anglo American’s portfolio of mining businesses spans precious commodities – in which it is a global leader in both platinum and diamonds; base metals – copper and nickel; and bulk commodities – iron ore, metallurgical and thermal coal. The Company’s mining operations and extensive pipeline of growth projects are located in southern Africa, South America, Australia, North America and Asia. More detailed information about the Group’s businesses, activities and financial performance is incorporated into this report by reference and can be found in the Chairman’s and Chief executive’s statements on pages 6 to 11 and the Operating and financial review on pages 12 to 67. The Corporate governance statement is on pages 75 to 79 and is incorporated in this Directors’ report by reference. Going concern The financial position of the Group, its cash flows, liquidity position and borrowing facilities are set out in the Group financial performance review on pages 30 to 33. In addition, detail is given on the Group’s policy on managing counterparty and liquidity risk in the Principal Risks and Uncertainties section on pages 64 to 67, with details of the Company’s policy on capital risk management being set out in note 24 to the financial statements. The Group’s gross debt at 31 December 2009 was $14.3 billion, representing a gearing level of around 30.8%. Details of borrowings and facilities are set out in notes 23 and 24 and net debt is set out in note 30. Over the last 12 months, the Group has taken a series of measures to strengthen the balance sheet and provide financial flexibility, principally: • issued a two tranche bond in the US market totalling $2.0 billion; • issued a $1.7 billion convertible bond; • issued two Eurobonds, totalling $2.2 billion; and • generated $2.4 billion of cash proceeds from the sale of the remaining investments in AngloGold Ashanti, Tongaat Hulett and Hulamin. At 31 December 2009, Anglo American had undrawn bank facilities of $9.5 billion, cash deposits of $3.3 billion and commercial paper maturing throughout 2010 of $67 million. Anglo American’s only significant debt facility for the period to 31 March 2011 is a £300 million (approximately $500 million) Eurobond maturing in December 2010, as well as the facilities of $538 million relating to Amapá. In addition, the Group has undrawn rand facilities equivalent to $1.9 billion with 364 day maturities which roll forward automatically on a daily basis, unless notice is served. The directors have considered the Group’s cash flow forecasts for the period to the end of March 2011. The Board is satisfied that the Group’s forecasts and projections, taking account of reasonably possible changes in trading performance and the intended refinancing of maturing facilities, show that the Group will be able to operate within the level of its current facilities for the foreseeable future. For this reason the Group continues to adopt the going concern basis (as interpreted by the Guidance on Going Concern and liquidity risk: Guidance for directors of UK companies 2009, published in October 2009) in preparing its financial statements. Dividends The Company did not declare an interim or recommend a final dividend for 2009. Share capital The Company’s authorised and issued share capital as at 31 December 2009, together with details of share allotments and purchases of own shares during the year, is set out in note 28 on pages 130 to 136. The Company was authorised by shareholders at the AGM held on 15 April 2009 to purchase its own shares in the market up to a maximum of 14.99% of the issued share capital. This authority will expire at the 2010 AGM and in accordance with usual practice a resolution to renew it for another year will be proposed. 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 booklet. Directors Biographical details of the directors currently serving on the Board are given on pages 68 and 69. Details of directors’ interests in shares and share options of the Company can be found in the Remuneration report on pages 80 to 90. Sir John Parker was appointed to the Board on 9 July 2009 and succeeded Sir Mark Moody- Stuart as chairman on 1 August 2009. Sir Philip Hampton, Jack Thompson and Ray O’Rourke joined the Board on 9 and 16 November and 11 December 2009 respectively. All four directors will be proposed for election at the AGM on 22 April 2010. Sir Rob Margetts and Chris Fay will retire from the Board at the conclusion of the AGM on 22 April 2010. Fred Phaswana resigned from the board on 1 January 2010. Karel Van Miert sadly passed away on 22 June 2009. Anglo American plc Annual Report 2009 71 Governance Directors’ report continued Sustainable development The Report to Society 2009 will be available from the Company in April 2010. This report focuses on the safety, sustainable development, health and environmental performance of the Group’s managed operations, its performance with regard to the Company’s Good Citizenship: Our Business Principles, and the operational dimensions of its social programmes. Employment and other policies The Group’s key operating businesses are empowered to manage, within the context of the different legislative and social demands of the diverse countries in which those businesses operate, and subject to the standards embodied in Anglo American’s Good Citizenship: Our Business Principles. In 2009, after an extensive review, the Business Principles were updated. Payment of suppliers Anglo American plc is a holding company and, as such, has no material trade creditors. Businesses across the Group are responsible for agreeing the terms under which transactions with their suppliers are conducted, reflecting local and industry norms and group purchasing arrangements which may have been made with a supplier. The Group values its suppliers and recognises the benefits to be derived from maintaining good relationships with them. Anglo American acknowledges the importance of paying invoices, especially those of small businesses, promptly. Value of land Land is mainly carried in the financial statements at cost. It is not practicable to estimate the market value of land and mineral rights, since these depend on product prices over the next 20 years or more, which will vary with market conditions. Post-balance sheet events Post-balance sheet events are set out in note 40 to the financial statements on page 144. Audit information The directors confirm that, so far as they are aware, there is no relevant audit information of which the auditors are unaware and that all directors have taken all reasonable steps to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. 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: • adherence to national legal standards on employment and workplace rights at all times; • adoption of fair labour practices; • prohibition of child labour; • prohibition of inhumane treatment of employees and any form of forced labour, physical punishment or other abuse; • continual promotion of safe and healthy working practices; • promotion of workplace equality and elimination of all forms of unfair discrimination; • provision of opportunities for employees to enhance their work-related skills and capabilities; • recognition of the right of our employees to freedom of association; and • adoption of fair and appropriate procedures for determining terms and conditions of employment. Further, the Group is committed to treating employees at all levels with respect and consideration, to investing in their development and to ensuring that their careers are not constrained by discrimination or arbitrary barriers. The Business Principles are supplemented by four “Anglo Way” documents, covering the safety, environmental, occupational health and social aspects of sustainable development. These set out more specific standards for each of these subject areas. In 2009, a Business Integrity policy and manual were also launched to help reinforce the Company’s longstanding stance of banning the payment or receipt of bribes and other improper inducements. Copies of the Good Citizenship: Our Business Principles and the Anglo Way documents are available from the Company and may be accessed on the Company’s website www.angloamerican.co.uk 72 Anglo American plc Annual Report 2009 As in previous years, numerous employee communication presentations and workshops took place at Group level, including a series of 70 workshops worldwide to embed the Group’s six core values, the training of over 500 managers on the implementation of the Socio-Economic Assessment Toolbox and three management development programmes. The Group has a well- used enterprise information portal, theSource, which seeks to ensure that employees are regularly updated on developments within the Group, and feedback is encouraged. 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. Charitable donations During the year, Anglo American, its subsidiaries and the Anglo American Group Foundation made donations for charitable purposes or wider social investments amounting to $82.5 million (2.23% of pre- tax profit of subsidiaries and joint ventures). Charitable donations of $1.8 million were made in the UK, consisting of payments in respect of education, sport and youth $0.8 million (45.5%); community development $0.3 million (15.2%); health and HIV/AIDS $0.15 million (8.6%); environment $0.05 million (3.6%); arts, culture and heritage $0.3 million (15.6%), and other charitable causes $0.2 million (11.5%). These figures were compiled with reference to the London Benchmarking Group model for defining and measuring social investment spending. A fuller analysis of the Group’s social investment activities can be found in the Report to Society 2009. Political donations No political donations were made during 2009. Anglo American has an established policy of not making donations to, or incurring expenses for the benefit of, any political party in any part of the world, including any political party or political organisation as defined in the Political Parties, Elections and Referendums Act 2000. Annual General Meeting The AGM will be held on 22 April 2010. A separate booklet enclosed with this report contains the notice convening the meeting together with a description of the business to be conducted. Additional information for shareholders Set out below is a summary of certain provisions of the Company’s current Articles of Association (the Articles) and applicable English law concerning companies (the Companies Act 2006 (the Companies Act)) required as a result of the implementation of the Takeovers Directive in English law. This is a summary only and the relevant provisions of the Articles or the Companies Act should be consulted if further information is required. Certain amendments to the Articles will be proposed at the AGM to be held on 22 April 2010. Details are set out in the enclosed notice of the AGM. Copies of the Company’s Articles marked up to show the proposed amendments, are available by application to the Company Secretary at the Registered Office. Dividends and distributions Subject to the provisions of the Companies Act, the Company may by ordinary resolution from time to time declare dividends not exceeding the amount recommended by the Board. The Board may pay interim dividends whenever the financial position of the Company, in the opinion of the Board, justifies such payment. The Board may withhold payment of all or any part of any dividends or other monies payable in respect of the Company’s shares from a person with a 0.25% interest or more (as defined in the Articles) if such a person has been served with a notice after failing to provide the Company with information concerning interests in those shares required to be provided under the Companies Act. Rights and obligations attaching to shares The rights and obligations attaching to the ordinary and preference shares are set out in the Articles. The Articles may only be changed by the shareholders by special resolution. Voting Subject to the Articles generally and to any special rights or restrictions as to voting attached by or in accordance with the Articles to any class of shares, on a show of hands every member who is present in person at a general meeting shall have one vote and, on a poll, every member who is present in person or by proxy shall have one vote for every share of which he/she is the holder. It is, and has been for some years, the Company’s practice to hold a poll on every resolution at shareholder meetings. Where shares are held by trustees/nominees in respect of the Group’s employee share plans and the voting rights attached to such shares are not directly exercisable by the employees, it is the Company’s practice that such rights are not exercised by the relevant trustee/nominee. Under the Companies Act, members are entitled to appoint a proxy, who need not be a member of the Company, to exercise all or any of their rights to attend and to speak and vote on their behalf at a general meeting or class meeting. A member may appoint more than one proxy in relation to a general meeting or class meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that member. A member that is a corporation may appoint one or more individuals to act on its behalf at a General Meeting or class meetings as a corporate representative. The debate around s323 of the Companies Act has been resolved so that where a shareholder appoints more than one corporate representative in respect of its shareholding, but in respect of different shares, those corporate representatives can act independently of each other, and validly vote in different ways. Restrictions on voting No member shall, unless the directors otherwise determine, be entitled in respect of any share held by him/her to vote either personally or by proxy at a shareholders’ meeting or to exercise any other right conferred by membership in relation to shareholders’ meetings if any call or other sum presently payable by him/her to the Company in respect of that share remains unpaid. In addition, no member shall be entitled to vote if he/she has been served with a notice after failing to provide the Company with information concerning interests in those shares required to be provided under the Companies Act. Issue of shares Subject to the provisions of the Companies Act relating to authority and pre-emption rights and of any resolution of the Company in a UK General Meeting, all unissued shares of the Company shall be at the disposal of the directors and they may allot (with or without conferring a right of renunciation), grant options over or otherwise dispose of them to such persons, at such times and on such terms as they think proper. Shares in uncertificated form Directors may determine that any class of shares may be held in uncertificated form and title to such shares may be transferred by means of a relevant system or that shares of any class should cease to be held and transferred. Subject to the provisions of the Companies Act, the CREST Regulations and every other statute, statutory instrument, regulation or order for the time being in force concerning companies and affecting the Company (together, the Statutes), the directors may determine that any class of shares held on the branch register of members of the Company resident in South Africa or any other overseas branch register of the members of the Company may be held in uncertificated form in accordance with any system outside the UK which enables title to such shares to be evidenced and transferred without a written instrument and which is a relevant system. The provisions of the Articles shall not apply to shares of any class which are in uncertificated form to the extent that the Articles are inconsistent with the holding of shares of that class in uncertificated form, the transfer of title to shares of that class by means of a relevant system or any provision of the CREST Regulations. Deadlines for exercising voting rights Votes are exercisable at a General Meeting of the Company in respect of which the business being voted upon is being heard. Votes may be exercised in person, by proxy, or in relation to corporate members, by corporate representative. The Articles provide a deadline for submission of proxy forms of not than less than 48 hours before the time appointed for the holding of the meeting or adjourned meeting. Variation of rights Subject to statute, the Articles specify that rights attached to any class of shares may be varied with the written consent of the holders of not less than three-quarters in nominal value of the issued shares of that class, or with the sanction of an extraordinary resolution passed at a separate General Meeting of the holders of those shares. At every such separate General Meeting the quorum shall be two persons holding or representing by proxy at least one- third in nominal value of the issued shares of the class (calculated excluding any shares held as treasury shares). The rights conferred upon the holders of any shares shall not, unless otherwise expressly provided in the rights attaching to those shares, be deemed to be varied by the creation or issue of further shares ranking pari passu with them. G o v e r n a n c e Anglo American plc Annual Report 2009 73 Significant agreements: Change of control At 31 December 2009, Anglo American had committed bilateral and syndicated borrowing facilities totalling $14.6 billion with a number of relationship banks which contain change of control clauses. The rand 20 billion South African Medium Term Note Programme and $5.9 billion of the Group’s bond issues also contain change of control provisions. In aggregate, this financing is considered significant to the Group and in the event of a takeover (change of control) of the Company, these contracts may be cancelled, become immediately payable or be subject to acceleration. Purchases of own shares At the AGM held on 15 April 2009, authority was given for the Company to purchase, in the market, up to 197.3 million Ordinary Shares of 5486/91 US cents each. The Company did not purchase any of its own shares during 2009. Indemnities To the extent permitted by law and the Articles the Company has made qualifying third party indemnity provisions for the benefit of its directors during the year and which remain in force at the date of this report. Copies of these indemnities are open for inspection at the Company’s registered office. By order of the Board Nicholas Jordan Company Secretary 18 February 2010 Governance Directors’ report continued Powers of directors Subject to the Articles, the Companies Act and any directions given by special resolution, the business of the Company will be managed by the Board who may exercise all the powers of the Company. The Board may exercise all the powers of the Company to borrow money and to mortgage or charge any of its undertaking, property and uncalled capital and to issue debentures and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party. The Company may by ordinary resolution declare dividends but no dividend shall be payable in excess of the amount recommended by the directors. Subject to the provisions of the Articles and to the rights attaching to any shares, any dividends or other monies payable on or in respect of a share may be paid in such currency as the directors may determine. The directors may deduct from any dividend payable to any member all sums of money (if any) presently payable by him/her to the Company on account of calls or otherwise in relation to shares of the Company. The directors may retain any dividends payable on shares on which the Company has a lien, and may apply the same in or towards satisfaction of the debts, liabilities or engagements in respect of which the lien exists. Appointment and replacement of directors The directors may from time to time appoint one or more directors. The Board may appoint any person to be a director (so long as the total number of directors does not exceed the limit prescribed in the Articles). Any such director shall hold office only until the next AGM and shall then be eligible for election. At each AGM all those directors who have been in office for three years or more since their election or last re-election shall retire from office. In addition, a director may at any AGM retire from office and stand for re-election. In accordance with the Combined Code, any director who has served more than three three- year terms is subject to annual re-election. Transfer of shares All transfers of shares which are in certificated form may be effected by transfer in writing in any usual or common form or in any other form acceptable to the directors and may be under hand only. The instrument of transfer shall be signed by or on behalf of the transferor and (except in the case of fully-paid shares) by or on behalf of the transferee. The transferor shall remain the holder of the shares concerned until the name of the transferee is entered in the register. All transfers of shares which are in uncertificated form may be effected by means of the CREST system. The directors may decline to recognise any instrument of transfer relating to shares in certificated form unless it: (a) is in respect of only one class of share; and (b) is lodged at the transfer office (duly stamped if required) accompanied by the relevant share certificate(s) and such other evidence as the directors may reasonably require to show the right of the transferor to make the transfer (and, if the instrument of transfer is executed by some other person on his/her behalf, the authority of that person so to do). The directors may, in the case of shares in certificated form, in their absolute discretion and without assigning any reason therefor, refuse to register any transfer of shares (not being fully-paid shares) provided that, where any such shares are admitted to the Official List of the London Stock Exchange, such discretion may not be exercised in such a way as to prevent dealings in the shares of that class from taking place on an open and proper basis. The directors may also refuse to register an allotment or transfer of shares (whether fully paid or not) in favour of more than four persons jointly. If the directors refuse to register an allotment or transfer, they shall send within two months after the date on which the letter of allotment or transfer was lodged with the Company, to the allottee or transferee, notice of the refusal. A shareholder does not need to obtain the approval of the Company, or of other shareholders of shares in the Company, for a transfer of shares to take place. Directors Directors shall not be less than 10 nor more than 18 in number. A director is not required to hold any shares of the Company by way of qualification. The Company may by ordinary resolution increase or reduce the maximum or minimum number of directors. 74 Anglo American plc Annual Report 2009 Corporate governance Combined Code compliance Anglo American is committed to the highest standards of corporate governance – the way in which the Company is directed and controlled – and complied fully with the Combined Code on Corporate Governance June 2008 (the Code) throughout the year under review. Role of the Board The Board of directors has a duty to promote the success of the Company for its shareholders. Its role includes the establishment, review and monitoring of strategic objectives, approval of major acquisitions, disposals and capital expenditure and overseeing 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 John Parker who succeeded Sir Mark Moody-Stuart in August 2009. The chairman is responsible for leading the Board and for its effectiveness. Cynthia Carroll is the chief executive and is responsible for the execution of strategy and the day-to- day management of the Group, supported by the Group Management Committee (GMC) and the Executive Committee (ExCo), both of which she chairs. The Company has adopted the Statement of Division of Responsibilities between the Chairman and the Chief Executive promulgated by the Institute of Chartered Secretaries and Administrators. The functions and membership of GMC and ExCo are set out on page 70. David Challen has been the senior independent non-executive director since 2008. The senior independent non-executive director is available to shareholders as an alternative to the chairman or chief executive and in this capacity met with representatives of major shareholders of the Group in 2009. The Board has a strong independent element and currently comprises, in addition to the chairman, two executive and 10 non-executive directors, nine of whom are independent according to the definition contained in the Code. The independent directors are indicated within the table opposite, and full biographical details for each director are given on pages 68 and 69. The letters of appointment of the non- executive directors and the executives’ service contracts are available for inspection at the registered office of the Company. The Company is conscious of the need to maintain an appropriate mix of skills and experience on the Board, and to progressively refresh its composition over time, and, in this connection, four new independent non-executive directors were appointed to the board during 2009. Sir John Parker was appointed as chairman of the Group and Sir Philip Hampton, Jack Thompson and Ray O’Rourke joined the board in the latter part of 2009. Since January 2009 two independent non- executive directors have left the board. Sadly, Karel Van Miert passed away in June 2009 and Fred Phaswana resigned from the board on 1 January 2010. Sir Mark Moody-Stuart, a non-independent non-executive director has also left the Board. The Committee memberships were substantially refreshed in 2009 incorporating changes that resulted in a fully independent Nomination Committee. Cynthia Carroll and Nicky Oppenheimer will be proposed for re-election at the AGM on 22 April 2010. Sir John Parker, Sir Philip Hampton, Jack Thompson and Ray O’Rourke will be proposed for election at the AGM. Cynthia Carroll is the chief executive of Anglo American plc, chairs the ExCo and GMC and is a member of the S&SD Committee. Nicky Oppenheimer has been on the Board since 1999 and brings a wealth of knowledge of the Group and is considered to be an effective and committed member of the Board. Sir John Parker is the newly appointed chairman of Anglo American plc, chairman of the Nomination Committee and sits on the S&SD Committee. Sir John is recognised as a highly experienced and independent chairman, has chaired four FTSE 100 companies and brings leadership experience across a range of industries in many countries, including in South Africa. Jack Thompson is an independent non-executive director and member of the S&SD Committee. He brings experience gained at all levels of the mining industry and has received wide recognition as a mining engineer. Jack Thompson also has extensive boardroom experience in executive and non-executive roles. Sir Philip Hampton and Ray O’Rourke are both independent non-executive directors. Sir Philip brings financial, strategic and boardroom experience across a number of industries and Ray O’Rourke has a proven track record in delivering complex and large scale projects around the world, mobilising large numbers of people with great success and applying leading project management practices. None of the non-executive directors has served concurrently with an executive director for more than five years. Of the directors who were unable to attend one of the Board meetings each during 2009, Sir Rob Margetts was unable to attend due to a clash of meetings as a result of the Company’s Board meeting being convened at short notice, David Challen was unable to attend due to illness and Chris Fay was in transit from the US to the UK (again, the relevant meeting was convened at short notice). Nicky Oppenheimer was obliged to attend a court hearing and Fred Phaswana was obliged to attend a Standard Bank board meeting as its new chairman and had already given notice of his resignation from the Anglo American plc Board at that time. Board and Committee meetings – frequency and attendance Independent in terms of code Board (seven meetings) Audit (three meetings) S&SD (five meetings) Remuneration (three meetings) Nomination (five meetings) G o v e r n a n c e Sir John Parker(1) Sir Mark Moody-Stuart(1) Cynthia Carroll René Médori David Challen Sir C K Chow Chris Fay Sir Philip Hampton(1) Sir Rob Margetts Karel Van Miert(2) Nicky Oppenheimer Ray O’Rourke Fred Phaswana Mamphela Ramphele Jack Thompson(1) Peter Woicke n/a n/a No No Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes All All All All 6 All 6 All 6 All 6 n/a 6 All All All n/a n/a n/a n/a All n/a All n/a n/a All n/a n/a 2 n/a n/a All All All 4 n/a n/a n/a All n/a n/a n/a n/a n/a n/a All n/a 4 (1) Meetings attended prior to retirement or since appointment. (2) Deceased June 2009. (3) Missed one meeting prior to leaving the Committee. (4) Attended one out of two Nomination Committee meetings held prior to leaving the Committee. n/a All n/a n/a 2 All 0(3) n/a All n/a n/a n/a n/a n/a n/a All All All n/a n/a All All n/a n/a All All 1(4) n/a All All n/a All Anglo American plc Annual Report 2009 75 Governance Corporate governance continued Conflicts of interest During the year, a full survey of the Board members’ interests and appointments was carried out and the Board was fully briefed on the Companies Act 2006 provisions in relation to conflicts of interest. Appropriate conflict management procedures are in place. Anglo American policy dictates that if a director becomes aware that they have a direct or indirect interest in an existing or proposed transaction with Anglo American, they should notify the Board at the next Board meeting or by a written declaration. Directors have a continuing duty to update any changes in these interests. There were no such notifications of interests in proposed transactions during the year. In accordance with the Company’s Articles and relevant legislation, an unconflicted quorum of the Board can authorise potential conflicts and such authorisations can be limited in scope and are reviewed on an annual basis. During the year under review, the conflict management procedures were adhered to and operated effectively. Directors’ training Anglo American’s directors have a wide range of expertise as well as significant experience in strategic, financial, commercial and mining activities. Upon appointment, directors are provided with recent Board materials and a reference manual containing information on legal obligations and other matters of which they should be aware. Guidance is provided on Market Conduct under the FSA, the Company’s Articles, the Combined Code on Corporate Governance and the Model Code. The manual also includes items such as Board and Committee terms of reference, relevant company information and guidance on where to obtain independent advice. The manual is updated periodically when appropriate. Training and briefings are also available to all directors on appointment and subsequently, as necessary, taking into account existing qualifications 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 2009. Presentations are made to the Board by business management on the activities of operations. Directors undertake regular visits to operations and projects and, in 2009, operations and projects in Alaska, South Africa, Brazil, Chile, China, Australia, India and Botswana were visited. In addition, during the year, directors attended courses/seminars on IFRS, other financial matters and directors’ forums. Board effectiveness A formal evaluation of the performance of the Board, its committees and individual directors was carried out by Dr Long of Boardroom Review in late 2008 and presented to the Board. For the first time the scope of the evaluation was widened to include the views of senior executives below board level. The aim is to ensure continuous improvement in the functioning of the Board. Arising from this review, the Board has agreed to certain changes and ongoing development in the following areas: • Strategy planning • Communications with major shareholders • Talent management and succession planning • Committee composition • Submission of information to the Board and scheduling of meetings 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. It is the Board’s current intention to continue to engage an external reviewer for the Board effectiveness evaluation process from time to time. In light of the many changes to the Board during the year it was decided that an external review would not be carried out in 2009. In the meantime, the chairman has held individual briefings with each director to ensure that the necessary Board and committee processes are functioning properly. Since his appointment, Sir John has introduced a rolling agenda for the Board and instigated regular informal meetings of the non-executives prior to each Board meeting. These informal meetings give the Board the opportunity, inter alia, to discuss the performance of the management and to air subjects outside the confines of the boardroom in an informal but nevertheless constructive manner. Committees of the Board Subject to those matters reserved for its decision, the Board delegates certain responsibilities to a number of standing committees – the Remuneration, S&SD, Nomination and Audit Committees. The terms of reference for each of these committees and a schedule of matters reserved for the Board’s decision 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 specific remuneration packages for executive directors. The directors’ Remuneration report, setting out Anglo American’s policy on executive remuneration, is set out on pages 80 to 90 of this Annual Report. A resolution to approve the Remuneration report will be proposed at the forthcoming AGM. The Committee met three times during 2009. The Remuneration Committee presently comprises: Sir Rob Margetts (chairman), David Challen, Sir CK Chow, Peter Woicke and Sir Philip Hampton, all of whom are independent non-executive directors. Safety and Sustainable Development (S&SD) Committee 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 business unit heads are invited to attend committee meetings. Each business unit head makes a safety and sustainable development presentation to the Committee. The Committee met five times during 2009. The Report to Society 2009, to be published in April, will focus 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), Cynthia Carroll, Sir John Parker, Mamphela Ramphele, Jack Thompson and Peter Woicke. 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. During 2009, the services of Spencer Stuart were used by the Committee. 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 Committee met five times during 2009. The Nomination Committee currently comprises Sir John Parker (chairman), David Challen, Mamphela Ramphele, Peter Woicke and Sir CK Chow. 76 Anglo American plc Annual Report 2009 Audit Committee The primary role of the Audit Committee is to ensure the integrity of financial reporting and the audit process, and that a sound risk management and internal control system is maintained. In pursuing these objectives, the Audit Committee oversees relations with the external auditors and reviews the effectiveness of the internal audit function. The Committee also monitors developments in corporate governance to ensure the Group continues to apply high and appropriate standards. Composition The Audit Committee presently comprises: David Challen (chairman), Chris Fay and Sir Philip Hampton, 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 financial management. The Committee met three times during 2009, 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. In fulfilling its responsibility of monitoring the integrity of financial reports to shareholders, the Audit Committee has reviewed accounting principles, policies and practices adopted in the preparation of public financial information and has examined documentation relating to the Annual Report, Half Year Financial Report, preliminary announcements and related public reports. The clarity of disclosures included in the financial statements was reviewed by the Audit Committee, as was the basis for significant estimates and judgements. In assessing the accounting treatment of major transactions open to different approaches, the Committee considered written reports by management and the external auditors. The Committee’s recommendations are submitted to the Board for approval. The chief financial officers of all operations have provided confirmation, on a six-monthly basis, that financial and accounting control frameworks operate satisfactorily. The Committee considered summaries of the significant risk and control issues arising from these reports. The Committee also received regular internal audit reports on the results of audits at various operations. During 2009, the Audit Committee approved the internal audit and risk management plans for 2010 and the process by which the new audit engagement partner received induction to the business prior to taking up his role in 2010. The Audit Committee held meetings with the External Auditors without the presence of management on two occasions and the chairman of the Audit Committee held regular meetings with the audit engagement partner during the year. Further information on risk management processes is provided in the internal control disclosure statement on page 78. 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 and revised in April 2008 and October 2009. A key factor that may impair auditors’ independence is a lack of control over non-audit services provided by the external auditors. In essence, the external auditors’ independence is deemed to be impaired if the auditors provide a service which: • results in auditing of own work by the auditors; • results in the auditors acting as a manager or employee of the Group; • puts the auditors in the role of advocate for the Group; or • creates a mutuality of interest between the auditors and the Group. Anglo American addresses this issue through three primary measures, namely: • disclosure of the extent and nature of non-audit services; • the prohibition of selected services; and • prior approval by the Audit Committee chairman of non-audit services where the cost of the proposed assignment is likely to exceed $50,000. The definition of prohibited non-audit services corresponds with the European Commission’s recommendations on auditors’ independence and with the Ethical Standards issued by the Audit Practices Board in the UK. Other safeguards encapsulated in the policy include: • the external auditors are required to adhere to a rotation policy based on best practice and professional standards in the United Kingdom. The standard period for rotation of the audit engagement partner is five years and, for any key audit partner, seven years. A new audit engagement partner has been appointed from 2010 in accordance with this requirement. • any partner designated as a key audit partner of Anglo American shall 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. G o v e r n a n c e • the external auditors are required to assess periodically, in their professional judgement, whether they are independent of the Group. • the Audit Committee ensures that the scope of the auditors’ work is sufficient and that the auditors are fairly remunerated. • the Audit Committee has primary responsibility for making recommendations to the Board on the appointment, re-appointment and removal of the external auditors. • the Audit Committee has the authority to engage independent counsel and other advisers as they determine necessary in order to resolve issues on auditor independence. The Audit Committee has satisfied itself that the United Kingdom professional and regulatory requirements for audit partner rotation and employment of former employees of the external auditors have been complied with. The Audit Committee considered information pertaining to the balance between fees for audit and non-audit work for the Group in 2009 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 2009 interim review, the annual audit and the applicable levels of materiality. Based on written reports submitted, the Committee reviewed, with the external auditors, the findings of their work and confirmed that all significant matters had been satisfactorily resolved. The appointment of Deloitte LLP as the Group’s external auditors (incumbents since the listing in 1999) is kept under annual review, and if satisfactory, the Committee will recommend the re-appointment of the audit firm. The appointment of Deloitte LLP followed a detailed evaluation of the predecessor audit firms following the listing and, rather than adopting a policy on tendering frequency, an annual review of the effectiveness of the external audit is supplemented by a periodic, comprehensive reassessment by the Committee. Anglo American plc Annual Report 2009 77 Governance Corporate governance continued 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 LLP as auditors until the conclusion of the AGM in 2011. Resolutions to authorise the Board to re-appoint and determine their remuneration will be proposed at the AGM on 22 April 2010. Internal audit The Group has an internal audit department that reports centrally with responsibility for reviewing and providing assurance on the adequacy of the internal control environment across all of Anglo American’s operations. The head of internal audit is responsible for reporting and following up on the findings of this internal audit work to local management and the Audit Committee on a regular basis. Internal audit teams operated in all of the Group’s principal divisions in the period under review, reporting findings to local senior management. The internal audit function’s mandates and annual audit coverage plans were approved by the Audit Committee. The internal audit activities are performed either by teams of appropriate, qualified and experienced employees, or through the engagement of external practitioners upon specified and agreed terms. A summary of audit results and risk-management information was presented to the Committee and Group senior management at regular intervals throughout the year. The Group’s head of internal audit reports to the Audit Committee on the internal audit function’s performance against the agreed internal audit plan. Assurance regarding the accuracy and reliability of mineral resources and ore reserves disclosures is provided through a combination of internal technically proficient staff and independent third parties. During 2009, over 300 audit projects were completed covering a variety of financial, operational, strategic and compliance related business processes across all business units and functions. In addition, the internal audit department responded to a number of management requests to investigate alleged breaches of our business principles. Effectiveness of internal control and risk management The GMC, as mandated by the Board, maintains a Group-wide system of internal control to manage significant Group risks. This system, which has been operating throughout the year and to the date of this report, supports the Board in discharging its responsibility for ensuring that the wide range of risks associated with the Group’s diverse international operations is effectively managed in support of the creation and preservation of shareholder wealth. Where appropriate, necessary action has been or is being taken to remedy any failings or weaknesses identified from review of the effectiveness of the internal control system, including the lessons learned from the acquisition and development of the Amapá 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 defined by the Board. Regular management reporting, which provides a balanced assessment of key risks and controls, is an important component of Board assurance. In addition, certain Board committees focus on specific risks such as safety and capital investment and provide assurance to the Board on those matters. The chief financial officers provide confirmation, on a six-monthly basis, that financial and accounting control frameworks have operated satisfactorily. The Board also receives assurance from the Audit Committee, which derives its information, in part, from regular internal audit reports on risk and internal control throughout the Group and external audit reporting. The Group’s internal audit function has a formal collaboration process in place with the external auditors to ensure efficient coverage of internal controls. The Anglo American internal audit function is responsible for providing independent assurance to executive management and the Board on the effectiveness of the risk management process throughout the Group. Anglo American seeks to have a sound system of internal control, based on the Group’s policies and guidelines, in all material associates and joint ventures. In those companies that are independently managed, as well as joint ventures, the directors who are represented on these organisations’ boards seek assurance that significant risks are being managed. Risk management The Board’s policy on risk management encompasses all significant business risks to the Group, including, financial, operational and compliance risk, which could undermine the achievement of business objectives. This system of risk management is designed so that the different businesses are able to tailor and adapt their risk management processes to suit their specific circumstances. This flexible approach has the commitment of the Group’s senior management. There is clear accountability for risk management, which is a key performance area of line managers throughout the Group. The requisite risk and control capability is assured through Board challenge and appropriate management selection and skills development. Managers are supported in giving effect to their risk responsibilities through policies and guidelines on risk and control management. Support through facilitated risk assessments is provided by a central team responsible for ensuring a robust process is implemented for risk management. During 2009, over 100 separate risk assessment workshops were conducted reviewing risk in business unit strategies, risks to achieving mine plans, risks in capital projects and risks to key change programmes. The results of these risk assessments were reported to senior management and the Audit Committee. The process of risk management is designed to identify internal and external threats to the business and to assist management in prioritising their response to those risks. Continuous monitoring of risk and control processes, across headline risk areas and other business-specific risk areas, provides the basis for regular and exception reporting to business management and boards, ExCo, the Audit Committee and the Board. Some of the headline risk areas, which have been elaborated upon in the financial review, set out on pages 64 to 67 are: • commodity price risk; • political risk; • legal and regulatory risk; • counterparty risk; and • infrastructure and operational performance risks. The risk assessment and reporting criteria are designed to provide the Board with a consistent, Group-wide perspective of the key risks. The reports to the Board, which are submitted at least every six months, include an assessment of the likelihood and impact of risks materialising, as well as risk mitigation initiatives and their effectiveness. In conducting its annual review of the effectiveness of risk management, the Board considers the key findings from the ongoing monitoring and reporting processes, management assertions and independent assurance reports. The Board also takes account of material changes and trends in the risk profile and considers whether the control system, including reporting, adequately supports the Board in achieving its risk management objectives. During the course of the year the Board considered the Group’s responsiveness to changes within its business environment. The Board is satisfied that there is an ongoing process, which has been operational during the year, and up to the date of approval of the Annual Report, for identifying, evaluating and managing the significant risks faced by the Group. This includes social, environmental and ethical risks as highlighted in the Disclosure 78 Anglo American plc Annual Report 2009 Guidelines on Socially Responsible Investment issued by the Association of British Insurers. A detailed report on social, environmental and ethical issues is included in the Company’s Report to Society 2009. Accountability and audit The Board is required to present a balanced and understandable assessment of Anglo American’s financial position and prospects. Such assessment is provided in the Chairman’s and Chief executive’s statements and the Operating and financial review of this Annual Report. The respective responsibilities of the directors and external auditors are set out on pages 92, 94 and 95. As referred to in the Directors’ report, the directors have expressed their view that Anglo American’s business is a going concern. Whistleblowing programme The Group has had in place for a number of years a whistleblowing programme in all its managed operations. The programme, which is monitored by the Audit Committee, is designed to enable employees, customers, suppliers, managers or other stakeholders, on a confidential basis, to raise concerns in cases where conduct is deemed to be contrary to our values. It may include: • actions that may result in danger to the health and/or safety of people or damage to the environment; • unethical practice in accounting, internal accounting controls, financial reporting and auditing matters; • criminal offences, including money laundering, fraud, bribery and corruption; • failure to comply with any legal obligation; • miscarriage of justice; • any conduct contrary to the ethical principles embraced in our Business Principles or any similar policy; • any other legal or ethical concern; and • concealment of any of the above. The programme makes available a selection of telephonic, e-mail, web-based and surface mail communication channels to any person in the world who has information about unethical practice in Anglo American 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 2009, 313 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 confidential and were referred to appropriate line managers within the Group for resolution. Where appropriate, action was taken to address the issues raised. The reports are analysed and monitored to ensure the process is effective. Executive management Group Management Committee (GMC) GMC replaced the ExCo in terms of authority in 2009 and is responsible for formulating strategy (for discussion and agreement by the Board), monitoring performance and managing the Group’s portfolio. The current members of GMC are; Cynthia Carroll (chair), René Médori, Brian Beamish, Mervyn Walker and David Weston. Executive Committee (ExCo) ExCo is responsible for the implementation of policies and programmes, the adoption of best practice standards and senior talent management across the Group. ExCo meets at least every two months on a formal basis for a two-day session and when required in the intervening periods. The current members of ExCo are; Cynthia Carroll (chair), René Médori, Brian Beamish, Walter De Simoni, Seamus French, Chris Griffith, John MacKenzie, Norman Mbazima, Neville Nicolau, Mervyn Walker, Duncan Wanblad, Stephan Weber, David Weston and Peter Whitcutt. Along with the chief executive and finance director, the members of ExCo are selected from the heads of business units and corporate functions. Investment Committee The role of the Investment Committee, which is a sub-committee of GMC, is to manage the process of capital allocation by ensuring that investments and divestments increase shareholder value and meet Anglo American’s financial criteria. The Committee makes recommendations to GMC and/or the Board on these matters. The Committee meets as required. The Investment Committee presently comprises: René Médori (chairman), Brian Beamish, Gareth Mostyn and David Weston. Relations with shareholders The Company maintains an active dialogue with its key financial audiences, including institutional shareholders, sell-side analysts and potential shareholders. The Investor Relations Department manages the ongoing dialogue with these audiences and regular presentations take place at the time of interim and final results as well as during the rest of the year. An active programme with potential shareholders is also maintained. Any concerns raised by a shareholder in relation to the Company and its affairs are communicated to the Board as a whole. The Board is briefed on a regular basis by the Investor Relations Department and analysts’ reports are circulated to the directors. Feedback from meetings held between executive management, or the Investor Relations Department, and institutional shareholders is also communicated to the Board. During the year there were regular presentations and meetings with institutional investors in the UK, South Africa, continental Europe and the US to communicate the strategy and performance of Anglo American. Executive directors, as well as key corporate officers including business unit heads, host such presentations, including seminars for investors and analysts, and ‘one-on-one’ meetings. Executive management also presents at industry conferences on a regular basis throughout the year, which are mainly organised by investment banks for their institutional investor base. 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 www.angloamerican.co.uk provides the latest news and historical financial information, details about forthcoming events for shareholders and analysts, 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 Company communications electronically rather than by mail and, for those unable to attend the meeting, to cast their votes by electronic means, including those shareholders whose shares are held in the CREST system. As a result of the implementation of the electronic communications provisions in the Companies Act 2006, the Company has substantially reduced the cost of the annual report production and distribution. The Company successfully extended this approach in 2009 to incorporate South African investors holding shares in dematerialised form. Shareholders may elect to receive notification by email of the availability of the annual report on the Company’s website instead of receiving paper copies. In accordance with best practice, 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. G o v e r n a n c e Anglo American plc Annual Report 2009 79 Governance Remuneration report 1. Remuneration Committee This report sets out the Company’s remuneration policy and practice for executive and non- executive directors and provides details of their remuneration and share interests for the year ended 31 December 2009. 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 specific remuneration packages for executive directors of the Company, including basic salary, performance-based short-term and long-term incentives, pensions and other benefits; and • the design and operation of the Company’s share incentive schemes. The full Terms of Reference of the Committee can be found on the Anglo American website (www.angloamerican.co.uk) and copies are available on request. The Committee met three times during 2009 and dealt with ad hoc items between formal meetings by ‘round robin’ resolutions. 1.2 Membership of the Committee The Committee comprised the following non-executive directors during the year ended 31 December 2009: • Sir Rob Margetts (Chairman) • David Challen • Sir C K Chow (appointed with effect from 15 April 2009) • Chris Fay (resigned with effect from 15 April 2009) • Sir Philip Hampton (appointed with effect from 2 December 2009) • Sir Mark Moody-Stuart (resigned with effect from 1 August 2009) • Peter Woicke (appointed with effect from 15 April 2009) The Company’s chief executive attends the Committee meetings by invitation and assists the Committee in its deliberations, except when issues relating to her own compensation are discussed. No directors are involved in deciding their own remuneration. In 2009, the Committee was advised by the Company’s Human Resources and Finance functions and, specifically, Mervyn Walker and Chris Corrin. It also took external advice as shown in Figure 1. Certain overseas operations within the Group are also provided with audit related services from PwC’s and Deloitte’s worldwide member firms and non-audit related services from Mercer’s worldwide member firms. A summary of the letter from Mercer containing the conclusions of their review of the Committee’s executive remuneration processes for 2009 can be found on page 91, while the full letter can be found on the Company’s website. 2. Remuneration policy on executive director remuneration The Company’s remuneration policy is formulated to attract and retain high-calibre executives and to motivate them to develop and implement the Company’s business strategy in order to optimise long-term shareholder value creation. The Committee intends that this policy will continue to apply for 2010 and subsequent years, subject to ongoing review as appropriate. The policy is framed around the following key principles: Figure 1: External advice provided to the Remuneration Committee Advisers PricewaterhouseCoopers LLP (PwC) Appointed by the Company, with the agreement of the Committee, to provide specialist valuation services Monks Partnership (a subsidiary of PwC) Linklaters LLP (Linklaters) Mercer Limited (Mercer) Deloitte LLP (Deloitte) 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 legal advice on long-term incentives and directors’ service contracts 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 stated policy and that the Committee has operated within its Terms of Reference 80 Anglo American plc Annual Report 2009 • total rewards will be set at levels that are sufficiently competitive to enable the recruitment and retention of high-calibre executives; • total incentive-based rewards will be earned through the achievement of demanding performance conditions consistent with shareholder interests; • incentive plans, performance measures and targets will be structured to operate soundly throughout the business cycle; • the design of long-term incentives will be prudent and will not expose shareholders to unreasonable financial risk; • in considering the market positioning of reward elements, account will be taken of the performance of the Company and of the individual executive director; and • reward practice will conform to best practice standards as far as reasonably practicable. Representatives of the Company’s principal investors are consulted on material 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 benefits. An appropriate balance is maintained between fixed and performance-related remuneration and between elements linked to short-term financial performance and those linked to longer-term shareholder value creation. Assuming on-target performance, the Committee’s policy is that at least 50% (60% for Cynthia Carroll) of each executive director’s remuneration is performance-related. In 2009, 69% of both the chief executive’s and the finance director’s remuneration on an expected-value basis was performance-related (see illustrative charts). Other services provided to the Company Investment advisers, actuaries and auditors for various pension schemes; advisers on internal audit projects; taxation, payroll and executive compensation advice Legal advice on certain corporate matters 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, they provide no advice to the Committee CEO – Expected values 3 1 2 1 Fixed 31% 2 Performance-related annual bonus 40% 3 Performance-related long-term incentives 29% FD – Expected values 3 1 2 1 Fixed 31% 2 Performance-related annual bonus 40% 3 Performance-related long-term incentives 29% Vesting of Enhancement Shares 3 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% 1 33% 2 0% RPI +0% RPI +3% RPI +6% RPI +9% RPI +12% RPI +15% RPI +18% Real EPS growth over three years G o v e r n a n c e 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 the LTIP are set out below and on pages 82 and 83. 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 mining companies in particular, has continued to be very competitive in recent years 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 first operated in 2004 and all executive directors are normally eligible to participate in it. The BSP requires executive directors to invest a significant proportion of their remuneration in shares, thereby more closely aligning their interests with those of shareholders, and encourages management at all levels to build up a meaningful personal stake in the Company. Awards under the BSP are not pensionable, are made annually and consist of three elements: • a performance-related cash element; • Bonus Shares as a conditional award, normally to a value equal to the cash element; and • an additional performance-related element in the form of Enhancement Shares. 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 specific 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 12 of the financial statements). The key individual objectives are designed to support the Company’s strategic priorities and in 2009 included cost and asset optimisation, portfolio restructuring, strategic initiatives, organisational structure and capabilities, safety improvements and operational effectiveness. • the Committee reviews these measures annually to ensure they remain appropriate and sufficiently stretching in the context of the economic and performance expectations for the Company and its operating businesses; • • in 2009, 50% of each annual bonus was based on the corporate financial measure and the remaining 50% on key personal performance measures. This split was decided upon to reflect the importance of the ongoing strategic repositioning of the Group and because of the volatile nature of commodity prices with the implications of this on setting earnings targets. The level of bonus payable is reduced if certain overall safety improvement targets are not met. Bonus parameters are set on an individual basis; the maximum cash element is 75% of basic salary in the case of both Cynthia Carroll and René Médori. Half of the bonus earned is payable in cash and the other half is deferred into shares. The maximum bonus is payable only for meeting targets which, in the opinion of the Committee, represent an exceptional performance for the Group in the light of prevailing market conditions. The other part 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’). At the time that bonus targets were set in early 2009, the prices of the Company’s products had fallen very sharply and the EPS targets set by the Committee looked extremely stretching. During the year, the actions taken by management, together with improving prices, led to an out-turn higher than the targets that had been set. Having taken all relevant considerations into account, the Committee concluded that the bonuses awarded should reflect the achievement of the targets, but that the proportion of the bonus deferred into shares should be increased from 50% to 75% for a second year running. • 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. Awards of Enhancement Shares made in 2009 will vest after three years only to the extent that a challenging performance condition (based on earnings per share growth against growth in the UK Retail Price Index (RPI) – Real EPS growth) is met (see illustrative chart opposite). There is no retesting of this performance condition. Real EPS growth is viewed as the most appropriate performance measure for this element of the BSP because it is a fundamental financial performance indicator, both internally and externally, and links directly to the Company’s long-term objective of improving earnings. Anglo American plc Annual Report 2009 81 Governance Remuneration report continued The BSP 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. Performance measures As in previous years, vesting of the LTIP awards made during 2009 is subject to the achievement, over a fixed three-year period, of stretching Group performance targets. The level of performance achieved and the proportion of awards vesting in respect of each performance period will be published in the subsequent remuneration report. 3.4 Share options and all-employee share schemes No share options were granted in 2009 to executive directors under the Company’s Executive Share Option Scheme (ESOS) and there is no intention to make future grants under the unapproved part of the ESOS to executive directors. However, the ESOS is retained for use in special circumstances relating to the recruitment or retention of key executives. Accordingly, as the previous ESOS was due to expire in early 2009, the plan was replaced in 2009 by the Anglo American Discretionary Option Plan (DOP) which was approved by shareholders at the Annual General Meeting (AGM) in April 2008. No options were granted in 2009 to executive directors under the DOP. UK-based executive directors are eligible to participate in the Company’s Save As You Earn scheme (SAYE) and Share Incentive Plan (SIP). Performance conditions do not apply to these schemes because they are offered to all UK-based employees. As the previous SAYE scheme was due to expire in early 2009, it was replaced in 2009 by the new SAYE scheme which was approved by shareholders at the AGM in April 2008. 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 currently 200% of basic salary and it is anticipated that, in 2010, conditional grants under the LTIP will be made at this level for executive directors, including the chief executive. The Committee is satisfied that the performance conditions that need to be met for these awards to vest in full are sufficiently 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 are considered on a case-by-case basis. 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 benefit under this measure only if shareholders have enjoyed returns on their investment which are superior to those that could have been obtained in other comparable companies. 50% of the proportion of each award that is based on TSR is measured against the Sector Index and 50% is measured against the constituents of the FTSE 100. Maximum vesting of the TSR element of an award will be possible only if Anglo American outperforms by a substantial margin both the sector benchmark (as described below) and the largest UK companies across all sectors. 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 mining companies (the Sector Index). 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 or significant changes in the composition of the Group). In calculating TSR it is assumed that all dividends are reinvested. For awards made in 2009, the companies constituting the Sector Index were as shown in Figure 2. Should the Tarmac group be sold or demerged during the performance period relating to this award, the percentage attributable to Industrial Minerals will fall to zero. Half of each award is subject to a Group Total Shareholder Return (TSR) measure, while the other half is subject to a Group operating measure, currently return on capital employed (ROCE). These performance measures were selected on the basis that they foster the creation of shareholder value and their appropriateness is kept under review by the Committee. Taken as a whole, vesting depends on meeting a very challenging set of performance hurdles. At the end of each performance period, the levels of TSR and ROCE performance achieved and the level of award earned are published in the subsequent remuneration report. There is no retesting of performance. For the 2010 LTIP award, the Committee is examining the possible use of an Asset Optimisation/Supply Chain (AOSC) efficiency measure in place of the ROCE metric. The AOSC targets are of such size and significance that the Committee regards their achievement as crucially important to the Group in delivering increased value to shareholders. The targets will be aligned to the Group’s external statements in this regard, and the extent to which they are met under the terms of the LTIP will be reported and audited at the end of each performance period. There is no retesting of performance. The LTIP is intended closely to align the interests of shareholders and executive directors by rewarding superior shareholder returns and financial performance and by encouraging executives to build up a shareholding in the Company. Figure 2: LTIP – Sector Index Category weighting Comparator companies Mining 94% BHP Billiton plc Rio Tinto plc Teck Cominco Limited Vale Vedanta Resources plc Xstrata plc Industrial Minerals 6% CRH plc Holcim Limited Lafarge Figure 3: LTIP – Sector Index comparison The Company’s relative TSR compared with the Sector Index % proportion of total 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 82 Anglo American plc Annual Report 2009 Figure 4: LTIP – FTSE 100 comparison The Company’s relative TSR compared with the FTSE 100 % proportion of total 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 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: • share options granted under the ESOS or under the DOP may be exercised irrespective of whether the applicable performance conditions have been met; Figure 5: LTIP – ROCE targets Minimum ROCE Target Maximum ROCE Target Figure 6: LTIP – ROCE vesting Below or equal to the Minimum ROCE Target Equal to or greater than the Maximum ROCE Target 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 in Figure 2. That part of any award that is contingent upon the Sector Index element of the TSR performance will vest as shown in Figure 3. Shares will vest on a straight-line basis for performance between the levels shown in Figure 3. 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 outlined in Figure 4. Shares will vest on a straight-line basis for performance between the levels shown in Figure 4. These targets 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 PwC 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 50% 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 five years from 1 January 2005 to 31 December 2009 can be found in Figure 9 on page 85. Existing capital employed Incremental capital employed G o v e r n a n c e 43.99% 45.99% 10% 10% • 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; % proportion of ROCE element vesting 0 100 Return on capital employed Group ROCE is the second performance measure for LTIP awards. The Committee has considered this to be an important factor in driving improvements in shareholder value. However, as has been noted above, the Committee is considering an alternative metric which is less complex and is directly supportive of the Company’s focus on Asset Optimisation and Supply Chain initiatives. 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 financial year preceding the start of the performance period (existing capital employed) and on the additional capital employed during the performance period (incremental capital employed)) are met, 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 targets for the ROCE element of the 2009 conditional award are shown in Figure 5. To ensure that the targets are an effective incentive, they are adjusted for factors outside management’s control, such as movements in commodity prices, certain foreign exchange rate effects and capital in progress, as well as for relevant changes in the composition of the Group. The ROCE elements of the award vest as shown in Figure 6. Shares will vest on a straight-line basis for performance between the Minimum Target and the Maximum Target. • the Bonus Shares awarded under the BSP will be released, and, to the extent that the performance condition has been met at the time of the change of control, Enhancement Shares awarded under the BSP will vest; • 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. In the event that a director’s employment is terminated, vesting of any outstanding share options under the ESOS or under the DOP is dependent upon the reasons for termination. Performance conditions fall away in the event of redundancy. However, if the director resigns voluntarily, then all such options lapse unless the Committee determines otherwise. In the case of LTIP awards, the Committee would normally exercise its discretion when a director’s employment ceases as follows: if the director resigns voluntarily, then his/her interests lapse. If he/she retires with the consent of the Committee, is made redundant or is considered by the Committee to be a ‘good leaver’, 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 awards of Enhancement Shares are forgone. If a director Anglo American plc Annual Report 2009 83 Governance Remuneration report continued retires with the consent of the Committee, is made redundant or is considered by the Committee to be a ‘good leaver’, Bonus Shares already awarded will be transferred as soon as practicable after the date of leaving and Enhancement Shares will vest at the end of the performance period to the extent that the performance condition has been met. 3.7 Employee Share Ownership Trust and policy on provision of shares for incentive schemes The Group uses an Employee Share Ownership Trust (the Trust) to acquire and hold shares to facilitate the operation of its share schemes. As at 31 December 2009, the Trust held 949,244 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 to use shares from the Trust or by market purchase to meet the requirements of share incentives. The Board also has the necessary authorities to utilise newly issued or Treasury Shares in connection with the operation of its share schemes. 3.8 Pensions Details of individual pension arrangements are set out on page 87. The Committee has decided that, in the light of the announcement of intended changes in the tax efficiency of registered pension schemes, executive directors (and UK employees more generally) be given the option of all or part of their employer-funded defined-contribution pension contributions being paid as an alternative to an unregistered retirement benefits scheme (an EFRBS). Since the inception of the new UK pensions regime applicable from 6 April 2006, the Committee has been prepared to consider requests from executive directors (as is the case for London-based employees more generally) that their contracts be altered for future service, so that future pension benefits are reduced or cease to accrue and that a pension allowance be paid having the same cost to the employer as the defined contribution benefits forgone. Similarly, the Committee is prepared to consider requests from executive directors (as is the case for London-based employees more generally) that their contracts be altered for future service, so that supplementary pension contributions are made into their defined contribution pension arrangements, in return for equivalent-cost reductions in their future basic salaries and/or in the cash element of any future BSP awards. Figure 7: Executive directors(1) Cynthia Carroll (chief executive) René Médori (finance director) Date of appointment 15 January 2007 01 June 2005 Next AGM re-election or election April 2010 April 2011 (1) At each AGM all those directors who have been in office for three years or more since their election or last re-election shall retire from office. Details of those retiring by rotation this year are contained in the Notice of AGM. 3.9 Other benefits Executive directors are entitled to the provision of a car allowance, medical insurance, death and disability insurance, social club membership and limited personal taxation/financial advice, in addition to reimbursement of reasonable business expenses. The provision of these benefits is considered to be market-competitive. 4. Executive shareholding targets Within five years of their appointment, executive directors are expected to acquire and maintain 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 any other executive director. The Committee takes into consideration achievement against these targets when making grants under the Company’s various long-term incentive plans. 5. External appointments Executive directors are not permitted to hold external directorships or offices without the prior approval of the Board; if approved, they may each retain the fees payable from one such appointment. During the year ended 31 December 2009, Cynthia Carroll and René Médori each retained fees amounting to £90,000 and £64,000 respectively. 6. Policy on non-executive director remuneration Non-executive director 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 director remuneration is based on the following key principles: • Remuneration should be: – – sufficient to attract and retain world-class non-executive talent; consistent with recognised best practice standards for non-executive director remuneration; – – in the form of cash fees, but with the flexibility to forgo all or part of such fees (after deduction of applicable income tax and social security contributions) to acquire shares in the Company should the non-executive director so wish; 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 share incentives schemes or pension arrangements. It is the intention that this policy will continue to apply for 2010 and subsequent years, subject to ongoing review as appropriate. The Board reviews non-executive directors’ fees periodically to ensure that they remain market-competitive. Additional fees are paid to the chairmen of Board committees and to the senior independent director (SID). Should non-executive directors acquire executive board roles within subsidiaries of the Company, then they might also receive additional remuneration from the relevant subsidiaries on account of these increased responsibilities. Non-executive directors’ fees were last increased following a review in December 2005 (and took effect in January 2006). Since that time, it is felt that fee levels have fallen behind the market and the Board has therefore agreed to increase the basic fee to £80,000 per annum (pa) and the fee for the SID to £100,000 pa with effect from 1 January 2010. There will be no change to the fees for Committee Chairmen. 7. Chairman’s fees The chairman’s fees were set in July 2009 at £650,000 pa to take effect from his appointment on 1 August 2009. 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 will take external advice on market comparators. In accordance with the terms of his appointment as chairman, Sir John Parker received a one-off restricted share award of 31,000 ordinary shares in the Company on 15 September 84 Anglo American plc Annual Report 2009 Figure 8: Non-executive directors(1)(2) Date of appointment Next AGM re-election or election Figure 9: Historical comparative TSR performance graphs 15 April 2008 Sir John Parker (chairman, AA plc and Nomination Committee) 9 July 2009 Sir Mark Moody-Stuart (chairman) (resigned 2009) 16 July 2002 David Challen (SID and chairman, Audit Committee) 09 September 2002 Sir CK Chow Chris Fay (chairman, S&SD Committee) (to retire 2010) Sir Philip Hampton Sir Rob Margetts (chairman, Remuneration Committee) (to retire 2010) Nicky Oppenheimer Ray O’Rourke Fred Phaswana (chairman, Nomination Committee) (resigned 2010) Mamphela Ramphele Jack Thompson Karel Van Miert (passed away 2009) Peter Woicke 12 June 2002 25 April 2006 16 November 2009 19 March 2002 01 January 2006 18 March 1999 18 March 1999 11 December 2009 19 April 1999 9 November 2009 April 2010 n/a April 2012 April 2011 n/a April 2010 n/a April 2010 April 2010 n/a April 2012 April 2010 n/a April 2012 300 250 200 150 100 50 0 Year 500 400 300 200 100 0 Year 04 05 06 07 08 09 04 05 06 07 08 09 (1) At each AGM all those directors who have been in office for three years or more since their election or last re-election shall retire from office. Details of those retiring by rotation this year are contained in the Notice of AGM. (2) There is no fixed notice period; however, the Company may in accordance with, and subject to, the provisions of the Companies Act 2006, by Ordinary Resolution of which special notice has been given, remove any director from office. The Company’s Articles of Association also permit the directors, under certain circumstances, to remove a director from office. Anglo American FTSE 100 Index LTIP sector comparator Source: Thomson Datastream G o v e r n a n c e 2009, equivalent to £500,000. The share award will be released in full at the third anniversary of his appointment (August 2012) subject to his still being chairman. The chairman will invest progressively in Anglo American shares over the same period, in order to acquire a similar holding. 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 (Figure 8). 8. Directors’ service contracts Cynthia Carroll and René Médori are employed by Anglo American Services (UK) Ltd (AAS). It is the Company’s policy that the period of notice for executive directors will not exceed 12 months and accordingly the employment contracts of the executive directors are terminable at 12 months’ notice by either party. The contracts of executive directors do not provide for any enhanced payments in the event of a change of control of the Company, nor for liquidated damages. 9. Historical comparative TSR performance graphs The graphs shown in Figure 9 represent the comparative TSR performance of the Company from 1 January 2005 to 31 December 2009. In drawing up these graphs it has been assumed that all dividends paid have been reinvested. The first graph shows the Company’s performance against the performance of the FTSE 100 Index, chosen as being a broad equity market index which includes companies of a comparable size and complexity to Anglo American. This graph has been produced in accordance with the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008. The second graph shows the Company’s performance against the weighted Sector Index comparator group used to measure company performance for the purposes of the vesting of LTIP interests conditionally awarded in 2007. This graph gives an indication of how the Company is performing against the targets in place for LTIP interests already granted, although the specifics of the comparator companies for each year’s interests may vary to reflect changes such as mergers and acquisitions among the Company’s competitors or changes to the Company’s business mix. TSR is calculated in US dollars, and the TSR level shown as at 31 December each year is the average of the closing daily TSR levels for the five-day period up to and including that date. Figure 10: Executive directors’ emoluments(1) Cynthia Carroll(4) René Médori Total basic salary Annual performance bonus – cash element(2) 2009 £000 1,103 693 2008 £000 1,050 660 2009 £000 372 234 2008 £000 319 208 2009 £000 144 30 Benefits in kind(3) 2008 £000 198 55 2009 £000 1,619 957 Total 2008 £000 1,567 923 (1) In 2009, Cynthia Carroll and René Médori held non-executive directorships of Anglo Platinum Limited and René Médori held a non-executive directorship of Anglo American South Africa Limited. The fees for these directorships were ceded to their employer, AAS. Subsequent to his retirement from the Board in 2004, Bill Nairn provided consultancy services to Anglo American which ended during 2008. He therefore received £nil (2008: £3,000) during 2009. (2) The split between the cash and share elements of the Bonus Share Plan is set out on page 81. (3) Each executive director receives a car allowance and a limited amount of personal taxation/financial advice; they also receive death and disability benefits and medical insurance. (4) Cynthia Carroll was, in accordance with the terms of her appointment, entitled to be compensated for the tax due on her relocation expenses; this compensation is included in Benefits in kind above. Anglo American plc Annual Report 2009 85 Governance Remuneration report continued 10. Remuneration outcomes Figure 11: Non-executive directors’ emoluments(1)(2) during 2009 The information set out in this section and section 11 has been subject to audit. 10.1 Directors’ emoluments Executive directors Figure 10 sets out an analysis of the pre-tax remuneration during the years ended 31 December 2009 and 2008, including bonuses but excluding pensions, for individual directors who held office in the Company during the year ended 31 December 2009. Non-executive directors Figure 11 sets out the fees and other emoluments paid to non-executive directors during the year ended 31 December 2009 which amounted to £1,260,000 (2008: £1,177,000). 10.2 Bonus Share Plan Details of shares awarded under the BSP to executive directors during 2009 and their current holdings are shown in Figure 12. Figure 12: Bonus Share Plan Sir John Parker Sir Mark Moody-Stuart David Challen Sir CK Chow Chris Fay Sir Philip Hampton Sir Rob Margetts Nicky Oppenheimer(3) Ray O’Rourke Fred Phaswana(3) Mamphela Ramphele Jack Thompson Karel Van Miert Peter Woicke Total fees 2008 £000 – 450 89 46 80 – 84 71 – 142 65 – 65 65 2009 £000 273 264 93 65 80 10 80 72 4 147 65 9 33 65 (1) Each non-executive director, with the exception of Sir John Parker and Sir Mark Moody-Stuart, was paid a fee of £65,000 (2008: £65,000) per annum, and those non-executive directors who act as chairmen of the Audit Committee, Safety and Sustainable Development Committee and Remuneration Committee were paid an additional sum of £15,000 (2008: £15,000) per annum. The chairman of the Nomination Committee was paid an additional sum of £7,500 (2008: £7,500) per annum. The senior independent director (SID) received fees of £13,000 per annum. (2) In addition to the fees reported above for 2008, Bobby Godsell, who retired on 15 April 2008, received fees in 2008 of £20,000. (3) Nicky Oppenheimer received fees for his services as a non-executive director of Anglo American South Africa Limited amounting to £7,000 (2008: £6,000), 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 for these services amounting to £80,000 (2008: £69,000), which are included in the above table. BSP interests(1) Cynthia Carroll(4) René Médori Total interest at 1 January 2009 39,779 68,269 Number of Bonus Shares conditionally awarded during 2009(2) 82,341 53,674 Number of Enhancement Shares conditionally awarded during 2009 61,755 40,255 Number of Bonus Shares vested during 2009(3) (43,082) (35,864) Number of Enhancement Shares vested during 2009 Number of Enhancement Shares lapsed during 2009 – (6,542) – – Total interest at 31 December 2009 140,793 119,792 Market price at date of 2009 award £ Date of vesting of Bonus Shares awarded during 2009 End date of performance period for Enhancement Shares awarded during 2009 11.62 01/01/2012 31/12/2011 11.62 01/01/2012 31/12/2011 (1) The performance period applicable to each award is three years. Cynthia Carroll did not receive a BSP award in 2006 (in respect of the 2005 financial year) and consequently no shares vested in 2009. René Médori was awarded BSP shares in 2006 which vested in 2009. Shares vested (2006 BSP Award) René Médori Number of shares vested 14,480 Dates of conditional award 06/03/2006 Market price at date of award £ 21.59 Market price at date of vesting £ Money value at date of vesting £ 10.70 154,936 In the case of the BSP awards granted in 2006, the determinant for the vesting of Enhancement Shares was real EPS growth, based on earnings per share growth against growth in the UK Retail Price Index (RPI) over the performance period. 44% of the Enhancement Shares would vest if EPS growth was RPI+9%, and 100% would vest if EPS growth was RPI+15%. As the EPS growth achieved was RPI+50% over the period, full vesting of the Enhancement Shares occurred. (2) Where permitted by finance legislation, awards of Bonus Shares under the BSP are granted as forfeitable shares, which would be forfeited in the event that an executive director leaves service, other than as a ‘good leaver’, before the shares are released. (3) Subsisting awards of Bonus Shares were reduced to meet income tax liabilities arising in 2009. The reduction in respect of Cynthia Carroll was 43,082 shares and in respect of René Médori was 27,926 shares (at a value of £1,118,026 and £724,711 respectively). (4) In accordance with her terms upon joining, Cynthia Carroll was granted 132,718 forfeitable shares, in compensation for long-term incentives forgone at her previous employer. The market price of the shares at the date of this award was £24.91. These shares are forfeitable in the event that she leaves service before they are released to her. As a result of the share consolidation following the demerger of Mondi, 11,945 shares lapsed and the resultant forfeitable award was 120,773 forfeitable shares, of which 72,464 were released to her in February 2008, 24,155 were released to her in February 2009 and 24,154 will be released to her in February 2010, subject to her continued employment. These awards are as follows: Interests Cynthia Carroll Shares vested Cynthia Carroll Beneficial interest in forfeitable shares at 31 December 2008 Number of forfeitable shares vested during the year 48,309 24,155 Number of forfeitable shares lapsed during the year – Number of shares vested 24,155 Date of conditional award 21/02/2007 Beneficial interest in forfeitable shares at 31 December 2009 24,154 Market price at date of vesting £ 11.93 Market price at date of award £ 24.91 Latest performance period end date – Market value at date of vesting £ 288,169 86 Anglo American plc Annual Report 2009 10.3 Long Term Incentive Plan Conditional awards of shares were made in 2009 to executive directors under the LTIP as shown in Figure 13. 10.4 Directors’ share options No executive share options have been granted to any director since 2003 (Figure 14). The highest and lowest mid-market prices of the Company’s shares during the period 1 January 2009 to 31 December 2009 were £27.29 and £9.14 respectively. The mid-market price of the Company’s shares at 31 December 2009 was £27.10. 10.5 Share Incentive Plan (SIP) During the year, Cynthia Carroll and René Médori purchased 90 and 89 shares under the SIP respectively, in addition to the shares held by them at 1 January 2009. 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. In addition, Cynthia Carroll and René Médori were each awarded 301 free shares under the SIP in March 2009. Participants in the SIP are entitled to receive dividends on their shares. The information provided in sections 10.2 to 10.5 is a summary. However, full details of directors’ shareholdings and options are contained in the Register of Directors’ Interests of the Company, which are open to inspection. 10.6 Pensions 10.6.1 Directors’ pension arrangements Cynthia Carroll and René Médori participated in defined contribution pension arrangements in terms of their contracts with AAS. In 2009, normal contributions were payable on their behalf at the rate of 30% of their basic salaries payable under these contracts. 10.6.2 Defined contribution pension schemes The amounts payable into defined contribution pension schemes by the Group in respect of the individual directors were as shown in Figure 15. 10.6.3 Defined benefit pension schemes No director was eligible in 2009 for membership of any defined benefit pension scheme. 10.6.4 Excess retirement benefits No person who served as a director of the Company during or before 2009 has been paid or received retirement benefits in excess of the retirement benefits to which he was entitled on the date on which benefits first became payable (or 31 March 1997, whichever is later). 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 2009. 12. Directors’ share interests The interests of directors who held office during the period 1 January 2009 to 31 December 2009 in Ordinary Shares (Shares) of the Company and its subsidiaries were as shown in Figures 16 and 17. Figures 18 and 19 outline the changes in the above interests which occurred between 1 January 2010 and the date of this report. 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. G o v e r n a n c e Sir Rob Margetts Chairman, Remuneration Committee 18 February 2010 Figure 13: Long Term Incentive Plan LTIP interests(1)(2) Cynthia Carroll René Médori Total beneficial interest in LTIP at 1 January 2009 140,523 145,368 Number of shares conditionally awarded during 2009 122,402 76,938 Number of shares vested during 2009 – (26,711) Number of shares lapsed during 2009 – (26,710) Total beneficial interest in LTIP at 31 December 2009 262,925 168,885 Latest performance period end date 31/12/2011 31/12/2011 (1) The LTIP awards made in 2009 are conditional on two performance conditions as outlined on pages 82 and 83: the first is based on the Company’s TSR relative to a weighted group of international mining companies and to the constituents of the FTSE 100; the second is 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 2009 award and how performance against targets is measured can be found on pages 82 and 83. The market price of the shares at the date of award was £12.61. (2) The performance period applicable to each award is three years. The performance period relating to the LTIP awards in 2006 (which were granted on 5 April) ended on 31 December 2008. Vesting was subject to two performance conditions: the first based on the Company’s TSR relative to a weighted group of international mining companies and the FTSE 100; with 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. These awards are as follows: Shares vested René Médori Number of shares vested 26,711 Dates of conditional award 29/03/2006 Market price at date of award £ 20.72 Market price at date of vesting £ Money value at date of vesting £ 13.36 356,859 In the case of the LTIP awards granted in 2006, the determinants for vesting were 50% on relative TSR and 50% on meeting specified 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 final performance year are adjusted for movements in commodity prices, certain foreign exchange rate effects (e.g. translation windfalls), capital in progress (to reflect the fact that mines under construction absorb large amounts of capital before producing a return), for relevant changes in the composition of the Group (e.g. significant acquisitions and disposals) and other one-off factors which would otherwise result in a misleading outcome. The threshold blended target (i.e. the target on existing and new capital) for the performance period for the 2006 LTIP was 19.98% and the upper blended target 21.98%. The ROCE achieved was 24.93% 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 -59 % which generated a nil% vesting in terms of the 2006 Sector Index Comparator Group (against a median target of -50%) and a nil% vesting against the FTSE 100 (being below the 50th percentile). The overall vesting level for those directors with a 50% Group ROCE, 25% Sectoral TSR and 25% FTSE 100 TSR split was therefore 50%. Anglo American plc Annual Report 2009 87 Governance Remuneration report continued Figure 14: Directors’ share options Anglo American options René Médori Beneficial holding at 1 January 2009(1) 951 Granted Exercised – – Lapsed – Beneficial holding at 31 December 2009 951 Weighted average option price £ 17.97 Earliest date from which exercisable Latest expiry date 1/9/2013 28/2/2014 (1) Beneficial holdings comprise SAYE options held in respect of shares by René Médori of 951 options with an option price of £17.97. The market price of the Company’s shares at the end of the year and the highest and lowest mid-market prices during the period are disclosed in Section 10.4. There are no performance conditions attached to these options. Figure 15: Defined contribution pension schemes Directors Cynthia Carroll(1) René Médori 2009 £000 331 208 Normal contributions 2008 £000 315 198 (1) The contributions payable into pension arrangements for Cynthia Carroll amounted in 2009 to £236,000 (2008: £225,000), the balance being payable in the form of a cash allowance to an equivalent-cost to the employer. The cost of this allowance is included in the pension figure above. The allowance does not form part of basic salary disclosed in the directors’ emoluments table on page 85 nor is it included in determining awards under the BSP. Figure 16: Shares in Anglo American plc As at 31 December 2009 (or, if earlier, date of resignation) Directors Cynthia Carroll(1) René Médori(2) Sir Mark Moody-Stuart(3)(4) Sir John Parker(4)(5) David Challen Sir CK Chow Chris Fay Sir Philip Hampton(4) Sir Rob Margetts(6) Ray O’Rourke(4) Nicky Oppenheimer(7) Fred Phaswana(4) Mamphela Ramphele Jack Thompson(4)(8) Karel Van Miert(9) Peter Woicke See page 90 for footnotes. Beneficial 14,433 66,082 28,422 777 1,820 5,500 6,827 637 15,030 0 33,557,017 13,610 2,762 2,500 455 5,177 SIP 573 591 LTIP 262,925 168,885 BSP Bonus Shares BSP Enhancement Shares 61,990 55,822 78,803 63,970 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Conditional Other 24,154 – – 31,000 – – – – – – – – – – – – 88 Anglo American plc Annual Report 2009 Figure 17: Shares in Anglo American plc As at 1 January 2009 (or, if later, date of appointment) Directors Cynthia Carroll(1) René Médori(2) Sir Mark Moody-Stuart(3)(4) Sir John Parker(4)(5) David Challen Sir CK Chow Chris Fay Sir Philip Hampton(4) Sir Rob Margetts(6) Ray O’Rourke(4) Nicky Oppenheimer(7) Fred Phaswana(4) Mamphela Ramphele Jack Thompson(4)(8) Karel Van Miert(9) Peter Woicke See following page for footnotes. Figure 18: Shares in Anglo American plc As at 1 January 2010 (or, if later, date of appointment) Directors Cynthia Carroll(1) René Médori(2) Sir John Parker(4)(5) David Challen Sir CK Chow Chris Fay Sir Philip Hampton(4) Sir Rob Margetts(6) Ray O’Rourke(4) Nicky Oppenheimer(7) Fred Phaswana(4) Mamphela Ramphele Jack Thompson(4)(8) Peter Woicke See following page for footnotes. Beneficial 92 44,819 25,651 0 1,820 5,500 6,827 637 13,343 0 33,557,017 12,739 1,487 0 455 4,400 Beneficial 14,433 66,082 777 1,820 5,500 6,827 637 15,030 0 33,557,017 13,610 2,762 2,500 5,177 SIP 182 239 LTIP 140,523 145,368 BSP Bonus Shares BSP Enhancement Shares 22,731 38,012 17,048 30,257 – – – – – – – – – – – – – – SIP 573 591 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – LTIP 262,925 168,885 BSP Bonus Shares BSP Enhancement Shares 61,990 55,822 78,803 63,970 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Conditional Other 48,309 – – – – – – – – – – – – – – – Conditional Other 24,154 – 31,000 – – – – – – – – – – – G o v e r n a n c e Anglo American plc Annual Report 2009 89 Governance Remuneration report continued Figure 19: Shares in Anglo American plc As at 18 February 2010 (or, if earlier, date of resignation) Directors Cynthia Carroll(1) René Médori(2) Sir John Parker(4)(5) David Challen Sir CK Chow Chris Fay Sir Philip Hampton(4) Sir Rob Margetts(6) Ray O’Rourke(4) Nicky Oppenheimer(7) Fred Phaswana(4) Mamphela Ramphele Jack Thompson(4)(8) Peter Woicke Beneficial 14,443 66,102 1,677 1,820 5,500 6,827 637 15,278 0 33,557,017 13,610 2,949 2,500 5,177 SIP 583 591 – – – – – – – – – – – – LTIP 262,925 168,885 BSP Bonus Shares BSP Enhancement Shares 61,990 55,822 78,803 63,970 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Conditional Other 24,154 – 31,000 – – – – – – – – – – – (1) Following her appointment as an executive director on 15 January 2007, Cynthia Carroll was granted 132,718 forfeitable shares conditional on her continued employment to the Group and in partial compensation for long-term incentives forgone at her previous employer. As a result of the share consolidation following the demerger of Mondi, 11,945 shares lapsed and the resultant forfeitable award was 120,773 forfeitable shares, of which 72,464 were released to her in February 2008, 24,155 were released to her in February 2009 and 24,154 will be released to her in February 2010, subject to her continued employment. (2) René Médori’s beneficial interest arises as a result of his wife’s interest in these Shares. (3) Sir Mark Moody-Stuart’s beneficial interest includes 11,375 Shares arising as a result of his interest in a family trust. (4) Sir John Parker, Sir Philip Hampton, Ray O’Rourke and Jack Thompson were appointed to the Board on 9 July 2009, 9 November 2009, 11 December 2009 and 16 November 2009 respectively and will all be nominated for election at the AGM in April 2010. Sir Mark Moody-Stuart and Fred Phaswana resigned from the Board as at 1 August 2009 and 1 January 2010 respectively. (5) Following his appointment as chairman of the Company on 1 August 2009, Sir John Parker was awarded 31,000 ordinary shares in the Company which will be released in full on the third anniversary of his appointment, subject to his continued chairmanship. (6) Sir Rob Margetts’ beneficial interest arises as a result of his wife’s interest in these Shares. (7) Nicky Oppenheimer’s beneficial interest in 33,556,927 of these Shares arises as a result of his interest in a discretionary trust which is treated as interested in 27,300,000 Shares in which E Oppenheimer & Son Holdings Limited is treated as interested and 6,252,377 Shares in which Central Holdings Limited is treated as interested. The 6,252,377 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 4,550 of these Shares arises as a result of his wife’s interest in a trust which has an indirect economic interest in those Shares. (8) Jack Thompson acquired 5,000 unsponsored American Depositary Receipts (ADRs) in respect of the Company’s ordinary shares at a price of $20.70 per ADR. One ADR represents 0.5 ordinary shares of $0.54945 each in the capital of the Company. (9) Mr Karel Van Miert passed away in 2009. 90 Anglo American plc Annual Report 2009 Independent remuneration report review We are satisfied that the Committee challenges the proposals put forward by executive management and adopts a rigorous and robust approach to decision making. We are also satisfied that the Committee seeks the advice of external consultants on technical issues where appropriate and gives careful consideration to the information and recommendations that it receives, before reaching an informed decision. Conclusions On the basis of the document review referred to above and the interviews with the Chairman and Secretary of the Committee, we are comfortable that the Committee has discharged its duties in line with the Policy on Executive Remuneration stated in Anglo American’s Annual Report. As noted in previous years we consider that the members of the Committee continue to be an effective and cohesive team and that the Committee is an exemplar of best practice. We note that in line with the requirements of the Combined Code the composition of the Committee has been changed. 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. G o v e r n a n c e Yours sincerely Mark Hoble Principal Mercer Limited Tower Place London EC3R 5BU 10 February 2010 This letter contains the findings and conclusions from our review of the processes followed by Anglo American’s Remuneration Committee (the Committee) during 2009. The review was undertaken at your request as Chairman of the Committee in order to provide shareholders with assurance that the processes followed by the Committee supported the policy stated in Anglo American’s Remuneration Report. It is our view that the processes followed by the Committee during 2009 fully supported the Company’s remuneration policy. Please find below a description of the process that we followed in coming to our conclusion, along with our detailed observations and recommendations. Review process In order to reach our view we undertook the following: • A review of the Committee’s terms of reference; • A review of the minutes of the Committee covering the period from January to December 2009; • A review of any briefing materials prepared for the Committee during the year; • An interview with Chris Corrin in his capacity as Secretary to the Committee; and • An interview with the Chairman of the Committee. Findings The Committee comprises entirely of independent non Executive Directors. It met formally on three occasions in 2009. We reviewed the minutes of each meeting along with any supporting papers or documentation that was tabled. We found that the decisions taken by the Committee were in line with Anglo American’s stated remuneration policy namely that levels of reward, whilst competitive, require demanding performance conditions to be met which are consistent with shareholder interests. We are satisfied that the Committee closely adheres to the stated policy of setting base pay levels at the median of comparable companies, that at least 50% of remuneration for the executive directors is performance related and that variable pay is consistent with business performance, market conditions and retention of talent. Anglo American plc Annual Report 2009 91 Governance Statement of directors’ responsibilities The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. The directors are required by the IAS Regulation to prepare the Group financial statements under International Financial Reporting Standards (IFRS) as adopted by the European Union. The Group financial statements are also required by law to be properly prepared in accordance with the Companies Act 2006 and Article 4 of the IAS Regulation. International Accounting Standard 1 requires that IFRS financial statements present fairly for each financial year the Company’s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions 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 financial statements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRS. However, directors are also required to: • properly select and apply accounting policies; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and • provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance. The directors have elected to prepare the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The parent company financial statements are required by law to give a true and fair view of the state of affairs of the Company. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; and • state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the parent company financial statements comply with the Companies Act 2006. 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. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 92 Anglo American plc Annual Report 2009 Financial statements Contents Responsibility statements Independent auditors’ report to the members of Anglo American plc Principal statements Consolidated income statement Consolidated statement of comprehensive income Consolidated balance sheet Consolidated cash flow statement Consolidated statement of changes in equity Notes to the financial statements 1 Accounting policies 2 Segmental information 3 Reconciliation of Underlying earnings to Profit for the financial year attributable to equity shareholders of the Company 4 Operating profit from subsidiaries and joint ventures 5 Exploration expenditure 6 Employee numbers and costs 7 Special items and remeasurements 8 Net finance costs 9 Financial instrument gains and losses 10 Tax on profit on ordinary activities 11 Dividends 12 Earnings per share 13 Intangible assets 14 Tangible 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 risk management and derivative financial assets/liabilities 25 Provisions for liabilities and charges 26 Deferred tax 27 Retirement benefits 28 Called-up share capital and share-based payments 29 Consolidated equity analysis 30 Consolidated cash flow analysis 31 EBITDA by segment 3 2 Acquisitions 33 Disposals of subsidiaries and businesses 34 Disposal groups and non-current assets held for sale 35 Capital commitments 36 Contingent liabilities and contingent assets 37 Operating leases 38 Related party transactions 39 Group companies 40 Events occurring after end of year 41 Financial statements of the parent company 94 95 96 96 97 98 99 100 106 109 110 111 111 111 114 114 114 115 115 116 116 117 117 118 118 118 119 119 119 120 121 126 126 127 130 136 137 138 139 140 141 141 141 141 141 143 144 145 Anglo American plc Annual Report 2009 93 i F n a n c a i l s t a t e m e n t s Financial statements Responsibility statements for the year ended 31 December 2009 We confirm that to the best of our knowledge: (a) the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of Anglo American plc and the undertakings included in the consolidation taken as a whole; and (b) the Operating and financial review includes a fair review of the development and performance of the business and the position of Anglo American plc and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. By order of the Board Cynthia Carroll Chief executive René Médori Finance director 94 Anglo American plc Annual Report 2009 Independent auditors’ report to the members of Anglo American plc We have audited the financial statements of Anglo American plc for the year ended 31 December 2009 which comprise the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated balance sheet, the Consolidated cash flow statement, the Consolidated statement of changes in equity, the Accounting policies, the related notes 2 to 40 and the Balance sheet of the Company and related information in note 41. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the Company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Statement of directors’ responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the • • • Company’s affairs as at 31 December 2009 and of the Group’s profit for the year then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the Group financial statements, Article 4 of the IAS Regulation. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • the part of the Remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and the information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements. • Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or the Company financial statements and the part of the Remuneration report to be audited are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. • • • Under the Listing rules we are required to review: the directors’ statement contained within the • Directors’ report in relation to going concern; and the part of the Corporate governance section relating to the Company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review. • Timothy Powell (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditors London, United Kingdom 18 February 2010 Anglo American plc Annual Report 2009 95 i F n a n c a i l s t a t e m e n t s Financial statements Consolidated income statement for the year ended 31 December 2009 US$ million Group revenue Total operating costs Operating profit from subsidiaries and joint ventures Net profit on disposals Share of net income from associates Total profit from operations and associates Note 2 2,4 7 2,16 Investment income Interest expense Other financing losses Net finance costs Profit before tax Income tax expense Profit for the financial year Attributable to: Minority interests Equity shareholders of the Company Earnings per share (US$) Basic Diluted 8 10 3 12 12 2009 2008 Before special items and remeasurements 20,858 (16,481) 4,377 – 318 4,695 514 (780) (7) (273) 4,422 (1,305) 3,117 Special items and remeasurements (note 7) – (1,637) (1,637) 1,612 (234) (259) – – (134) (134) (393) 188 (205) Before special items and remeasurements 26,311 (18,330) 7,981 – 1,303 9,284 589 (850) (191) (452) 8,832 (2,545) 6,287 Special items and remeasurements (note 7) – (1,131) (1,131) 1,009 (190) (312) – – 51 51 (261) 94 (167) Total 20,858 (18,118) 2,740 1,612 84 4,436 514 (780) (141) (407) 4,029 (1,117) 2,912 Total 26,311 (19,461) 6,850 1,009 1,113 8,972 589 (850) (140) (401) 8,571 (2,451) 6,120 548 2,569 (61) (144) 487 2,425 1,050 5,237 (145) (22) 905 5,215 2.02 1.98 4.34 4.29 Underlying earnings and underlying earnings per share are set out in note 12. Consolidated statement of comprehensive income for the year ended 31 December 2009 US$ million Profit for the financial year Net gain/(loss) on revaluation of available for sale investments Net gain/(loss) on cash flow hedges Net (loss)/gain on cash flow hedges – associates Net exchange gain/(loss) on translation of foreign operations Actuarial net loss on post retirement benefit schemes Actuarial net loss on post retirement benefit schemes – associates Deferred tax Net income/(expense) recognised directly in equity Transferred to income statement: sale of available for sale investments Transferred to income statement: cash flow hedges Transferred to initial carrying amount of hedged items: cash flow hedges Transferred to income statement: exchange differences on disposal of foreign operations Tax on items transferred from equity Total transferred from equity Total comprehensive income for the financial year Attributable to: Minority interests Equity shareholders of the Company 96 Anglo American plc Annual Report 2009 Note 29 29 2009 2,912 741 122 (2) 3,819 (217) (5) (74) 4,384 (1,554) 162 30 (2) 77 (1,287) 6,009 783 5,226 2008 6,120 (888) (874) 4 (4,514) (129) (7) 167 (6,241) (476) 380 637 2 (94) 449 328 487 (159) Consolidated balance sheet as at 31 December 2009 US$ million Intangible assets Tangible assets Environmental rehabilitation trusts Investments in associates Financial asset investments Trade and other receivables Deferred tax assets Other financial assets (derivatives)(1) Other non-current assets Total non-current assets Inventories Trade and other receivables Current tax assets Other financial assets (derivatives)(1) Financial asset investments Cash and cash equivalents Total current assets Assets classified as held for sale Total assets Trade and other payables Short term borrowings Short term provisions Current tax liabilities Other financial liabilities (derivatives)(1) Total current liabilities Medium and long term borrowings Retirement benefit obligations Other financial liabilities (derivatives)(1) Deferred tax liabilities Provisions for liabilities and charges Other non-current liabilities Total non-current liabilities Liabilities directly associated with assets classified 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 Note 13 14 15 16 18 20 26 24 19 20 24 18,30b 30b 34 21 23,30b 25 24 23,30b 27 24 26 25 34 28 2009 2,776 35,198 342 3,312 2,726 206 288 238 191 45,277 3,212 3,348 214 365 3 3,269 10,411 620 56,308 (4,395) (1,499) (209) (566) (76) (6,745) (12,816) (706) (583) (5,192) (1,583) (423) (21,303) (191) (28,239) 28,069 738 2,713 1,379 21,291 26,121 1,948 28,069 2008 3,006 29,545 244 3,612 3,115 94 258 117 167 40,158 2,702 2,929 471 259 173 2,771 9,305 275 49,738 (4,770) (6,784) (168) (804) (598) (13,124) (7,211) (401) (899) (4,555) (1,317) (395) (14,778) (80) (27,982) 21,756 738 2,713 (2,057) 18,827 20,221 1,535 21,756 2007 1,556 23,534 252 3,341 4,780 159 474 160 105 34,361 2,344 3,572 223 375 – 3,129 9,643 758 44,762 (3,950) (5,895) (142) (992) (375) (11,354) (2,404) (444) (211) (4,650) (1,082) – (8,791) (287) (20,432) 24,330 738 2,713 3,155 15,855 22,461 1,869 24,330 (1) Comparatives have been adjusted in accordance with IAS 1 Presentation of Financial Statements – Improvements, as described in note 1. The financial statements of Anglo American plc, registered number 3564138, were approved by the Board of directors on 18 February 2010. Cynthia Carroll Chief executive René Médori Finance director Anglo American plc Annual Report 2009 97 i F n a n c a i l s t a t e m e n t s Financial statements Consolidated cash flow statement for the year ended 31 December 2009 US$ million Cash inflows from operations Dividends from associates Dividends from financial asset investments Income tax paid Net cash inflows from operating activities Cash flows from investing activities Acquisition of subsidiaries, net of cash and cash equivalents acquired(1) Investment in joint ventures Investment in associates Cash flows from derivatives related to acquisitions Purchase of tangible assets Purchase of financial asset investments Investment of advance received in anticipation of disposal(2) Loans granted Interest received and other investment income Disposal of subsidiaries, net of cash and cash equivalents disposed Sale of interests in associates Repayment of loans and capital by associates Proceeds from disposal of tangible assets Proceeds from sale of financial asset investments Cash flows from derivatives related to investing activities (excluding acquisitions) Other investing activities Net cash used in investing activities Cash flows from financing activities 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 (Repayment)/receipt of short term borrowings Net proceeds from issue of convertible bond Net proceeds from issue of US bond Net proceeds from bonds issued under EMTN programme Receipt of other medium and long term borrowings Cash flows from derivatives related to net debt Advance received in anticipation of disposal(2) Other financing activities Net cash (used in)/inflows from financing activities Net increase/(decrease) 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 (1) Includes amounts paid to acquire minority interests in subsidiaries. Note 30a 32 32 2 33 30c 30c 2009 4,904 616 23 (1,456) 4,087 (79) (5) (31) – (4,607) (269) – (134) 244 69 662 – 46 2,041 (150) (10) (2,223) 96 29 (75) (741) (472) – (6,624) 1,685 1,992 2,215 361 (85) – 14 (1,605) 259 2,744 259 316 3,319 2008 9,579 609 50 (2,173) 8,065 (5,887) (609) (9) (661) (5,146) (741) (281) (108) 291 468 205 42 30 851 (166) (29) (11,750) 62 40 (710) (741) (796) (1,550) 1,432 – – 2,404 2,777 380 307 (63) 3,542 (143) 3,074 (143) (187) 2,744 (2) Advance received in the year ended 31 December 2008 in respect of anticipated disposal of the Group’s 50% interest in the Booysendal joint venture, invested in unlisted preference shares and an escrow account, pending completion of the transaction which occurred in June 2009. Following completion of the transaction the preference shares were sold and the proceeds are shown within ‘Proceeds from sale of financial asset investments’. At 31 December 2009 a further amount of $72 million remains in an escrow account pending completion of documentation. 98 Anglo American plc Annual Report 2009 Consolidated statement of changes in equity for the year ended 31 December 2009 US$ million Balance at 1 January 2008 Total comprehensive income Dividends paid Dividends paid to minority interests Acquisition and disposal of businesses (including issue of shares to minority interests) Minority conversion of Anglo Platinum’s preference shares Share buybacks Purchase of shares for share schemes Share-based payment charges on equity settled schemes Issue of shares under employee share schemes Current tax on exercised employee share schemes Issue/purchase of treasury shares in subsidiary entities Other Balance at 1 January 2009 Total comprehensive income Dividends paid to minority interests Acquisition and disposal of businesses (including issue of shares to minority interests) Purchase of shares for share schemes Share-based payment charges on equity settled schemes Issue of shares under employee share schemes Current tax on exercised employee share schemes Issue/purchase of treasury shares in subsidiary entities Issue of convertible bond Other Balance at 31 December 2009 Total share capital(1) 3,451 – – – – – – – – – – – – 3,451 – – – – – – – – – – 3,451 Retained earnings 15,855 5,113 (1,538) – 6 6 (595) (88) – 97 10 6 (45) 18,827 2,257 – – (32) – 108 (1) (11) – 143 21,291 Share- based payment reserve 262 – – – Cumulative translation adjustment reserve 20 (4,097) – – Total equity attributable to equity shareholders of the Company 22,461 (159) (1,538) – Fair value and other reserves (note 29) 2,873 (1,175) – – – – – – 146 (70) – – (50) 288 – – (14) – 194 (87) – – – 20 401 – – – – – – – – – (4,077) 3,526 – – – – – – – – – (551) – – – – – – – – 34 1,732 (557) – (1) – – – – – 355 – 1,529 6 6 (595) (88) 146 27 10 6 (61) 20,221 5,226 – (15) (32) 194 21 (1) (11) 355 163 26,121 Minority interests 1,869 487 – (796) (45) (6) – – 11 – – – 15 1,535 783 (472) 57 – 16 – – 15 – 14 1,948 Total equity 24,330 328 (1,538) (796) (39) – (595) (88) 157 27 10 6 (46) 21,756 6,009 (472) 42 (32) 210 21 (1) 4 355 177 28,069 (1) Total share capital comprises called-up share capital of $738 million (2008: $738 million) and the share premium account of $2,713 million (2008: $2,713 million). i F n a n c a i Dividends Proposed ordinary dividend per share (US cents) Proposed ordinary dividend (US$ million) Ordinary dividends paid during the year per share (US cents) Ordinary dividends paid during the year (US$ million) l s t a t e m e n t s Note 2009 2008 – – – – – – 130 1,538 11 11 Anglo American plc Annual Report 2009 99 Financial statements Notes to the financial statements 1. Accounting policies Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretation Committee (IFRIC) interpretations adopted for use by the European Union, with those parts of the Companies Act 2006 applicable to companies reporting under IFRS and with the requirements of the Disclosure and Transparency rules of the Financial Services Authority in the United Kingdom as applicable to periodic financial reporting. The financial statements have been prepared under the historical cost convention as modified by the revaluation of pension assets and liabilities and certain financial instruments. A summary of the principal Group accounting policies is set out below 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 financial 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 financial 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 significant accounting policies and critical accounting estimates are set out in the ‘Operating and financial review’ and form part of these financial statements; these are set out on pages 66 and 67. Significant areas of estimation uncertainty include: • • • • useful economic lives of assets and ore reserves estimates; impairment of assets; restoration, rehabilitation and environmental costs; and retirement benefits. Going concern The directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus the going concern basis of accounting in preparing the financial statements continues to be adopted. Further details are contained in the Directors’ report on page 71. Adoption of standards and changes in accounting policies The Group has adopted, with effect from 1 January 2009, IFRS 8 Operating Segments, IAS 1 Presentation of Financial Statements – Revised, IAS 1 Presentation of Financial Statements – Improvements and IFRS 7 Financial Instruments: Disclosures – Amendment. The adoption of IFRS 8 has resulted in the segmental disclosures previously required by IAS 14 Segment Reporting being replaced by those required under IFRS 8. The segments identified in accordance with IFRS 8 are aligned to the Group’s structure of Business Units based around core commodities. In addition assets identified for divestment are managed as a separate Business Unit, Other Mining and Industrial. The adoption of the revision to IAS 1 has resulted in the Consolidated statement of changes in equity being presented as a primary statement (previously disclosed as a note titled ‘Reconciliation of changes in equity’) and disclosure of the tax impact of individual items in the Consolidated statement of comprehensive income (by way of note). In addition, the Group has elected to continue to present a separate income statement and statement of comprehensive income. The adoption of the improvements to IAS 1 has resulted in non-hedge derivatives whose expected settlement date is more than one year from the period end being reclassified from current to non-current and therefore the comparative information in the Consolidated balance sheet has been adjusted as follows: US$ million Other financial assets (derivatives) As previously reported Reclassification As reported Other financial liabilities (derivatives) As previously reported Reclassification As reported Assets As previously reported Reclassification As reported Liabilities As previously reported Reclassification As reported 2008 Non- current 4 113 117 Current 372 (113) 259 (1,436) 838 (598) (61) (838) (899) 2007 Non- current – 160 160 (85) (126) (211) Current 535 (160) 375 (501) 126 (375) 9,418 (113) 9,305 40,045 113 40,158 9,803 (160) 9,643 34,201 160 34,361 (13,962) (13,940) (838) (13,124) (14,778) 838 (11,480) 126 (11,354) (8,665) (126) (8,791) Due to the adoption of the revision and improvements to IAS 1, certain 2007 information has been included in the 2009 Financial statements. IFRS 7 Financial Instruments: Disclosures – Amendment has resulted in additional disclosures in relation to financial assets and liabilities which are carried at fair value on the balance sheet. The amendment also reinforces existing principles for disclosure about liquidity risk. The amendment does not require comparative information to be provided in respect of the additional disclosures. A number of other amendments to accounting standards and new interpretations issued by the International Accounting Standards Board (IASB) were applicable from 1 January 2009. They have not had a material impact on the accounting policies, methods of computation or presentation applied by the Group. Basis of consolidation The financial statements incorporate a consolidation of the financial 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 financial and operating policies of an investee entity so as to obtain benefits 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, a share of the profit for the financial year and net assets is attributed to the minority interests as shown in the Consolidated income statement and Consolidated 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 profits have exceeded the losses previously absorbed. Associates Associates are investments over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial 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 classified as held for sale. The Group’s share of associates’ net income is based on their most recent audited financial statements or unaudited interim statements drawn up to the Group’s balance sheet date. 100 Anglo American plc Annual Report 2009 1. Accounting policies continued 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 identified. 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 strategic, financial 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 flows 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 financial 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 financial 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 refining charges. A sale is recognised when the significant risks and rewards of ownership have passed. This is usually when title and insurance risk have 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. For non-wholly owned subsidiaries, minority interests are initially recorded at the minorities’ proportion of the fair values of the assets and liabilities recognised at acquisition. 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. To the extent that the actual waste material removed per tonne of ore mined (known as the stripping ratio) is higher than the average stripping ratio in the early years of a mine’s production phase, the costs associated with this process are deferred and charged to operating costs using the expected average stripping ratio over the life of the area being mined. This reflects the fact that waste removal is necessary to gain access to the orebody and therefore realise future economic benefit. 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 cost of stripping in any period will therefore be reflective of the average stripping rates for the orebody as a whole. However, where the pit profile is such that the actual stripping ratio is below the average in the early years no deferral takes place as this would result in recognition of a liability for which there is no obligation. Instead this position is monitored and when the cumulative calculation reflects a debit balance deferral commences. The average life of mine stripping ratio and the average life of mine cost per tonne are recalculated annually in light of additional knowledge and changes in estimates. 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. Revenues from the sale of material by-products are included within revenue. Where a by-product is not regarded as significant, revenue may be credited against the cost of sales. Assets held under finance leases are depreciated over the shorter of the lease term and the estimated useful lives of the assets. 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 The identifiable 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 identifiable net assets acquired is attributed to goodwill. Provisional fair values are finalised 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 value of the identifiable 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. 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 are usually between three and five years. 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 such an indication exists, the recoverable amount of the asset is estimated in order to determine the extent of any impairment. Where the asset does not generate cash flows 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 indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. Anglo American plc Annual Report 2009 101 i F n a n c a i l s t a t e m e n t s Financial statements Notes to the financial statements continued 1. Accounting policies continued 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 flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which estimates of future cash flows 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 reported through the income statement as a special item. 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 reported through the income statement as a special item. Impairment of goodwill Goodwill arising on business combinations is allocated to the group of CGUs that is expected to benefit from 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 CGUs to which goodwill is allocated are provided in note 13. The recoverable amount of the CGU or group of CGUs to which goodwill has been allocated is tested for impairment annually on a consistent date during each financial year, or when events or changes in circumstances indicate that it may be impaired. 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. Exploration properties acquired are recognised in the balance sheet at cost less provision for any impairment. Such properties and capitalised pre-production expenditure prior to commercial production are assessed for impairment in accordance with the Group’s accounting policy stated above. 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 first in, first out (FIFO) basis. Finished products are valued at raw material cost, labour cost and a proportion of manufacturing overhead expenses. Metal and coal stocks are included within finished products and are valued at average cost. 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. Retirement benefits The Group operates both defined benefit and defined contribution schemes for its employees as well as post retirement medical plans. For defined contribution schemes the amount charged to the income statement is the contributions paid or payable during the year. For defined benefit 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 financial 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 plan assets are measured using year 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 comprehensive income. Any increase in the present value of plan liabilities expected to arise from employee service during the year is charged to operating profit. The expected return on plan assets and the expected increase during the year in the present value of plan liabilities are included in investment income and interest expense respectively. Past service cost is recognised immediately to the extent that the benefits are already vested and otherwise is amortised on a straight line basis over the average period until the benefits become vested. The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit 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. Tax The tax expense includes the current tax charge and deferred tax charged to the income statement. Current tax payable is based on taxable profit for the year. Taxable profit differs from net profit 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 financial statements and the corresponding tax basis used in the computation of taxable profit 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 profits 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 taxable profit nor accounting profit. 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 sufficient taxable profit will be available to allow all or part of the asset to be recovered. 102 Anglo American plc Annual Report 2009 1. Accounting policies continued 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 to 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 significant 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 specific 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 finance 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 discounted at the interest rate implicit in the lease. The interest element of the rental is charged against profit 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 set out below. Non-current assets held for sale and discontinued operations Non-current assets (and disposal groups) are classified 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 a sale is highly probable within one year from the date of classification, management are committed to the sale and the asset (or disposal group) is available for immediate sale in its present condition. Non-current assets (and disposal groups) are classified 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 classification as held for sale the assets are no longer depreciated. Comparative amounts are not adjusted. An asset or business is considered to be a ‘discontinued operation’ if it has been sold or is classified as held for sale and is 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. Once an operation has been identified as discontinued, its net profit and cash flows are separately presented from continuing operations. Comparative information is reclassified so that net profit and cash flows of prior periods are also separately presented. 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 profits over the life of the operation, through the depreciation of the asset and the unwinding of the discount on the provision. Costs for restoration of subsequent site damage which is created on an ongoing basis during production are provided for at their net present values and charged against profits as extraction progresses. 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 flow 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 set out on pages 101 and 102. 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 is 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 the functional currencies of the companies 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 profit or loss for the period and are classified as either operating or financing 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. Any exchange differences arising are classified within equity and transferred to the Group’s cumulative translation adjustment reserve. Exchange differences on foreign currency balances with foreign operations for which settlement is neither planned nor likely to occur in the foreseeable future and therefore form part of the Group’s net investment in these foreign operations are offset in the cumulative translation adjustment reserve. Cumulative translation differences are recycled from equity and recognised as income or expense on disposal of the operation to which they relate. 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. Presentation currency As permitted by UK company law, the Group’s results are presented in US dollars, the currency in which most of its business is conducted. Borrowing costs Interest on borrowings directly relating to the financing 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 specifically to finance a project, the amount capitalised represents the actual borrowing costs incurred. Where the funds used to finance a project form part of general borrowings, the amount capitalised is calculated using a weighted average of rates applicable to relevant general borrowings of the Group during the period. All other borrowing costs are recognised in the income statement in the period in which they are incurred. Anglo American plc Annual Report 2009 103 i F n a n c a i l s t a t e m e n t s Financial statements Notes to the financial statements continued 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. The Group makes equity settled share-based payments to certain employees, which are measured at fair value at the date of grant and expensed on a straight line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. For those share schemes with market related vesting conditions, the fair value is determined using the Monte Carlo method at the grant date. 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 reflect 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 profit or loss on disposal. Employee benefit trust Shares held by the employee benefit trust are recorded as treasury shares, and the carrying value is shown as a reduction in retained earnings within shareholders’ equity. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and on 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 insignificant 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 Consolidated cash flow statement are shown net of overdrafts. Trade receivables Trade receivables do not carry any interest and are stated at their nominal value (with the exception of receivables relating to provisionally priced sales – as set out in the revenue recognition accounting policy) net of appropriate allowance 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 with the exception of amounts relating to purchases of provisionally priced concentrate which are marked to market (using the appropriate forward price) until settled. 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 financial asset investments and are initially recorded at fair value. At subsequent reporting dates, financial 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 classified as held to maturity or loans and receivables are classified as either at fair value through profit 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 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. Impairment losses are recognised in the income statement when the difference between the acquisition cost and current fair value is considered significant or prolonged. Current financial asset investments consist mainly of bank term deposits and fixed and floating rate debt securities. Debt securities that are intended to be held to maturity are recorded on the amortised cost basis. Debt securities that are not intended to be held to maturity are recorded at the lower of cost and market value. Provision is raised against these assets when there is doubt over the future realisation of value as a result of a known event or circumstance. Convertible debt Convertible bonds 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 and carried at amortised cost. 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. 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 liability. Financial liabilities and equity instruments Financial liabilities and equity instruments are classified 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. 104 Anglo American plc Annual Report 2009 1. Accounting policies continued 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 financial 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 financial instruments for speculative purposes. Commodity based (normal purchase or normal sale) contracts that meet the scope exemption in 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 financial assets (derivatives) or Other financial liabilities (derivatives). Derivatives are classified as current or non-current depending on the expected maturity of the derivative. Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. If the cash flow hedge of a firm commitment or forecast transaction results in the recognition of a non-financial 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-financial asset or a liability, amounts deferred in equity are recognised in the income statement in the same period in which the hedged item affects profit 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 profit or loss. Gains or losses from remeasuring the associated derivative are recognised in the income statement. 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 on disposal of the foreign operations to which they relate. Changes in the fair value of any derivative instruments that are not hedge accounted are recognised immediately in the income statement and are classified within other gains and losses or net finance costs depending on the type of risk the derivative relates to. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised, revoked, or no longer qualifies 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 financial instruments or non-financial 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 financial assets and liabilities Financial assets are derecognised when the rights to receive cash flows from the asset have expired, the right to receive cash flows has been retained but an obligation to on-pay them in full without material delay has been assumed or the right to receive cash flows 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 3 (Revised) Business Combinations makes a number of changes to the accounting for and disclosure of business combinations. The revised standard introduces changes to the accounting for contingent consideration and transaction costs, as well as allowing an option to calculate goodwill based on the parent’s share of net assets only or including goodwill relating to minority interests (non-controlling interests). Once adopted the Group will account for subsequent business combinations in accordance with this standard. The revised standard is effective prospectively for annual periods beginning on or after 1 July 2009. IAS 27 (Revised) Consolidated and Separate Financial Statements requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control. Once adopted any transaction within this scope will be accounted for in accordance with the revised standard. The revised standard is effective prospectively for annual periods beginning on or after 1 July 2009. IFRS 9 Financial Instruments is the first phase of the IASB’s three stage project to replace IAS 39. The first phase deals with the classification and measurement of financial assets. The standard applies for annual periods beginning on or after 1 January 2013. Early application is permitted, although IFRS 9 has not yet been endorsed for use in the European Union. Once adopted, all financial assets within the scope of IFRS 9 will be accounted for in accordance with the standard. The following new IFRS accounting standards and interpretations not yet adopted are not expected to have a significant impact on the Group: Amendment to IAS 39 Financial Instruments: Recognition and Measurement: Eligible Hedged Items prohibits designating inflation as a hedgeable component of a fixed rate debt and inclusion of time value in the one-sided hedged risk when designating options as hedges. The amendment is effective for accounting periods beginning on or after 1 July 2009. Amendment to IFRS 2 Share-based payments on Group Cash-settled Share-based Payment Transactions clarifies the scope and the accounting for group cash-settled share-based payment transactions in the separate or individual financial statements of the entity receiving the goods or services when that entity has no obligation to settle the share-based payment transaction. The amendment is effective for annual periods commencing on or after 1 January 2010, subject to adoption by the European Union. Amendment to IAS 32 Financial Instruments: Presentation – Classification of Rights Issues addresses the accounting for rights issues (rights, options or warrants) that are denominated in a currency other than the functional currency of the issuer. Prior to the amendment, such rights issues were accounted for as derivative liabilities. The amendment states that, if such rights are issued pro rata to an entity’s existing shareholders for a fixed amount of any currency, they should be classified as equity, regardless of the currency in which the exercise price is denominated. The amendment is effective for annual periods commencing on or after 1 February 2010. Anglo American plc Annual Report 2009 105 i F n a n c a i l s t a t e m e n t s Financial statements Notes to the financial statements continued 1. Accounting policies continued Annual improvements to IFRSs 2009 amends a number of standards including changes in presentation, recognition and measurement plus terminology and editorial changes. The 2009 amendments are effective for annual periods commencing on or after 1 January 2010, subject to adoption by the European Union. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments clarifies the accounting when an entity renegotiates the terms of its debt with the result that the liability is extinguished by the debtor issuing its own equity instruments for the creditor. The interpretation is to be applied retrospectively from the earliest comparative period presented and is effective for annual periods beginning on or after 1 July 2010, subject to adoption by the European Union, although earlier application is permitted. Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IAS 27 Consolidated and Separate Financial Statements on the Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate. Amendments to IFRS 1 on Additional Exemptions for First-time Adopters. IFRIC 12 Service Concession Arrangements. IFRIC 17 Distributions of Non-cash Assets to Owners. IFRIC 18 Transfers of Assets from Customers. 2. Segmental information The Group’s segments are aligned to the structure of Business Units based around core commodities. In addition assets identified for divestment are managed as a separate Business Unit, Other Mining and Industrial. The Kumba Iron Ore, Iron Ore Brazil and Samancor Business Units have been aggregated as the Iron Ore and Manganese segment on the basis of the ultimate product produced (ferrous metals). Each Business Unit has a management team that is accountable to the Chief executive. The Group’s Executive Committee evaluates the financial performance of the Group and its segments principally with reference to operating profit before special items and remeasurements which includes the Group’s attributable share of associates’ operating profit before special items and remeasurements. Segments predominately derive revenue as follows – Platinum: platinum group metals; Diamonds: rough and polished diamonds and diamond jewellery; Copper and Nickel: base metals; Iron Ore and Manganese: iron ore, manganese ore and alloys; Metallurgical Coal: metallurgical coal; Thermal Coal: thermal coal; and Other Mining and Industrial: heavy building materials, zinc and steel products. The segment results are stated after elimination of inter-segment transactions and include an allocation of corporate costs. The Corporate Activities and Unallocated Costs segment includes insurance costs. Due to the portfolio and management structure changes announced in October 2009, the segments have changed from those reported at 31 December 2008. Comparatives have been reclassified to align with current year presentation. US$ million Platinum Diamonds Copper Nickel Iron Ore and Manganese Metallurgical Coal Thermal Coal Other Mining and Industrial Exploration Corporate Activities and Unallocated Costs Segment measure Reconciliation: Less: Associates Operating special items and remeasurements Statutory measure Revenue(1) Operating profit/(loss)(2) 2009 4,535 1,728 3,967 348 3,419 2,239 2,490 5,908 – 3 2008 6,327 3,096 3,907 408 4,099 3,119 3,051 8,951 – 6 2009 32 64 2008 2,169 508 2,010 1,892 2 1,489 451 721 506 123 2,554 1,110 1,078 1,082 (172) (212) (146) (219) 24,637 32,964 4,957 10,085 (3,779) (6,653) (580) (2,104) – – (1,637) (1,131) 20,858 26,311 2,740 6,850 (1) Segment revenue includes the Group’s attributable share of associates’ revenue. This is reconciled to Group revenue from subsidiaries and joint ventures as presented in the Consolidated income statement. (2) Segment operating profit is revenue less operating costs before special items and remeasurements, and includes the Group’s attributable share of associates’ operating profit. This is reconciled to Operating profit from subsidiaries and joint ventures after special items and remeasurements as presented in the Consolidated income statement. Associates’ revenue and operating profit are as follows: Associates’ revenue Associates’ operating profit/(loss)(1) 2009 47 1,728 603 164 742 495 2008 39 3,096 1,526 170 841 981 3,779 6,653 US$ million Platinum Diamonds Iron Ore and Manganese Metallurgical Coal Thermal Coal Other Mining and Industrial Reconciliation: Associates’ net finance costs (before special items and remeasurements) Associates’ income tax expense (before special items and remeasurements) Associates’ minority interests (before special items and remeasurements) Share of net income from associates (before special items and remeasurements) Associates’ special items and remeasurements Associate’s tax special item Associates’ tax on special items and remeasurements Associates’ minority interests on special items and remeasurements Share of net income from associates 2009 (26) 64 143 48 303 48 580 2008 20 508 980 102 375 119 2,104 (28) (147) (235) (623) 1 (31) 318 1,303 (184) (45) (6) 1 84 (223) – 17 16 1,113 (1) Associates’ operating profit is the Group’s attributable share of associates’ revenue less operating costs before special items and remeasurements. 106 Anglo American plc Annual Report 2009 2. Segmental information continued Significant non-cash items included within operating profit are as follows: Balance sheet measures are as follows: Depreciation and amortisation(1) Other non-cash expenses(2) 2009 2008 US$ million Platinum Copper Nickel Iron Ore and Manganese Metallurgical Coal Thermal Coal Other Mining and Industrial Exploration Corporate Activities and Unallocated Costs 2009 636 244 26 81 249 107 360 – 2008 507 212 27 52 205 78 404 – 22 24 1,725 1,509 79 392 92 71 9 4 26 13 94 4 7 50 4 51 43 61 108 – 67 391 (1) The Group’s attributable share of depreciation and amortisation in associates is $248 million (2008: $253 million) and is split by segment as follows: Platinum $9 million (2008: $2 million), Diamonds $151 million (2008: $157 million), Iron Ore and Manganese $23 million (2008: $19 million), Metallurgical Coal $6 million (2008: $4 million), Thermal Coal $47 million (2008: $44 million) and Other Mining and Industrial $12 million (2008: $27 million). (2) Other non-cash expenses include equity settled share-based payment charges and amounts included in operating costs in respect of provisions. The following balance sheet segment measures are provided for information: US$ million Platinum Copper Nickel Iron Ore and Manganese Metallurgical Coal Thermal Coal Other Mining and Industrial Exploration Corporate Activities and Unallocated Costs Other assets and liabilities Investments in associates(3) Financial asset investments Deferred tax assets/(liabilities) Cash and cash equivalents Other financial assets/(liabilities) – derivatives Other non-operating assets/(liabilities) Other provisions Borrowings Net assets US$ million Platinum Copper Nickel Iron Ore and Manganese Metallurgical Coal Thermal Coal Other Mining and Industrial Exploration Corporate Activities and Unallocated Costs Capital expenditure(1) Net debt(2) 2009 1,150 1,068 554 1,044 96 400 268 – 27 2008 1,563 808 530 783 467 365 603 1 2009 196 2008 995 (187) (622) 380 874 (9) 23 341 – (66) 698 (18) (139) 354 – 26 9,425 9,849 4,607 5,146 11,043 11,051 Reconciliation: Interest capitalised Non-cash movements(3) Tangible asset additions Tangible assets acquired through business combinations Intangible asset additions 246 379 215 365 5,232 5,726 28 50 7,358 1,731 Net debt in disposal groups (48) (8) 5,310 (4) 14,815 (4) 10,995 11,043 (1) Capital expenditure is segmented on a cash basis and is reconciled to balance sheet additions. Cash capital expenditure excludes cash flows on related derivatives. (2) Segment net debt excludes net debt in disposal groups and hedges. A reconciliation of net debt to the balance sheet is provided in note 30. At 31 December 2007 net debt of $5,170 million was split by segment as follows: Platinum $846 million, Copper $(298) million, Nickel $(233) million, Iron Ore and Manganese $(123) million, Metallurgical Coal $(3) million, Thermal Coal $(76) million, Other Mining and Industrial $182 million, Exploration $(1) million and Corporate Activities and Unallocated Costs $4,876 million. Group net debt of $5,239 million included a further $69 million of net debt in disposal groups. (3) Includes movements on tangible asset accruals and the impact of cash flow hedge derivatives. (4) Capital expenditure on an accruals basis and including additions resulting from acquisitions of interests in subsidiaries and joint ventures is split by segment as follows: Platinum $1,445 million (2008: $3,026 million), Copper $1,186 million (2008: $1,087 million), Nickel $570 million (2008: $597 million), Iron Ore and Manganese $1,157 million (2008: $7,569 million), Metallurgical Coal $173 million (2008: $1,222 million), Thermal Coal $409 million (2008: $383 million), Other Mining and Industrial $323 million (2008: $882 million), Exploration nil (2008: $1 million) and Corporate Activities and Unallocated Costs $47 million (2008: $48 million). Segment assets(1) Segment liabilities(2) Net segment assets 2009 13,082 5,643 1,888 10,758 4,176 2,343 6,231 4 311 2008 9,713 4,134 1,485 10,768 3,369 1,624 6,435 3 251 2009 (941) (880) (101) (388) (769) (636) 2008 (668) (986) (84) (311) (700) (606) (1,202) (1,204) (2) (409) (7) (310) 2009 12,141 4,763 1,787 10,370 3,407 1,707 5,029 2 (98) 2008 9,045 3,148 1,401 10,457 2,669 1,018 5,231 (4) (59) 44,436 37,782 (5,328) (4,876) 39,108 32,906 3,312 2,729 288 3,269 603 1,671 – – 3,612 3,288 258 2,771 376 1,651 – – 56,308 49,738 – – – – (5,192) (4,555) – (659) (2,128) (617) (14,315) (28,239) – (1,497) (2,515) (544) (13,995) (27,982) 3,312 2,729 (4,904) 3,269 (56) (457) (617) 3,612 3,288 (4,297) 2,771 (1,121) (864) (544) (14,315) (13,995) 28,069 21,756 i F n a n c a i l s t a t e m e n t s (1) Segment assets at 31 December 2009 are operating assets and consist of intangible assets of $2,776 million (2008: $3,006 million), tangible assets of $35,198 million (2008: $29,545 million), biological assets of $4 million (2008: $3 million), environmental rehabilitation trusts of $342 million (2008: $244 million), retirement benefit assets of $54 million (2008: $32 million), inventories of $3,212 million (2008: $2,702 million) and operating receivables of $2,850 million (2008: $2,250 million). (2) Segment liabilities at 31 December 2009 are operating liabilities and consist of non-interest bearing current liabilities of $3,447 million (2008: $3,534 million), retirement benefit obligations of $706 million (2008: $401 million) and environmental restoration and decommissioning provisions of $1,175 million (2008: $941 million). (3) Refer to note 16 for a split of investments in associates by segment. Anglo American plc Annual Report 2009 107 Financial statements Notes to the financial statements continued 2. Segmental information continued Entity wide information The Group’s analysis of segment revenue by product (including attributable share of revenue from associates) is as follows: Segment revenue and operating profit/(loss) before special items and remeasurements by origin (including attributable share of revenue and operating profit/(loss) from associates) has been provided for information: US$ million South Africa Other Africa Europe North America South America Australia and Asia Operating profit/(loss) before special items and remeasurements Revenue 2009 2008 2009 2008 10,293 13,786 2,023 5,107 1,539 2,976 510 6,040 3,279 2,530 4,805 705 6,743 4,395 78 (54) (20) 2,310 620 467 (183) (29) 2,985 1,738 24,637 32,964 4,957 10,085 The Group’s geographical analysis of segment assets and liabilities, allocated based on where assets and liabilities are located, has been provided for information: US$ million South Africa Other Africa Europe Segment assets(1) Segment liabilities Net segment assets 2009 2008 2009 2008 2009 2008 18,309 664 13,540 364 3,820 4,045 (2,148) (66) (1,633) (30) 16,161 598 11,907 334 (907) (132) (910) (119) 2,913 3,135 673 510 North America 805 629 South America 16,528 15,688 (1,262) (1,431) 15,266 14,257 Australia and Asia 4,310 3,516 (813) (753) 3,497 2,763 44,436 37,782 (5,328) (4,876) 39,108 32,906 (1) Investments in associates are not included in segment assets. The geographical distribution of these investments, based on the location of the underlying assets, is disclosed in note 16. US$ million Platinum Palladium Rhodium Diamonds Copper Nickel Iron ore Manganese Metallurgical coal Thermal coal Zinc Steel products Heavy building materials Other 2009 2008 3,101 3,570 361 527 1,728 3,783 625 2,330 603 1,693 3,197 445 1,371 2,870 2,003 531 1,632 3,096 3,639 734 2,281 1,526 2,775 3,637 467 1,927 4,399 2,750 24,637 32,964 The Group’s geographical analysis of segment revenue (including attributable share of revenue from associates) allocated based on the country in which the customer is located, and non-current segment assets, allocated based on the country in which the assets are located, is as follows: US$ million South Africa Other Africa United Kingdom (Anglo American plc’s country of domicile) Other Europe US Other North America Brazil Chile Venezuela Other South America Australia China India Japan Other Asia Revenue Non-current segment assets(1) 2009 2008 2009 2008 2,567 3,951 15,161 11,040 139 322 599 309 3,850 5,014 790 507 662 1,229 5 185 427 3,469 1,222 2,697 1,874 4,672 7,279 1,294 1,078 1,423 1,398 8 178 344 1,956 1,599 4,516 2,946 2,686 2,491 241 123 575 712 92 414 10,105 10,468 4,280 3,448 281 293 462 206 3,584 2,863 4 – – 46 3 – – 46 24,637 32,964 37,978 32,554 (1) Non-current segment assets are non-current operating assets and consist of tangible assets, intangible assets and biological assets. Non-current segment assets at 31 December 2007 were $25,093 million. 108 Anglo American plc Annual Report 2009 3. Reconciliation of Underlying earnings to Profit for the financial year attributable to equity shareholders of the Company The table below analyses the contribution of each segment to the Group’s operating profit (including attributable share of operating profit from associates) for the financial year and Underlying earnings, which the directors consider to be a useful additional measure of the Group’s performance. A reconciliation from ‘Profit for the financial year attributable to equity shareholders of the Company’ to ‘Underlying earnings for the financial year’ is given in note 12. Due to the portfolio and management structure changes announced in October 2009, the segments have changed from those reported at 31 December 2008. Comparatives have been reclassified to align with current year presentation. Operating profit (including attributable share of operating profit from associates) is reconciled to ‘Underlying earnings’ and ‘Profit for the financial year attributable to equity shareholders of the Company’ in the table below: US$ million By segment Platinum Diamonds Copper Nickel Iron Ore and Manganese Metallurgical Coal Thermal Coal Exploration Corporate Activities and Unallocated Costs Core operations Other Mining and Industrial Total/Underlying earnings Underlying earnings adjustments Operating profit/(loss) before special items and remeasurements(1) Operating profit/(loss) after special items and remeasurements Operating special items and remeasurements(2) Net profit on disposals(2) Financing special items and remeasurements(2) 32 64 2,010 2 1,489 451 721 (172) (146) 4,451 506 4,957 (72) (139) 2,114 (86) 350 423 715 (172) (377) 2,756 361 3,117 104 203 (104) 88 1,139 28 6 – 231 1,695 145 1,840 (1,840) 323 20 – – 6 33 21 10 – 413 1,219 1,632 1,632 – – – – – – – – – – – – (135) Profit for the financial year attributable to equity shareholders of the Company US$ million By segment Platinum Diamonds Copper Nickel Iron Ore and Manganese Metallurgical Coal Thermal Coal Exploration Corporate Activities and Unallocated Costs Core operations Other Mining and Industrial Total/Underlying earnings Underlying earnings adjustments Operating profit/(loss) before special items and remeasurements(1) Operating profit/(loss) after special items and remeasurements Operating special items and remeasurements(2) Net profit on disposals(2) Financing special items and remeasurements(2) 2,169 508 1,892 123 2,554 1,110 1,078 (212) (219) 9,003 1,082 10,085 2,150 282 1,825 (7) 1,934 1,088 1,080 (162) (305) 7,885 843 8,728 19 226 67 130 620 22 (2) (50) 86 1,118 239 1,357 (1,357) 106 18 142 (1) (4) – – – 2 263 764 1,027 1,027 – – – – – – – – – – – – 36 Profit for the financial year attributable to equity shareholders of the Company Net interest, tax and minority interests 12 (154) (809) (15) (918) (129) (204) 5 (73) (2,285) (103) (2,388) 199 Net interest, tax and minority interests (913) (252) (848) (158) (1,404) (346) (324) 12 (267) (4,500) (348) (4,848) 272 2009 Total 44 (90) 1,201 (13) 571 322 517 (167) (219) 2,166 403 2,569 (3) (144) 2,425 2008 Total 1,256 256 1,044 (35) 1,150 764 754 (200) (486) 4,503 734 5,237 (3) (22) 5,215 (1) Operating profit includes attributable share of associates’ operating profit which is reconciled to ‘Share of net income from associates’ in note 2. (2) Special items and remeasurements are set out in note 7. (3) This represents Underlying earnings for the financial year and is equal to profit for the financial year attributable to equity shareholders of the Company before special items and remeasurements. Anglo American plc Annual Report 2009 109 i F n a n c a i l s t a t e m e n t s Financial statements Notes to the financial statements continued 4. Operating profit from subsidiaries and joint ventures A more detailed analysis of auditors’ remuneration is provided below: US$ million Group revenue Cost of sales(1) Gross profit Selling and distribution costs Administrative expenses Other gains and losses (see below) Exploration expenditure (see note 5) Operating profit from subsidiaries and joint ventures 2009 2008 20,858 26,311 (15,280) (15,551) 5,578 10,760 (1,590) (1,631) (1,603) (1,643) US$ million 527 (172) (424) (212) 2,740 6,850 Statutory audit services(1) Anglo American plc Annual Report paid to the Company’s auditor (1) Includes operating special items of $2,275 million (2008: $352 million), see note 7. US$ million 2009 2008 Operating profit is stated after charging: Depreciation of tangible assets (see note 14) 1,711 1,505 Amortisation of intangible assets (see note 13) Rentals under operating leases Research and development expenditure Operating special items(1) Employee costs (see note 6) Adjustment due to provisional pricing(2) Other gains and losses comprise: Operating remeasurements(1) Net gain/(loss) on non-hedge derivatives Realised loss on derivatives relating to capital expenditure Other remeasurements Other fair value gains/(losses) on derivatives – realised Foreign currency (losses)/gains on other monetary items Gains on valuation of biological assets Total other gains and losses 14 114 34 2,275 3,734 (507) 4 210 36 352 3,281 764 638 757 (105) (14) 83 (195) 1 527 (779) (696) (120) 37 (147) 501 1 (424) (1) Special items and remeasurements are set out in note 7. (2) Provisionally priced contracts resulted in a total (realised and unrealised) gain in revenue of $563 million (2008: $865 million loss) and total (realised and unrealised) loss in operating costs of $56 million (2008: $101 million gain). US$ million Auditors’ remuneration Audit United Kingdom Overseas Other services provided by Deloitte(1) United Kingdom Overseas 2009 2008 3 8 8 2 3 7 2 2 (1) ‘Other services provided by Deloitte’ includes charges incurred in respect of the interim review, $6.5 million for services relating to bid defence and $0.4 million for services required to be undertaken by Deloitte in their capacity as auditors. 2009 Paid/ payable to auditor (if not Deloitte) Paid/payable to Deloitte United Kingdom Overseas Total Overseas 1.9 – 1.9 – – 0.8 0.8 2.7 0.7 0.2 – (2) 6.9 7.8 3.7 4.1 7.8 7.8 0.6 0.4 – 0.9 1.9 3.7 4.9 8.6 10.5 1.3 0.6 – 7.8 9.7 0.1 0.5 0.6 0.6 – 0.3 0.4 0.6 1.3 Subsidiary entities – for purposes of Anglo American plc Annual Report Subsidiary entities – additional local statutory requirements Subsidiary entities – total Total Other services(1) Other services pursuant to legislation Tax services Internal audit services Other Total (1) $0.1 million was paid/payable in respect of the audit of Group pension schemes. (2) Includes $6.5 million for services relating to bid defence and $0.4 million for services required to be undertaken by Deloitte in their capacity as auditors. 2008 Paid/ payable to auditor (if not Deloitte) Paid/payable to Deloitte United Kingdom Overseas Total Overseas 2.2 – 2.2 – – 0.6 0.6 2.8 0.6 0.2 – 0.1 0.5 (2) 1.4 3.6 3.8 7.4 7.4 0.5 0.6 – – 1.2 2.3 3.6 4.4 8.0 10.2 1.1 0.8 – 0.1 1.7 3.7 0.1 0.5 0.6 0.6 – – 0.4 – 0.2 0.6 US$ million Statutory audit services(1) Anglo American plc Annual Report paid to the Company’s auditor Subsidiary entities – for purposes of Anglo American plc Annual Report Subsidiary entities – additional local statutory requirements Subsidiary entities – total Total Other services(1) Other services pursuant to legislation Tax services Internal audit services Corporate finance Other Total (1) $0.1 million was paid/payable in respect of the audit of Group pension schemes. (2) Includes $0.4 million for services required to be undertaken by Deloitte in their capacity as auditors. 110 Anglo American plc Annual Report 2009 5. Exploration expenditure Exploration expenditure is stated before special items. US$ million By commodity(1) Platinum group metals Copper Nickel Iron ore Metallurgical coal Thermal coal Zinc Central exploration activities 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 Group, directly or indirectly, including any director (executive and non-executive) of the Group. 2009 2008 17 43 22 8 10 25 10 37 36 60 20 18 17 18 8 35 172 212 Compensation for key management was as follows: US$ million Salaries and short term employee benefits Post employment benefits Termination benefits National insurance and social security Share-based payments 2009 14 2 10 2 11 39 2008 20 2 2 3 11 38 (1) Following the portfolio and management structure changes announced in October 2009, exploration expenditure is presented by commodity. Comparatives have been reclassified to align with current year presentation. Key management includes members of the Board and the Executive Committee. The composition of key management personnel has changed following the portfolio and management structure changes announced in October 2009. Disclosure of directors’ emoluments, pension entitlements, share options and long term incentive plan awards required by the Companies Act 2006 and those specified for audit by Regulation 11 and Schedule 8 of the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 are included in the Remuneration report. 7. Special items and remeasurements ‘Special items’ are those items of financial performance that the Group believes should be separately disclosed on the face of the income statement to assist in the understanding of the underlying financial performance achieved by the Group. Such items are material by nature or amount to the year’s results and require separate disclosure in accordance with IAS 1 (revised 2007) paragraph 97. Special items that relate to the operating performance of the Group are classified as operating special items and include impairment charges and reversals and other exceptional items, including significant legal provisions. Non-operating special items include profits 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 financial performance of the Group. This category includes: (i) unrealised gains and losses on ‘non-hedge’ derivative instruments open at year end (in respect of future transactions) and the reversal of the historical marked to market value of such instruments settled in the year. The full realised gains or losses are recorded in underlying earnings in the same year as the underlying transaction for which such instruments provide an economic, but not formally designated, hedge (if the underlying transaction is recorded in the balance sheet, e.g. capital expenditure, the realised amount remains in remeasurements on settlement of the derivative). Such amounts are classified in the income statement as financing when the underlying exposure is in respect of net debt and otherwise as operating. (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. This is classified as financing. (iii) foreign exchange impact arising in US dollar functional currency entities where tax calculations are generated based on local currency financial information (and hence deferred tax is susceptible to currency fluctuations). Such amounts are included within income tax expense. 6. Employee numbers and costs The average number of employees, excluding contractors and associates’ employees and including a proportionate share of employees within joint venture entities, was: Thousand By segment(1) Platinum Copper Nickel Iron Ore and Manganese Metallurgical Coal Thermal Coal Other Mining and Industrial Corporate Activities and Unallocated Costs 2009 2008 58 56 4 2 7 3 9 22 2 107 4 1 7 4 9 22 2 105 (1) Due to the portfolio and management structure changes announced in October 2009, the segments have changed from those reported at 31 December 2008. Comparatives have been reclassified to align with current year presentation. The average number of employees by principal location of employment was: Thousand South Africa Other Africa Europe North America South America Australia and Asia 2009 83 1 9 1 9 4 2008 79 1 10 1 9 5 107 105 Payroll costs in respect of the employees included in the tables above were: US$ million Wages and salaries Social security costs Defined contribution plans Defined benefit plans Other post employment benefits Share-based payments Total payroll costs Reconciliation: Less: Employee costs capitalised Less: Employee costs included within operating special items Employee costs included in operating costs 2009 2008(1) 3,321 2,817 168 193 36 6 205 157 143 49 7 155 3,929 3,328 (82) (113) (28) (19) 3,734 3,281 (1) Comparatives have been aligned with current year presentation, which is inclusive of amounts capitalised and amounts included within operating special items. Anglo American plc Annual Report 2009 111 i F n a n c a i l s t a t e m e n t s Financial statements Notes to the financial statements continued 7. Special items and remeasurements continued Subsidiaries and joint ventures’ special items and remeasurements Operating special items Costs associated with ‘One Anglo’ initiatives principally comprise advisory costs and include costs associated with the corporate review, procurement, shared services and information systems. 2009 2008 Operating remeasurements US$ million Impairment of Amapá system Costs associated with ‘One Anglo’ initiatives Impairment of Loma de Níquel Restructuring costs: Other Mining and Industrial Corporate Platinum Metallurgical Coal and Thermal Coal Platinum assets written off Impairment of Tarmac assets Bid defence costs Impairment of Iron Ore Brazil transshipping vessel Provisions for onerous contracts Costs associated with proposed sale of Tarmac Impairment of Lisheen Impairment of Black Mountain Impairment of Metallurgical Coal assets Reversal of impairment of Silangan exploration asset Other Total operating special items Tax Minority interests (1,667) (148) (114) (78) (47) (37) (21) (51) (50) (45) (27) 15 – – – – – (5) – (72) – (20) – – – – (71) – – (39) (3) (78) (62) (40) 45 (12) (2,275) (352) 107 107 42 1 Net total attributable to equity shareholders of the Company (2,061) (309) The Amapá iron ore system (Amapá) was acquired in 2008 as an operating asset as part of the acquisition of the Minas Rio project. During 2009 Amapá has experienced significant operational challenges across its mine, plant and logistics chain, producing 2.7 million tonnes compared to the design capacity of 6.5 million tonnes per annum (Mtpa). Management’s focus has been, and remains, on seeking to markedly improve performance from the existing operations, rather than investing to expand the operation. Amapá is currently believed to have capacity to increase production to 5 Mtpa without significant further capital expenditure. Due to the focus on improving operational performance and preserving cash, limited exploration drilling has been undertaken in 2009 and the anticipated growth potential of surrounding licence areas remains untested. Given these operational difficulties and delays in increasing production, the Group has recorded an impairment charge of $1,512 million (after tax and minority interest) against the carrying value of the asset. Of this charge, $342 million has been recorded against intangible assets (primarily goodwill), $1,325 million has been recorded against tangible assets (primarily mining properties) with associated deferred tax credit of $76 million and minority interest credit of $79 million. The impairment brings the carrying value of Amapá in line with fair value (less costs to sell), determined on a discounted cash flow basis. In January 2008 the Venezuelan Ministry of Basic Industries and Mining (MIBAM) published a resolution cancelling 13 of Minera Loma de Níquel’s (MLdN) 16 exploration and exploitation concessions due to MLdN’s alleged failure to fulfil certain conditions of the concessions. The current mining and metallurgical facilities are located on the three concessions that have not been cancelled. MLdN believes that it has complied with the conditions of these concessions and has lodged administrative appeals against the notices of termination and is waiting for a response from MIBAM. MLdN may in the future undertake further appeals, including with Venezuela’s Supreme Court, if the MIBAM’s ruling does not adequately protect its interests. An impairment and associated adjustments of $114 million has been recorded due to increased uncertainty over the renewal of the three concessions that have not been cancelled but that expire in 2012 and over the restoration of the 13 concessions that were cancelled. The charge is based on a value in use assessment of recoverable amount, includes the impact of recycling a related cash flow hedge reserve and an associated reduction in the related embedded derivative liability. Recoverable amount has been determined using discounted cash flows which use pre-tax discount rates equivalent to a real post tax discount rate of 6%. Restructuring costs relate to retrenchment costs. US$ million Net gain/(loss) on non-hedge derivatives Realised loss on derivatives relating to capital expenditure Other remeasurements Total operating remeasurements Tax Minority interests Net total attributable to equity shareholders of the Company 2009 757 (105) (14) 638 (207) 2 433 2008 (696) (120) 37 (779) 252 135 (392) The net gain on non-hedge derivatives principally includes net unrealised gains on derivatives relating to capital expenditure held by Iron Ore Brazil and Los Bronces and an unrealised gain on an embedded derivative at Minera Loma de Níquel. A net loss of $105 million was realised in the year in respect of the Iron Ore Brazil and Los Bronces capital expenditure derivative portfolios. Profits and losses on disposals US$ million Disposal of interest in AngloGold Ashanti Disposal of interest in Booysendal joint venture(1) Disposal of interest in Lebowa Platinum Mines Limited(1) Disposal of financial asset investments Disposal of interests in Tongaat Hulett and Hulamin Disposal of Tarmac fixed assets Disposal of Silangan exploration asset Disposal of interest in China Shenhua Energy Disposal of interest in Minera Santa Rosa SCM Disposal of Northam Platinum Limited Copebrás property compensation Disposal of Tarmac Iberia Disposal of Namakwa Sands(1) Other Net profit on disposals Tax Minority interests 2009 1,139 247 69 54 53 15 10 – – – – – – 25 2008 – – – – – – – 551 142 101 96 65 49 5 1,612 1,009 (76) (66) (47) (43) 919 Net total attributable to equity shareholders of the Company 1,470 (1) See Disposals of subsidiaries and businesses note 33. During 2009 the Group sold its remaining investment in AngloGold Ashanti for total proceeds of $1,770 million, generating a profit on disposal of $1,139 million. Ministerial approval for the sale of Anglo Platinum’s 50% interest in the Booysendal joint venture to Mvelaphanda Resources Limited (Mvela) was received in June 2009. Total consideration was $275 million (excluding transaction and deal facilitation costs), of which $270 million was received in advance in the prior year. At 31 December 2009 $72 million of this remains in an escrow account pending completion of documentation. The sale of 51% of Anglo Platinum’s holding in Lebowa Platinum Mines Limited (Lebowa) and 1% interest in the Ga Phasha, Boikgantsho and Kwanda joint ventures to Anooraq Resources Corporation (Anooraq) completed on 30 June 2009 for consideration of $363 million (excluding transaction and deal facilitation costs). The fair value of the consideration was $247 million (excluding transaction and deal facilitation costs). The profit on disposal of Lebowa has been revised since 30 June 2009 after finalisation of the valuations of financial instruments and loan commitments. During 2009 the Group sold its remaining investments in Tongaat Hulett and Hulamin for total proceeds of $671 million (excluding transaction costs) generating a net profit on disposal of $53 million. 112 Anglo American plc Annual Report 2009 7. Special items and remeasurements continued Financing remeasurements Associates’ profits and losses on disposals US$ million US$ million 2009 2008 Disposal of AK06 diamond deposit Unrealised net (loss)/gain on non-hedge derivatives related to net debt Foreign exchange (loss)/gain on De Beers preference shares Other remeasurements Total financing remeasurements Tax Minority interests (100) (21) (13) (134) 2 (2) Net total attributable to equity shareholders of the Company (134) 23 28 – 51 – – 51 Disposal of interests in Williamson, Cullinan and Koffiefontein Other Associates’ net profit on disposals Associates’ financing special items US$ million Costs associated with refinancing 2009 2008 22 – (2) 20 – 15 3 18 2009 2008 (7) – The unrealised net loss on non-hedge derivatives related to net debt principally comprises an unrealised loss on an embedded interest rate derivative. Associates’ financing remeasurements Tax special item US$ million Write off of deferred tax asset related to Amapá Minority interest Net total attributable to equity shareholders of the Company Tax remeasurements US$ million Foreign currency translation of deferred tax balances Minority interests Net total attributable to equity shareholders of the Company Total special items and remeasurements US$ million Unrealised net gain/(loss) on non-hedge derivatives related to net debt 2009 2008 6 (15) 2009 (107) 32 (75) 2008 – – – Associate’s tax special item US$ million Write off of deferred tax asset related to De Beers’ Canadian assets 2009 469 (12) 457 2008 (153) 52 (101) Total associates’ special items and remeasurements US$ million Total associates’ special items and remeasurements before tax and minority interests Tax special item Tax on special items and remeasurements Minority interests 2009 2008 (45) – 2009 2008 (184) (45) (6) 1 (223) – 17 16 Net total associates’ special items and remeasurements (234) (190) Operating special items and remeasurements 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) 2009 (2,275) 638 2008 (352) (779) (1,637) (1,131) (299) 96 (203) (125) (101) (226) (1,840) (1,357) (2,574) 734 (477) (880) (1,840) (1,357) i F n a n c a i l s t a t e m e n t s US$ million 2009 2008 Total special items and remeasurements before tax and minority interests Tax special item Tax remeasurements Tax on special items and remeasurements Minority interests Net total special items and remeasurements attributable to equity shareholders of the Company Associates’ special items and remeasurements Associates’ operating special items and remeasurements US$ million Impairment of De Beers’ Canadian assets Impairment of De Beers’ businesses Share of De Beers’ restructuring costs Unrealised net gain/(loss) on non-hedge derivatives Share of De Beers’ class action payment and related costs Other impairments (159) (107) 469 (174) 61 90 2009 (267) – (27) 96 – (5) (71) – (153) 247 145 168 2008 – (79) (37) (101) (3) (6) Total associates’ operating special items and remeasurements (203) (226) Tax Minority interests Net total associates’ operating special items and remeasurements (6) 1 17 16 (208) (193) Due to the nature of the assets, the effects of the strengthening Canadian dollar and the impact of the global recession on pricing and production levels, De Beers has recorded an impairment of $595 million (attributable share $267 million) in respect of its Canadian asset portfolio. The impairment brings the carrying value of the Canadian asset portfolio in line with fair value (less costs to sell), determined using discounted cash flow techniques. Anglo American plc Annual Report 2009 113 Financial statements Notes to the financial statements continued 8. Net finance costs Finance costs and exchange gains/(losses) are presented net of effective cash flow hedges for respective interest bearing and foreign currency borrowings. 10. Tax on profit on ordinary activities a) Analysis of charge for the year The weighted average capitalisation rate applied to qualifying capital expenditure was 6.5% (2008: 12.0%). Financing remeasurements are set out in note 7. US$ million Investment income Interest and other financial income Expected return on defined benefit arrangements Dividend income from financial asset investments Total investment income Interest expense Interest and other finance expense Interest paid on convertible bond Unwinding of discount on convertible bond Interest on defined benefit arrangements Amortisation of discount relating to provisions Dividend on redeemable preference shares 2009 2008 Before remeasure- ments After remeasure- ments Before remeasure- ments After remeasure- ments 334 157 23 514 (724) (44) (39) (174) (45) – 334 157 23 514 (724) (44) (39) (174) (45) – 324 215 50 589 324 215 50 589 (815) (815) – – – (201) – (201) (33) (16) (33) (16) (1,026) (1,026) (1,065) (1,065) US$ million United Kingdom corporation tax at 28% United Kingdom corporation tax at 28.5% South Africa tax Other overseas tax Prior year adjustments Current tax (excluding special items and remeasurements tax) Deferred tax (excluding special items and remeasurements tax) Tax (excluding special items and remeasurements tax) Special items and remeasurements tax Income tax expense 2009 2008 50 – 567 700 (45) – 18 840 1,155 (78) 1,272 1,935 33 610 1,305 2,545 (188) (94) 1,117 2,451 b) Factors affecting tax charge for the year The effective tax rate for the year of 27.7% (2008: 28.6%) is lower (2008: higher) than the applicable standard rate of corporation tax for 2009 in the United Kingdom (28%) (2008: 28.5%). The reconciling items are: US$ million Profit on ordinary activities before tax Tax on profit on ordinary activities calculated at United Kingdom corporation tax rate of 28% Tax on profit on ordinary activities calculated at United Kingdom corporation tax rate of 28.5% 2009 2008 4,029 8,571 1,128 – – 2,443 215 (850) 215 (850) Tax effect of share of net income from associates (24) (317) (173) (145) Tax effects of: Less: interest capitalised Total interest expense Other financing (losses)/gains Net foreign exchange losses Fair value gains/(losses) on derivatives Net fair value gains on fair value hedges Other net fair value losses Total other financing losses Net finance costs 246 (780) (24) 29 29 (41) (7) (273) 246 (780) (45) (71) 29 (54) (141) (407) (2) 2 (18) (191) (452) 21 2 (18) (140) (401) 9. Financial instrument gains and losses The net gains and losses recorded in the Consolidated income statement, in respect of financial instruments were as follows: US$ million At fair value through profit and loss Cash flow hedge derivatives(1) Fair value hedge derivatives Fair value hedge underlying instruments Other fair value movements(2) Loans and receivables Foreign exchange Interest income at amortised cost Available for sale Net gain transferred on sale Other income Other financial liabilities Foreign exchange Interest expense at amortised cost 2009 2008 (162) 68 (39) (380) (181) 183 1,099 (1,723) (148) 232 (121) 287 1,554 23 476 50 (92) (594) 479 (631) (1) Gains and losses on derivative instruments designated in cash flow hedge relationships which have been realised in the year have been recorded in Group revenue (2008: Group revenue). (2) Includes the impact of provisional pricing which is disclosed in note 4. Special items and remeasurements Operating special items and remeasurements Profits and losses on disposals and financing remeasurements Tax special item Tax remeasurements Items not taxable/deductible for tax purposes Exploration expenditure Non-deductible net foreign exchange loss Non-taxable/deductible net interest (income)/expense Other non-deductible expenses Other non-taxable income Temporary difference adjustments Changes in tax rates Movements in tax losses Enhanced tax depreciation Other temporary differences Other adjustments Secondary tax on companies and dividend withholding taxes Effect of differences between local and United Kingdom rates Prior year adjustments to current tax Other adjustments Income tax expense 558 (340) 107 (469) 22 6 (2) 65 (39) – 5 – (45) 356 (139) (45) (27) 28 (255) – 153 20 28 10 127 (78) (84) 38 (26) 42 634 (181) (78) (53) 1,117 2,451 IAS 1 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 income tax expense. Associates’ tax included within ‘Share of net income from associates’ for the year ended 31 December 2009 is $286 million (2008: $606 million). Excluding special items and remeasurements this becomes $235 million (2008: $623 million). The effective rate of tax before special items and remeasurements including attributable share of associates’ tax for the year ended 31 December 2009 was 33.1%. This was broadly in line with the equivalent effective rate of 33.4% for the year ended 31 December 2008. In future periods it is expected that the effective tax rate, including associates’ tax, will remain above the United Kingdom statutory tax rate. 114 Anglo American plc Annual Report 2009 11. Dividends US$ million Final ordinary paid – nil per ordinary share (2008: 86 US cents) Interim ordinary paid – nil per ordinary share (2008: 44 US cents) 2009 – – – 2008 1,021 517 1,538 The Board has decided to suspend dividend payments. As stated in note 28, the employee benefit trust has waived the right to receive dividends on the shares it holds. 12. Earnings per share US$ 2009 2008 Profit for the financial year attributable to equity shareholders of the Company Basic earnings per share Diluted earnings per share Headline earnings for the financial year(1) Basic earnings per share Diluted earnings per share Underlying earnings for the financial year(1) Basic earnings per share Diluted earnings per share 2.02 1.98 2.46 2.40 2.14 2.10 4.34 4.29 3.78 3.74 4.36 4.31 (1) Basic and diluted earnings per share are shown based on Headline earnings, a Johannesburg stock exchange (JSE Limited) defined performance measure, and Underlying earnings, which the directors consider 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: In April 2009 the Group issued $1.7 billion of senior convertible notes. The senior convertible notes were issued with a coupon of 4%, a conversion price of £18.6370 and unless redeemed, converted or cancelled, will mature in 2014. The Group will have the option to call the senior convertible notes after three years from the issuance date subject to certain conditions. Underlying earnings is an alternative earnings measure, which the directors believe provides a clearer picture of the underlying financial performance of the Group’s operations. Underlying earnings is presented after minority interests and excludes special items and remeasurements (see note 7). Underlying earnings is distinct from ‘Headline earnings’, which is a JSE Limited defined performance measure. The calculation of basic and diluted earnings per share, based on Headline and Underlying earnings, uses the following earnings data: Earnings (US$ million) Basic earnings per share (US$) 2009 2008 2009 2008 Profit for the financial year attributable to equity shareholders of the Company Operating special items Operating special items – tax Operating special items – minority interests Net profit on disposals Net profit on disposals – tax Net profit on disposals – minority interests Associates’ special items Associates’ special items – tax Associates’ special items – minority interests Headline earnings for the financial year Operating special items(1) Operating special items – tax Operating special items – minority interests 2009 2008 Operating remeasurements 2,425 5,215 32 28 – – 2,485 5,215 Operating remeasurements – tax Operating remeasurements – minority interests Financing remeasurements Financing remeasurements – tax Financing remeasurements – minority interests Tax special item 1,202 1,202 Tax special item – minority interest 11 40 13 – Tax remeasurements Tax remeasurements – minority interests Associates’ special items(2) Associates’ special items – tax Associates’ special items – minority interests Associates’ remeasurements Associates’ remeasurements – tax Associates’ remeasurements – minority interests US$ million (unless otherwise stated) Earnings Basic earnings, being profit for the financial year attributable to equity shareholders of the Company Effect of dilutive potential ordinary shares Interest paid on convertible bond (net of tax) Unwinding of discount on convertible bond (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 and awards Convertible bond Diluted number of ordinary shares outstanding(1) 1,253 1,215 (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 shares held by employee benefit trusts and Anglo American plc shares held by Group companies. (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. In the year ended 31 December 2009 there were 231,351 share options which were potentially dilutive but have not been included in the calculation of diluted earnings per share because they were anti-dilutive. In the year ended 31 December 2008 no share options were anti-dilutive. In the year ended 31 December 2008 share buybacks took place which had an impact on the weighted average number of ordinary shares at 31 December 2008. Underlying earnings for the financial year 2,569 5,237 (1) Year ended 31 December 2009 includes costs associated with ‘One Anglo’ initiatives, restructuring costs, bid defence costs and provisions for onerous contracts (2008: includes costs associated with ‘One Anglo’ initiatives, restructuring costs and costs associated with proposed sale of Tarmac and provisions for onerous contracts). (2) Year ended 31 December 2009 includes restructuring costs and the tax special item (2008: includes restructuring costs and legal settlements). 2,425 1,908 (66) (100) 5,215 209 (27) (1) (1,612) (1,009) 76 66 259 (1) (2) 47 43 67 (1) (2) 2,953 4,541 367 (41) (7) (638) 207 (2) 134 (2) 2 107 (32) (469) 12 72 (2) (7) (102) 9 8 143 (15) – 779 (252) (135) (51) – – – – 153 (52) 40 (7) (5) 116 (9) (9) 2.02 1.59 (0.05) (0.08) (1.34) 0.06 0.05 0.21 – – 2.46 0.30 (0.03) (0.01) (0.53) 0.17 – 0.11 – – 0.09 (0.03) (0.39) 0.01 0.06 – (0.01) (0.08) 0.01 0.01 2.14 4.34 0.17 (0.02) – (0.84) 0.04 0.04 0.05 – – 3.78 0.12 (0.01) – 0.65 (0.21) (0.11) (0.04) – – – – 0.12 (0.04) 0.03 (0.01) – 0.10 (0.01) (0.01) 4.36 i F n a n c a i l s t a t e m e n t s Anglo American plc Annual Report 2009 115 Financial statements Notes to the financial statements continued 13. Intangible assets 2009 2008 Licences and other intangibles Goodwill(1) Total Licences and other intangibles Goodwill(1) Total 102 2,915 3,017 15 1,546 1,561 – 31 (12) (6) – – 24 139 19 – (8) – 19 31 (20) (6) (312) (312) – 80 – 104 50 24 – – – 15 (2) 1,657 1,707 – 24 (23) (23) – – (15) (250) – – – (252) 2,694 2,833 102 2,915 3,017 US$ million Cost At 1 January Acquired through business combinations Additions Transfer to assets held for sale Disposal of assets Impairments Reclassifications Currency movements At 31 December Accumulated amortisation At 1 January Charge for the year Impairments Transfer to assets held for sale Disposal of assets Currency movements At 31 December Net book value 11 14 39 (7) (2) 2 57 82 – – – – – – – 11 14 39 (7) (2) 2 57 2,694 2,776 5 4 2 – – – 11 91 – – – – – – – 5 4 2 – – – 11 2,915 3,006 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 flow projections based on financial budgets and life of mine or non-mine production plans covering a five year period that are based on latest forecasts for commodity prices and exchange rates. Cash flow projections beyond five years are based on life of mine plans where applicable and internal management forecasts, assume constant long term real prices for sales revenue and are benchmarked on external sources of information for commodity prices and exchange rates. Cash flow projections are discounted using pre-tax discount rates equivalent to a real post tax discount rate of 6% (2008: 6%), that have been adjusted for any risks that are not reflected in the underlying cash flows. Where the recoverability of goodwill allocated to a 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 flow models are used. Expected future cash flows are inherently uncertain and could materially change over time. They are significantly affected by a number of factors including reserves and production estimates, together with economic factors such as commodity prices, discount rates, exchange rates, estimates of costs to produce reserves and future capital expenditure. Management believes that any reasonably possible change in a key assumption on which the recoverable amount is based would not cause the carrying amounts to exceed their recoverable amounts. The Group acquired a controlling interest in Anglo Ferrous Brazil SA on 5 August 2008 resulting in the recognition of $1.6 billion goodwill. Following the completion of a detailed study in 2009, goodwill attributable to the Amapá system, with a carrying value of $305 million has been impaired. The recoverable amount of this goodwill has been reviewed with reference to fair value (less costs to sell) determined using discounted cash flows. (1) The goodwill balances provided are net of cumulative impairment charges of $357 million at 31 December 2009 (2008: $45 million). 14. Tangible assets The increase in goodwill relating to acquisition of subsidiaries represents the excess of purchase price over the fair value of the net assets, including mining reserves, of businesses acquired. Further detail is given in note 32. US$ million Cost Mining properties and leases(1) Land and buildings Plant and equipment Other(2) Total Impairment tests for goodwill Goodwill is allocated for impairment testing purposes to cash generating units (CGUs) which reflect how it is monitored for internal management purposes. This allocation largely represents the Group’s segments set out below. Any goodwill associated with CGUs subsumed within these segments is not significant when compared to the goodwill of the Group, other than in Iron Ore and Manganese and Other Mining and Industrial where the material components of goodwill are split out below: At 1 January 2009 17,124 2,175 12,663 Additions Acquired through business combinations 241 28 53 4 Transfer to assets held for sale (376) (116) Disposal of assets Disposal of businesses Reclassifications(3) Currency movements (14) (41) 60 2,121 (17) (5) 181 296 328 1 (282) (223) (26) 3,075 2,277 2008(1) At 31 December 2009 19,143 2,571 17,813 6,615 4,610 38,577 5,232 (5) (55) (32) (44) (3,316) 28 (829) (286) (116) – 1,200 8,973 5,894 48,500 US$ million Platinum Copper Iron Ore and Manganese Iron Ore Brazil Thermal Coal Other Mining and Industrial Tarmac Other 2009 230 124 230 124 Accumulated depreciation At 1 January 2009 Charge for the year 1,251 1,556 Impairments 88 88 Transfer to assets held for sale Disposal of assets 811 190 760 157 Disposal of businesses Currency movements 2,694 2,915 At 31 December 2009 2,561 412 1,099 (121) (13) (12) 441 4,367 634 95 1 (46) (7) (1) 88 764 5,663 1,192 325 (227) (179) (12) 1,048 7,810 174 12 157 (13) (14) (1) 46 9,032 1,711 1,582 (407) (213) (26) 1,623 361 13,302 14,776 14,563 1,807 1,541 10,003 7,000 8,612 6,441 35,198 29,545 (1) Due to the portfolio and management structure changes announced in October 2009, the segments have changed from those reported at 31 December 2008. Comparatives have been reclassified to align with current year presentation. Net book value At 31 December 2009 At 31 December 2008 (1) Includes amounts in relation to deferred stripping. (2) Other tangible assets include $8,189 million of assets in the course of construction, which are not depreciated. (3) Relates mainly to amounts transferred from assets in the course of construction. 116 Anglo American plc Annual Report 2009 14. Tangible assets continued The funds comprise the following investments: US$ million Cost At 1 January 2008 Additions Acquired through business combinations Transfer to assets held for sale Fair value adjustment Disposal of assets Disposal of businesses Reclassifications(3) Currency movements At 31 December 2008 Accumulated depreciation At 1 January 2008 Charge for the year Impairments Transfer to assets held for sale Disposal of assets Disposal of businesses Currency movements At 31 December 2008 Net book value At 31 December 2008 At 31 December 2007 Mining properties and leases(1) Land and buildings Plant and equipment Other(2) Total 12,652 436 2,256 47 12,902 357 5,363 4,886 33,173 5,726 6,341 (66) – (5) (52) 418 (2,600) 17,124 2,652 353 123 (42) (2) (12) (511) 2,561 73 (16) 3 (14) (1) 216 (389) 2,175 653 84 19 – (8) – (114) 634 436 (118) – (182) (78) 2,048 (2,702) 12,663 6,126 964 114 (65) (166) (29) (1,281) 5,663 508 – 50 (44) – (2,682) (1,466) 6,615 208 104 – – (19) – (119) 174 7,358 (200) 53 (245) (131) – (7,157) 38,577 9,639 1,505 256 (107) (195) (41) (2,025) 9,032 14,563 10,000 1,541 1,603 7,000 6,776 6,441 5,155 29,545 23,534 (1) Includes amounts in relation to deferred stripping. (2) Other tangible assets include $6,050 million of assets in the course of construction, which are not depreciated. (3) Relates mainly to amounts transferred from assets in the course of construction. Included in the additions above is $246 million (2008: $215 million) of interest expense incurred on borrowings funding the construction of qualifying assets which has been capitalised during the year. The net book value and depreciation charges relating to assets held under finance leases comprise: US$ million Mining properties and leases Land and buildings Plant and equipment Other 2009 2008 Net book value Deprecia- tion Net book value Deprecia- tion 13 – 22 – 35 2 – 12 – 14 12 34 19 1 66 2 24 5 – 31 The net book value of land and buildings comprises: US$ million Freehold Leasehold – long Leasehold – short (less than 50 years) US$ million Equity Bonds Cash 2009 37 115 190 342 2008 23 82 139 244 These assets are primarily rand denominated. Cash is held in short term fixed deposits or earns interest at floating inter-bank rates and bonds earn interest at a weighted average fixed rate of 9% (2008: 9%) and are fixed for an average period of 11.8 years (2008: 10.2 years). These assets are recorded ‘at fair value through profit and loss’. These funds are not available for the general purposes of the Group. All income from these assets is reinvested to meet specific environmental obligations. These obligations are included in environmental rehabilitation costs under non-current provisions (see note 25). 16. Investments in associates US$ million 2009 2008 At 1 January Net income from associates Dividends received(1) Transfer from subsidiary/joint venture Actuarial loss on post retirement benefits Movement on cash flow hedge reserve Other equity movements Acquired Disposed Issue of capitalised loans(2) Other Currency movements At 31 December(3) 3,612 84 (616) 235 (5) (2) 2 175 (510) 28 105 204 3,312 3,341 1,113 (599) – (7) 4 4 9 – – – (253) 3,612 (1) Nil (2008: $10 million) was received from associates classified as held for sale. (2) Excludes nil (2008: $43 million) redemption by De Beers of preference shares included within financial asset investments. (3) The fair value of the Group’s investment in Anooraq at 31 December 2009 was $105 million (2008: nil). The fair value of investments in Tongaat Hulett and Hulamin at 31 December 2008 were $350 million and $137 million respectively based on the closing share prices. In July and August 2009, the Group sold its shareholdings in Hulamin and Tongaat Hulett, respectively. The Group’s total investments in associates comprise: US$ million Equity Loans(1) Total investments in associates 2009 2,999 313 3,312 2008 3,279 333 3,612 (1) The Group’s total investments in associates include long term debt which in substance forms part of the Group’s investment. These loans are not repayable in the foreseeable future. i F n a n c a i l s t a t e m e n t s 2009 2008 1,791 1,492 The Group’s attributable share of the summarised financial information of associates is as follows: US$ million 2009 2008 6 10 39 10 1,807 1,541 15. Environmental rehabilitation trusts The Group makes contributions to controlled funds that were established to meet the cost of some of its restoration and environmental rehabilitation liabilities, primarily in South Africa. US$ million At 1 January Contributions made Disposal of businesses Net interest earned and fair value adjustments Currency movements At 31 December 2009 2008 244 29 (1) 14 56 342 252 36 – 16 (60) 244 Total non-current assets Total current assets Total current liabilities Total non-current liabilities Group’s share of associates’ net assets Revenue Operating costs Operating special items and remeasurements Net profit on disposals Net finance costs Financing special items and remeasurements Income tax expense Minority interests Group’s share of associates’ net income Anglo American plc Annual Report 2009 5,710 2,494 (854) (4,038) 3,312 3,779 (3,199) (203) 20 (28) (1) (286) 2 84 5,224 3,003 (1,267) (3,348) 3,612 6,653 (4,549) (226) 18 (147) (15) (606) (15) 1,113 117 Financial statements Notes to the financial statements continued 16. Investments in associates continued Segmental information is provided as follows: 18. Financial asset investments US$ million By segment(1) Platinum Diamonds Iron Ore and Manganese Metallurgical Coal Thermal Coal Other Mining and Industrial Net income Aggregate investment 2009 2008 2009 2008 US$ million (17) (333) 170 34 214 16 84 13 47 667 72 243 71 447 57 1,353 1,623 658 146 689 19 784 111 678 359 1,113 3,312 3,612 At 1 January 2009 Interest receivable Net advances Disposals Movements in fair value Currency movements At 31 December 2009 Non-current Current US$ million At 1 January 2008 Additions Interest receivable Net advances Disposals Disposal of businesses Reversal of impairments Movements in fair value Currency movements At 31 December 2008 Non-current Current Loans and receivables Available for sale invest- ments Total 935 82 394 2,353 3,288 – – 82 394 – (2,049) (2,049) (13) 200 1,598 1,595 3 741 86 1,131 1,131 – 727 287 2,729 2,726 3 Available for sale invest- ments(1) Loans and receivables Total 938 3,842 4,780 – 44 153 – (1) 25 (11) (213) 935 935 – 827 – – 827 44 153 (626) (626) – 20 (1) 45 (888) (899) (822) (1,035) 2,353 2,180 173 3,288 3,115 173 (1) Balance at 31 December 2008 principally includes investment in AngloGold Ashanti Limited. This investment was sold in 2009. Refer to note 7. No provision for impairment is recorded against financial assets classified as ‘Loans and receivables’ (2008: nil). 19. Inventories 2009 2008 US$ million 2,310 1,771 Raw materials and consumables Work in progress Finished products 2009 741 1,368 1,103 3,212 2008 774 843 1,085 2,702 2007 703 812 829 2,344 The cost of inventories recognised as an expense and included in cost of sales amounted to $12,481 million (2008: $12,253 million). Inventories held at net realisable value amounted to $477 million (2008: $561 million). Write-down of inventories (net of revaluation of provisionally priced purchases) amounted to $128 million (2008: $210 million). Of this, $48 million was recognised as an expense and included in cost of sales (2008: $210 million) and $80 million was capitalised (2008: nil). There were also $88 million (2008: $11 million) of inventory write-downs reversed and recognised as a reduction in the inventory expense for the year. (1) Due to the portfolio and management structure changes announced in October 2009, the segments have changed from those reported at 31 December 2008. Comparatives have been reclassified to align with current year presentation. US$ million By geography South Africa Other Africa Europe North America South America Australia and Asia Aggregate investment 2009 2008(1) 1,934 1,752 914 (957) 320 675 426 891 (324) 98 686 509 3,312 3,612 (1) In 2009 the basis of the geographic split has been amended and the comparatives have been updated accordingly. The Group’s share of associates’ contingent liabilities incurred jointly by investors is $102 million (2008: $166 million). Details of principal associates are set out in note 39. 17. Joint ventures The Group’s share of the summarised financial information of joint venture entities that are proportionately consolidated in the Group financial statements is as follows: US$ million Total non-current assets Total current assets Total assets classified as held for sale Total current liabilities Total non-current liabilities Total liabilities directly associated with assets classified as held for sale Group’s share of joint venture entities’ net assets Revenue Operating costs (including special items and remeasurements) Net finance costs Income tax expense Group’s share of joint venture entities’ profit for the financial year 831 15 (425) (763) (6) 1,962 1,702 (711) (37) (200) 415 – (389) (509) – 1,288 1,414 (779) 12 (115) 754 532 The Group’s share of joint venture entities’ contingent liabilities incurred jointly with other venturers is $40 million (2008: $22 million) and its share of capital commitments is $242 million (2008: $414 million). The Group also holds investments in a number of proportionately consolidated jointly controlled operations. The Group’s share of joint venture operations’ net assets is $1,224 million (2008: $981 million). The Group’s share of joint venture operations’ profit for the financial year is $321 million (2008: $554 million). The Group’s share of joint venture operations’ contingent liabilities incurred jointly with other venturers is $3 million (2008: $98 million) and its share of capital commitments is $107 million (2008: $83 million). Details of principal joint ventures are set out in note 39. 118 Anglo American plc Annual Report 2009 20. Trade and other receivables US$ million Trade receivables Amounts owed by related parties Other receivables Prepayments and accrued income Due within one year Due after one year 2009 Total 2008 Due within one year Due after one year Due within one year Due after one year Total 2,496 145 2,641 1,969 12 639 201 – 55 6 12 694 207 13 725 222 3,348 206 3,554 2,929 57 – 33 4 94 2,026 3,000 13 758 226 16 420 136 30 – 125 4 3,023 3,572 159 3,731 2007 Total 3,030 16 545 140 The historical level of customer default is minimal and as a result the ‘credit quality’ of year end trade receivables which are not past due is considered to be high. Of the year end trade receivables balance the following were past due at 31 December (stated after associated impairment provision): US$ million Less than one month Between one to two months Between two to three months Greater than three months 2009 123 38 12 34 85 30 10 25 207 150 The overdue debtor ageing profile above is typical of the industry in which certain of the Group’s businesses operate. Given this, existing insurance cover (including letters of credit from financial institutions) and the nature of the related counterparties these amounts are considered recoverable. 22. Financial assets The carrying amounts and fair values of financial assets are as follows: 2008 US$ million At fair value through profit and loss Trade and other receivables(1) Other financial assets (derivatives)(2) Loans and receivables Cash and cash equivalents Trade and other receivables(1) Financial asset investments Available for sale investments Financial asset investments Total financial assets 2009 2008 Estimated fair value Carrying value Estimated fair value Carrying value 838 603 838 603 192 376 192 376 3,269 2,509 1,569 3,269 2,509 1,598 2,771 2,605 906 2,771 2,605 935 1,131 9,919 1,131 9,948 2,353 9,203 2,353 9,232 Total trade receivables are stated net of the following impairment provision: (1) Trade and other receivables exclude prepayments. US$ million At 1 January 2008 Charge for the year Reclassification Transfer to assets held for sale Currency movements At 1 January 2009 Charge for the year Transfer to assets held for sale Currency movements At 31 December 2009 21. Trade and other payables US$ million Trade payables Tax and social security Other payables(1) Accruals and deferred income 22 16 14 (2) (9) 41 9 (4) 5 51 2009 2008 2007 2,939 3,183 2,546 163 785 508 74 1,162 351 115 868 421 4,395 4,770 3,950 (1) On 20 August 2008 Anglo Platinum received $307 million from a subsidiary of Mvelaphanda Resources Limited (Mvela) in respect of the anticipated disposal of a 50% interest in the Booysendal joint venture. These funds were invested in accordance with the terms of sale and were only to be released to Anglo Platinum upon ministerial approval. At 31 December 2008 an amount of $253 million was included within other payables representing the obligation to repay the funds failing the receipt of such approval. Following ministerial approval and subsequent completion of the disposal on 24 June 2009, the $253 million included within other payables was released. (2) Derivative instruments are analysed between those which are ‘Held for trading’ and those designated into hedge relationships in note 24. The fair values of financial assets represent the market value of quoted investments and other traded instruments. For non-listed investments and other non-traded financial assets fair value is calculated using discounted cash flows with market assumptions, unless carrying value is considered to approximate fair value. An analysis of financial assets carried at fair value is set out below: i F n a n c a i US$ million Level 1(1) Level 2(2) Level 3(3) At fair value through profit and loss Trade and other receivables Other financial assets (derivatives) Available for sale investments Financial asset investments – 3 838 569 1,072 1,075 19 1,426 – 31 40 71 l s t a t e m e n t s 2009 Total 838 603 1,131 2,572 (1) Valued using unadjusted quoted prices in active markets for identical financial instruments. This category includes listed equity shares, and certain exchange-traded derivatives. (2) Valued using techniques based significantly on observable market data. Instruments in this category are valued using valuation techniques where all of the inputs that have a significant effect on the valuation are directly or indirectly based on observable market data. (3) Instruments in this category have been valued using a valuation technique where at least one input (which could have a significant effect on the instrument’s valuation) is not based on observable market data. Where inputs can be observed from market data without undue cost and effort, the observed input is used. Otherwise, management determines a reasonable estimate for the input. Financial assets included within level 3 primarily consist of embedded derivatives and financial asset investments where valuation depends upon unobservable inputs. Anglo American plc Annual Report 2009 119 Financial statements Notes to the financial statements continued 22. Financial assets continued The movements in the fair value of the level 3 financial assets are shown in the following table: US$ million At 1 January Net loss recorded in financing remeasurements Net gain recorded in statement of comprehensive income Reclassification to Other financial liabilities (derivatives) Currency movements At 31 December 2009 137 (111) 1 35 9 71 For the level 3 financial assets, changing certain inputs to reasonably possible alternative assumptions may change the fair value significantly. Where significant, the effect of a change in these assumptions to a reasonably possible alternative assumption is outlined in the table below. These sensitivities have been calculated by amending the fair value of the level 3 financial assets as at 31 December 2009 for a change in each individual assumption, as outlined below, whilst keeping all other assumptions consistent with those used to calculate the fair value recognised in the financial statements. An analysis of financial liabilities carried at fair value is set out below: US$ million Level 1(1) Level 2(2) Level 3(3) At fair value through profit and loss Trade and other payables Other financial liabilities (derivatives) – 3 3 315 543 858 – 113 113 2009 Total 315 659 974 (1) Valued using unadjusted quoted prices in active markets for identical financial instruments. This category includes exchange-traded derivatives. (2) Valued using techniques based significantly on observable market data. Instruments in this category are valued using valuation techniques where all of the inputs that have a significant effect on the valuation are directly or indirectly based on observable market data. (3) Instruments in this category have been valued using a valuation technique where at least one input (which could have a significant effect on the instrument’s valuation) is not based on observable market data. Where inputs can be observed from market data without undue cost and effort, the observed input is used. Otherwise, management determines a reasonable estimate for the input. Financial instruments included within level 3 primarily consist of embedded derivatives where valuation depends upon unobservable inputs. The movements in the fair value of the level 3 financial liabilities are shown in the following table: US$ million Change in assumption Financial asset investments Decrease of 10% in liquidity discount percentage Increase of 10% in liquidity discount percentage Financial asset risk exposures are set out in note 24. 23. Financial liabilities The carrying amounts and fair values of financial liabilities are as follows: US$ million At fair value through profit and loss 2009 2008 Estimated fair value Carrying value Estimated fair value Carrying value Trade and other payables(1) Other financial liabilities (derivatives)(2) 315 659 315 659 687 687 1,497 1,497 Designated into fair value hedge Borrowings 7,793 7,168 2,850 2,850 Financial liabilities at amortised cost Trade and other payables(1) Borrowings(3) 4,297 8,744 4,297 7,147 4,391 4,391 10,658 11,145 Total financial liabilities 21,808 19,586 20,083 20,570 (1) Trade and other payables exclude tax and social security and current and non-current deferred income and include other non-current payables. 2009 US$ million Increase/ (decrease) in fair value of assets 11 (11) At 1 January Net gain recorded in financing remeasurements Net loss recorded in underlying earnings Reduction in assumed life of financial liability(1) Reclassification from Other financial assets (derivatives) Currency movements At 31 December 2009 269 (21) 6 (181) 35 5 113 (1) Relates to reduction of embedded derivative liability in Minera Loma de Níquel and is recorded in operating special items. For the level 3 financial liabilities, changing certain inputs to reasonably possible alternative assumptions may change the fair value significantly. Where significant, the effect of a change in these assumptions to a reasonably possible alternative assumption is outlined in the table below. These sensitivities have been calculated by amending the fair value of the level 3 financial liabilities as at 31 December 2009 for a change in each individual assumption, as outlined below, whilst keeping all other assumptions consistent with those used to calculate the fair value recognised in the financial statements. US$ million Change in assumption Other financial liabilities (derivatives) Increase of 5% in dividend forecast Decrease of 5% in dividend forecast Shift of TJLP curve(1) 2009 Increase/ (decrease) in fair value of liabilities 9 (9) (5)-5 (2) Derivative instruments are analysed between those which are ‘Held for trading’ and those designated into (1) Brazilian domestic long term interest rate curve. Range provided due to the different base assumptions hedge relationships in note 24. used by the relevant banks. (3) Fair value of the convertible bond represents the quoted price of the debt at 31 December 2009 and therefore includes the portion accounted for in equity. The fair value of financial liabilities is determined by reference to its quoted market price, otherwise the carrying value approximates fair value. Financial liability risk exposures are set out in note 24. 120 Anglo American plc Annual Report 2009 23. Financial liabilities continued An analysis of borrowings is set out below: US$ million Secured(2) Bank loans and overdrafts Obligations under finance leases(3) Unsecured Bank loans and overdrafts Bonds issued under EMTN programme(4) US bond Convertible bond(5) Commercial paper Obligations under finance leases(3) Other loans Total Due within one year(1) Due after one year 416 8 424 413 11 424 2009 Total 829 19 848 346 12 358 678 1,024 56 734 68 1,092 351 3,982 4,333 5,114 3,335 8,449 572 – – 67 – 85 4,410 1,935 1,369 – – 696 4,982 1,935 1,369 67 – 781 154 – – 1,116 4 38 2,679 – – – 13 450 2,833 – – 1,116 17 488 1,075 1,499 12,392 13,467 12,816 14,315 6,426 6,784 6,477 7,211 12,903 13,995 24. Financial risk management and derivative financial assets/ liabilities 2008 Total The Group is exposed in varying degrees to a variety of financial instrument related risks. The Board has approved 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. Due within one year(1) Due after one year The types of risk exposure, the way in which such exposure is managed and quantification of the level of exposure in the balance sheet at year end is provided as follows (subcategorised into credit risk, liquidity risk and market risk). Credit risk The Group’s principal financial assets are bank balances and cash, trade and other receivables and investments. The Group’s maximum exposure to credit risk arising from underlying financial assets is as follows: US$ million Cash and cash equivalents Trade and other receivables Financial asset investments(1) Other financial assets (derivatives) Other guarantees and loan facilities 2009 3,269 3,347 1,598 603 12 2008 2,771 2,797 1,108 376 239 8,829 7,291 i F n a n c a i l s t a t e m e n t s (1) Bank loans and overdrafts due within one year include short term borrowings under long term committed facilities of $48 million (2008: $2.8 billion). (2) Assets with a book value of $1,197 million (2008: $954 million) have been pledged as security, of which $753 million (2008: $663 million) are tangible assets, $242 million (2008: $160 million) are financial assets and $202 million (2008: $131 million) are inventories. Related to these assets are borrowings of $814 million (2008: $881 million) in respect of project financing arrangements. (3) The minimum lease payments under finance leases fall due as follows: US$ million Within one year Greater than one year, less than five years Greater than five years Future finance charges on finance leases Present value of finance lease liabilities 2009 9 9 2 20 (1) 19 2008 24 43 86 153 (68) 85 (1) Includes $546 million (2008: $360 million) of preference shares in BEE entities. The Group limits exposure to credit risk on liquid funds and derivative financial instruments through adherence to a policy of: • • • Where possible acceptable minimum 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); and Exposure diversification (the aggregate group exposure to key relationship counterparties cannot exceed 5% of the counterparty’s shareholders’ equity). (4) In the year ended 31 December 2009 the Group issued $2,215 million of bonds under the EMTN programme (2008: $2,404 million). All notes are guaranteed by Anglo American plc. (5) Represents the fair value of the debt component of the convertible bond at the date of issue of $1,330 million (net of fees) adjusted for unwinding of discount of $39 million. The fair value of the equity conversion feature was $355 million and is presented in equity (refer to the Consolidated statement of changes in equity). Given the diverse nature of the Group’s operations (both in relation to commodity markets and geographically), together with insurance cover (including letters of credit from financial institutions), it does not have significant concentration of credit risk in respect of trade receivables, with exposure spread over a large number of customers. During 2009 the Group has raised $2 billion through the issuance of senior notes, $1.7 billion through the issuance of senior convertible notes and $2.2 billion through the issuance of bonds under the EMTN programme. The senior note offering comprised $1,250 million 9.375% senior notes due in 2014 and $750 million 9.375% senior notes due in 2019. The senior convertible notes were issued with a coupon of 4%, a conversion price of £18.6370 and unless redeemed, converted or cancelled, will mature in 2014. The Group will have the option to call the senior convertible note after three years from the issuance date subject to certain conditions. The issues under the EMTN programme in 2009 comprised a —750 million ($1.1 billion) 4.25% bond due in 2013 and a —750 million ($1.1 billion) 4.375% bond due in 2016. The proceeds from the sale of AngloGold Ashanti (refer to note 7), senior notes, senior convertible notes and bonds issued under the EMTN programme have been used to prepay the $3 billion revolving bank facility which was due to mature in December 2009, fund capital expenditure and repay other short term debt owing on Group facilities. On 8 November 2009 the waivers in respect of various breaches under the Amapá long term project financing agreements (facilities of $538 million) expired. Subsequent to 31 December 2009, new retrospective waivers were obtained from lenders, $181 million has been repaid and a process has commenced to restructure the remaining debt. An allowance for impairment of trade receivables is made where there is an identified loss event, which based on previous experience, is evidence of a reduction in the recoverability of the cash flows. Details of the credit quality of trade receivables and the associated provision for impairment is disclosed in note 20. Liquidity risk The Group ensures that there are sufficient committed loan facilities (including refinancing, where necessary) in order to meet short term business requirements, after taking into account cash flows from operations and its holding of cash and cash equivalents, as well as any group distribution restrictions that exist. Non-wholly owned subsidiaries, where possible, will maintain their own financing and funding requirements. In most cases the financing will be non-recourse to the Group. In addition, certain projects are financed by means of limited recourse project finance, if appropriate. Anglo American plc Annual Report 2009 121 Financial statements Notes to the financial statements continued 24. Financial risk management and derivative financial assets/ liabilities continued The expected undiscounted cash flows of the Group’s financial liabilities (including associated derivatives), by remaining contractual maturity, based on conditions existing at the balance sheet date are as follows: Within one year One to two years Fixed interest Floating interest Capital repayment Fixed interest Floating interest Capital repayment (550) (200) (5,660) (1) (523) (185) (3,226) 461 (89) (267) – (467) (5,660) 441 (82) (273) 5 (458) (3,221) (191) (405) (11,385) (179) (245) (732) 156 (35) (94) 8 (499) (11,377) 164 (15) (101) (346) (53) (785) Two to five years Greater than five years Fixed interest Floating interest Capital repayment Fixed interest Floating interest Capital repayment (1,379) (295) (5,877) (3) (672) (608) (4,394) In addition, the Group has a dedicated, committed financing facility for Minas Rio of $1.4 billion subject to certain disbursement conditions and the granting of the remaining Installation Environmental licence (regarded as likely to occur in 2010) (2008: for Minas Rio and Barro Alto totalling $1.6 billion). The Group also had a $2 billion European Commercial Paper Programme established in October 2004. Drawings of nil were made at 31 December 2009 (2008: $304 million). The Group also had a Rand 20 billion South African Medium Term Note Programme, established in November 2007, on which total drawings of Rand 691 million ($94 million) were made at 31 December 2009 (2008: Rand 7,273 million ($782 million)). Of this drawing, Rand 491 million ($67 million) was issued as commercial paper (2008: Rand 7,074 million ($761 million)). Market risk This is the risk that financial instrument fair values will fluctuate owing to changes in market prices. The significant market risks to which the Group is exposed are foreign exchange risk, interest rate risk and commodity price risk. Foreign exchange risk As a global business, the Group is exposed to many currencies principally as a result of non-US dollar operating costs incurred by US dollar functional currency companies and to a lesser extent, from non-US dollar revenues. The Group’s policy is generally not to hedge such exposures as hedging is not deemed appropriate given the diversified nature of the Group, though exceptions can be approved by the Group Management Committee. In addition, currency exposures exist in respect of non-US dollar approved capital expenditure projects. The Group’s policy is that such exposure can be hedged at management’s discretion, within certain pre-defined limits. 1,187 (712) (32) (192) (1,007) (5,909) 672 – (331) (339) (939) (4,733) The exposure of the Group’s financial assets and liabilities (excluding intra-group loan balances) to currency risk is as follows: Financial assets (excluding derivatives) Impact of currency derivatives(1) Derivative assets Total financial assets – exposure to currency risk US$ million 31 December 2009 Non-derivative financial liabilities Net settled derivatives(2) 31 December 2008 Non-derivative financial liabilities Net settled derivatives US$ million 31 December 2009 Non-derivative financial liabilities Net settled derivatives(2) 31 December 2008 Non-derivative financial liabilities Net settled derivatives (202) 177 – 2 – – 23 – (108) 82 (2) – (4) – 32 – 565 7 – – – – 31 603 252 71 – – – – 53 376 4,716 3,309 455 87 271 407 703 9,948 3,262 4,048 545 136 286 357 598 9,232 (472) (422) (4,348) (345) (114) (2,412) 443 (29) (304) 9 (726) (4,339) 345 – (195) (400) (309) (2,812) (1) Includes guarantees and loan facilities. (2) At 31 December 2009 the expected maturities were not materially different from the contracted maturities. (3) Includes the full value of the convertible bond and assumes no conversion. US$ million At 31 December 2009 US dollar(2) Rand Sterling Euro Australian dollar Brazilian real Other currencies 4,353 3,125 455 85 271 407 649 The Group had the following undrawn committed borrowing facilities at 31 December: Total financial assets 9,345 US$ million Expiry date Within one year(1) Greater than one year, less than two years Greater than two years, less than five years Greater than five years 2009 2008 2,247 3,090 4,093 90 2,994 5 3,081 25 9,520 6,105 (1) Includes undrawn rand facilities equivalent to $1.9 billion (2008: $0.9 billion) in respect of a series of facilities with 364 day maturities which roll automatically on a daily basis, unless notice is served. At 31 December 2008 US dollar(2) Rand Sterling Euro Australian dollar Brazilian real(3) Other currencies(3) Total financial assets 3,118 3,895 547 136 290 357 513 8,856 See following page for footnotes. 122 Anglo American plc Annual Report 2009 24. Financial risk management and derivative financial assets/ liabilities continued The exposure of the Group’s financial assets (excluding intra-group loan balances) to interest rate risk is as follows: US$ million At 31 December 2009 US dollar Rand Sterling Euro Australian dollar Brazilian real Other currencies Financial liabilities (excluding derivatives) Impact of currency derivatives(1) Derivative liabilities Total financial liabilities – exposure to currency risk (7,719) (3,550) (1,609) (3,764) (543) (1,052) (690) (5,364) (4) 1,198 3,652 – 401 117 – (609) (50) (13,692) (3,604) – – – – – (411) (112) (543) (651) (573) (659) (19,586) Total financial liabilities (18,927) At 31 December 2008 US dollar Rand Sterling Euro Australian dollar Brazilian real(3) Other currencies(3) Total financial liabilities (7,854) (5,289) (1,628) (1,821) (528) (973) (980) (19,073) (3,130) (1,056) (12,040) (15) 1,141 1,697 – 22 285 – (2) (5,306) – – – (439) – (487) (124) (528) (1,390) (695) (1,497) (20,570) (1) Where currency derivatives are held to manage financial instrument exposures the notional principal amount is ‘reallocated’ to reflect the remaining exposure to the Group. (2) Of these US$ financial assets, $127 million (2008: $97 million) are subject to South African exchange controls and will be converted to rand within the next six months. (3) Comparatives have been reclassified to align with current year presentation. Interest rate risk Fluctuations in interest rates impact on the value of short term investments and financing activities, giving rise to interest rate risk. Exposure to interest rate risk is particularly with reference to changes in US and South African interest rates. Exposure to Brazilian interest rates is expected to continue to increase in the near term. The Group policy is to borrow funds at floating rates of interest as this is considered to give somewhat of a natural hedge against commodity price movements, given the correlation with economic growth (and industrial activity) which in turn shows a high correlation with commodity price fluctuation. In certain circumstances, the Group uses interest rate swap contracts to manage its exposure to interest rate movements on a portion of its existing debt. Also strategic hedging using fixed rate debt may be undertaken from time to time if approved by the Group Management Committee. In respect of financial assets, the Group’s policy is to invest cash at floating rates of interest and cash reserves are to be maintained in short term investments (less than one year) in order to maintain liquidity, while achieving a satisfactory return for shareholders. US$ million At 31 December 2009 Financial assets (excluding derivatives)(2) Derivative assets Financial asset exposure to interest rate risk At 31 December 2008 Financial assets (excluding derivatives)(2) Derivative assets Financial asset exposure to interest rate risk Interest bearing financial assets Non-interest bearing financial assets Floating rate Fixed rate(1) Equity invest- ments Other non- interest bearing Total 3,530 1,032 1,131 3,652 9,345 174 – – 429 603 3,704 1,032 1,131 4,081 9,948 3,098 196 464 – 2,180 3,114 8,856 – 180 376 3,294 464 2,180 3,294 9,232 (1) Includes $546 million (2008: $360 million) of preference shares in BEE entities. (2) At 31 December 2009 and 2008 no interest rate swaps were held in respect of financial asset exposures. Floating rate financial assets consist mainly of cash and bank term deposits. Interest on floating rate assets is based on the relevant national inter-bank rates. Fixed rate financial assets consist mainly of financial asset investments and cash, and have a weighted average interest rate of 11.0% (2008: 13.5%) and are fixed for an average period of three years (2008: four years). Equity investments have no maturity period and the majority are fully liquid. The exposure of the Group’s financial liabilities (excluding intra-group loan balances) to interest rate risk is as follows: US$ million At 31 December 2009 Financial liabilities (excluding derivatives) Impact of interest rate swaps(1) Derivative liabilities Financial liability exposure to interest rate risk At 31 December 2008 Financial liabilities (excluding derivatives) Impact of interest rate swaps(1) Derivative liabilities Financial liability exposure to interest rate risk Interest bearing financial liabilities Floating rate Fixed rate Non- interest bearing financial liabilities Total (5,529) (8,697) (4,701) (18,927) (6,896) 6,896 – – (109) – (550) (659) (12,534) (1,801) (5,251) (19,586) (10,461) (3,459) (5,153) (19,073) (2,829) 2,829 – – – – (1,497) (1,497) (13,290) (630) (6,650) (20,570) (1) Where interest rate swaps are held to manage financial liability exposures the notional principal amount is ‘reallocated’ to reflect the remaining exposure to the Group. Interest on floating rate instruments is based on the relevant national inter-bank rates. Remaining fixed rate borrowings accrue interest at a weighted average interest rate of 9% (2008: 8%) and are at fixed rates for an average period of four years (2008: two years). Average maturity on non-interest bearing instruments is 14 months (2008: 17 months). Commodity price risk The Group’s earnings are exposed to movements in the prices of the commodities it produces. The Group policy is generally not to hedge price risk, although some hedging may be undertaken for strategic reasons. In such cases, the Group uses forward and deferred contracts to hedge the price risk. i F n a n c a i l s t a t e m e n t s Anglo American plc Annual Report 2009 123 Financial statements Notes to the financial statements continued 24. Financial risk management and derivative financial assets/ liabilities continued Certain of the Group’s sales and purchases are provisionally priced and as a result are susceptible to future price movements. The exposure of the Group’s financial assets and liabilities to commodity price risk is as follows: US$ million At 31 December 2009 Total net financial instruments (excluding derivatives) Commodity derivatives (net)(2) Non-commodity derivatives (net) Total financial instrument exposure to commodity risk At 31 December 2008 Total net financial instruments (excluding derivatives) Commodity derivatives (net)(2) Non-commodity derivatives (net) Total financial instrument exposure to commodity risk Commodity price linked Subject to price movements Fixed price(1) Not linked to commodity price Total 352 (78) – 733 (10,667) (9,582) – – – 22 (78) 22 274 733 (10,645) (9,638) (291) (318) – 183 (10,109) (10,217) Other – – – (803) (318) (803) Fair value hedge Interest rate swaps (609) 183 (10,912) (11,338) (1) Includes financial instruments whose commodity prices are set annually or via contract negotiation. (2) Includes a $44 million (2008: $249 million) derivative embedded in a long term power contract. Derivatives In accordance with IAS 32 Financial Instruments: Presentation and IAS 39, the fair value of all derivatives are separately recorded on the balance sheet within ‘Other financial assets (derivatives)’ and ‘Other financial liabilities (derivatives)’. Derivatives are classified as current or non-current depending on the expected maturity of the derivative. The Group utilises derivative instruments to manage its market risk exposures as explained above. The Group does not use derivative financial instruments for speculative purposes, however it may choose not to designate certain derivatives as hedges. Such derivatives that are not hedge accounted are classified as ‘non-hedges’ and fair value movements are recorded in 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 financial instruments or other 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 into hedge relationships and are accounted for in accordance with the Group’s accounting policy set out in note 1. Cash flow hedges In certain cases the Group classifies its forward exchange and commodity price contracts hedging highly probable forecast transactions as cash flow hedges. Where this designation is documented, 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 (or hedged balance sheet item) 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 swap the Group’s fixed rate borrowings to floating rate, in accordance with the treasury policy) have been designated as fair value hedges. The respective carrying values of the hedged debt are adjusted to reflect 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 classified within financing costs in the income statement. Non-hedges The Group may choose not to designate certain derivatives as hedges, for example certain forward foreign currency contracts that provide a natural hedge of non-US dollar debt in the income statement or where the Group is economically hedged but IAS 39 hedge accounting cannot be achieved. 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 classified as financing or operating depending on the nature of the associated hedged risk. The fair value of the Group’s open derivative position at 31 December (excluding normal purchase and sale contracts held off balance sheet), recorded within ‘Other financial assets (derivatives)’ and ‘Other financial liabilities (derivatives)’ is as follows: 2009 2008 Asset Liability Asset Liability US$ million Current Cash flow hedge(1) Forward foreign currency contracts Forward commodity contracts Other Non-hedge (‘Held for trading’)(2) Forward foreign currency contracts Cross currency swaps Other Total current derivatives Non-current Cash flow hedge(1) 40 – – 18 – 285 14 8 365 – (3) (1) – – (18) (14) (40) (76) Forward foreign currency contracts Forward commodity contracts 19 – – – Fair value hedge Interest rate swaps Non-hedge (‘Held for trading’)(2) Forward foreign currency contracts Cross currency swaps Other Total non-current derivatives 157 (70) 26 7 29 238 (2) (424) (87) (583) (1) The timing of the expected cash flows associated with these hedges is as follows: US$ million Within one year Greater than one year, less than two years Greater than two years, less than five years Greater than five years 10 – – 140 2 73 20 14 259 – – 4 41 20 52 117 2009 36 19 – – 55 (75) (49) – – – (460) – (14) (598) (57) (4) – (69) (504) (265) (899) 2008 (160) (80) (11) – (251) The periods when these hedges are expected to impact the income statement generally follow the cash flow profile with the exception of hedging associated with capital projects which is included in the capitalised asset value and depreciated over the life of the asset. (2) Comparatives have been adjusted in accordance with IAS 1 Presentation of Financial Statements – Improvements, as described in note 1. 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 profit of the Group. The valuations represent the cost of closing 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 scope exemption in IAS 39 (in that they are settled through physical delivery of the Group’s production or are used within the production process), are classified as normal purchase or sale contracts. In accordance with IAS 39 these contracts are not marked to market. 124 Anglo American plc Annual Report 2009 24. Financial risk management and derivative financial assets/ liabilities continued Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and, with cognisance of forecast future market conditions and structuring, to maintain an optimal capital structure to reduce the cost of capital. In order to manage the short and long term capital structure, the Group adjusts the amount of ordinary dividends paid to shareholders, returns capital to shareholders (via, for example, share buybacks and special dividends), arranges debt to fund new acquisitions and also may sell non-core assets to reduce debt. The Group monitors capital on the basis of the ratio of net debt to total capital less investments in associates (gearing). Net debt is calculated as total borrowings less cash and cash equivalents and current financial asset investments (excluding derivatives which provide an economic hedge of debt and including the net debt of disposal groups). Total capital is calculated as ‘Net assets’ (as shown in the Consolidated balance sheet) excluding net debt. Gearing as at 31 December 2009 was 30.8% (2008: 37.8%). The decrease in gearing since 31 December 2008 is primarily due to the increase in net assets. Financial instrument sensitivities Financial instruments affected by market risk include borrowings, deposits, derivative financial instruments, trade receivables and trade payables. The following analysis, required by IFRS 7, is intended to illustrate the sensitivity of the Group’s financial instruments (as at year end) to changes in commodity prices, exchange rates and interest rates. The sensitivity analysis has been prepared on the basis that the components of net debt, the ratio of fixed to floating interest rates of the debt and derivatives portfolio and the proportion of financial instruments in foreign currencies are all constant and on the basis of the hedge designations in place at 31 December. In addition, the commodity price impact for provisionally priced contracts is based on the related trade receivables and trade payables at 31 December. As a consequence, this sensitivity analysis relates to the position as at 31 December. The following assumptions were made in calculating the sensitivity analysis: • • • • • • • • All income statement sensitivities also impact equity. For debt and other deposits carried at amortised cost, carrying value does not change as interest rates move. No sensitivity is provided for interest accruals as these are based on pre-agreed interest rates and therefore are not susceptible to further rate changes. Changes in the carrying value of derivatives (from movements in commodity prices and interest rates) designated as cash flow hedges are assumed to be recorded fully within equity on the grounds of materiality. No sensitivity has been calculated on derivatives and related underlying instruments designated into fair value hedge relationships as these are assumed materially to offset one another. All hedge relationships are assumed to be fully effective on the grounds of materiality. Debt with a maturity of less than one year is floating rate, unless it is a long term fixed rate debt in its final year. Translation of foreign subsidiaries and operations into the Group’s presentation currency has been excluded from the sensitivity. Using the above assumptions, the following tables show the illustrative effect on the income statement and equity that would result from reasonably possible changes in the relevant commodity price, foreign currency or interest rates. US$ million Commodity price sensitivities 2009 10% increase in the platinum price 10% decrease in the platinum price 10% increase in the copper price 10% decrease in the copper price 10% increase in the coal price 10% decrease in the coal price 2008 10% increase in the platinum price 10% decrease in the platinum price 10% increase in the copper price 10% decrease in the copper price 10% increase in the coal price 10% decrease in the coal price Interest rate sensitivities 2009 50 bp increase in US interest rates 50 bp decrease in US interest rates 50 bp increase in South African interest rates 50 bp decrease in South African interest rates 2008 25 bp increase in US interest rates 25 bp decrease in US interest rates 50 bp increase in South African interest rates 50 bp decrease in South African interest rates Foreign currency sensitivities(1) 2009 +10% US dollar to rand -10% US dollar to rand +10% US dollar to Australian dollar -10% US dollar to Australian dollar +10% US dollar to Brazilian real -10% US dollar to Brazilian real +10% US dollar to Chilean peso -10% US dollar to Chilean peso 2008 +10% US dollar to rand -10% US dollar to rand +10% US dollar to Australian dollar -10% US dollar to Australian dollar +10% US dollar to Brazilian real -10% US dollar to Brazilian real +10% US dollar to Chilean peso -10% US dollar to Chilean peso Income statement Equity (14) (14) 14 89 14 89 (89) (89) – – (9) 9 47 (47) – – 3 (3) – – (6) 6 (11) 11 (59) 59 4 (4) 191 (175) (11) 14 45 (46) 20 (20) – – (9) 9 47 (47) (11) 11 3 (3) – – (6) 6 (10) 10 (59) 59 4 (4) 198 (183) (67) 82 42 (43) 19 (18) (125) (128) 176 (25) 30 180 (42) 51 (1) + represents strengthening of US dollar against the respective currency. The above sensitivities are calculated with reference to a single moment in time and are subject to change due to a number of factors including: • • • • • fluctuating trade receivable and trade payable balances; derivative instruments and borrowings settled throughout the year; fluctuating cash balances; changes in currency mix; and commercial paper with short term maturities, which is regularly replaced or settled. As the sensitivities are limited to year end financial instrument balances they do not take account of the Group’s sales and operating costs which are highly sensitive to changes in commodity prices and exchange rates. In addition, each of the sensitivities is calculated in isolation, while in reality commodity prices, foreign exchange rates and interest rates do not move independently. Anglo American plc Annual Report 2009 125 i F n a n c a i l s t a t e m e n t s Financial statements Notes to the financial statements continued 25. Provisions for liabilities and charges Environ- mental restor- ation(1) 700 (3) (5) – 33 (35) (4) 33 21 (5) (19) 116 839 US$ million At 1 January 2009 Acquired through business combinations Disposal of businesses Charged to the income statement Transfer to liabilities directly associated with assets held for sale Capitalised Unwinding of discount Unused amounts reversed Amounts applied Currency movements At 31 December 2009 Maturity analysis of total provisions: US$ million Current Non-current Decomm- issioning(1) 241 6 (1) 30 Other 544 Total(2) 1,485 – – 1 (1) 186 249 26. Deferred tax Deferred tax assets US$ million At 1 January Credited/(charged) to the income statement Charged to the statement of comprehensive income Credited/(charged) directly to equity Transfer to assets held for sale (11) (13) (59) 4 20 (5) (1) 53 336 – 4 (61) (87) 44 617 37 45 (71) (107) 213 1,792 Reclassifications Currency movements At 31 December Deferred tax liabilities US$ million At 1 January 2009 209 1,583 1,792 2008 168 1,317 1,485 Credited/(charged) to the income statement Credited to the statement of comprehensive income Credited/(charged) directly to equity Acquired through business combinations Transfer to liabilities directly associated with assets held for sale Disposal of businesses Reclassifications Currency movements At 31 December 2009 258 12 (33) 13 (5) – 43 2008 474 (31) (57) (40) (14) (21) (53) 288 258 2009 2008 (4,555) (4,650) 144 36 7 54 46 – – (398) 130 (25) (798) 28 18 (79) (924) 1,219 (5,192) (4,555) (1) The Group makes contributions to controlled funds to meet the cost of some of its decommissioning, restoration and environmental rehabilitation liabilities (see note 15). (2) Provisions for liabilities and charges at 31 December 2007 were $1,224 million. This related to $675 million of environmental restoration provisions, $256 million of decommissioning provisions and $293 million of other provisions. (3) Relates to fair value adjustments on acquisitions. (4) Amounts capitalised in the environmental restoration provision relate to amounts that will be recovered from third parties when the actual expenditure is incurred. Environmental restoration The Group has an obligation to undertake restoration, rehabilitation and environmental work when environmental disturbance is caused by the development or ongoing production of a mining property. A provision is recognised for the present value of such costs. It is anticipated that these costs will be incurred over a period in excess of 20 years. Decommissioning Provision is made for the present value of costs relating to the decommissioning of plant or other site restoration work. It is anticipated that these costs will be incurred over a period in excess of 20 years. Other Other provisions primarily relate to cash settled share-based payments, indemnities, warranties and legal claims. It is anticipated that these costs will be incurred over a five year period. The amount of deferred tax recognised in the balance sheet is as follows: US$ million Deferred tax assets Tax losses Post retirement benefits Share-based payments Other temporary differences Deferred tax liabilities Capital allowances in excess of depreciation Fair value adjustments Tax losses Derivatives Provisions Other temporary differences 2009 2008 49 48 42 149 288 13 36 8 201 258 (2,846) (2,333) (1,942) (2,201) 115 (106) (405) (8) 117 119 (287) 30 (5,192) (4,555) The amount of deferred tax (credited)/charged to the income statement is as follows: US$ million Capital allowances in excess of depreciation Fair value adjustments Tax losses Derivatives Provisions Other temporary differences 2009 (79) (502) (33) 208 114 136 (156) 2008 460 (96) (18) (281) 211 153 429 126 Anglo American plc Annual Report 2009 27. Retirement benefits The Group operates defined contribution and defined benefit pension plans for the majority of its employees. It also operates post retirement medical arrangements in southern Africa and North America. Defined contribution plans The defined contribution pension and medical cost represents the actual contributions payable by the Group to the various plans. At 31 December 2009 there were no material outstanding or prepaid contributions and so no accrual or prepayment has been disclosed in the balance sheet in relation to these plans. The assets of the defined contribution plans are held separately in independently administered funds. The charge in respect of these plans is calculated on the basis of the contribution payable by the Group in the financial year. The charge for the year for defined contribution pension schemes (net of amounts capitalised) was $172 million (2008: $134 million) and for defined contribution medical schemes (net of amounts capitalised) was $18 million (2008: $9 million). Defined benefit pension plans and post retirement medical plans The majority of the defined benefit pension plans are funded. The assets of these plans are held separately from those of the Group, in independently administered funds, in accordance with statutory requirements or local practice throughout the world. The unfunded pension plans are principally in South America. The post retirement medical arrangements provide health benefits to retired employees and certain dependants. Eligibility for cover is dependent upon certain criteria. The majority of these plans are unfunded. The Group’s provision of anti-retroviral therapy to HIV positive staff has not significantly impacted the post retirement medical plan liability. Independent qualified actuaries carry out full valuations every three years using the projected unit method. The actuaries have updated the valuations to 31 December 2009. 26. Deferred tax continued The current expectation regarding the maturity of deferred tax balances is: US$ million Deferred tax assets Recoverable within 12 months Recoverable after 12 months Deferred tax liabilities Payable within 12 months Payable after 12 months 2009 2008 23 265 288 62 196 258 (171) (218) (5,021) (4,337) (5,192) (4,555) The Group had the following balances in respect of which no deferred tax asset has been recognised: US$ million 31 December 2009 Within one year One to five years After five years No expiry date 31 December 2008 Within one year One to five years After five years No expiry date Tax losses – revenue Tax losses – capital Other temporary differences – 14 5 – – – 3,304 3,323 1,154 1,154 – 43 21 – – – 2,600 2,664 1,166 1,166 – – – 7 7 – – – 5 5 Total – 14 5 4,465 4,484 – 43 21 3,771 3,835 The Group also has unused tax credits of $22 million (2008: $356 million) for which no deferred tax asset is recognised in the balance sheet. These tax credits have no expiry date. 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 $16,843 million (2008: $23,866 million). The decrease from the previous year is primarily as a result of a change to tax legislation. Anglo American plc Annual Report 2009 127 i F n a n c a i l s t a t e m e n t s Financial statements Notes to the financial statements continued 27. Retirement benefits continued The Group’s plans in respect of pension and post retirement healthcare are summarised as follows: The actual return on plan assets in respect of defined benefit pension schemes was a gain of $340 million (2008: loss of $178 million). 2009 2008 Income statement The amounts recognised in the income statement are as follows: US$ million Southern Africa The Americas Europe Total Southern Africa The Americas Europe Total Assets(1) Defined benefit pension plans in surplus 54 – – 54 32 – – 32 (1) Amounts are included in ‘Other non-current assets’. US$ million Southern Africa The Americas Europe Total Southern Africa The Americas Europe Total 2009 2008 Liabilities Defined benefit pension plans in deficit Post retirement medical plans in deficit – (173) (231) (404) – (132) (45) (177) (271) (271) (31) – (302) (204) (20) – (224) (204) (231) (706) (204) (152) (45) (401) (1) Included in ‘Investment income’. (2) Included in ‘Interest expense’. 2009 Post retire- ment medical plans Pension plans Total plans Pension plans 2008 Total plans Post retire- ment medical plans 32 – 32 4 – 4 36 – 36 43 1 44 5 – 5 48 1 49 (156) 156 – 32 (1) (157) (214) (1) (215) 18 17 21 174 180 17 53 (34) 10 21 20 25 201 (14) 35 US$ million Analysis of the amount charged to operating profit Current service costs Past service costs Total within operating costs Analysis of the amount charged to net finance costs Expected return on plan assets(1) Interest costs on plan liabilities(2) Net charge/(credit) to net finance costs Total charge to the income statement US$ million 2009 2008 2007 2006 2005 Defined benefit pension plans Present value of liabilities (2,975) (2,157) (3,095) (4,256) (3,985) Fair value of plan assets 2,731 2,073 3,148 4,160 3,539 Net (deficit)/surplus Surplus restriction Net deficit after surplus restriction (244) (106) (84) (61) 53 (136) (96) (163) (446) (107) (350) (145) (83) (259) (553) Actuarial gain/(loss) on plan assets(1) Actuarial (loss)/gain on plan liabilities(2) Post retirement medical plans 184 (392) 39 308 438 (361) 208 (48) (156) (435) Present value of liabilities (322) (241) (329) (422) (650) Fair value of plan assets 20 17 20 16 22 Net deficit (302) (224) (309) (406) (628) Actuarial gain on plan assets(3) Actuarial (loss)/gain on plan liabilities(4) – 1 1 (10) (5) 16 (29) – 15 – (67) (1) Net experience gains on pension plan assets were $184 million (2008: loss of $392 million; 2007: gains of $32 million; 2006: gains of $314 million). (2) Net experience losses on pension plan liabilities were $17 million (2008: $29 million; 2007: $112 million; 2006: $113 million). (3) Net experience gains on medical plan assets were nil (2008: $1 million; 2007: losses of $1 million; 2006: losses of $1 million). (4) Net experience losses on medical plan liabilities were $3 million (2008: $7 million; 2007: $4 million; 2006: gains of $36 million). (5) Includes actuarial gains of $11 million due to a change in modelling methodology. Cumulative net actuarial losses recognised in the Consolidated statement of comprehensive income are $509 million (2008: $292 million; 2007: $163 million; 2006: $126 million; 2005: $228 million). Actuarial assumptions The principal assumptions used to determine the actuarial present value of benefit obligations and pension charges and credits under IAS 19 Employee Benefits are detailed below (shown as weighted averages): % Defined benefit pension plans Average discount rate for plan liabilities Average rate of inflation Average rate of increase in salaries Average rate of increase of pensions in payment Average long term rate of return on plan assets(1) Post retirement medical plans Average discount rate for plan liabilities Average rate of inflation Expected average increase in healthcare costs 2009 2008 Southern Africa The Americas Europe Southern Africa The Americas Europe 9.0 5.8 7.0 5.8 8.5 3.7 6.1 3.1 9.6 10.5 9.0 5.8 7.2 6.6 1.1 4.1 5.7 3.7 3.7 3.7 6.6 n/a n/a n/a 7.3 4.0 5.3 4.0 8.6 3.7 5.4 3.2 7.6 11.3 7.3 4.0 5.4 7.1 0.5 3.8 6.0 2.7 2.7 2.8 5.9 n/a n/a n/a (1) The long term expected return on plan assets has been set with reference to current market yields on government and corporate bonds and expected equity bond-outperformance in the relevant jurisdictions. The expected return on cash assets has been set with reference to expected bank base rates. The overall long term expected rate of return for each class is weighted by the asset allocation to the class at the balance sheet date. Mortality assumptions are determined based on standard mortality tables with adjustments, as appropriate, to reflect experience of conditions locally. In southern Africa, the PA90 tables (2008: the PA90 tables) are used. The main schemes in Europe use the SAPS and PXA00 tables (2008: PXA00 tables). The main schemes in the Americas use the RV2004, AT2000 and UP94 tables (2008: RV2004, AT83 and UP24 tables). The mortality tables used imply that a male or female aged 60 at the balance sheet date has the following future life expectancy: The market value of assets was used to determine the funding level of the plans. The market value of the assets of the funded plans was sufficient to cover 97% (2008: 101%) of the benefits 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. As the majority of the defined benefit pension plans are closed to new members, it is expected that contributions (in local currency) will increase as the members age. Years Southern Africa The Americas Europe Male 2008 20.5 22.4 25.7 2009 20.5 23.2 27.3 Female 2008 25.5 26.5 28.1 2009 25.4 26.9 29.9 128 Anglo American plc Annual Report 2009 27. Retirement benefits continued The market value of the pension assets in defined benefit pension plans and long term expected rate of return as at 31 December 2009 and 31 December 2008 are as follows: At 31 December 2009 Equity Bonds Other Fair value of pension plan assets Present value of unfunded obligations Present value of funded obligations Present value of pension plan liabilities Net surplus/(deficit) in 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 2008 Equity Bonds Other Fair value of pension plan assets Present value of unfunded obligations Present value of funded obligations Present value of pension plan liabilities Net surplus/(deficit) in pension plans Surplus restriction related to pension plans Recognised pension plan assets/(liabilities) Amounts in the balance sheet Pension assets Pension liabilities Southern Africa The Americas Europe Total Rate of return % Fair value US$ million Rate of return % Fair value US$ million Rate of return % Fair value US$ million Fair value US$ million 11.7 8.5 7.0 10.0 6.6 5.2 332 558 44 934 – (791) (791) 143 (89) 54 54 – 54 231 422 42 695 – (602) (602) 93 (61) 32 32 – 32 9.5 10.9 9.4 10.5 11.7 8.9 75 196 10 281 (146) (308) (454) (173) – (173) – (173) (173) 49 137 7 193 (102) (223) (325) (132) – (132) – (132) (132) 8.1 5.1 4.0 774 687 55 1,516 1,181 1,441 109 2,731 (5) (151) (1,725) (2,824) (1,730) (2,975) (214) (17)(1) (231) – (231) (231) 7.4 5.2 2.7 568 427 190 (244) (106) (350) 54 (404) (350) 848 986 239 1,185 2,073 (6) (108) (1,224) (1,230) (2,049) (2,157) (45) – (45) – (45) (45) (84) (61) (145) 32 (177) (145) (1) Relates to an additional liability required in accordance with IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. Anglo American plc Annual Report 2009 129 i F n a n c a i l s t a t e m e n t s Financial statements Notes to the financial statements continued The changes in the fair value of plan assets are as follows: 2009 Post retire- ment medical plans Total plans Pension plans 2008 Total plans Post retire- ment medical plans 17 2,090 3,148 20 3,168 1 – 13 3 157 184 75 10 214 (392) 50 9 1 1 11 5 215 (391) 61 14 Pension plans 2,073 156 184 62 7 US$ million At 1 January Expected return Actuarial gains/(losses) Contributions paid by employer Contributions paid by other members – (1) – (1) (174) (371) 151 (180) (21) (201) Benefits paid 208 145 16 16 224 161 Currency movements At 31 December (135) (16) (151) 2 386 (145) (811) (16) (161) (5) (816) 20 2,751 2,073 17 2,090 384 2,731 27. Retirement benefits continued Movement analysis The changes in the present value of defined benefit obligations are as follows: 2009 Post retire- ment medical plans Pension plans Total plans Pension plans 2008 Total plans Post retire- ment medical plans (2,157) (241) (2,398) (3,095) (329) (3,424) US$ million At 1 January (32) (4) (36) (43) (5) (48) Current service costs Past service costs and effects of settlements and curtailments Interest costs Actuarial (losses)/gains Benefits paid Contributions paid by other members Transfer to liabilities directly associated with assets held for sale – (156) (361) 135 – (18) (10) 16 (7) (3) (10) (9) (3) (12) Currency movements (396) (62) (458) 818 (1) – (1) – – 85 – 903 At 31 December (2,975) (322) (3,297) (2,157) (241) (2,398) Assumed healthcare trend rates have a significant 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 2009 2008 2009 2008 Effect on the sum of service costs and interest costs Effect on defined benefit obligations 4 36 3 28 (3) (30) (3) (26) The Group expects to contribute approximately $58 million to its defined benefit pension plans and $30 million to its post retirement medical plans in 2010. 28. Called-up share capital and share-based payments Called-up share capital Authorised: 5% cumulative preference shares of £1 each Ordinary shares of 5486/91 US cents each Called-up, allotted and fully paid: 5% cumulative preference shares of £1 each Ordinary shares of 5486/91 US cents each: At 1 January Other At 31 December 2009 2008 2007 Number of shares US$ million Number of shares US$ million Number of shares US$ million 50,000 1,820,000,000 50,000 1,820,000,000 – 1,000 1,000 50,000 1,820,000,000 – 1,000 1,000 – 1,000 1,000 50,000 – 50,000 – 50,000 – 1,342,919,020 738 1,342,911,897 8,118 – 7,123 738 – 1,342,927,138 738 1,342,919,020 738 1,342,911,897 738 130 Anglo American plc Annual Report 2009 28. Called-up share capital and share-based payments continued During 2009 8,118 ordinary shares of 5486/91 US cents each were allotted to certain non-executive directors by subscription of their after tax directors’ fees (2008: 7,123 ordinary shares). In 2009 no ordinary shares were purchased by the Company and held in treasury (2008: 5,649,992 ordinary shares). Excluding shares held in treasury (but including the shares held by the Group in other structures, as outlined in the Tenon and Employee benefit trust sections below) the number of called-up, allotted and fully paid ordinary shares as at 31 December 2009 was 1,316,493,628; $723 million (2008: 1,316,485,510; $723 million). At 31 December 2009 the Company held 26,433,510 ordinary shares of 5486/91 US cents in treasury (2008: 26,433,510 ordinary shares). 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. At 31 December 2009 the Investment Companies together held 112,300,129 (2008: 112,300,129) Anglo American plc shares with a market value of $4,915 million (2008: $2,511 million) which represented 9% (2008: 9%) of the ordinary shares in issue (excluding treasury shares). The Investment Companies are not permitted to hold more than an aggregate of 10% of the issued share capital of Anglo American plc at any one time. Although the Group has no voting rights in the Investment Companies and cannot appoint or remove trustees of the charitable trusts, the Investment Companies meet the accounting definition of a subsidiary in accordance with IAS 27 Consolidated and Separate Financial Statements. As a result, the Investment Companies are consolidated in accordance with the definitions of IAS 27 and the principles set out in SIC 12 Consolidation – Special Purpose Entities. Employee benefit trust The provision of shares to certain of the Company’s share option and share incentive schemes is facilitated by an employee benefit trust. During 2009 3,496,000 shares (2008: 5,248,591 shares) were sold to employees on exercise of their options, and provisional allocations were made to options already awarded. The cost of shares purchased by the trust is presented against retained earnings. The employee benefit trust has waived the right to receive dividends on these shares. The market value of the 949,244 shares (2008: 4,445,244 shares) held by the trust at 31 December 2009 was $44 million (2008: $99 million). No ordinary shares were allotted on exercise of employee share option plans (2008: nil). The costs of operating the trust are borne by the Group but are not material. Share-based payments During the year ended 31 December 2009, the Group had six share-based payment arrangements with employees, the details of which are described in the Remuneration report. All of the Group’s schemes are equity settled, either by award of options to acquire ordinary shares (ESOS, SAYE and former AAC Executive Share Incentive Scheme) or award of ordinary shares (BSP, LTIP and SIP). The ESOS and former AAC Executive Share Incentive Scheme are now closed to new participants, having been replaced with the BSP. The total share-based payment charge relating to Anglo American plc shares for the year was made up as follows: US$ million BSP LTIP Other schemes 2009 2008 57 50 19 50 53 9 126 112 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), Epoch Two Investment Holdings Limited (Epoch Two) and Tarl Investments Holdings Limited (Tarl) (collectively the Investment Companies), each owned by independent charitable trusts whose trustees are independent of the Group. Under the terms of these agreements, the Investment Companies have purchased Anglo American plc shares on the market and have granted to Tenon the right to nominate a third party (which may include Anglo American plc but not any of its subsidiaries) to take transfer of the Anglo American plc shares each has purchased on the market. Tenon paid the Investment Companies 80% of the cost of the Anglo American plc shares including associated costs for this right to nominate which together with subscriptions by Tenon for non-voting participating redeemable preference shares in the Investment Companies provided all the funding required to acquire the Anglo American plc shares through the market. These payments by Tenon were sourced from the cash resources of AASA. Tenon is able to exercise its right of nomination at any time up to 31 December 2025 against payment of an average amount of $7.35 per share to Epoch, $11.44 per share to Epoch Two and $9.49 per share to Tarl which will be equal to 20% of the total costs respectively incurred by Epoch, Epoch Two 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 the Investment Companies. The amount payable by the third party on receipt of the Anglo American 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 statement of Anglo American plc. Under the agreements, the Investment Companies will receive dividends on the shares they hold and have agreed to waive the right to vote those shares. The preference shares issued to the charitable trusts are entitled to a participating right of up to 10% of the profit after tax of Epoch and 5% of the profit after tax of Epoch Two and Tarl. The preference shares issued to Tenon will carry a fixed coupon of 3% plus a participating right of up to 80% of the profit after tax of Epoch and 85% of the profit after tax of Epoch Two and Tarl. Any remaining distributable earnings in the Investment Companies, after the above dividends, are then available for distribution as ordinary dividends to the charitable trusts. The structure effectively provides Tenon with a beneficial interest in the price risk on these shares together with a participation in future dividend receipts. The Investment Companies will retain legal title to the shares until Tenon exercises its right to nominate a transferee. Anglo American plc Annual Report 2009 131 i F n a n c a i l s t a t e m e n t s Financial statements Notes to the financial 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 2009 or 2008. The assumptions used in these calculations for the current and prior years are set out in the table below: Arrangement(1) Date of grant Number of instruments Exercise price (£) Share price at the date of grant (£) Contractual life (years) Vesting conditions(2) Expected volatility Expected option life (years) Risk free interest rate Expected departures Expected outcome of meeting performance criteria (at date of grant) Fair value per option granted (weighted average) (£) 2009 SAYE 2008 SAYE 23/04/09 24/04/08 1,481,927 307,297 9.56 11.95 24.16 30.20 3.5-7.5 3.5-7.5 3-7 45% 3.5-7.5 2.7% 5% pa n/a 6.71 3-7 35% 3.5-7.5 4.6% 5% pa n/a 13.32 The fair value of ordinary shares awarded under the BSP, LTIP 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 table below: Arrangement(1) Date of grant Number of instruments Exercise price (£) Share price at the date of grant (£) Contractual life (years) Vesting conditions Expected volatility Expected option life (years) Risk free interest rate Expected departures Expected outcome of meeting performance criteria (at date of grant) Fair value per option granted (weighted average) (£) BSP LTIP LTIP – ROCE LTIP – TSR BSP LTIP – ROCE LTIP – TSR 18/03/09 30/03/09 30/03/09 30/03/09 29/02/08 17/03/08 17/03/08 5,929,013 837,180 468,132 468,132 1,690,350 795,465 795,465 2009 2008 – 11.62 3 (3) 45% 3 2.0% 5% pa 44-100% 11.12 – 12.61 3 (4) 45% 3 1.8% 5% pa 100% 10.81 – 12.61 3 (5) 45% 3 1.8% 5% pa 100% 10.81 – 10.81 3 (6) 45% 3 1.8% 5% pa n/a 8.38 – 28.21 3 (3) 35% 3 4.0% 5% pa 44-100% 31.22 – 31.35 3 (5) 35% 3 3.7% 5% pa 100% 26.93 – 31.35 3 (6) 35% 3 3.7% 5% pa n/a 19.69 (1) The number of instruments used in the fair value models differs from the total number of instruments awarded in the year due to awards made subsequent to the fair value calculations. 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 significant. (2) Number of years of continuous employment. (3) Three years of continuous employment with enhancement shares having variable vesting based on non-market based performance conditions. (4) Three years of continuous employment. (5) Variable vesting dependent on three years of continuous employment and Group ROCE target being achieved. (6) Variable vesting dependent on three years of continuous employment and market based performance conditions being achieved. The expected volatility is based on historic volatility over the last five years. The expected life is the average expected period to exercise. The risk free interest rate 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. 132 Anglo American plc Annual Report 2009 28. Called-up share capital and share-based payments continued A reconciliation of option movements for the more significant share-based payment arrangements over the year to 31 December 2009 and the prior year is shown below. All options outstanding at 31 December 2009 with an exercise date on or prior to 31 December 2009 are deemed exercisable. Options were exercised regularly during the year and the weighted average share price for the year ended 31 December 2009 was £19.45 (2008: £25.99). Executive Share Option Scheme(1) Options to acquire ordinary shares of 5486/91 US cents were outstanding under the terms of this scheme as follows: At 31 December 2009 Year of grant Date exercisable 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2004 2005 2005 2005 24 June 2002 to 23 June 2009 19 October 2002 to 18 October 2009 23 March 2003 to 22 March 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 March 2007 to 28 February 2014 10 August 2007 to 9 August 2014 29 November 2007 to 28 November 2014 6 January 2008 to 4 January 2015 1 August 2008 to 31 July 2015 19 August 2008 to 18 August 2015 At 31 December 2008 Year of grant Date exercisable 24 June 2002 to 23 June 2009 19 October 2002 to 18 October 2009 23 March 2003 to 22 March 2010 12 September 2003 to 11 September 2010 2 April 2004 to 1 April 2011 13 September 2004 to 12 September 2011 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2004 2005 2005 2005 18 March 2005 to 17 March 2012 11.50 1,298,242 13 September 2005 to 12 September 2012 5 March 2006 to 4 March 2013 13 August 2006 to 12 August 2013 1 March 2007 to 28 February 2014 10 August 2007 to 9 August 2014 29 November 2007 to 28 November 2014 6 January 2008 to 4 January 2015 1 August 2008 to 31 July 2015 19 August 2008 to 18 August 2015 8.05 9.28 11.41 13.43 11.52 12.73 12.12 14.40 13.94 11,000 2,350,685 32,937 2,641,345 84,373 11,147 37,579 18,000 5,500 9,641,610 Option price per share £ Options outstanding 1 Jan 2009 Options granted in year Options forfeited in year Options expired in year Options outstanding 31 Dec 2009 6.98 8.00 7.66 10.19 10.03 8.00 11.50 8.05 9.28 11.41 13.43 11.52 12.73 12.12 14.40 13.94 514,333 7,000 716,122 3,056 879,620 23,750 943,861 7,000 1,763,011 22,500 1,927,167 57,309 8,791 37,579 18,000 2,750 6,931,849 Option price per share £ 6.98 8.00 7.66 10.19 10.03 8.00 Options outstanding 1 Jan 2008 772,256 29,000 1,056,732 15,000 1,251,064 26,750 Options exercised in year (514,333) (7,000) – – (299,888) (9,000) – – (161,312) (22,408) – – (176,520) (25,338) – (332,431) (12,500) – (64,258) (10,000) (319,961) (170,041) (23,500) (8,791) – – – – – – – – (1,856,236) (301,045) Options exercised in year (247,973) – (267,610) (8,944) Options forfeited in year (9,950) (22,000) (73,000) (3,000) (211,600) (159,844) – (3,000) (220,781) (133,600) – (4,000) (417,174) (170,500) (9,437) (1,000) (540,912) (173,266) (23,064) (2,356) – – (2,750) (4,000) – – – – (1,952,601) (757,160) – – – – – – – – – – – – – – – – – Options granted in year – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 407,234 3,056 695,900 23,750 742,003 7,000 1,366,322 – 1,437,165 33,809 – 37,579 18,000 2,750 4,774,568 Options expired in year Options outstanding 31 Dec 2008 – – – – – – – – – – – – – – – – – 514,333 7,000 716,122 3,056 879,620 23,750 943,861 7,000 1,763,011 22,500 1,927,167 57,309 8,791 37,579 18,000 2,750 6,931,849 i F n a n c a i l s t a t e m e n t s See page 136 for footnote. Anglo American plc Annual Report 2009 133 Financial statements Notes to the financial statements continued 28. Called-up share capital and share-based payments continued SAYE Share Option Scheme(1) Options to acquire ordinary shares of 5486/91 US cents were outstanding under the terms of this scheme as follows: At 31 December 2009 Year of grant Date exercisable 2001 2002 2003 2003 2004 2004 2005 2005 2005 2006 2006 2006 2007 2007 2007 2008 2008 2008 2009 2009 2009 1 July 2008 to 31 December 2008 1 September 2009 to 28 February 2010 1 September 2008 to 28 February 2009 1 September 2010 to 28 February 2011 1 September 2009 to 28 February 2010 1 September 2011 to 29 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 29 February 2012 1 September 2013 to 28 February 2014 1 September 2010 to 28 February 2011 1 September 2012 to 28 February 2013 1 September 2014 to 28 February 2015 1 September 2011 to 29 February 2012 1 September 2013 to 28 February 2014 1 September 2015 to 29 February 2016 1 September 2012 to 28 February 2013 1 September 2014 to 28 February 2015 1 September 2016 to 28 February 2017 At 31 December 2008 Year of grant Date exercisable 2000 2001 2002 2002 2003 2003 2004 2004 2004 2005 2005 2005 2006 2006 2006 2007 2007 2007 2008 2008 2008 1 July 2007 to 31 December 2007 1 July 2008 to 31 December 2008 1 September 2007 to 29 February 2008 1 September 2009 to 28 February 2010 1 September 2008 to 28 February 2009 1 September 2010 to 28 February 2011 1 September 2007 to 29 February 2008 1 September 2009 to 28 February 2010 1 September 2011 to 29 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 29 February 2012 1 September 2013 to 28 February 2014 1 September 2010 to 28 February 2011 1 September 2012 to 28 February 2013 1 September 2014 to 28 February 2015 1 September 2011 to 29 February 2012 1 September 2013 to 28 February 2014 1 September 2015 to 29 February 2016 See page 136 for footnote. Option price per share £ Options outstanding 1 Jan 2009 Options granted in year 8.45 9.23 7.52 7.52 10.81 10.81 10.15 10.15 10.15 17.97 17.97 17.97 21.42 21.42 21.42 24.16 24.16 24.16 9.56 9.56 9.56 870 24,349 4,189 40,908 69,295 18,129 7,733 237,371 43,060 169,942 105,138 28,699 137,115 72,086 30,991 168,225 69,231 32,378 – – – – – – – – – – – – – – – – – – – – – 847,891 498,808 135,228 Options exercised in year – (19,892) (3,491) (3,103) (65,799) (3,278) (3,780) Options forfeited in year (870) (2,278) (698) (1,049) (2,107) (2,007) (3,953) (27,734) (18,425) (2,904) (109,117) (2,599) (269) (840) (539) – (6,390) (38,521) (44,935) (10,350) (63,691) (34,617) (13,901) (220) (103,169) (92) – (235) (515) – (42,292) (19,314) (25,411) (20,543) (5,282) 1,259,709 1,481,927 (244,407) (459,803) Option price per share £ Options outstanding 1 Jan 2008 Options granted in year 4.85 8.45 9.23 9.23 7.52 7.52 10.81 10.81 10.81 10.15 10.15 10.15 17.97 17.97 17.97 21.42 21.42 21.42 24.16 24.16 24.16 5,528 36,294 2,648 24,738 152,728 40,908 2,506 72,162 18,324 275,727 254,714 48,059 208,452 122,114 34,021 178,172 86,324 36,918 – – – – – – – – – – – – – – – – – – – – – 194,711 76,937 35,649 Options exercised in year – (35,392) (429) (333) Options forfeited in year (5,528) (32) (2,219) (56) (147,206) (1,333) – (2,089) (1,441) – (262,405) (7,419) (162) (2,459) (288) (133) (501) (64) – – – – – (417) (1,426) (195) (5,589) (9,924) (4,837) (36,051) (16,688) (5,189) (40,556) (14,174) (5,927) (26,486) (7,706) (3,271) 1,600,337 307,297 (460,321) (187,604) Options expired in year Options outstanding 31 Dec 2009 – – – – – – – – – – – – – – – – – – – – – – – 2,179 – 36,756 1,389 12,844 – 191,212 33,766 22,304 57,604 18,080 72,584 36,930 17,090 64,836 26,847 13,064 822,245 477,750 129,946 2,037,426 Options expired in year Options outstanding 31 Dec 2008 – – – – – – – – – – – – – – – – – – – – – – – 870 – 24,349 4,189 40,908 – 69,295 18,129 7,733 237,371 43,060 169,942 105,138 28,699 137,115 72,086 30,991 168,225 69,231 32,378 1,259,709 134 Anglo American plc Annual Report 2009 28. Called-up share capital and share-based payments continued Former AAC Executive Share Incentive Scheme(1) At 31 December 2009 All options relating to the former AAC Executive Share Incentive Scheme were exercised or expired during 2008. At 31 December 2008 Year of grant Date exercisable 1998 1999 1 January 2000 to 4 December 2008 4 January 2001 to 4 January 2009 See following page for footnote. Options outstanding 1 Jan 2008 679,800 38,700 718,500 Options granted in year – – – Options exercised in year (587,560) (33,900) (621,460) Options forfeited in year Options expired in year Options outstanding 31 Dec 2008 – – – (92,240) (4,800) (97,040) – – – Long Term Incentive Plan(1)(2) Ordinary shares of 5486/91 US cents may be awarded for no consideration under the terms of this scheme. The number of shares outstanding is shown below: At 31 December 2009 Year of grant Vesting date 2006 2007 2008 2008 2009 29 March 2009 23 March 2010 17 March 2011 18 August 2011 30 March 2012 At 31 December 2008 Year of grant Vesting date 2005 2005 2006 2007 2008 2008 2 April 2008 1 June 2008 29 March 2009 23 March 2010 17 March 2011 18 August 2011 See following page for footnotes. Shares outstanding 1 Jan 2009 Shares conditionally awarded in year Shares vested in year Shares forfeited in year Shares expired in year Shares outstanding 31 Dec 2009 1,202,032 1,604,945 1,576,018 83,200 – – – – (598,386) (603,646) (31,000) – (250) (48,772) (75,770) (9,000) – 1,773,444 (29,773) (52,127) 4,466,195 1,773,444 (659,409) (789,315) – – – – – – – 1,525,173 1,500,248 73,950 1,691,544 4,790,915 Shares outstanding 1 Jan 2008 Shares conditionally awarded in year Shares vested in year Shares forfeited in year Shares expired in year Shares outstanding 31 Dec 2008 1,806,992 61,993 1,423,723 1,760,571 – – – – (1,563,495) (243,497) (61,993) – (14,375) (207,316) (5,526) (150,100) – 1,623,929 – (47,911) – 5,053,279 83,200 – 1,707,129 (1,645,389) – (648,824) – – – – – – – – – 1,202,032 1,604,945 1,576,018 83,200 4,466,195 Anglo American plc Annual Report 2009 135 i F n a n c a i l s t a t e m e n t s Financial statements Notes to the financial statements continued 28. Called-up share capital and share-based payments continued Bonus Share Plan(3) Ordinary shares of 5486/91 US cents may be awarded under the terms of this scheme for no consideration. The number of shares outstanding is shown below: At 31 December 2009 Year of grant Performance period end date 2005 2006 2007 2008 2009 31 December 2007 31 December 2008 31 December 2009 31 December 2010 31 December 2011 At 31 December 2008 Year of grant Performance period end date 2004 2005 2006 2007 2008 31 December 2006 31 December 2007 31 December 2008 31 December 2009 31 December 2010 Shares outstanding 1 Jan 2009 Shares conditionally awarded in year 826 1,270,144 1,396,613 1,622,451 – – – – Shares vested in year – (1,232,752) (48,233) (40,756) – 5,943,960 (146,171) Shares forfeited in year (826) (36,028) (41,875) (45,920) (52,021) 4,290,034 5,943,960 (1,467,912) (176,670) Shares expired in year Shares outstanding 31 Dec 2009 – – – – – – – 1,364 1,306,505 1,535,775 5,745,768 8,589,412 Shares outstanding 1 Jan 2008 Shares conditionally awarded in year 5,684 1,847,813 1,424,558 1,544,288 – – – – – 1,701,688 Shares vested in year (5,684) Shares forfeited in year – (1,709,848) (137,139) (75,498) (54,786) (28,623) (78,916) (92,889) (50,614) 4,822,343 1,701,688 (1,874,439) (359,558) Shares expired in year Shares outstanding 31 Dec 2008 – – – – – – – 826 1,270,144 1,396,613 1,622,451 4,290,034 Share Incentive Plan Ordinary shares of 5486/91 US cents may be awarded under the terms of this scheme for no consideration. The number of shares outstanding is shown below: Share Incentive Plan Awards outstanding at Awards outstanding at 31 Dec 2009 985,681 31 Dec 2008 968,341 Latest release date 7 December 2012 (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 LTIP awards are contingent on pre-established performance criteria being met. Further information in respect of this scheme is shown in the Remuneration report. (3) The 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. 29. Consolidated equity analysis An analysis of Deferred tax and Tax on items transferred from equity by individual item presented in the Consolidated statement of comprehensive income is presented below: US$ million Deferred tax Revaluation of available for sale investments Cash flow hedges Actuarial net loss on post retirement benefit schemes Net deferred tax recognised directly in equity Tax on items transferred from equity Transferred to income statement: sale of available for sale investments Transferred to income statement: cash flow hedges Transferred to initial carrying amount of hedged items: cash flow hedges Net tax on total transferred from equity Fair value and other reserves comprise: 2009 2008 (105) (22) 53 (74) 135 (51) (7) 77 79 56 32 167 – (94) – (94) US$ million Balance at 1 January 2008 Total comprehensive income Other Balance at 1 January 2009 Total comprehensive income Issue of convertible bond Disposal of businesses Balance at 31 December 2009 Convertible debt reserve Available for sale reserve Cash flow hedge reserve Other reserves(1) Total fair value and other reserves – – – – – 355 – 355 2,373 (1,285) – 1,088 (783) – – 305 (304) 110 – (194) 226 – (1) 31 804 – 34 838 – – – 838 2,873 (1,175) 34 1,732 (557) 355 (1) 1,529 (1) Other reserves comprise a legal reserve of $689 million (2008: $689 million), a revaluation reserve of $34 million (2008: $34 million) and a capital redemption reserve of $115 million (2008: $115 million). 136 Anglo American plc Annual Report 2009 30. Consolidated cash flow analysis a) Reconciliation of profit before tax to cash inflows from operations US$ million Profit before tax Depreciation and amortisation Share-based payment charges Net profit on disposals Operating and financing remeasurements Non-cash element of operating special items Net finance costs before remeasurements Share of net income from associates Provisions Decrease/(increase) in inventories (Increase)/decrease in operating receivables (Decrease)/increase in operating payables Deferred stripping Other adjustments Cash inflows from operations b) Reconciliation to the balance sheet US$ million Balance sheet Balance sheet – disposal groups(2) Bank overdrafts Bank overdrafts – disposal groups(2) Net debt classifications 2009 2008 4,029 1,725 204 8,571 1,509 155 (1,612) (1,009) (504) 1,981 273 (84) (46) 23 (360) (573) (150) (2) 728 284 452 (1,113) 46 (999) 80 896 (89) 68 4,904 9,579 Cash and cash equivalents(1) Short term borrowings Medium and long term borrowings Current financial asset investments 2009 2008 2009 2008 2009 2008 2009 3,269 2,771 (1,499) (6,784) (12,816) (7,211) 64 (1) (13) 8 (35) – – 1 – – 35 – (3) – – – – – 3,319 2,744 (1,498) (6,749) (12,819) (7,211) 3 – – – 3 2008 173 – – – 173 (1) ‘Short term borrowings’ on the balance sheet include overdrafts which are included within cash and cash equivalents in determining net debt. (2) Disposal group balances are shown within ‘Assets classified as held for sale’ and ‘Liabilities directly associated with assets classified as held for sale’ on the balance sheet. c) Movement in net debt US$ million Balance at 1 January 2008 Cash flow Acquisition of businesses Reclassifications Movement in fair value Other non-cash movements Currency movements Balance at 1 January 2009 Cash flow(4) Unwinding of discount on convertible bond Equity component of convertible bond(4) Reclassifications Movement in fair value Other non-cash movements Currency movements Balance at 31 December 2009 Cash and cash equivalents(1) 3,074 (143) – – – – (187) 2,744 259 – – – – – 316 3,319 Debt due within one year (5,909) (1,432) (209) 190 (11) – 622 (6,749) 6,624 – – (917) – (15) (441) Debt due after one year (2,404) (5,181) (461) (190) (176) (15) 1,216 (7,211) (6,253) (39) 355 917 63 (26) (625) (1,498) (12,819) Current financial asset investments – 210 – – – – (37) (3) 173 (200) – – – – 3 27 3 Net debt excluding hedges (5,239) (6,546) (670) – (187) (15) 1,614 Total net debt including hedges (4,851) (6,926) (670) – (492) (15) 1,614 Hedges(2) 388 (380) – – (305) – – (11,043) (297) (11,340) 430 (39) 355 – 63 (38) (723) 85 – – – (73) – – 515 (39) 355 – (10) (38) (723) (10,995) (285) (11,280) (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. In addition, the use of cash balances of $111 million (2008: $91 million) are subject to certain legal restrictions. These restrictions are not expected to have a material effect on the Group’s ability to meet ongoing obligations. (2) Derivative instruments that provide an economic hedge of assets and liabilities in net debt are included above to reflect the true net debt position of the Group at the year end. These consist of net current derivative assets of $41 million (2008: $437 million net liabilities) and net non-current derivative liabilities of $326 million (2008: $140 million net assets) which are classified within ‘Other financial assets (derivatives)’ and ‘Other financial liabilities (derivatives)’ on the balance sheet. (3) Relates to amounts invested in unlisted preference shares (guaranteed by Nedbank Limited and Nedbank Group Limited) pending completion of the disposal of the Group’s 50% interest in the Booysendal joint venture. This amount was received upon completion of the transaction in June 2009. (4) The issue of the convertible bond had a net impact on debt due after one year at the date of issue of $1,330 million due to the conversion feature of $355 million which is presented separately in equity. Anglo American plc Annual Report 2009 137 i F n a n c a i l s t a t e m e n t s Financial statements Notes to the financial statements continued 31. EBITDA by segment US$ million By segment(1) Platinum Diamonds Copper Nickel Iron Ore and Manganese Metallurgical Coal Thermal Coal Other Mining and Industrial Exploration Corporate Activities and Unallocated Costs EBITDA 2009 2008 677 215 2,675 665 2,254 2,104 28 1,593 706 875 878 (172) (124) 150 2,625 1,319 1,200 1,513 (212) (192) 6,930 11,847 (1) Due to the portfolio and management structure changes announced in October 2009, the segments have changed from those reported at 31 December 2008. Comparatives have been reclassified to align with current year presentation. EBITDA is stated before special items and remeasurements and is reconciled to operating profit, including attributable share of associates, before special items and remeasurements and to ‘Total profit from operations and associates’ as follows: US$ million Total profit from operations and associates Operating special items and remeasurements (including associates) Net profit on disposals (including associates) Associates’ financing special items and remeasurements Share of associates’ interest, tax and minority interests Operating profit, including associates, before special items and remeasurements Depreciation and amortisation: subsidiaries and joint ventures Depreciation and amortisation: associates EBITDA EBITDA is reconciled to ‘Cash inflows from operations’ as follows: US$ million EBITDA Share of operating profit of associates before special items and remeasurements Cash element of operating special items Depreciation and amortisation in associates Share-based payment charges Provisions Decrease/(increase) in inventories (Increase)/decrease in operating receivables (Decrease)/increase in operating payables Deferred stripping Other adjustments Cash inflows from operations 2009 2008 4,436 1,840 8,972 1,357 (1,632) (1,027) 1 312 4,957 1,725 248 15 768 10,085 1,509 253 6,930 11,847 2009 2008 6,930 11,847 (580) (2,104) (294) (248) 204 (46) 23 (360) (573) (150) (2) (68) (253) 155 46 (999) 80 896 (89) 68 4,904 9,579 138 Anglo American plc Annual Report 2009 32. Acquisitions Acquisition of subsidiaries The Group made no material acquisitions of subsidiaries in the year ended 31 December 2009. In the year ended 31 December 2009 fair values shown principally include final adjustments to the fair value of assets acquired and liabilities assumed in the Anglo Ferrous Brazil SA acquisition, including the recognition of provisions in respect of certain power arrangements. The carrying value and fair value of the net assets at the date of acquisition of a controlling interest and related net cash outflows are shown below: US$ million Net assets acquired Tangible assets Other non-current assets Current assets Current liabilities Non-current liabilities Minority interests Add: Value attributable to reserves and resources acquired, net of deferred tax(1) Fair value of net assets acquired Goodwill arising on acquisitions Total cost of acquisitions Satisfied by Net cash acquired Net cash paid(2) Total carrying value 2009 Total fair value 2008 Total fair value 1 – 2 (1) – – 2 (4) – 4 (8) (11) – (19) 21 2 2 4 – 4 997 109 457 (314) (547) (230) 472 1,649 2,121 1,610 3,731 255 3,476 (1) Represents the Group’s share of value (implicit in the transaction) of reserves and resources, capitalised within tangible assets. (2) Represents net cash paid to acquire a controlling interest and therefore excludes $75 million paid to acquire minority interests in existing subsidiaries (2008: $2,411 million). In the year ended 31 December 2009 this principally related to Anglo Ferrous Brazil SA (2008: Anglo Ferrous Brazil SA and Anglo Platinum Limited). When totalled with net cash paid to acquire control, the net cash paid for acquisition of subsidiaries in the year ended 31 December 2009 is $79 million (2008: $5,887 million). In the year ended 31 December 2008 the Group purchased 7,941,964 shares in Anglo Platinum Limited for total consideration of $1,108 million. The cash paid in the year ended 31 December 2008 was $1,113 million. At 31 December 2009 the Group’s shareholding in Anglo Platinum Limited was 79.7% (2008: 79.6%). The increase in the Group’s shareholding since 31 December 2008 is due to treasury shares purchased by Anglo Platinum Limited in the year. On 5 August 2008 the Group acquired a 63.3% shareholding in Anglo Ferrous Brazil SA, which holds a 51% interest in the Minas Rio iron ore project (Minas Rio) and a 70% interest in Amapá at a price of R$28.147 ($18.056) per share. At that time the Group committed to extend the offer to the minority shareholders of Anglo Ferrous Brazil SA. This offer was formally made on 31 October 2008 and remained open through the first quarter of 2009, resulting in a Group shareholding in Anglo Ferrous Brazil SA at 31 December 2009 of 100% (2008: 98.9%). Total cash paid to acquire a controlling interest was $3.5 billion and a further $2.0 billion (including cash settlement of a related derivative instrument ($0.7 billion)) was paid to acquire minority interests. In the year ended 31 December 2009 $49 million was paid to acquire remaining minority interests. These transactions followed on from the acquisition in 2007 of a 49% interest in each of Minas Rio and LLX Minas Rio, which owns the port of Açu. As a result of these transactions the Group’s effective shareholding in each of the operating entities at 31 December 2009 was 100% in Minas Rio, 49% in LLX Minas Rio and 70% in Amapá (2008: 99.4% in Minas Rio, 49% in LLX Minas Rio and 69.2% in Amapá). Anglo American plc Annual Report 2009 139 i F n a n c a i l s t a t e m e n t s Financial statements Notes to the financial statements continued 32. Acquisitions continued Acquisition of material joint ventures The Group made no material acquisitions of joint ventures in the year ended 31 December 2009 (2008: one). The fair value of the net assets acquired and related net cash outflow for the prior year are shown below: Disposals of subsidiaries and businesses in the year ended 31 December 2009 The disposals of Lebowa and Booysendal were the only material disposals of a subsidiary or a joint venture in the year. The only material disposals of associates in the year related to the sale of the Group’s remaining investments in Tongaat Hulett and Hulamin, which generated a combined net cash inflow of $662 million (net of transaction costs). US$ million Net assets acquired Tangible assets Value attributable to reserves and resources acquired Other tangible assets Current assets Current liabilities Non-current liabilities Fair value of net assets acquired and total cost of acquisitions Satisfied by Net cash acquired Deferred consideration Net cash paid(2) 2008(1) 835 108 41 (37) (97) 850 1 242 607 Lebowa and Booysendal During the year ended 31 December 2009 the Group disposed of a 50% interest in the Booysendal joint venture and a 51% interest in Lebowa (and certain other joint venture projects). The disposal of Booysendal to Mvela took place on 24 June 2009. Total consideration was $275 million (excluding transaction and deal facilitation costs), of which $270 million was received in advance in the prior year (invested in unlisted preference shares and an escrow account). Upon completion of the transaction the preference shares were sold whilst $72 million remains in an escrow account pending completion of documentation. The disposal of Lebowa to Anooraq was completed on 30 June 2009 for total consideration of $363 million (excluding transaction and deal facilitation costs). The fair value of the consideration was $247 million (excluding transaction and deal facilitation costs). The Group commenced equity accounting its remaining 49% interest in Lebowa from 30 June 2009. At 31 December 2009 the Group held a 49% interest in Lebowa. These transactions were part of previously announced black economic empowerment deals. The net asset position at the dates of disposal, together with the resulting profit on disposal and related net cash inflow is shown below: US$ million Net assets disposed Tangible assets Current assets Current liabilities Non-current liabilities Group’s share of net assets immediately prior to disposal Less: Retained investments in associates Net assets disposed Net gain on disposals Net sale proceeds Proceeds received in prior year(1) Non-cash consideration(2) Costs accrued Deal facilitation charges Net cash and cash equivalents disposed Net cash inflow from disposals of Lebowa and Booysendal 2009 336 11 (24) (64) 259 (125) 134 316 450 (270) (212) 6 41 (9) 6 (1) A portion of the proceeds was invested in unlisted preference shares when received. Following completion of the transaction these were sold and $200 million is included in the Consolidated cash flow statement within ‘Proceeds from sale of financial asset investments’. (2) Represents ordinary shares in Anooraq and preference shares in Plateau Resources (Proprietary) Limited. Disposals of businesses in the year ended 31 December 2008 In the year ended 31 December 2008 Namakwa Sands was the only material disposal of a business. On 1 October 2008 Namakwa Sands was sold to Exxaro Resources Limited for consideration of $330 million including deferred consideration. On 3 November 2008 as part of the same transaction, the Group completed the sale of a 26% interest in both the Black Mountain zinc, lead and copper operation and the Gamsberg zinc project for consideration of $23 million. For further details of the disposal of Namakwa Sands refer to the Group’s financial statements for the year ended 31 December 2008. (1) Relates to the acquisition of Foxleigh and fair value adjustments on the acquisition of a 49% interest in Minas Rio (which took place in 2007). During 2008 further consideration of $284 million (which is contingent on certain criteria being met) was recognised in respect of the acquisition of the 49% interest in Minas Rio. This was reduced from the $600 million recognised in the six months ended 30 June 2008, as a result of a change in the assumptions with regards to payment and purchase of an additional interest in Minas Rio together with an adjustment to the net deferred tax liability recognised to reflect the future tax benefit from cash payments made on acquisition. These adjustments resulted in amendments to the ‘Value attributable to reserves and resources acquired’ and deferred tax in the acquisition balance sheet. (2) In the year ended 31 December 2009 there was net cash paid of $5 million (2008: $2 million) for other joint venture acquisitions. This resulted in total net cash paid for investments in joint ventures in the year ended 31 December 2009 of $5 million (2008: $609 million). On 29 February 2008 Metallurgical Coal completed the acquisition of a 70% interest in the Foxleigh joint venture in Queensland, Australia. The total cost of acquisition was $606 million. The Group has proportionately consolidated 70% of Foxleigh from 29 February 2008. 33. Disposals of subsidiaries and businesses US$ million 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 investments in associates Net assets disposed Cumulative translation differences recycled from reserves Net gain on disposals Net sale proceeds Proceeds received in prior year Non-cash consideration Costs accrued Deal facilitation charges Deferred consideration Net cash and cash equivalents disposed Proceeds not yet received Realised foreign exchange Net cash inflow from disposals 2009 2008 425 2 48 (34) (65) 376 (3) 373 (235) 138 – 316 454 (270) (212) 6 41 – (10) (4) – 5 (2) 479 43 210 (83) (113) 536 (1) (116) 420 – 420 (2) 119 537 – – 4 – (56) (4) – (13) 468 (1) Includes net assets of $79 million no longer consolidated following loss of control of a subsidiary. (2) Net cash of $64 million has been received in the year ended 31 December 2009 in respect of deferred consideration for disposals in 2008. This resulted in a total net cash inflow of $69 million from disposals of subsidiaries and businesses in the year ended 31 December 2009. 140 Anglo American plc Annual Report 2009 34. Disposal groups and non-current assets held for sale Platinum disposal groups (including Booysendal and Lebowa), which were previously classified as held for sale at 31 December 2008, were disposed of in June 2009. Refer to note 33 for more details on the Platinum disposals. The following assets and liabilities relating to disposal groups were classified as held for sale. The Group expects to complete the sale of these businesses within 12 months of the year end. US$ million Intangible assets Tangible assets Deferred tax assets Other non-current assets Total non-current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets Trade and other payables Short term borrowings Short term provisions Total current liabilities Medium and long term borrowings Retirement benefit obligations Deferred tax liabilities Provisions for liabilities and charges Other non-current liabilities Total non-current liabilities Total liabilities Net assets 2009 2008 Tarmac disposal groups(1) 13 422 5 2 Total(2) – 257 – 2 442 259 42 72 64 178 620 (66) (13) (4) (83) (3) (1) (46) (55) (3) (108) (191) 429 – 8 8 16 275 (21) – – (21) – – (56) (3) – (59) (80) 195 (1) Tarmac disposal groups relate to certain of its European businesses. Tarmac is included in the Other Mining and Industrial segment. (2) Relates to Platinum disposal groups. The net carrying amount of assets and associated liabilities classified as held for sale during 2009 was written down by $46 million (2008: nil). 35. Capital commitments US$ million Contracted but not provided 2009 2008 2,877 3,465 36. Contingent liabilities and contingent assets (i) Contingent liabilities The Group is subject to various claims which arise in the ordinary course of business. Additionally, and as set out in the 2007 demerger agreement, Anglo American and Mondi have agreed to indemnify each other, subject to certain limitations, against certain liabilities. Having taken appropriate legal advice, the Group believes that the likelihood of a material liability arising is remote. At 31 December 2009 contingent liabilities in respect of the Group’s subsidiaries comprise aggregate amounts of $704 million (2008: $548 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. For information relating to contingent liabilities in respect of associates and joint ventures refer to notes 16 and 17 respectively. No contingent liabilities were secured on the assets of the Group at 31 December 2009 or 31 December 2008. (ii) Contingent assets There were no significant contingent assets in the Group at 31 December 2009 or 31 December 2008. (iii) Other Anglo American Sur Anglo American inherited a 1978 agreement with Codelco, the Chilean state mining company, when it acquired Disputada de Las Condes (since renamed Anglo American Sur) in 2002. The agreement grants Codelco the right, subject to certain conditions and limitations, to acquire up to a 49% minority interest in Anglo American Sur, the wholly owned Group company that owns the Los Bronces and El Soldado copper mines and the Chagres smelter. These conditions include limiting the window for exercising the right to once every three years in the month of January until January 2027. The right was not exercised in 2009. The calculations of the price at which Codelco can exercise its right are complex and confidential but do, inter alia, take account of company profitability over a five year period. Anglo American South Africa Limited Anglo American South Africa Limited (AASA), a wholly owned subsidiary of the Company, is a defendant in 25 separate lawsuits, each one on behalf of a former mineworker (or his dependents or survivors) who allegedly contracted silicosis working for gold mining companies in which AASA was a shareholder and to which AASA provided various technical and administrative services. The aggregate amount of the 25 claims is less than $5 million, although if these claims are determined adversely to AASA, there are a substantial number of additional former mineworkers who may seek to bring similar claims. The first trial of these claims is expected to be in 2011, but the arrangements have not yet been agreed. 37. Operating leases At 31 December the Group had the following outstanding commitments under non-cancellable operating leases: US$ million Expiry date Within one year One to two years Two to five years After five years 2009 2008 140 95 194 399 828 64 60 168 197 489 Operating leases relate principally to land and buildings, vehicles and shipping vessels. 38. Related party transactions The Group has a related party relationship with its subsidiaries, joint ventures and associates (see note 39). The Company and its subsidiaries, in the ordinary course of business, enter into various sales, purchase and service transactions with joint ventures and associates and others in which the Group has a material interest. These transactions are under terms that are no less favourable than those arranged with third parties. These transactions are not considered to be significant. Dividends received from associates during the year totalled $616 million (2008: $609 million), as disclosed in the Consolidated cash flow statement. At 31 December 2009 the Group had provided loans to joint ventures of $93 million (2008: $20 million). These loans are included in financial asset investments. At 31 December 2009 the directors of the Company and their immediate relatives controlled 3% (2008: 3%) of the voting shares of the Company. Remuneration and benefits received by directors are disclosed in the directors’ remuneration report. Remuneration and benefits of key management personnel including directors are given in note 6. Information relating to pension fund arrangements is disclosed in note 27. Anglo American plc Annual Report 2009 141 i F n a n c a i l s t a t e m e n t s Financial statements Notes to the financial statements continued Pursuant to the refinancing of De Beers and to satisfy the requirements of the lenders to De Beers, the shareholders of De Beers, including the Group, have, as applicable, agreed to: (i) defer the receipt of dividends or capital on their ordinary shares until certain financial tests (‘Normalisation’) are met and this is currently anticipated to be during 2011; (ii) defer the receipt of dividends and mandatory redemption under the preference shares in De Beers SA until Normalisation. The total amount deferred by Anglo American is approximately $96.5 million. The dividends (or interest in respect of such dividends) will continue to accrue on the preference shares until they are paid and the preference shares redeemed; and (iii) enter into an agreement which effectively formalises, in favour of the lenders to De Beers, the deferral of the rights to dividends or other distributions in respect of their respective ordinary shares, and, as applicable, preference shares and payments under the shareholder loans, until Normalisation; and the subordination thereof. As part of the process of facilitating the agreed equity subscription by all the shareholders of De Beers, a temporary re-ranking of distribution rights was agreed which will result, following Normalisation, in a $20 million distribution to the shareholders of De Beers (including the Group and CHL), pro rata to their individual equity subscriptions as referred to above, which will be paid in priority to existing preferences on distributions under the terms of the preference shares in De Beers. The net effect of this re-prioritisation on Anglo American, in the event of there being insufficient cash to pay all dividends then due, is a deferral of approximately $8 million of dividends, which will continue to accrue interest until paid. 38. Related party transactions continued Related party transactions with De Beers At 31 December 2009 the Group held $88 million (2008: $88 million) of 10% non-cumulative redeemable preference shares in DB Investments, the holding company of De Beers Société Anonyme. Set out below are details of certain transactions and arrangements entered into by the Group with, or for the benefit of, certain related parties of the Company for the purposes of the United Kingdom Listing Authority Listing rules, being Central Holdings Limited (and certain of its subsidiaries, together ‘CHL’) and DB Investments SA and De Beers SA (together, ‘De Beers’) which are related parties for the purposes of such rules by virtue of being companies in which Mr N.F. Oppenheimer, a director of the Company, has a relevant interest for the purposes of such rules. It was agreed that the dividends declared by De Beers to the Group and the other shareholders in De Beers (including CHL) would be exchanged for loan obligations. The total amount of dividends exchanged amounted to $118 million in the year ended 31 December 2008. This total has increased during 2009 by $24 million. The loans are subordinated and are interest free for two years at which point they become interest bearing in line with market rates at the dates of the initial reinvestment. In April 2009 the shareholders of De Beers provided an additional loan to De Beers, proportionate to their shareholdings, totalling $500 million. Anglo American holds a 45% interest and therefore provided a loan of $225 million. The loan is interest free for two years, at which point it reverts to a rate of interest equal to LIBOR plus 700 basis points until April 2016 and then, provided all interest payments are up to date, reduces to LIBOR plus 300 basis points. In the event of a rights issue or other share issue by De Beers, the Group would have the option to apply amounts outstanding under the loan in subscribing for ordinary shares in De Beers at the issue price applicable to the relevant share issue, which will be determined at the time of the relevant issue. The loan is subordinated in favour of third party banks/ lenders and preference shareholders (including Anglo American) and is repayable after ten years. These loans are included in financial asset investments. In February 2010 the shareholders of De Beers agreed, as part of the De Beers group’s refinancing, including third party debt refinancing, that additional equity was required by De Beers. The shareholders of De Beers (including CHL) have accordingly all agreed to subscribe, in proportion to their current shareholding, for $1 billion of additional equity in De Beers, subject to the fulfilment of certain conditions. The Group’s share of such additional equity, in line with its equity holding in De Beers, amounts to $450 million. CHL’s share of such additional equity, in line with its equity holding in De Beers, amounts to $400 million. The shareholders have further agreed that the subscription does not constitute a subscription event under the 2009 arrangements. 142 Anglo American plc Annual Report 2009 39. Group companies The principal subsidiaries, joint ventures, associates and proportionately consolidated joint arrangements of the Group at 31 December 2009, and the Group percentage of equity capital, joint arrangements and joint venture interests are set out below. All these interests are held indirectly by the parent company and are consolidated within these financial statements. As permitted by section 410 of the Companies Act 2006, the Group has restricted the information provided to its principal subsidiaries in order to avoid a statement of excessive length. Due to the portfolio and management structure changes announced in October 2009, the segments have changed from those reported at 31 December 2008. Comparatives have been reclassified to align with current year presentation. Subsidiary undertakings Platinum Anglo Platinum Limited Copper Anglo American Sur SA Anglo American Norte SA Minera Quellaveco SA Nickel Anglo American Brasil Limitada (Barro Alto) Anglo American Brasil Limitada (Codemin) Minera Loma de Níquel, CA Iron Ore and Manganese Kumba Iron Ore Limited Anglo Ferrous Brazil SA Anglo Ferrous Minas-Rio Mineração SA Anglo Ferrous Amapá Mineração Limitada Metallurgical Coal Anglo Coal Holdings Australia Limited Thermal Coal Anglo Coal(2) Other Mining and Industrial Black Mountain Mining (Pty) Limited(3) Gamsberg Zinc(3) Ambase Exploration (Namibia) Proprietary Limited (Skorpion) Anglo American Brasil Limitada (Catalão) Lisheen(4) Copebrás Limitada Scaw Metals/Moly-Cop/AltaSteel Peace River Coal Partnership Tarmac Group Limited Tarmac France SA Lausitzer Grauwacke GmbH WKSM SA Tarmac CZ a.s. Tarmac SRL Koca Beton Agrega Mining and Construction Industry and Trading Company Limited United Marine Holdings Limited Country of incorporation Business Percentage of equity owned(1) 2009 2008 South Africa Platinum 79.7% 79.6% Chile Chile Peru Brazil Brazil Venezuela South Africa Brazil Brazil Brazil Australia South Africa South Africa South Africa Namibia Brazil Ireland Brazil South Africa/Chile/Canada Canada UK France Germany Poland Czech Republic Romania Turkey UK Copper Copper Copper project Nickel project Nickel Nickel Iron ore Iron ore Iron ore project Iron ore system Coal Coal Zinc, lead and copper Zinc project Zinc Niobium Zinc and lead Fertilisers and acid Steel, engineering works and grinding media 100% 100% 99.9% 99.9% 81.9% 81.9% 100% 100% 100% 100% 91.4% 91.4% 62.8% 63% 100% 98.9% 100% 99.4% 70% 69.2% 100% 100% 100% 100% 74% 74% 100% 100% 100% 73% 74%- 100% 74% 74% 100% 100% 100% 73% 74%- 100% Coal 74.8% 73.8% Construction materials Construction materials Construction materials Construction materials Construction materials Construction materials Construction materials Construction materials 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 60% 100% 100% (1) The proportion of voting rights of subsidiaries held by the Group is the same as the proportion of equity owned, unless stated. (2) A division of Anglo Operations Limited, a wholly owned subsidiary. (3) Previously Black Mountain and Gamsberg Zinc were divisions of Anglo Operations Limited, a wholly owned subsidiary. On 3 November 2008, 26% of each of Black Mountain Mining (Pty) Limited and Gamsberg Zinc were sold. Gamsberg Zinc is a division of Black Mountain Mining (Pty) Limited. (4) The Group’s interest in the Lisheen operations is held through Anglo American Lisheen Mining Limited, Killoran Lisheen Mining Limited and Lisheen Milling Limited. The Group owns 100% of the equity of each of these companies. Anglo American plc Annual Report 2009 143 i F n a n c a i l s t a t e m e n t s Financial statements Notes to the financial statements continued 39. Group companies continued Joint ventures Compañía Minera Doña Inés de Collahuasi SCM LLX Minas-Rio Logística SA AI Futtain Tarmac Quarry Products Limited Midland Quarry Products Limited(6) Associates DB Investments SA Samancor Holdings (Pty) Limited(7) Groote Eylandt Mining Company (Pty) Limited (GEMCO)(7) Tasmanian Electro Metallurgical Company (Pty) Limited (TEMCO)(7) Queensland Coal Mine Management (Pty) Limited Cerrejón Zona Norte SA Carbones del Cerrejón LLC Carbones del Guasare SA Tongaat Hulett Limited(8) Hulamin Limited(9) Proportionately consolidated jointly controlled operations(10) Drayton Moranbah North German Creek Foxleigh Dawson Country of incorporation Chile Brazil Dubai UK Business Copper Port Construction materials Construction materials Country of incorporation Business Luxembourg South Africa Australia Australia Australia Colombia Anguilla Venezuela South Africa South Africa Location Australia Australia Australia Australia Australia Diamonds Manganese Manganese Manganese Coal Coal Coal Coal Sugar, starch, glucose and property development Aluminium Business Coal Coal Coal Coal Coal Percentage of equity owned(5) 2009 44% 49% 49% 50% 2008 44% 49% 49% 50% Percentage of equity owned(5) 2009 45% 40% 40% 40% 2008 45% 40% 40% 40% 33.3% 33.3% 33.3% 33.3% 33.3% 33.3% 24.9% 24.9% – – 37.1% 38.4% Percentage owned 2009 2008 88.2% 88.2% 88% 70% 70% 51% 88% 70% 70% 51% (5) All equity interests shown are ordinary shares. (6) During 2008 the Group ceased accounting for Midland Quarry Products Limited as a subsidiary and began accounting for it as a joint venture as it was considered to be jointly controlled. (7) These entities have a 30 June year end. (8) Formerly The Tongaat-Hulett Group Limited. In August 2009 the Group sold its remaining investment in Tongaat Hulett Limited. (9) Unbundled from Tongaat Hulett in June 2007. In July 2009 the Group sold its remaining investment in Hulamin Limited. (10) The wholly owned subsidiary Anglo Coal Holdings Australia Limited holds the proportionately consolidated jointly controlled operations. 40. Events occurring after end of year In February 2010 the Group announced its commitment to take up its full allocation of shares under the rights offer announced by Anglo Platinum. Anglo Platinum expects to raise approximately $1.6 billion through the rights offer, of which the Group’s share of 79.7% is approximately $1.3 billion. The Group has also agreed to underwrite the minority portion of the rights offer. Subsequent to 31 December 2009 De Beers has announced a $1 billion rights issue. The Group has accordingly agreed to subscribe for additional equity in proportion to its current shareholding and will therefore contribute $450 million. Refer to note 38 for further details. During the first quarter of 2010, Anglo American agreed the sales of Tarmac’s aggregates businesses in France, Germany, Poland and the Czech Republic and its Polish concrete products business with expected total proceeds of approximately $400 million. With the exception of the above there have been no material reportable events since 31 December 2009. 144 Anglo American plc Annual Report 2009 41. Financial statements of the parent company a) Balance sheet of the Company, Anglo American plc, as at 31 December 2009 US$ 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 assets Total assets less current liabilities Liabilities due after more than one year Convertible bond Net assets Capital and reserves Called-up share capital Share premium account Capital redemption reserve Other reserves Share-based payment reserve Convertible debt reserve Profit and loss account Total shareholders’ funds (equity) The financial statements of Anglo American plc, registered number 3564138, were approved by the Board of directors on 18 February 2010. Cynthia Carroll Chief executive René Médori Finance director Note 2009 2008 41c 13,104 12,925 4,490 1,305 13 40 138 2 4,543 1,445 (79) (187) (15) (281) (59) (215) (8) (282) 4,262 1,163 17,366 14,088 (1,369) – 15,997 14,088 41b 41b 41b 41b 41b 41b 41b 738 738 2,713 2,713 115 115 1,955 1,955 15 355 22 – 10,106 8,545 15,997 14,088 Anglo American plc Annual Report 2009 145 i F n a n c a i l s t a t e m e n t s Financial statements Notes to the financial statements continued 41. Financial statements of the parent company continued b) Reconciliation of movements in equity shareholders’ funds US$ million Balance at 1 January 2008 Profit for the financial year Issue of treasury shares under employee share schemes Share-based payments Capital contribution to group undertakings Transfer between share-based payment reserve and profit and loss account Share buybacks Dividends paid(3) Balance at 1 January 2009 Profit for the financial year Issue of treasury shares under employee share schemes Share-based payments Capital contribution to group undertakings Transfer between share-based payment reserve and profit and loss account Issue of convertible bond Called-up share capital 738 Share premium account 2,713 Capital redemption reserve 115 Other reserves(1) 1,955 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 738 2,713 115 1,955 – – – – – – – – – – – – – – – – – – – – – – – – Balance at 31 December 2009 738 2,713 115 1,955 Share-based payment reserve Convertible debt reserve 22 – – 12 – (12) – – 22 – – 7 – (14) – 15 – – – – – – – – – – – – – – 355 355 Profit and loss account(2) 7,021 2,936 41 – 20 12 Total 12,564 2,936 41 12 20 – (259) (1,226) 8,545 1,337 (259) (1,226) 14,088 1,337 31 – 179 14 – 31 7 179 – 355 10,106 15,997 (1) At 31 December 2009 other reserves of $1,955 million (2008: $1,955 million) were not distributable under the Companies Act 2006. (2) At 31 December 2009 $405 million (2008: $483 million) of the Company profit and loss account of $10,106 million (2008: $8,545 million) was not distributable under the Companies Act 2006. (3) Dividends paid relate only to shareholders on the United Kingdom principal register excluding dividends waived by Greenwood Nominees Limited as nominees for Butterfield Trust (Guernsey) Limited, the trustee for the Anglo American employee share scheme. Dividends paid to shareholders on the Johannesburg branch register are distributed by a South African subsidiary in accordance with the terms of the Dividend Access Share Provisions of Anglo American plc’s Articles of Association. The audit fee in respect of the parent company was $7,000 (2008: $10,000). Fees payable to Deloitte for non-audit services to the Company are not required to be disclosed because they are included within the consolidated disclosure in note 4. c) Fixed asset investments US$ million Cost At 1 January Additions Capital contributions At 31 December Provisions for impairment At 1 January and 31 December Net book value At 31 December Investments in subsidiaries 2009 2008 12,933 12,891 – 179 22 20 13,112 12,933 (8) (8) 13,104 12,925 146 Anglo American plc Annual Report 2009 Convertible debt Convertible bonds 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 liability. 41. Financial statements of the parent company continued 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 financial information has been prepared on a historical cost basis as modified by the revaluation of certain financial instruments. A summary of the principal accounting policies is set out below. The preparation of financial 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 financial 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 408 of the Companies Act 2006, the profit and loss account of the Company is not presented as part of these financial statements. The profit after tax for the year of the Company amounted to $1,337 million (2008: $2,936 million). Significant accounting policies Deferred tax Deferred tax 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 and expensed on a straight line basis over the vesting period, based on the Company’s estimate of shares that will eventually vest. For those share schemes with market vesting conditions, the fair value is determined using the Monte Carlo method at the grant date. 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 reflect current expectations. The Company also makes equity settled share-based payments to certain employees of certain subsidiary undertakings. Equity settled share-based payments that are made to employees of the Company’s subsidiaries are treated as increases in equity over the vesting period of the award, with a corresponding increase in the Company’s investments in subsidiaries, based on an estimate of the number of shares that will eventually vest. Any payments received from subsidiaries are applied to reduce the related increases in investments in subsidiaries. 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 financial statements are set out in note 28 to the consolidated financial statements of the Group for the year ended 31 December 2009. Investments Investments represent equity holdings in subsidiaries, joint ventures and associates and are held at cost less provision for impairment. Anglo American plc Annual Report 2009 147 i F n a n c a i l s t a t e m e n t s Ore Reserves and Mineral Resources Introduction The Ore Reserve and Mineral Resource estimates presented in this Annual Report are prepared in accordance with the Anglo American plc (AA plc) Policy for the Reporting of Ore Reserves and Mineral Resources. This policy requires that the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves 2004 edition (the JORC Code) be used as a minimum standard. Some Anglo American plc subsidiaries have a primary listing in South Africa where public reporting is carried out in accordance with the South African Code for Reporting of Mineral Resources and Mineral Reserves (the SAMREC Code). The SAMREC Code is similar to the JORC Code and the Ore Reserve and Mineral Resource terminology appearing in this section follows the definitions in both the JORC (2004) and SAMREC (2007) Codes. The information on Ore Reserves and Mineral Resources was prepared by or under the supervision of Competent Persons as defined in the JORC or SAMREC Codes. All Competent Persons have sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking. All the Competent Persons consent to the inclusion in this report of the information in the form and context in which it appears. The names of the Competent Persons are lodged with the Anglo American plc Company Secretary and are available on request. Anglo American Group companies are subject to a comprehensive programme of reviews aimed at providing assurance in respect of Ore Reserve and Mineral Resource estimates. The reviews are conducted by suitably qualified Competent Persons from within the Anglo American Group, or by independent consultants. The frequency and depth of the reviews is a function of the perceived 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 review has been conducted. Those operations/projects subject to independent third party reviews 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 influenced 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 influenced 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 stated as at 31 December 2009. Unless otherwise stated, Mineral Resources are additional to those resources which have been modified to produce the Ore Reserves. The figures 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 Annual Report have the same meaning as ‘Mineral Reserves’ as defined by the SAMREC Code. 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 modification 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 justified. Ore Reserves are sub-divided in order of increasing confidence into Probable Ore Reserves and Proved Ore Reserves. 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 modification 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 justified. 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 modification 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 justified. 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 specific geological evidence and knowledge. Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories. 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 confidence. 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 confirm geological and grade continuity. 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 confidence. 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 confirm geological and/or grade continuity but are spaced closely enough for continuity to be assumed. 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 confidence. It is inferred from geological evidence and assumed but not verified 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. Due to the uncertainty that may be attached to some Inferred Mineral Resources, it cannot be assumed that all or part of an Inferred Mineral Resource will necessarily be upgraded to an Indicated or Measured Resource after continued exploration. It is accepted that mine design and planning may include a portion of Inferred Mineral Resources. Inferred Mineral Resources in the Life of Mine (LOM) are described as ‘Inferred (in LOM)’ separately from the remaining Inferred Mineral Resources described as ‘Inferred (ex. LOM)’, as required. These resources are declared without application of any modifying factors. Operations and projects which fall below the internal threshold (25% attributable interest) for reporting have been excluded from the Ore Reserves and Mineral Resources estimates. The Xiwan project is not reported as the project has been disposed of during 2009. 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 five years to apply for mining licence conversions for existing operations. A Prospecting Right is a new order right issued in terms of the MPRDA that is valid for up to five years, with the possibility of a further extension of three years, that can be obtained either by the conversion of existing Old Order Prospecting Rights or through new applications. An Exploration Right is identical to a Prospecting Right, but is commodity specific in respect of petroleum and gas and is valid for up to three years which can be renewed for a maximum of three periods not exceeding two years each. A Mining Right is a new order right issued in terms of the MPRDA valid for up to 30 years obtained either by the conversion of an existing Old Order Mining Right, 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 specific 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 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). 148 Anglo American plc Annual Report 2009 Ore Reserves and Mineral Resources Platinum estimates as at 31 December 2009 Anglo Platinum The Ore Reserve and Mineral Resource estimates were compiled in compliance with The South African Code for Reporting of Mineral Resources and Mineral Reserves, (The SAMREC Code, 2007). Operations and Projects outside South Africa were compiled in accordance with the Australasian Code for Reporting of Mineral Resources and Ore Reserves (The JORC Code, 2004) as a minimum standard. Details of the individual operations appear in the Anglo Platinum Annual Report Merensky and UG2 Reef Mineral Resources are reported over an economic and mineable cut appropriate to the specific reef. THE MINERAL RESOURCES ARE REPORTED AS ADDITIONAL TO ORE RESERVES. The figures reported represent 100% of the Mineral Resources and Ore Reserves attributable to Anglo Platinum Limited unless otherwise noted. Rounding of figures may cause computational discrepancies. Anglo American plc’s interest in Anglo Platinum is 79.7%. Anglo Platinum Ore Reserves Merensky Reef(4)(5)(6) UG2 Reef(4)(5)(7) Platreef(8) All Reefs Tailings(11) Classification Proved Probable Total Proved Probable Total Proved Proved primary ore stockpile(9) Probable Total Proved Probable Total Total (alternative units) (10) Proved Probable Total 2009 Mt 77.5 89.8 167.3 409.9 229.3 639.2 317.4 16.6 174.6 508.6 821.4 493.6 1,315.0 1,449.6 – 29.6 29.6 Mton Tonnes(1) 2008 Mt 88.6 129.4 217.9 469.9 382.6 852.5 274.5 20.6 112.8 407.9 853.6 624.7 1,478.3 1,629.6 Mton – 33.4 33.4 Grade(2) Contained metal(3) Contained metal(3) 2009 4E PGE 5.41 5.13 5.26 4.37 4.38 4.37 3.28 2.65 3.12 3.20 4.01 4.07 4.03 0.118 – 0.86 0.86 oz/ton 2008 4E PGE 5.28 5.21 5.24 4.19 4.43 4.30 3.21 2.58 3.56 3.27 3.95 4.44 4.16 0.121 – 0.88 0.88 oz/ton 2009 2008 tonnes 419.7 460.1 879.8 1,792.1 1,003.9 2,796.0 1,040.6 43.8 544.1 1,628.6 3,296.3 2,008.1 5,304.4 – 25.4 25.4 tonnes 467.4 674.1 1,141.5 1,970.8 1,695.8 3,666.6 880.7 53.1 401.8 1,335.6 3,372.1 2,771.7 6,143.7 – 29.5 29.5 2009 Moz 13.5 14.8 28.3 57.6 32.3 89.9 33.5 1.4 17.5 52.4 106.0 64.6 170.5 – 0.8 0.8 2008 Moz 15.0 21.7 36.7 63.4 54.5 117.9 28.3 1.7 12.9 42.9 108.4 89.1 197.5 – 0.9 0.9 (1) Tonnage: quoted as dry metric tonnes. (2) Grade: 4E PGE is the sum of platinum, palladium, rhodium and gold grades in grammes per tonne (g/t). (3) Contained metal: Contained metal is presented in metric tonnes and million troy ounces (Moz). (4) Merensky Reef and UG2 Reef: The BEE transaction announced with Anooraq Resources was finalised during 2009 resulting in a change of the attributable and reportable Ore Reserves for Bokoni Platinum Mine (previously Lebowa Platinum Mine). Anglo Platinum’s attributable percentage decreased from 100% to 49%, equivalent to a decrease of 33.5Mt (-5.5 Moz). (5) Merensky Reef and UG2 Reef: The calculation of the pay limit has been modified between 2008 and 2009. The 2008 pay limit calculation was based on the planning pay limit. The 2009 pay limit calculation now includes ‘Stay in Business Capital’, both on and off mine, in the estimation of the overall costs. This cost amount is termed Cost 4 which consists of ‘Direct Cash Cost’ (on and off mine), ‘Other indirect Costs’ and ‘Stay in Business Capital’ (on and off mine). The Merensky Reef reserve pay-limit varies across all operations between 2.8g/t and 6.1g/t (4E PGE). The UG2 Reef reserve pay-limit varies across all operations between 2.7g/t and 5.9g/t (4E PGE). The range is a function of various factors including depth of the ore body, geological complexity, infrastructure and economic parameters. Certain areas where the pay limit is high may still be mined due to a project being in ramp-up or in the case of the Rustenburg area, where the business plan returns a positive NPV and profit from 2012. (6) Merensky Reef: Decrease in Ore Reserves is mainly attributable to economic assumptions. At the assumed metal prices and exchange rate the Ore Reserves at Amandelbult’s Tumela Mine 3 Shaft Project proved to be uneconomic. This resulted in a decrease of 27.9Mt (-5.3Moz) of previously reported Ore Reserves. These Ore Reserves have been reallocated back to Mineral Resources. (7) UG2 Reef: Decrease in Ore Reserves is mainly attributable to economic assumptions. At the assumed metal prices and exchange rate the Ore Reserves at Amandelbult’s Tumela Mine 3 Shaft Project, portions of Rustenburg’s Khuseleka Mine, Khomanani Mine and Siphumelele Mine proved to be uneconomic. This resulted in a decrease of 159.6Mt (-21.7Moz) of previously reported Ore Reserves. These Ore Reserves have been reallocated back to Mineral Resources. (8) Platreef: The reserve cut-off is 1.7g/t for fresh ore. For Mogalakwena the total Ore Reserves increased significantly. At Mogalakwena North and Central (previously PPRust North) a new evaluation model was completed in 2009 together with a new structural model. Both models incorporated significant additional drill holes resulting in a revised pit design. As a consequence the total Ore Reserve tonnage for Mogalakwena Mine (inclusive of stockpiles) increased by 100.7Mt equivalent to 9.4Moz. (9) Platreef stockpiles: These are reported separately as Proved Ore Reserves and aggregated into the summation tabulations. (10) Alternative units: tonnage in million short tons (Mton) and grade in troy ounces per short ton (oz/ton). (11) Tailings: These are reported separately as Ore Reserves but are not aggregated in the total Ore Reserve figures. Operating tailings dams for current mining operations cannot be geologically assessed and therefore are not reported as part of the Ore Reserves. At Rustenburg Mine dormant dams have been evaluated and the tailings form part of the Ore Reserves statement. O r e R e s e r v e s & M n e r a i l R e s o u r c e s Anglo American plc Annual Report 2009 149 Ore Reserves and Mineral Resources Platinum estimates as at 31 December 2009 Anglo Platinum Mineral Resources Merensky Reef(4)(5) UG2 Reef(4)(6)(7) Platreef(8) All Reefs Tailings(10) Classification Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Measured and Indicated (alternative units)(9) Inferred Measured Indicated Measured and Indicated Inferred Tonnes(1) 2008 Mt 131.9 232.0 363.9 749.4 323.6 482.5 806.1 901.3 152.4 898.8 1,051.2 1,331.3 607.8 1,613.3 2,221.1 2,448.4 2,982.0 – 151.4 151.4 – Mton Mton 2009 Mt 129.6 242.2 371.8 670.8 380.1 546.6 926.7 791.3 192.9 915.0 1,107.9 1,160.6 702.6 1,703.9 2,406.4 2,652.6 2,622.7 – 147.3 147.3 – 2009 4E PGE 5.54 5.36 5.42 5.36 5.61 5.53 5.56 5.53 1.95 2.14 2.10 1.89 4.59 3.68 3.95 0.115 3.88 – 1.06 1.06 – oz/ton Grade(2) 2008 4E PGE 5.39 5.15 5.24 5.37 5.78 5.63 5.69 5.65 1.85 2.18 2.13 1.89 4.71 3.64 3.93 0.115 3.90 – 1.05 1.05 – oz/ton Contained metal(3) Contained metal(3) 2009 tonnes 717.5 1,299.2 2,016.7 3,594.3 2,131.1 3,021.2 5,152.3 4,374.2 376.2 1,954.0 2,330.1 2,198.4 3,224.8 6,274.3 9,499.1 2008 tonnes 710.9 1,194.4 1,905.3 4,026.6 1,868.9 2,715.2 4,584.1 5,089.0 282.4 1,956.8 2,239.3 2,519.3 2,862.3 5,866.4 8,728.7 10,167.0 – 155.6 155.6 – 11,634.9 – 159.7 159.7 – 2009 Moz 23.1 41.8 64.8 115.6 68.5 97.1 165.6 140.6 12.1 62.8 74.9 70.7 103.7 201.7 305.4 326.9 – 5.0 5.0 – 2008 Moz 22.9 38.4 61.3 129.5 60.1 87.3 147.4 163.6 9.1 62.9 72.0 81.0 92.0 188.6 280.6 374.1 – 5.1 5.1 – Due to the uncertainty that may be attached to some Inferred Mineral Resources, it cannot be assumed that all or part of an Inferred Mineral Resource will necessarily be upgraded to an Indicated or Measured Resource after continued exploration. (1) Tonnage: quoted as dry metric tonnes. (2) Grade: 4E PGE is the sum of platinum, palladium, rhodium and gold grades in grammes per tonne (g/t). (3) Contained metal: Contained metal is presented in metric tonnes and million troy ounces (Moz). (4) Merensky Reef and UG2 Reef: The BEE transaction announced with Anooraq Resources was finalised during 2009 resulting in a change of the attributable and reportable Mineral Resources for Bokoni Mine (previously Lebowa Platinum Mine). Anglo Platinum’s attributable percentage decreased from 100% to 49% equivalent to a decrease of 234.4Mt (-48.4 Moz). The Mineral Resources are quoted over a practical minimum mining cut suitable for the deposit known as the Resource Cut. The Resource Cut includes geotechnical aspects in the hanging wall or footwall of the reef. Chromitite stringers above or below the UG2 main seam or any ‘geotechnical weak zones’ are included in the Resource Cut. The minimum beam height regarding the geotechnical aspect depends on the mining method. Anglo Platinum takes cognisance of cut-off grades (derived from information on pay limits in the mining operations) and of ‘reasonable and realistic prospects for eventual economic extraction’ over a period of 30 to 50 years. No Mineral Resources are excluded from the 2009 declaration relative to 2008 as a result of the cut-off grade consideration. (5) Merensky Reef: Depending on the reef characteristics a 3.5g/t to 4.8g/t (4E PGE) cut-off has been used to define Mineral Resources. (6) UG2 Reef: Depending on the reef characteristics a 2.8g/t to 4.4g/t (4E PGE) cut-off has been used to define Mineral Resources. (7) UG2 Reef: a) The decrease in Mineral Resources is mainly attributable to the decrease of the attributable percentage due to the finalisation of the BEE transaction with Anooraq Resources. b) The decrease is off-set by an increase of Mineral Resources due to economic assumptions. At the assumed metal prices and exchange rate the Ore Reserves at Amandelbult’s Tumela Mine 3 Shaft Project, portions of Rustenburg’s Khuseleka Mine, Khomanani Mine and Siphumelele Mine proved to be uneconomic and are re-allocated back to Mineral Resources. This resulted in an increase of the Mineral Resources by 143.4Mt (+25.2Moz). c) Additionally new information at Der Brochen project resulted in an increase of the Mineral Resources by 72.9Mt, equivalent to 7.2Moz. (8) Platreef: A 1.0g/t (4E PGE) cut-off has been used to define Mineral Resources. During 2009 for Mogalakwena North and Central (previously PPRust North) a new evaluation model was completed together with a new structural model. This resulted in a revised pit design and a consequent significant increase in reported Ore Reserves. As a consequence, the remaining Mineral Resources for Mogalakwena decreased significantly by 113.9Mt (-7.4Moz). (9) Alternative units: tonnage in million short tons (Mton) and grade in troy ounces per short ton (oz/ton). (10) Tailings: Operating tailings dams for current mining operations cannot be geologically assessed and therefore are not reported as part of the Mineral Resources. At Rustenburg and Union Mine dormant dams have been evaluated and the tailings form part of the Mineral Resource statement. Tailings dams resources are reported separately as Mineral Resources but are not aggregated to the global Mineral Resource summation. The following Operations and Projects contributed to the combined 2009 Ore Reserve and Mineral Resource estimates stated per reef (excluding Other Projects): (MR = Merensky Reef, UG2 = UG2 Reef, PR = Platreef, % = Anglo Platinum Limited attributable interest) Bafokeng Rasimone Platinum Mine – MR/UG2 Bathopele Mine – UG2 Bokoni Platinum Mine – MR/UG2 Der Brochen Project – MR/UG2 Dishaba Mine – MR/UG2 Ga-Phasha PGM Project – MR/UG2 Khomanani Mine – MR/UG2 Khuseleka Mine – MR/UG2 Kroondal Platinum Mine – UG2 Magazynskraal 3 JQ* – MR/UG2 Marikana Platinum Mine – UG2 Modikwa Platinum Mine – MR/UG2 Mogalakwena Mine – PR Mototolo Platinum Mine – UG2 Other Exploration Projects (portions of Driekop) – UG2 Pandora – UG2 Rustenburg – Non Mine Projects – MR/UG2 Siphumelele Mine – MR/UG2 Thembelani Mine – MR/UG2 Tumela Mine – MR/UG2 Twickenham Platinum Mine – MR/UG2 Union Mine – MR/UG2 WBJV – MR/UG2 50% 100% (previously part of Rustenburg Mine) 49% (previously Lebowa Platinum Mine) 100% 100% (previously part of Amandelbult Mine) 49% 100% (previously part of Rustenburg Mine) 100% (previously part of Rustenburg Mine) 50% 74% 50% 50% 100% 50% 50% 42.5% 100% (previously part of Rustenburg Mine) 100% (previously part of Rustenburg Mine) 100% (previously part of Rustenburg Mine) 100% (previously part of Amandelbult Mine) 100% 85% 37% *Magazynskraal 3 JQ – Anglo platinum’s attributable interest in the joint venture is reflected as 74%. Subsequent to Mineral Resource compilation this interest has moved to 20%. The revised attributable portion will be reflected in future Mineral Resource statements. The external Ore Reserve and Mineral Resource audits have been rescheduled to take place in 2010. 150 Anglo American plc Annual Report 2009 Ore Reserves and Mineral Resources Platinum estimates as at 31 December 2009 Classification Proved Probable Total Classification Anglo Platinum Ore Reserves – Other Projects Zimbabwe Unki(4) Great Dyke – MSZ Anglo Platinum Mineral Resources – Other Projects Zimbabwe Unki(4) Great Dyke – MSZ Measured Indicated Measured and Indicated Inferred South Africa Anooraq-Anglo Platinum Boikgantsho(5) Platreef Measured Indicated Measured and Indicated Inferred Sheba’s Ridge(6) Canada River Valley(7) Brazil Pedra Branca(8) Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred 2009 Mt 5.1 42.0 47.1 2009 Mt 7.7 11.3 19.0 95.9 – 86.6 86.6 51.0 111.8 128.4 240.1 0.9 4.3 11.0 15.3 1.2 – – – 6.6 Tonnes(1) 2008 Mt 4.2 34.6 38.7 Tonnes(1) 2008 Mt 6.3 9.3 15.6 78.9 – 88.3 88.3 52.0 111.8 128.4 240.1 0.9 4.3 11.0 15.3 1.2 – – – 6.6 2009 4E PGE 3.60 3.81 3.79 2009 4E PGE 4.08 4.28 4.20 4.29 3E PGE – 1.35 1.35 1.23 3E PGE 0.85 0.95 0.90 0.85 3E PGE 1.79 1.20 1.37 1.24 3E PGE – – – 2.27 Grade(2) 2008 4E PGE 3.60 3.81 3.79 Grade(2) 2008 4E PGE 4.08 4.28 4.20 4.29 3E PGE – 1.35 1.35 1.23 3E PGE 0.85 0.95 0.90 0.85 3E PGE 1.79 1.20 1.37 1.24 3E PGE – – – 2.27 2009 tonnes 18.3 159.9 178.2 2009 tonnes 31.2 48.5 79.8 411.6 – 116.9 116.9 62.7 95.1 122.1 217.2 0.8 7.6 13.3 20.9 1.5 – – – 15.0 Contained metal(3) Contained metal(3) 2008 tonnes 15.1 131.6 146.7 2009 2008 Moz 0.6 5.1 5.7 Moz 0.5 4.2 4.7 Contained metal(3) Contained metal(3) 2008 tonnes 25.7 39.9 65.6 338.8 – 119.2 119.2 64.0 95.1 122.1 217.2 0.8 7.6 13.3 20.9 1.5 – – – 15.0 2009 Moz 1.0 1.6 2.6 13.2 – 3.8 3.8 2.0 3.1 3.9 7.0 0.0 0.2 0.4 0.7 0.0 – – – 0.5 2008 Moz 0.8 1.3 2.1 10.9 – 3.8 3.8 2.1 3.1 3.9 7.0 0.0 0.2 0.4 0.7 0.0 – – – 0.5 Due to the uncertainty that may be attached to some Inferred Mineral Resources, it cannot be assumed that all or part of an Inferred Mineral Resource will necessarily be upgraded to an Indicated or Measured Resource after continued exploration. (1) Tonnage: quoted as dry 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) Contained metal: Contained metal is presented in metric tonnes and million troy ounces (Moz). (4) Unki: Anglo Platinum owns an effective 97.19% interest in Southridge Limited. The Ore Reserves and Mineral Resources (for the Great Dyke – Main Sulphide Zone) relate to the Unki East and West mines only. For more information see Note 48 in the Consolidated Financial Statement in the 2009 Anglo Platinum Annual Report. (5) Anooraq-Anglo Platinum Boikgantsho: Anglo Platinum holds an attributable interest of 49%. A cut-off of US$20.00/t gross metal value was applied for resource definition. The BEE transaction announced with Anooraq Resources was finalised during 2009. (6) Sheba’s Ridge: Anglo Platinum holds an attributable 35% of the JV area. A cut-off of US$10.50/t total revenue contribution from the constituent metal was used. (7) River Valley: Anglo Platinum holds an attributable interest of 50%. A cut-off of 0.7g/t (platinum plus palladium) was applied for resource definition. (8) Pedra Branca: Anglo Platinum holds an attributable interest of 51%. A cut-off of 0.7g/t (3E PGE) was applied for resource definition. O r e R e s e r v e s & M n e r a i l R e s o u r c e s Anglo American plc Annual Report 2009 151 Ore Reserves and Mineral Resources Copper estimates as at 31 December 2009 Copper 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 REPORTED AS ADDITIONAL TO ORE RESERVES. The figures reported represent 100% of the Ore Reserves and Mineral Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of figures may cause computational discrepancies. Attributable % 100 LOM 39 Classification Copper Ore Reserves Los Bronces (OP) Sulphide (TCu)(1) Flotation Sulphide (TCu)(2) Dump Leach El Soldado (OP and UG) Sulphide (TCu)(3) Flotation Oxide (TCu) Heap Leach Mantos Blancos (OP) Sulphide (ICu) Flotation Oxide (ASCu) Vat and Heap Leach Oxide (ASCu) Dump Leach Mantoverde (OP) Oxide (ASCu) Heap Leach Oxide (ASCu) Dump Leach 100 18 100 6 100 5 Collahuasi (OP) 44.0 33 Oxide, Mixed and Secondary Sulphides (TCu) Heap Leach Sulphide (TCu) Flotation – direct feed Low Grade Sulphide (TCu)(4) Flotation – stockpile 2009 Mt 797.7 849.8 1,647.5 442.3 382.0 824.3 79.6 49.9 129.6 3.0 4.2 7.2 7.2 18.8 26.0 3.3 29.2 32.5 0.9 11.9 12.7 37.7 6.6 44.3 17.3 7.0 24.3 Tonnes 2008 Mt 715.4 890.7 1,606.1 303.9 492.6 796.5 71.2 44.2 115.4 3.2 2.8 6.0 12.9 18.5 31.3 1.4 37.6 39.0 0.6 11.6 12.1 45.6 8.0 53.6 20.9 10.1 31.1 0.2 19.3 19.6 322.9 1,227.7 1,550.6 – 615.0 615.0 0.2 20.3 20.5 315.4 1,224.1 1,539.5 – 675.1 675.1 2009 %Cu 0.73 0.55 0.64 0.36 0.28 0.32 %Cu 0.94 0.76 0.87 0.86 0.54 0.67 %Cu 0.88 0.94 0.93 0.70 0.43 0.46 0.24 0.25 0.25 %Cu 0.59 0.54 0.58 0.32 0.42 0.35 %Cu 1.16 0.74 0.75 1.03 0.93 0.95 – 0.52 0.52 Grade 2008 %Cu 0.73 0.55 0.63 0.33 0.22 0.26 %Cu 1.00 0.89 0.96 0.89 0.57 0.74 %Cu 0.93 0.94 0.94 0.70 0.45 0.46 0.24 0.26 0.26 %Cu 0.60 0.54 0.59 0.36 0.39 0.37 %Cu 1.60 0.77 0.78 0.99 0.95 0.96 – 0.51 0.51 Contained metal 2008 kt 5,222 4,899 10,121 1,003 1,084 2,087 712 393 1,105 28 16 44 120 173 293 10 169 179 1 30 31 273 43 317 75 39 115 2009 kt 5,823 4,674 10,497 1,592 1,069 2,662 750 381 1,131 26 23 48 63 177 240 23 126 149 2 30 32 222 36 258 55 29 85 3 143 146 3,326 11,417 14,743 – 3,198 3,198 4 156 160 3,123 11,629 14,752 – 3,443 3,443 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 Mining method: OP = Open Pit, UG = Underground. LOM = Life of Mine in years based on scheduled Ore Reserves. TCu = total copper, ICu = insoluble copper (total copper less acid soluble copper), ASCu = acid soluble copper. Year on year changes to the Ore Reserves have been driven by changes in the copper price, mining and processing costs and changes to pit slope angles. (1) Los Bronces – Sulphide (Flotation): Changes are due to an increase in the copper price offset against an increase in the flotation cut-off grade. (2) Los Bronces – Sulphide (Dump Leach): The primary change is due to the Sulphide Flotation process which resulted in a transfer of flotation ore to leach ore. (3) El Soldado – Sulphide (Flotation): Changes are due to an increase in the copper price offset against a reduction of copper grades related to an updated resource model and the incorporation of a dilution factor to convert Mineral Resources to Ore Reserves. (4) Collahuasi – Low Grade Sulphide: Decrease is due to an updated resource model. (5) Copper Resources: A test of reasonable eventual economic extraction is applied through consideration of an optimised pit shell. Materials outside the optimised shell that have potential of eventual economic extraction via underground means are included in the Mineral Resource statement. Due to the uncertainty that may be attached to some Inferred Mineral Resources, it cannot be assumed that all or part of an Inferred Mineral Resource will necessarily be upgraded to an Indicated or Measured Resource after continued exploration. (6) Los Bronces – Sulphide (Flotation): Changes are due to an increase in the copper price offset against some Mineral Resource to Ore Reserve conversion. (7) El Soldado – Sulphide (Flotation): Decrease due to a reduction in the pit slope angle, an increase in processing costs and a reduction in metallurgical recovery. (8) Mantos Blancos – Sulphide (Flotation): Decrease is due to an increase in mine and process costs and a decrease in overall pit slope angles. (9) Mantos Blancos – Oxide (Vat and Heap Leach): Increase is mainly due to the incorporation of Indicated Resources from Mercedes waste dump (18.4Mt @ 0.28%TCu). (10) Mantoverde – Oxide (Heap Leach): Decrease due to the exclusion of the Kuroki sector (8.6Mt @ 0.78%ASCu) and an increase in the marginal cut-off grade to 0.20%ASCu. (11) Collahuasi – Oxide, Mixed and Secondary Sulphides: Increase due to the incorporation of La Borracha and Dulcinea oxide ore bodies (15.0Mt @ 0.61%TCu). (12) Collahuasi – Sulphide: Increase due to application of a higher copper price. Audits related to the generation of the Ore Reserve and Mineral Resource statements were carried out by independent consultants during 2009 at the following operations: Los Bronces, El Soldado, Mantos Blancos and Mantoverde 152 Anglo American plc Annual Report 2009 Ore Reserves and Mineral Resources Copper estimates as at 31 December 2009 Classification 2009 Copper Mineral Resources Los Bronces (OP)(5) Sulphide (TCu)(6) Flotation Attributable % 100 Sulphide (TCu) Dump Leach El Soldado (OP and UG)(5) 100 Sulphide (TCu)(7) Flotation Oxide (TCu) Heap Leach Mantos Blancos (OP)(5) Sulphide (ICu)(8) Flotation 100 Oxide (ASCu)(9) Vat and Heap Leach Oxide (ASCu) Dump Leach Mantoverde (OP)(5) Oxide (ASCu)(10) Heap Leach 100 Oxide (ASCu) Dump Leach Collahuasi (OP)(5) 44.0 Oxide, Mixed and Secondary Sulphides (TCu)(11) Heap Leach Sulphide (TCu)(12) Flotation – direct feed Low Grade Sulphide (TCu) Flotation – stockpile Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Tonnes 2008 Mt 110.8 1,287.3 1,398.2 50.7 2,472.0 2,522.7 – – – 190.6 – 190.6 45.2 20.2 65.4 12.9 70.3 83.2 0.1 0.1 0.3 0.8 0.7 1.5 14.5 112.7 127.2 0.4 14.8 15.2 0.3 9.5 9.8 0.4 1.6 2.1 – – – 0.3 – 0.3 51.8 40.6 92.4 0.2 5.0 5.2 – 3.5 3.5 0.3 – 0.3 Mt 55.7 739.8 795.5 121.0 3,065.0 3,186.0 – – – 132.0 – 132.0 30.4 23.0 53.4 13.1 34.3 47.4 0.2 0.2 0.4 0.5 0.7 1.2 10.6 105.2 115.8 2.0 10.4 12.4 1.1 27.1 28.2 1.3 3.3 4.7 – – – 1.2 – 1.2 38.5 22.9 61.5 0.2 4.4 4.6 – 2.7 2.7 0.2 – 0.2 – 18.0 18.0 0.6 1.3 2.0 1.4 344.6 346.0 252.3 1,558.6 1,810.8 1.2 76.0 77.2 62.0 614.0 676.0 – 2.0 2.0 0.6 2.3 2.9 1.4 289.3 290.7 258.9 1,372.0 1,630.9 1.2 109.3 110.5 90.0 627.7 717.7 2009 %Cu 0.43 0.39 0.39 0.52 0.38 0.39 – – – 0.25 – 0.25 %Cu 0.72 0.65 0.69 0.68 0.60 0.62 0.91 0.83 0.88 0.80 0.69 0.74 %Cu 0.68 0.68 0.68 0.66 0.55 0.57 0.56 0.37 0.38 0.53 0.58 0.57 – – – 0.23 – 0.23 %Cu 0.35 0.34 0.35 0.54 0.62 0.62 – 0.35 0.35 0.37 – 0.37 %Cu – 0.69 0.69 1.09 0.71 0.83 0.73 0.86 0.86 0.93 0.90 0.90 0.48 0.49 0.49 0.51 0.50 0.50 Grade 2008 %Cu 0.42 0.42 0.42 0.46 0.39 0.39 – – – 0.18 – 0.18 %Cu 0.80 0.81 0.80 0.77 0.56 0.59 0.67 0.81 0.75 0.80 0.84 0.82 %Cu 0.72 0.66 0.67 0.77 0.59 0.59 0.56 0.57 0.57 0.56 0.59 0.58 – – – 0.24 – 0.24 %Cu 0.39 0.39 0.39 0.61 0.53 0.53 – 0.32 0.32 0.39 – 0.39 %Cu – 1.18 1.18 1.09 0.76 0.83 0.78 0.85 0.85 0.93 0.90 0.90 0.47 0.50 0.50 0.50 0.50 0.50 Contained metal 2008 kt 466 5,407 5,872 233 9,639 9,872 – – – 343 – 343 360 163 523 99 394 493 1 1 2 6 6 13 104 743 848 3 87 90 2 54 56 2 10 12 – – – 1 – 1 200 157 357 1 26 28 – 11 11 1 – 1 – 24 24 7 17 24 11 2,459 2,470 2,407 12,350 14,757 5 547 552 450 3,138 3,588 2009 kt 240 2,885 3,125 629 11,647 12,276 – – – 330 – 330 219 150 368 89 206 295 2 1 3 4 5 9 72 715 788 13 57 70 6 100 106 7 19 26 – – – 3 – 3 135 78 213 1 27 28 – 9 9 1 – 1 – 124 124 7 9 16 10 2,964 2,974 2,346 14,027 16,373 6 373 378 316 3,070 3,386 O r e R e s e r v e s & M n e r a i l R e s o u r c e s Anglo American plc Annual Report 2009 153 Ore Reserves and Mineral Resources Copper estimates as at 31 December 2009 Copper Projects Ore Reserves Quellaveco (OP)(1) Sulphide (TCu) Flotation Copper Projects Mineral Resources Quellaveco (OP)(1) Sulphide (TCu) Flotation Attributable % 81.9 LOM 28 Attributable % 81.9 Los Sulfatos(2) Sulphide (TCu) Flotation 100 Mantoverde Sulphide Project 100 Sulphide (TCu) Flotation Pebble (OP/UG)(3)(4)(5)(6)(7)(8) Cu-Au-Mo Porphyry San Enrique Monolito(9) Sulphide (TCu) Flotation 50.0 100 Classification Proved Probable Total Classification Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Measured(4) Indicated(5) Measured and Indicated Inferred(6) Measured Indicated Measured and Indicated Inferred 2009 Mt 672.2 207.8 880.0 2009 Mt 213.1 394.6 607.6 32.7 77.7 110.4 – – – 1,200.0 1.0 50.6 51.7 100.6 510.0 4,890.0 5,400.0 2,840.0 – – – 900.0 Tonnes 2008 Mt 253.3 636.8 890.1 Tonnes 2008 Mt 1.9 193.9 195.9 21.8 392.7 414.5 – – – – 1.2 57.1 58.2 111.6 500.0 4,120.0 4,620.0 2,270.0 – – – – 2009 %Cu 0.61 0.76 0.65 2009 %Cu 0.44 0.45 0.45 0.72 0.45 0.53 %Cu – – – 1.46 %Cu 0.80 0.75 0.75 0.69 %Cu 0.34 0.46 0.45 0.32 %Cu – – – 0.81 Grade 2008 %Cu 0.76 0.61 0.65 Grade 2008 %Cu 0.39 0.43 0.43 0.60 0.48 0.49 %Cu – – – – %Cu 0.78 0.72 0.72 0.66 %Cu 0.34 0.48 0.46 0.37 %Cu – – – – Contained metal 2008 kt 1,925 3,885 5,810 Contained metal 2008 kt 8 834 842 131 1,885 2,016 – – – – 9 411 420 736 1,700 19,776 21,476 8,399 – – – – 2009 kt 4,101 1,579 5,680 2009 kt 937 1,776 2,713 235 350 585 – – – 17,520 8 380 388 694 1,734 22,494 24,228 9,088 – – – 7,290 Mining method: OP = Open Pit, UG = Underground. LOM = Life of Mine in years based on scheduled Ore Reserves. Due to the uncertainty that may be attached to some Inferred Mineral Resources, it cannot be assumed that all or part of an Inferred Mineral Resource will necessarily be upgraded to an Indicated or Measured Resource after continued exploration. (1) Quellaveco: Resource model has been updated with new drill data. Estimation and classification methodologies have been improved. Increased metal prices and changes to the pit slopes have also resulted in positive changes to the Mineral Resources. Additional drill data have increased confidence in Ore Reserve classification (2) Los Sulfatos: Test of reasonable eventual economic extraction based on an underground operation. (3) Pebble: The Resources are based on drilling to May 2009 and a block model finalised in December 2009. Reported Mineral Resources fall within a volume defined by resource price estimates and are based on a cut-off grade of 0.40% CuEq. Calculation of copper equivalent (CuEq) is based on long-term metal prices and takes into consideration the recovery of copper, gold and molybdenum. At a cut-off of 0.60% CuEq the estimate of Measured Resources is 277Mt at 0.40% Cu, 0.42 g/t Au, 0.020% Mo while the estimate of Indicated Resources is 3,391Mt at 0.56% Cu, 0.41 g/t Au, 0.029% Mo. (4) Pebble co-product estimated grades 2009 (Measured): Gold 0.36g/t, Molybdenum 0.018%. CuEq average grade 0.66%. (5) Pebble co-product estimated grades 2009 (Indicated): Gold 0.36g/t, Molybdenum 0.027%. CuEq average grade 0.85%. (6) Pebble co-product estimated grades 2009 (Inferred): Gold 0.30g/t, Molybdenum 0.026%. CuEq average grade 0.66%. (7) Pebble: Significant changes between 2008 and 2009 Mineral Resources include additional drilling and changes to some of the parameters used for the determination of the reasonable prospects pit (costs, recoveries and pit slope angle). The Resource was also affected by changes to the long term metal prices that impacted on the calculation of the copper equivalent grade. (8) Pebble: The property comprises a continuous block of 1,335 located Alaska State mineral claims which total 98,000 acres (39,659 hectares) and which are currently valid. The claims must be renewed annually before 1 December through the payment of rental fees (approximately US$200,000) and registration of work conducted or payment of cash in lieu (approx. US$250,000). There are no known factors affecting the claims. (9) San Enrique Monolito: Test of reasonable eventual economic extraction based on an underground operation. 154 Anglo American plc Annual Report 2009 Ore Reserves and Mineral Resources Nickel estimates as at 31 December 2009 Nickel 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 REPORTED AS ADDITIONAL TO ORE RESERVES. The figures reported represent 100% of the Ore Reserves and Mineral Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of figures may cause computational discrepancies. Nickel Ore Reserves Barro Alto (OP)(1) Laterite Attributable % 100 LOM 27 Codemin – Niquelândia (OP) 100 6 Laterite Loma de Níquel (OP)(2) 91.4 23 Laterite Nickel Mineral Resources Barro Alto (OP)(1) Laterite Attributable % 100 Codemin – Niquelândia (OP)(3) 100 Laterite Loma de Níquel (OP)(2) 91.4 Laterite Nickel Projects Mineral Resources Jacaré(4) Ferruginous Laterite Attributable % 100 Saprolite Classification Proved Probable Total Proved Probable Total Proved Probable Total Classification Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Classification Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred 2009 Mt 9.0 30.5 39.5 3.2 0.5 3.7 7.4 25.0 32.4 2009 Mt 3.5 16.6 20.1 38.5 22.4 61.0 3.3 3.5 6.9 – – – 1.9 7.2 9.2 – 6.4 6.4 2009 Mt – 98.5 98.5 80.8 – 25.3 25.3 85.1 Tonnes 2008 Mt 9.5 31.2 40.7 3.2 0.5 3.7 12.1 21.0 33.1 Tonnes 2008 Mt 4.3 16.8 21.1 38.7 21.8 60.5 3.4 3.5 6.9 – – – 0.9 4.8 5.7 1.7 4.5 6.2 Tonnes 2008 Mt – – – – – – – – 2009 %Ni 1.66 1.71 1.70 %Ni 1.33 1.33 1.33 %Ni 1.46 1.42 1.43 2009 %Ni 1.30 1.27 1.28 1.55 1.27 1.45 %Ni 1.29 1.25 1.27 – – – %Ni 1.51 1.51 1.51 – 1.53 1.53 2009 %Ni – 1.19 1.19 1.16 – 1.54 1.54 1.36 Grade 2008 %Ni 1.66 1.72 1.70 %Ni 1.33 1.33 1.33 %Ni 1.48 1.46 1.47 Grade 2008 %Ni 1.32 1.27 1.28 1.55 1.27 1.45 %Ni 1.29 1.25 1.27 – – – %Ni 1.38 1.45 1.44 1.39 1.50 1.47 Grade 2008 %Ni – – – – – – – – Contained metal 2008 kt 158 535 693 42 7 49 179 306 485 Contained metal 2008 kt 57 213 270 599 275 875 43 44 87 – – – 13 69 82 23 68 91 Contained metal 2008 kt – – – – – – – – 2009 kt 150 522 672 42 7 49 109 354 463 2009 kt 46 211 257 597 285 883 43 44 87 – – – 29 109 138 – 97 97 2009 kt – 1,175 1,175 939 – 388 388 1,156 Mining method: OP = Open Pit. LOM = Life of Mine in years based on scheduled Ore Reserves. Due to the uncertainty that may be attached to some Inferred Mineral Resources, it cannot be assumed that all or part of an Inferred Mineral Resource will necessarily be upgraded to an Indicated or Measured Resource after continued exploration. (1) Barro Alto: Ore from Barro Alto is currently being processed at the Codemin plant (the current life of the plant is 22 years). Mineral Resources are quoted above a 0.90% Ni cut-off and below an iron content of 30%. (2) Loma de Níquel: Due to the increased uncertainty regarding renewal of mining concessions and the restoration of the 13 cancelled mining concessions, Anglo American’s participation in Loma de Níquel is at risk and might not continue beyond 2012 (refer to note 7 on page 112). Three mining concessions are due for renewal in November 2012 (see page 48 for additional information). Currently, the areas with fully approved permits and active concessions account for 8.3Mt (at 1.46 %Ni) of the Ore Reserves reported above. Mineral Resources include all mineralisation inside a saprolite envelope defined by nickel and iron grade boundaries (>0.80% Ni and <35% Fe) and it also includes the 13 cancelled concessions. (3) Codemin – Niquelândia: Mineral Resources are quoted above a 0.90% Ni cut-off and below an iron content of 30%. (4) Jacaré: The submission of the Plano de Aproveitamento Economico (PAE) to Brazil’s Departamento Nacional de Produção Mineral (DNPM), which included a pit optimisation, fulfils the test for “reasonable prospects for eventual economic extraction”. The Mineral Resources are based on drilling to February 2009 and a block model finalised in December 2009. The PAE is currently under consideration by the DNPM. The Saprolite Mineral Resources tabulated are a combination of higher-grade Mineral Resources that are expected to feed a pyrometallurgical treatment facility and lower-grade Mineral Resources that could be used to neutralise the acid in the proposed treatment of the Ferruginous Laterite material. Ferruginous Laterite is envisaged to be treated by hydrometallurgical processes. Audits related to the generation of the Ore Reserve and Mineral Resource statements were carried out by independent consultants during 2009 at the following operations: Barro Alto, Codemin – Niquelândia and Jacaré O r e R e s e r v e s & M n e r a i l R e s o u r c e s Anglo American plc Annual Report 2009 155 Ore Reserves and Mineral Resources Niobium and Phosphate products estimates as at 31 December 2009 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 REPORTED AS ADDITIONAL TO ORE RESERVES. The figures reported represent 100% of the Ore Reserves and Mineral Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of figures may cause computational discrepancies. Niobium Niobium Ore Reserves Catalão (OP) Carbonatite (Oxide) Attributable % 100 LOM 18 Niobium Mineral Resources Catalão (OP)(1) Carbonatite Attributable % 100 Phosphate products Phosphate products Ore Reserves Copebrás (OP) Carbonatite Attributable % 73.0 LOM 46 Phosphate products Mineral Resources Copebrás (OP)(2) Carbonatite Attributable % 73.0 Contained product 2009 kt 108 34 142 2008 kt 128 46 174 Contained product 2009 kt 254 254 507 5 137 141 2008 kt 210 106 316 5 49 55 Classification Proved Probable Total Classification Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Classification Proved Probable Total Classification Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred 2009 Mt 9.1 3.1 12.2 2009 Mt 19.1 20.4 39.5 0.5 11.4 11.9 2009 Mt 72.2 180.5 252.8 2009 Mt 5.3 94.5 99.8 16.2 53.0 69.1 Tonnes 2008 Mt 10.6 4.0 14.6 Tonnes 2008 Mt 16.6 9.0 25.6 0.6 4.3 5.0 Tonnes 2008 Mt 78.7 160.4 239.1 Tonnes 2008 Mt 3.2 84.4 87.6 16.9 48.1 65.0 2009 %Nb2O5 1.19 1.10 1.17 2009 %Nb2O5 1.33 1.25 1.29 0.88 1.20 1.18 2009 %P2O5 13.4 13.0 13.1 2009 %P2O5 11.1 10.6 10.6 12.8 9.8 10.5 Grade 2008 %Nb2O5 1.21 1.14 1.19 Grade 2008 %Nb2O5 1.26 1.18 1.23 0.88 1.14 1.10 Grade 2008 %P2O5 13.4 13.3 13.3 Grade 2008 %P2O5 9.4 10.4 10.4 12.9 9.6 10.5 Mining method: OP = Open Pit. LOM = Life of Mine in years based on scheduled Ore Reserves. Due to the uncertainty that may be attached to some Inferred Mineral Resources, it cannot be assumed that all or part of an Inferred Mineral Resource will necessarily be upgraded to an Indicated or Measured Resource after continued exploration. (1) Catalão: Mineral Resources include 3.8 Mt oxide material and 47.6 Mt fresh rock and are reported above cut-offs of 0.50% Nb2O5 and 0.70% Nb2O5, respectively. Some 8 Mt of the Mineral Resources reported above are located on an adjacent mining concession that belongs to Fosfértil. An agreement for Mineração Catalão to mine this material is in place subject to royalty payments. (2) Copebrás: Mineral Resources are quoted above a 7% P2O5 cut-off and with a CaO-P2O5 ratio between 1.0 and 1.4. 156 Anglo American plc Annual Report 2009 Ore Reserves and Mineral Resources Zinc estimates as at 31 December 2009 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 REPORTED AS ADDITIONAL TO ORE RESERVES. The figures reported represent 100% of the Ore Reserves and Mineral Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of figures may cause computational discrepancies. Attributable % LOM 74.0 7 Classification Zinc Ore Reserves Black Mountain (UG) Deeps(1) Zinc Copper Lead Lisheen (UG)(2) 100 4 Zinc Lead Skorpion (OP)(3) Zinc 100 6 Zinc Mineral Resources Black Mountain (UG) Deeps(1) Zinc Attributable % 74.0 Copper Lead Swartberg(4) Zinc Copper Lead Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Classification Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred 2009 Mt 4.9 2.8 7.7 Tonnes 2008 Mt 2.9 5.9 8.8 5.9 1.1 7.0 6.6 1.6 8.2 3.8 4.2 8.0 2009 Mt 7.2 5.8 13.1 7.3 – 7.3 4.8 4.1 9.0 Tonnes 2008 Mt 1.6 2.6 4.3 2.4 – 2.4 – 17.3 17.3 24.5 – 17.3 17.3 24.5 2009 %Zn 3.52 2.03 2.97 %Cu 0.38 0.41 0.39 %Pb 3.64 2.64 3.27 %Zn 12.02 9.34 11.59 %Pb 1.86 1.87 1.86 %Zn 12.75 10.06 11.33 2009 %Zn 2.74 2.11 2.46 2.95 – 2.95 %Cu 0.37 0.45 0.41 0.73 – 0.73 %Pb 3.16 3.02 3.10 2.26 – 2.26 %Zn – 0.63 0.63 0.68 %Cu – 0.70 0.70 0.61 %Pb – 2.87 2.87 2.79 Grade 2008 %Zn 3.71 2.89 3.16 %Cu 0.45 0.37 0.40 %Pb 3.16 2.86 2.96 %Zn 11.72 12.01 11.78 %Pb 1.91 1.81 1.89 %Zn 12.94 10.06 11.61 Grade 2008 %Zn 3.74 3.66 3.69 4.39 – 4.39 %Cu 0.63 0.57 0.59 1.09 – 1.09 %Pb 3.41 4.29 3.95 1.39 – 1.39 %Zn – 0.63 0.63 0.68 %Cu – 0.70 0.70 0.61 %Pb – 2.87 2.87 2.79 Contained metal 2008 kt 109 170 280 13 22 35 93 168 261 779 192 970 127 29 156 624 417 1,041 Contained metal 2008 kt 61 96 158 104 – 104 10 15 25 26 – 26 56 113 169 33 – 33 – 109 109 167 – 121 121 150 – 497 497 684 O r e R e s e r v e s & M n e r a i l R e s o u r c e s 2009 kt 171 57 229 18 12 30 177 75 251 703 103 806 109 21 129 486 424 911 2009 kt 197 123 320 214 – 214 27 26 53 53 – 53 228 177 404 164 – 164 – 109 109 167 – 121 121 150 – 497 497 684 Anglo American plc Annual Report 2009 157 Ore Reserves and Mineral Resources Zinc estimates as at 31 December 2009 Zinc Mineral Resources continued Lisheen (UG)(2) Attributable % 100 Zinc Lead Skorpion (OP)(3) Zinc 100 Zinc Projects Ore Reserves Gamsberg – North (OP)(5)(6) Zinc Attributable % LOM 74.0 – Zinc Projects Mineral Resources Gamsberg – North (OP)(5)(7) Zinc Attributable % 74.0 Gamsberg – East (UG)(8) 74.0 Zinc Classification 2009 Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Classification Proved Probable Total Classification Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Mt 0.8 0.4 1.1 0.3 0.3 0.6 0.0 0.0 0.0 0.2 0.0 0.3 2009 Mt – – – 2009 Mt 43.3 57.5 100.8 53.3 – – – 32.3 Tonnes 2008 Mt 0.9 0.4 1.3 0.2 0.2 0.4 0.2 1.0 1.2 0.1 1.0 1.2 Tonnes 2008 Mt 34.2 110.3 144.4 Tonnes 2008 Mt – – – 54.2 – – – – 2009 %Zn 12.84 11.50 12.42 19.23 11.66 15.31 %Pb 2.05 2.06 2.06 3.21 2.55 2.87 %Zn 6.90 7.49 7.33 9.61 9.67 9.61 2009 %Zn – – – 2009 %Zn 7.09 6.47 6.74 5.39 %Zn – – – 9.83 Grade 2008 %Zn 12.91 11.39 12.45 17.84 12.04 14.77 2.23 1.74 2.08 2.49 2.63 2.56 %Zn 7.29 7.87 7.78 9.61 8.87 8.95 Grade 2008 %Zn 7.55 5.55 6.03 Grade 2008 %Zn – – – 4.10 %Zn – – – – Contained metal 2008 kt 114 44 158 37 28 65 20 7 26 5 6 11 13 79 92 12 92 104 Contained metal 2008 kt 2,580 6,124 8,704 Contained metal 2008 kt – – – 2,222 – – – – 2009 kt 101 41 142 52 34 86 16 7 23 9 7 16 0 1 2 24 0 24 2009 kt – – – 2009 kt 3,072 3,723 6,796 2,873 – – – 3,172 Mining method: OP = Open Pit, UG = Underground. LOM = Life of Mine in years based on scheduled Ore Reserves. For the polymetallic deposits, the tonnage figures apply to each metal. Due to the uncertainty that may be attached to some Inferred Mineral Resources, it cannot be assumed that all or part of an Inferred Mineral Resource will necessarily be upgraded to an Indicated or Measured Resource after continued exploration. (1) Black Mountain – Deeps: Broken Hill and the Deeps Ore Reserves and Mineral Resources are combined for reporting purposes as both deposits are geologically connected and make use of the same mining infrastructure. The decrease in Ore Reserves due to production has been partially offset through changed economic assumptions and updated resources modelling based on new information. The definition of Mineral Resources for Broken Hill and the Deeps is based on the same 2009 economic and financial parameters as used for the definition of Ore Reserves. Measured and Indicated Resources are estimated to contain 13.1Mt of material grading 41.3 g/t silver as a by-product. Inferred Resources are estimated to contain 7.3Mt of material grading 25.9 g/t silver as a by-product. (2) Lisheen: Changes are largely attributable to production as well as changes in the resource model (re-classification of Indicated Resources to Inferred Resources which are now not available for conversion to Ore Reserves) and sterilisation of ore due to back-filling on a retreat mining sequence. Mineral Resources are constrained by geological parameters (total sulphide content and ore thickness) and are quoted above a 6% ZnEq cut-off. (3) Skorpion: Production has been partially off-set by additional Ore Reserves derived through improved metal price assumptions and further geological information. An update of the geotechnical model for pit slope design is in progress. Mineral Resources are constrained by geological contacts and are defined using economic values and a cut-off grade (4% Zn). A major Mineral Resource model update, based on recent drilling information, is in progress. (4) Black Mountain – Swartberg: The Swartberg mine was placed on care and maintenance from January 2007. The Ore Reserves were removed from the mine plan and converted to Mineral Resources. Indicated Resources are estimated to contain 17.3Mt of material grading 35.0 g/t silver as a by-product. Inferred Resources are estimated to contain 24.5Mt of material grading 41.0 g/t silver as a by-product. (5) Gamsberg – North: The Gamsberg deposit has been renamed Gamsberg North to distinguish it from the recently discovered Gamsberg East deposit. (6) Gamsberg – North: The Ore Reserves published in 2008 were based on the 2000 Feasibility Study. In the period between 2000 and 2007 substantial change took place in the techno-economic environment of the Gamsberg project. Market, cost and exchange rate outlooks were considerably different while substantial changes had been made to the understanding of the resource and the mineral exploration potential of the greater Gamsberg environ. Advances in the understanding of the chemistry of manganese removal and improved leaching technology led to more technically robust and efficient metallurgical process design options, which needed investigation. Changes to the regulatory (mineral rights) and socio-economic environment (power, social costs, etc.) in South Africa needed to be incorporated into the project studies. A pre-feasibility study, which was initiated in late 2008, is not yet complete and therefore no Ore Reserves are reportable in 2009. (7) Gamsberg – North: Mineral Resource estimates have been updated following infill drilling campaigns carried out during 2008 and 2009 to both validate historic data as well as increase confidence in the Mineral Resources. Mineral Resources are constrained within mineralized horizons and within a pit shell and are reported above a cut-off grade of 3% Zn. During 2009, some 11kt of material with an average grade of 8% Zn were mined via the exploration adit and processed at the Black Mountain concentrator. (8) Gamsberg – East: Gamsberg East is located 4 km south east of Gamsberg North. Mineral Resources are constrained by geology and are quoted above a 7% Zn cut-off and are supported by a positive concept study for an underground mine undertaken in 2009. This study has recommended that Gamsberg East is incorporated in the Gamsberg North pre-feasibility study. As that study has not yet been completed, no Ore Reserves are currently reportable. Audits related to the generation of the Ore Reserve and Mineral Resource statements were carried out by independent consultants during 2009 at the following operations: Black Mountain, Skorpion 158 Anglo American plc Annual Report 2009 Ore Reserves and Mineral Resources Iron Ore estimates as at 31 December 2009 Kumba Iron Ore The Ore Reserve and Mineral Resource estimates were compiled in accordance with The SAMREC Code, 2007. THE MINERAL RESOURCES ARE REPORTED AS ADDITIONAL TO ORE RESERVES. The figures reported represent 100% of the Ore Reserves and Mineral Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of figures may cause computational discrepancies. Iron Ore Ore Reserves Sishen Mine (OP)(1) Attributable % 36.5 LOM 21 Thabazimbi Mine (OP)(2) 46.4 6 Kolomela Mine (OP)(3) 46.4 28 Iron Ore Mineral Resources Sishen Mine (OP)(4) Attributable % 36.5 Thabazimbi Mine (OP)(5) 46.4 Kolomela Mine (OP)(3)(6) 46.4 Classification Proved Probable Total Proved Probable Total Proved Probable Total 2009 Mt 707.6 203.9 911.5 9.5 4.7 14.2 123.1 91.0 214.1 Tonnes 2008 Mt 709.2 247.7 956.9 4.1 0.8 4.9 123.1 91.0 214.1 2009 %Fe 59.2 59.2 59.2 %Fe 61.7 61.3 61.5 %Fe 64.2 63.9 64.1 Grade 2008 %Fe 59.7 59.3 59.6 %Fe 64.5 64.9 64.6 %Fe 64.2 63.9 64.1 Saleable product 2008 Mt 2009 Mt 531@65.4%Fe 536@65.0%Fe 154@64.9%Fe 187@65.1%Fe 685@65.3%Fe 723@65.0%Fe 8@63.4%Fe 4@62.7%Fe 12@63.1%Fe 4@64.9%Fe 1@65.1%Fe 5@64.9%Fe 123@64.2%Fe 123@64.1%Fe 91@63.9%Fe 91@63.9%Fe 214@64.0%Fe 214@64.0%Fe Classification Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM) Inferred (ex. LOM) Total Inferred 2009 Mt 589.1 697.0 1,286.1 3.7 148.7 152.4 9.5 2.4 11.9 1.3 2.3 3.6 49.5 20.8 70.3 35.4 47.4 82.9 Tonnes 2008 Mt 758.7 715.5 1,474.1 4.1 150.2 154.3 18.7 4.9 23.6 0.3 2.6 2.9 49.5 20.8 70.3 35.4 47.4 82.9 2009 %Fe 56.0 57.6 56.8 58.2 59.4 59.4 %Fe 62.7 63.7 62.9 61.9 63.4 62.8 %Fe 65.0 64.9 64.9 65.6 62.5 63.8 Grade 2008 %Fe 54.9 57.4 56.1 61.8 59.2 59.3 %Fe 62.3 63.4 62.5 61.8 63.4 63.3 %Fe 65.0 64.9 64.9 65.6 62.5 63.8 Mining method: OP = Open Pit. LOM = Life of Mine in years based on scheduled Ore Reserves. The tonnage is quoted as dry metric tonnes and abbreviated as Mt for million tonnes. The Mineral Resources are constrained by a resource pit shell, which defines the spatial limits of eventual economic extraction. Due to the uncertainty that may be attached to some Inferred Mineral Resources, it cannot be assumed that all or part of an Inferred Mineral Resource will necessarily be upgraded to an Indicated or Measured Resource after continued exploration. The Zandrivierspoort Project is not reported as Anglo American’s shareholding (23.2%) is below the internal threshold for reporting. Details of this project are presented in the Kumba Iron Ore Annual Report. (1) Sishen Mine – Ore Reserves: The decrease is mainly as a result of depletion due to mining, marginally negated by a minor correction made for over-estimation of Ore Reserve depletion in 2008 and a small increase in Ore Reserves based on a revised scheduling process that allows for a slight improvement in resource utilisation. (2) Thabazimbi Mine – Ore Reserves: The primary reason for the net increase is a complete revision of the conversion process of Mineral Resources into Ore Reserves in 2009. The conversion gain was offset by mining depletion; a correction made for the under-estimation of production in 2008 and the downgrading of Probable Ore Reserves to Inferred Mineral Resources considered for the life-of-mine plan due to an associated geotechnical risk. Geological block model updates in 2009 resulted in a further addition of Ore Reserves. The cut-off grade used for the Thabazimbi Mine life-of-mine scheduling is a Saleable Product %Fe cut-off grade and all material that could be beneficiated to at least this cut-off value was included in the schedule as ROM. (3) Kolomela Mine: The Sishen South Iron Ore Project has been renamed to Kolomela Mine. (4) Sishen Mine – Mineral Resources: The 2009 Mineral Resources represent the combination of the previously reported Within Pit and Outside Pit resources. The decrease is primarily the result of a downward adjustment of the in situ %Fe grade estimate of low-grade ore material based on new information. This decrease in iron grade resulted in previously-defined ore material being transferred to waste. The loss is not in the current life of mine plan. (5) Thabazimbi Mine – Mineral Resources: The 2009 Mineral Resources represent the combination of the previously reported Within Pit and Outside Pit resources. The decrease is primarily due to a conversion to Ore Reserves based on a complete revision of the Ore Reserve estimation in 2009. (6) Kolomela Mine – Mineral Resources: The 2009 Mineral Resources represent the combination of the previously reported Within Pit and Outside Pit resources. Audits related to the generation of the Ore Reserve and Mineral Resource statements were carried out by independent consultants during 2009 at the following operations: Kolomela Mine O r e R e s e r v e s & M n e r a i l R e s o u r c e s Anglo American plc Annual Report 2009 159 Ore Reserves and Mineral Resources Iron Ore estimates as at 31 December 2009 Iron Ore Brazil The Minas Rio project is located in the state of Minas Gerais, Brazil and will include open pit mines and a beneficiation plant producing high grade pellet feed which will be transported, through a slurry pipeline, over 500km to the Port of Açu in the state of Rio de Janeiro. The project will largely be based on the two main deposits of Serra do Sapo and Itapanhoacanga. Two ore types, Friable and Hard Itabirite, have been identified at Serra do Sapo and Itapanhoacanga. Only the Friable Itabirite is being considered for Phase 1 of the project. The planned annual capacity of Phase 1 is 26.5Mtpa of iron ore pellet feed (wet tonnes), for start up during in the second half of 2012. The figures reported represent 100% of the Mineral Resources. Rounding of figures may cause computational discrepancies. Amapá Mineral Resources(1) Amapá (OP)(2) Canga Attributable % 70.0 Colluvium Friable Itabirite and Hematite Minas Rio Iron Ore Project Mineral Resources(3) Itapanhoacanga (OP)(4) Friable Itabirite and Hematite Attributable % 100 Hard Itabirite Serra do Sapo (OP)(5) 100 Friable Itabirite and Hematite Hard Itabirite Serro (OP)(6) 100 Friable Itabirite and Hematite Hard Itabirite Classification Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Classification Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred 2009 Mt – – – 17.2 5.6 31.0 36.6 14.1 28.7 80.8 109.4 29.9 2009 Mt 25.0 219.2 244.2 74.7 10.9 95.8 106.7 43.9 498.1 872.5 1,370.5 192.2 453.8 1,968.3 2,422.1 149.4 – 9.5 9.5 74.2 – – – 308.2 Tonnes 2008 Mt – – – – – – – – – – – – Tonnes 2008 Mt – 90.0 90.0 362.0 – – – 51.0 462.0 565.8 1,027.8 143.9 – 1,650.5 1,650.5 680.8 – 46.0 46.0 54.0 – 79.0 79.0 259.0 2009 %Fe – – – 54.6 40.9 44.0 43.5 41.7 42.5 41.3 41.6 41.8 2009 %Fe 42.5 41.6 41.7 41.7 33.2 33.8 33.7 33.2 %Fe 38.6 37.0 37.6 33.1 31.8 31.2 31.3 30.3 %Fe – 63.6 63.6 35.3 – – – 31.6 Grade 2008 %Fe – – – – – – – – – – – – Grade 2008 %Fe – 39.6 39.6 38.0 – – – 33.2 %Fe 38.1 37.5 37.8 34.3 – 31.0 31.0 30.3 %Fe – 33.3 33.3 28.7 – 29.5 29.5 30.7 Mining method: OP = Open Pit. Due to the uncertainty that may be attached to some Inferred Mineral Resources, it cannot be assumed that all or part of an Inferred Mineral Resource will necessarily be upgraded to an Indicated or Measured Resource after continued exploration. (1) Amapá – Mineral Resources: The cut-off grade used is 25% Fe. Assays are on a dry basis. Tonnages are reported on a wet basis with an average moisture content of 10 wt% for Colluvium and 8 wt% for Friable Itabirite and Hematite ore. (2) Amapá : Includes the Mário Cruz, Martelo, Taboca, Taboca Leste and Vila do Meio areas. The Taboca Leste area comprises the following Inferred Resources: Canga – 1.5Mt @ 42.6% Fe, Colluvium – 10.9Mt @ 41.7% Fe and Friable Itabirite – 23.8Mt @ 41.4% Fe. Friable Itabirite and Hematite includes Friable Itabirite, Altered Friable Itabirite and Friable Hematite. (3) Minas Rio Project – Mineral Resources: The cut-off grade used is 25% Fe. Assays are on a dry basis. Tonnages are reported on a wet basis with an average moisture content of 5 wt% for Friable ore. Friable Itabirite and Hematite includes Friable Itabirite, Semi-Compact Itabirite and Friable Hematite. (4) Itapanhoacanga: 2008 figures comprise material above 20% Fe cut-off grade. Low grade Mineral Resources (between 20% Fe and 33% Fe) were included in table footnotes in 2008 and are now combined with the previously reported high grade Mineral Resources. Friable Itabirite and Hematite includes Friable Itabirite, Semi-Compact Itabirite, Soft Hematite and Hard Hematite. A portion of the adjacent Quartz-X Mineração Ltd property is included in the 2009 figures (Measured = 0.4Mt @ 43.1% Fe, Indicated = 23.8Mt @ 41.2% Fe, Inferred = 22.4Mt @ 41.0% Fe). (5) Serra do Sapo: Friable Itabirite and Hematite includes Friable Itabirite, Semi-Compact Itabirite and Soft Hematite. The Friable Itabirite and Hematite includes an area containing high Alumina content (28.1Mt). Mineração Trindade Ltd properties are included in the 2009 figures (Indicated = 40.3Mt @ 32.1% Fe, Inferred = 3.2Mt @ 31.7% Fe). (6) Serro: 2008 figures comprise material above 20% Fe cut-off grade. Low grade Mineral Resources (between 20% Fe and 33% Fe) were included in table footnotes in 2008 and are now combined with the previously reported high grade Mineral Resources. Friable Itabirite and Hematite includes Friable Itabirite, Semi-Compact Itabirite and Hard Hematite (9.5Mt @ 63.6% Fe). Audits related to the generation of the Mineral Resource statements were carried out by independent consultants during 2009 at the following operations and projects: Amapá, Itapanhoacanga, Serra do Sapo and Serro 160 Anglo American plc Annual Report 2009 Ore Reserves and Mineral Resources Manganese estimates as at 31 December 2009 Samancor Manganese The Ore Reserve and Mineral Resource estimates were compiled in accordance with The SAMREC Code, 2007 and The JORC Code, 2004 as applicable. THE MINERAL RESOURCES INCLUDE ORE RESERVES. The figures reported represent 100% of the Ore Reserves and Mineral Resources (source: BHP Billiton). Rounding of figures may cause computational discrepancies. Manganese Ore Reserves GEMCO (OP)(1) Attributable % 40.0 LOM 14 Hotazel – Mamatwan (OP)(2)(3) 36.4 22 Hotazel – Wessels (UG)(2)(4) 36.4 49 Manganese Mineral Resources GEMCO (OP)(5) Attributable % 40.0 Hotazel – Mamatwan (OP)(2)(6) 36.4 Hotazel – Wessels (UG)(2)(7) 36.4 2009 % 50.8 47.9 49.7 2009 % 44.4 44.0 44.2 45.2 Yield 2008 % 49.4 47.0 48.5 Yield 2008 % 44.2 44.0 44.1 44.1 Classification Proved Probable Total Proved Probable Total Proved Probable Total Classification Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred 2009 Mt 67.5 43.2 110.7 53.6 24.8 78.4 5.1 68.4 73.5 2009 Mt 71.2 46.6 117.9 39.0 79.6 45.3 124.9 3.1 12.1 132.0 144.1 – Tonnes 2008 Mt 71.9 43.9 115.8 40.5 8.1 48.6 3.9 14.9 18.8 Tonnes 2008 Mt 74.6 47.5 122.1 39.1 51.8 13.9 65.7 1.7 6.7 119.6 126.3 – 2009 %Mn 46.8 46.4 46.7 %Mn 37.8 37.2 37.6 %Mn 45.5 43.0 43.2 2009 %Mn 46.3 46.0 46.2 43.3 %Mn 35.8 34.3 35.3 33.1 %Mn 46.3 44.2 44.4 – Grade 2008 %Mn 48.2 47.1 47.8 %Mn 37.7 36.8 37.6 %Mn 46.5 45.3 45.5 Grade 2008 %Mn 46.3 46.0 46.2 43.4 %Mn 37.6 36.3 37.3 35.6 %Mn 47.3 44.0 44.1 – Mining method: OP = Open Pit, UG = Underground. LOM = Life of Mine in years based on scheduled Ore Reserves. Mamatwan tonnages stated as wet metric tonnes. Wessels and GEMCO tonnages stated as dry metric tonnes. Due to the uncertainty that may be attached to some Inferred Mineral Resources, it cannot be assumed that all or part of an Inferred Mineral Resource will necessarily be upgraded to an Indicated or Measured Resource after continued exploration. (1) GEMCO – Ore Reserves: Changes are the result of pricing changes between FY08 and FY09. (2) Hotazel Manganese Mines: An agreement has been reached between Hotazel Manganese Mines and empowerment consortium Ntsimbintle Mining (Pty) Ltd. The Ntsimbintle agreement has been signed by both parties and approved by the South African Government. This transaction allows for the inclusion of part of the Prospecting Rights held by Ntsimbintle into the Mamatwan and Wessels Mining Area in exchange for 9% equity in Hotazel Manganese Mines, thereby adding the resources within the Ntsimbintle Prospecting Right to the Mamatwan and Wessels Mining Rights through a Section 102 conversion. The rights have been transferred to and are now held by a new company called Hotazel Manganese Mines (Pty) Ltd, effective as at 16 April 2009 subsequent to a section 11 (Act 28/2002) approval by the South African Department of Minerals and Energy (DME). The Anglo American share of Wessels and Mamatwan mines (Hotazel Manganese Mines) therefore drops to 36.4%. (3) Mamatwan – Ore Reserves: Changes in tonnages are due to a refinement of densities used for various zones within the orebody, inclusion of Ntsimbintle Ore Reserves, changes in final pillar layout (due to inclusion of Ntsimbintle Ore Reserves) resulting in more reserves being available for mining and depletion due to production. (4) Wessels – Ore Reserves: The main reasons for the increase in Ore Reserves are the inclusion of the Upper Body into the LOM Plan, the inclusion of the Ntsimbintle part of the Lower Body, refinement of the geological model after the addition of new drillhole and geological data and production depletion. New scheduling software and updated modifying factors have been used for the resource to reserve conversion. (5) GEMCO – Mineral Resources: All changes are as a result of depletion due to mining. (6) Mamatwan – Mineral Resources: Mineral Resources have been declared above a 35% Mn cut-off grade and now includes Mineral Resources contributed by Ntsimbintle Mining (Pty) Ltd. A major positive change in tonnage is due to the inclusion of the balance of the Top Cut (after removal of the X-zone). Changes also due to a refinement in the density methodology used. the X Zone and Top Cut (Balance) are also declared as Mineral Resource. As a matter of course, this material has to be mined in the process of accessing the economic M, C and N Zones and, depending on market conditions, now has potential economic value. Please note that the modelling and tonnage declaration of an area of 118,753 m² on the western side within the Ntsimbinle portion remains outstanding due to insufficient data. This will, following the approval of the South African Government and delineation of official boundaries, be evaluated for inclusion in 2010. (7) Wessels – Mineral Resources: Figures include those resources contributed by Ntsimbintle Mining (Pty) Ltd. A decrease in the Upper Body resource is reported after a complete rerun of the block model with the addition of new drillhole data and subsequent geological re-interpretation. Changes in the Lower Body Resource are, apart from production depletion, due to a rerun of the block model with the addition of new drillhole and underground face sampling data, geological re-interpretation, adjustment of the sub-outcrop position in places and the addition of re-evaluated remnant ore blocks. O r e R e s e r v e s & M n e r a i l R e s o u r c e s Anglo American plc Annual Report 2009 161 Ore Reserves and Mineral Resources Coal estimates as at 31 December 2009 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 SAMREC Code, 2007). The figures reported represent 100% of the Ore Reserves and Mineral Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of figures may cause computational discrepancies. During 2009, Anglo Coal was restructured into three discrete business units: Anglo American Metallurgical Coal representing the dominantly export metallurgical coal business located in Australia; Anglo American Thermal Coal representing the dominantly export and domestic thermal coal business, located in South Africa and Colombia; and the Remaining Coal mines and projects located in Canada and Venezuela. THE COAL RESOURCES ARE REPORTED AS ADDITIONAL TO THE COAL RESERVES. Metallurgical Coal Reserves(1) Australia Callide (OC) Attributable %(2) Classification LOM 21 100 71.6 21 Domestic Power Capcoal (OC&UG) Export Thermal Coking Other Metallurgical Dawson (OC) Export Thermal 51.0 26 Coking Drayton (OC) Export Thermal 88.2 6 Domestic Power Foxleigh (OC) Other Metallurgical 70.0 2 Moranbah North (UG) 88.0 29 Coking Australia Export Thermal 58.7 Australia Coking 76.5 Australia Other Metallurgical 71.5 Australia Domestic Power 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 Proved Probable Total Proved Probable Total ROM Tonnes(3) Yield(4) Saleable Tonnes(3) Saleable Quality(5) 2009 Mt 125.8 87.7 213.5 127.0 68.0 194.9 2008 Mt 134.6 87.7 222.3 125.8 90.3 216.1 21.0 161.8 182.8 205.1 123.0 328.1 1.9 31.2 33.1 26.5 14.4 40.9 1.9 4.4 6.3 123.6 12.2 135.8 401.0 365.3 766.4 – – – 118.4 17.3 135.8 610.4 332.8 943.2 2009 % 97.4 99.2 98.2 2.2 2.9 2.4 37.7 34.4 36.6 28.7 29.5 29.0 57.6 56.4 56.6 24.4 18.9 19.5 78.4 77.3 77.4 – – – 71.1 71.1 71.1 78.5 74.0 78.1 49.7 59.8 58.5 63.8 32.7 54.6 30.2 35.2 32.1 97.4 99.2 98.2 2008 % 97.4 99.2 98.1 38.9 39.1 39.0 29.8 17.2 24.5 – – – 53.2 30.5 44.7 28.0 47.5 35.3 69.8 69.8 69.8 25.0 25.0 25.0 – – – 75.8 74.0 75.6 50.8 38.8 45.4 51.8 46.0 48.6 – – – 93.9 96.3 94.8 2009 Mt 122.3 87.0 209.3 3.0 2.0 5.0 50.0 24.4 74.4 38.1 20.9 59.0 12.4 93.9 106.3 5.2 31.4 36.6 1.5 24.1 25.6 – – – 1.4 3.3 4.7 102.5 9.6 112.0 16.9 120.0 136.9 157.7 65.3 223.0 39.5 24.2 63.7 122.3 87.0 209.3 2008 Mt 131.0 87.0 218.0 53.1 38.6 91.7 39.1 16.3 55.4 – – – 114.1 38.9 153.0 59.6 61.4 121.0 18.5 10.1 28.6 6.6 3.6 10.2 – – – 95.0 13.6 108.6 185.7 87.6 273.3 193.7 91.4 285.0 – – – 137.6 90.7 228.3 2009 kcal/kg 4,550 4,560 4,550 kcal/kg 7,070 7,070 7,070 CSN 8.0 7.5 8.0 kcal/kg 6,980 7,090 7,020 kcal/kg 6,500 6,500 6,500 CSN 7.5 7.5 7.5 kcal/kg 7,070 6,450 6,490 kcal/kg – – – kcal/kg 6,520 6,580 6,560 CSN 7.5 8.0 7.5 kcal/kg 6,650 6,500 6,520 CSN 7.5 7.5 7.5 kcal/kg 6,960 7,020 6,990 kcal/kg 4,550 4,560 4,560 2008 kcal/kg 4,530 4,550 4,540 kcal/kg 7,400 7,400 7,400 CSN 8.5 8.5 8.5 kcal/kg – – – kcal/kg 6,600 6,620 6,610 CSN 7.5 7.5 7.5 kcal/kg 6,720 6,740 6,730 kcal/kg 5,780 5,780 5,780 kcal/kg – – – CSN 7.5 8.0 7.5 kcal/kg 6,840 6,980 6,880 CSN 8.0 8.0 8.0 kcal/kg – – – kcal/kg 4,590 4,600 4,590 Mining method: OC = Open Cast, UG = Underground. LOM = Life of Mine in years based on scheduled Ore Reserves. For the multi-product operations, the ROM tonnage figures apply to each product. The Saleable tonnage cannot be calculated directly from the ROM reserve tonnage using the air dried yields as presented since the difference in moisture content is not taken into account. Attributable percentages for country totals are weighted by Saleable tonnes and should not be directly applied to the ROM tonnage. Additional footnotes appear at the end of the section. Export Thermal refers to low- to high-volatile thermal coal primarily for export in the use of power generation; quality measured by calorific value (CV). Coking refers to a high-, medium- or low-volatile semi-soft, soft or hard coking coal primarily for blending and use in steel industry; quality measured as crucible swell number (CSN). Other Metallurgical refers to semi soft, soft, hard, semi-hard or anthracite coal, other than Coking Coal, such as pulverized coal injection (PCI) or other general metallurgical coal for the export or domestic market with a wider range of properties than Coking Coal. Domestic Power refers to low- to high-volatile thermal or semi-soft coal primarily for domestic consumption for power generation; quality measured by calorific value (CV). 162 Anglo American plc Annual Report 2009 Ore Reserves and Mineral Resources Coal estimates as at 31 December 2009 Metallurgical Coal Resources – Mine Leases(6) Australia Callide Attributable %(2) 100 Capcoal Dawson Drayton Foxleigh 71.6 51.0 88.2 70.0 Moranbah North 88.0 Australia – Mine Leases 77.6 Classification Measured Indicated Measured and Indicated Inferred (in LOM)(8) Measured Indicated Measured and Indicated Inferred (in LOM)(8) Measured Indicated Measured and Indicated Inferred (in LOM)(8) Measured Indicated Measured and Indicated Inferred (in LOM)(8) Measured Indicated Measured and Indicated Inferred (in LOM)(8) Measured Indicated Measured and Indicated Inferred (in LOM)(8) 2009 MTIS(6) Tonnes 2008 Coal Quality 2009 2008 MTIS(6) kcal/kg(7) kcal/kg (7) 317.8 375.3 693.1 0.4 101.3 116.0 217.3 12.0 163.1 278.6 441.7 103.5 0.9 12.5 13.4 0.1 10.0 58.9 68.9 – 42.1 20.0 62.2 0.1 317.8 375.3 693.1 0.4 181.2 119.8 301.0 8.6 162.3 215.1 377.4 2.7 9.3 12.4 21.7 1.3 1.8 71.0 72.7 – 32.4 22.4 54.7 0.6 704.7 816.0 1,520.7 13.6 Tonnes 2008 4,800 4,740 4,770 4,050 6,810 6,750 6,780 6,560 6,650 6,650 6,650 6,710 6,870 6,730 6,740 5,910 6,760 6,480 6,520 – 6,590 6,480 6,550 6,800 4,800 4,740 4,770 4,050 7,160 7,160 7,160 7,160 6,560 6,590 6,580 6,540 6,730 6,760 6,750 6,860 7,680 7,420 7,430 – 6,730 6,730 6,730 6,730 kcal/kg(7) kcal/kg (7) 5,750 5,820 5,790 6,690 5,930 5,900 5,920 6,910 Coal Quality 2009 2008 MTIS(6) kcal/kg(7) kcal/kg (7) Metallurgical Coal Resources – Projects(6) Australia Dartbrook Attributable %(2) 77.5 Measured Indicated Measured and Indicated Inferred (in LOM)(8) 635.2 861.4 1,496.6 116.0 Classification 2009 MTIS(6) Grosvenor Moranbah South Saddlers Creek Taroom Theodore Australia – Projects 100 50.0 88.2 51.0 51.0 74.9 Metallurgical Coal Resources – Mine Lease and Projects(6) Australia Total Attributable %(2) 76.1 Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated 170.1 51.9 222.1 240.1 117.2 357.3 56.0 149.7 205.7 398.9 137.9 536.8 36.4 89.0 125.5 – 358.2 358.2 170.1 51.9 222.1 227.8 111.9 339.7 – – – 398.9 137.9 536.8 36.4 89.0 125.5 – 358.2 358.2 6,200 6,200 6,200 6,350 6,340 6,350 5,940 6,290 6,190 6,440 6,340 6,410 5,560 5,580 5,570 – 6,250 6,250 6,200 6,200 6,200 6,650 6,660 6,650 – – – 6,440 6,340 6,410 5,560 5,580 5,570 – 6,250 6,250 Measured Indicated Measured and Indicated 901.5 903.9 1,805.4 833.2 749.0 1,582.2 kcal/kg(7) kcal/kg (7) 6,300 6,210 6,260 6,410 6,240 6,330 Classification Measured Indicated Measured and Indicated Inferred (in LOM)(8) 2009 MTIS(6) 1,536.7 1,765.3 3,302.0 116.0 Tonnes 2008 Coal Quality 2009 2008 MTIS(6) kcal/kg(7) kcal/kg (7) 1,537.9 1,565.0 3,102.9 13.6 6,070 6,020 6,050 6,690 6,190 6,060 6,130 6,910 O r e R e s e r v e s & M n e r a i l R e s o u r c e s Anglo American plc Annual Report 2009 163 Ore Reserves and Mineral Resources Coal estimates as at 31 December 2009 Brown Coal Brown Coal Resources(6) Australia Monash Energy Attributable %(2) 100 Australia Brown Coal Resources 100 Coal Bed Methane Coal Bed Methane Reserves Australia Dawson Attributable %(2) 51.0 Harcourt 25.5 Australia CBM Reserves 45.8 Classification 2009 MTIS(6) Tonnes 2008 Coal Quality 2009 2008 MTIS(6) kcal/kg(7) kcal/kg (7) Measured Indicated Measured and Indicated 5,095.0 5,221.0 10,316.0 5,095.0 5,221.0 10,316.0 Measured Indicated Measured and Indicated 5,095.0 5,221.0 10,316.0 5,095.0 5,221.0 10,316.0 1,820 1,790 1,800 1,820 1,790 1,800 kcal/kg(7) kcal/kg (7) 1,820 1,790 1,800 1,820 1,790 1,800 Saleable Volume(9) Saleable Energy Content(9) Classification Proved: 1P Probable: 2P-1P Total: 2P Proved: 1P Probable: 2P-1P Total: 2P Proved: 1P Probable: 2P-1P Total: 2P 2009 MMcf 45,392 100,259 145,651 – 36,902 36,902 45,392 137,161 182,553 2008 MMcf 49,882 100,259 150,141 – 36,902 36,902 49,882 137,161 187,043 2009 2008 PJ 48 106 154 – 39 39 PJ 48 145 193 PJ 53 106 159 – 39 39 PJ 53 145 197 Coal Bed Methane (CBM) estimates were compiled by an external independent consultant in accordance with the guidelines and recommendations contained in the Petroleum Resources Management System 2007 sponsored by the Society of Petroleum Engineers (SPE) and the World Petroleum Council (WPC). (1) Coal Reserves are quoted on a Run Of Mine (ROM) reserve tonnage basis which represents the tonnes delivered to the plant. Saleable reserve tonnage represents the product tonnes produced. Coal Reserves (ROM and Saleable) are on the applicable moisture basis. (2) Attributable (%) refers to 2009 only. For the 2008 Reported and Attributable figures, please refer to the 2008 Annual Report. (3) The tonnage is quoted as metric tonnes. ROM tonnages on an As Delivered moisture basis, and Saleable tonnages on a Product moisture basis. (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. The product yields for Proved, Probable and Total are calculated by dividing the individual Saleable reserves by the total ROM reserves per classification. (5) The coal quality for the Coal Reserves is quoted as either Calorific Value (CV) using kilo-calories per kilogram (kcal/kg) units on a Gross As Received (GAR) basis or Crucible Swell Number (CSN). Coal quality parameters for the Coal Reserves for Coking, Other Metallurgical and Export Thermal collieries meet the contractual specifications for coking coal, PCI, metallurgical coal, steam coal and domestic coal. Coal quality parameters for the Coal Reserves for Domestic Power and Domestic Synfuels collieries meet the specifications of the individual supply contracts. CV is rounded to the nearest 10 kcal/kg and CSN to the nearest 0.5 index. (6) Coal Resources are quoted on a Mineable Tonnage In-Situ (MTIS) basis in million tonnes which are in addition to those resources which have been modified to produce the reported Coal Reserves. Coal Resources are on an in-situ moisture basis. (7) The coal quality for the Coal Resources is quoted on an in-situ heat content as Calorific Value (CV) using kilo-calories per kilogram (kcal/kg) units on a Gross As Received (GAR) basis. CV is rounded to the nearest 10 kcal/kg. (8) Inferred (in LOM) refers to Inferred Coal Resources that are included in the life of mine extraction schedule of the respective collieries and are not reported as Coal Reserves. Inferred Coal Resources outside the LOM plan but within the mine lease area are not reported due to a) the uncertainty attached to such resources in that it cannot be assumed that all or part of the Inferred Resource will necessarily be upgraded to Indicated or Measured categories through continued exploration, b) such Inferred Resources do not necessarily meet the requirements of reasonable prospects for eventual economic extraction, particularly in respect of future mining and processing economics. (9) CBM Reserves are reported in terms of Saleable volume (million cubic feet – MMcf) and Saleable energy (Petajoules – PJ, or one thousand trillion Joules). Summary of material changes (±10%) at reporting level Australia Callide: Capcoal: Dawson: Drayton: Foxleigh: Grosvenor: Jellinbah: Moranbah North: Moranbah South: Brown Coal Monash Energy: Coal Bed Methane Dawson: The 2009 submission has been based on depletion of the 2008 resource and reserve estimates by the actual 2009 production. Work is currently underway to generate a new life of mine plan for Callide for supply to domestic and other customers. This work is expected to be complete by end 2010 at which time a full economic re-assessment of the resource and reserve position will be available. Resources in areas down-dip of Central and to the east of Grasstree have been reallocated (-80 Mt). Closure of the Aquila bord and pillar operation has reduced ROM reserves (-22 Mt). Mining at Dawson North ceased in early 2009 (-37 Mt ROM). Resource classifications have been revised resulting in a decrease in areas of reserves (-108 Mt) and an increase in Inferred Resources within the mine plan (+101 Mt). Exploration commencing in 2010 is expected to bring Inferred Resources within the mine plan progressively to reserve status during 2011. Reserves – Revision of mine plan and exclusion high cost areas in south / south west of lease (-8 Mt ROM). Resources – Resources reallocated due to geological complexity (- 9 Mt). Reserves reported for the first time representing reserves in the immediate mining areas (+6 Mt ROM). Approval obtained for the commencement of a detailed feasibility study for an underground longwall operation in 2010. Not reported in 2009 due to <25% attributable interest. Resource increase attributable to changes in mine design and additional exploration (+7 Mt). Resources are reported for underground mining areas which have reasonable potential for eventual economic extraction based on exploration and studies completed in 2009 (+206 Mt). Resource estimates have not changed from 2008 because no additional data was added in 2009. The brown coal is a substantial resource suitable as a feedstock to many chemical processes but requires technological breakthroughs to allow the economic development of clean coal plants. Initial reserves calculated in 2006 were depleted for gas production, consumption and venting for the 2009 estimates. Assumption with respect to Mineral Tenure Callide: Foxleigh: An expectation that a Mining Lease Application which has been lodged will be granted for the northern part of the Kilburnie area. A Mining Lease Application will be lodged and is expected to be granted for the Amy’s Find area as an extension to the existing mining area at The Hut. A Mining Lease Application will be lodged and is expected to be granted for the Plains area. Reviews by independent third parties were carried out in 2009 on the following Operations and Project areas: Capcoal Mine Complex, Dawson South, Drayton, Foxleigh, Theodore, Taroom 164 Anglo American plc Annual Report 2009 Ore Reserves and Mineral Resources Coal estimates as at 31 December 2009 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 SAMREC Code, 2007). The figures reported represent 100% of the Ore Reserves and Mineral Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of figures may cause computational discrepancies. During 2009, Anglo Coal was restructured into three discrete business units: Anglo American Metallurgical Coal representing the dominantly export metallurgical coal business located in Australia; Anglo American Thermal Coal representing the dominantly export and domestic thermal coal business, located in South Africa and Colombia; and the Remaining Coal mines and projects located in Canada and Venezuela. THE COAL RESOURCES ARE REPORTED AS ADDITIONAL TO THE COAL RESERVES. Thermal Coal Reserves(1) Colombia Cerréjon (OC) Export Thermal Attributable %(2) LOM Classification 33.3 23 Colombia Export Thermal 33.3 Attributable %(2) LOM Classification 100 10 ROM Tonnes(3) Yield(4) Saleable Tonnes(3) Saleable Quality(5) 2008 Mt 519.3 241.0 760.2 519.3 241.0 760.2 2009 % 96.2 96.2 96.2 96.2 96.2 96.2 2008 % 96.9 96.9 96.9 96.9 96.9 96.9 2009 Mt 621.4 48.9 670.3 621.4 48.9 670.3 2008 Mt 502.9 233.4 736.3 502.9 233.4 736.3 2009 kcal/kg 6,210 6,210 6,210 kcal/kg 6,210 6,210 6,210 2008 kcal/kg 6,200 6,200 6,200 kcal/kg 6,200 6,200 6,200 ROM Tonnes(3) Yield(4) Saleable Tonnes(3) Saleable Quality(5) 2009 Mt 646.6 50.7 697.3 646.6 50.7 697.3 2009 Mt 25.5 85.6 111.1 39.8 2.4 42.1 84.5 – 84.5 77.1 21.3 98.4 67.0 64.3 131.3 48.0 21.4 69.5 2008 Mt 50.5 81.2 131.7 19.5 12.2 31.7 90.6 – 90.6 81.9 25.4 107.4 82.1 62.4 144.5 37.5 27.8 65.3 35.6 67.3 103.0 40.6 66.8 107.3 37.0 106.7 143.7 41.9 87.6 129.5 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 Proved Probable Total Proved Probable Total Thermal Coal Reserves(1) South Africa Goedehoop (UG&OC) Export Thermal Other Metallurgical Greenside (UG) Export Thermal Isibonelo (OC) Synfuel Kleinkopje (OC) Export Thermal Domestic Power Kriel (UG&OC) Domestic Power Landau (OC) Export Thermal Domestic Power Mafube (OC) Export Thermal Domestic Power 100 12 100 17 100 14 73.0 16 100 11 50.0 20 New Denmark (UG) Domestic Power 100 31 2009 % 59.9 54.5 55.7 – – – 59.0 63.0 59.2 100 – 100 33.8 48.4 37.0 37.5 – 29.4 100 100 100 52.8 50.7 52.2 7.0 9.1 7.6 51.6 36.9 42.0 23.0 31.3 28.4 100 100 100 2008 % 49.9 54.2 52.6 2.0 – 0.8 63.2 60.3 62.1 100 – 100 32.9 49.0 36.7 40.6 – 31.0 100 100 100 50.1 48.4 49.4 10.6 15.3 12.6 54.2 36.9 43.4 28.0 31.3 30.1 100 100 100 2009 Mt 15.5 47.5 63.0 – – – 24.3 1.5 25.8 84.6 – 84.6 26.4 10.4 36.8 29.5 – 29.5 2008 Mt 26.3 45.1 71.4 1.0 – 1.0 12.6 7.5 20.1 90.6 – 90.6 27.3 12.6 39.9 33.2 – 33.2 67.0 64.3 131.3 82.1 62.4 144.5 25.1 11.0 36.1 3.4 2.0 5.4 18.4 25.1 43.5 8.2 21.2 29.4 18.8 13.4 32.3 4.0 4.2 8.2 22.0 24.7 46.7 11.4 20.9 32.3 37.0 106.7 143.7 41.9 87.6 129.5 2009 kcal/kg 6,240 6,180 6,190 – – – 6,190 6,190 6,190 4,560 – 4,560 6,220 6,230 6,220 4,490 – 4,490 4,790 4,500 4,650 6,300 6,370 6,320 4,450 3,900 4,250 6,300 6,280 6,290 5,450 5,080 5,180 5,090 4,940 4,980 2008 kcal/kg 6,200 6,130 6,150 6,990 – 6,990 6,240 6,220 6,230 4,660 – 4,660 6,220 6,230 6,220 4,530 – 4,530 4,800 4,500 4,670 6,270 6,260 6,270 3,340 4,690 4,040 6,290 6,270 6,280 5,380 5,080 5,190 4,900 4,850 4,870 O r e R e s e r v e s & M n e r a i l R e s o u r c e s Anglo American plc Annual Report 2009 165 Ore Reserves and Mineral Resources Coal estimates as at 31 December 2009 Thermal Coal Reserves(1) South Africa continued New Vaal (OC) Domestic Power Attributable %(2) LOM Classification 100 18 Nooitgedacht 5 Seam (UG) 100 3 Export Thermal Other Metallurgical Zibulo (UG&OC) Export Thermal Domestic Power 73.0 17 South Africa Export Thermal 86.8 South Africa Other Metallurgical 100 South Africa Domestic Power 92.3 South Africa Synfuel 100 Other Metallurgical 100 Domestic Power Synfuel 92.3 100 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 ROM Tonnes(3) Yield(4) Saleable Tonnes(3) Saleable Quality(5) 2009 Mt 423.4 – 423.4 1.9 – 1.9 2008 Mt 444.9 – 444.9 2.9 – 2.9 – 99.3 99.3 – 117.7 117.7 839.8 468.3 1,308.1 892.4 481.0 1,373.4 2009 % 92.1 – 92.1 34.6 – 34.6 27.0 – 27.0 – 39.7 39.7 – 37.0 37.0 50.3 46.2 47.7 27.0 – 27.0 89.1 82.5 86.8 100 – 100 2008 % 91.2 – 91.2 39.9 – 39.9 30.5 – 30.5 – 40.1 40.1 – 40.5 40.5 48.0 46.3 46.5 15.8 – 15.2 88.4 78.8 85.4 100 – 100 2009 Mt 404.0 – 404.0 0.7 – 0.7 0.5 – 0.5 – 39.5 39.5 – 38.5 38.5 110.3 135.0 245.3 0.5 – 0.5 549.1 232.7 781.8 84.6 – 84.6 2008 Mt 417.6 – 417.6 1.2 – 1.2 0.9 – 0.9 – 47.5 47.5 – 49.8 49.8 108.2 150.9 259.1 1.9 – 1.9 590.1 225.0 815.1 90.6 – 90.6 2009 kcal/kg 3,490 – 3,490 6,360 – 6,360 6,300 – 6,300 – 6,350 6,350 – 4,880 4,880 kcal/kg 6,250 6,270 6,260 kcal/kg 6,300 – 6,300 kcal/kg 3,850 4,810 4,130 kcal/kg 4,560 – 4,560 2008 kcal/kg 3,500 – 3,500 6,200 – 6,200 6,510 – 6,510 – 6,340 6,340 – 4,880 4,880 kcal/kg 6,240 6,240 6,240 kcal/kg 6,760 – 6,760 kcal/kg 3,870 4,780 4,120 kcal/kg 4,660 – 4,660 ROM Tonnes(3) Yield(4) Saleable Tonnes(3) Saleable Quality(5) Mt 1,486.4 519.0 2,005.4 Mt 1,411.6 722.0 2,133.6 Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total 2009 % 89.3 59.5 83.2 27.0 – 27.0 89.1 82.5 86.8 100 – 100 2008 % 88.2 77.0 83.8 15.8 – 15.2 88.4 78.8 85.4 100 – 100 2009 Mt 731.7 183.9 915.6 0.5 – 0.5 549.1 232.7 781.8 84.6 – 84.6 2008 Mt 611.1 384.3 995.4 1.9 – 1.9 590.1 225.0 815.1 90.6 – 90.6 2009 kcal/kg 6,220 6,250 6,230 kcal/kg 6,300 – 6,300 kcal/kg 3,850 4,810 4,130 kcal/kg 4,560 – 4,560 2008 kcal/kg 6,500 6,360 6,450 kcal/kg 6,760 – 6,760 kcal/kg 3,870 4,780 4,120 kcal/kg 4,660 – 4,660 Thermal Coal Reserves(1) Total Export Thermal 47.4 Attributable %(2) Classification 2009 2008 Mining method: OC = Open Cast, UG = Underground. LOM = Life of Mine in years based on scheduled Ore Reserves. For the multi-product operations, the ROM tonnage figures apply to each product. The Saleable tonnage cannot be calculated directly from the ROM reserve tonnage using the air dried yields as presented since the difference in moisture content is not taken into account. Attributable percentages for country totals are weighted by Saleable tonnes and should not be directly applied to the ROM tonnage. Additional footnotes appear at the end of the section. Export Thermal refers to low- to high-volatile thermal coal primarily for export in the use of power generation; quality measured by calorific value (CV). Other Metallurgical refers to semi soft, soft, hard, semi-hard or anthracite coal, other than Coking Coal, such as pulverized coal injection (PCI) or other general metallurgical coal for the export or domestic market with a wider range of properties than Coking Coal. Domestic Power refers to low- to high-volatile thermal or semi-soft coal primarily for domestic consumption for power generation; quality measured by calorific value (CV). Synfuel refers to a coal specifically for the domestic production of synthetic fuel and chemicals; quality measured by calorific value (CV). 166 Anglo American plc Annual Report 2009 Ore Reserves and Mineral Resources Coal estimates as at 31 December 2009 Thermal Coal Resources – Mine Leases(6) Colombia Cerréjon Attributable %(2) 33.3 Colombia – Mine Leases 33.3 Thermal Coal Resources – Mine Leases(6) South Africa Goedehoop Attributable %(2) 100 Greenside Isibonelo Kleinkopje Kriel Landau Mafube New Denmark New Vaal 100 100 100 73.0 100 50.0 100 100 Nooitgedacht 5 Seam 100 Zibulo 73.0 South Africa – Mine Leases 84.9 Thermal Coal Resources Mine Leases Total Attributable %(2) 52.6 Tonnes 2008 Coal Quality 2009 2008 MTIS(6) kcal/kg(7) kcal/kg (7) Classification Measured Indicated Measured and Indicated Inferred (in LOM)(8) Measured Indicated Measured and Indicated Inferred (in LOM)(8) 2009 MTIS(6) 1,051.6 270.3 1,321.9 40.3 1,051.6 270.3 1,321.9 40.3 667.1 712.8 1,379.9 – 667.1 712.8 1,379.9 – 2009 MTIS(6) Tonnes 2008 MTIS(6) 6,480 6,480 6,480 6,960 6,400 6,290 6,340 – kcal/kg(7) kcal/kg (7) 6,480 6,480 6,480 6,960 2009 kcal/kg(7) 5,030 5,270 5,130 – – – – 5,470 – 5,250 5,250 – 4,990 – 4,990 – 5,280 4,710 5,080 – 5,730 4,600 5,080 – 5,230 – 5,230 5,420 – – – 5,310 – – – – 4,750 – 4,750 – 4,810 4,910 4,870 5,430 kcal/kg(7) 5,070 4,960 5,020 5,400 6,400 6,290 6,340 – Coal Quality 2008 kcal/kg (7) 5,010 5,320 5,130 – – – – 5,120 – 5,330 5,330 – 4,960 – 4,960 – 5,280 4,710 5,080 – 5,750 6,050 5,950 – 5,300 – 5,300 5,420 – – – 5,840 4,230 – 4,230 – 6,240 – 6,240 – 4,480 5,200 4,990 – kcal/kg (7) 4,990 5,320 5,170 5,630 Coal Quality 2009 2008 O r e R e s e r v e s & M n e r a i l R e s o u r c e s Classification Measured Indicated Measured and Indicated Inferred (in LOM)(8) Measured Indicated Measured and Indicated Inferred (in LOM)(8) Measured Indicated Measured and Indicated Inferred (in LOM)(8) Measured Indicated Measured and Indicated Inferred (in LOM)(8) Measured Indicated Measured and Indicated Inferred (in LOM)(8) Measured Indicated Measured and Indicated Inferred (in LOM)(8) Measured Indicated Measured and Indicated Inferred (in LOM)(8) Measured Indicated Measured and Indicated Inferred (in LOM)(8) Measured Indicated Measured and Indicated Inferred (in LOM)(8) Measured Indicated Measured and Indicated Inferred (in LOM)(8) Measured Indicated Measured and Indicated Inferred (in LOM)(8) Measured Indicated Measured and Indicated Inferred (in LOM)(8) 115.3 82.4 197.7 – – – – 13.3 – 25.8 25.8 – 28.6 – 28.6 – 61.8 34.7 96.5 – 30.4 41.7 72.1 – 3.8 – 3.8 10.7 – – – 30.6 – – – – 1.1 – 1.1 – 98.0 174.2 272.2 59.2 339.1 358.8 697.8 113.8 135.4 83.8 219.2 – – – – 27.7 – 25.8 25.8 – 31.9 – 31.9 – 61.8 34.7 96.5 – 34.0 66.3 100.2 – 4.2 – 4.2 10.7 – – – 78.7 2.5 – 2.5 – 1.1 – 1.1 – 90.8 220.3 311.2 – 361.7 430.9 792.6 117.1 Tonnes 2008 Classification Measured Indicated Measured and Indicated Inferred (in LOM)(8) 2009 MTIS(6) 1,390.7 629.1 2,019.7 154.0 MTIS(6) kcal/kg(7) kcal/kg (7) 1,028.8 1,143.7 2,172.6 117.1 6,130 5,620 5,970 5,810 5,900 5,930 5,920 5,630 Anglo American plc Annual Report 2009 167 Ore Reserves and Mineral Resources Coal estimates as at 31 December 2009 Thermal Coal Resources – Projects(6) South Africa Elders 73.0 Attributable %(2) Kriel East New Largo 73.0 73.0 Nooitgedacht 2+4 Seam 100 South Rand Vaalbank 73.0 100 South Africa – Projects 75.8 Thermal Coal Resources(6) Projects Total Attributable %(2) 75.8 Thermal Coal Resources(6) Mine Leases and Projects Total Attributable %(2) 60.8 2009 MTIS(6) Tonnes 2008 Coal Quality 2009 2008 MTIS(6) kcal/kg(7) kcal/kg (7) Classification Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated 183.4 30.6 213.9 97.9 22.8 120.8 247.1 246.1 493.2 29.9 17.1 47.0 90.7 156.5 247.2 54.6 23.4 77.9 Measured Indicated Measured and Indicated 703.6 496.4 1,200.0 Classification Measured Indicated Measured and Indicated Classification Measured Indicated Measured and Indicated Inferred (in LOM)(8) 2009 MTIS(6) 703.6 496.4 1,200.0 2009 MTIS(6) 2,094.3 1,125.5 3,219.7 154.0 87.7 36.6 124.3 41.4 50.8 92.2 199.9 186.3 386.3 – 61.6 61.6 36.4 220.7 257.1 54.6 23.4 77.9 420.0 579.4 999.5 Tonnes 2008 4,940 4,960 4,940 4,930 4,900 4,920 4,430 4,230 4,330 5,320 5,320 5,320 4,780 4,710 4,740 3,570 4,440 3,830 5,200 5,170 5,190 4,980 4,940 4,960 4,000 4,050 4,020 – 5,320 5,320 5,560 5,590 5,590 3,900 3,900 3,900 kcal/kg(7) kcal/kg (7) 4,650 4,500 4,590 4,470 4,910 4,730 Coal Quality 2009 2008 MTIS(6) kcal/kg(7) kcal/kg (7) 420.0 579.4 999.5 Tonnes 2008 4,650 4,500 4,590 4,470 4,910 4,730 Coal Quality 2009 2008 MTIS(6) kcal/kg(7) kcal/kg (7) 1,448.9 1,723.1 3,172.0 117.1 5,640 5,130 5,460 5,810 5,490 5,590 5,540 5,630 Attributable percentages for country totals are weighted by Measured and Indicated MTIS. (1) Coal Reserves are quoted on a Run Of Mine (ROM) reserve tonnage basis which represents the tonnes delivered to the plant. Saleable reserve tonnage represents the product tonnes produced. Coal Reserves (ROM and Saleable) are on the applicable moisture basis. (2) Attributable (%) refers to 2009 only. For the 2008 Reported and Attributable figures, please refer to the 2008 Annual Report. (3) The tonnage is quoted as metric tonnes. ROM tonnages on an As Delivered moisture basis, and Saleable tonnages on a Product moisture basis. (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. The product yields for Proved, Probable and Total are calculated by dividing the individual Saleable reserves by the total ROM reserves per classification. (5) The coal quality for the Coal Reserves is quoted as either Calorific Value (CV) using kilo-calories per kilogram (kcal/kg) units on a Gross As Received (GAR) basis or Crucible Swell Number (CSN). Coal quality parameters for the Coal Reserves for Coking, Other Metallurgical and Export Thermal collieries meet the contractual specifications for coking coal, PCI, metallurgical coal, steam coal and domestic coal. Coal quality parameters for the Coal Reserves for Domestic Power and Domestic Synfuels collieries meet the specifications of the individual supply contracts. CV is rounded to the nearest 10 kcal/kg and CSN to the nearest 0.5 index. (6) Coal Resources are quoted on a Mineable Tonnage In-Situ (MTIS) basis in million tonnes which are in addition to those resources which have been modified to produce the reported Coal Reserves. Coal Resources are on an in-situ moisture basis. (7) The coal quality for the Coal Resources is quoted on an in-situ heat content as Calorific Value (CV) using kilo-calories per kilogram (kcal/kg) units on a Gross As Received (GAR) basis. CV is rounded to the nearest 10 kcal/kg, (8) Inferred (in LOM) refers to Inferred Coal Resources that are included in the life of mine extraction schedule of the respective collieries and are not reported as Coal Reserves. Inferred Coal Resources outside the LOM plan but within the mine lease area are not reported due to a) the uncertainty attached to such resources in that it cannot be assumed that all or part of the Inferred Resource will necessarily be upgraded to Indicated or Measured categories through continued exploration, b) such Inferred Resources do not necessarily meet the requirements of reasonable prospects for eventual economic extraction, particularly in respect of future mining and processing economics. Summary of material changes (±10%) at reporting level Colombia Cerréjon: South Africa Goedehoop: Greenside: Kleinkopje: Landau: New Denmark: New Vaal: Zibulo: Elders: Kriel East: New Largo: Nooitgedacht: Resources: a gain of 40 Mt Inferred Resources in Mine Plan due to changes in methodology. Reserves: a gain of 19 Mt due to inclusion of Vlaklaagte resources in mine plan; a loss of 20 Mt resulting from changes in modifying factors Reserves: a gain of 15 Mt due to changes in mine plan, increased drilling density, and correction for under reporting in 2008. Resources: a loss of 14 Mt due to exclusion of resources underlying pan pending environmental approval for mining. Resources: a loss of 3 Mt due to changes in pit shell layout. Reserves: a gain of 11 Mt due to conversion of Navigation West and Schoonie opencast resources. Resources: a loss of 9 Mt due to infrastructure sterilisation. Reserves: reclassification of 48 Mt Resources to 25 Mt Reserves due to additional information. Reserves: a loss of 3 Mt due to the exclusion of low volatile material and 3 Mt due to operational mining losses. Zibulo comprises the Zibulo Mine (formerly Zondagsfontein), the Zondagsfontein West project area and the Oogiesfontein Mine. Proved Reserves have been reclassified as Probable Reserves pending the granting of a mining right. Reserves: a loss of 13 Mt at Zibulo due to change in mining extraction percentage and 3 Mt at Oogiesfontein due to reclassification of reserves following changes in mine planning. Resources: a gain of 59 Mt of S2M Seam at Zibulo due to inclusion of Inferred Resources in the mine plan and a gain of 3 Mt Measured Resources at Oogiesfontein due to reclassification of reserves. A loss of 42 Mt of S5 Seam at Zibulo due to reclassification and change to minimum cut-off thickness, and re-modelling of a transgressive sill. A gain of 51 Mt due to additional information; a gain of 39 Mt due to change from raw to washed product. A gain of 29 Mt due to additional exploration information. A gain of 107 Mt due to additional exploration information. A loss of 15 Mt due to reduced interpretation confidence in data combined with a change of cut-off parameters. Assumption with respect to Mineral Tenure South Africa: Granting of 3 remaining Prospecting Rights to Anglo American Thermal Coal for the Vaalbank project is pending. Anglo American Thermal Coal has reasonable expectation that these rights will be granted in due course, and the relevant Project Coal resources have been included in the statement. Granting of the mining rights for Zibulo Colliery (formerly Zondagsfontein and Oogiesfontein) are currently pending. Anglo Inyosi Coal (Pty) Limited has reasonable expectation that these rights will be granted in due course. Anglo American Thermal Coal has been granted Section 11 cession of the Kriel mining right to Anglo Inyosi Coal (Pty) Limited but has not concluded the final agreement. The attributable percentage (73%) reflects therefore the anticipated ownership following conclusion of this agreement. Royalty Payment South Africa: Royalty payments are scheduled to commence in April 2010 and have been taken into consideration in economic assessment of the reserves. Reviews by independent third parties were carried out in 2009 on the following Operations and Project areas: Goedehoop South, Isibonelo, Zibulo, Elders 168 Anglo American plc Annual Report 2009 Ore Reserves and Mineral Resources Coal estimates as at 31 December 2009 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 SAMREC Code, 2007). The figures reported represent 100% of the Ore Reserves and Mineral Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of figures may cause computational discrepancies. During 2009, Anglo Coal was restructured into three discrete business units: Anglo American Metallurgical Coal representing the dominantly export metallurgical coal business located in Australia; Anglo American Thermal Coal representing the dominantly export and domestic thermal coal business, located in South Africa and Colombia; and the Remaining Coal mines and projects located in Canada and Venezuela. THE COAL RESOURCES ARE REPORTED AS ADDITIONAL TO THE COAL RESERVES. Attributable %(2) 74.8 LOM 14 Classification Proved Probable Total Proved Probable Total ROM Tonnes(3) 2008 Mt 10.4 4.2 14.6 2009 Mt 20.6 2.5 23.0 2009 % 1.9 1.9 1.9 61.6 59.7 61.4 Yield(4) 2008 % 2.0 2.8 2.2 68.0 67.3 67.8 Saleable Tonnes(3) Saleable Quality(5) 2009 2008 Mt 0.4 0.1 0.5 13.3 1.6 14.9 Mt 0.2 0.1 0.3 7.4 3.0 10.4 2009 kcal/kg 5,300 5,300 5,300 CSN 7.0 7.0 7.0 2008 kcal/kg 5,660 5,660 5,660 CSN 7.0 7.0 7.0 Attributable %(2) LOM Classification 24.9 21 Proved Probable Total Attributable %(2) Classification 25.0 74.8 Proved Probable Total Proved Probable Total 2009 Mt 127.7 16.2 143.9 2009 Mt 148.2 18.7 166.9 Remaining Coal Reserves(1) Canada Trend (OC) Export Thermal Coking Remaining Coal Reserves(1) Venezuela Guasare (OC) Export Thermal Remaining Coal Reserves(1) Canada and Venezuela Export Thermal Coking Remaining Coal Resources – Mine Leases(6) Canada Trend (OC) Attributable %(2) 74.8 Remaining Coal Resources – Mine Leases(6) Venezuela Guasare (OC) Attributable %(2) 24.9 Remaining Coal Resources – Mine Leases(6) Canada and Venezuela Total Attributable %(2) 74.8 ROM Tonnes(3) Yield(4) Saleable Tonnes(3) Saleable Quality(5) 2008 Mt 136.6 – 136.6 2009 % 100 100 100 2008 % 100 – 100 2009 Mt 127.7 16.2 143.9 2008 Mt 141.1 – 141.1 2009 kcal/kg 7,180 7,240 7,190 2008 kcal/kg 7,320 – 7,320 ROM Tonnes(3) Yield(4) Saleable Tonnes(3) Saleable Quality(5) 2008 Mt 147.0 4.2 151.2 2009 % 99.7 99.7 99.7 61.6 59.7 61.4 2008 % 99.8 2.8 99.8 52.4 46.7 49.2 Classification Measured Indicated Measured and Indicated Inferred (in LOM)(8) Classification Measured Indicated Measured and Indicated Inferred (in LOM)(8) Classification Measured Indicated Measured and Indicated Inferred (in LOM)(8) 2009 Mt 128.1 16.3 144.4 13.3 1.6 14.9 2009 MTIS(6) 19.9 5.4 25.3 1.4 2009 MTIS(6) – – – – 2009 MTIS(6) 19.9 5.4 25.3 1.4 2008 Mt 141.3 0.1 141.4 7.4 3.0 10.4 Tonnes 2008 MTIS(6) – – – 2.4 Tonnes 2008 MTIS(6) 26.9 79.5 106.5 – Tonnes 2008 2009 kcal/kg 7,170 7,240 7,180 CSN 7.0 7.0 7.0 2008 kcal/kg 7,320 5,660 7,320 CSN 7.0 7.0 7.0 Coal Quality 2009 2008 kcal/kg(7) 6,500 6,500 6,500 6,500 kcal/kg (7) – – – 7,500 Coal Quality 2009 2008 kcal/kg(7) – – – – kcal/kg (7) 7,910 7,860 7,870 – Coal Quality 2009 2008 MTIS(6) kcal/kg(7) kcal/kg (7) 26.9 79.5 106.5 2.4 6,500 6,500 6,500 6,500 7,910 7,860 7,870 7,500 O r e R e s e r v e s & M n e r a i l R e s o u r c e s Mining method: OC = Open Cast. LOM = Life of Mine in years based on scheduled Ore Reserves. For the multi-product operations, the ROM tonnage figures apply to each product. The Saleable tonnage cannot be calculated directly from the ROM reserve tonnage using the air dried yields as presented since the difference in moisture content is not taken into account. Attributable percentages for country totals are weighted by Saleable tonnes and should not be directly applied to the ROM tonnage. Export Thermal refers to low- to high-volatile thermal coal primarily for export in the use of power generation; quality measured by calorific value (CV). Coking refers to a high-, medium- or low-volatile semi-soft, soft or hard coking coal primarily for blending and use in steel industry; quality measured as crucible swell number (CSN). Anglo American plc Annual Report 2009 169 Ore Reserves and Mineral Resources Coal estimates as at 31 December 2009 Remaining Coal Resources – Projects(6) Canada Belcourt Saxon 37.4 Attributable %(2) Roman Mountain 74.8 Canada – Projects 42.8 Remaining Coal Resources – Projects(6) Canada and Venezuela Total 42.8 Attributable %(2) Remaining Coal Resources – Mine Lease and Projects(6) Canada and Venezuela Total Attributable %(2) 46.4 Classification Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Classification Measured Indicated Measured and Indicated Classification Measured Indicated Measured and Indicated Inferred (in LOM)(8) 2009 MTIS(6) 166.7 4.2 170.9 21.1 7.5 28.6 187.8 11.7 199.5 2009 MTIS(6) 187.8 11.7 199.5 2009 MTIS(6) 207.7 17.1 224.8 1.4 Tonnes 2008 Coal Quality 2009 2008 MTIS(6) kcal/kg(7) kcal/kg (7) – – – 18.2 6.3 24.5 18.2 6.3 24.5 7,000 7,000 7,000 6,970 6,970 6,970 – – – 6,810 6,810 6,810 kcal/kg(7) kcal/kg (7) 7,000 6,980 7,000 6,810 6,810 6,810 Tonnes 2008 Coal Quality 2009 2008 MTIS(6) kcal/kg(7) kcal/kg (7) 18.2 6.3 24.5 Tonnes 2008 7,000 6,980 7,000 6,810 6,810 6,810 Coal Quality 2009 2008 MTIS(6) kcal/kg(7) kcal/kg (7) 45.1 85.9 131.0 2.4 6,950 6,830 6,940 6,500 7,460 7,790 7,670 7,500 Attributable percentages for country totals are weighted by Measured and Indicated MTIS. (1) Coal Reserves are quoted on a Run Of Mine (ROM) reserve tonnage basis which represents the tonnes delivered to the plant. Saleable reserve tonnage represents the product tonnes produced. Coal Reserves (ROM and Saleable) are on the applicable moisture basis. (2) Attributable (%) refers to 2009 only. For the 2008 Reported and Attributable figures, please refer to the 2008 Annual Report. (3) The tonnage is quoted as metric tonnes. ROM tonnages on an As Delivered moisture basis, and Saleable tonnages on a Product moisture basis. (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. The product yields for Proved, Probable and Total are calculated by dividing the individual Saleable reserves by the total ROM reserves per classification. (5) The coal quality for the Coal Reserves is quoted as either Calorific Value (CV) using kilo-calories per kilogram (kcal/kg) units on a Gross As Received (GAR) basis or Crucible Swell Number (CSN). Coal quality parameters for the Coal Reserves for Coking, Other Metallurgical and Export Thermal collieries meet the contractual specifications for coking coal, PCI, metallurgical coal, steam coal and domestic coal. Coal quality parameters for the Coal Reserves for Domestic Power and Domestic Synfuels collieries meet the specifications of the individual supply contracts. CV is rounded to the nearest 10 kcal/kg and CSN to the nearest 0.5 index. (6) Coal Resources are quoted on a Mineable Tonnage In-Situ (MTIS) basis in million tonnes which are in addition to those resources which have been modified to produce the reported Coal Reserves. Coal Resources are on an in-situ moisture basis. (7) The coal quality for the Coal Resources is quoted on an in-situ heat content as Calorific Value (CV) using kilo-calories per kilogram (kcal/kg) units on a Gross As Received (GAR) basis. CV is rounded to the nearest 10 kcal/kg. (8) Inferred (in LOM) refers to Inferred Coal Resources that are included in the life of mine extraction schedule of the respective collieries and are not reported as Coal Reserves. Inferred Coal Resources outside the LOM plan but within the mine lease area are not reported due to a) the uncertainty attached to such resources in that it cannot be assumed that all or part of the Inferred Resource will necessarily be upgraded to Indicated or Measured categories through continued exploration, b) such Inferred Resources do not necessarily meet the requirements of reasonable prospects for eventual economic extraction, particularly in respect of future mining and processing economics. Summary of material changes (±10%) at reporting level Canada Trend: Belcourt-Saxon: Roman Mountain: China Xiwan: Venezuela Guasare: Reserves: a gain of 9 Mt due to a change in stripping ratio resulting from economic assumptions. Resources: a gain of 25 Mt due to changes in classification methodology and cut-off parameters. Resources: a gain of 171 Mt due to the project being reported for the first time in 2009. Resources: a gain of 4 Mt due to additional drilling information. The Xiwan Project reported in 2008 is currently subject to finalisation of disposal to a third party. Resources are therefore excluded from the 2009 estimates. The resource and reserve statement supplied by Carbones del Guasare has not been validated by Anglo American Thermal Coal. Reserves: a gain of 15 Mt due to changes in mine plan, increased drilling density, and correction for under reporting in 2008. Resources: a loss of 106 Mt due to conversion to reserves and a reclassification of Measured and Indicated to Inferred resources. Assumption with respect to Mineral Tenure Venezuela: Although the Carbones del Guasare mining concession terminates in 2013, Coal Reserves and Resources in the Mine Lease that may be included in a mine plan beyond this date are included in the 2009 statement. Reviews by independent third parties were carried out in 2009 on the following Operations and Project areas: Trend, Roman Mountain 170 Anglo American plc Annual Report 2009 Production statistics The figures below include the entire output of consolidated entities and the Group’s attributable share of joint ventures, joint arrangements and associates where applicable, except for Collahuasi in Copper and De Beers which are quoted on a 100% basis. Due to the portfolio and management structure changes announced in October 2009, the segments have changed from those reported at 31 December 2008. Comparatives have been reclassified to align with current year presentation. Platinum segment (troy ounces)(1)(2) Platinum Palladium Rhodium Nickel (tonnes)(3) Copper (tonnes)(3) Gold Diamonds segment (De Beers) (diamonds recovered – carats) 100% basis (Anglo American 45%) Debswana Namdeb De Beers Consolidated Mines Williamson(4) Canada Copper segment Collahuasi 100% basis (Anglo American 44%) Ore mined Ore processed Ore grade processed Production Total copper production for Collahuasi Anglo American Sur Los Bronces mine Ore mined Marginal ore mined Las Tortolas concentrator Production El Soldado mine Ore mined Oxide Sulphide Oxide Sulphide Copper concentrate Copper cathode Copper in concentrate Ore processed Ore grade processed Average recovery Copper concentrate Copper cathode Copper in concentrate Total tonnes tonnes tonnes % Cu % Cu dry metric tonnes tonnes tonnes tonnes tonnes tonnes tonnes % Cu % dry metric tonnes tonnes tonnes tonnes Open pit – ore mined Open pit – marginal ore mined Underground (sulphide) Total tonnes tonnes tonnes tonnes 2009 2008 2,451,600 1,360,500 349,900 4,162,000 19,500 11,200 90,900 2,386,600 1,318,800 299,300 4,004,700 15,500 8,800 78,500 929,000 17,734,000 32,276,000 2,122,000 4,797,000 11,960,000 134,000 1,640,000 24,600,000 48,132,000 – 1,140,000 7,293,800 71,197,800 57,699,800 7,317,400 45,348,300 42,377,400 0.6 1.1 1,574,000 49,400 415,000 464,400 0.6 1.1 1,837,900 43,100 492,700 535,800 21,115,900 21,045,100 19,368,700 36,008,900 20,512,300 20,012,700 1.1 84.9 677,900 45,800 190,000 235,800 1.1 86.3 676,100 48,400 190,000 238,400 7,348,500 505,600 1,501,000 9,355,100 5,305,800 21,700 1,312,700 6,640,200 (1) See the published results of Anglo Platinum Limited for further analysis of production information. (2) Northam Platinum Limited was transferred to a disposal group in September 2007. Production information excludes Northam Platinum Limited. Northam Platinum Limited was sold on 20 August 2008. (3) Also disclosed within total attributable nickel and copper production. (4) Williamson was disposed of on 10 November 2008. O t h e r i n f o r m a t i o n Anglo American plc Annual Report 2009 171 Other information Production statistics continued Copper segment (continued) Anglo American Sur (continued) El Soldado mine (continued) Ore processed Ore grade processed Production Chagres Smelter Production Total copper production for Anglo American Sur(1) Anglo American Norte Mantos Blancos mine Ore processed Ore grade processed Production Mantoverde mine Ore processed Ore grade processed Production Total copper production for Anglo American Norte(1) Total Copper segment copper production(1) Platinum copper production(2) Black Mountain copper production Total attributable copper production(1) Oxide Sulphide Oxide Sulphide Copper concentrate Copper cathode Copper in concentrate Total tonnes tonnes % Cu % Cu dry metric tonnes tonnes tonnes tonnes Copper concentrate smelted Copper blister/anode Copper blister/anode (third party) Acid tonnes tonnes tonnes tonnes tonnes Oxide Sulphide Marginal ore mined Oxide Sulphide Marginal ore Copper concentrate Copper cathode Copper cathode (third party) Copper in concentrate Total Oxide Marginal ore Oxide Marginal ore Copper cathode tonnes tonnes tonnes % Cu (soluble) % Cu (insoluble) % Cu (soluble) dry metric tonnes tonnes tonnes tonnes tonnes tonnes tonnes % Cu (soluble) % Cu (soluble) tonnes tonnes tonnes tonnes tonnes tonnes 2009 2008 1,689,700 7,481,500 0.7 0.7 158,700 4,200 37,200 41,400 140,900 137,700 2,500 457,600 282,300 4,361,300 4,248,100 3,360,000 0.7 1.1 0.3 125,100 37,600 8,600 44,000 90,200 9,676,300 4,058,000 0.7 0.3 61,500 151,700 669,800 11,200 2,200 683,200 821,800 7,179,700 1.3 0.8 174,100 6,700 43,100 49,800 148,400 146,100 1,000 486,600 286,600 4,694,800 4,311,100 5,003,000 0.7 1.2 0.3 132,300 34,300 5,300 46,800 86,400 9,556,900 4,300,400 0.7 0.4 62,500 148,900 639,800 8,800 2,500 651,100 (1) Includes total concentrate and cathode production and blister/anode produced from third party purchased material. (2) Northam Platinum Limited was transferred to a disposal group in September 2007. Production information excludes Northam Platinum Limited. Northam Platinum Limited was sold on 20 August 2008. 172 Anglo American plc Annual Report 2009 Nickel segment Codemin Ore mined Ore processed Ore grade processed Production Loma de Níquel Ore mined Ore processed Ore grade processed Production Total Nickel segment nickel production Platinum nickel production(1) Total attributable nickel production Iron Ore and Manganese segment Kumba Iron Ore Lump Fines Amapá(2) Sinter feed Pellet feed Total iron ore production Samancor(3) Manganese ore Manganese alloys(4) tonnes tonnes % Ni tonnes tonnes tonnes % Ni tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes 2009 2008 547,700 512,000 2.1 9,500 822,700 641,800 1.6 10,400 19,900 19,500 39,400 498,400 475,900 2.1 9,100 811,000 676,800 1.6 10,900 20,000 15,500 35,500 25,300,000 22,042,000 16,643,000 14,657,000 576,100 2,077,100 128,000 584,000 44,596,200 37,411,000 1,570,000 129,000 2,704,000 306,000 (1) Northam Platinum Limited was transferred to a disposal group in September 2007. Production information excludes Northam Platinum Limited. Northam Platinum Limited was sold on 20 August 2008. (2) Production from Amapá is included from 5 August 2008. Amapá production for full year 2008 was 1.2 Mt. At 31 December 2009 Amapá was not in commercial production and therefore to this date all revenue and related costs were capitalised. Commercial production commenced on 1 January 2010. (3) Saleable production. (4) Production includes Medium Carbon Ferro Manganese. Anglo American plc Annual Report 2009 173 O t h e r i n f o r m a t i o n Other information Production statistics continued Coal (tonnes) Metallurgical Coal segment Australia Metallurgical Thermal Total Metallurgical Coal segment coal production Thermal Coal segment South Africa Trade – Metallurgical Trade – Thermal Eskom South America Thermal Total Thermal Coal segment coal production Other Mining and Industrial segment South America Thermal Canada Metallurgical Thermal Total Other Mining and Industrial segment coal production Total coal production Coal (tonnes) Metallurgical Coal segment Australia Callide Drayton Capcoal Jellinbah East Moranbah Dawson Complex Foxleigh Total Metallurgical Coal segment coal production Thermal Coal segment South Africa Greenside Goedehoop Isibonelo Kriel Kleinkopje Landau New Denmark New Vaal Nooitgedacht Mafube Zibulo South America Carbones del Cerrejón Total Thermal Coal segment coal production 2009 2008 12,622,600 13,144,900 14,051,800 14,696,300 26,674,400 27,841,200 747,100 971,900 22,185,900(1) 22,286,800 36,225,100 36,158,100 59,158,100(1) 59,416,800 10,189,600 10,410,300 69,347,700(1) 69,827,100 750,700 1,074,200 645,300 73,000 718,300 1,469,000 632,300 140,100 772,400 1,846,600 97,491,100(1) 99,514,900 8,766,400 3,630,200 4,598,900 1,745,800 2,581,000 3,756,200 1,595,900 9,582,700 3,711,500 5,621,900 1,033,900 3,181,500 3,537,200 1,172,500 26,674,400 27,841,200 4,414,000 4,231,500 3,728,900 3,294,600 6,905,000 5,061,900 3,401,100 7,449,400 5,152,100 11,161,700 10,344,400 4,545,600 4,089,300 5,272,500 17,553,700 17,034,400 454,600 1,673,400 – 59,158,100(1) 59,416,800 475,000 2,212,800 119,000 10,189,600 10,410,300 69,347,700(1) 69,827,100 (1) Zibulo (previously Zondagsfontein) is currently not in commercial production and therefore all revenue and related costs associated with 119,000 tonnes of production have been capitalised. 174 Anglo American plc Annual Report 2009 Coal (tonnes) (continued) Other Mining and Industrial segment South America Carbones del Guasare Canada Peace River Coal Total Other Mining and Industrial segment coal production Total coal production Total coal production by commodity (tonnes) Metallurgical South Africa Australia Canada Total metallurgical coal production Thermal South Africa – Thermal South Africa – Eskom Australia South America Canada Total thermal coal production Total coal production 2009 2008 750,700 1,074,200 718,300 1,469,000 772,400 1,846,600 97,491,100(1) 99,514,900 747,100 971,900 12,622,600 13,144,900 632,300 14,015,000 14,749,100 645,300 22,185,900(1) 22,286,800 36,225,100 36,158,100 14,051,800 14,696,300 10,940,300 11,484,500 140,100 83,476,100(1) 84,765,800 97,491,100(1) 99,514,900 73,000 (1) Zibulo (previously Zondagsfontein) is currently not in commercial production and therefore all revenue and related costs associated with 119,000 tonnes of production have been capitalised. Anglo American plc Annual Report 2009 175 O t h e r i n f o r m a t i o n Other information Production statistics continued Other Mining and Industrial segment(1) Tarmac Aggregates Lime products Concrete Zinc and Lead Skorpion Ore mined Ore processed Ore grade processed Production Lisheen Ore mined Ore processed Ore grade processed Production Black Mountain Ore mined Ore processed Ore grade processed Production Total attributable zinc production Total attributable lead production Scaw Metals South Africa Steel Products International Steel Products Niobium Catalão Ore mined Ore processed Ore grade processed Production Phosphates Copebrás Sodium tripolyphosphate Phosphates Mineral Sands Namakwa Sands(2) Ore mined Production Smelter production tonnes tonnes m3 tonnes tonnes % Zn tonnes tonnes tonnes % Zn % Pb tonnes tonnes tonnes tonnes % Zn % Pb % Cu tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes Kg Nb/tonne tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes 2009 2008 70,437,100 93,095,000 1,353,000 6,312,000 1,214,400 3,521,200 1,495,900 1,426,800 11.5 150,400 1,390,400 1,333,300 11.7 145,400 1,534,500 1,526,200 12.4 1.8 171,800 19,200 1,249,700 1,293,200 2.8 4.0 0.3 28,200 49,100 2,200 350,400 68,300 1,561,900 1,516,900 12.1 1.6 167,200 15,900 1,199,800 1,204,800 3.0 4.2 0.4 27,900 47,000 2,500 340,500 62,900 693,000 718,000 771,000 879,000 906,700 873,500 9.3 5,100 768,100 818,100 11.1 4,600 – 829,000 10,200 982,100 – 13,418,600 240,900 – 19,100 – 97,400 – 118,500 – 78,800 – Zinc Zinc Zinc Lead Zinc in concentrate Lead in concentrate Zinc Lead Copper Zinc in concentrate Lead in concentrate Copper in concentrate Ilmenite Rutile Zircon Slag tapped Iron tapped (1) Production for Coal Americas is included in Coal production section. (2) Production information included until date of disposal on 1 October 2008. 176 Anglo American plc Annual Report 2009 Quarterly production statistics(1) December 2009 September 2009 June 2009 March 2009 December 2008 December Q09 v September Q09 December Q09 v December Q08 Quarter ended % Change 22% 26% 2% (4)% 28% 11% – 5% 33% 108% (9)% (5)% (12)% 29% (6)% 8% 2% 23% 9% (28)% Platinum segment(2) Platinum (troy ounces) Palladium (troy ounces) Rhodium (troy ounces) Nickel (tonnes) Diamonds segment (De Beers) (diamonds recovered – carats) 100% basis (Anglo American 45%) Diamonds 766,000 426,300 93,900 5,300 629,200 337,500 92,100 5,500 652,400 361,600 90,100 5,400 404,000 235,100 73,800 3,300 842,300 450,500 107,100 4,100 10,124,000 7,885,000 5,509,000 1,082,000 10,795,000 Copper segment (tonnes)(3) 185,900 168,100 165,300 150,500 172,600 Nickel segment (tonnes)(4) 4,900 4,900 5,600 4,500 4,800 Iron Ore and Manganese segment (tonnes) Iron ore(5) Manganese ore(6) Manganese alloys(6)(7) Metallurgical Coal segment (tonnes) Metallurgical Thermal Thermal Coal segment (tonnes) Metallurgical Thermal Eskom Other Mining and Industrial segment (tonnes) Metallurgical coal Thermal coal Zinc Lead South Africa Steel Products International Steel Products Coal production by commodity (tonnes) Metallurgical Thermal Eskom (1) Excludes Tarmac. 12,407,200 11,861,000 10,336,000 200,000 10,000 615,000 52,000 462,000 25,000 9,992,000 10,098,000 565,000 72,000 293,000 42,000 3,805,500 3,487,400 3,147,800 3,614,300 3,354,000 3,738,600 2,315,300 3,211,500 3,410,800 4,051,200 21% (4)% 12% (14)% 130,500 224,300 7,785,400 8,431,600 8,448,400 10,400,200 (8) 172,300 8,429,300 8,938,400 220,000 7,729,200 8,438,100 408,300 7,961,800 9,465,900 (42)% (8)% (19)% 149,900 310,200 86,500 18,900 167,000 177,000 164,900 214,500 94,000 18,400 183,000 164,000 152,600 169,000 87,100 16,400 164,000 158,000 177,900 130,000 82,800 14,600 179,000 219,000 136,100 234,300 82,900 14,400 167,000 215,000 3,537,000 4,085,900 3,955,200 3,678,900 11,583,000 12,260,400 12,336,900 11,070,700 12,247,300 9,465,900 8,938,400 8,448,400 10,400,200 8,438,100 2,713,200 (8) (9)% 45% (8)% 3% (9)% 8% 16% (6)% (19)% (68)% (2)% (11)% 10% 32% 4% 31% – (18)% 3% (5)% (11)% (2) Northam Platinum Limited was transferred to a disposal group in September 2007. Production information excludes Northam Platinum Limited. Northam Platinum Limited was sold on 20 August 2008. (3) Excludes Anglo Platinum and Black Mountain copper production. (4) Excludes Anglo Platinum nickel production. (5) Production from Amapá is included from 5 August 2008. Amapá production for full year 2008 was 1.2 Mt. At 31 December 2009 Amapá was not in commercial production and therefore to this date all revenue and related costs were capitalised. Commercial production commenced on 1 January 2010. (6) Saleable production. (7) Production includes Medium Carbon Ferro Manganese. (8) Zibulo (previously Zondagsfontein) is currently not in commercial production and therefore all revenue and related costs associated with 119,000 tonnes of production have been capitalised. Anglo American plc Annual Report 2009 177 O t h e r i n f o r m a t i o n Other information Exchange rates and commodity prices US$ exchange rates Average prices for the year Rand Sterling Euro Australian dollar Chilean peso Brazilian real Closing spot prices Rand Sterling Euro Australian dollar Chilean peso Brazilian real Commodity prices Average market prices for the year Platinum(1) Palladium(1) Rhodium(1) Copper(2) Nickel(2) Zinc(2) Lead(2) 31 December spot prices Platinum(1) Palladium(1) Rhodium(1) Copper(2) Nickel(2) Zinc(2) Lead(2) (1) Source: Johnson Matthey. (2) Source: LME daily prices. 2009 2008 8.41 0.64 0.72 1.26 559 2.00 7.38 0.62 0.70 1.11 507 1.74 8.27 0.54 0.68 1.17 524 1.84 9.30 0.69 0.72 1.44 637 2.33 2009 2008 1,211 266 1,592 234 667 75 78 1,475 402 2,500 333 838 117 109 1,585 355 6,564 315 953 85 95 922 186 1,250 132 490 51 43 US$/oz US$/oz US$/oz US cents/lb US cents/lb US cents/lb US cents/lb US$/oz US$/oz US$/oz US cents/lb US cents/lb US cents/lb US cents/lb 178 Anglo American plc Annual Report 2009 Key financial data US$ million (unless otherwise stated) Group revenue including associates Less: Share of associates’ revenue Group revenue Operating profit including associates before special items and remeasurements Special items and remeasurements (excluding financing and tax special items and remeasurements) Net finance costs (including financing special items and remeasurements), tax and minority interests of associates Total profit from operations and associates Net finance costs (including financing special items and remeasurements) Profit before tax Income tax expense (including special items and remeasurements) Profit for the financial year – continuing operations Profit for the financial year – discontinued operations Profit for the financial year – total Group Minority interests Profit attributable to equity shareholders of the Company Underlying earnings(2) – continuing operations Underlying earnings(2) – discontinued operations Underlying earnings(2) – total Group Earnings per share ($) – continuing operations Earnings per share ($) – discontinued operations Earnings per share ($) – total Group Underlying earnings per share ($) – continuing operations Underlying earnings per share ($) – discontinued operations Underlying earnings per share ($) – total Group Ordinary dividend per share (US cents) Special dividend per share (US cents) Weighted average basic number of shares outstanding (million) EBITDA(3) – continuing operations EBITDA(3) – discontinued operations EBITDA(3) – total Group EBITDA interest cover(4) – total Group Operating margin (before special items and remeasurements) – total Group Ordinary dividend cover (based on underlying earnings per share) – total Group See following page for footnotes. 2009 24,637 (3,779) 20,858 2008 32,964 (6,653) 26,311 2007 30,559 (5,089) 25,470 2006(1) 2005(1) 2004(1) 29,404 (4,413) 24,991 24,872 (4,740) 20,132 22,610 (5,429) 17,181 4,957 10,085 9,590 8,888 5,549 3,832 (208) (330) (227) 24 16 556 (313) 4,436 (407) 4,029 (1,117) 2,912 – 2,912 (487) 2,425 2,569 – 2,569 2.02 – 2.02 2.14 – 2.14 – – 1,202 6,930 – 6,930 23.0 (783) 8,972 (401) 8,571 (2,451) 6,120 – 6,120 (905) 5,215 5,237 – 5,237 4.34 – 4.34 4.36 – 4.36 44.0 – 1,202 11,847 – 11,847 28.3 (434) 8,929 (108) 8,821 (2,693) 6,128 2,044 8,172 (868) 7,304 5,477 284 5,761 4.04 1.54 5.58 4.18 0.22 4.40 124.0 – 1,309 11,171 961 12,132 42.0 (398) 8,514 (71) 8,443 (2,518) 5,925 997 6,922 (736) 6,186 5,019 452 5,471 3.51 0.70 4.21 3.42 0.31 3.73 108.0 67.0 1,468 10,431 1,766 12,197 45.5 (315) 5,250 (220) 5,030 (1,208) 3,822 111 3,933 (412) 3,521 3,335 401 3,736 2.35 0.08 2.43 2.30 0.28 2.58 90.0 33.0 1,447 7,172 1,787 8,959 20.0 (391) 3,997 (385) 3,612 (765) 2,847 1,094 3,941 (440) 3,501 2,178 506 2,684 1.84 0.60 2.44 1.52 0.35 1.87 70.0 – 1,434 5,359 1,672 7,031 18.5 20.1% 30.6% 28.4% 25.4% 18.5% 14.7% – 9.9 3.5 3.5 2.9 2.7 Anglo American plc Annual Report 2009 179 O t h e r i n f o r m a t i o n Other information Key financial data continued US$ million (unless otherwise stated) 2009 2008 2007 2006(1) 2005(1) 2004(1) Balance sheet Intangible and tangible assets Other non-current assets and investments(5) Working capital Other net current liabilities(5) Other non-current liabilities and obligations(5) Cash and cash equivalents and borrowings(6) Net assets classified as held for sale Net assets Minority interests Equity attributable to equity shareholders of the Company Total capital(7) Cash inflows from operations – continuing operations Cash inflows from operations – discontinued operations Cash inflows from operations – total Group Dividends received from associates and financial asset investments – continuing operations Dividends received from associates and financial asset investments – discontinued operations Dividends received from associates and financial asset investments – total Group Return on capital employed(8) – total Group EBITDA/average total capital(7) – total Group Net debt to total capital (gearing)(9) 37,974 7,303 2,165 (272) (8,487) (11,043) 429 28,069 (1,948) 26,121 39,064 4,904 – 4,904 639 – 639 14.6% 19.3% 30.8% 32,551 7,607 861 (840) (7,567) (11,051) 195 21,756 (1,535) 20,221 32,799 9,579 – 9,579 659 – 659 36.8% 38.0% 37.8% 25,090 9,271 1,966 (911) (6,387) (5,170) 471 24,330 (1,869) 22,461 29,569 9,375 470 9,845 311 52 363 37.8% 40.4% 20.0% 25,632 8,258 3,096 (1,430) (5,826) (3,244) 641 27,127 (2,856) 24,271 30,451 9,012 1,045 10,057 251 37 288 32.4% 38.7% 12.9% 33,368 5,585 3,538 (1,429) (8,491) (4,993) – 27,578 (3,957) 23,621 32,571 5,963 1,302 7,265 468 2 470 19.2% 26.1% 17.0% 35,816 5,547 3,543 (611) (8,339) (8,243) – 27,713 (4,588) 23,125 35,956 3,857 1,434 5,291 380 16 396 14.6% 21.2% 25.4% (1) Comparatives for 2006, 2005 and 2004 were adjusted in the 2007 Annual Report to reclassify amounts relating to discontinued operations where applicable. (2) Underlying earnings is net profit attributable to equity shareholders, adjusted for the effect of special items and remeasurements and any related tax and minority interests. (3) EBITDA is operating profit before special items, remeasurements, depreciation and amortisation in subsidiaries and joint ventures and includes attributable share of EBITDA of associates. (4) EBITDA interest cover is EBITDA divided by net finance costs, excluding other net financial income, exchange gains and losses on monetary assets and liabilities, amortisation of discounts on provisions, financing special items and remeasurements, but including attributable share of associates’ net interest expense. (5) Comparatives for 2008, 2007, 2006 and 2005 have been adjusted in accordance with IAS 1 Presentation of Financial Statements – Improvements as described in note 1 Accounting policies. (6) This differs from the Group’s measure of net debt as it excludes the net debt of disposal groups (2009: $48 million; 2008: $8 million; 2007: $(69) million; 2006: $(80) million; 2005: nil; 2004: nil), and excludes the impact of derivative instruments that provide an economic hedge of assets and liabilities in net debt (2009: liabilities of $285 million; 2008: liabilities of $297 million; 2007: assets of $388 million; 2006: assets of $193 million; 2005: nil; 2004: nil). For more detail see note 30 Consolidated cash flow analysis. (7) Total capital is net assets excluding net debt (excluding the impact of derivative instruments). (8) Return on capital employed is calculated as total operating profit before impairments for the year divided by the average of total capital less other investments and adjusted for impairments. (9) Net debt to total capital is calculated as net debt (excluding the impact of derivative instruments) divided by total capital less investments in associates. 180 Anglo American plc Annual Report 2009 Summary by business operation(1) Revenue(2) EBITDA(3) Operating profit/(loss)(4) Underlying earnings US$ million Platinum Diamonds Copper Collahuasi Anglo American Sur Anglo American Norte Projects and corporate Nickel Codemin Loma de Níquel Projects and corporate Iron Ore and Manganese Kumba Iron Ore Iron Ore Brazil Samancor Metallurgical Coal Australia Projects and corporate Thermal Coal South Africa South America Projects and corporate Other Mining and Industrial Tarmac(5) Skorpion Lisheen Black Mountain Scaw Metals Copebrás Catalão Coal Americas Tongaat Hulett/Hulamin(6) Namakwa Sands Projects and corporate Exploration Corporate Activities and Unallocated Costs 2009 4,535 1,728 3,967 1,411 1,723 833 – 348 157 191 – 3,419 2,816 – 603 2,239 2,239 – 2,490 1,747 743 – 5,908 2,870 236 208 148 1,384 320 184 165 393 – – – 2008 6,327 3,096 3,907 1,134 1,965 808 – 408 198 210 – 4,099 2,573 – 1,526 3,119 3,119 – 3,051 2,210 841 – 8,951 4,399 279 196 115 1,927 655 141 245 817 177 – – 3 24,637 6 32,964 2009 677 215 2,254 952 994 408 (100) 28 49 11 (32) 1,593 1,562 (135) 166 706 729 (23) 875 550 352 (27) 878 313 100 74 59 172 (9) 111 6 73 – (21) (172) (124) 6,930 2008 2,675 665 2,104 682 1,265 288 (131) 150 132 48 (30) 2,625 1,632 (5) 998 1,319 1,353 (34) 1,200 814 419 (33) 1,513 488 132 40 37 309 244 80 42 115 59 (33) (212) (192) 11,847 2009 32 64 2,010 880 862 369 (101) 2 41 (7) (32) 1,489 1,487 (141) 143 451 474 (23) 721 442 305 (26) 506 101 43 73 59 131 (40) 106 (8) 62 – (21) (172) (146) 4,957 2008 2,169 508 1,892 613 1,157 255 (133) 123 123 30 (30) 2,554 1,583 (9) 980 1,110 1,144 (34) 1,078 736 375 (33) 1,082 229 88 22 26 274 217 78 29 92 59 (32) (212) (219) 10,085 2009 44 (90) 1,201 663 444 197 (103) (13) 24 17 (54) 571 490 (119) 200 322 345 (23) 517 328 215 (26) 403 81 40 67 60 70 7 77 (12) 31 – (18) (167) (219) 2,569 2008 1,256 256 1,044 367 699 113 (135) (35) 94 (97) (32) 1,150 523 (31) 658 764 797 (33) 754 543 243 (32) 734 173 85 15 28 165 105 70 25 53 46 (31) (200) (486) 5,237 (1) Due to the portfolio and management structure changes announced in October 2009, the segments have changed from those reported at 31 December 2008. Comparatives have been reclassified to align with current year presentation. The segment results include an allocation of corporate costs. A reconciliation of operating profit and underlying earnings by segment as reported in the 2008 Annual Report to the amounts reflected above is shown in the ‘Reconciliation of earnings by segment’. (2) Revenue includes the Group’s attributable share of revenue of joint ventures and associates. Revenue for copper and zinc operations is shown after deduction of treatment charges and refining charges (TC/RCs). (3) EBITDA is operating profit before special items, remeasurements, depreciation and amortisation in subsidiaries and joint ventures and includes attributable share of EBITDA of associates. (4) Operating profit includes operating profit before special items and remeasurements from subsidiaries and joint ventures and attributable share of operating profit (before interest, tax, minority interests, special items and remeasurements) of associates. (5) Tarmac is made up of the former Industrial Minerals segment and Yang Quarry, which was previously included in the Coal segment. (6) The Group’s investments in Tongaat Hulett and Hulamin were disposed of in August 2009 and July 2009, respectively. Anglo American plc Annual Report 2009 181 O t h e r i n f o r m a t i o n Other information Reconciliation of earnings by segment The following tables reconcile operating profit and underlying earnings by segment as reported in the 2008 Annual Report to the comparative amounts reported in notes 2 and 3 respectively. The adjustments reflect the portfolio and management structure changes announced in October 2009. Operating profit US$ million 2008 Platinum Diamonds Base Metals Copper Codemin, Loma de Níquel Catalão, Namakwa Sands, Copebrás, Zinc Other Ferrous Metals and Industries Kumba Iron Ore, Iron Ore Brazil, Samancor Scaw, Tongaat Hulett/Hulamin Other Coal Australia South Africa South America Canada Projects and corporate Industrial Minerals Exploration Corporate Activities and Unallocated Costs Underlying earnings US$ million 2008 Platinum Diamonds Base Metals Copper Codemin, Loma de Níquel Catalão, Namakwa Sands, Copebrás, Zinc Other Ferrous Metals and Industries Kumba Iron Ore, Iron Ore Brazil, Samancor Scaw, Tongaat Hulett/Hulamin Other Coal Australia South Africa South America Canada Projects and corporate Industrial Minerals Exploration Corporate Activities and Unallocated Costs Pre- restructuring Structural changes Divisional cost apportionment Corporate cost allocation As reported (note 2) 2,226 508 2,505 2,017 153 490 (155) 2,935 2,590 366 (21) 2,240 1,144 736 396 8 (44) 228 (212) (345) 10,085 – – (67) (19) (490) 90 – (366) 2 (5) 372 (396) (8) 16 881 – (10) – 1,313 256 1,369 1,171 (3) 349 (148) 1,396 1,186 218 (8) 1,581 797 543 257 11 (27) 173 (200) (651) 5,237 – – (69) (21) (349) 83 – (218) (11) (4) 241 (257) (11) (1) 588 – 29 – (212) Exploration Corporate Activities and Unallocated Costs (92) – 228 – (219) 10,085 – – (5) (5) – 65 – – 19 – (4) – – 28 (6) – (57) – (53) (6) – – (36) – – (29) (26) – – – (21) – – – (5) (5) – 65 – – 19 – (4) – – 28 (6) – (57) – (53) (6) – – (36) – – (29) (26) – – – (21) – 2,169 Platinum 508 Diamonds 1,892 Copper 123 Nickel – – 2,554 – – Iron Ore and Manganese Thermal Coal 1,110 Metallurgical Coal 1,078 – – – 1,082 Other Mining and Industrial 1,256 Platinum 256 Diamonds 1,044 Copper (35) Nickel – – 1,150 – – Iron Ore and Manganese Thermal Coal 764 Metallurgical Coal 754 – – – 734 Other Mining and Industrial (200) Exploration Corporate Activities and Unallocated Costs (92) – 228 – (486) 5,237 Pre- restructuring Structural changes Divisional cost apportionment Corporate cost allocation As reported (note 3) 182 Anglo American plc Annual Report 2009 Reconciliation of subsidiaries’ and associate’s reported earnings to the Underlying earnings included in the consolidated financial statements for the year ended 31 December 2009 Note only key reported lines are reconciled. US$ million Anglo Platinum Limited IFRS headline earnings (US$ equivalent of published) Exploration Exchange rate difference Operating and financing remeasurements (net of tax) Restructuring costs included in headline earnings Other adjustments Minority interests Elimination of intercompany interest Depreciation on assets fair valued on acquisition (net of tax) Corporate cost allocation Contribution to Anglo American plc underlying earnings DB Investments De Beers underlying earnings (100%) Difference in IAS 19 accounting policy De Beers underlying earnings – Anglo American plc basis (100%) Anglo American plc’s 45% ordinary share interest Income from preference shares Other Contribution to Anglo American plc underlying earnings Kumba Iron Ore Limited (Kumba) IFRS headline earnings (US$ equivalent of published)(2) Exploration Other adjustments Minority interests Elimination of intercompany interest Depreciation on assets fair valued on acquisition (net of tax) Corporate cost allocation Other adjustments Contribution to Anglo American plc underlying earnings (1) Comparatives have been updated to include an allocation of corporate costs, where applicable. (2) Kumba’s IFRS headline earnings for the year ended 31 December 2009 assume a minority interest of 20% in Kumba’s underlying mining assets (2008: 20%). 2009 2008(1) 84 17 – 27 27 2 157 (31) 47 (83) (46) 44 (220) 5 (215) (97) 9 (2) (90) 845 3 (2) 846 (314) (10) (7) (39) 14 490 1,607 36 64 17 – (2) 1,722 (376) 8 (41) (57) 1,256 515 18 533 240 13 3 256 872 8 12 892 (328) – (6) (35) – 523 Anglo American plc Annual Report 2009 183 O t h e r i n f o r m a t i o n Other information The business – an overview Platinum Overall ownership: 79.7% 100% owned South Africa Bathopele Mine Khomanani Mine Thembelani Mine Khuseleka Mine Siphumelele Mine Tumela Mine Dishaba Mine Mogalakwena Mine Western Limb Tailings Retreatment Waterval Smelter (including converting process) Polokwane Smelter Rustenburg Base Metals Refinery Precious Metals Refinery Twickenham Mine Trading and Marketing The Diamond Trading Company De Beers(1) 100% owned South Africa De Beers Group Services (Exploration and Services) De Beers Marine Canada De Beers Canada Snap Lake Victor Copper 100% owned Chagres (Chile) El Soldado (Chile) Los Bronces (Chile) Mantos Blancos (Chile) Mantoverde (Chile) Michiquillay (Peru) (1) An independently managed associate. (2) De Beers’ 78% holdings include a 4% indirect holding via the Key Employee Trust. Other interests South Africa Union Section Joint ventures or sharing agreements Modikwa Platinum Joint Venture Kroondal Pooling and Sharing Agreement Bafokeng-Rasimone Joint Venture Marikana Pooling and Sharing Agreement Mototolo Joint Venture Masa Chrome Company Associates Bokoni (formerly Lebowa Platinum Mines) Pandora Anooraq Lisinfo Johnson Matthey Fuel Cells 85% 50% 50% 33% 50% 50% 74% 49% 42.5% 27% 25.4% 17.5% Other interests South Africa De Beers Consolidated Mines(2) Finsch Kimberley Mines Namaqualand Mines The Oaks Venetia South African Sea Areas (SASA) Botswana Debswana (Damtshaa, Jwaneng, Orapa and Lethlakane mines) Overall ownership: 45% 78% 78% 78% 78% 78% 78% 50% Namibia Namdeb (Mining Area No. 1, Orange River Mines, Elizabeth Bay and Marine concessions) De Beers Marine Namibia Trading and Marketing DTC Botswana Namibia DTC Industrial Diamonds Element Six Diamond Jewellery Retail De Beers Diamond Jewellers 50% 70% 50% 50% 60% 50% Other interests Collahuasi (Chile) Palabora (South Africa) Quellaveco (Peru) Pebble (US) Overall ownership: 100% 44% 17% 81.9% 50% 184 Anglo American plc Annual Report 2009 Nickel 100% owned Codemin (Brazil) Barro Alto (Brazil) Iron Ore and Manganese Kumba Iron Ore (South Africa) Minas Rio (Brazil) Amapá (Brazil) LLX Minas Rio (Brazil) Samancor (South Africa and Australia) Metallurgical Coal 100% owned Australia Callide Australia – other Monash Energy Holdings Ltd Thermal Coal 100% owned South Africa Goedehoop Greenside and Nooitgedacht Isibonelo Kleinkopje Kriel(1) Landau New Denmark New Vaal Zibulo(1) Other interests Loma de Níquel (Venezuela) Other interests Australia Dartbrook Dawson Complex Drayton German Creek Jellinbah East Moranbah North Foxleigh Australia – other Dalrymple Bay Coal Terminal Pty Ltd Newcastle Coal Shippers Pty Ltd Other interests South Africa Mafube Phola plant South Africa – other Richards Bay Coal Terminal Colombia Carbones del Cerrejón Overall ownership: 100% 91.4% 62.8% 100% 70% 49% 40% Overall ownership: 100% 83% 51% 88.2% 70% 23% 88% 70% 32% 20% Overall ownership: 100% 50% 50% 27% 33.3% (1) Kriel and Zibulo form part of the Anglo Inyosi Coal BBBEE Company of which Anglo Coal will own 73%. The outstanding conditions precedent to the transactions are expected to be fulfilled in the first half of 2010 following which the transaction will complete. Anglo American plc Annual Report 2009 185 O t h e r i n f o r m a t i o n Other information The business – an overview continued Other Mining and Industrial 100% owned Aggregates and Building Materials Tarmac Group (UK) Tarmac France (France and Belgium) Tarmac Germany Tarmac Poland Tarmac Czech Republic Tarmac Romania Tarmac Turkey Tarmac International Holdings (Europe and Middle East) United Marine Holdings Zinc/Lead Skorpion (Namibia) Lisheen (Ireland) Niobium Catalão (Brazil) Other(1) Other interests Zinc/Lead Black Mountain (South Africa) Gamsberg (South Africa) Steel products Scaw Metals (worldwide) Phosphate products Copebrás (Brazil) Coal Americas Peace River Coal (Canada) Carbones del Guasare (Venezuela) 74% 74% 74%-100% 73% 74.8% 24.9% 100% owned Vergelegen (South Africa) Other interests Exxaro Resources (southern Africa and Australia) 10% (1) Included within Corporate Activities and Unallocated Costs segment. 186 Anglo American plc Annual Report 2009 Shareholder information Annual General Meeting Will be held at 11:00 am on 22 April 2010, at The Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London, SW1P 3EE. Shareholders’ diary 2010/11 Interim results announcement Annual results announcement Annual Report Annual General Meeting August 2010 February 2011 March 2011 April 2011 Shareholding enquiries Enquiries relating to shareholdings should be made to the Company’s UK Registrars, Equiniti or the South African Transfer Secretaries, Link Market Services South Africa (Pty) Limited, at the relevant address below: UK Registrars Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA England Telephone: In the UK: 0871 384 2026* * Calls charged at 8p per minute from a BT landline. Other telephony providers’ costs may vary. From outside the UK: +44 121 415 7558 Transfer Secretaries in South Africa Link Market Services South Africa (Pty) Limited 11 Diagonal Street Johannesburg 2001, South Africa (PO Box 4844, Johannesburg 2000) Telephone: +27 (0) 11 630 0800 Enquiries on other matters should be addressed to the Company Secretary at the following address: Registered and Head Office Anglo American plc 20 Carlton House Terrace London SW1Y 5AN England Telephone: +44 (0)20 7968 8888 Fax: +44 (0)20 7968 8500 Registered number: 3564138 Website: www.angloamerican.co.uk Additional information on a wide range of shareholder services can be found in the Shareholder Information section of the Notice of AGM and on the Group’s website. Anglo American plc Annual Report 2009 187 O t h e r i n f o r m a t i o n Other information Other Anglo American publications • 2008/9 Fact Book • Notice of 2010 AGM and Shareholder Information Booklet • 2009 Report to Society • Optima – Anglo American’s current affairs journal • Transformation Report • Good Citizenship: Business Principles • Anglo Environment Way • Anglo Occupational Health Way • Anglo Safety Way • Anglo Social Way The Company implemented electronic communications in 2008 in order to reduce the financial and environmental costs of producing the annual report. More information about this can be found in the attached Notice of AGM. In this regard we would encourage downloading of reports from our website. Financial reports may be found on: www.angloamerican.co.uk/aa/investors/reports/ Sustainable development reports may be found on: www.angloamerican.co.uk/aa/development/sdreports/gr/ However, the 2009 Annual Report 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. If you would like to receive paper copies of Anglo American’s publications, please write to: Investor Relations Anglo American plc 20 Carlton House Terrace London SW1Y 5AN England Alternatively, publications can be ordered online at: www.angloamerican.co.uk/aa/siteservices/requestreport/ Charitable partners This is just a selection of the charities which Anglo American, The Chairman’s Fund and the Anglo American Group Foundation have worked with in 2009: 188 Anglo American plc Annual Report 2009 Annual Report 2009 Our mission Anglo American aims to be the leading global mining company – through world class assets in the most attractive commodities, operational excellence and a resolute commitment to safe and sustainable mining. Find out more Within this report we have included references to find out more information on certain sections, either within the report itself or online. For more information within this report For more information online Cover photo Mantos Blancos in the Atacama Desert in Chile has been in operation for nearly 50 years. In 2009, the mine produced more than 90 kt of copper. This page Load haul trucks in the open pit at Los Bronces in Chile. The mine, which lies at 3,000-3,500 metres above sea level, and has extensive reserves, produced more than 238 kt of copper in 2009. Printed on Revive 50:50 Silk and Revive 100 Offset paper. Revive 50:50 Silk is made from pre and post consumer waste and virgin wood fibre, Revive 100 Offset is made from 100% de-inked post consumer waste. Both have been independently certified in accordance with the FSC (Forest Stewardship Council). Printed at St Ives Westerham Press Ltd, ISO 14001, FSC certified and CarbonNeutral® Designed by Addison www.addison.co.uk Anglo American plc 20 Carlton House Terrace London SW1Y 5AN England Tel +44 (0)20 7968 8888 Fax +44 (0)20 7968 8500 Registered number 3564138 www.angloamerican.co.uk l A n g o A m e r i c a n p c l A n n u a l R e p o r t 2 0 0 9 Annual Report 2009 A strategy for A strategy for unlocking value unlocking value 

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