A N G L O A M E R I C A N P L C A N N U A L R E P O R T 2 0 1 1 ANNUAL REPORT 2011 What it takes: “It takes all of us, using our knowledge, skills and expertise to deliver value.” INTRODUCTION What it takes: A CLEAR AMBITION Our ambition is to be the leading mining company, by being the investment, the partner and the employer of choice. This year’s report focuses on great stories from across our operations showing what it takes to deliver this ambition. 01 03 02 04 LEADING-EDGE ENGINEERING CHANGING THE WAY WE MINE Exploration is the lifeblood of the mining industry and the search for new deposits is unending. Two new prospects are expanding the resource base of our Los Bronces copper mine in Chile, already one of the largest concentrations of copper mineralisation in the world. The San Enrique-Monolito and Los Sulfatos exploration projects are being conducted in harsh climatic conditions and difficult terrain, often at elevations of over 4,000 metres above sea level – which restricts field activities to the limited summer periods between December and March. To assist in the exploration process, Anglo American has taken the innovative step of developing an eight kilometre exploration access tunnel from which to drill out the resource. Conventional drill and blast methods have been discarded in favour of a tunnel boring machine, which has advantages in terms of speed, safety, reduced environmental impact and overall project risk. The tunnelling operation has recently been completed and the two projects could be among Anglo American’s biggest copper prospects to date, with San Enrique-Monolito estimated to contain up to 25 million tonnes of copper, while the figure for Los Sulfatos could be even higher. For more information visit www.angloamerican.com Above 01 Exploration geologist Esmé Tristram at the Confluencia area of Los Bronces. 02/03 The Confluencia processing plant at the Los Bronces copper mine in the Chilean Andes. 04 Carrying out a routine cleandown in the eight kilometre exploration access tunnel recently completed at Los Sulfatos. Cover Exploration geologist Esmé Tristram examines copper bearing ore near Los Sulfatos, high in the Chilean Andes. Other sources of information You can find this report and additional information about Anglo American on our corporate website. Although we have chosen not to produce an ‘integrated report’, we have included a comprehensive overview of our non-financial performance in this report. More detailed information on our sustainability performance is provided in our Sustainable Development Report. This can be found on our corporate website. For more information visit www.angloamerican.com Key to icons in this document Go to a page in this or another publication Visit our corporate website Information directly aligned to our Group strategy Video available GROUP AT A GLANCE WHERE WE OPERATE What it takes: SHARING KNOWLEDGE AND EXPERTISE ON A GLOBAL SCALE Business units Bulk IRON ORE AND MANGANESE We are in the top five of the world’s iron ore producers, with a large high quality resource base in South Africa and Brazil. Iron ore is a key component in steel, the most widely used of all metals. Global steel consumption is forecast to grow in excess of 5% pa over the next three years. METALLURGICAL COAL Metallurgical Coal is the second biggest Australian metallurgical coal producer and the No. 3 global exporter of metallurgical coal. Anglo American is an active partner in diverse clean coal energy initiatives. Metallurgical coal is the key raw material for 70% of the world’s steel industry. Demand is driven by economic, industrial and steel growth. THERMAL COAL In South Africa, Thermal Coal owns and operates nine mines. In Colombia, we have a one-third shareholding (with BHP Billiton and Xstrata each owning one- third) in Cerrejón, Colombia’s biggest thermal coal exporter. About 5.1 billion tonnes of thermal coal are produced globally each year. Around 40% of all electricity generated globally is powered by thermal coal. Average number of employees (’000s)(1) Share of Group operating profit 3 8 $4,520 m $1,189 m $1,230 m 41% 11% 11% 9 2010 $3,681m, 38% 2010 $780 m, 8% 2010 $710 m, 7% Base metals COPPER Copper has interests in six operations in Chile. These comprise the 75.5% owned Los Bronces and El Soldado mines and the Chagres smelter, the 100% owned Mantos Blancos and Mantoverde mines, and a 44% interest in the Collahuasi mine. Copper is used mainly in wire and cable, brass, tubing and pipes, air conditioning and refrigeration. 5 $2,461 m 22% 2010 $2,817 m, 29% For more information, see page 54 or visit www.angloamerican.com For more information, see page 60 or visit www.angloamerican.com For more information, see page 64 or visit www.angloamerican.com For more information, see page 68 or visit www.angloamerican.com (1) Excluding contractors and associates’ employees, and including a proportionate share of employees within joint venture entities. (2) De Beers is an independently managed associate. Employee numbers shown represent the average number of employees in De Beers’ managed operations, including 100% of employees in De Beers’ underlying joint ventures. (3) De Beers’ results are shown as share of associate’s operating profit. Headquarters Corporate and representative offices North America Africa London, United Kingdom Beijing, China Brisbane, Australia Johannesburg, South Africa Kinshasa, DRC Luxembourg New Delhi, India Rio de Janeiro, Brazil Santiago, Chile São Paulo, Brazil South America Australia and Asia Precious NICKEL PLATINUM DIAMONDS Nickel has three operating assets, all producing ferronickel: the world class Barro Alto mine, now in its ramp-up phase, and Codemin, both in Brazil; and Loma de Níquel in Venezuela. Platinum owns the largest platinum reserves in the world and is the largest primary producer of platinum, accounting for some 40% of newly mined supply. Approximately two-thirds of nickel is used in the production of stainless steel. Just over 20% is used to make other types of steel and for super-alloys, which can withstand extreme temperatures. Platinum and other platinum group metals (PGMs) are primarily used in autocatalysts and jewellery. They are also employed in the chemical, electrical, electronic, glass and petroleum industries and in medical applications. De Beers is the world’s leading diamond company and generates about 35% of global rough diamond production from its operations in Botswana, South Africa, Namibia and Canada. The largest diamond jewellery market is the US, followed by China, Japan and India. 2 $57 m 1% 2010 $96 m, 1% 55 $890 m 8% 2010 $837 m, 9% 16(2) $659 m(3) 6% 2010 $495 m, 5% Other Mining and Industrial OTHER MINING AND INDUSTRIAL Subject to regulatory approvals, Anglo American’s programme to divest of its businesses not considered core to the Group has largely been completed. Scaw South Africa, the remaining part of the Scaw Metals group, is the last such business to be sold. Catalão (niobium) and Copebrás (phosphates) are both considered core to the Group and are reported within the Other Mining and Industrial segment. 16 $195 m 2% 2010 $664 m, 7% For more information, see page 72 or visit www.angloamerican.com For more information, see page 76 or visit www.angloamerican.com For more information, see page 80 or visit www.angloamerican.com For more information, see page 84 or visit www.angloamerican.com PERFORMANCE HIGHLIGHTS CONTENTS O O v v e e r r v v e e w w i i What it takes: STRONG PERFORMANCE OPERATING PROFIT (2010: $9.8 bn) $11.1 bn UNDERLYING EARNINGS (2010: $5.0 bn) $6.1 bn UNDERLYING EARNINGS PER SHARE (2010: $4.13) $5.06 Operating profit includes attributable share of associates’ operating profit (before attributable share of associates’ interest, tax, and non-controlling interests) and is before special items and remeasurements, unless otherwise stated. See notes 2 and 4 to the financial statements for operating profit. For definition of special items and remeasurements, see note 5 to the financial statements. See note 13 to the financial statements for the basis of calculation of underlying earnings. ‘Tonnes’ are metric tons, ‘Mt’ denotes million tonnes, ‘kt’ denotes thousand tonnes and ‘koz’ denotes thousand ounces; ‘$’ and ‘dollars’ denote US dollars and ‘cents’ denotes US cents. Net debt includes related hedges and net debt in disposal groups. See note 31 to the financial statements. DIVIDENDS PER SHARE Cents 2007 38 44 86 2008 NIL 2009 NIL 2010 25 2011 28 40 46 CAPITAL EXPENDITURE $ bn 2007 2008 2009 2010 2011 NET DEBT $ m 4.1 5.3 4.8 5.0 5.8 4,851 11,340 11,280 7,384 2007 2008 2009 2010 2011 1,374 Overview 02 Our strategic growth projects 04 Chairman’s statement 06 Marketplace 10 Our strategy 12 Chief Executive’s statement Strategy in action Iron Ore and Manganese Operating and financial review 14 Key performance indicators (KPIs) 16 36 Resources and technology 42 Group financial performance 48 Risk 54 60 Metallurgical Coal Thermal Coal 64 68 Copper 72 Nickel 76 Platinum 80 Diamonds 84 Other Mining and Industrial Introduction The Board Governance 88 90 92 Executive management 93 Role of the Board 95 Board in action 101 Audit Committee report 104 Directors’ remuneration report 116 117 Directors’ report 122 Statement of directors’ responsibilities I ndependent remuneration report review Financial statements 124 Responsibility statement 125 126 Principal statements 130 Notes to the financial statements Independent auditor’s report Introduction Ore Reserves and Mineral Resources 177 178 Summary 180 Iron Ore 182 Manganese 183 Coal 190 Copper 193 Nickel 194 Platinum 197 Phosphate products 198 Niobium 199 Definitions 200 Glossary Other information 201 Production statistics 206 Exchange rates and commodity prices 207 Summary by business operation 208 Key financial data 209 Reconciliation of reported earnings 210 The business – an overview 212 Shareholder information IBC Other Anglo American publications Anglo American plc Annual Report 2011 Anglo American plc Annual Report 2011 01 01 OVERVIEW OUR STRATEGIC GROWTH PROJECTS What it takes: DELIVERING ON OUR PROMISES In 2011, we delivered three of our four strategic growth projects. Our successful delivery of three major mining projects on or ahead of schedule during the year is a great achievement, and will contribute significant new volumes of iron ore, copper and nickel as the new operations continue to ramp up during 2012. For more information turn to page 18 02 Anglo American plc Annual Report 2011 BARRO ALTO What we said we’d do We would meet our scheduled production date for first metal from our $1.9 billion Barro Alto nickel project in Brazil by the end of the first quarter of 2011. The project would use proven metallurgical processing technology to ensure that we both met that date and experienced a relatively trouble free ramp-up process thereafter. We planned that Barro Alto would more than double our Nickel business’s ferronickel production. What we did and what it means to the business We delivered first metal in March 2011, on schedule. Barro Alto was the first of our four major strategic growth projects to begin production and will be a key contributor to Anglo American’s 35% organic volume growth by 2014. The new nickel plant will reach its full production capacity at the beginning of 2013 and will average 41,000 tonnes per year of nickel over its first five years of full production, making use of our low risk and proven technology and rotary kiln electric furnace process. O v e r v e w i We were determined that safe delivery would be a hallmark of the commissioning and ramp-up phases at Barro Alto; there have been no fatal incidents to date, and we had an unbroken period of 13.2 million man hours without a lost time injury. KOLOMELA What we said we’d do We would commission Kolomela, a key element in our South African iron ore growth strategy, by the end of the first half of 2012. Thereafter, we would ramp up iron ore output to between 4 and 5 Mt during 2012, and reach full design capacity of 9 Mtpa in 2013. What we did and what it means to the business The successful commissioning of Kolomela – a new iron ore mine in South Africa’s Northern Cape – was the third of our four major growth projects to be delivered in 2011. Kolomela was commissioned five months ahead of schedule, on budget and shipped its first product from the port of Saldanha to China in December 2011. This shipment is a significant milestone towards achieving the production ramp-up schedule of 4 to 5 Mt in 2012 and the expectation of reaching full production of 9 Mtpa in 2013. The commissioning of the Kolomela project is in line with our growth strategy of ramping up our South African iron ore production to 70 Mtpa by 2019. LOS BRONCES What we said we’d do We would deliver the Los Bronces expansion project in Chile on time, producing first copper in the fourth quarter of 2011. The next phase, the ramping-up period, is scheduled to be completed by end-2012. The expansion will increase the mine’s output by an average of 200,000 tonnes of copper per annum over the first 10 years, with highly attractive cash operating costs. What we did and what it means to the business We delivered first copper production in October 2011, on schedule(1). The expansion of Los Bronces is expected to more than double (on average over the first three years of full production) the mine’s existing output of 221,000 tonnes per year. We have a 12 month ramp-up period ahead until we reach full production, during which time we will be increasing processing plant throughput from 61,000 tonnes to 148,000 tonnes of ore per day. At peak production levels, Los Bronces is expected to be the fifth largest copper mine in the world, with reserves and resources that support a mine life of over 30 years and with further expansion potential. (1) The schedule for delivery of first production from projects refers to the information published in Anglo American’s 2010 Annual Report. 01 02 06 07 08 03 04 05 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 Control room supervisor (left) Jean Pierre Rabba Migane and consulting engineer Juan Nuñez in the control room at the Confluencia plant at Los Bronces. Pulp thickener at Los Bronces’ Confluencia facility. Holding tanks at Los Bronces’ Confluencia plant. Working on the ore conveyor’s gearless drive system at Los Bronces. Conveyor at the Kolomela mine. A stacker-reclaimer in action at Kolomela. Safety technician Rodrigo Jordani Braga at viewing point at Barro Alto. Graded iron ore being transported by conveyor to the load-out terminal at Kolomela. Production operator Edineia Liberato Pereira at Barro Alto’s ore preparation plant. Looking out over the mine from the top of the primary crusher at Kolomela. Nickel being poured at Barro Alto. (Left to right) Production technicians Valério Vieiru de Souza and Eliel de Castro in the control room at Barro Alto. Anglo American plc Annual Report 2011 03 OVERVIEW CHAIRMAN’S STATEMENT Sir John Parker MINING COMMODITIES VITAL FOR THE 21ST CENTURY Our commodities help to both fuel growth in developing countries and to enable the continuing technological revolution in the developed economies. The way in which the mining industry conducts its business, and its attendant footprint on the environment and on host communities, offers a wealth of opportunities to make a positive impact on society. In this report you will find many examples of how Anglo American, as a global leader in the industry, is endeavouring to ensure that we uplift and help sustain our neighbouring communities, while protecting the environment − and how we intend to maintain a competitive edge in respect of our peers and deliver value to our shareholders. PERFORMANCE AND DIVIDEND Against a background of difficult operational conditions, including exceptional flooding in early 2011 at many of our operations in Australia, Chile and South Africa, significant cost inflation and, in the second half, a more uncertain macro-economic landscape, Anglo American recorded a sound set of financial and operational results. Operating profit rose by 14% to a record level of $11.1 billion from $9.8 billion in 2010. The Board proposes a final dividend of 46 cents per share, giving a total dividend for the year of 74 cents, a 14% increase. DELIVERING OUR GROWTH PROJECTS In an industry that is frequently criticised for its shortcomings in the field of project delivery, Anglo American in 2011 commissioned three major mining operations, all of them on or ahead of schedule and in the lower half of the cost curve. Barro Alto in Brazil, which employs proven processing technology, came on stream in March and is ramping up to full production. In Chile, our expansion at Los Bronces, which we commissioned in October, will create one of the world’s biggest copper mines. In the final weeks of the year, we commissioned – five months ahead of time – the Kolomela mine in South Africa, thereby further enhancing our profile in the high margin seaborne iron ore business. At our biggest project of all, Minas-Rio, despite a series of local challenges, we continue to make good progress towards our targeted first iron ore on ship delivery date in 2013. In December, we also announced the go-ahead for a greenfield coal mine in Queensland, Australia. The $1.7 billion Grosvenor project is expected to produce 5 Mt of metallurgical coal a year over a projected life of 26 years. 04 Anglo American plc Annual Report 2011 Beyond these developments, we have continued to augment our strong resource base through several exploration successes, and we are focused on prioritising the most attractive of our $84 billion pipeline of unapproved projects towards development approval. DELIVERING VALUE We also continue to examine M&A opportunities as one of our strategic priorities in driving value in core commodities. In November, we announced a key acquisition and a major value enhancing divestment. First, we agreed to acquire the Oppenheimer family’s 40% interest in De Beers. This presented a unique opportunity for us to raise our profile in diamonds, and in early January 2012 our shareholders voted overwhelmingly to approve the transaction. Also in November, in accordance with our rights, we announced the completion of the sale of a 24.5% stake in Anglo American Sur (AA Sur), comprising a number of the Group’s copper assets in Chile, to Mitsubishi Corporation for $5.39 billion in cash. This transaction highlighted the inherent value of AA Sur as a world class, tier one copper business with extensive reserves and resources and significant further growth options from its exploration discoveries, valuing AA Sur at $22 billion on a 100% basis. On the matter of Codelco’s option to acquire an interest in AA Sur, I should like to emphasise that Anglo American is a responsible company that always acts with care, after considering all of the evidence. We always act within the law wherever we operate, and we always seek to protect shareholder value. This approach has been applied by our Board with regard to the Codelco option. I also wish to reaffirm that Anglo American is an approachable company that is open to finding solutions to any problems it encounters anywhere around the world – and this includes the Codelco issue. We are fully aware of the headwinds that our Platinum business is facing; be they cost pressures, safety stoppages or lingering concerns over the euro zone. Platinum is building upon the improvements achieved over the past five years and it has performed well relative to the wider industry in light of the challenges. We recognise, however, that the current level of returns is not acceptable to our investors. With the full support of the Board, our chief executive Cynthia Carroll and her team will therefore assess the optimal configuration of O v e r v e w i our Platinum business. Our aim at Anglo American is to establish a commodities portfolio that can withstand the headwinds and maximise shareholder value and returns, through the cycle. SAFETY Most regrettably, the significant improvement in our performance over the previous four years in the field of safety was not maintained in 2011. The number of people who lost their lives while on company business increased to 17 from 15 in 2010, while there was also a rise in the number of serious injuries. In light of this, Cynthia Carroll, with the full backing of the Board, has instituted a Group-wide operational risk management initiative across all of our operations. It incorporates a comprehensive programme of independent safety reviews to find solutions at site level, in the realisation that until substantial improvements are achieved in this area our ambition of zero harm will simply not be attainable. A CHANGING LANDSCAPE Countries today are far more aware, and protective, of the value of their minerals patrimony. Developing nations and developed economies alike are seeking to increase their share of the mining cake through a range of means, from establishing joint ventures with mining companies, to windfall taxes and increased royalties, and even in some cases threatening to push matters to the point of nationalisation of mining assets. At the same time, the growing demand for metals and minerals means that mining companies are exploring in regions beyond their traditional mining jurisdictions, with all their attendant climatic, infrastructural, logistical and other challenges. This inevitably presents a heightened degree of risk and may be accompanied by political instability in some countries where good governance is still developing. Our present and long held commitment, irrespective of where we operate, is to always conduct ourselves to the highest standards of corporate conduct. SUSTAINABLE DEVELOPMENT Our approach to sustainable development is one that embodies our desire to be pro-active, and to take the lead in the key sustainability issues facing our industry. It is also one that is cognisant of the pressure from society for ethical and transparent behaviour by the extractives industry, with downstream consumers demanding greater responsibility from mining companies and ethical accreditation in respect of the origin of minerals and metals. At our Quellaveco copper project in Peru, for example, we have slowed down progress while we participate in a multi-stakeholder dialogue and work with the local communities to seek to fully understand their concerns and aspirations. In this way, we hope to reach a fair solution for all stakeholders and a high degree of buy-in for this important mining development. Climate change is becoming a major issue for the mining industry, and Anglo American seeks to play its part in helping address its causes, and mitigating its effects. We are an active and vocal participant in the debate that is taking place on a global, national and local level, and we are engaging with governments and other key stakeholders to develop equitable and effective climate change policies, and to enable our communities to access clean energy. At a grassroots level, we are investing in clean coal research and development projects in Australia, South Africa and the USA. As a company, we support government actions to put in place policies that lead to a long term price on carbon – but we want to see this done in full consultation with stakeholders, from a solid fact base and over a realistic timeframe, so that it does not jeopardise jobs, industry competitiveness, or social and economic development. GOVERNANCE I have now been your chairman for over 2½ years and have sought over that period to ensure that your Board is strong and influential, and that we have a Board with the appropriate set of skills and talent to challenge and stress-test our strategy. As part of that process, we appointed Phuthuma Nhleko, group president and former CEO of the MTN Group, to the Board in March 2011. Phuthuma brings impressive leadership and vision in transforming MTN from a highly successful South African mobile operator into a significant force in mobile telecommunications services in emerging markets. You will recall, too, that I paid tribute to Nicky Oppenheimer last year, and I was delighted to host our November Board dinner in South Africa to recognise his long and important contribution to the Group. In terms of enhancing the Board’s contribution to our affairs, during the year the Board participated in an internal strategy forum, along with our most senior executives. I also oversaw an internally facilitated Board-effectiveness review in 2010, and in 2011 reported back to the Board our performance against the objectives set. In addition, I commissioned an external effectiveness review of the Board and its various committees; the results of that review will be detailed in the 2012 annual report. At the 2011 AGM, the Board also became an ‘early mover’ in adopting annual re-election of directors as part of our commitment to setting the tone of the company’s governance from the very top. Notably, too, we are committed to increasing the representation of women on the Board (excluding the chairman) to about 30% by 2013. OUTLOOK In 2011, there was a distinct slowdown in the major emerging economies, alongside continuing fragility in the US and Europe. Concerns about global economic growth could linger early in 2012, though we expect stronger activity later in the year and into 2013. As inflationary pressures subside, there is scope for policymakers to stimulate their economies. In the medium to longer term, we remain optimistic about global economic prospects. China and India will continue to benefit from technological and productivity catch-up, driving sustained strong growth. Rising living standards and a growing middle class should drive more demand for industrial commodities. In addition, the US should overcome its recent difficulties, with a resumption of healthier long term growth rates as positive trends in demographics and productivity reassert themselves. Sir John Parker Chairman Anglo American plc Annual Report 2011 05 OVERVIEW MARKETPLACE AN UNDERSTANDING OF THE TIMES IN WHICH WE LIVE Real GDP relative to US at purchasing power parity, as percentage of US THE ECONOMY FALTERING ECONOMIC RECOVERY Early in 2011, the world economy appeared to be growing robustly. Most regions were enjoying robust economic growth after the dislocation of the global financial crisis and a severe recession. The large emerging economies – notably China, India and Brazil – were leading the upswing, but there were also more encouraging trends in the major advanced economies. During the year, all of the world’s major economies faltered, contributing to a marked global slowdown. There were three reasons. First, there were some significant ‘shocks’ during the year. Political uncertainty in North Africa and the Middle East pushed up oil prices, which depressed activity in the major oil-importing countries. Additionally, Japan’s earthquake/tsunami and consequent nuclear power emergency led to a severe fall in domestic production and severely disrupted global supply chains, notably in the auto industry. The recovery has been slow. Second, policy settings in the emerging economies became much more restrictive in the first half of 2011, contributing to the slowdown in the second half. In particular, central banks tightened monetary policy aggressively as they sought to restrain inflationary pressure. The Brazilian central bank was particularly aggressive and its monetary tightening led to a pronounced economic slowdown in 2011. The Reserve Bank of India (RBI) and the People’s Bank of China (PBOC) also tightened policy appreciably, with the macro-economic effects becoming clearer during 2011. Third, Europe’s financial crisis intensified during 2011. Critically, the crisis spread from small peripheral economies to larger economies at the core of the euro zone. During the year, financial markets began to question the government solvency of Spain and Italy. Additionally, investors became much more nervous about the implications of strained government finances on the European banking system. In spite of a series of policy initiatives, markets remained sceptical that policymakers would resolve the crisis. Increasing market volatility and rising risk premiums contributed to a European economic slowdown. Japan Germany France UK Brazil China India 0 20 2000 2010 2020 40 60 80 100 120 Source: IMF and Oxford Economics Manufacturing activity purchasing managers’ index 50 = no change 65 60 55 50 45 40 35 30 2005 China US Euro area Source: ISM, NBS and Markit 2012 06 Anglo American plc Annual Report 2011 THE MACRO-ECONOMIC OUTLOOK By the end of 2011, most of the world’s leading economies had reported a material weakening. China, India and Brazil reported slower GDP growth rates and falling inflation. This opened up the scope for looser policy. Brazil and China have already moved to loosen policy settings and this should help to cushion their economies in 2012. Lower inflation should enable the RBI to loosen monetary policy, which should also support India’s economy. In 2012, real GDP growth should be lower than in 2011, but the major emerging economies should avoid a sharp downturn. In the longer term, we expect further significant growth in the main emerging economies as they ‘catch up’ with the advanced economies. Surprisingly, the US economy strengthened late in 2011 as the effects of higher oil prices and the disruption from Japan’s natural disaster began to fade. While there are still some concerns around the economy’s underlying growth rate, further policy stimulus should support a continuing recovery in 2012. Europe remains the principal source of concern. There are growing worries that the crisis has now become so complex there is no practicable solution. It is possible this could lead to a further intensification of the crisis in 2012 and a deep recession. More likely, policymakers seem to have done enough to contain the crisis. Governments have emphasised their commitment to stabilising the euro and the European Central Bank (ECB) has become more involved in providing liquidity. This should be enough to remove the extreme downside risks to the economy and the financial system. In the longer term, we expect further significant growth in the main emerging economies as they ‘catch up’ with the advanced economies. With real GDP per capita still well below levels in the US, there is considerable scope for the convergence of living standards through technology transfer and productivity gains. Over the next decade, this should mean all of the major emerging economies grow rapidly. O v e r v e w i COMMODITY MARKETS DEVELOPMENTS DURING 2011 An attractive pricing environment prevailed for much of the year, underpinned by strong supply and demand fundamentals. In 2011, average prices for Anglo American’s main commodities were on average 5% to 39% higher than in 2010. A YEAR OF TWO HALVES Commodity prices were particularly strong during the first half of 2011, despite disrupted trade flows caused by the Japanese earthquake/tsunami and the uncertainty created over the European sovereign debt crises. Pricing in the first half was well supported by China’s demand growth, which remained resilient notwithstanding a general tightening of monetary policy to control inflation. Together with steepening cost curves and widespread supply disruptions, this provided a level of support for pricing, with new record levels set in metallurgical coal, copper and iron ore. An attractive pricing environment prevailed for much of the year, underpinned by strong supply and demand fundamentals. Measures to tighten monetary policy and control inflation in emerging economies such as China and India started to have the intended effect and the rate of growth decelerated in the second half of the year. In addition, a lack of coordinated policy response to tackle the European sovereign debt crises impacted investor sentiment and credit availability. As industrial activities slowed and commodities consumers destocked across the inventory chain, demand for commodities was negatively impacted. On the other hand, supply continued to recover from various disruptions earlier in the year. As a result, individual commodity prices responded, trending lower towards the end of the year. The main outperformer among the commodities produced by Anglo American was coking coal, particularly in the first half of the year, as producers continued to recover from the flooding and industrial disruptions in Queensland. While prices for coking coal declined in the second half of the year, at the end of 2011 they were broadly in line with the prices achieved in December 2010. Thermal coal also demonstrated relatively resilient pricing, drifting by only 4% in the second half of the year. All other commodities produced by Anglo American fell by 13% to 23% in the second half of the year. The December 2011 average price of copper, coking coal, thermal coal and iron ore all remained well above analyst consensus forecasts of long term ‘through the cycle’ prices, with only nickel and PGM prices at or below long term outlooks. While analysts adjusted their near term price forecasts as 2011 progressed, their long term price expectations have been increasing, in particular for thermal coal, copper, steel and iron ore. One of the driving forces behind the upgrades to long term prices has been the recognition of the challenges in delivering new supply and an anticipated increase in the capital and operating costs. Indexed 2011 commodity prices 0 0 1 = 0 1 0 2 r e b m e c e D , x e d n I e c i r P 160 150 140 130 120 110 100 90 80 70 60 Dec 10 Feb 11 Apr 11 Jun 11 Aug11 Oct 11 Dec 11 Iron Ore Metallurgical Coal Thermal Coal Copper Nickel Platinum Source: Anglo American Commodity Research Anglo American plc Annual Report 2011 07 OVERVIEW MARKETPLACE A UNIQUE AND DIVERSE PORTFOLIO MATURING EMERGING MARKETS LONGER TERM TRENDS IN COMMODITY DEMAND Although the short term macro-economic outlook appears uncertain, the medium to long term prospect for global commodity demand remains robust as China continues to urbanise and industrialise. China is an important market for most of the commodities produced by Anglo American. Nevertheless, as China shifts from an investment intensive to consumption driven economy, the growth rate in demand for steel materials is expected to moderate to a more sustainable level. This shift, however, is expected to drive a stronger demand growth rate for commodities such as diamonds and PGMs. These products have completed less than half of their build-up to expected long term demand per capita in China, implying that significant growth potential exists. Both commodities are experiencing similar growth patterns in intensity of use, which reflect comparable rates of growth in intensity of use per gross domestic product (GDP) in rapidly industrialising countries such as China. Typically, intensity of use reaches a peak quite quickly, to be followed by a declining growth rate – though overall consumption continues to rise. Indexed intensity of use – China P D G r e p d n a m e D 1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 2 2011e 4 6 8 10 14 12 US$ PPP GDP per capita 16 18 20 22 Steel Copper Autocatalyst PGMs Diamonds Source: Anglo American Commodity Research 08 Anglo American plc Annual Report 2011 While Chinese intensity of use per GDP for commodities such as copper and steel may have peaked in recent years, we expect sustained growth for PGMs and, particularly, diamonds. Of course, China is not the last country expected to experience this cycle of commodity demand; India and other rapidly growing emerging economies such as Indonesia, the Philippines and Turkey are expected to be significant consumers of commodities. Just as China filled in the gap left by slowing demand growth in the developed world, these countries will generate increasing rates of commodity demand growth as they progress economically. SUPPLY CONSTRAINTS AND INCREASED CAPITAL INTENSITY While demand is clearly one key driver of prices, supply side factors also play a crucial role in commodity price performance. Mine-specific costs, both capital and operating, have been rising markedly since around 2004 and are expected to continue to provide upward pressure on prices across the mining industry over the medium term. Commodities such as diamonds and PGMs have completed less than half of their build-up to expected long term demand per capita in China, implying that significant growth potential exists. For example, the availability of more readily mined copper deposits has declined over the last decade, while falling average grades, increasing infrastructure requirements, growing technical complexity and more frequent use of underground mining have resulted in cost escalation significantly above general inflation. Such structural challenges have been exacerbated by industrial action, shortages of equipment and skilled labour, higher mining taxes and royalties, a weaker US dollar and increasingly onerous environmental and social legislation. This is not a commodity-specific phenomenon; similar cost inflation is being experienced across the mining industry and, as a result, both capital and operating cost escalation have had an impact on the rate of introduction of new capacity across most commodities. O v e r v e w i 2011 portfolio composition of major diversified mining companies(5) Anglo American BHP Billiton Rio Tinto Vale Xstrata 0% 50% 100% Investment(1) Consumption(2) Late cycle(3) Other(4) Source: Company information (1) Includes iron ore, metallurgical coal, manganese. (2) Includes aluminium, copper, nickel, zinc. (3) Includes thermal coal, petroleum, platinum, diamonds. (4) Includes Other Mining & Industrial (Anglo American), Other (Rio Tinto), Other (Xstrata). (5) Based on 2011 EBITDA contribution (2010 operating profit in the case of Vale). Anglo American is based on pro-forma full consolidation of De Beers’ 2011 EBITDA. OUR STRATEGY IN ACTION OUR AMBITION, STRATEGY AND UNIQUE PORTFOLIO Anglo American aims to be the leading global mining company – the investment, the partner and the employer of choice – through the operational excellence of world class assets in the most attractive commodities, and a resolute commitment to the highest standards of safe and sustainable mining. We believe attractive commodities to be those that generate superior returns through the economic cycle, based on favourable supply-demand fundamentals. We consider world class assets to be those that are low cost, large, long life and with clear expansion potential. Anglo American’s current portfolio is uniquely diversified, with material exposure to metallurgical coal and iron ore, which both benefit from continued industrialisation in emerging economies, while also having exposure to later cycle businesses through platinum and ultimately, diamonds. In order to achieve this, we own, operate and grow, through discovery and acquisition, mining assets in those commodities and businesses that we believe deliver the best returns through the economic cycle and over the long term. We aim to focus on businesses in which we have advantaged positions, i.e. large scale assets with long lives, low cost profiles and with clear expansion potential. Anglo American has a unique and diversified portfolio. Its mix spans: (cid:228) Bulk commodities – iron ore, metallurgical coal, thermal coal and manganese ore. These materials are typically used in investment and infrastructure development in earlier stages of economic development. (cid:228) Base metals – copper, nickel and niobium. These commodities are typically used more during the ‘consumptive’ stages of economic growth, which correlate to the middle stages of economic development. (cid:228) Precious metals and minerals – platinum and diamonds, in both of which we are a global leader. These businesses are typically later cycle, with peak demand coming from richer, more developed areas. Anglo American’s current portfolio is uniquely diversified, with material exposure to metallurgical coal and iron ore, which both benefit from continued industrialisation in emerging economies, while also having exposure to later cycle businesses through platinum and ultimately, diamonds, as GDP per capita increases. CASH FLOW ALLOCATION In a long cycle industry such as mining, the inevitable investment decisions, capital allocation and balance sheet management require sound judgement to build a sustainable and value creating company. The Board of Anglo American has a balanced and disciplined approach to capital management, focusing on: (cid:228) Delivering value accretive growth through our attractive projects pipeline and opportunistic M&A to supplement the pipeline. (cid:228) A clear dividend policy, providing a base dividend that will be maintained or increased through the cycle. (cid:228) Maintaining a robust balance sheet through the cycle. (cid:228) Returning surplus cash to shareholders. Anglo American’s unique and diversified portfolio has material exposure to early-, mid- and late- stages of industrialisation Early stages of industrialisation Later stages of industrialisation Iron Ore Copper Nickel Thermal Coal PGMs Metallurgical Coal Manganese Niobium Phosphates Diamonds Lower GDP/capita Higher GDP/capita Anglo American plc Annual Report 2011 09 OVERVIEW OUR STRATEGY A STRATEGY THAT DELIVERS PERFORMANCE 01 02 “Our four strategic elements drive Anglo American towards our aim of being the leading global mining company – the investment, the partner and the employer of choice – through the operational excellence of world class assets in the most attractive commodities and a resolute commitment to the highest standards of safe and sustainable mining.” Cynthia Carroll Chief Executive INVESTING World class assets in the most attractive commodities ORGANISING Efficiently and effectively BECOMING THE LEADING MINING COMPANY Investment, partner and employer of choice OPERATING Safely, sustainably and responsibly EMPLOYING The best people 01 At the Sakatti exploration site in northern Finland, geophysicist Circé Malo-Lalande (left) discusses data obtained from our Ground Electromagnetic Superconducting Quantum Interference Device (EMSQUID) with Anglo American chief executive Cynthia Carroll. 02 Barro Alto: Safety technician Rodrigo Jordani Braga at the plant’s viewing point. 03 Metallurgical Coal’s head 05 Apprentices gain of operations Dieter Haage (right) and Joy Mining site manager Manie Swanepoel at Moranbah North’s longwall. 04 Fishermen working in Corral de los Chanchos Bay, off the town of Chañaral in Chile, where our new desalination plant, which will serve the Mantoverde copper mine, will secure a sustainable water supply, while protecting the ocean environment. experience carrying out essential maintenance in Metallurgical Coal’s Dawson mine workshops in Queensland, Australia. Before starting the job, a comprehensive risk management assessment is undertaken, which incorporates extensive safety measures, including isolation and lock-out procedures. 10 Anglo American plc Annual Report 2011 INVESTING – IN WORLD CLASS ASSETS IN THE MOST ATTRACTIVE COMMODITIES We own, operate and grow world class mining assets in those commodities that we believe deliver the best returns through the economic cycle and over the long term. We aim to focus on those commodities in which we have advantaged positions and on large scale assets with long lives, low cost profiles and with clear expansion potential, that is: copper, diamonds, iron ore, metallurgical coal, nickel, platinum and thermal coal. HIGHLIGHTS OF THE YEAR (cid:228) We successfully delivered three of our four strategic mining growth projects on or ahead of schedule during the year: the Barro Alto nickel operation in Brazil, the Los Bronces copper expansion in Chile and the Kolomela iron ore mine in South Africa. (cid:228) We also made good progress during the year at the Minas-Rio iron ore project in Brazil, the fourth of our strategic growth projects. We are continuing to manage a number of challenges in a high inflationary Brazilian mining environment. To mitigate these challenges, we are implementing various measures including acceleration activities within the previously announced 15% capital expenditure increase, to target first ore on ship in the second half of 2013. (cid:228) In December 2011, we announced the approval of the Grosvenor metallurgical coal project in the Bowen Basin of Queensland, Australia. This greenfield project is expected to produce 5 Mtpa of metallurgical coal from its underground longwall operation over a projected life of 26 years with capital expenditure forecast at $1.7 billion. (cid:228) Beyond our organic growth programme, we took the unique opportunity in November to acquire the Oppenheimer family’s shareholding in De Beers, taking our interest in the world’s leading diamond company to up to 85%. For more information turn to page 16 O v e r v e w i “The technology we have developed this year has been vital in the delivery of our strategic growth projects. This has been a very exciting year for Anglo American.” Brian Beamish Group Director of Mining and Technology For more information on technology and innovation, visit www.angloamerican.com 03 04 05 ORGANISING – EFFICIENTLY AND EFFECTIVELY OPERATING – SAFELY, SUSTAINABLY AND RESPONSIBLY In two vital areas of our business – asset optimisation (AO) and procurement – we have beaten our own expectations. The initial aim of capturing $1 billion of value for each initiative originally covered the entire Group. By the 2011 year end, however, we had exceeded our targets in respect of both AO and procurement, each of which has delivered benefits of more than $1 billion from core businesses alone over the past three years. HIGHLIGHTS OF THE YEAR (cid:228) $2.2 billion of sustainable AO benefits delivered from our businesses. Operating safely, sustainably and responsibly is embedded in everything we do. The safety of our people is our key core value and we are relentless in striving to achieve our goal of zero harm. We are committed to environmental stewardship and minimising the environmental impact of our operations. We aim to make a sustainable and positive difference to community development and act with integrity to build respectful relationships with the societies in which we work. (cid:228) The operation review (OR) process, initiated HIGHLIGHTS OF THE YEAR in 2010, got under way at various sites at all the business units; the ORs are a collaborative effort, creating teams that are able to identify value improvement opportunities and leverage our global best practice across the Group’s complete mining value chain. (cid:228) AO knowledge and principles are being embedded within the business through a comprehensive change management programme. (cid:228) $1.3 billion in procurement benefits were delivered by our businesses. (cid:228) A new corporate centre-led supply chain organisation model enabled more effective management of purchased materials and services; it is already operating in the top quartile of its peer group. (cid:228) Around three-quarters of Anglo American’s total procurement spend of more than $13 billion a year is in developing countries. For more information turn to page 20 (cid:228) In November 2011, Platinum announced details of Project Alchemy – a R3.5 billion ($430 million) community economic empowerment transaction that will provide equity ownership to certain host communities around four operations that have not previously benefited from Platinum’s extensive broad based black economic empowerment transactions, as well as key labour sending areas. The mine host communities that are set to benefit are those around Twickenham, Mogalakwena, Amandelbult and Rustenburg. Platinum has been involved in the upliftment of its mine host communities for a number of years and this transaction will help to develop self-sustaining communities that are not solely dependent on mining. (cid:228) The Barro Alto operation, consisting of the mine and the newly constructed nickel processing plant, has an exemplary safety record and was recently recognised as the safest mine in Brazil. The mine has operated for almost seven years – 2,509 days – without a single lost time injury. The project was completed with a benchmark LTIFR of 0.04. For more information turn to page 24 EMPLOYING – THE BEST PEOPLE Our people are as vital to our success as our mining assets. We are committed to our people, who determine how effectively we operate and build our reputation with our investors, partners and fellow employees every day, and whom we require to uphold our values. Ultimately, it is our people who will realise our ambition and deliver our strategy to be the leading global mining company. HIGHLIGHTS OF THE YEAR (cid:228) At the end of December 2011, 51% of Anglo American employees at management level in South Africa were ‘historically disadvantaged South Africans’. We believe we are now well placed to achieve the enhanced targets for 2014 set out in South Africa’s revised Mining Charter. (cid:228) During 2011, we invested $79 million (2.2% of total employee costs) in direct training activities, and supported over 3,000 bursars, apprentices, graduates and other trainees. (cid:228) We are now in a position where more than 90% of employees in southern Africa check their HIV status every year. Regular HIV counselling and testing (HCT) ensures that we achieve early diagnosis of HIV infection and timely access to care. For more information turn to page 32 Anglo American plc Annual Report 2011 11 OVERVIEW CHIEF EXECUTIVE’S STATEMENT DETERMINATION TO LEAD BY EXAMPLE Cynthia Carroll RECORD OPERATING PROFIT (2010: $9.8 bn) $11.1 bn For more information turn to page 42 HIGH VALUE METALLURGICAL COAL FROM OUR NEWLY APPROVED GROSVENOR PROJECT 5 Mtpa For more information turn to page 63 IMPRESSIVE FINANCIAL AND OPERATIONAL PERFORMANCE Anglo American delivered an impressive financial and operational performance in 2011, as we continued to capture the benefits of operational improvements and disciplined cost management to capitalise on the attractive commodity demand and pricing environment that prevailed for much of the year. We reported a record operating profit of $11.1 billion, a 14% increase, EBITDA of $13.3 billion, while underlying earnings increased by 23% to $6.1 billion, also a record. THREE MAJOR NEW MINING OPERATIONS DELIVERED Our successful delivery of three major mining projects on or ahead of schedule during the year is a great achievement, and will contribute significant new volumes of iron ore, copper and nickel as the new operations continue to ramp up during 2012. Our decision to sustain capital investment in the development of these and other growth projects through the cycle, with highly competitive operating costs and capital intensity ratios, sets us apart as a near term volume growth leader. The first shipment of lump iron ore from the 9 Mtpa Kolomela mine in South Africa in December 2011, five months ahead of schedule, was an important step towards our goal of increasing production to 70 million tonnes from our South African iron ore assets this decade. In copper, the expansion at Los Bronces in Chile, completed in October 2011, will more than double the mine’s production of 221,000 tpa, on average, over the first three years of full production, with reserves and resources that support a mine life of over 30 years. And in Brazil, we delivered first production at our new Barro Alto nickel operation in March 2011. Barro Alto will average 41,000 tpa of nickel over its first five years of full production and increase Anglo American’s nickel volumes by 180%. these challenges, we are implementing various measures including acceleration activities within the previously announced 15% capital expenditure increase, to target first ore on ship in the second half of 2013. We are maintaining momentum into our next phase of growth, with the Board approval of six growth projects across six commodities, including our 5 Mtpa Grosvenor metallurgical coal project in Australia. We expect to approve further new projects during 2012, including the Quellaveco copper project in Peru. BUILDING THE NEXT PHASE OF GROWTH Looking further out, we are focused on prioritising the most attractive of our $84 billion pipeline of unapproved projects towards development and we continue to replenish and increase our world class resource base through numerous exploration successes. Our discovery of copper, nickel and platinum group elements at Sakatti in northern Finland is a great example of Anglo American’s deep-rooted greenfield exploration expertise delivering value as well as the use of our innovative drilling technology to reduce our environmental impact as we work towards defining the resource. TWO FURTHER NEW MINES ON TRACK We also made good progress during the year at the Minas-Rio iron ore project in Brazil, the fourth of our strategic growth projects. We are continuing to manage a number of challenges in a high inflationary Brazilian mining environment. To mitigate SEIZING OPPORTUNITIES TO DELIVER FURTHER VALUE Beyond our organic growth programme, we continue to deliver shareholder value commercially. We took the unique opportunity in November to finalise the 12 Anglo American plc Annual Report 2011 O v e r v e w i 04 03 01 Pump station under construction at the Minas-Rio iron ore project in Brazil. 02 Anglo American has participated in a series of community engagement workshops with the people living close to the site of the Quellaveco copper project in Peru. 03 The Cut-8 extension will transform Jwaneng into a ‘superpit’, and extend the life of this pre-eminent diamond mine until at least 2025. 04 Stephanie Klatt, senior project geologist, checking core samples at the Sakatti drill site in northern Finland. “Our discovery of copper, nickel and platinum group elements at Sakatti in northern Finland is a great example of Anglo American’s deep rooted greenfield exploration expertise.” Cynthia Carroll Chief Executive agreement to acquire the Oppenheimer family’s shareholding in De Beers, taking Anglo American’s interest in the world’s leading diamond company to up to 85%. We will continue to pursue growth where we see the most compelling, long term opportunities and to deliver value from our high quality asset base. Our sale of a non-controlling interest in our Anglo American Sur assets to Mitsubishi for $5.4 billion, valuing those assets at $22 billion, is a demonstration of that commitment and of the quality our assets. Our Platinum business today is a far cry from what it was a few years ago in terms of production, productivity and safety. We have seen substantial improvement in operating performance and the returns are in line with the industry. However, these returns have declined in recent years and are not acceptable to us for the medium and longer term. The platinum industry faces significant challenges, from cost inflation and safety issues to ongoing concerns over European demand. As a result, we are embarking on a review to assess the optimal configuration of our Platinum portfolio with a focus on improving performance. We will do this with the single purpose in mind of maximising shareholder value and returns through the cycle. SAFETY Safety remains my absolute priority and I have not wavered on this commitment since my appointment as chief executive five years ago. I am deeply saddened that in 01 02 2011, 17 employees died while working for Anglo American. We have a long way to go to achieve our objective of zero harm, despite marked improvements in our safety record since 2007, with a significant reduction in the number of our people who have lost their lives at work and lost time injury rates. While we continue to see many examples of safety excellence across Anglo American, we are committed to reviewing, refocusing and reprioritising our safety related programmes to address ongoing challenges. UK Government-led matching initiative for the Global Alliance for Vaccines and Immunisations, a public/private partnership that is increasing access to immunisation in the world’s poorest countries. In January 2012, I joined other world business leaders to launch the Business Leadership Council for a Generation Born HIV Free, a private sector-led initiative that aims to end the transmission of HIV from mothers to children by the end of 2015. TAKING THE LEAD IN SUSTAINABLE MINING Managing the social, economic and environmental impacts of our operations is essential to our success. Our approach to sustainability is a key differentiator for Anglo American, is fundamental to the way we do business and is embedded in everything we do. Together with safety, our primary sustainability challenges are around climate change, and securing access to water and energy. During 2011, we implemented new technical standards and management tools – the Water Efficiency Target Tool and our energy and carbon management programme, ECO2MAN – to help operations understand their water and energy requirements, and identify and implement savings projects. We have continued our support for community health systems during 2011, particularly in emerging economies, at a local and global level. In June 2011, we pledged $3 million over three years to the STRONG OUTLOOK FOR OUR COMMODITIES Despite short term uncertainty persisting in the global economy, particularly in Europe, the outlook for Anglo American’s diversified mix of commodities remains strong. We expect sustained growth in the emerging economies, notably in China and India, which will underpin robust demand for commodities, supplemented by early recovery signs in the US. Continuing industrialisation and urbanisation cycles and the considerable scope for the convergence of living standards, combined with long term supply constraints, present an attractive proposition across our unique portfolio of early, mid- and late development cycle commodities. Cynthia Carroll Chief Executive Anglo American plc Annual Report 2011 13 Capital projects and investment For a summary of the Group’s capital projects and investments turn to pages 18 to 19 Total shareholder return (TSR) OPERATING AND FINANCIAL REVIEW KEY PERFORMANCE INDICATORS MEASUREMENT AND TARGETS Strategic elements KPI targets Results and targets INVESTING In world class assets in the most attractive commodities Turn to page 16 Total shareholder return (TSR) Share price growth plus dividends reinvested over the performance period. A performance period of three years is used and TSR is calculated annually Capital projects and investment 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 Return on capital employed (ROCE) Total operating profit before impairments for the year divided by the average total capital less other investments and adjusted for impairments Underlying earnings per share Underlying earnings are net profit attributable to equity shareholders, before special items and remeasurements ORGANISING Efficiently and effectively Turn to page 20 Asset optimisation (AO) Sustainable operating profit benefit from optimised performance of the asset base of the core businesses Supply chain Operating profit and capital spend benefits to the Group resulting from centralised procurement from core businesses OPERATING Safely, sustainably and responsibly Turn to page 24 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 regular duties for one full shift or more the day after the injury was incurred, whether a scheduled workday or not Energy consumption Measured in gigajoules (GJ) Greenhouse gas (GHG) emissions Measured in tonnes of CO2 equivalent emissions Voluntary labour turnover Number of permanent employee resignations as a percentage of total permanent employees Gender diversity Percentage of women, and female managers employed by the Group EMPLOYING The best people Turn to page 32 Total water use Total water use includes only water used for primary activities, measured in million m3 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 and is shown as a percentage of profit before tax Enterprise development Number of companies supported and number of jobs sustained by companies supported by Anglo American enterprise development initiatives HIV counselling and testing (HCT) Percentage of employees in southern Africa undertaking voluntary annual HIV tests with compulsory counselling and support 14 Anglo American plc Annual Report 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 Strategic elements KPI targets Results and targets INVESTING In world class assets in the most attractive commodities Turn to page 16 Total shareholder return (TSR) Capital projects and investment Share price growth plus dividends reinvested Optimise the pipeline of projects and ensure that over the performance period. A performance new capital is only committed to projects that deliver period of three years is used and TSR is the best value to the Group on a risk adjusted net calculated annually present value basis Return on capital employed (ROCE) Total operating profit before impairments for the year divided by the average total Underlying earnings per share Underlying earnings are net profit attributable to equity shareholders, before special items capital less other investments and adjusted and remeasurements for impairments ORGANISING Efficiently and effectively Turn to page 20 Asset optimisation (AO) Sustainable operating profit benefit from optimised performance of the asset base of the core businesses Supply chain Operating profit and capital spend benefits to the Group resulting from centralised procurement from core businesses OPERATING Safely, sustainably and responsibly Turn to page 24 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 Total water use Total water use includes only water used for primary activities, measured in million m3 Corporate social investment Social investment as defined by the London Benchmarking Group includes donations, gifts in kind and staff time for administering community 200,000 hours worked. An LTI is an occupational programmes and volunteering in company time injury which renders the person unable to perform and is shown as a percentage of profit before tax his/her regular duties for one full shift or more the day after the injury was incurred, whether a Enterprise development Number of companies supported and number of jobs sustained by companies supported by Anglo American enterprise development initiatives scheduled workday or not Energy consumption Measured in gigajoules (GJ) Greenhouse gas (GHG) emissions Measured in tonnes of CO2 equivalent emissions EMPLOYING The best people Turn to page 32 Voluntary labour turnover HIV counselling and testing (HCT) Number of permanent employee resignations Percentage of employees in southern Africa as a percentage of total permanent employees undertaking voluntary annual HIV tests with compulsory counselling and support Gender diversity Percentage of women, and female managers employed by the Group Return on capital employed (ROCE) Underlying earnings per share Capital projects and investment 2011 2010 26.5% 24.8% 2011 2010 $5.06 $4.13 For a summary of the Group’s capital projects and investments turn to pages 18 to 19 Total shareholder return (TSR) Please refer to the Remuneration report turn to pages 104 to 115 Asset optimisation (AO) Target: $1billion by 2011(1) Supply chain Target: $1billion by 2011(2) 2011 2010 $1,978m $1,548 m 2011 2010 $1,185m $713 m Work related fatal injury frequency rate (FIFR) Target: Zero fatal incidents 2011 2010 17 fatalities, 0.009 FIFR 15 fatalities(3), 0.008 FIFR Lost time injury frequency rate (LTIFR) Target: Zero incidents – the ultimate goal of zero harm remains 2011 2010 0.64 0.64(4) Energy consumption Corporate social investment 2011 2010 GHG emissions 2011 2010 Total water use Target: Under revision 2011 2010 102.9 million GJ total energy used 100.9 million GJ total energy used 2011 2010 $122m, 1.3% of profit before tax $111m, 1.3% of profit before tax Enterprise development Target: Businesses supported: 3,500 Jobs sustained: 18,000 2011 2010 38,681 businesses supported 47,070 jobs sustained 9,392 businesses supported 17,200 jobs sustained 18.8 Mt CO2 equivalent 20.0 Mt CO2 equivalent 115.3 Mm3 114.5 Mm3 Voluntary labour turnover 2011 2010 3.0% 5.3% HIV counselling and testing (HCT) Target: Over 90% of employees in high disease burden countries 2011 2010 92% 94% Gender diversity 2011 2010 15% females 22% female managers 14% females 21% female managers (1) $1 billion of sustainable operating profit benefit from core businesses, excluding Other Mining and Industrial, by the end of 2011. (2) $1 billion of operating profit and capital spend benefits from core businesses, excluding Other Mining and Industrial, by the end of 2011. (3) During 2010, we reported 14 fatal incidents. A further incident, which was still under investigation at the time of going to print, has since been recorded, bringing the total figure to 15. (4) In 2010, we reported an LTIFR of 0.57. This figure has been revised to retrospectively accommodate aligned reporting from Metallurgical Coal. Anglo American plc Annual Report 2011 15 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION Investing in world class assets in the most attractive commodities What it takes: DRIVE AND A FOCUS ON OBJECTIVES O p e r a t i n g a n d fi n a n c i a l r e v i e w 02 01 03 “ 2011 was a very good year from a project delivery perspective, with three key projects being commissioned on or ahead of time.” David Weston Group Director of Business Performance and Projects A DETERMINED TEAM SETTING NEW STANDARDS The $1.9 billion Barro Alto nickel project in Brazil delivered its first metal on schedule in March 2011. The project is the first of our four major strategic growth projects to be commissioned and will be a key contributor to Anglo American’s 35% volume growth by 2014. Barro Alto will average 41 ktpa of nickel over its first five years of full production and has a highly competitive cost position in the lower half of the cost curve. It will more than double production from our Nickel business, and increase Anglo American’s total nickel volumes by 180%. Barro Alto will have a long life from its extensive resource base, while Anglo American has the potential to increase nickel production by an additional 66 ktpa, with further upside potential from its unapproved projects at Jacaré and Morro Sem Boné, also in Brazil, leveraging the Group’s considerable nickel laterite technical expertise. The safety performance at Barro Alto has been particularly impressive and it was recognised in 2010 as being the safest mine in Brazil. To watch the video, visit www.angloamerican.com 16 Anglo American plc Annual Report 2011 Clockwise from top: 01 Digger driver Erailde Belo Macedo at the primary crusher in Barro Alto plant. 02 Metal tapping in the electric furnace. 03 Inside the dispatch area. Main picture, right Safety technician Rodrigo Jordani Braga, looks out over the Barro Alto plant from the main viewing point. OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION Investing in world class assets in the most attractive commodities “Barro Alto has gone well from a project delivery viewpoint. It was on time, it’s ramping up well to reach its full production capacity at the beginning of 2013, and by using proven technology we have taken much of the risk out of the process.” Walter De Simoni CEO, Nickel 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 2011 17 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION Investing in world class assets in the most attractive commodities WELL POSITIONED NOW AND FOR THE FUTURE IN BRIEF (cid:228) Nine major projects completed or in commissioning during 2011. (cid:228) Grosvenor – a 5 Mtpa hard coking coal project approved. (cid:228) Cerrejón P500 Phase 1 – to increase export thermal coal production by 8 Mtpa (100% basis) – approved. CAPEX: 4 strategic growth projects $ bn 2011 2010 2009 2.4 2.3 2.0 CAPEX: Other projects $ bn 2011 2010 2009 1.0 1.0 1.5 CAPEX: Stay in business $ bn 2011 2010 2009 2.4 1.7 1.3 18 Anglo American plc Annual Report 2011 THREE MAJOR NEW MINING OPERATIONS DELIVERED ON OR AHEAD OF SCHEDULE Anglo American commissioned three major new mining operations during 2011 – the Kolomela iron ore mine in South Africa, the Los Bronces copper expansion in Chile and the Barro Alto nickel mine in Brazil. The Group’s world class pipeline of projects spans its core commodities and is expected to deliver organic production growth of 35% by 2014 from those projects that have been commissioned during 2011 and those that are approved and currently in development. During 2011, the Board approved a number of growth projects, including the 5 Mtpa Grosvenor metallurgical coal project in Queensland, Australia and the Collahuasi Phase 2 expansion in Chile. Beyond the near term, Anglo American is progressing towards approval decisions in relation to the development of further high quality growth projects, including the 225,000 tpa Quellaveco copper project in Peru. Submission to the Board for approval is expected for the Quellaveco project once the necessary permits are obtained. Together with a number of other medium and longer term projects, Anglo American has the potential to double production through its $98 billion pipeline of more than 85 approved and unapproved projects. The Barro Alto nickel project in Brazil delivered its first metal in March 2011. Barro Alto is ramping up towards full production capacity, which it is expected to reach at the beginning of 2013. This project makes use of proven technology and will produce an average of 36,000 tpa of nickel in full production (41,000 tpa over the first five years), more than doubling production from our Nickel business, with a competitive cost position in the lower half of the cost curve. The Los Bronces copper expansion project in Chile delivered its first production on schedule in October 2011. Production at Los Bronces is expected to more than double, increasing by an average of 278 ktpa over the first three years of full production and an average of 200 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, reserves and resources that support a mine life of over 30 years, and with further expansion potential. Kumba’s Kolomela project in South Africa shipped its first lump iron ore from the port of Saldanha to China in December 2011, five months ahead of schedule. 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 seaborne iron ore, with further potential for expansion. The Minas-Rio iron ore project in Brazil is expected to produce 26.5 Mtpa of iron ore in its first phase and has made good progress during the year. Minas-Rio secured a number of major licences and permits during the year; the offshore and onshore works at the port are on schedule; more than 90% of land access has been secured along the 525 km pipeline route and more than 200 km of pipe has been installed; and the civil works at the beneficiation plant are well under way. As with other complex greenfield mining projects, a number of irregular issues, such as the discovery of caves at the beneficiation plant site which require specialised assessment, continue to cause delays to the work scheduling, in addition to outstanding land access and an evolving permitting environment. Minas-Rio is implementing various measures to manage these challenges in a high inflationary Brazilian mining environment, including acceleration activities within the previously announced 15% capital increase, to target first ore on ship in the second half of 2013. Pre-feasibility studies for the second phase of the Minas-Rio iron ore project commenced during 2011 and, although still under way, the studies, together with the current resource statement (total resource volume (Measured, Indicated and Inferred)) of 5.8 billion tonnes, support the expansion of the project. The greenfield Grosvenor project is situated immediately to the south of Anglo American’s Moranbah North metallurgical coal mine in the Bowen Basin of Queensland, Australia. The mine is expected to produce 5 Mtpa of metallurgical coal from its underground longwall operation over a projected life of 26 years and to benefit from operating costs in the lower half of the cost curve. A pre-feasibility study for expansion by adding a second longwall at Grosvenor is under way. The 6.6 Mtpa Zibulo mine in South Africa reached commercial operating levels in the fourth quarter of 2011, ahead of schedule. In Colombia, Phase 1 of the Cerrejón P500 expansion project, to increase production by 8 Mtpa (100% basis), was approved by Cerrejón’s three shareholders in the third quarter of 2011. First coal is targeted during the fourth quarter of 2013, with the project expected to achieve full production at the end of 2015. SELECTED MAJOR PROJECTS Completed/In commissioning in 2011 Sector Project Iron Ore and Manganese Kolomela Thermal Coal Copper Nickel Platinum Approved Zibulo Los Bronces expansion Collahuasi Phase 1 Barro Alto Unki Mogalakwena North Base metals refinery expansion Dishaba East Upper UG2 Sector Project Iron Ore and Manganese Minas-Rio Phase 1 Metallurgical Coal Thermal Coal Copper Platinum Groote Eylandt Expansion Project (GEEP 2)(6) Grosvenor Phase 1 Cerrejón P500 Phase 1 Collahuasi expansion Phase 2 Twickenham Khuseleka Ore Replacement Bathopele Phase 4 Bathopele Phase 5 Diamonds Other Mining and Industrial Boa Vista Fresh Rock Jwaneng – Cut 8 Future unapproved The Unki project in Zimbabwe was handed over to operations in January 2011 and reached steady state production of 120,000 tonnes milled per month during the fourth quarter of 2011, a year ahead of schedule. In Botswana, Debswana’s Jwaneng mine Cut-8 extension project is progressing satisfactorily, largely on schedule and on budget. 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 Country South Africa South Africa Chile Chile Brazil Zimbabwe South Africa South Africa South Africa Country Brazil Australia Australia Colombia Chile South Africa South Africa South Africa South Africa Botswana Brazil Commissioning date Capex $m(1) Production volume(2) Q4 2011 Q4 2011 Q4 2011 Q4 2011 Q1 2011 Q4 2011 H2 2011 Q3 2011 H2 2011 1,062 517 2,800 148 1,900 459 822 360 219 9.0 Mtpa iron ore 6.6 Mtpa thermal 200 ktpa copper(3) 19 ktpa copper 36 ktpa nickel (4) 70 kozpa refined platinum 350–400 kozpa refined platinum 11 ktpa nickel 100 kozpa refined platinum First production date Full production date Capex $m(1) 2013 2013 2013 2013 2013 2015 2007 2009 2013 2017 2013 2014 2013 2016 2015 2014 2019 2015 2012 2018 2021(8) 2014 5,034 280 1,700 1,311 212 1,248 187 67 230 3,000(9) 173 (10) Production volume(2) 26.5 Mtpa iron ore pellet feed (wet basis)(5) 0.6 Mtpa manganese ore 5.0 Mtpa metallurgical 8.0 Mtpa thermal 20 ktpa copper(7) 180 kozpa refined platinum Replace 101 kozpa refined platinum 65 kozpa refined platinum 139 kozpa 100 million carats 2.7 ktpa additional niobium in product Sector Project Country Iron Ore and Manganese Sishen Expansion Project phase 1B South Africa Metallurgical Coal Sishen B Grade Sishen Concentrates Kolomela Expansion Minas-Rio expansion Grosvenor Phase 2 Drayton South Moranbah South Thermal Coal Elders Multi-product Project Copper Nickel Platinum Diamonds New Largo Cerrejón P500 P2 Quellaveco Michiquillay Collahuasi expansion Phase 3 Pebble Jacaré Tumela Conglomerate Gahcho Kué Venetia UG(13) South Africa South Africa South Africa Brazil Australia Australia Australia South Africa South Africa Colombia Peru Peru Chile US Brazil South Africa Canada South Africa First production date Full production date 2013 2016 2017 2017 TBD 2015 2015 2016 2017 2015 TBD 2016 2019 TBD TBD TBD 2020 TBD TBD 2014 2017 2019 2019 TBD 2017 2015 2019 2019 2017 TBD 2017 2020 TBD TBD TBD 2026 TBD TBD Production volume(2) 0.75 Mtpa iron ore 6.0 Mtpa iron ore 1.1 Mtpa iron ore 6.0 Mtpa iron ore TBD 6.0 Mtpa metallurgical 4.0 Mtpa thermal 12.0 Mtpa metallurgical 3.0 Mtpa thermal 13.0 Mtpa thermal 10–20 Mtpa thermal 225 ktpa copper 187 ktpa copper(11) 469 ktpa 175 ktpa(12) TBD 271 kozpa refined platinum TBD TBD (1) Capital expenditure shown on 100% basis in nominal terms. (2) Represents 100% of average incremental or replacement production, at full production, unless otherwise stated. (3) Production represents average over the first 10 years of the project. Production over the first three years of the project will average 278 ktpa. (4) Average production of 36 ktpa over the full production years; a new mine plan will extend the life of Barro Alto with lower production in the additional years. (5) Capital expenditure, post-acquisition of Anglo American’s shareholding in Minas-Rio, includes 100% of the mine and pipeline, and an attributable share of the port, as modified by the agreement with LLX SA and LLX Minas-Rio. Capital expenditure is under review to contain the capital increase to approximately 15% of the guidance. (6) Subject to conditions precedent being fulfilled. (7) Further phased expansions have the potential to increase production to 1 Mtpa. (8) Waste stripping at Cut-8, an extension to Jwaneng mine, began in 2010. Carat recovery will commence in 2017, with Cut-8 reaching full production when Cut-7 ore is exhausted in 2021. (9) Debswana is investing $500 million in capital expenditure. Project investment, including capital expenditure, is likely to total $3 billion over the next 15 years. Total carats exposed are over the life of the extension. (10) Capital estimate subject to review. (11) Expansion potential to 300 ktpa. (12) Pebble will produce molybdenum and gold by-products and other projects will produce molybdenum and silver by-products. (13) A feasibility study is scheduled for consideration by De Beers Consolidated Mines (DBCM) board in 2012. Anglo American plc Annual Report 2011 19 O p e r a t i n g a n d fi n a n c i a l r e v i e w 01 03 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION Organising efficiently and effectively What it takes: UNLOCKING VALUE THROUGH PARTNERSHIP 02 COLLABORATION ACHIEVING OPERATIONAL EXCELLENCE Metallurgical Coal’s strategy is to triple its hard coking coal production by 2020. As part of enabling this strategy, it has developed a pipeline of underground longwall projects in the Moranbah region in Australia. To achieve this growth, we will need to increase cutting hours and productivity of existing longwalls to world best practice and beyond, and establish new longwalls at this enhanced level. Metallurgical Coal and Joy Mining Machinery, the world leader in the development and manufacture of underground mining machinery, have formed a collaborative partnership to improve the performance of the existing longwall at Moranbah and to develop and implement the ‘Longwall of the future’, with a focus on zero harm and reducing costs per tonne. This new longwall design and implementation will become the standard for all Metallurgical Coal’s longwall developments in the future. In the initial phase of the work, Joy has played a key role in the Longwall100 project to improve longwall cutting hours and is bringing into operation its first Smart Services Centre in Australia in Metallurgical Coal’s Brisbane Office. As we move forward, we will leverage the know how of both organisations and, by taking a complete mining system approach, the next level of technology, automation, design for reliability, and remote equipment performance prognostics (Smart Services) will be delivered. To watch the video, visit www.angloamerican.com 20 Anglo American plc Annual Report 2011 Clockwise from top: 01 Viewing point at the Moranbah North coal handling and processing plant (CHPP). 02 Grading of coal at the Moranbah North CHPP. 03 and main picture, right Head of operations at Metallurgical Coal Dieter Haage (orange jacket) and Joy Mining site manager Manie Swanepoel underground at the Moranbah North longwall. OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION Organising efficiently and effectively “The partnerships we are forging with companies that are world leaders in their fields are taking us to another level in unlocking value.” Seamus French CEO, Metallurgical Coal 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 2011 21 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION Organising efficiently and effectively IDENTIFYING OPPORTUNITIES AND DRIVING STANDARDS SUSTAINABLE ASSET OPTIMISATION BENEFITS FROM CORE OPERATIONS (2010: $1.6 bn) $2.0 bn SUPPLY CHAIN BENEFIT FROM CORE OPERATIONS (2010: $739 m) $1.2 bn SPEND ON SUPPLIERS BASED IN HOST COMMUNITIES CLOSE TO OUR OPERATIONS $1.13 bn The ORs are a collaborative effort that combines our central technical capability with our operational expertise across the Group, thereby creating teams that are able to identify value improvement opportunities and leverage our global best practice across the Group’s complete mining value chain. During 2011, ORs were conducted at Sishen (Kumba Iron Ore), Landau (Thermal Coal), Dishaba (Platinum), Venetia (De Beers), Capcoal (Metallurgical Coal) and Collahuasi (Copper). We have positioned ourselves to create unified systems and frameworks that facilitate the integration of operational excellence into all our processes. This will move us towards a uniform ‘Operating Way’ that ensures the consistent application of all our standards and policies, and better alignment of our people and processes. A prominent element of the AO programme to date has been to embed AO knowledge and principles within the business. This is being achieved through a comprehensive change management programme that encompasses both skills development and internal communication. We have seen a marked increase in the number of employees that have been exposed to our AO Academy training, which is aimed at equipping our people with the right skills and business improvement mindset required to deliver AO results for the business. In the next phase of AO skills development we will incorporate the use of advanced technology and more interactive learning environments, thus making AO a more tangible reality for our people and the organisation. ASSET OPTIMISATION Our asset optimisation (AO) programme has been in place since 2009, and has surpassed the $1 billion target set in terms of the value delivered for sustainable AO benefits from our core businesses. Our portfolio of AO projects continues to develop and deliver. In 2011, $2,042 million of sustainable benefits were delivered from our core businesses, with an additional $253 million delivered from one-off projects. These benefits were derived mainly from revenue enhancing projects in the mining and processing steps of the value chain. In total, $1,978 million of benefits were delivered against the $1 billion target from our businesses, excluding Other Mining and Industrial. Sustainable asset optimisation benefits Business unit Kumba Iron Ore Metallurgical Coal Thermal Coal Copper Nickel Platinum Other Mining and Industrial Total Analysed as: Core operations Non-core operations * In 2011 terms. $ m* 257 361 254 480 19 607 233 2,211 2,042 169 The AO programme remains focused on identifying and unlocking business value from our existing assets, across the value chain. One of the key features of the programme is the operation review (OR) process initiated in 2010. This structured eight-step review process enables our business units to drive towards operational excellence through the identification and prioritisation of business improvement opportunities, in accordance with our technical standards and our commitment to safety and sustainable development. 22 Anglo American plc Annual Report 2011 SUPPLY CHAIN Transformation A significant milestone was achieved in 2011 with Supply Chain delivering $1,274 million in value for the Group. In total, $1,185 million of benefits were delivered against the three year $1 billion target from our core businesses, excluding Other Mining and Industrial. These targets were achieved through more effective management of purchased materials and services, enabled through a new centre-led organisation model that, based on a recent benchmarking study, is now operating in the top quartile. The foundations are now in place to create strategic ongoing value and remain a source of competitive advantage for the Group. The significant progress made towards achieving Supply Chain’s vision of becoming the industry leader and global benchmark for supply chain value creation has been the result of effective collaboration throughout the Group and with key suppliers. Supply chain benefits Business unit Kumba Iron Ore Iron Ore Brazil Metallurgical Coal Thermal Coal Copper Nickel Platinum De Beers Other Mining and Industrial Corporate Total Analysed as: Core operations Non-core operations * In 2011 terms. $ m* 361 89 159 152 137 36 215 13 89 23 1,274 1,210 64 Sustainable and responsible supply chain Local procurement is an effective way of creating sustainable development and delivering broader wealth creation for our host countries. Our vision is sustainable, responsible local procurement that positively contributes to a resilient supply chain and the economic and social development of the communities in which we operate. Anglo American spends more than $13 billion a year on procuring goods and services, representing a significant development opportunity. Around three-quarters of this spend is in developing countries. In 2011, expenditure on suppliers based in the host communities close to our operations was $1.13 billion. During the same period our total black economic empowerment (BEE) procurement spend by managed and independently managed businesses and enterprise development was R23.3 billion ($3.2 billion). Of this total, Anglo American managed businesses spent a total of R21.5 billion ($3.0 billion) with ‘historically disadvantaged South African (HDSA) businesses (not including goods and services procured from parastatal companies and municipalities). All three South African business units exceeded the Mining Charter targets for the year. Local suppliers strengthen our social licence to operate and can lead to significant efficiencies such as reduced delivery and logistics costs. Partnerships Significant value exists in managing partnerships with our suppliers to develop new technology, improve operational performance and deliver mutually beneficial commercial outcomes. In 2011, more than 50 key suppliers were engaged as part of the supplier relationship management (SRM) programme. Through the SRM, value is created from actively managing collaborative and performance based relationships with our key suppliers. Global framework agreements (GFAs) with over half of these key suppliers, have either finalised or are near completion and represent a formal alignment in the commercial relationship. These GFAs are critical in the turbulent and high demand markets we are currently experiencing, as they provide enhanced security of supply and improved commercial terms. 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 01 SAG MILL 2 FEED END DISCHARGE OPTIMISATION PROJECT Just because two pieces of machinery do the same job, it does not always mean we get the same result. This was the case for two SAG mills at our Los Bronces copper operation in Chile. Following analysis of historical operational data, our engineers discovered that SAG mill 2 had a lower operational efficiency than SAG mill 1. Further investigation indicated the root cause to be a difference in design of the discharge of the two mills, which had resulted in a discharge restriction on SAG mill 2. In addition, SAG mill 2 showed irregular wear patterns on its lifters and liners, and its discharge was ‘spraying’. The mill also had slurry carry-over and a flowback of material. In order to eliminate the restriction on SAG mill 2’s discharge end, the discharge boxes were redesigned and modified in order to balance evacuation with channelling. The SAG mill 2 feed end discharge optimisation project has proved a great success. The new discharge boxes were implemented in March 2011 and Los Bronces is now seeing normal wear patterns on the lifters and liners. Throughput on the mill has improved by 3%, resulting in a benefit of $25.9 million. Above 01 Work in progress on the feed end discharge optimisation project at SAG mill 2. To watch the video, visit www.angloamerican.com Anglo American plc Annual Report 2011 23 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION Operating safely, sustainably and responsibly What it takes: INNOVATION AND DIALOGUE O p e r a t i n g a n d fi n a n c i a l r e v i e w 02 01 03 SOLUTIONS ROOTED IN CREATING SHARED VALUE Securing a safe and reliable water source in one of the driest regions in the world presents some obvious challenges. At our Mantoverde copper operation in Chile’s Atacama Desert, we’re doing our best to overcome these by reducing the strain on an already stretched watershed. Our plans to develop a desalination plant that will meet 100% of Mantoverde’s water needs represents an opportunity to make a real difference in the Atacama region. By eliminating our own requirements from the current watershed, we will reduce the demand on this most vital of resources significantly, while also presenting community investment opportunities through the development of the desalination plant. Located in Corral de los Chanchos Bay, in the Chañaral district, the $96 million plant will have a water production rate of 120 litres per second. Start-up is scheduled for 2013 and the 20 month planned construction project will provide an estimated 150 jobs. Environmental protection measures have also been comprehensively addressed and constant dialogue with social organisations, neighbours’ associations, fishermen’s trade unions, public bodies and the Municipality of Chañaral has ensured the concerns of the communities have been considered at every stage of development. We can now look forward to an environmentally sound plant that will greatly improve water availability across the region. Our aim is to maximise the value of water resources while seeking to achieve no long term net harm to the environment or communities where we operate. This desalination plant will help us maintain that position and further develop our ambition to become a champion in responsible water stewardship. To watch the video, visit www.angloamerican.com 24 Anglo American plc Annual Report 2011 Clockwise from top: 01 Contractor Juan Silva Jemijo (left) and organisational development engineer Juan Luis Oyaneder at Bahia Los Chanchos. 02 Juan Luis Oyaneder discusses plans for the new desalination plant with a member of a community close to the site of the plant. 03 The local community will secure a sustainable water supply once our desalination plant at Mantoverde is up and running. Main picture, right Fishermen working in Corral de los Chanchos Bay, off the town of Chañaral, where the new desalination plant for our Mantoverde copper mine will secure a sustainable water supply while protecting the ocean environment. OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION Operating safely, sustainably and responsibly “Our desalination plant at Mantoverde will make a real difference by meeting the mine’s total water needs, thereby eliminating our need to compete for water resources in this driest of all the world’s deserts.” John MacKenzie CEO, Copper 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 2011 Anglo American plc Annual Report 2011 25 25 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION Operating safely, sustainably and responsibly OPERATING SAFELY, SUSTAINABLY AND RESPONSIBLY LOST TIME INJURY FREQUENCY RATE (2010: 0.64) 0.64 WATER 80% More than 80% of our operations and planned projects are in water stressed basins SAFETY LEADERSHIP 6,548 Number of employees who have completed our industry leading SHE risk management programme SUSTAINABLE DEVELOPMENT: A STRATEGIC COMMITMENT One of Anglo American’s four strategic pillars is to operate safely, sustainably and responsibly. As a company that exploits a finite resource, we are fully committed to operating our mines in a way that brings positive changes to host communities and leaves behind a healthy environment. We do not accept that injuries or deaths are an unavoidable part of our business. Safety remains our number one priority, and we expect everyone at work to take responsibility for their personal safety and that of their colleagues. Sustainable development (SD) touches on every aspect of our business. Our approach is based on a belief that exceptional operational value can be realised by embedding SD in everything that we do – from our systems, risk processes and procedures, to the way in which we consult and work with our stakeholders. Strong governance and risk management processes ensure that we deliver on our commitments. A dedicated global Safety and Sustainable Development (S&SD) Risk and Assurance team provides the Executive Committee and S&SD Committee of the Board with expert opinion on the adequacy of risk control measures to ensure that current and emerging risks are effectively controlled. This second-party perspective, coupled with subject matter expertise (internal and external) enables us to identify critical safety, health and environmental improvement opportunities, thereby focusing and accelerating improvement efforts. Following the internal restructuring process that was completed in early 2010, our S&SD and Government and Social Affairs functions have been fully integrated within the project management and asset optimisation processes, ensuring that broader sustainability and licence to operate issues are provided for within our operational and decision-making processes. SAFETY While we acknowledge that mining is inherently a high-risk industry, we do not accept that anyone should be injured while working for us. Performance We deeply regret that in 2011, 13 employees and four contractors lost their lives while working for Anglo American (2010: 15(1)). This tragic loss of life is unacceptable, particularly in light of the significant and consistent safety improvement that Group operations have achieved since 2007. The majority of these deaths (12) took place at our Platinum business, while other Group businesses such as Kumba Iron Ore, Metallurgical Coal and Nickel remained fatality-free for 2011. Notably, too, our exploration sites have operated without a fatal incident for over three years. The Group’s lost time injury frequency rate (LTIFR) was 0.64 in 2011, equal to our performance in 2010. While the LTIFRs of almost all business units improved, an increase in injuries at Platinum countered the improvements achieved elsewhere. In 2011, Platinum launched ‘Zero Harm in Action’, a five-year change management programme to deliver a comprehensive safety intervention throughout the business. The programme will last for five years and be implemented at every location and involve every employee in Platinum. Managing safety Our approach to safety is outlined in the Safety Way, a comprehensive framework of roles and responsibilities supported by a set of safety principles and mandatory safety standards. This underpins the delivery of our safety strategy which outlines our risk based approach to safety. All of our operations have developed safety improvement plans that define how they drive continuous improvement in line with the Group strategy. While the significant improvement in safety performance achieved over the previous four years has given us confidence that we have adopted the right strategy, it is clear from the regression experienced in 2011, that the speed and the consistency with which its elements are being implemented are insufficient. To understand the reasons why, and to identify the actions needed to accelerate the drive to zero harm, in February 2011, our chief executive, Cynthia Carroll, launched a strategic safety review and action plan. There are three main components to the plan: the development of leading safety performance indicators, of Group-wide site safety reviews, and corporate centre action plans. (1) During 2010, we reported 14 fatal incidents. A further incident, which was still under investigation at the time of going to print, has since been recorded, bringing the total to 15. 26 Anglo American plc Annual Report 2011 01 At Thermal Coal’s Isibonelo colliery in South Africa, each working day starts with a safety meeting. Workers end the meeting by giving each other the traditional ‘thumbs up’. 01 Developing leading safety performance indicators To date, Anglo American has been measuring safety performance almost exclusively on the basis of lagging indicators, such as the numbers of people hurt and injury frequency rates. While useful, these are not always effective as a predictor of future performance. We therefore introduced a programme aimed at developing a new set of metrics that more accurately describe the efforts sites are making to improve safety, and that improve our ability to anticipate and pre-empt potential incidents. Seven key measures relating to leadership, risk management training, safety competence, the delivery of maintenance programmes, improvements to risk management, learning from high potential incidents, and the closing review of safety actions were agreed. These measures, which make use of data that is already regularly collected by each site, provide a clearer view as to what our safety priorities should be, and will assist us in identifying those operations that need priority attention. In total, 46 safety reviews were conducted by the Group Safety and Sustainable Development Risk and Assurance team in 2011. Safety assurance In total, 46 safety reviews were conducted by the Group Safety and Sustainable Development Risk and Assurance team in 2011. The audit teams have been augmented by experienced senior mining managers, technical specialists and industrial psychologists. They are tasked with providing immediate guidance to the site and business unit concerned so that more focused solutions for site-level responses can be developed. This deeper analysis is assisting us in identifying organisational or cultural factors external to the site that may be impeding on-site safety. Promoting corporate leadership on safety In April, 60 leaders, representing each of the business units and functions, took part in a Safety Leadership Summit to identify how the Group Management Committee and Group functions can support the operations in the goal of achieving zero harm more effectively. The participants prioritised a range of issues across the different functional areas, and agreed to establish six teams to develop these into formal action plans. Each team is led by an Executive Committee champion with the support of a cross-functional team. The identified actions aim to provide a coherent response to the safety issues experienced in 2011, while limiting additional work required by the business units. 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 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 0.030 0.025 0.020 0.015 0.010 0.005 0 2007 2008 2009 2010 2011 LTIFR FIFR Water consumption Million m3 2007 114 137 2008 109 16 2009 116 10 2010 109 5 2011 115 0 125 250 Group excluding divested businesses Divested businesses Anglo American plc Annual Report 2011 27 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION Operating safely, sustainably and responsibly WATER More than 80% of our operations and planned projects are located in water stressed basins where we expect increasing competition for water resources. Growing demand for water resources, along with the effects of climate change, is already leading to supply shortages, increased costs, stricter legislation and heightened social pressures. The Anglo American water strategy and policy reflects our aim to demonstrate leadership within our water catchment areas. The strategy is a three stage journey phased over 10 years. Implementation of this strategy is being realised through our initiatives in three key areas: improving operational excellence, investing in technology, and engaging and partnering with our stakeholders. Operational excellence In 2011, a new Group technical standard for water management was issued. This new mandatory standard includes detailed requirements on target setting, water monitoring, site management and Water Action Plans (WAPs). Our site-level WAPs aim to provide our operations with a clear picture of their internal requirements in the context of legal and catchment management developments, and are intended to help operations implement integrated water management. An important focus during the year was on the implementation of our Water Efficiency Target Tool (WETT) across all our managed operations. The tool, which was piloted at seven sites across the Group, forecasts the projected business-as-usual water demand of individual operations and establishes a register of water saving projects linking the two to deliver future performance targets. Through a robust bottom-up process of identifying and assessing water saving opportunities, and understanding local water risks, we have for the first time set quantitative savings targets for each managed operation within the Group. Technology As part of our technology development activities, we are working to identify appropriate technology solutions and to agree the timeframes within which to achieve our proposed strategic objective of ‘zero net water consumption’ by 2030. 28 Anglo American plc Annual Report 2011 Engagement and partnerships Wherever we operate we engage with host governments, local authorities, communities, NGOs, businesses and other stakeholders on a range of water-related issues, and participate in global policy debates on water. We are pleased with the significant progress made in finalising outstanding water licence agreements for our operations in South Africa during 2011. This represented an important engagement with our regulatory partners to secure our business in the future. Performance During 2011, Group operations consumed a total of 131.6 million m3 of water. This comprised 115.3 million m3 of water for primary process and production activities, as well as a further 16.3 million m3 of water for secondary activities such as employee villages, sportsgrounds and office facilities. This represents a 0.7% year-on-year increase in our consumption of water used for primary activities, largely from the Barro Alto nickel plant in Brazil commencing production, as well as increased water requirements related to construction of the Minas-Rio project in Brazil and dust suppression arising from operational changes at El Soldado copper mine in Chile. The overall impact of these increases was mitigated by the sale of assets during 2010 that would have contributed a further 5.4 million m3 of water to the total in 2011, as well as the disposal of a number of businesses throughout 2011. CLIMATE CHANGE AND ENERGY Our response to climate change is guided by our climate change strategy and policy. Our strategy seeks to minimise our exposure to emerging climate change regulation, maximise opportunities in our product markets, and build adaptation measures against the impacts of regional climate change. The strategy will be implemented in three phases over the next 10 years. Within each phase, implementation is being undertaken through our initiatives in three key areas: improving operational excellence, investing in technology, and engaging and partnering with our stakeholders. Operational excellence In 2011, we issued a new Group technical standard to manage carbon and energy performance at all our operations, and we developed and implemented our energy and carbon management programme, ECO2MAN. This programme helps us identify and prioritise energy efficiency and carbon savings project opportunities at the business Energy consumption GJ (million) 2007 196.7 98.7 2008 104.9 9.1 2009 104.4 9.5 2010 100.9 6.3 2011 102.9 0 150 Group excluding divested businesses Divested businesses 300 Greenhouse gas (GHG) emissions Tonnes (million) 2007 25.4 7.2 2008 19.8 1.9 2009 18.9 1.6 2010 20.0 1.1 2011 18.8 0 5 10 15 20 25 30 35 Group excluding divested businesses Divested businesses unit and mine level, and is tied to our internal and external verification and assurance processes. It has been used to guide the development of new site-based bottom-up energy and greenhouse gas (GHG) emissions savings targets. Technology As energy use accounts for roughly 85% of our GHG emissions, we are primarily focusing existing activities on identifying and implementing innovative technologies aimed at using energy more efficiently. These include technological solutions to optimise processes and machinery at our operations, such as air compressors, ventilation fans, pumps, draglines, conveyors and electric motors. In addition to focusing on energy efficiency technologies, we are investing in developing and deploying technologies that may enable us to run cost efficient, carbon neutral mines by 2030. Engagement and partnerships We continue to work with governments and our business peers to inform the development and implementation of efficient, effective and equitable climate change policies, including carbon taxes and other pricing mechanisms. In 2011, we were particularly active in engaging with the South African and Australian governments, in relation to the UNFCCC COP-17 negotiations in Durban as well as commenting on proposed carbon pricing schemes. In addition, our flagship Zimele enterprise development programme announced the formation of a new Green Fund which will help entrepreneurs drive the green economy in South Africa. In addition to focusing on energy- efficiency technologies, we are investing in developing and deploying technologies that may enable us to run cost efficient, carbon neutral mines by 2030. 01 Environmental graduate Carmen Dyer taking a water sample at Drayton, part of Metallurgical Coal in Australia. 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 Performance Reducing our GHG emissions In 2011, the Group’s Scope 1 and Scope 2 GHG emissions amounted to 18.8 Mt of carbon dioxide equivalents (CO2e) (2010: 20.0 Mt). This 6% reduction on our 2010 emissions was due largely to the sale of a number of businesses throughout 2011, as well as a revision of process emission calculation methodologies at Metallurgical Coal. The overall impact of these reductions was reduced by a significant increase in GHG emissions at our Nickel business in Brazil following commissioning of the new Barro Alto plant. Energy consumption During 2011, we consumed 102.9 million gigajoules (GJ) of energy (2010: 100.9 million GJ). This 2% rise was largely as a consequence of new energy consumption due to the Barro Alto plant construction and start-up and additional diesel consumption at Metallurgical Coal as a result of increased production. These increases were mitigated by the sale of businesses in 2010 that would have contributed about 6 million GJ to the 01 2011 total, as well as the divestment of a number of businesses over the course of 2011. Adaptation Our new climate change strategy requires that all operations and projects undertake climate change vulnerability assessments, after which all high risk sites will undergo detailed climate change impact assessments. This follows detailed assessments conducted by Imperial College, London and the UK Met Office in 2010 and 2011, on the potential impact of climate change in a number of potentially high risk operational regions. These included the Minas-Rio iron ore project in Brazil and in South Africa, coal and platinum operations situated in the Olifants River catchment as well as the area surrounding the Sishen iron ore mine in the country’s Northern Cape. The results of these have been shared with government and research institutions and have helped contribute to our internal climate risk model. Anglo American plc Annual Report 2011 29 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION Operating safely, sustainably and responsibly 2011 Global social investment expenditure Total: $122m Education and training 23% Health and welfare 9% Water and sanitation 2% Institutional capacity development 1% Community development 41% Environment 1% Energy and climate change 1% Sports, arts, culture and heritage 6% Disaster and emergency relief 5% Employee matched giving 1% Other 10% 2011 Global social investment expenditure by region Total: $122m South Africa 52% Rest of Africa 10% United Kingdom 1% Americas 28% Australia 2% Other 7% SOCIAL AND COMMUNITY Integrating the Social Way Launched in 2009, our Social Way contains a mandatory set of standards that prescribe rigorous minimum requirements for social performance within the Group. By the end of 2011, each operation had completed its third annual assessment of its level of compliance against the 24 requirements of the Social Way. Informed by this assessment, operations with any non-compliances develop social and community improvement plans that provide roadmaps to full compliance with the Social Way. We have been pioneering approaches to developing small businesses in South Africa since the 1980s and more recently have extended these activities into Chile, Brazil and Peru. In 2011, there was a strong focus on integrating the requirements of the Social Way into Anglo American’s project stage gate reviews and our due diligence processes for mergers and acquisitions. Through this process, functional experts work with project teams at key stages in the new mine development process in order to ascertain whether the teams are compliant with technical, financial, environmental and social requirements before they may proceed to the next project stage. We believe that the inclusion of our social standards in this process, which was started in 2010, is already showing results in terms of more thorough preparation for permitting processes and a better understanding of community concerns and expectations at an early stage in new projects. This has facilitated the earlier identification and management of potential risks, and also contributes to developing and maintaining positive relationships with our host communities. Monitoring and evaluation of our social performance continued to receive priority attention during 2011. In addition to assessing our performance through our Group-wide complaints and grievance mechanism, we have made important progress in using our comprehensive set of 32 output key performance indicators (KPIs) for social investments that were piloted and reported on for the first time in 2010. A review of our progress against some of these indicators is provided on page 31. Ensuring and maintaining consistency in reporting against these indicators, and in the use of our complaints and grievance mechanism, remains an important focus area. To complement our KPI initiatives, in 2011 we also piloted a new community development peer review process. The reviews draw on internal expertise as well as resources from partners such as CARE International to ensure that our investments in community development are as effective as possible. Following the success of the pilots the process will be rolled out in 2012. SOCIAL INVESTMENT Anglo American’s social investment spend in local communities totalled $122 million in 2011, up from $111 million in 2010 and $82.5 million in 2009, and on our expenditure of $28 million back in 2000. To help manage this growth, we have developed a standardised reporting process for all our social investments. The aim is to facilitate consistent reporting of outputs, and to identify the most effective projects, delivery methods and partners with a view to maximising the value that Anglo American and its host communities realise from these investments. ENTERPRISE DEVELOPMENT We believe that enterprise development is one of the most effective means for ensuring sustainable benefits for our host communities. We have been pioneering approaches to developing small businesses in South Africa since the 1980s and more recently have extended these activities into Chile, Brazil and Peru. Zimele – South Africa Anglo American’s pioneering Zimele enterprise development programme was established in South Africa more than 20 years ago, with the aim of empowering black entrepreneurs through the creation of small and medium sized enterprises (SMEs). Through our commitment to the UNDP Business Call to Action in support of the Millennium Development Goals, we are committed to creating and sustaining 15,000 additional jobs in up to 1,500 new businesses by 2015. Zimele consists of five separate funds – the Supply Chain Fund, the Anglo American Khula Mining Fund, the Community Fund, the Olwazini Fund and, most recently, the Zimele Green Fund. While these funds operate on a commercial basis, they are guided by the social purpose of creating economically viable enterprises through the provision of equity/loans, mentoring and access to 30 Anglo American plc Annual Report 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 Social investment output indicators Total number of community development projects delivering benefits to communities in 2011 Total number of businesses supported Jobs created/maintained through enterprise development initiatives Beneficiaries of education projects Beneficiaries of sports, arts, culture and heritage projects Beneficiaries of community development projects Beneficiaries of disaster and emergency relief projects Beneficiaries with improved livelihood 1,380 38,681 47,070 556,033 248,093 2,132,624 11,100 2,481,467 value enhancing opportunities. In 2011, these funds supported 1,085 businesses and provided R567 million ($78.1 million) in funding for businesses that employed 19,575 people, with a combined turnover of R574 million ($79.1 million). Emerge – Chile Launched in 2006, our Emerge programme has achieved its ambitious goal of supporting thousands of SMEs in Chile. On one hand, our alliance with Fondo Esperanza, an institution that grants micro-credit, has helped more than 25,000 small businesses through business skills training and community bank micro-loans. The community bank model – in which members run their own businesses and act as co-guarantors by committing to pay back all the loans – has delivered exceptionally high loan repayment rates. On the other hand, the medium sized business programme has helped more than 200 entrepreneurs through the provision of training, financial assistance, mentoring and follow up. In 2011, Emerge was strengthened through a new partnership with international enterprise development NGO Technoserve to carry out support to medium sized businesses. CARE – Brazil Anglo American’s Barro Alto project in Brazil has concluded the first three year period of partnership with local NGO, CARE Brazil. Enterprise development forms a strong focus of the partnership, which also includes activities to improve public education and social development in the communities surrounding our operation. Through this initiative, local residents have the opportunity to participate in a free training course on entrepreneurial management aimed at developing business opportunities in the region. The third group of small business owners has now completed the course. In 2011, we piloted a new community development peer review process. The reviews draw on internal expertise as well as resources from partners such as CARE International to ensure that our investments in community development are as effective as possible. Anglo American plc Annual Report 2011 31 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION Employing the best people What it takes: FORESIGHT AND INITIATIVE TO CREATE CHANGE O p e r a t i n g a n d fi n a n c i a l r e v i e w 01 04 02 03 BRIDGING THE SKILLS GAP IN AUSTRALIA A thriving industry depends on a steady intake of new talent. For that reason, the Australian government’s Resourcing the Future report was cause for concern. The 2010 report predicted a major and growing shortfall of qualified tradespeople across the Australian construction, gas and mining industries unless employers acted quickly to bridge the skills gap. The findings of the report came as no surprise to Debbie Butler, principal of operations training at Metallurgical Coal’s HR division, who had already been working on her own study of Anglo American’s trades’ workforce, which showed stagnation in the intake of apprentices. But Debbie also saw an opportunity. As the government’s needs dovetailed with our own, the timing proved perfect to join forces to develop an innovative new pathway for bringing fresh talent into the business. Working with the National Apprenticeships Steering Committee, Debbie helped design a Metallurgical Coal-specific Advanced Entry (Adult) Trades Programme. The programme recognises workers’ existing experience and equips them with the additional skills they need to attain full trade qualifications in just 18 months – providing the potential to save Anglo American A$6.3 million per programme (18 months) or per intake (21 participants). But the programme’s value is not only financial. Opportunities to upskill our people, develop career paths and increase the talent pool are all vital components as we aim to become the employer of choice. With Debbie driving it forward, Anglo American became the first employer in the mining sector to implement the new initiative and, in 2011, 21 participants enrolled in the programme. It now represents an important element of Metallurgical Coal’s workforce planning strategy to ensure the business has sufficient experienced and qualified employees to meet its growth needs. This programme will help us in our commitment to identify, develop and retain the very best people in our industry – people like Debbie Butler. To watch the video, visit www.angloamerican.com 32 Anglo American plc Annual Report 2011 Clockwise from top: 01 Debbie Butler (centre)addresses students on the apprenticeship scheme at Metallurgical Coal. 02/03/04 Apprentices at work in the workshop(s) of Metallurgical Coal’s Moranbah North mine in Queensland, Australia. Main picture, right An apprentice (right) gains experience carrying out essential maintenance in the workshops at Moranbah North. Before starting work, a comprehensive risk-management assessment is carried out, incorporating extensive safety measures, and including isolation and lock-out procedures. OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION Employing the best people “We are determined to be an employer of choice. That means acting quickly and decisively to ensure that we have the talent our business needs for its future growth.” Mervyn Walker Group Director of HR and Corporate Affairs 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 2011 33 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION Employing the best people SKILLED AND MOTIVATED PEOPLE PROPORTION OF WOMEN EMPLOYED THROUGHOUT THE GROUP (2010: 14%) 15% REDUCTION IN NUMBER OF NEW CASES OF OCCUPATIONAL DISEASE REPORTED 27% INVESTMENT IN COMMUNITY HEALTH IN 2011 $11 m 34 Anglo American plc Annual Report 2011 OUR PEOPLE The success of our business ultimately depends on the skills and motivation of our people, and on the extent to which they uphold our values and deliver our strategy. Being the employer of choice in the sector is integral to our aim to be the leading global mining company, and takes on added significance during expansionary times for the industry, when there is growing competition for scarce talent. Delivering on our ambition requires that we have systems in place to attract and retain the best talent, provide opportunities for personal development, recognise and reward excellence, drive for diversity and protect employee rights. OUR STRATEGY AND MANAGEMENT APPROACH Following the completion of the Group’s major restructuring in early 2010, the Group human resources department now operates as part of a lean corporate centre that focuses on providing essential governance activities and on identifying and realising synergies across the Group through collaborative working and the sharing of best practice. To achieve our objective of being the employer of choice, we have identified the following strategic priorities: (cid:228) Increasing the supply of scarce skills (cid:228) Preparing for growth (cid:228) Embedding our organisational model (cid:228) Improving productivity and efficiency (cid:228) Advancing workforce diversity (cid:228) Driving high performance and the right employee behaviours (cid:228) Improving succession planning and supporting development (cid:228) Removing barriers to employee mobility (cid:228) Developing consistent and aligned communication. Our human resource standards, management systems and processes provide the foundation that allows us to deliver on these strategic priorities. We have identified opportunities for further improvements in all of these areas and are making significant progress in the implementation of a wide-ranging three year plan of work, to be implemented by the end of 2013. Attracting and retaining the best people At Anglo American we know that creating the right culture is critical to making people want to join and stay with the company, particularly within the context of a very competitive job market. We recognise that many people expect more from their jobs than financial benefit alone, and are increasingly looking for employment opportunities that are meaningful and that make a beneficial contribution to society. Our values, business principles and brand together create the overall employee proposition to attract and retain the best talent. We are working to improve the systems in place to identify our current and future skills requirements, and to proactively source the skills needed globally to respond to our anticipated growth over the next five years, and this is further supported by the key focus areas outlined below. Developing our people In 2010, we launched the People Development Way, a global capability framework detailing the behaviours, knowledge, skills and experience we need to achieve our strategic objectives. Our focus during 2011 has been on embedding the framework and driving high performance and the right behaviours. This framework is being applied consistently across the Group to guide development and is supported by comprehensive training for managers and their teams to ensure they understand its importance and application. We have also been rolling out a new performance management system across the Group. This places strong emphasis on aligning individual objectives with the company’s strategy and plans, reinforcing the Anglo American values, and focusing on personal development. All managerial and professional employees (representing nearly 30% of all permanent employees) undergo formal performance management reviews on an annual basis. The remaining 70% of employees have access to a range of opportunities aimed at developing a workforce with the right skills, experience and training. Performance management among this segment is largely team based. Recognising and rewarding excellence It is important to our success that the structure and level of our remuneration and rewards are consistent across the Group and competitive in each of the markets in which we operate. We benchmark our remuneration schemes against our peers and we implement comprehensive performance- 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 based reward systems with the aim of attracting and retaining the best people. In 2011, a project was undertaken to implement a standardised approach to the base-pay elements that form the basis of our performance incentive awards for our South African operations. The principal objectives of this work have been to improve employee understanding of the total reward package, simplify global employee mobility, and further enhance employee retention. A project is now being undertaken to drive this same alignment across our business units in Brazil. Promoting workforce diversity By year end, the overall proportion of women throughout the Group had increased to 15% (2010: 14%). At management level, women accounted for 22% (2010: 21%). To drive further improvement in the representation of women in management and the workforce as a whole, each of our businesses has drafted an action plan. These plans include clear internal stretch targets to be achieved by December 2012 and December 2014 (for the percentage representation of women in the workforce as a whole and women in management), as well as a description of the measures that will be taken to achieve these targets. In our South African operations we continued to make good progress in promoting transformation in the workforce. At year end, 51% of our managers were ‘historically disadvantaged South Africans’ (HDSAs). We believe we are now well placed to achieve the enhanced targets for 2014 set out in the country’s revised Mining Charter and are putting in place appropriate systems for compliance and reporting to achieve this objective. Health Effective management of occupational health protects our people, enhances productivity, and helps maintain our licence to operate and our global reputation. Promoting a healthy community and a safe and healthy workforce is beneficial for everyone. Occupational health Our approach to occupational health is governed by the Occupational Health Way, which sets out a series of standards, guidelines and assurance processes aimed at preventing harm to our employees by proactively identifying and managing the source of potential health risks and eliminating exposure to hazards. In 2011, we rolled out new mandatory technical standards that address our principal health risks relating to noise, dust (inhaled hazards or airborne pollutants), fatigue, alcohol and substance abuse. In addition, we have a Group standard for emergency medical responses, while a technical standard relating to ergonomic issues is currently being developed. The number of new cases of occupational disease reported for 2011 was 196, a 27% reduction on the previous year’s total of 268. The total occupational disease incidence rate in 2011 declined to 0.205 from 0.284. The drop was mainly accounted for by a 27% reduction in the number of cases of noise-induced hearing loss reported by Scaw Metals. Combating HIV/AIDS and Tuberculosis (TB) An important element of promoting employee wellness is our focus on addressing HIV/AIDS, particularly at our operations in southern Africa where the epidemic is especially prevalent. Regular HIV counselling and testing (HCT) ensures that we achieve early diagnosis of HIV infection and timely access to care. We have now reached a position where more than 90% of employees in southern Africa check their HIV status every year. The high uptake of HCT allows us to quantify the prevalence of HIV infection in our workforce. This is currently 17% in southern African operations, which means that around 12,900 of our employees are HIV-positive. Despite our considerable efforts in promoting workplace prevention programmes – through education and awareness, condom distribution, and the early diagnosis and treatment of sexually transmitted infections – we experienced a disappointingly high number of new HIV infections within our workforce in 2011. For the year as a whole we documented 902 new HIV infections, giving an approximate new infection incidence rate of 1.2%. Although consistent with the national rate, this is unacceptably high. All employees who test HIV-positive are invited to enrol in our HIV disease management programme. Currently, 61% of employees who are estimated to be HIV-positive are enrolled. By the end of 2011, we had 4,730 employees on anti-retroviral therapy (ART). We also have an active programme, linked to our HIV/AIDS response, aimed at addressing the escalating TB epidemic. This is a source of great concern in South Africa, which has the third highest burden of the disease in the world as well as the highest rate of TB/HIV co-infection. In 2011, the TB incidence rate at our South African operations was 1,166 per 100,000 employees (2010: 1,070 per 100,000). There were 906 new TB cases recorded among our workforce and, sadly, we recorded 65 deaths from TB. While this is significantly less than in 2010 (86), we continue to drive a concerted effort to further reduce deaths from TB through earlier HIV and TB diagnosis and treatment. PROMOTING HEALTHCARE IN THE BROADER COMMUNITY Our activities to promote healthcare in the broader community include investments in health systems strengthening in our neighbouring communities, as well as activities aimed at supporting healthcare in developing countries more broadly. With regards to supporting healthcare in developing countries, Anglo American has supported the Global Fund to Fight AIDS, Tuberculosis and Malaria since its inception in 2002 and, in 2010, our chief executive, Cynthia Carroll, pledged $3 million of funding on Anglo American’s behalf over the following three years to support the Global Fund. This pledge came with a challenge for other big businesses to do the same. In July 2011, we pledged $3 million over three years to the UK Government led matching initiative for the Global Alliance for Vaccines and Immunisations (GAVI), a public/private partnership that is increasing access to immunisation in the world’s poorest countries. These contributions were part of an investment of over $11 million in community health in 2011. We are using the knowledge and experience that we have gained through our workplace health programmes to strengthen community health systems. An important initiative during the year has been our work with the Eastern Cape Department of Health in South Africa, where we sponsored the writing of a business plan to revitalise the funding and delivery of primary healthcare in four provincial sub- districts. In Bushbuckridge, a labour sending area for Thermal Coal’s South African mines, the Bhubezi Community health centre opened in 2007 by Anglo American, Virgin Unite and the US government and sees an average of 250 patients a day. Around 3,500 people are now receiving life saving ART as a result of this initiative. In Brazil, a project has been established with the highly regarded Brazilian NGO, Reprolatina, to improve access to quality health services, particularly with regard to reproductive health for women and girls. A similar project has also been established in the communities surrounding the new Barro Alto nickel plant. Anglo American plc Annual Report 2011 35 OPERATING AND FINANCIAL REVIEW RESOURCES AND TECHNOLOGY What it takes: A CREATIVE AND EXPERIENCED TEAM 01 02 03 EXPLORING NEW WAYS TO MINIMISE OUR ENVIRONMENTAL IMPACTS We have a strong track record of greenfield discovery and in 2011, our Exploration team was recognised for their work in northern Finland. At the Fennoscandian Exploration and Mining Conference the team was awarded the 5th Fennoscandian* Mining Award for the Sakatti discovery in northern Finland. The award recognises and honours individuals and teams for an outstanding contribution and achievement within the industry. The Sakatti project is a significant copper-nickel-platinum group elements grassroots discovery. Sakatti is located within a known mining region, 150 km north of the Arctic Circle, with excellent infrastructure including major highways and power generation facilities. The tenure to the Sakatti deposit and surrounding area is part of a contiguous extensive tenure package covering 830 km². The mineralised body at Sakatti plunges to more than 1,000 metres below a thin glacial cover and is open at depth, to the west, north and south. It is one of a number of mineralised intrusions discovered by our Exploration team in the region. The current exploration drilling programme is focused on delineating the boundaries of the mineralised body and, as such, precludes infill drilling at a density required for the definition and estimation of a Joint Ore Reserves Committee (JORC) compliant Mineral Resource. We understand the importance of the local environment and, in collaboration with our drilling partner OYKATIAB, we have sought to minimise our environmental footprint through the development of an innovative semi-closed loop drilling system that has substantially minimised our waste and water use. Our team has been working in the region since 2004, engaging with a range of stakeholders: regional and municipal governments, and local communities including landowners, reindeer herders and other land users. Anglo American sees Finland as highly prospective and the immediate plans are to continue to expand the exploration work at the Sakatti deposit, as well as looking at other priority targets within Lapland and the broader Fennoscandia region. * Fennoscandia is the region that includes Scandinavia, Finland and Russia’s Kola Peninsula and Karelia. Above 01 Senior project geologist Stephanie Klatt (left), discusses core samples with colleague Peter Blaberg. 02 Geophysicist Circé Malo-Lalande, with the low temperature Ground Electromagnetic, Superconducting Quantum Interference Device (EM SQUID). 03 and main picture Stephanie Klatt, examining core samples at the Sakatti drill site. To watch the video, visit www.angloamerican.com 36 Anglo American plc Annual Report 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 Anglo American plc Annual Report 2011 37 OPERATING AND FINANCIAL REVIEW RESOURCES AND TECHNOLOGY IMAGINATION AND INVESTMENT OUR RESOURCES The resources Anglo American considers critical to achieving its strategic aims include: (cid:228) Knowledge and expertise. (cid:228) Proved and Probable Reserves (a summary is contained on page 178). Full details of the Group’s Ore Reserves and Mineral Resources estimates are found on pages 177 to 200. Mine life per commodity Years, minimum to maximum 4 to 23 4 to 25 1 to 23 6 to 68 4 to 32 5 to 30+ 0 Range (Years) 70 Iron ore Metallurgical coal Thermal coal Copper Nickel Platinum Mine life is the extraction period in years for scheduled Ore Reserves comprising Proved and Probable Reserves only. Note: the 30+ years for platinum is due to 30 years being the maximum number of years for which a mining right is granted in South Africa. TECHNOLOGY Our strong in-house technology capability provides world class solutions to Anglo American and its global operations. Mining and Technology, which comprises seven highly specialised technical groups that concentrate their expertise in specific value-adding areas, made a significant contribution to the Group on several fronts. The Technology Development unit manages, coordinates and integrates technology development across Anglo American. A detailed technology development vision and strategy have been developed to cover all perceived technology needs over the next 20 years, across all aspects of the value chain. The vision for mining in 2030 has identified the gap between current technology and the technology that will be required in two decades’ time. More than 50 projects have been identified, which have been grouped into 11 programmes. The programmes include safety, automation, rapid discovery, resource characterisation, mining methods, alternative processes, resource to market optimisation, water, energy and carbon, operational efficiency and people. The projects are all managed in terms of a rigorous prioritisation and stage-gate protocol aligned with the Projects Way. Each project creates opportunities to advance the Group’s technology base to facilitate the development of new mines that will be safer and more efficient in terms of costs, energy, carbon and water consumption – even though they are likely to be deeper, lower grade and in more remote and less accessible locations than current mines. Existing mines, too, will benefit, with the implementation of new technologies providing greater efficiencies and improved safety, while such mines will serve as the testing grounds for the technologies for future operations. One of the projects, a system that automatically senses the condition of haul trucks, won one of Anglo American’s Applaud awards for Innovation in 2011. Its uniqueness lies in it being an inexpensive, remote machine condition monitoring system capable of analysing the multi-variate data generated by equipment from different suppliers, and of producing easy to understand information upon which operations can easily act. The system was successfully implemented on a global basis, with the health of some 225 haul trucks being monitored from a central location. Significant savings have been realised as a result of the system being able to accurately predict impending failures. Such projects will support the Group in dealing with the ongoing skills shortage in the mining industry as well as the reluctance of many employees to living and working in remote areas of the world. The four discipline centres of excellence (Mining, Metallurgy, Geosciences and Engineering), in collaboration with the business units, have developed and started to implement across the Group, a multi-disciplinary set of Group Technical Standards aimed at optimising value added to operations, improving project delivery and mitigating technical risks. These standards, with their associated guidelines, not only cover the various disciplines, but also projects, safety and sustainable development and risk, and have been designed to facilitate the sharing of best practice. The four centres of excellence continue to provide significant technical assurance to projects and asset optimisation opportunities to operations. Notably, an exercise has been launched, across the business units, to investigate the potential safety benefits of currently available technologies not yet deployed in our operations. A detailed technology development vision and strategy has been developed to cover all perceived technology needs over the next 20 years, across all aspects of the value chain. The Technical Solutions division, made up of experts from all the traditional engineering disciplines, as well as mining, geophysics, metallurgy, geometallurgy and chemistry, industrial engineering, materials handling, safety, occupational health, sustainable development and project engineering, supports the Group’s operations, projects, business units and corporate functions. It provides leading metallurgical and process research, as well as laboratory and piloting facilities, a broad range of technical consulting, project engineering and field services, and is focused on delivering and implementing sustainable multi-discipline techno-economic solutions. 38 Anglo American plc Annual Report 2011 01 02 03 DEVELOPMENT OF A LOW-TOXICITY REAGENT FOR GOLD LEACHING A great deal of time and effort has been saved through the application of molecular modelling techniques in the design of chemical substances. For the mining industry, this opens up many possibilities in the field of more selective leach agents, and the identification of environmentally friendly alternative chemicals. In order to demonstrate the potential of such techniques, an in-house technical team chose as a test case the targeted development of a gold leaching chemical with low toxicity – a decision that was partly driven by our interest in the Pebble copper/gold/molybdenum project in Alaska, and the concerns raised regarding chemical pollution there. Current practice for extracting gold from an ore generally involves the use of cyanide to dissolve the metal. While cyanide is highly effective in doing so, it is also extremely toxic and could pose a serious ecological liability. The resulting impetus to develop alternative ways to dissolve gold led to the reinvestigation of a number of historically known alternative substances by our Technical Solutions team − though these studies mostly highlighted cyanide’s advantages; namely, its superior selectivity, stability, and its low cost. A molecular modelling exercise, however, has identified a commonly available reagent with appropriate gold leaching characteristics and low toxicity. Although the solubility of the reagent is generally low, it achieved gold extractions of more than 95% on Witwatersrand gold-bearing ores. Although we are still in the early stages of the development of non-toxic and more efficient mineral extraction compounds, the application of molecular modelling in the resources industry holds out the promise of more sustainable process technologies in the future. Above 01 Having been identified through molecular modelling, compounds are tested in our research laboratories. 02 Small scale, accurate laboratory tests can be performed in high numbers in rapid turnaround times. 03 Molecular modelling software is used to target suitable chemical compounds. For more information visit www.angloamerican.com 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 NUMBER OF TECHNOLOGY-BASED PROJECTS TO DELIVER OUR VISION FOR MINING IN 2030 50 HAUL TRUCKS CURRENTLY BEING MONITORED REMOTELY FROM A CENTRAL LOCATION 225 Anglo American plc Annual Report 2011 39 OPERATING AND FINANCIAL REVIEW RESOURCES AND TECHNOLOGY 01 At Thermal Coal’s New Vaal colliery, this haul truck is fitted with an energy absorbing safety bumper, developed by Technology Solutions. 02 Inspecting a shaft conveyance. 01 02 Metallurgical Coal, in collaboration with Joy Mining Machinery, is undertaking a ‘Longwall of the future’ project which is designed to deliver world class levels of safety, production and operating cost performance. By leveraging the know-how of both organisations, and taking a holistic- mining system approach, the plan is to advance to the next level of technology in terms of automation, built-in design reliability and remote prognostics. This is expected to result in cutting rates of around 2,000 tonnes per hour and 100 cutting hours per week. At the same time, safety will be enhanced through removing our teams from high energy environments. In a further development, in the Brisbane office a new integrated value chain control room employs the latest technology in order to yield maximum efficiencies in coal movements across Metallurgical Coal’s six coal mines and three loading ports. Technical Solutions recently developed and implemented a haul truck rolling-resistance solution in collaboration with Komatsu and the University of Pretoria in South Africa. As fuel consumption, cycle times, tyre life and equipment life are affected significantly by varying road conditions, this system continuously measures haul road conditions and informs mine management as to its road maintenance priorities. It has been implemented on two continents and is being rolled out globally. In the safety field specifically, we have developed a haul truck energy-absorbing bumper. Accidents between heavy and light vehicles are a major risk in the mining industry, and this new type of bumper will reduce the risk of fatal injuries. The uniqueness of the design is that the bumper can successfully absorb impact energies of up to 30 km/h without causing serious injury to the occupants of the light vehicle. The unit was successfully demonstrated at our Thermal Coal operations and is currently being rolled out on haul trucks with payloads above 150 tonnes. Technical Solutions recently developed and implemented a haul truck rolling-resistance solution in collaboration with Komatsu and the University of Pretoria in South Africa. The benefits of having our own Group mineralogical research capabilities have been well proven over many years in our Platinum, Copper and Iron Ore businesses. Recently, an opportunity was identified to further develop this capability in order to facilitate mineralogical investigations of coal samples, which differ vastly from other mineral deposits. As a result, Technical Solutions can now assist both our Metallurgical Coal and Thermal Coal operations to better understand their orebodies with regards to ash content, metallurgical beneficiation processes and product marketability. A novel instrument, which provides rapid and precise results for measuring the density of drill cores and plant samples, has now been developed in support of our renewed concentration on density values and their effect on mine planning and reserve estimation. 40 Anglo American plc Annual Report 2011 Exploration spend by commodity in 2011 $ m Iron Ore $5 m Metallurgical Coal $5 m Thermal Coal $9 m Copper $27 m Nickel $26 m Platinum $5 m Other $44 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 EXPLORATION Our global exploration activity for 2011 focused on greenfield exploration across a number of mature and frontier locations as well as adding value to our operations and advanced projects. During 2011, Anglo American’s exploration expenditure was $121 million in 16 countries, (2010: $136 million), while De Beers’ total exploration expenditure amounted to $40 million (2010: $43 million). Platinum exploration costs of $5 million, were focused on providing support to the advanced projects and operations around South Africa’s Bushveld Complex and fulfilling the statutory work programme requirements. Exploration activities during the year led to a significant resource increase at Mogalakwena, while 2D/3D seismic surveys were conducted at the Der Brochen project and Union mine. Exploration drilling programmes continued at the mines in Rustenburg, Swartklip, Amandelbult and Twickenham. Platinum exploration continued outside South Africa at Unki in Zimbabwe and in Brazil. Our global exploration activity for 2011 focused on greenfields exploration across a number of mature and frontier locations. Copper exploration expenditure totalled $27 million and included near-mine exploration in Chile at the Los Bronces, El Soldado, Mantoverde and Mantos Blancos mines and advanced stage exploration drilling at West Wall. Drilling around West Wall led to the discovery of additional mineralisation at West Wall Norte prospect. Exploration also provided support for the development of the Los Sulfatos tunnel, which was completed in November 2011. Greenfield exploration was conducted in Chile, Peru, Colombia, Argentina, Brazil, the Democratic Republic of Congo, Zambia, Canada and Indonesia. Nickel laterite exploration expenditure was $4 million, which focused on exploration drilling in the Morro Sem Boné district in Brazil. Polymetallic (copper-nickel-platinum group elements) exploration expenditure amounted to $22 million and focused on Sakatti in northern Finland. Exploration at this advanced project aimed to define the limits of the orebody and to test other surrounding high priority targets. Greenfield polymetallic exploration was conducted elsewhere in northern Finland, western Brazil, the Musgraves region of Western Australia and the Canadian Arctic. Iron Ore exploration expenditure of $5 million was concentrated around operations and projects in South Africa and Brazil. In South Africa, exploration was undertaken to support Kumba’s Sishen and Kolomela operations, as well as further drilling in the Northern Cape to advance these projects and fulfil statutory work programmes. Extensive surface and underground resource evaluation drilling continued on the Phoenix project at Thabazimbi mine. In Brazil, exploration work focused on evaluating resources close to the principal deposits and operations of Minas-Rio and Amapá. Metallurgical Coal exploration expenditure of $5 million focused on drilling and 2D/3D seismic surveys to define and evaluate resources of coking and export thermal coal in Australia and Canada. In Australia, extensive drilling and seismic activities were performed to support the operations at Moranbah North, Capcoal, Dawson, Foxleigh, Drayton and Callide as well as the advanced projects of Grosvenor, Moranbah South, Drayton South and Dartbrook. Canadian exploration was strengthened at the Peace River Coal Trend mine and surrounding exploration leases, with the aim of defining additional coking coal resources. Thermal Coal exploration expenditure amounted to $9 million, which was primarily spent on drilling in southern Africa. In South Africa, exploration was undertaken across a number of projects, including Standerton, Elders, Zibulo, New Largo, Kriel East, Vaal basin, Heidelberg Limpopo and Waterberg projects. In Botswana, exploration focused on evaluating export thermal coal and coal bed methane prospectivity. Anglo American plc Annual Report 2011 41 OPERATING AND FINANCIAL REVIEW GROUP FINANCIAL PERFORMANCE FINANCIAL PERFORMANCE RECORD GROUP OPERATING PROFIT (2010: $9.8 bn) $11.1 bn GROUP UNDERLYING EARNINGS COMPARED TO 2010 +23% GROUP UNDERLYING EARNINGS PER SHARE (2010: $4.13) $5.06 FINANCIAL REVIEW OF GROUP RESULTS Group operating profit was a record at $11,095 million, 14% higher than 2010. This improvement in operating profit was primarily driven by increases in the realised prices of commodities including a 42% rise in export metallurgical coal, a 39% increase in South African export thermal coal, and a 26% increase in iron ore. However, increased commodity prices impacted results mainly in the first half of the year as global macro- economic uncertainties led to a decrease in commodity prices in the second half. During the year, three projects (Barro Alto, Los Bronces expansion and Kolomela) were delivered. While this contributed to an increase in production, operating profit was negatively affected by production disruptions across the Group’s operations, due to various causes, including inclement weather, safety stoppages and grade declines. Industry-wide mining cost pressures also negatively affected operating profit, although the impact was partly mitigated by the continuing positive performance of our embedded asset optimisation and procurement programmes. The Group’s results are impacted by currency fluctuations in the countries where the operations are based. The weakening of the US dollar against the Australian dollar, Chilean peso and Brazilian real, resulted in a $149 million negative exchange variance in operating profit compared to 2010. CPI inflation had a further negative $585 million impact on operating profit. Iron Ore and Manganese generated an operating profit of $4,520 million, 23% higher than 2010. Within this commodity group, Kumba Iron Ore had a strong performance with a record operating profit of $4,397 million, 29% higher than the previous year. Metallurgical Coal delivered a record operating profit of $1,189 million, a 52% increase on 2010, primarily due to higher realised export selling prices, which offset the impact of rain on production and sales. Thermal Coal’s record operating profit of $1,230 million was 73% higher as a result of higher export thermal coal prices for both South African and Colombian coal and a strong rail performance in South Africa in the second half of 2011. Copper delivered an operating profit of $2,461 million, 13% lower, as a result of lower sales volumes and higher operating costs, partly offset by high copper prices during the first half of the year. Nickel reported an operating profit of $57 million, $39 million lower than 2010, largely due to higher project evaluation and exploration expenditure related to development of the unapproved Nickel project pipeline. Platinum generated an operating profit of $890 million, a $53 million increase, due to higher metal prices, which were offset by higher costs driven by labour and electricity rate increases. Diamonds reported a record operating profit of $659 million, 33% higher, owing to significant price increases in 2011. Other Mining and Industrial generated an operating profit of $195 million, 71% lower, owing to the disposal of a number of businesses during the year and in 2010. Copebrás and Catalão delivered a combined increase in operating profit of 29%. This was driven by an increase in sales volumes and prices at Copebrás owing to high demand for fertilizers. Group underlying earnings were $6,120 million, a 23% increase on 2010, which reflects the operational results above. Net finance costs, before remeasurements, excluding associates, were $20 million (2010: $244 million). The effective rate of tax, before special items and remeasurements and including attributable share of associates’ tax, reduced in the year from 31.9% to 28.3%. Group underlying earnings per share were $5.06 (2010: $4.13). 42 Anglo American plc Annual Report 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 Operating profit $ million Iron Ore and Manganese Metallurgical Coal Thermal Coal Copper Nickel Platinum Diamonds Other Mining and Industrial Exploration Corporate Activities and Unallocated Costs Year ended 31 Dec 2011 Year ended 31 Dec 2010 4,520 1,189 1,230 2,461 57 890 659 195 (121) 15 3,681 780 710 2,817 96 837 495 664 (136) (181) Operating profit including associates before special items and remeasurements 11,095 9,763 Reconciliation of profit for the year to underlying earnings $ million Profit for the financial year attributable to equity shareholders of the Company Operating special items Operating remeasurements Net profit on disposals Financing special items Financing remeasurements Special items and remeasurements tax Non-controlling interests on special items and remeasurements Underlying earnings(1) Underlying earnings per share ($) (1) See note 4 to the financial statements. Year ended 31 Dec 2011 Year ended 31 Dec 2010 6,169 6,544 173 74 253 (382) (203) (1,598) 9 (205) 118 (15) 6,120 5.06 13 (106) 112 140 4,976 4.13 Anglo American plc Annual Report 2011 43 OPERATING AND FINANCIAL REVIEW GROUP FINANCIAL PERFORMANCE Summary income statement $ million Year ended 31 Dec 2011 Year ended 31 Dec 2010 Operating profit before special items and remeasurements 9,668 8,508 Operating special items Operating remeasurements Operating profit from subsidiaries and joint ventures Net profit on disposals Share of net income from associates (see reconciliation below) Total profit from operations and associates Net finance costs before remeasurements Financing remeasurements Profit before tax Income tax expense Profit for the financial year Non-controlling interests Profit for the financial year attributable to equity shareholders Basic earnings per share ($) Group operating profit including associates before special items and remeasurements(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 and remeasurements Income tax expense (after special items and remeasurements) Non-controlling interests (after special items and remeasurements) Share of net income from associates (164) (65) 9,439 183 977 (228) 386 8,666 1,579 822 10,599 11,067 (20) 203 (244) 105 10,782 10,928 (2,860) (2,809) 7,922 8,119 (1,753) (1,575) 6,169 5.10 11,095 1,427 (18) 20 (48) (7) (384) (13) 977 6,544 5.43 9,763 1,255 (29) 19 (88) (12) (315) (8) 822 (1) Operating profit before special items and remeasurements from subsidiaries and joint ventures was $9,668 million (2010: $8,508 million) and attributable share from associates was $1,427 million (2010: $1,255 million). For special items and remeasurements see note 5 to the financial statements. 44 Anglo American plc Annual Report 2011 Special items and remeasurements Operating special items and remeasurements, including associates, amounted to a loss of $247 million and included impairment and related charges, restructuring costs and operating remeasurements. Impairment and related charges were $154 million (2010: $122 million). This principally comprised an impairment of Tarmac Building Products of $70 million (Other Mining and Industrial segment) and accelerated depreciation of $84 million (2010: $97 million), mainly arising at Loma de Níquel (Nickel segment). The accelerated depreciation charge at Loma de Níquel has arisen due to ongoing uncertainty over the renewal of three concessions that expire in 2012 and over the restoration of 13 concessions that have been cancelled. Restructuring costs in 2011 principally relate to retrenchment and consultancy costs within the Platinum and Diamond segments (2010: Other Mining and Industrial, Platinum and Diamond segments). Operating remeasurements reflect a net loss of $74 million (2010: gain of $382 million) principally in respect of non-hedge derivatives of capital expenditure in Iron Ore Brazil. Derivatives which have been realised in the year had a cumulative net operating remeasurement gain since their inception of $383 million (2010: gains of $255 million). Net profit on disposals, including associates, amounted to a gain of $203 million (2010: $1,598 million). In February 2011, the Group completed the disposal of its 100% interest in the Lisheen operation and its 74% interest in Black Mountain Mining (Proprietary) Limited, which holds 100% of the Black Mountain mine and the Gamsberg project, resulting in a net cash inflow of $499 million, generating a profit on disposal of $397 million. Lisheen and Black Mountain were included in the Other Mining and Industrial segment. Also included in net profit on disposals is an IFRS 2 Share-based Payment charge of $131 million resulting from a community economic empowerment transaction involving certain of Platinum’s host communities, which was completed in December 2011. The Group sold Tarmac’s businesses in China, Turkey and Romania in July, October and November 2011 respectively. 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 Special items and remeasurements Year ended 31 Dec 2011 Year ended 31 Dec 2010 $ million Subsidiaries and joint ventures Associates Operating special items (164) Operating remeasurements Operating special items and remeasurements Net profit on disposals Financing special items Financing remeasurements Special items and remeasurements tax Non-controlling interests on special items and remeasurements (65) (229) 183 – 203 (119) 12 (9) (9) (18) 20 (9) 2 1 3 Subsidiaries and joint ventures Associates (228) (25) Total (173) (74) 386 (247) 203 (9) 158 1,579 – 205 105 (118) (110) (4) (29) 19 (13) 1 (2) Total (253) 382 129 1,598 (13) 106 (112) 15 (141) 1 (140) Tax $ million (unless otherwise stated) Profit before tax Tax Profit for the financial year Effective tax rate including associates Year ended 31 Dec 2011 Year ended 31 Dec 2010 Before special items and remeasure- ments Associates’ tax and non- controlling interests Including associates Before special items and remeasure- ments Associates’ tax and non- controlling interests 10,626 (2,741) 401 11,027 (385) (3,126) 9,109 (2,699) 322 (313) Including associates 9,431 (3,012) 7,885 16 7,901 6,410 9 6,419 28.3% 31.9% Financing remeasurements reflect a net gain of $205 million (2010: gain of $106 million), including associates, and relate to an embedded interest rate derivative, non-hedge derivatives of debt and other financing remeasurements. Special items and remeasurements tax amounted to a charge of $118 million (2010: charge of $112 million). This related to a credit for one-off tax items of $137 million (2010: nil), a tax remeasurement charge of $230 million (2010: credit of $122 million) and a tax charge on special items and remeasurements of $25 million (2010: charge of $234 million). The current year credit relating to one-off tax items of $137 million principally related to the recognition of deferred tax assets in Iron Ore Brazil which were originally written off as part of the impairment charges related to the Amapá iron ore system in 2009, and a capital gains tax refund related to a prior year disposal. Net finance costs Net finance costs, before remeasurements, excluding associates, were $20 million (2010: $244 million). This reduction was driven by increased interest income due to higher average levels of cash and an increase in interest capitalised. Tax 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 2011 is $384 million (2010: $315 million). Excluding special items and remeasurements, this amounted to $385 million (2010: $313 million). The effective tax rate before special items and remeasurements, including attributable share of associates’ tax, for the year ended 31 December 2011 was 28.3% (2010: 31.9%). The decrease was due to a number of non-recurring factors that include the recognition of previously unrecognised tax losses and the reassessment of certain withholding tax provisions across the Group. In future, it is expected that the effective tax rate, including associates’ tax, will remain above the United Kingdom statutory tax rate. Anglo American plc Annual Report 2011 45 OPERATING AND FINANCIAL REVIEW GROUP FINANCIAL PERFORMANCE Balance sheet Equity attributable to equity shareholders of the Company was $39,092 million at 31 December 2011 (31 December 2010: $34,239 million). This variance was mainly due to the increase in Group operating profit, and the proceeds on the disposal of 24.5% of Anglo American Sur (AA Sur). Investments in associates were $340 million higher than at 31 December 2010, principally as a result of a significant improvement in earnings at De Beers. Property, plant and equipment increased by $739 million compared to 31 December 2010, due to ongoing investment in growth projects. There were no assets classified as held for sale at 31 December 2011 (compared to assets, net of associated liabilities, of $188 million at 31 December 2010) due to the sale of the remaining Zinc assets during the year. Cash flow Net cash inflows from operating activities were $9,362 million (2010: $7,727 million). EBITDA was $13,348 million, an increase of 11% from $11,983 million in the prior year, reflecting strong prices across the Group’s core commodities. Net cash used in investing activities was $4,853 million (2010: $2,470 million). Purchases of property, plant and equipment, net of related derivative cash flows, amounted to $5,764 million, an increase of $770 million, reflecting major spend on the Group’s strategic growth projects. Proceeds from disposals, principally the Group’s remaining Zinc portfolio (net of cash and cash equivalents disposed) were $533 million (2010: $2,795 million). Net cash inflow from financing activities was $1,474 million compared with net cash used of $2,400 million in 2010. During the year the Group paid dividends of $818 million to company shareholders, and $1,404 million in dividends to non-controlling interests. Liquidity and funding Net debt, including related hedges, was $1,374 million, a decrease of $6,010 million from $7,384 million at 31 December 2010. The decrease in net debt reflects strong operating cash flows and proceeds on the disposal of 24.5% of AA Sur. Net debt at 31 December 2011 comprised $12,873 million of debt, partially offset by $11,732 million of cash and cash equivalents, and the current position of derivative liabilities related to net debt of $233 million. Net debt to total capital(1) at 31 December 2011 was 3.1%, compared with 16.3% at 31 December 2010. At 31 December 2011, the Group had undrawn committed bank facilities of $8.4 billion. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, indicate the Group’s ability to operate within the level of its current facilities for the foreseeable future. Corporate Activities and Unallocated Costs Following a reassessment of our estimate of the likely outcome of existing insurance claims and a low number of new claims received, liabilities in the insurance captive have reduced in 2011. This reduction, combined with an increase in insurance premium income, has more than offset the unallocated corporate costs in 2011, resulting in an operating profit recorded within Corporate Activities and Unallocated Costs. Dividends Anglo American’s dividend policy will provide a base dividend that will be maintained or increased through the cycle. The Group has maintained this policy and recommended a final dividend of 46 US cents per share, giving a total dividend for the year of 74 US cents per share, subject to shareholder approval at the Annual General Meeting to be held on 19 April 2012. As previously stated, taking into account the Group’s substantial investment programme for future growth, future earnings potential and the continuing need for a robust balance sheet, any surplus cash will be returned to shareholders. Analysis of dividends US cents per share Interim dividend Recommended final dividend Total dividends 2011 28 46 74 2010 25 40 65 (1) Net debt to total capital is calculated as net debt divided by total capital. Total capital is net assets excluding net debt. 46 Anglo American plc Annual Report 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 Sensitivity analysis in respect of currency and commodity prices Set out below is the impact on underlying earnings of a 10% fluctuation in certain of the Group’s commodity prices and exchange rates Commodity Platinum(2) Metallurgical Coal(3) Thermal Coal(4) Copper(5) Nickel(5) Iron Ore(6) Palladium(2) ZAR/USD AUD/USD CLP/USD Average price(1) 2011 2010 $1,725/oz $1,610/oz $251/t $114/t 400c/lb 1,035c/lb $158/t $736/oz 7.26 0.97 484 $177/t $82/t 342c/lb 989/lb $125/t $527/oz 7.32 1.09 510 10%(7) sensitivity US$ million 205 218 239 350 54 223 48 472 179 54 (1) ‘oz’ denotes ounces, ‘t’ denotes tonnes, ‘c’ denotes cents, ‘lb’ denotes pounds. (2) Source: Johnson Matthey Plc. (3) Average realised FOB price of export metallurgical coal. (4) Average realised FOB price of export thermal coal (South Africa). (5) Being the average LME price. (6) Average price represents average iron ore (South Africa) export price achieved. (7) Excludes the effect of any hedging activities. Stated after tax at marginal rate. Sensitivities are the average of the positive and negative and the impact of a 10% change in the average prices received and exchange rates during 2011. Increases in commodity prices increase underlying earnings and vice versa. A strengthening of the South African rand, Australian dollar and Chilean peso relative to the US dollar reduces underlying earnings and vice versa. Related party transactions Related party transactions are disclosed in note 36 to the financial statements. 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 2011, 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. Anglo American plc Annual Report 2011 47 OPERATING AND FINANCIAL REVIEW RISK EFFECTIVE RISK MANAGEMENT “Understanding our key risks and developing appropriate responses is critical to our future success. We are committed to a robust system of risk identification and an effective response to such risks.” HOW DO WE MANAGE RISK? The management of risk is critical to the success of Anglo American. The Group is exposed to a variety of risks which can have a financial, operational or reputational impact. Effective management of risk supports the delivery of the Group’s objectives and achievement of sustainable growth. David Challen Chairman, Audit Committee 1. Identifying risks A consistently applied methodology is used to identify key risks at Group business units, operations and projects. The risk management process is undertaken through a series of risk workshops at least annually at business units, sites and at key stages in projects. An update is performed every six months. 4. Reporting and monitoring Management is responsible for monitoring progress of actions to mitigate key risks and is supported through the Group’s internal audit programme, which evaluates the design and effectiveness of controls to mitigate key risks. The results of the key risk management process are reported to the Audit Committee every six months. Identifying risks Analysing risks and controls to manage identified risks 2 2. Analysing risks and controls to manage identified risks Once identified, the process will evaluate identified risks to establish financial and non-financial impacts, likelihood of occurrence and root causes. Consideration of current controls to mitigate the risks is also undertaken to enable a prioritised register of risks to be created. 1 ANGLO AMERICAN ASSESSMENT OF STRATEGIC, OPERATIONAL AND PROJECT RISKS 3 3. Determining management actions required If additional controls are required these will be identified and responsibilities assigned. 4 Reporting and monitoring Determining management actions required 48 Anglo American plc Annual Report 2011 Commodity prices Commodity prices for all products that Anglo American produces are subject to wide fluctuation. Liquidity risk The Group is exposed to liquidity risk in terms of being able to fund operations and growth. Counterparty risk The Group is exposed to counterparty risk from customers, certain suppliers and holders of cash. Currency risk The Group is exposed to currency risk where transactions are not conducted in US dollars. Inflation Impact: Commodity price volatility can result in material and adverse movement in the Group’s operating results, asset values, revenues and cash flows. Falling commodity prices could prevent the Group from completing certain transactions that are important to its business and which may have an adverse affect on its financial position – e.g. inability to sell assets at values or within timelines expected. Root cause: Commodity prices are determined primarily by international markets and global supply and demand. The demand for commodities will largely be determined by the strength of the global economic environment. Mitigation: The diversified nature of the commodities that Anglo American produces provides some protection to this risk, and the policy of the Group is not to engage in commodity price hedging. If commodity prices remain weak for a sustained period, the ability of the Group to deliver growth in future years may be adversely affected as growth projects may not be viable at lower prices. The Group constantly monitors the markets in which it operates and reviews capital expenditure programmes to ensure supply of product reflects forecast market conditions. 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 Impact: If the Group is unable to obtain sufficient credit due to capital market conditions, it may not be able to raise sufficient funds to develop new projects, fund acquisitions or meet its ongoing financing needs. As a result, revenues, operating results, cash flows or financial position may be adversely affected. Root cause: Liquidity risk arises from uncertainty or volatility in the capital or credit markets due to perceived weaknesses of the global economic environment or possibly as a response to shock events. Liquidity risk also arises when lenders are insecure about the long term cash generative capacity of the Group. Mitigation: The Group has an experienced Treasury team who are responsible for ensuring that there are sufficient committed loan facilities in place to meet short term business requirements after taking into account cash flows from operations and holdings of cash, as well as any Group distribution restrictions which exist. The Group limits exposure on liquid funds through a policy of minimum counterparty credit ratings, daily counterparty settlement limits and exposure diversification. Impact: Financial losses may arise should those counterparties become unable to meet their obligations to the Group. Root cause: Severe economic conditions or shock events as experienced in recent years can have a major impact on the ability of financial institutions and other counterparties that the Group has relationships with to meet their obligations. Mitigation: The Group Treasury team is responsible for managing counterparty risk with banks where Anglo American places cash deposits. However, the Treasury operations of joint ventures and associates are independently managed and may expose the Group to financial risks. For other counterparty risks the Group’s businesses have in place credit management procedures. Impact: 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, and pound sterling) may adversely affect financial results to a material extent. Root cause: The global nature of the Group’s businesses exposes the Group to currency risk. Mitigation: Given the diversified nature of the Group, the Group’s policy is generally not to hedge currency risk. Mitigation in the form of foreign exchange hedging is limited to debt instruments and capital expenditure on major projects. The Group is exposed to potentially higher rates of inflation in the countries in which it operates. Impact: Higher rates of inflation may increase future operational costs if there is no concurrent depreciation of the local currency against the US dollar, or an increase in the dollar price of the applicable commodity. This may have a negative impact on profit margins and financial results. Root cause: Cost inflation in the mining sector is more apparent during periods of high commodity prices as demand for input goods and services can exceed supply. Mitigation: The Group manages costs very closely through its asset optimisation and supply chain initiatives and, where necessary, through making efficiencies in employee and contractor numbers. Anglo American plc Annual Report 2011 49 OPERATING AND FINANCIAL REVIEW RISK Health and safety Failure to maintain the high levels of safety management can result in harm to the Group’s employees, contractors, communities near our operations and damage to the environment. Occupational health risks to employees and contractors include noise-induced hearing loss, occupational lung diseases and tuberculosis. HIV/AIDS in sub-Saharan Africa in particular is a threat to economic growth and development. Environment Certain of the Group’s operations create environmental risk in the form of dust, noise or leakage of polluting substances from site operations and uncontrolled breaches of tailings dam facilities, generating harm to the Group’s employees, contractors, the communities near the Group’s operations, air quality, water purity and land contamination. Exploration Exploration and development are costly activities, with no guarantee of success, but are necessary for future growth. Impact: In addition to injury, health and environmental damage, impacts could include fines and penalties, liability to employees or third parties, impairment of the Group’s reputation, industrial action or inability to attract and retain skilled employees. Government authorities may force closure of mines on a temporary or permanent basis or refuse mining right applications. The recruitment and retention of skilled people required to meet growth aspirations can be impacted by high rates of HIV/AIDS. Root cause: Mining is a hazardous industry and working conditions such as weather, altitude and temperature can add to the inherent dangers of mining, whether underground or in open pit mines. Mitigation: Anglo American sets a very high priority on safety and health matters. A safety risk management process, global standards and a safety and environment assurance programme form part of a consistently applied robust approach to mitigating safety risk. Anglo American provides anti-retroviral therapy to employees with HIV/AIDS and undertakes education and awareness programmes to help prevent infection or spread of infection. Impact: Potential impacts include fines and penalties, statutory liability for environmental remediation and other financial consequences that may be significant. Governments may force closure of mines on a temporary or permanent basis or refuse future mining right applications. Root cause: The mining process, including blasting and processing orebodies, can generate dust and noise and will require the storage of waste materials in liquid form. Mitigation: The Group implements a number of initiatives to monitor and limit the impact of its operations on the environment. Impact: Failure to discover new Mineral Resources of sufficient magnitude could adversely affect future results and the Group’s financial condition. Root cause: Exploration and development are speculative activities and often take place in challenging or remote locations from a climate, altitude or political perspective. Mitigation: The Group invests considerable sums each year in focused exploration programmes to enable resource discovery and development to reserves. This investment includes the use of leading technology in exploration activity. 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. Impact: Potential impacts include restrictions on the export of currency, expropriation of assets, imposition of royalties or other taxes targeted at mining companies, and requirements for local ownership or beneficiation. Political instability can also result in civil unrest, nullification of existing agreements, mining permits or leases. Any of these may adversely affect the Group’s operations or results of those operations. Root cause: The Group has no control over local political acts or changes in local tax rates. It recognises that its licence to operate through mining rights is dependent on a number of factors, including compliance with regulations. Mitigation: The Group actively monitors regulatory and political developments on a continuous basis. 50 Anglo American plc Annual Report 2011 Climate change The Group’s operations are exposed to changes in climate and the need to comply with changes in the regulatory environment aimed at reducing the effects of climate change. Supply risk The inability to obtain key consumables, raw materials, mining and processing equipment in a timely manner. Impact: Potential impacts from climate change are difficult to assess and will depend on the circumstances at individual sites, but could include increased rainfall, flooding, water shortages and higher average temperatures. These may increase costs, reduce production levels or impact the results of operations. Policy developments at an international, national and sub-national level, including those related to the 1997 Kyoto Protocol and subsequent international agreements and emissions trading schemes, could adversely affect the profitability of the Group. Regulatory measures may affect energy prices, demand or the margins achieved for carbon intensive products such as coal. Impact: Any interruption to the Group’s supplies or increases in costs adversely affects the Group’s financial position and future performance. Root cause: During strong commodity cycles, increased demand can be experienced for such supplies, resulting in periods when supplies are not always available to meet demand. Anglo American has limited influence over manufacturers and suppliers. Root cause: The Group is a significant user of energy and one of the key commodities it produces is coal. Mitigation: In addition to the initiatives to monitor and limit the impact of operations on the environment, the Group continuously seeks to reduce energy input levels into its operations. The asset optimisation programme seeks to make operations more energy efficient. 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 Mitigation: The Group takes a proactive approach to developing relationships with critical suppliers and improving the effectiveness of the Group’s purchasing leverage. Ore Reserves and Mineral Resources The Group’s Ore Reserves and Mineral Resources estimates are subject to a number of assumptions which may be incorrect. Impact: Deviations from the estimated price of commodities, production costs and mining and processing recovery rates may have an impact on the financial condition and prospects of the Group. Root cause: All assumptions related to Ore Reserves and Mineral Resources are long term in nature and are subject to volatility owing to economic, regulatory or political influences. Mitigation: The Group is experienced in managing Ore Reserves and Mineral Resources and has robust procedures in place to reduce the likelihood of significant variation. All factors are consistently monitored by management. The Group’s procedure on reporting of Ore Reserves and Mineral Resource estimates is summarised on page 177. Operational performance and project delivery Failure to meet production targets or project delivery timetables and budgets. Impact: Increased unit costs may arise from failure to meet production targets affecting the results of operations and financial performance. Failure to meet project delivery timetables and budgets may affect operational performance, delay cash inflows, increase capital costs and reduce profitability, as well as have a negative impact on the Group’s reputation. Root cause: Increasing regulatory, environmental, access and social approvals can increase construction costs and introduce delays. Operational performance can be affected by technical and engineering factors as well as events or circumstances impacting other critical inputs to the mining and processing of minerals. Mitigation: Management oversight of operating performance and project delivery through regular executive management briefings, a continuous focus on improvement of operations through the asset optimisation programme, and consistent application of the Group’s methodology for new projects are key to managing this risk. Anglo American plc Annual Report 2011 51 OPERATING AND FINANCIAL REVIEW RISK Event risk Damage to physical assets from fire, explosion, natural catastrophe or breakdown of critical machinery. Impact: The direct costs of repair or replacement combined with business interruption losses can result in financial losses. Root cause: Some of the Group’s operations are located in areas exposed to natural catastrophe such as earthquake/extreme weather conditions. The impact of climate change may intensify the severity of weather events. The nature of the Group’s operations exposes it to failure of mining pit slopes and tailings dam walls, fire, explosion and breakdown of critical machinery, with long lead times for replacement. Mitigation: 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. Contingency plans are developed within the Group to respond to significant events and recover normal levels of business activity. The Group purchases insurance to protect itself against the financial consequences of an event, subject to availability and cost. Employees The ability to recruit, develop and retain appropriate skills for the Group. Impact: 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 risk of strike or other industrial relations disputes may occur. Industrial disputes may have an adverse effect on production levels, costs and the results of operations. Root cause: The Group is subject to global competition for skilled labour. The location of the Group’s assets and development projects can be remote or in countries where it is challenging to recruit suitably skilled employees. Employees in the key countries where the Group operates are unionised. Negotiations over wage levels or working conditions can sometimes fail to result in agreement. Contractors Inability to employ the services of contractors to meet business needs or at expected cost levels. Impact: Disruption of operations or increased costs may arise if key contractors are not available to meet production needs. Delays in start-up of new projects may also occur. Mitigation: Anglo American’s objective is to be the Employer of Choice in the mining sector. A comprehensive Human Resources strategy has been devised to support that objective, focused on the attraction, retention and development of talented employees and the effective deployment of talent across the Group. The Group seeks constructive relationships and dialogue with trade unions and employees in all its businesses. Root cause: Mining contractors are used at a number of the Group’s operations to develop mining projects, mine and deliver ore to processing plants. In periods of high commodity prices, demand for contractors may exceed supply. Mitigation: Effective planning and establishment of effective working relationships with key contractors are utilised to mitigate this risk. Business integrity Failure to prevent acts of fraud, bribery, corruption or anti-competitive behaviour. Impact: Potential impacts include prosecution, fines, penalties and reputation damage. The Group may suffer financial loss if it is the victim of a fraudulent act. Root cause: In certain countries where the Group operates the risk of corruption is high, as indicated by indices prepared by independent non-governmental organisations (NGOs). Mitigation: The Group has very clear principles on the manner in which it conducts its business and expects all employees to act in accordance with its values. Policies and awareness programmes are in place to ensure consistent understanding of the Group’s expectations. The Group’s internal control environment is designed to prevent fraud and is regularly reviewed by an internal audit team to provide assurance that controls are designed and operating effectively. 52 Anglo American plc Annual Report 2011 Joint ventures Failure to achieve expected standards of health, safety and environment performance in joint ventures. Impact: If similar standards are not implemented in joint ventures, higher costs or lower production may result and have a bearing on operational results, asset values or the Group’s reputation. Acquisitions and divestments Root cause: 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. Mitigation: The Group seeks to mitigate this risk by way of a thorough evaluation process before commitment to any joint venture and implementation of ongoing governance processes in existing joint ventures. 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 Failure to achieve expected benefits from any acquisition or value from assets or businesses sold. Infrastructure Inability to obtain adequate supporting facilities, services and installations (water, power, road, rail and port, etc.). Impact: Failing to deliver expected acquisitions can result in adverse financial performance, lower production volumes or problems with product quality. The Group could find itself liable for past acts or omissions of the acquired business without any adequate right of redress. Failure to achieve expected values from the sale of assets or delivery beyond expected receipt of funds may result in higher debt levels, underperformance of those businesses and possible loss of key personnel. Root cause: Benefits may not be achieved as a result of changing or incorrect assumptions or materially different market conditions or deficiencies in the due diligence process. Delays in the sale of assets or reductions in value may arise due to changing market conditions. Mitigation: 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. Impact: Failure to obtain supporting facilities may affect the sustainability and growth of the business, leading to loss of competitiveness, market share and reputation. 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 competitive market rates may reduce profit margins. Root cause: The potential disruption of ongoing generation and supply of power is a risk faced by the Group in a number of countries in which it operates. The Group’s operations and projects can be located in countries or regions where power and water supplies are not certain and may be affected by population growth, the effects of climate change or lack of investment by owners of infrastructure. The Group 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. The Group relies on third parties to provide these services. Mitigation: The Group seeks to work closely with suppliers of infrastructure to mitigate the risk of failure and has established contingency arrangements. Long term agreements with suppliers are sought where appropriate. Community relations Disputes with communities may arise from time to time. Impact: Failure to manage relationships with local communities, government and NGOs may disrupt operations and adversely affect the Group’s reputation as well as its ability to bring projects into production. Mitigation: The Group has developed comprehensive processes to enable its business units to effectively manage relationships with communities and actively seeks engagement with all communities impacted by the Group’s operations. Root cause: 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. 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. Anglo American plc Annual Report 2011 53 OPERATING AND FINANCIAL REVIEW IRON ORE AND MANGANESE IRON ORE AND MANGANESE Financial highlights $ 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 2011 4,520 4,397 (42) 165 2010 3,681 3,396 (97) 382 4,733 3,856 13,069 11,701 1,732 41% 30% 1,195 38% 27% Chris Griffith CEO – Kumba Paulo Castellari-Porchia CEO – Iron Ore Brazil OPERATING PROFIT (2010: $3,681m) $4,520 m SHARE OF GROUP OPERATING PROFIT (2010: 38%) 41% EBITDA (2010: $3,856 m) $4,733 m 01 GROUP STRATEGY ACTIONS Investing – in world class assets in the most attractive commodities At our Minas-Rio iron ore project in Brazil, more than 200 km of pipeline that will transport iron ore slurry from the mine in the state of Minas Gerais to the port of Açu has been installed. Organising – efficiently and effectively In our manganese businesses, a change in product mix, to focus on less energy intensive FeMn production, has helped offset the high cost environment experienced in the year. Operating – safely, sustainably and responsibly Kumba had an outstanding safety performance in the year, ending 2011 fatality-free and with an LTIFR 33% below 2010. Employing – the best people Envision, Kumba’s broad-based employee share participation scheme, which includes over 6,000 permanent employee members, reached its first maturity in 2011. At the conclusion of its first five year phase it was valued at $319 million. 01 Construction of a pump station at the mine site of Minas-Rio iron ore project in Minas Gerais state, Brazil. 54 Anglo American plc Annual Report 2011 BUSINESS OVERVIEW Our Iron Ore portfolio principally comprises a 65.2% shareholding in Kumba Iron Ore Limited (Kumba), a leading supplier of seaborne iron ore, and Iron Ore Brazil’s 100% interest in Anglo Ferrous Minas-Rio Mineração S.A., 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 (together, the Minas-Rio project), and a 70% interest in the Amapá iron ore system. Kumba, listed on the Johannesburg Stock Exchange, produces a leading quality lump ore. Export ore is transported via the Sishen-Saldanha Iron Ore Export Channel to Saldanha Port. The rail and port operations are owned and operated by the South African parastatal Transnet. Kumba is well positioned to supply the high growth Asia-Pacific and Middle East markets and European steel markets in light of an expected decline in lump ore supplies from other sources. Kumba operates three mines – Sishen mine in the Northern Cape, which produced 38.9 Mt of iron ore in 2011, Thabazimbi mine in Limpopo, with an output of 0.9 Mt, and Kolomela mine, also in the Northern Cape, which was brought into production during 2011 and produced 1.5 Mt during the year. In 2011, Kumba exported more than 85% of its total iron ore sales volumes of 43.6 Mt, with 68% of these exports destined for China and the remainder for Europe, Japan, South Korea and the Middle East. Our 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. On completion of Phase 1, ore will be transported through a 525 kilometre slurry pipeline to the port of Açu in Rio de Janeiro state. Amapá, in Amapá state in northern Brazil, continues to ramp up its pellet feed and sinter feed production, which reached 4.8 Mt in 2011, and is expected to produce 5.5 Mt in 2012. Our Manganese interests consist of a 40% shareholding in Samancor Holdings, which owns Hotazel Manganese Mines and Metalloys, both 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. INDUSTRY OVERVIEW Demand for iron ore globally is linked primarily to the state of the global steel industry and, more specifically, to the steel manufacturing sector in China. The country is the largest steel producer and consumer in the world and accounts for more than two-thirds of global seaborne iron ore imports. In 2011, global steel production increased 6% to 1.5 billion tonnes (2010: 1.4 billion tonnes), of which 685 Mt were produced in China (2010: 627 Mt), an increase of 9% (2010: 10%). China’s seaborne iron ore imports rose by 11% to 684 Mt (2010: 619 Mt). The balance of China’s iron ore needs was met by domestic iron ore production, which rose by approximately 7% to 305 Mt. STRATEGY AND GROWTH Anglo American’s core strategy is to grow our position in iron ore and to supply premium iron ore products against a background of declining quality global iron ore supplies. We have a unique iron ore resource profile, with extensive, high quality resource bases in South Africa and Brazil. Significant future growth will come from Minas-Rio (including expansion potential) and expansion at Kolomela. Kumba seeks to sustainably maximise total shareholder value by enhancing the value of its current operations through the implementation of its asset optimisation programmes, capturing value across the value chain through its commercial and logistics strategy, executing its growth projects and ensuring that it has the organisational resources and capabilities to execute its strategy. Kumba plans to grow its business organically in order to achieve production of 80 to 90 Mtpa of iron ore by 2020, 70 Mtpa from South Africa and the remainder from other countries in Africa. Minas-Rio will capture a significant part of the high growth pellet feed market with its premium product featuring high iron content and low contaminants. Phase 1 of the Minas-Rio project will produce 26.5 Mtpa, with first production scheduled after completion and commissioning of the project, which is anticipated in the second half of 2013. During the year, civil works 2011 Iron ore production(1) Total 1,825 Mt 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 Western Europe 1.5% Other Europe and CIS 10.6% North America 5.9% South America 19.4% Africa 4.0% Asia 32.9% Oceania 25.7% Source: CRU (1) Apparent production of iron ore pellets, sinter fines and lump. 2011 Iron ore consumption(1) Total 1,825 Mt Unaccounted imports/stock changes 2.6% Western Europe 6.7% Other Europe and CIS 9.1% North America 4.2% South America 3.5% Africa 0.8% Asia 72.5% Oceania 0.6% Source: CRU (1) Apparent consumption of iron ore pellets, sinter fines and lump. Anglo American plc Annual Report 2011 55 OPERATING AND FINANCIAL REVIEW IRON ORE AND MANGANESE Kolomela, which was brought into commercial production during December 2011, is expected to produce at design capacity 9 Mtpa of iron ore. Iron ore price (FOB Australia) 200 180 160 t / $ 140 120 100 Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Spot QAMOM(1) (1) QAMOM is a pricing mechanism based on average quarter in arrears minus one month. Source: Anglo American Commodity Research commenced at the beneficiation plant, tailings dam earthworks progressed in line with the project schedule, while good progress was made in installing the 525 kilometre slurry pipeline. Further expansion potential is supported by the 2011 resource estimate of 5.8 billion tonnes (Measured, Indicated and Inferred), and further resource potential is considered to exist. While focus has been on Phase 1 construction, studies for the expansion of the project, including consideration of the optimal production profile, continue to be evaluated. Kolomela, which was brought into commercial production during December 2011, is expected to produce at design capacity 9 Mtpa of iron ore. With initial production of 1.5 Mt during 2011, the mine is on track to produce between 4 and 5 Mt in its ramping-up phase in 2012, before producing at full design capacity in 2013. FINANCIAL OVERVIEW Operating profit before special items and remeasurements increased by 23% from $3,681 million to $4,520 million, principally owing to stronger export prices, a year-on- year weighted average price increase of 26% in export iron ore for Kumba and an increase of 3% in export sales volumes. Markets Global steel demand growth continued to be driven by ongoing urbanisation and industrialisation in China. China is now the biggest steel producing country, accounting for approximately 45% of the global steel market. In early 2011, steel production in China reached record levels. However, the tightening in monetary policy to manage the inflationary pressures experienced in China since October 2010, led to credit liquidity constraints and a slower GDP growth rate in the second half of the year. This, coupled with margin compression as a result of higher raw material input costs and lower steel prices, led to a reduction in steel production rates and downstream steel destocking by end-users. Steel demand and pricing in Europe has been subdued since April 2011, following concerns around the European sovereign debt crisis. Japanese steel production and prices were initially impacted by the earthquake and tsunami during the first quarter but recovered during the third quarter. However, as macro-economic uncertainty increased, this also weighed heavily on steel prices and demand in Japan towards the end of the year. As a result, European and Japanese steel producers started to implement production slowdowns in an attempt to stabilise steel markets. Consequently, iron ore offtake in these regions has slowed and China has been the target of diverted contractual tonnages from a number of suppliers. The combination of higher seaborne ore supplies and lower crude steel production during the second half of 2011, resulted in a sharp fall in index prices in the fourth quarter. Steel producers resumed sourcing of iron ore during November 2011, following a period of destocking, particularly in China. Index and spot iron ore pricing has now reached a support level provided by high cost Chinese domestic iron ore production. Underpinned by global steel production, prices for manganese ores have been under considerable pressure, particularly in the second half of 2011 on the back of a general oversupply in the market and a build-up of port inventories in China. Alloy conversion capacity continued to grow through the year, placing additional pressure on margins for all alloys, with some higher cost producers eventually idling capacity so as to cut losses. 56 Anglo American plc Annual Report 2011 Operating performance Kumba Iron Ore The total material mined at Sishen mine increased by 8% from 153.2 Mt in 2010 to 165.0 Mt, of which waste mined was 119.0 Mt, an increase of 17% from 2010. This planned increase in mining activity was negatively affected by wet pit conditions resulting from excessive rainfall during the first half of 2011. As a consequence, the availability of run-of-mine material supplied to the dense media separation (DMS) plant reduced, causing total production at Sishen mine to decrease by 6% from 41.3 Mt in 2010 to 38.9 Mt. The jig plant achieved a run rate in excess of design capacity, producing 13.5 Mt for the year (2010: 13.3 Mt) as a result of an improved yield brought about by moderating the quality of the ore produced by the plant. Kolomela was brought into production ahead of schedule. Waste material stripped in the year amounted to 30.3 Mt (2010: 18.6 Mt) as two open pits were developed at a cost of $131 million (2010: $108 million), all of which was capitalised. The plant was successfully commissioned during 2011, delivering 1.5 Mt of production in the year. Kumba’s total sales volumes increased by 0.4 Mt to 43.5 Mt in 2011 (2010: 43.1 Mt). Total export sales volumes increased by 1.0 Mt to a record 37.1 Mt. Export sales volumes to China increased to 68% of total export volumes for the year, compared with 61% in 2010. The company’s traditional markets accounted for about 22% of export sales, while Kumba sold a small portion of its total exports into the Middle East and North Africa, and South America. Approximately 73% of exports were sold to long term and annual contractual customers and 27% at prices derived from index. Iron Ore Brazil Iron Ore Brazil generated an operating loss of $42 million, largely reflecting the pre-operational state of the Minas-Rio project. The Amapá operation contributed an operating profit of $120 million for the year, compared with an operating profit of $16 million in 2010, reflecting a strong production performance and continued cost containment during a period of elevated prices. Production in 2011 totalled 4.8 Mt, a 20% increase over the previous year. Samancor Operating profit declined by 57% to $165 million (2010: $382 million), driven mainly by lower prices and stronger average local currencies in South Africa and Australia. 01 Minas-Rio’s pump station No. 2 under construction. 02 The iron ore export port of Açu in Rio de Janeiro state is currently under construction and is planned to open in the second half of 2012. 03 Safety technician Daniel Cardoso Espindola (left) and security technician Wagno Luis Oliverira Assis, inspect a section of the Minas-Rio pipeline. At the end of 2011, more than 200 km of the 525 km pipeline that will carry iron ore to the port at Açu had been installed. 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 01 02 03 Anglo American plc Annual Report 2011 57 OPERATING AND FINANCIAL REVIEW IRON ORE AND MANGANESE Production was lower at the South African mines owing to safety related downtime, issues concerning sinter plants and higher stripping ratios. In addition, production was lower at GEMCO in Australia as a result of concentrator downtime and unusually heavy rainfall in early and late 2011. Anglo American’s share of ore production at 2.8 Mt was 6% lower than in the prior year, while alloy production of 300,500 tonnes was only marginally lower. Manganese ore sales prices softened by 19% in 2011, due to an oversupplied market and a build-up of port inventories in China. Projects Excellent progress was made at Kolomela mine, which was delivered five months ahead of schedule and within budget. Kolomela is ramping up well and is on track to produce between 4 Mt and 5 Mt in 2012, before producing at full design capacity of 9 Mtpa in 2013. Kumba’s stated South African growth target of producing 70 Mtpa by 2019 is intact: (cid:228) 9 Mtpa will come from Kolomela in 2013 (cid:228) 15 Mtpa to be delivered from other projects in the Northern Cape Province (cid:228) 5 Mtpa potential from projects in the Limpopo Province. The Minas-Rio iron ore project in Brazil is expected to produce 26.5 Mtpa of iron ore in its first phase and has made good progress during the year. Minas-Rio secured a number of major licences and permits during the year; the offshore and onshore works at the port are on schedule; more than 90% of land access has been secured along the 525 km pipeline route and more than 200 km of pipe has been installed; and the civil works at the beneficiation plant are well under way. As with other complex greenfield mining projects, a number of unexpected issues, such as the discovery of caves at the beneficiation plant site which require specialised assessment, continue to cause delays to the work scheduling, in addition to outstanding land access and an evolving permitting environment. Minas-Rio is assessing various options to manage these challenges in a high inflationary Brazilian mining environment, including acceleration activities within the previously announced 15% capital increase, to target first ore on ship in the second half of 2013. 58 Anglo American plc Annual Report 2011 Pre-feasibility studies for the second phase of the Minas-Rio iron ore project commenced during 2011 and, although still under way, the studies, together with the 2010 resource statement (total resource volume (Measured, Indicated and Inferred)) of 5.8 billion tonnes, support the expansion of the project. The second expansion of the GEMCO operation in the Northern Territory of Australia (GEEP2 project) was approved in May 2011. This follows the successful completion of the GEMCO Expansion Phase 1 (GEEP1) project in January 2010. The first phase expansion confirmed GEMCO’s status as the world’s largest and lowest cost producer of manganese ore. This second expansion, which is expected to be completed in late 2013, will further enhance GEMCO’s competitive advantages and create additional options for growth. The $280 million GEEP2 project (Anglo American’s 40% share: $112 million) will increase GEMCO’s beneficiated product capacity from 4.2 Mtpa to 4.8 Mtpa through the introduction of a dense media circuit by-pass facility. The expansion will also address infrastructure constraints by increasing road and port capacity to 5.9 Mtpa, creating 1.1 Mtpa of latent capacity for future expansions. Outlook Continuing macro-economic uncertainty has undermined the short term outlook for the global seaborne iron ore market. Monetary tightening to control inflation in emerging economies such as China has restrained economic growth. In addition, an uncertain policy response to tackle the European sovereign debt crisis has also weakened economic activity. Despite the short term uncertainty, medium to long term prospects for iron ore demand remain robust as China’s living standards continue to ‘catch up’ with those in developed economies. Nevertheless, as China shifts from an investment intensive to a consumption driven economy, the rate of growth for steel materials is expected to moderate to a more sustainable level. While demand is a key driver for pricing, supply constraints also play a crucial role. In the short term, iron ore supply is anticipated to remain tight amid seasonal weather impacts in Brazil and Western Australia, and the government’s moves in India to control exports of iron ore. The ongoing challenges faced by producers to deliver new supply is expected to lead to increased capital intensity and will, therefore, underpin the long term pricing outlook. Anglo American’s ability to supply iron ore to the market will be enhanced by the ramping up of Kolomela during 2012 and the delivery of the Minas-Rio project in the second half of 2013. A general state of oversupply in the global manganese ore market and high port stocks in China have pushed prices to lower levels of approximately $4.80/mtu CIF China. Demand is expected to slow even further owing to stock rebuilds, and short term macro-economic uncertainty. Alloy prices have also been affected by ongoing macro-economic uncertainty and steel producers minimising stock in the pipeline. This trend is expected to continue in 2012. Prices of manganese ore and alloy are expected to decline further from current levels, with a recovery anticipated towards the latter part of 2012. Kumba Iron Ore update Sishen supply agreement arbitration Sishen Iron Ore Company (SIOC) notified ArcelorMittal South Africa Limited (ArcelorMittal) on 5 February 2010 that it was no longer entitled to receive 6.25 Mtpa of iron ore contract mined by SIOC at cost plus 3% from Sishen mine, as a result of the fact that ArcelorMittal had failed to convert its old order mining rights. This contract mining agreement, concluded in 2001, was premised on ArcelorMittal owning an undivided 21.4% interest in the mineral rights of Sishen mine. As a result of ArcelorMittal’s failure to convert its old order mining right, the contract mining agreement automatically lapsed and became inoperative in its entirety as of 1 May 2009. As a result, a dispute arose between SIOC and ArcelorMittal, which SIOC has referred to arbitration. During 2011, three arbitrators were appointed and May 2012 was set as the date for the arbitration to begin. On 9 December 2011, SIOC and ArcelorMittal agreed to postpone the arbitration until the final resolution of the mining right dispute. SIOC and ArcelorMittal reached an interim pricing arrangement in respect of the supply of iron ore to ArcelorMittal from the Sishen mine. This interim arrangement endured until 31 July 2011. SIOC and ArcelorMittal agreed to an addendum to the interim supply agreement which extended the terms and conditions of the current interim agreement. The new interim pricing agreement, which is on the same terms and conditions as the first interim pricing agreement, commenced on 1 August 2011 and will endure to 31 July 2012. 01 Flotation plant at the Amapá iron ore system in north-east Brazil. 02 Looking out from Kolomela’s primary crusher over the rest of the plant, with the blending beds on the left. 01 02 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 21.4% undivided share of the Sishen mine mineral rights After ArcelorMittal failed to convert its old order rights, SIOC applied for the residual 21.4% mining right previously held by ArcelorMittal and its application was accepted by the Department of Mineral Resources (DMR) on 4 May 2009. A competing application for a prospecting right over the same area was also accepted by the DMR. SIOC objected to this acceptance. Notwithstanding this objection, a prospecting right over the 21.4% interest was granted by the DMR to Imperial Crown Trading 289 (Pty) Limited (ICT). SIOC initiated a review application in the North Gauteng High Court on 21 May 2010 in relation to the decision of the DMR to grant a prospecting right to ICT. The High Court Review, in which SIOC challenged the award of the 21.4% prospecting right over Sishen mine by the DMR to ICT, was presided over by Judge Raymond Zondo in the North Gauteng High Court in Pretoria, South Africa, from 15 to 18 August 2011. On 21 December 2011, judgement was delivered in the High Court regarding the status of the mining rights at Sishen mine. The High Court held that, upon the conversion of SIOC’s old order mining right relating to the Sishen mine properties in 2008, SIOC became the exclusive holder of a converted mining right for iron ore and quartzite in respect of the Sishen mine properties. The High Court held further that as a consequence, any decision taken by the DMR after such conversion in 2008 to accept or grant any further rights to iron ore at the Sishen mine properties was void. Finally, the High Court reviewed and set aside the decision of the Minister of Mineral Resources or her delegate to grant a prospecting right to ICT relating to iron ore as to a 21.4% share in respect of the Sishen mine properties. On 3 February 2012, both the DMR and ICT submitted applications for leave to appeal against the High Court judgment. The High Court order does not affect the interim supply agreement between ArcelorMittal and SIOC, which will endure until 31 July 2012 as indicated above. SIOC will continue to take the necessary steps to protect its shareholders’ interests in this regard. Anglo American plc Annual Report 2011 59 OPERATING AND FINANCIAL REVIEW METALLURGICAL COAL METALLURGICAL COAL Financial highlights $ million (unless otherwise stated) Operating profit EBITDA Net operating assets Capital expenditure Share of Group operating profit Share of Group net operating assets 2011 1,189 1,577 4,692 695 11% 11% 2010(1) 780 1,134 4,332 235 8% 10% (1) Following a strategic review during the year, Peace River Coal is now managed as part of the Metallurgical Coal business unit and accordingly is presented as part of the Metallurgical Coal segment. It was previously reported within the Other Mining and Industrial reporting segment. Comparatives have been reclassified to align with current year presentation. Seamus French CEO OPERATING PROFIT (2010: $780 m) $1,189 m SHARE OF GROUP OPERATING PROFIT (2010: 8%) 11% EBITDA (2010: $1,134 m) $1,577 m 01 GROUP STRATEGY ACTIONS Investing – in world class assets in the most attractive commodities In December 2011, we took an important step in our investment programme to triple our hard coking production by 2020 by approving the $1.7 billion, 5 Mtpa Grosvenor Phase 1 project. Organising – efficiently and effectively Successful mitigation actions to recover from lost volumes following exceptional heavy rain in late 2010 and early 2011, combined with asset optimisation improvements, led to record run-of-mine production at the open cut operations. Operating – safely, sustainably and responsibly In 2011, Metallurgical Coal recorded a 24% fall in its lost time injury frequency rate, and there were no deaths at any of its operations. Employing – the best people Initiatives such as our employees’ passionate commitment to rebuilding the local community’s infrastructure following the floods, working with government to bring fresh talent into the business, and developing sector leading operations management systems are examples of a company that is really making a difference. 01 Looking over the thickener at Moranbah North’s coal handling preparation plant (CHPP). The thickener separates the fine tailings (solids) from the water, enabling the process water to be recycled back through the CHPP. 60 Anglo American plc Annual Report 2011 A n g l o A m e r i c a n p l c A n n u a l R e p o r t 2 0 1 1 6 1 O p e r a t i n g a n d (cid:222) n a n c i a l r e v i e w B U S I N E S S O V E R V I E W A n g l o A m e r i c a n i s A u s t r a l i a (cid:213) s s e c o n d l a r g e s t m e t a l l u r g i c a l c o a l p r o d u c e r a n d t h i r d l a r g e s t g l o b a l e x p o r t e r o f m e t a l l u r g i c a l c o a l . O u r c o a l o p e r a t i o n s i n A u s t r a l i a a r e b a s e d o n t h e e a s t c o a s t , f r o m w h e r e M e t a l l u r g i c a l C o a l s e r v e s a r a n g e o f c u s t o m e r s t h r o u g h o u t A s i a a n d t h e I n d i a n s u b - c o n t i n e n t , E u r o p e a n d S o u t h A m e r i c a . O u r m e t a l l u r g i c a l c o a l o p e r a t i o n i n C a n a d a , P e a c e R i v e r C o a l , m a i n l y s e r v e s c u s t o m e r s i n E u r o p e , J a p a n a n d S o u t h A m e r i c a . M e t a l l u r g i c a l C o a l o p e r a t e s s i x m i n e s i n A u s t r a l i a : o n e w h o l l y o w n e d , a n d (cid:222) v e i n w h i c h i t h a s a c o n t r o l l i n g i n t e r e s t . F i v e o f t h e m i n e s a r e l o c a t e d i n Q u e e n s l a n d (cid:213) s B o w e n B a s i n : M o r a n b a h N o r t h ( m e t a l l u r g i c a l c o a l ) , C a p c o a l ( m e t a l l u r g i c a l a n d t h e r m a l c o a l ) , F o x l e i g h ( m e t a l l u r g i c a l c o a l ) , D a w s o n ( m e t a l l u r g i c a l a n d t h e r m a l c o a l ) a n d C a l l i d e ( t h e r m a l c o a l ) . D r a y t o n m i n e ( t h e r m a l c o a l ) i s i n t h e H u n t e r V a l l e y , N e w S o u t h W a l e s . A l l o f t h e m i n e s a r e i n w e l l e s t a b l i s h e d l o c a t i o n s a n d h a v e d i r e c t a c c e s s t o r a i l a n d p o r t f a c i l i t i e s a t D a l r y m p l e B a y a n d G l a d s t o n e i n Q u e e n s l a n d a n d N e w c a s t l e i n N e w S o u t h W a l e s . M o r a n b a h N o r t h i s a n u n d e r g r o u n d l o n g w a l l m i n i n g o p e r a t i o n w i t h a m i n i n g l e a s e c o v e r i n g 1 0 0 k m 2 . C o a l i s m i n e d f r o m t h e G o o n y e l l a M i d d l e S e a m , a p p r o x i m a t e l y 2 0 0 m e t r e s b e l o w t h e s u r f a c e . T h e m i n e p r o d u c e s a r o u n d 4 . 5 M t ( a t t r i b u t a b l e ) o f h i g h (cid:223) u i d i t y , h a r d c o k i n g c o a l f o r s t e e l m a n u f a c t u r i n g . P r o d u c t i o n i n 2 0 1 1 , h o w e v e r , w a s 2 . 5 ! M t ( a t t r i b u t a b l e ) , p r i m a r i l y d u e t o t h e e f f e c t t h a t (cid:223) o o d i n g h a d o n t h e s i t e e a r l y i n t h e y e a r . M e t h a n e - r i c h s e a m g a s i s s u p p l i e d t o a p o w e r s t a t i o n a t M o r a n b a h N o r t h , t h e r e b y r e d u c i n g t h e m i n e (cid:213) s c a r b o n d i o x i d e e q u i v a l e n t ( C O 2 e ) e m i s s i o n s b y a r o u n d 1 . 3 ! M t p a . C a p c o a l o p e r a t e s t w o u n d e r g r o u n d m i n e s a n d a n o p e n c u t m i n e . T o g e t h e r , t h e y p r o d u c e d a r o u n d 5 . 0 M t ( a t t r i b u t a b l e ) o f h a r d c o k i n g c o a l , p u l v e r i s e d c o a l i n j e c t i o n ( P C I ) a n d t h e r m a l c o a l i n 2 0 1 1 . C a p c o a l a l s o s u p p l i e s m e t h a n e - r i c h s e a m g a s t o E n e r g y D e v e l o p m e n t s L i m i t e d (cid:213) s p o w e r s t a t i o n , c o n t r i b u t i n g t o Q u e e n s l a n d (cid:213) s p o w e r g r i d , w h i l e r e d u c i n g t h e m i n e (cid:213) s C O 2 e e m i s s i o n s b y 0 . 8 M t . F o x l e i g h i s a n o p e n c u t o p e r a t i o n a n d p r o d u c e d 1 . 4 M t ( a t t r i b u t a b l e ) o f h i g h q u a l i t y P C I c o a l i n 2 0 1 1 . T h e m i n e i s e n g a g e d i n a n a s s e t o p t i m i s a t i o n p r o c e s s t o i n c r e a s e p r o d u c t i o n . D a w s o n i s a n o p e n c u t o p e r a t i o n , w h i c h i n 2 0 1 1 , p r o d u c e d 7 . 7 M t i n t o t a l ( 3 . 9 M t a t t r i b u t a b l e ) o f c o k i n g a n d t h e r m a l c o a l . P e a c e R i v e r C o a l i s a n o p e n c u t o p e r a t i o n , w h i c h p r o d u c e d 0 . 9 M t o f m e t a l l u r g i c a l c o a l i n t h e y e a r . I n 2 0 1 1 , A n g l o A m e r i c a n a c q u i r e d t h e r e m a i n i n g m i n o r i t y i n t e r e s t s i n P e a c e R i v e r C o a l i n B r i t i s h C o l u m b i a , C a n a d a . C u r r e n t l y t h e T r e n d m i n e i s o p e r a t i o n a l w i t h s i g n i (cid:222) c a n t g r o w t h o p p o r t u n i t i e s b e i n g e x p l o r e d f o r t h e c o m p l e x . M e t a l l u r g i c a l C o a l o w n s a n e f f e c t i v e 2 3 % i n t e r e s t i n t h e J e l l i n b a h a n d L a k e V e r m o n t m i n e s i n Q u e e n s l a n d ; b o t h a r e m e t a l l u r g i c a l c o a l p r o d u c e r s . I n 2 0 1 1 , M e t a l l u r g i c a l C o a l (cid:213) s m i n e s p r o d u c e d a n a t t r i b u t a b l e 1 4 . 2 M t o f m e t a l l u r g i c a l c o a l , a l l f o r e x p o r t , a n d 1 3 . 4 M t o f t h e r m a l c o a l , o f w h i c h 4 6 % w a s e x p o r t e d . M e t a l l u r g i c a l C o a l (cid:213) s r e s o u r c e b a s e t o t a l s s o m e 3 . 6 b i l l i o n t o n n e s o f c o a l . T h i s i n c l u d e s h i g h q u a l i t y g r e e n (cid:222) e l d m e t a l l u r g i c a l c o a l r e s o u r c e s c l o s e t o e x i s t i n g i n f r a s t r u c t u r e . I N D U S T R Y O V E R V I E W M e t a l l u r g i c a l c o a l , c o m p o s e d o f c o k i n g c o a l a n d P C I c o a l , i s a k e y r a w m a t e r i a l f o r b l a s t f u r n a c e s t e e l p r o d u c t i o n . B l a s t f u r n a c e - p r o d u c e d h o t m e t a l r e p r e s e n t s a p p r o x i m a t e l y 7 0 % o f g l o b a l c r u d e s t e e l p r o d u c t i o n ( 1 ) , m a k i n g m e t a l l u r g i c a l c o a l a n i m p o r t a n t r a w m a t e r i a l . G l o b a l m e t a l l u r g i c a l c o a l s u p p l y o f a r o u n d 1 ! b i l l i o n t o n n e s i s m a i n l y c o n s u m e d i n t h e c o u n t r y o f o r i g i n . C h i n a i s t h e b i g g e s t c o n s u m e r o f m e t a l l u r g i c a l c o a l , c o n s u m i n g a p p r o x i m a t e l y 7 0 0 M t i n 2 0 1 0 ( 2 ) . A s a r e s u l t o f i t s s u b s t a n t i a l d o m e s t i c p r o d u c t i o n , h o w e v e r , C h i n a o n l y r e l i e s o n i m p o r t e d c o a l f o r a p p r o x i m a t e l y 8 % o f i t s t o t a l r e q u i r e m e n t . I n 2 0 1 1 , t h e i n t e r n a t i o n a l s e a b o r n e m e t a l l u r g i c a l c o a l m a r k e t c o m p r i s e d s o m e 2 5 0 M t , t h e m a j o r d e s t i n a t i o n s b e i n g J a p a n , C h i n a , I n d i a , S o u t h K o r e a , B r a z i l a n d T a i w a n , a s w e l l a s m a n y c o u n t r i e s i n E u r o p e . H i s t o r i c a l l y , A u s t r a l i a h a s s u p p l i e d t w o - t h i r d s o f t h e s e a b o r n e m e t a l l u r g i c a l c o a l m a r k e t ; (cid:223) o o d r e l a t e d c o n s t r a i n t s , h o w e v e r , l i m i t e d t h e c o u n t r y (cid:213) s g l o b a l c o n t r i b u t i o n t o b e l o w 6 0 % i n 2 0 1 1 . T h e m a r k e t h a s t r a d i t i o n a l l y c o m p r i s e d p r e d o m i n a n t l y l o n g t e r m a n n u a l l y p r i c e d c o n t r a c t s . A s h i f t t o s h o r t e r t e r m p r i c i n g i n 2 0 1 1 , h o w e v e r , s a w t h e m a j o r i t y o f c o n t r a c t s p r i c e d o n a q u a r t e r l y b a s i s , w i t h a g r o w i n g v o l u m e b e i n g p r i c e d m o n t h l y . ( 1 ) W o r l d S t e e l a s s o c i a t i o n , S t e e l S t a t i s t i c a l Y e a r b o o k , J u l y 2 0 1 1 . ( 2 ) C R U M e t a l l u r g i c a l C o k e O u t l o o k — N o v e m b e r 2 0 1 1 . U S A 2 4 % A u s t r a l i a 5 5 % R u s s i a 3 % C a n a d a 1 2 % I n d o n e s i a 2 % O t h e r 3 % C h i n a 1 % S o u r c e : G T I S , C R U , W o o d M a c k e n z i e a n d A M E G l o b a l s e a b o r n e m e t a l l u r g i c a l c o a l e x p o r t s ( T o t a l 2 4 9 . 5 M t ) E u r o p e 1 7 % J a p a n 2 4 % I n d i a 1 3 % C h i n a 1 7 % S o u t h K o r e a 1 2 % T a i w a n 4 % B r a z i l 8 % T u r k e y 2 % O t h e r 3 % G l o b a l s e a b o r n e m e t a l l u r g i c a l c o a l i m p o r t s ( T o t a l 2 4 9 . 5 M t ) S o u r c e : G T I S , C R U , W o o d M a c k e n z i e a n d A M E OPERATING AND FINANCIAL REVIEW THERMAL COAL THERMAL COAL Financial highlights $ million (unless otherwise stated) Operating profit South Africa Colombia Projects and corporate EBITDA Net operating assets Capital expenditure Share of Group operating profit Share of Group net operating assets 2011 1,230 775 482 (27) 1,410 1,886 190 11% 4% 2010 710 426 309 (25) 872 2,111 274 7% 5% Norman Mbazima CEO OPERATING PROFIT (2010: $710m) $1,230 m SHARE OF GROUP OPERATING PROFIT (2010: 7%) 11% EBITDA (2010: $872 m) $1,410 m 01 GROUP STRATEGY ACTIONS Investing – in world class assets in the most attractive commodities In South Africa our 6.6 Mtpa Zibulo mine reached commercial operating levels in the fourth quarter of 2011, ahead of schedule, while in Colombia the Cerrejón P500 Phase 1 expansion to increase production by 8 Mtpa (100% basis) has also been given the go-ahead. Organising – efficiently and effectively Asset optimisation and supply chain initiatives yielded benefits well above budget, with an 80% increase in procurement from China. Operating – safely, sustainably and responsibly In 2011, Thermal Coal experienced two deaths across its operations, though its lost-time injury rate reached a record low. The business also won a Green award for its methane flaring project. Employing – the best people Thermal Coal is continuing with its drive to make the workplace a more diverse one. It continues to steadily grow the number of ‘historically disadvantaged South Africans’ in its management ranks. 01 In South Africa, Greenside colliery supplies thermal coal to both the domestic and export markets. In 2011, the mine produced 2.85 Mt of coal. 64 Anglo American plc Annual Report 2011 BUSINESS OVERVIEW INDUSTRY OVERVIEW Thermal Coal operates in South Africa and is a joint partner in Cerrejón, Colombia. In South Africa, Thermal Coal wholly owns and operates nine mines and has a 50% interest in the Mafube colliery and Phola washing plant. Six of the mines collectively supply 22 Mtpa of thermal coal to both export and local markets. New Vaal, New Denmark and Kriel collieries are domestic product operations supplying 30 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 American Inyosi Coal, a broad-based black economic empowerment (BEE) company valued at approximately $1 billion, is 73% held by Anglo American; the remaining 27% is 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 American Inyosi Coal, in turn, owns Kriel colliery, the new Zibulo multi- product colliery and the greenfield projects of Elders, New Largo and Heidelberg. Thermal Coal’s South African operations currently route all export thermal coal through the Richards Bay Coal Terminal (RBCT), in which it has a 24.17% shareholding, to customers throughout the Med-Atlantic and Asia-Pacific regions. Within South Africa, 62% of total sales tonnes are made to the Eskom power utility, of which the majority are on long term (i.e. life of mine) cost-plus contracts. A further 8% is sold to Sasol and 2% supplied to industrial sector consumers. The remaining 28% is exported through RBCT. In South America, Anglo American, BHP Billiton and Xstrata each own a one-third shareholding in Cerrejón, Colombia’s largest thermal coal exporter. This opencast operation currently has a 32 Mtpa production capacity (10.7 Mtpa attributable). In 2011, an expansion was approved to increase this capacity to 40 Mtpa (13.3 Mtpa attributable). Cerrejón owns and operates its own rail and deep water port facilities and sells into the export thermal and pulverised coal injection (PCI) coal markets. Coal is the most abundant source of fossil fuel energy in the world, considerably exceeding known reserves of oil and gas. The bulk of all coal produced worldwide is thermal coal, which is used as a fuel for power generation and other industries, notably the cement sector. In 2011, seaborne thermal coal demand accounted for approximately 790 Mt and was supplied from many 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, hydro-electricity 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 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 is focused on supplying the electricity generation and industrial sectors from large, low cost coal basins, with a global growth strategy that targets participation in the most attractive export markets. We have a diverse, high quality asset portfolio in South Africa and Colombia and aim to continue being a long term, reliable supplier. We also actively participate in the pursuit of cleaner coal solutions for the world’s energy needs through the development of new technologies in areas such as clean coal, carbon capture and storage, algal sequestration and methane-drainage flaring. Thermal Coal is expanding its current position in the export market, while maintaining a significant position in the domestic market in South Africa. We plan to deliver on this ambition through our extensive portfolio of expansion projects, supported by targeted acquisitions. 2011 Thermal coal supply(1) Total 790.5 Mt 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 Western Europe 0.4% Other Europe and CIS 12.8% North America 5.3% South America 10.6% Africa and Middle East 8.4% Asia 41.9% Oceania 20.6% Source: Wood Mackenzie (1) Seaborne, traded. 2011 Thermal coal demand(1) Total 790.5 Mt Western Europe 19.5% Other Europe and CIS 0.3% North America 2.4% South America 1.5% Africa and Middle East 2.7% Asia 73.5% Oceania 0.1% Source: Wood Mackenzie (1) Seaborne, traded. Anglo American plc Annual Report 2011 65 OPERATING AND FINANCIAL REVIEW THERMAL COAL Anglo American has approved investment into the expansion at Cerrejón Phase 1 to increase the port and logistics chain capacity to reach 40 Mtpa (100% basis). Phase 2 of this expansion project has the potential to increase production to 50 to 60 Mtpa, which may require a river diversion in order to access additional reserves. Thermal Coal is currently completing its feasibility study on New Largo, identified by Eskom as a primary coal supplier to its Kusile power station, now under construction. In 2010, there was a marked swing from the Med-Atlantic to the Asia-Pacific market, resulting in India boosting its status as a substantial and growing market for South Africa-sourced coal. Close to 70% of South Africa’s coal exports were destined for the Asia-Pacific market in 2011. In the longer term, growth in global thermal coal demand is expected to outpace growth in world energy demand. According to BP’s 2011 Statistical Review of World Energy, thermal coal’s share of the global energy mix rose to 29.6% in 2010, up from 25.6% in 2001 and the highest since 1970. In October 2010, Anglo American announced that it planned to dispose of its Kleinkopje colliery in Mpumalanga, South Africa. Thermal Coal then conducted a rigorous and competitive disposal process, which took more than 10 months to complete. Despite significant initial interest in the asset, this did not translate into any acceptable offers being received by the closing date of June 2011. As a result, in August 2011, Anglo American announced its decision to terminate the sale process, and established a high-level project team to optimise the configuration of the mine to ensure its continued operation and improve performance. In addition to developing operations in its existing geographies, Thermal Coal is constantly evaluating potential opportunities in new regions which are well placed to service its growing markets. 66 Anglo American plc Annual Report 2011 FINANCIAL OVERVIEW Thermal Coal generated an operating profit of $1,230 million, representing a 73% increase on 2010, driven by stronger average export thermal coal prices. This was in part offset by industry-wide cost pressures, primarily in labour, fuel and power. Markets Anglo American weighted average achieved FOB price ($/tonne) RSA export thermal coal RSA domestic thermal coal Colombian export thermal coal Attributable sales volumes (‘000 tonnes) RSA export thermal coal RSA domestic thermal coal Colombian export thermal coal 2011 114.27 2010 82.49 21.36 18.42 101.01 72.69 2011 16,532 2010 16,347 40,136 41,323 10,685 10,461 The Asia-Pacific region started the year with severe weather interruptions in Australia and Indonesia, disrupting coal exports and driving Newcastle thermal coal FOB(1) prices to a post-2008 high of $136/t during January and averaging $121/t for the year (2010: $99/t). The earthquake and tsunami which struck Japan in March 2011 damaged the country’s Pacific coast coal-fired power plants and transmission infrastructure. Although this event immediately reduced Japan’s thermal coal requirements, India and China imported significantly more thermal coal during 2011, some 25% and 15% respectively above 2010 volumes, which increased overall demand in the Asia-Pacific region by approximately 8%. During the final quarter of 2011, the market weakened, as the earlier upsurge in international thermal coal prices and increased exports from Indonesia softened demand. Australian FOB prices subsequently stabilised in December at $110/t. The Med-Atlantic region was impacted by the political upheaval and ensuing geo-political tensions that affected several North African and Middle Eastern countries, which led to an increase in global energy prices and improved thermal coal’s competitiveness compared with gas-powered electricity generation. This was a contributing factor to a forecast 8% increase in thermal coal imports into the Atlantic region during 2011 and added support to South African FOB(2) export prices, which averaged $116/t in the year (2010: $92/t). A warm start to the northern hemisphere winter, continued economic uncertainty within Europe and increased exports from the US, Colombia and South Africa adversely affected market sentiment during the fourth quarter. This placed pressure on seaborne thermal coal prices, which for South African exports settled at $104/t (FOB) during December. Operating performance Attributable production (‘000) RSA thermal coal RSA Eskom coal Colombian export thermal coal 2011 21,388 35,296 2010 21,612 36,403 10,752 10,060 South Africa Operating profit from South African operations increased by 82% to $775 million, driven by higher export thermal coal prices, although partly offset by the impact of the stronger rand, particularly in the first half of the year. Costs were impacted by industry- wide increases in labour, power and fuel, as well as additional stock management costs following train derailments during the first quarter. These were compounded by a 20 day extended maintenance stoppage during May and June 2011 on the railway line to RBCT. Export sales volumes were also similarly affected in the first half. However, export sales recovered during the second half of the year as optimised load out efficiencies on the operations complemented improved Transnet Freight Rail performance. Production for the year decreased by 2% to 57 Mt. Zibulo moved from project to operational phase during the fourth quarter of 2011 as a result of some sections opening ahead of schedule. These gains were offset, however, by heavy rainfall in the first quarter that hampered the opencast operations as well as geological issues at certain underground operations. In addition, production was impacted by industrial action in the third quarter. Colombia At Cerrejón, operating profit of $482 million was 56% higher, primarily due to higher thermal coal prices and production offsetting the impact of above inflation cost increases and a strong local currency. Record production was achieved despite the continuation of the rain-related stoppages associated with the La Niña weather phenomenon. Although rain related stoppages were approximately double the (1) (2) GlobalCoal’s NEWC index price. Argus/McCloskey API4 Index. forecast, there was an improvement on 2010. This improvement, in combination with mining efficiencies and scheduling, enabled Cerrejón to exceed its theoretical production capacity of 32 Mtpa for the first time, resulting in a 7% increase in production year-on-year. Projects The 6.6 Mtpa Zibulo mine in South Africa reached commercial operating levels in the fourth quarter of 2011, ahead of schedule. Also in South Africa, the New Largo project, currently at feasibility stage, has two main elements: a new opencast mine and a conveyor which will run from an existing coal plant to an Eskom power station. The operation plans to mine domestic thermal coal and Thermal Coal is currently negotiating a coal supply agreement with Eskom for delivery into its Kusile power station. Initial coal from the mine is expected in 2015. In Colombia, Phase 1 of the Cerrejón P500 expansion project, to increase production by 8 Mtpa, was approved by Cerrejón’s three shareholders in the third quarter of 2011. First coal is targeted during the fourth quarter of 2013, with the project expected to achieve full production at the end of 2015. As at the end of 2011, the project was on schedule and on budget. Outlook The international seaborne thermal coal market is expected to remain in balance during 2012, as increased supply from the main exporting countries of Australia, Indonesia and Colombia is consumed by the developing Asia-Pacific economies, aided by Japan’s recovery from the recent natural disasters. Growth in thermal coal consumption is expected to continue in both China and India, reflecting rising energy demand as their economies grow strongly. In Europe, demand for thermal coal is expected to be consistent with 2011, with minimal demand growth in line with forecast weak GDP growth in the region. The Atlantic market is expected to continue to see the impact of strong US thermal coal exports in reaction to the increasing supply of US domestic gas and low US gas prices. 01 The incline conveyor and 6,000 tonne silo at 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 01 02 03 Anglo American plc Annual Report 2011 67 OPERATING AND FINANCIAL REVIEW COPPER COPPER Financial highlights $ million (unless otherwise stated) Operating profit EBITDA Net operating assets Capital expenditure Share of Group operating profit Share of Group net operating assets 2011 2,461 2,750 7,643 1,570 22% 17% 2010 2,817 3,086 6,291 1,530 29% 14% John MacKenzie CEO OPERATING PROFIT (2010: $2,817 m) $2,461 m SHARE OF GROUP OPERATING PROFIT (2010: 29%) 22% EBITDA (2010: $3,086 m) $2,750 m 01 GROUP STRATEGY ACTIONS Investing – in world class assets in the most attractive commodities A key focus in 2012 will be in progressing the Quellaveco project in Peru to the approval stage, while a pre-feasibility study is under way to examine options for expansion at our 44% owned Collahuasi mine in Chile. Organising – efficiently and effectively Significant steps were taken during the year to upgrade the business’ risk management profile: this included more comprehensive risk management training, as well as the progressive implementation of risk standards and of a new set of leading risk indicators. Operating – safely, sustainably and responsibly Copper’s managed operations resumed a downward trend in lost time injuries, though one death was recorded at Los Bronces. The business continues to assess its safety performance and has set new and more demanding targets around risk management improvement. Employing – the best people Our Copper team aims to raise the bar in terms of both its commitment to the business and its wider community outreach, as exemplified in its multi-stakeholder dialogue and financing initiatives around its new projects. 01 SAG mill under construction in the new Confluencia grinding plant that forms part of the Los Bronces expansion project in Chile. 68 Anglo American plc Annual Report 2011 electricity infrastructure. The key growth area will continue to be the developing world, led by China and, in the longer term, India, where industrialisation and urbanisation on a huge scale continue to propel copper demand growth, and where copper consumption per capita is still well below that of the advanced economies. What has really distinguished copper in recent times – as reflected in its strong price performance – has been its underperformance on the supply side, which is supporting more robust fundamentals for the metal. Copper mine output has suffered disproportionately from a range of constraints on output, including a long term decline in ore grades, slow ramp-ups at new projects, strikes, technical failures and adverse weather. Constraints on the supply side are likely to prove a structural feature of the market, driven by continuing declines in ore grades at maturing existing operations and new projects, a lack of capital investment and under-exploration in the industry, as well as political and environmental challenges in many current and prospective 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. This, combined with the need to develop infrastructure in new geographies, requires greater economies of scale in order to be commercially viable. Scarcity of water in some countries, for example in Chile and Peru, is also necessitating the construction of capital and energy intensive desalination plants. During the period 2000–2008, China increased its share of first-use refined metal consumption from 12% to an estimated 28% and grew further to approximately 37% in 2009 and 2010. Growth in Chinese consumption continued in 2011, while demand elsewhere fell sharply. BUSINESS OVERVIEW We have interests in six copper operations in Chile. The Mantos Blancos and Mantoverde mines are wholly owned and we hold a 75.5% interest in Anglo American Sur (AA Sur), which includes the Los Bronces and El Soldado mines and the Chagres smelter. We have a 44% shareholding in the Collahuasi mine (the other shareholders are Xstrata, with 44%, and a Mitsui consortium, holding the balance of 12%). The mines also produce associated by-products such as molybdenum and silver. In addition, we have a controlling interest in the Quellaveco and Michiquillay projects in Peru and a 50% interest in the Pebble project in Alaska, with Northern Dynasty Minerals holding the balance. INDUSTRY OVERVIEW Copper’s principal use is in the wire and cable markets because of the metal’s electrical conductivity and corrosion resistance. Applications that make use of copper’s electrical conductivity, such as wire (including the wiring used in buildings), cables and electrical connectors, make up approximately 60% of total demand. Copper’s corrosion-resistant qualities find numerous applications, particularly plumbing pipe and roof sheeting, in the construction industry, which accounts for a further 20% of demand. 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 mining is an attractive industry, with a moderate concentration of customers and suppliers, and relatively good average profitability over the long term. Producers are price-takers; hence, opportunities for product differentiation are limited, either at the concentrate or metal level. Access to quality orebodies, located in regions providing stable political, social and regulatory support for responsible, sustainable mining, should continue to be the key factor distinguishing project returns and mine profitability. With no fundamental technological shifts expected in the short to medium term, forecast long term demand is likely to be underpinned by robust growth in copper’s electrical uses, particularly wire and cable in construction, automobiles and 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 Leading copper consumers (2011 estimated refined copper consumption) 2011 estimated World total: 19,931kt Kt 7,780 3,994 3,280 China Europe Rest of world N. America 1,957 Japan 1,038 South Korea 863 India 610 Brazil 409 Source: Brook Hunt – a Wood Mackenzie company Anglo American plc Annual Report 2011 69 OPERATING AND FINANCIAL REVIEW COPPER 01 In the Confluencia area of Los Bronces, this overland conveyor transports new coarse ore to a stockpile, from where the ore is fed to the SAG mill. 02 Taking topographical measurements at Confluencia, with the new stockpile building in the background. 01 02 Copper stocks and price 1,000 ) t k ( s k c o t s r e p p o C 750 500 250 0 Jan 08 Jan 09 Jan 10 Jan 11 Shanghai Stocks LME Stocks Comex Stocks Copper price (c/lb) Source: Anglo American Commodity Research 70 Anglo American plc Annual Report 2011 C o p p e r p r i c e ( c / b ) l 500 450 400 350 300 250 200 150 100 STRATEGY AND GROWTH The Los Bronces expansion project successfully delivered first production in the fourth quarter of 2011. Following the forecast 12 month ramp-up, the Group’s copper production, including the attributable share of the Collahuasi joint venture, will increase to more than 900,000 tpa. Additional growth in the medium term will come from the Quellaveco project, and from Collahuasi, where a pre-feasibility study into further expansion continues. We are also continuing to evaluate development options for the Michiquillay resource and Pebble, with concept and pre-feasibility studies under way at both projects. In Chile, we are conducting extensive exploration in the prospective Los Bronces district and at the West Wall project in the Valparaíso region, in which Anglo American and Xstrata each has a 50% interest. In November 2011, entirely in accordance with its rights, Anglo American announced the completion of the sale of a 24.5% stake in AA Sur, comprising a number of the Group’s copper assets in Chile, to Mitsubishi Corporation LLC (Mitsubishi) for $5.39 billion in cash. This transaction highlighted the inherent value of AA Sur as a world class, tier one copper business with extensive reserves and resources and significant further growth options from its exploration discoveries, valuing AA Sur at $22 billion on a 100% basis. There is continuing litigation between Anglo American and Codelco in respect of the option agreement between them relating to AA Sur (described fully in note 34 to the financial statements). Anglo American will continue to defend its rights vigorously, while remaining open to working with Codelco to reach a settlement that recognises the strength of Anglo American’s legal position and protects the interests of Anglo American’s shareholders. The sale demonstrated our commitment to delivering value for shareholders. Anglo American remains fully committed to its major inward investment programme in its Chilean business and to continuing its significant social and community investment programme in Chile. As announced in September 2011, we are participating in a sales process to dispose of our effective 16.8% interest in Palabora Mining Company. A review of this investment in the second half of 2011 concluded that the asset was no longer of sufficient scale to suit the Group’s investment strategy. A n g l o A m e r i c a n p l c A n n u a l R e p o r t 2 0 1 1 7 1 O p e r a t i n g a n d (cid:222) n a n c i a l r e v i e w F I N A N C I A L O V E R V I E W C o p p e r g e n e r a t e d a n o p e r a t i n g p r o (cid:222) t o f $ 2 , 4 6 1 m i l l i o n , 1 3 % l o w e r t h a n i n 2 0 1 0 . T h e h i g h e r a v e r a g e c o p p e r p r i c e f o r t h e y e a r w a s m o r e t h a n o f f s e t b y l o w e r s a l e s v o l u m e s a n d h i g h e r o p e r a t i n g c o s t s . H i g h e r p o w e r a n d f u e l - r e l a t e d c o s t s a f f e c t e d a l l o p e r a t i o n s , p a r t i c u l a r l y L o s B r o n c e s d u e t o a p e r i o d o f e x p o s u r e t o t h e e l e v a t e d m a r g i n a l c o s t o f p o w e r o n t h e c e n t r a l C h i l e a n g r i d . A t C o l l a h u a s i , t h e d e c i s i o n t o i n c u r a d d i t i o n a l l o g i s t i c s c o s t s i n o r d e r t o m a x i m i s e s a l e s w h i l e t h e P a t a c h e p o r t s h i p l o a d e r w a s b e i n g r e p a i r e d a l s o h a d a n a d v e r s e e f f e c t o n u n i t c o s t s . M a r k e t s A v e r a g e p r i c e 2 0 1 1 2 0 1 0 A v e r a g e m a r k e t p r i c e s ( c / l b ) 4 0 0 3 4 2 A v e r a g e r e a l i s e d p r i c e s ( c / l b ) 3 7 8 3 5 5 C o p p e r p r i c e s i n c r e a s e d s t r o n g l y d u r i n g t h e (cid:222) r s t h a l f o f t h e y e a r , a n d r e a c h e d a r e c o r d ( n o m i n a l ) h i g h o f 4 6 0 c / l b a s d e m a n d i n c r e a s e d a n d s u p p l y r e m a i n e d c o n s t r a i n e d . H o w e v e r , a s c o n c e r n s g r e w o v e r t h e o u t l o o k f o r t h e w o r l d e c o n o m y , t h e p r i c e m o v e d o f f t h i s p e a k a n d w a s m o r e v o l a t i l e i n t h e s e c o n d h a l f o f t h e y e a r a s E u r o p e (cid:213) s s o v e r e i g n d e b t c r i s i s c o n t i n u e d t o a f f e c t s e n t i m e n t . A f t e r d r o p p i n g s h a r p l y i n S e p t e m b e r , t h e c o p p e r p r i c e r e c o v e r e d d u r i n g s u b s e q u e n t m o n t h s t o e n d t h e y e a r a t 3 4 3 c / l b , r e p r e s e n t i n g a d e c r e a s e o f 2 5 % f r o m i t s F e b r u a r y h i g h . F o r t h e f u l l y e a r , t h e r e a l i s e d p r i c e a v e r a g e d 3 7 8 c / l b , a 6 % i n c r e a s e c o m p a r e d w i t h 2 0 1 0 . T h i s i n c l u d e d a n e g a t i v e p r o v i s i o n a l p r i c e a d j u s t m e n t f o r 2 0 1 1 o f $ 2 7 8 ! m i l l i o n , v e r s u s a n e t p o s i t i v e a d j u s t m e n t i n t h e p r i o r y e a r o f $ 1 9 5 m i l l i o n . O p e r a t i n g p e r f o r m a n c e A t t r i b u t a b l e p r o d u c t i o n ( t o n n e s ) 2 0 1 1 2 0 1 0 C o p p e r 5 9 9 , 0 0 0 6 2 3 , 3 0 0 T o t a l a t t r i b u t a b l e c o p p e r p r o d u c t i o n o f 5 9 9 , 0 0 0 t o n n e s w a s 4 % l o w e r t h a n i n 2 0 1 0 . T h i s w a s m a i n l y d u e t o l o w e r p r o d u c t i o n f r o m C o l l a h u a s i , M a n t o s B l a n c o s a n d M a n t o v e r d e . A t t r i b u t a b l e p r o d u c t i o n a t C o l l a h u a s i w a s 1 0 % l o w e r a t 1 9 9 , 5 0 0 t o n n e s . T h e d e c r e a s e w a s d u e t o e x p e c t e d l o w e r g r a d e s , a b n o r m a l l y h i g h r a i n f a l l a n d h e a v y s n o w a f f e c t i n g t h r o u g h p u t , a n d a n i l l e g a l s t r i k e d u r i n g N o v e m b e r . O u t p u t a t M a n t o s B l a n c o s a n d M a n t o v e r d e w a s 8 % a n d 4 % l o w e r a t 7 2 , 1 0 0 t o n n e s a n d 5 8 , 7 0 0 t o n n e s r e s p e c t i v e l y , d u e t o l o w e r g r a d e s . P r o d u c t i o n a t L o s B r o n c e s w a s m a r g i n a l l y h i g h e r a t 2 2 1 , 8 0 0 t o n n e s , t h e o p e r a t i o n b e n e (cid:222) t i n g f r o m 1 9 , 0 0 0 t o n n e s a c h i e v e d f r o m t h e s t a r t - u p o f t h e e x p a n s i o n p r o j e c t a n d h i g h e r t h r o u g h p u t a s a r e s u l t o f a s s e t o p t i m i s a t i o n i n i t i a t i v e s . T h i s i n c r e a s e i n p r o d u c t i o n w a s o f f s e t b y a n t i c i p a t e d l o w e r g r a d e s , a t e m p o r a r y f a i l u r e i n a r e t u r n s o l u t i o n s p i p e l i n e i m p a c t i n g c o p p e r c a t h o d e p r o d u c t i o n , a n d s a f e t y s t o p p a g e s f o l l o w i n g a f a t a l a c c i d e n t i n S e p t e m b e r . P r o d u c t i o n a t E l S o l d a d o a l s o i n c r e a s e d b y 1 6 % , t o 4 6 , 9 0 0 ! t o n n e s , o w i n g t o h i g h e r o r e g r a d e s f o l l o w i n g a p e r i o d o f m i n e d e v e l o p m e n t . T h e i m p a c t o n C o l l a h u a s i (cid:213) s s a l e s v o l u m e s a r i s i n g f r o m t h e D e c e m b e r 2 0 1 0 s h i p l o a d e r f a i l u r e a t t h e P a t a c h e p o r t , w a s s u c c e s s f u l l y o v e r c o m e i n t h e (cid:222) r s t h a l f o f t h e y e a r t h r o u g h t h e i m p l e m e n t a t i o n o f a c o n t i n g e n c y p l a n t h a t i n c l u d e d s h i p p i n g c o p p e r c o n c e n t r a t e t h r o u g h t h e p o r t s a t A r i c a , I q u i q u e a n d A n t o f a g a s t a . T h e s h i p l o a d e r w a s r e p a i r e d a n d f u l l y o p e r a t i o n a l b y J u l y 2 0 1 1 . P r o j e c t s T h e d e l i v e r y o f (cid:222) r s t c o p p e r p r o d u c t i o n f r o m t h e L o s B r o n c e s e x p a n s i o n w a s a c h i e v e d o n s c h e d u l e i n t h e f o u r t h q u a r t e r o f 2 0 1 1 . T h e r a m p - u p p e r i o d i s e x p e c t e d t o t a k e 1 2 m o n t h s b e f o r e f u l l p r o d u c t i o n i s r e a c h e d , d u r i n g w h i c h t i m e p r o c e s s i n g p l a n t t h r o u g h p u t w i l l i n c r e a s e f r o m 6 1 , 0 0 0 t o n n e s t o 1 4 8 , 0 0 0 t o n n e s o f o r e p e r d a y . T h e e x p a n s i o n w i l l i n c r e a s e t h e m i n e (cid:213) s o u t p u t b y a n a v e r a g e o f 2 0 0 , 0 0 0 t o n n e s o f c o p p e r p e r a n n u m o v e r t h e (cid:222) r s t 1 0 y e a r s . A t C o l l a h u a s i , a n e x p a n s i o n p r o j e c t t o i n c r e a s e c o n c e n t r a t o r p l a n t c a p a c i t y t o 1 5 0 , 0 0 0 t o n n e s o f o r e p e r d a y , t o y i e l d a n a d d i t i o n a l 1 9 , 0 0 0 t o n n e s o f c o p p e r a y e a r o v e r t h e e s t i m a t e d l i f e o f m i n e , w a s c o m m i s s i o n e d i n t h e f o u r t h q u a r t e r o f 2 0 1 1 . A f u r t h e r p r o j e c t t o r a i s e t h r o u g h p u t t o 1 6 0 , 0 0 0 t o n n e s o f o r e p e r d a y , r e s u l t i n g i n a n a n n u a l a v e r a g e c o p p e r p r o d u c t i o n i n c r e m e n t o f 2 0 , 0 0 0 t o n n e s o f c o p p e r o v e r t h e m i n e (cid:213) s e s t i m a t e d l i f e , i s u n d e r w a y a n d i s e x p e c t e d t o b e c o m m i s s i o n e d i n 2 0 1 3 . A p r e - f e a s i b i l i t y s t u d y i s a l s o i n p r o g r e s s t o e v a l u a t e o p t i o n s f o r t h e n e x t p h a s e s o f m a j o r e x p a n s i o n a t C o l l a h u a s i , w i t h p o t e n t i a l t o i n c r e a s e p r o d u c t i o n u p t o 1 M t o f c o p p e r a y e a r . I n P e r u , A n g l o A m e r i c a n i s f o c u s e d o n o b t a i n i n g t h e n e c e s s a r y p e r m i t s f o r t h e Q u e l l a v e c o p r o j e c t t o p r o g r e s s t o B o a r d a p p r o v a l . E a r l y - s t a g e w o r k i s c o n t i n u i n g a t t h e M i c h i q u i l l a y p r o j e c t a n d d r i l l i n g r e l a t i n g t o t h e g e o l o g i c a l e x p l o r a t i o n p r o g r a m m e h a s r e c o m m e n c e d a f t e r c o m p l e t i o n o f d i s c u s s i o n s w i t h t h e l o c a l c o m m u n i t i e s . I t i s e n v i s a g e d t h a t t h e M i c h i q u i l l a y p r o j e c t w i l l m o v e t o t h e p r e - f e a s i b i l i t y s t a g e f o l l o w i n g t h e c o m p l e t i o n o f d r i l l i n g a n a l y s i s a n d o r e b o d y m o d e l l i n g . A c t i v i t y a t t h e P e b b l e p r o j e c t i n A l a s k a c o n t i n u e s w i t h t h e f o c u s o n c o m p l e t i n g t h e p r e - f e a s i b i l i t y s t u d y b y l a t e 2 0 1 2 a n d t a r g e t i n g p r o d u c t i o n e a r l y i n t h e n e x t d e c a d e . A n e n v i r o n m e n t a l b a s e l i n e d o c u m e n t h i g h l i g h t i n g k e y s c i e n t i (cid:222) c a n d s o c i o - e c o n o m i c d a t a w a s d e l i v e r e d t o g o v e r n m e n t a g e n c i e s i n l a t e 2 0 1 1 . O u t l o o k T h e r a m p - u p o f t h e L o s B r o n c e s e x p a n s i o n t o f u l l c a p a c i t y o v e r t h e n e x t 1 2 m o n t h s w i l l l e a d t o s i g n i (cid:222) c a n t l y h i g h e r p r o d u c t i o n l e v e l s . H o w e v e r , t h i s w i l l b e p a r t l y o f f s e t b y t h e l o w e r o r e g r a d e s e x p e c t e d a t C o l l a h u a s i i n 2 0 1 2 . I n d u s t r y - w i d e i n p u t c o s t p r e s s u r e s a r e e x p e c t e d t o c o n t i n u e o v e r t h e s h o r t t e r m , p a r t i c u l a r l y i n r e l a t i o n t o p o w e r a n d f u e l r e l a t e d c o s t s . H o w e v e r , t h e s e w i l l b e p a r t i a l l y m i t i g a t e d b y t h e i n c r e a s e d p r o d u c t i o n f r o m t h e e x p a n d e d L o s B r o n c e s o p e r a t i o n . O u r g l o b a l s u p p l y c h a i n n e t w o r k a n d s t r o n g s u p p l i e r r e l a t i o n s h i p s w i l l c o n t i n u e t o p l a y a v i t a l r o l e i n i d e n t i f y i n g o p p o r t u n i t i e s t o r e d u c e c o s t s a n d i m p r o v e t h e q u a l i t y a n d s e c u r i t y o f t h e k e y s e r v i c e s a n d m a t e r i a l s t h a t s u p p o r t o u r o p e r a t i o n s . P e r s i s t e n t m a r k e t c o n c e r n s a r i s i n g f r o m u n c e r t a i n t i e s o v e r t h e n e a r t e r m o u t l o o k f o r t h e g l o b a l e c o n o m y w i l l c o n t i n u e t o l e a d t o r e l a t i v e l y p r o n o u n c e d s h o r t t e r m v o l a t i l i t y i n c o m m o d i t y p r i c e s , i n c l u d i n g c o p p e r . R o b u s t d e m a n d f r o m t h e e m e r g i n g e c o n o m i e s , t h e l a c k o f n e w s u p p l y a n d i n c r e a s i n g c a p i t a l i n t e n s i t y f o r n e w s u p p l y , h o w e v e r , m e a n s t h a t t h e m e d i u m t o l o n g t e r m f u n d a m e n t a l s f o r c o p p e r r e m a i n s t r o n g . OPERATING AND FINANCIAL REVIEW NICKEL Our Nickel business’ promising unapproved projects in Brazil, Jacaré and Morro Sem Boné, have the potential to increase production by more than 66,000 tpa, with further upside potential. Nickel stocks and prices ) t k ( s k c o t s l e k c N i 180 160 140 120 100 80 60 40 20 0 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 i N c k e l p r i c e ( $ / b ) l 25 20 15 10 5 0 LME Stocks LME Price Source: Anglo American Commodity Research FINANCIAL OVERVIEW Nickel generated an operating profit of $57 million which was net of $31 million project evaluation operating costs. The financial performance of Loma de Níquel and Codemin was similar to that of the previous year. Markets China continued to be a key consumer of nickel in 2011, contributing more than 40% of global stainless steel production in the year. Nickel consumption growth in China is expected to outpace other markets in 2012, although the North American market may surprise on the upside, while demand in Europe and the rest of Asia is expected to decrease. Average nickel price (c/lb) 2011 2010 Operating performance Average market price (LME, cash) Average realised price (c/lb) 1,035 1,015 989 986 Attributable production (tonnes) Nickel 2011 29,100 2010 20,200 The average market nickel price was 5% higher than in 2010. During the first half of the year the nickel price was supported by demand growth from the stainless steel industry and a supply gap owing to mine disruptions and delays to a number of projects. The price peaked in February above 1,310c/lb. However, prices softened considerably in the second half, reflecting ongoing concern around uncertainty over the near term outlook for the global economy, softer summer demand in the northern hemisphere, higher supply from new projects (including Barro Alto) and higher NPI production. As a consequence, the nickel price fell to a low of under 770c/lb in November, before closing the year at 829c/lb. The market was broadly in balance in 2011; global nickel consumption increased by around 7%, while supply increased by around 12%. Nickel production in 2011 increased by 44% to 29,100 tonnes as a result of delivery of the Barro Alto project and higher output at Loma de Níquel and Codemin. Barro Alto was commissioned in March 2011 and produced 6,200 tonnes. Loma de Níquel produced 13,400 tonnes, an increase of 15% over the prior year, mainly due to an additional two months of production from the electric furnace 2, which was restarted in March 2010. The loss of production in 2010 from general power rationing did not recur in 2011; power rationing, however, continues to pose a threat and stand-by on-site generators have been installed to mitigate production risks. Owing to ongoing uncertainty over the renewal of three concessions, which expire in 2012, and over the renewal of 13 concessions that have been cancelled, an accelerated depreciation charge of $84 million (2010: $73 million) has been 74 Anglo American plc Annual Report 2011 recorded in relation to Loma de Níquel assets. This has been recognised as an operating special item. Refer to note 5 of the financial statements. A range of scenarios is being considered in respect of the conditions for renewal of Loma de Níquel’s three remaining concessions, due in November 2012, and for access to the cancelled concessions. Codemin’s production of 9,500 tonnes was 12% higher than in 2010, when the operation was impacted by the planned relining of a furnace. The impact of lower grades in 2011 was more than offset by process improvements that increased throughput capacity. Projects The Barro Alto project delivered first metal on schedule in March 2011 and is expected to reach full capacity rates at the beginning of 2013. Our Nickel business’ promising unapproved projects in Brazil, Jacaré and Morro Sem Boné, have the potential to increase production by more than 66,000 tpa, with further upside potential, which would leverage the Group’s considerable nickel laterite technical expertise. Jacaré, with mineral resources of 3.9 Mt (of which 2.6 Mt are in Inferred Resources) of contained nickel, will enter the pre-feasibility study phase in 2012 and has the potential to significantly strengthen Anglo American’s position in the worldwide nickel market. Outlook Nickel production from the Nickel business unit is expected to be significantly higher in 2012 as a result of the ramp-up of Barro Alto. The nickel market is expected to be in surplus in 2012, with increasing supply coming on line from new projects. However, there is a possibility that the surplus could be mitigated by supply falling short of expectations, mainly from projects using new technologies, such as high pressure acid leaching. The nickel price in 2012 is expected to be heavily influenced by the delivery of these new projects and by how the European economic situation develops. High cost NPI supply will continue to support a price ceiling or floor. The long term outlook for nickel is positive, underpinned by stainless steel demand driven by economic growth and urbanisation in emerging economies. 01 Ladles awaiting installation in the refinery at Barro Alto, which in its first nine months of operation since being commissioned at the end of March 2011 produced 6,200 tonnes of nickel. 02 At Barro Alto, ore is heated at very high temperatures in these two 185 metre rotary kilns in a process known as calcining, which removes moisture and water crystals from the nickel bearing ore and starts the metallurgical 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 01 02 Anglo American plc Annual Report 2011 75 OPERATING AND FINANCIAL REVIEW PLATINUM PLATINUM Financial highlights $ million (unless otherwise stated) Operating profit EBITDA Net operating assets Capital expenditure Share of Group operating profit Share of Group net operating assets 2011 890 2010 837 1,672 1,624 11,191 13,478 970 8% 25% 1,011 9% 31% Neville Nicolau CEO – Anglo American Platinum Limited OPERATING PROFIT (2010: $837 m) $890 m SHARE OF GROUP OPERATING PROFIT (2010: 9%) 8% EBITDA (2010: $1,624 m) $1,672 m 01 GROUP STRATEGY ACTIONS Investing – in world class assets in the most attractive commodities Platinum has a variety of new and stay-in- business projects designed to keep the company at the forefront of world primary platinum production. In December 2011, approval was given to Phase 5 of the Bathopele project, while during 2012, Phase 4 should reach its nameplate capacity of 65 kozpa of refined platinum. In Zimbawe, Unki is on track to produce 70 kozpa by the second quarter of 2013, about a year ahead of schedule. Organising – efficiently and effectively Comprehensive risk management, standards and mechanised mining reviews are being conducted across all of Platinum’s managed operations in pursuit of the goal of ‘safe profitable platinum’. Operating – safely, sustainably and responsibly Against a disappointing safety performance in 2011, we are redoubling our own efforts in the safety field, as well as continuing to work closely with the government and the trade unions, in the pursuit of zero harm. Employing – the best people Complementing the renewed thrust on safety training, Platinum is providing training to ensure that all project staff and contractors are steeped in the company’s Projects Way of working. 01 (Left to right) At the Bathopele mine, miner Sydney Mabale explains the safety marking system to LHD operator Phillemon Molemi, sweeper Kenneth Xhantini, and LHD operators Petrick Semalkhe and Annanias Makgala. 76 Anglo American plc Annual Report 2011 BUSINESS OVERVIEW Our Platinum business, based in South Africa, is the world’s leading primary producer of platinum, and accounts for approximately 40% of the world’s newly mined production of the metal. Platinum mines, processes and refines the entire range of platinum group metals (PGMs): platinum, palladium, rhodium, ruthenium, iridium and osmium. Base metals such as nickel, copper and cobalt sulphate are important secondary products and are significant contributors to earnings. 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. Access to an excellent portfolio of ore reserves ensures Platinum is well placed to be the world’s major platinum producer for many years to come. Platinum wholly owns 10 mining operations currently in production, a tailings re-treatment facility, three smelters, a base metals refinery and a precious metals refinery. Concentrating, smelting and refining of the output are undertaken at Rustenburg Platinum Mines’ (RPM) metallurgical facilities. Platinum’s 100% owned mining operations now consist of the five mines at Rustenburg Section – Khomanani, Bathopele, Siphumelele, Thembelani and Khuseleka; Amandelbult Section’s two mines, Tumela and Dishaba; 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. The Unki mine in Zimbabwe is currently wholly owned pending the outcome of negotiations with the Zimbabwean government in respect of Unki’s compliance with the Indigenisation and Economic Empowerment Act. Platinum also has 50:50 joint ventures with a BEE consortium, led by African Rainbow Minerals, at Modikwa platinum mine; and with XK Platinum Partnership in respect of the Mototolo mine. In addition, Platinum has 50:50 pooling and sharing agreements with Aquarius Platinum covering the shallow reserves of the Kroondal and Marikana mines. Platinum is in partnership with Royal Bafokeng Resources, and has a 33% shareholding in the combined Bafokeng- Rasimone platinum mine (BRPM) and Styldrift properties. Platinum, through RPM, holds 12.6% of RB Plats’ issued share capital. During 2011, Platinum announced a R3.5 billion ($430 million) community empowerment transaction aimed at providing equity ownership to mine host communities that had not previously benefited from other broad-based BEE transactions. INDUSTRY OVERVIEW PGMs have a wide range of industrial and high technology applications. Demand for platinum is driven primarily by its use in autocatalysts to control emissions from both gasoline and diesel engine vehicles, and in jewellery. These uses are responsible for 70% of total net platinum consumption. PGMs, however, have a wide range of other applications, predominantly in the chemical, electronic, medical, glass and petroleum industries. The platinum jewellery market requires constant promotion and development. Our Platinum business is the major funder and supporter of the Platinum Guild International (PGI), which plays a key role in encouraging demand for platinum and in establishing new platinum jewellery markets. Since 2000, China has been the leading platinum jewellery market, 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, accounting for about 45% of demand, is in autocatalysts. The metal is also used in electronic components, dental alloys and, more recently, has become an emerging jewellery metal in markets such as China. Palladium demand is expected to continue to increase in 2012, particularly given the volume of gasoline vehicles being produced by emerging market countries such as China, India and Brazil. Rhodium is an important metal in autocatalytic activity, which accounts for nearly 80% of net demand. Increased stocks of rhodium 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. 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 Platinum supply by country ’000 oz 2007 2008 2009 2010 2011 0 3,500 7,000 South Africa Russia North America Zimbabwe Others Source: Johnson Matthey Interim Review 2011 Gross platinum demand by application ’000 oz 2007 2008 2009 2010 2011 0 4,500 9,000 Autocatalyst Chemical Electrical Glass Investment Jewellery Medical and Biomedical Petroleum Other Source: Johnson Matthey Interim Review 2011 Anglo American plc Annual Report 2011 77 OPERATING AND FINANCIAL REVIEW PLATINUM Platinum’s strategic plan, based on our current view that the market will be adequately supplied, should improve the company’s cost position, taking it from the upper half to the lower half of the cost curve. Platinum price 2,000 1,750 ) z o ( $ 1,500 1,250 1,000 FY 2010 achieved price: $1,611/oz FY 2010 achieved basket price: R18,159/oz H1 2011 achieved price: $1,782/oz H1 2011 achieved basket price: R20,194/oz H2 2011 achieved price: $1,640/oz H2 2011 achieved basket price: R19,061/oz 25,000 20,000 15,000 R a n d ( o z ) 10,000 5,000 0 Jan 10 Rand PGM basket Platinum Jan 11 Jul 11 Jan 12 Source: Anglo American Commodity Research Project capital spend is now directly related to long term ounce requirements. This has led to a reduction in the rate of spend, and all previously deferred projects have been reviewed and are now incorporated into the business’s growth for value strategy. Platinum aims to spend R8.8 billion ($1.1 billion) of capital in 2012, excluding capitalised interest. Platinum is involved in developing mining activity for PGMs on the Great Dyke of Zimbabwe, the second largest repository of platinum after the Bushveld Complex. We are focusing exploration work in Zimbabwe on new projects in the Great Dyke, as well as establishing extensions to the Unki resource base for potential future projects. FINANCIAL OVERVIEW Platinum recorded an operating profit of $890 million, a 6% increase, mainly due to an 8% rise in the average realised basket price. This was offset by above inflation labour and power costs. Sales volumes of refined platinum were 3% higher than 2010 at 2.6 million ounces. Markets The average dollar realised price for platinum was $1,707/oz in 2011, a 6% increase compared with $1,611/oz in the prior year. The average realised prices for palladium and rhodium sales were $735/oz (2010: $507) and $2,015/oz (2010: $2,424), respectively. The average realised price on nickel sales was $10.50/lb (2010: $9.70). The overall average realised dollar basket price was 8.3% higher at $2,698 per platinum ounce sold. The global platinum market displayed resilience in 2011, with muted growth in autocatalyst and jewellery demand, a strong increase in industrial demand and significantly lower investment demand. Gross platinum demand remained unchanged in 2011, while a small increase in recycling and a 5% increase in mined supply resulted in the platinum market remaining in balance. The palladium market in 2011, however, saw a 19% supply surplus in the year, as significant declines in jewellery and investment demand were only partly offset by the solid increases in demand for palladium in autocatalysis and industrial applications. The rhodium market saw its fourth consecutive surplus as recycle volumes remained high. Platinum continued to work with industry partners and stakeholders to develop the platinum markets to maintain existing and develop new industrial applications and, through the PGI, maintain the health of jewellery markets. Autocatalysts Demand for light vehicles increased by 1% in 2011 to 75 million units. Vehicle production was constrained by the earthquake and tsunami in Japan and by flooding in Thailand. Vehicle production in Europe increased by 3%, buoyed by Germany and export markets. Gross autocatalyst demand for platinum increased by 2% to 3.15 million ounces and for palladium by 5% to 5.8 million ounces. Autocatalyst demand for rhodium was slightly lower year-on-year at 705,000 ounces. STRATEGY AND GROWTH Our objective is to maintain Platinum’s position as the leading primary producer of platinum. We are doing so in two principal ways: first, through managing costs as a priority, by improving productivity, increasing efficiency and through the effective management of supply chain and procurement costs; secondly, through continuing to develop the market for PGMs and to expand production into that growth opportunity. During 2011, unit cost management proved to be challenging, though costs were contained at R13,552 per equivalent refined platinum ounce. Unit costs are expected to increase with inflation in 2012. Productivity is expected to increase from 2011 levels of 6.32m2 to an average of 6.8m2. Platinum’s strategic plan, based on our current view that the market will be adequately supplied, should improve the company’s cost position, taking it from the upper half to the lower half of the cost curve. Platinum is steadily improving the reliability of its production capability and continues to entrench cost management throughout the business as a long term and sustainable culture. This will help ensure that Platinum is well positioned to extract optimal value from its assets as the market recovery continues. At the same time, there will continue to be an unremitting focus on safety as Platinum pursues its zero harm objective. 78 Anglo American plc Annual Report 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 Industrial Gross industrial demand for platinum reached a new record high of 1.96 million ounces, largely due to growth in the glass and petroleum industry. Wider application of process catalysts in the chemical industry saw platinum demand increase proportionately higher than the corresponding increase in chemical demand. High growth in fuel cell units continued in 2011, driven by stationary applications. Palladium process catalyst use for plastic bottle feedstock increased as new capacity increased. Rhodium content in rhodium/ platinum catalysts for glass manufacturing increased owing to low rhodium price levels. Jewellery Platinum jewellery demand increased 2% in 2011, despite higher average prices during the year. Platinum and gold price volatility increased in the last quarter of 2011, and the platinum price fell below that of gold. This resulted in consumers preferring platinum over gold, and in China the increased platinum demand improved retail profits, leading to an increase in the number of new retail stores that, in turn, led to increased platinum stockholdings and sales. Investment Ongoing macro-economic uncertainty continues to dampen investment sentiment and in the last quarter of 2011, platinum and gold suffered the consequences of the risk averse trades by global investment and hedge funds. Although there was little change in physical demand for platinum, the increased platinum trading liquidity greatly exaggerated the consequent fall in the platinum price. Since then, reduced investor participation, particularly by gold investors who previously held both metals, continues to keep the platinum price at depressed levels, with the rand basket price currently below the incentive price of the majority of production. Trade in non-visible or over-the-counter metal continues to have a material impact on short term prices while higher levels of price volatility are expected in 2012, with a bias to higher prices if investment sentiment improves. Operating performance Safety Twelve employees lost their lives during the year, a very disappointing performance. We extend our sincere condolences to their families, friends and colleagues. Platinum had 81 Section 54 Department of Mineral Resources safety stoppages in 2011, compared with 36 in 2010. Platinum is continuing to work with government and labour departments towards zero harm. Production Equivalent refined platinum production (equivalent ounces are mined ounces expressed as refined ounces) from the mines managed by Platinum and its joint venture partners totalled 2.41 million ounces, a decrease of 3% compared with 2010. Wholly owned mines (including Union and Western Limb Tailings Re-treatment) produced 1,601,600 equivalent refined platinum ounces, in line with the prior year. A strong performance from Mogalakwena and Unki was offset by lower volumes from the Rustenburg, Tumela and Dishaba mines. Unki was delivered successfully, on schedule and within budget, in January 2011 and contributed 51,600 additional equivalent refined platinum ounces. In addition, Mogalakwena, a low cost open pit mine, continued to perform strongly. Mogalakwena mine increased production by 18% owing to a 12% improvement in 4E built-up head grade, a 4% increase in tonnes milled and a 16% improvement in recoveries at the North concentrator during the second half of 2011. Refined platinum production of 2.53 million ounces for 2011, was 2% lower than in the prior year. Projects Capital expenditure for 2011 was $970 million, of which $451 million was spent on projects, $443 million on stay-in-business capital and $76 million on waste stripping at Mogalakwena. Project capital expenditure for the year related mainly to the Twickenham project ($95 million), Mortimer furnace upgrade ($58 million), Thembelani 2 shaft replacement project ($57 million), Unki ($40 million), the Base Metals Refinery 33,000 tpa nickel expansion project ($34 million), and the Khuseleka ore replacement project ($25 million). The Unki platinum mine project was handed over to operations in January 2011, and had reached steady state production of 120,000 tonnes milled per month during the fourth quarter of 2011, a year ahead of schedule. The Base Metal Refinery 33,000 tpa nickel expansion project has produced its first metal in line with expectations and reached steady state production during the fourth quarter of 2011 as planned. Outlook Growth in platinum demand is expected to be driven by increased global vehicle production, ongoing tightening of emissions legislation and strengthening jewellery demand. Primary supply challenges are expected to escalate during 2012, with increased risk of supply disruptions from power shortages, industrial actions and safety stoppages in South Africa. The ongoing constraint on capital investment posed by low prices continues to limit South African output growth and 2012 may exhibit the compounding effects of similar capital constraints in recent years. Consequently, Platinum expects the platinum market to remain in balance in 2012. We believe the expected growth in demand for platinum and the ongoing challenges faced by platinum miners will be key drivers of the recovery in the price in 2012. Platinum plans to refine and sell between 2.5 and 2.6 million ounces of platinum in 2012, subject to market conditions. In 2011, Platinum had forecast growth to 2.7 million ounces in 2012; however, given the current circumstances, the forecast has been reduced. Although the 2012 sales volume target is unchanged from that achieved in 2011, Platinum believes this is an appropriate level to meet forecast demand. Platinum maintains a relentless focus on mitigating industry-wide cost pressures, primarily through an increase in production volume from our underground mines, and an increase in utilisation of smelting and refining capacity through the introduction of some secondary material. This will be assisted by reducing the labour complement through mechanisms that avoid retrenchment, adjustment of overhead and shared services labour to the needs of the business, freezing of all recruitment in non-production jobs and the continued focus on asset optimisation and supply chain management, benefiting from Anglo American’s global initiatives. Platinum’s project ranking and prioritisation to focus on less capital intensive projects in the near term is expected to reduce capital expenditure for 2012 from $1.16 billion to up to $1.10 billion, excluding capitalised interest. Anglo American plc Annual Report 2011 79 OPERATING AND FINANCIAL REVIEW DIAMONDS DIAMONDS Financial highlights $ million (unless otherwise stated) Share of associate’s operating profit EBITDA Share of Group operating profit 2011 659 794 6% 2010 495 666 5% Philippe Mellier CEO – De Beers Group’s associate investment in De Beers(1) 2,230 1,936 (1) Excludes outstanding loans owed by De Beers, including accrued interest, of $301 million (2010: $355 million). OPERATING PROFIT (2010: $495 m) $659 m SHARE OF GROUP OPERATING PROFIT (2010: 5%) 6% EBITDA (2010: $666 m) $794 m 01 The Debmar Atlantic, moored 35 kilometres off the Namibian coastline. 80 Anglo American plc Annual Report 2011 01 BUSINESS OVERVIEW Anglo American’s diamond interests are represented by our 45% shareholding in De Beers. The other shareholders in De Beers are Central Holdings Ltd (representing the Oppenheimer family interests), which beneficially owns 40%, and the Government of the Republic of Botswana (GRB) with a 15% beneficial interest. De Beers is the world’s leading diamond company and, with its joint venture partners, employs approximately 16,000 people around the world. The company produces approximately 35%, by value, of the world’s rough diamonds from its mines in Botswana, Canada, Namibia and South Africa. De Beers is a 50/50 partner with the GRB in the Debswana Diamond Company, and a 50/50 partner with the Government of the Republic of Namibia (GRN) in Namdeb Holdings. Namdeb Holdings owns 100% each of Namdeb (land mining) and De Beers Marine Namibia (marine mining). In addition, De Beers has a 74% shareholding in South Africa-based De Beers Consolidated Mines Limited (DBCM), with a broad based black economic empowerment (BEE) consortium (Ponahalo) holding the balance. De Beers owns 100% of De Beers Canada, which operates the company’s first two diamond mines outside the African continent. De Beers owns 100% of The Diamond Trading Company (DTC) – a division of De Beers UK, the rough diamond distribution arm of De Beers. It also has a 50% interest in both DTC Botswana and Namibia DTC, with the GRB and GRN holding matching respective shareholdings. Diamdel, wholly owned by De Beers, is the market leader in the sale of rough, uncut diamonds using innovative online auction techniques, to small, mid-tier and large manufacturing, retailing and trading businesses De Beers, through 100% owned Element Six Technologies, is the world’s leading supplier of industrial super-materials. Element Six operates internationally, with 10 manufacturing sites worldwide and a global sales network. It is a leading player in the markets in which it operates. At the consumer end of the value chain, De Beers’ proprietary diamond brand Forevermark, offers a differentiated proposition for consumers based on quality and integrity. Forevermark diamonds are available in select jewellers in markets including China, Hong Kong, Japan, India, South Africa and the US. De Beers and LVMH Moët Hennessy Louis Vuitton are 50/50 partners in the high-end retailer De Beers Diamond Jewellers (DBDJ). DBDJ has stores in the most fashionable areas of some of the world’s great cities, including New York, Beijing, Hong Kong, London, Paris, Tokyo and Dubai. INDUSTRY OVERVIEW Up to two-thirds of the world’s diamonds, by value, originate from 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 is 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, 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 carat, colour, cut and clarity have a large impact on valuation. De Beers, and its partner DTCs in Botswana and Namibia, supplies its customers – known as ‘Sightholders’ – with parcels of rough diamonds that are specifically aligned to their respective cutting and polishing needs. STRATEGY AND GROWTH De Beers is focused on: (cid:228) Capturing price growth (cid:228) Driving cost efficiencies (cid:228) Delivering upstream mining projects (cid:228) Capturing consumer demand. FINANCIAL OVERVIEW Anglo American’s share of operating profit from De Beers totalled $659 million, an increase of 33%, reflecting De Beers’ focus on fulfilling Sightholder demand and capturing the full benefit of significant price growth in 2011. In May, Nicky Oppenheimer, chairman of the De Beers board, announced that, with effect from July 2011, Philippe Mellier had been appointed chief executive officer. On 4 November, Anglo American announced its intention to acquire CHL’s entire 40% interest in De Beers for $5.1 billion cash. Under the terms of the existing shareholders’ agreement between Anglo American, CHL and the GRB, the GRB has a pre-emption right in respect of a pro rata portion of the CHL’s interest in De Beers, enabling it to participate in the transaction and to increase its interest in De Beers, on a pro rata basis, to up to 25%. In the event that the GRB exercises its pre-emption rights in full, under the proposed transaction, Anglo American would acquire an incremental 30% interest in De Beers, taking its total interest to 75%, and the consideration payable by Anglo American to CHL would be proportionately reduced. Markets In 2011, the DTC achieved its second highest ever level of sales ($6.5 billion), a 27% increase over the prior year (2010: $5.1 billion). The first half of the year saw exceptional consumer demand growth which, when coupled with lower than historical levels of global diamond production, resulted in very strong polished and rough diamond price growth. While reflecting the robust market fundamentals, rough diamond prices in this period included an element of speculative buying in the trading centres. During the second half of the year, both retail and cutting centre sentiment was impacted by the challenging macro- economic environment, restricted liquidity in the cutting centres and a slowdown in the rate of growth of consumer demand at retail. As a result, De Beers experienced lower levels of demand for its rough diamonds and prices receded slightly from the highs seen in the middle of the year. However, in total, 2011 was a very strong year on the demand side, with record levels of consumer demand growth estimated at between 11% and 13% over the full year, and DTC price growth of 29%. Consumer demand forecasts $ Polished wholesale prices 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 2011 Forecast USA 38% Japan 10% India 10% China/Hong Kong 13% Taiwan 2% Gulf 7% Turkey 2% Rest of world 18% Source: De Beers 2016 Forecast USA 34% Japan 8% India 15% China/Hong Kong 18% Taiwan 2% Gulf 6% Turkey 2% Rest of world 15% Source: De Beers Note: These figures provide estimates and forecasts of the size and growth of main diamond consumer markets based on pipeline and consumer research commissioned by De Beers. 2011 results are preliminary. Anglo American plc Annual Report 2011 81 OPERATING AND FINANCIAL REVIEW DIAMONDS The De Beers Family of Companies Shareholders and corporate structure Anglo American Group – 45% Central Holdings Group – 40% Government of the Republic of Botswana –15% DB Investments (Lux) – 100% De Beers sa (Lux) – 100% De Beers (UK) – 100% De Beers Group Services (RSA) – 100% The Diamond Pipeline Exploration Production Global Exploration1 Diamond mining De Beers Canada De Beers sa – 100% De Beers Consolidated Mines (DBCM) De Beers sa – 74% Debswana Diamond Company De Beers sa – 50% Namdeb Holdings De Beers UK – 50% Supermaterials Element Six (E6) Technologies – 100% Abrasives – 60% De Beers sa Namdeb Diamond Corporation De Beers Marine Namibia (Debmarine Namibia) Rough Diamond Sales Brands Diamdel De Beers sa – 100% Forevermark De Beers sa – 100% De Beers Diamond Jewellers (DBDJ) De Beers sa – 50% Diamond Trading Company (DTC) Division of De Beers UK DTC South Africa Division of De Beers Group Services DTC Botswana (DTCB) De Beers UK – 50% Namibia DTC (NDTC) De Beers UK – 50% De Beers sa and shareholders Owned and controlled subsidiaries and divisions Joint ventures and independently managed subsidiaries (1) Exploration is undertaken through a number of wholly owned and joint venture subsidiaries of De Beers sa DBDJ reported good growth in sales across all regions, with Greater China particularly strong. The China opportunity is a priority for De Beers, with further 2012 expansion plans following the opening of stores in Beijing, Tianjin, Dalian and a second Hong Kong store in 2011. Forevermark continued its expansion both in its existing markets of China, Hong Kong and Japan, and in the second half of the year launched in India and the US. Forevermark is now available in 658 retail stores across nine markets, an increase of 89% compared with 2010. Operating performance De Beers reported an LTIFR of 0.15 (2010: 0.24) but, regrettably, there were seven loss of life incidents in the year. Comprehensive safety reviews are being carried out at all De Beers operations. De Beers’ production was 5% lower than the prior year at 31.3 million carats (2010: 33.0 million carats). During the first half of the year, in spite of a number of challenges, including heavy rainfall in southern Africa, maintenance backlogs, poor contractor performance, skills shortages, and protracted labour negotiations, De Beers produced 15.5 million carats, in line with the first half of 2010 (15.4 million carats). During the second half of the year, De Beers produced another 15.8 million carats despite a shift in its operational focus, in light of prevailing rough diamond market trends in the fourth quarter. De Beers utilised this period to address maintenance and waste stripping backlogs in order to better position the mines to increase their rate of production as demand from Sightholders increases. This is likely to continue for several months into 2012. In 2011, De Beers Exploration spent $40 million (2010: $43 million) on work programmes focused on 11,347 km2 of ground holdings in Angola, Canada, India, Botswana and South Africa, supported by laboratory and technical services centralised in South Africa. A new $2 billion multi-currency international credit facility was concluded in October, comprising an $800 million term loan and a $1.2 billion revolving credit facility with tenors of March 2015 and October 2016 respectively. Projects and restructuring Debswana’s Jwaneng Mine Cut-8 extension project is progressing satisfactorily, largely on schedule and on budget. More than 40 million tonnes of waste has been stripped to date, and infrastructure construction is over 90% complete, with the remaining work forecast to be completed during 2012. The underground feasibility study to extend the life of Venetia Mine in South Africa is under way, and scheduled for consideration by the DBCM board in 2012. De Beers Canada completed an Optimisation Study at Snap Lake mine in mid-2011, securing a mining solution to economically access this promising long life but challenging orebody, and thereby achieve its forecast 20 year life of mine. Per the NI 43-101 Technical Report issued by Mountain Province Diamonds Inc. in 2010, Gahcho Kué is identified as commencing in 2013 with production from 2015. The Gahcho Kué Environmental Impact Statement has been submitted and the review process is currently under way and ultimately the final project schedule will be dependent on progress in obtaining environmental permits and regulatory approvals. In September, DBCM completed the sale of Finsch mine, as a going concern, to a Petra Diamonds-led consortium for a consideration of R1.425 billion ($210 million), plus assumption of rehabilitation liabilities. In May, DBCM announced that it had entered into an agreement to sell Namaqualand Mines to Trans Hex in a transaction valued at R225 million ($33.5 million), subject to the fulfilment of a number of conditions precedent. In September, a new 10 year contract for the sorting, valuing and sales of Debswana’s diamond production was announced by De Beers and its joint venture partner, the GRB. As part of the agreement, De Beers will transfer its London-based rough diamond 82 Anglo American plc Annual Report 2011 aggregation and sales activity to Botswana by the end of 2013. From its new base in Botswana, the DTC will aggregate production from De Beers’ mines and its joint venture operations worldwide, and sell to local and international Sightholders. In November, De Beers and the GRN finalised an agreement to increase the GRN’s effective shareholding in De Beers Marine Namibia from 15% to 50% through the establishment of a new 50:50 joint venture holding company. This will not change current marketing arrangements and all diamond production from Namdeb will continue to be sorted, valued and marketed exclusively by the DTC together with Namibia DTC. In December, the DTC announced the provisional qualification of 72 Sightholder applicants for the upcoming Supplier of Choice sales contract period, which begins on 31 March 2012 and runs to 30 March 2015. Outlook In spite of uncertainty, and barring a global economic shock, continued growth in global diamond jewellery sales is expected, albeit at lower levels than the growth experienced in 2011. This will be driven by the overall strength of the luxury goods market, improving sentiment in the US (the largest diamond jewellery market), continuing growth in China, and the positive impact of the 2011 polished price growth on retail jewellery prices. On the production front, De Beers will continue to prioritise waste stripping and maintenance backlogs, and we therefore do not expect a material increase in carat production in 2012. This focus, which began in the second half of 2011 and will continue during the first quarter of 2012, will position De Beers to ramp up profitable carat production as Sightholder demand dictates. In the medium to longer term, the industry fundamentals remain positive, with consumer demand, fuelled by the emerging markets of China and India, outpacing what will likely be level carat production. 01 The Cut-8 extension will transform Jwaneng into a ‘superpit’ and extend the life of this pre-eminent diamond mine until at least 2025. 02 Sorting rough diamonds at DTC Botswana’s purpose-built facility in Gaborone. 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 01 02 Anglo American plc Annual Report 2011 83 OPERATING AND FINANCIAL REVIEW OTHER MINING AND INDUSTRIAL OTHER MINING AND INDUSTRIAL Brian Beamish Group Director of Mining and Technology, currently managing Other Mining and Industrial – Copebrás and Catalão Duncan Wanblad Group Director Other Mining and Industrial – Tarmac and Scaw Metals Financial highlights $ million (unless otherwise stated) Operating profit Copebrás Catalão Tarmac Scaw Metals Zinc Other EBITDA Net operating assets Capital expenditure Share of Group operating profit Share of Group net operating assets 2011 195 136 54 (35) 40 20 (20) 393 2010 664 81 67 48 170 321 (23) 894 3,201 3,393 152 2% 7% 206 7% 8% Note: Catalão and Copebrás, reported in the Other Mining and Industrial segment, are now considered core to the Group. Tarmac and Scaw Metals, which were identified for divestment as part of the restructuring programme announced in October 2009, remain non-core to the Group. The non-core businesses are not considered to be individually significant to the Group and are therefore also presented in the Other Mining and Industrial reporting segment. Until February 2011, this reporting segment also included the zinc operations. OPERATING PROFIT (2010: $664 m) $195 m SHARE OF GROUP OPERATING PROFIT (2010:7%) 2% EBITDA (2010: $894 m) $393 m 01 Copebrás is the second largest integrated phosphate fertilizer producer in Brazil and is an important supplier of a wide variety of products to the country’s agriculture sector. 01 84 Anglo American plc Annual Report 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 OTHER MINING AND INDUSTRIAL COPEBRÁS Business overview Copebrás is the second largest integrated phosphate fertilizer producer in Brazil. Copebrás’ operations are vertically integrated, covering mining of its own phosphate ore, beneficiation of the ore to produce P2O5 concentrate and processing into intermediate and final products. Copebrás’ mine in Ouvidor (in the state of Goiás) currently produces up to 5.9 Mt of ore per annum (dry basis) and is a prime phosphate deposit in Brazil with one of the highest grades of ore available in the country (approximately 13% P2O5). The company has approximately 15% of current Brazilian phosphate mineral resources and has a remaining mine life of 41 years at current production rates (excluding the Goiás II brownfield expansion). The phosphate ore (run of mine) is treated at the co-located beneficiation facility, producing approximately 1.35 Mt of final phosphate concentrate per annum at an average (dry) grade of around 37% P2O5. Copebrás operates two chemical processing complexes located in Catalão in the state of Goiás, and Cubatão in the state of São Paulo. Copebrás produces a wide variety of products for the Brazilian agriculture sector, including low analysis (<20% P2O5 content) and high analysis (>40% P2O5 content) phosphate fertilizers, dicalcium phosphate (DCP) for the animal feed industry, as well as phosphoric and sulphuric acids. Financial overview Market Phosphate sales increased by 24% in 2011, as a result of strong domestic demand early in the year due to the ‘mini crop’ (a smaller secondary crop, mainly corn, grown in the first half of the year), demand for fertilizers by sugar cane farmers and farmers purchasing fertilizer ahead of the summer crop as a result of competitive fertilizer prices relative to grain prices. The balance between supply and demand for phosphates tightened further through the year owing to reduced supplies from China and Saudi Arabia; this contributed to the average phosphates price for the year increasing to $700/t (2010: $510/t). From October, however, grain prices started declining from their peak on the back of continuing global economic uncertainty, taking fertilizer prices with them, which led to lower demand for both. For the year as a whole, fertilizer sales totalled 955,700 tonnes, 4.2% below 2010. DCP sales were 124,500 tonnes, in line with 2010, while phosphoric acid sales were 4.8% higher at 100,200 tonnes. Operating performance Copebrás generated an operating profit of $136 million, representing a 68% increase on the previous year. This performance reflected higher international and local market prices, coupled with operational gains from asset optimisation initiatives in particular. The strong performance was partially offset by increased input costs, particularly sulphur and ammonia, combined with the strengthening of the Brazilian currency. Projects A debottlenecking project, designed to increase capacity of Granulated Mono-Ammonium Phosphate by 60,000 tonnes and of DCP by 25,000 tonnes by 2015, is under review. The project is estimated to increase annual EBITDA by more than $35 million, through increased capacity and cost savings. Given the phosphate market’s sound fundamentals, the original Goiás 2 expansion project undertaken in 2008 and designed to increase phosphate production by more than 100%, may be re-assessed from a different product-mix perspective. Outlook Prices for agricultural commodities in Brazil remain at healthy levels, resulting in good margins for farmers. Although international fertilizer prices softened towards the end of the year owing to the global economic uncertainty, they remain relatively high. Nonetheless, the uncertain global economic outlook affected demand in the Brazilian market late in the year, as farmers decided to postpone purchasing fertilizer. Prospects are, however, positive and the current higher inventories of imported fertilizers may preclude further imports early in 2012, improving the overall dynamics for domestic fertilizers later in the year. Anglo American plc Annual Report 2011 85 OPERATING AND FINANCIAL REVIEW OTHER MINING AND INDUSTRIAL CATALÃO Business overview Catalão Mining (Mineração Catalão), which is located in the cities of Catalão and Ouvidor, in Goiás state, Brazil, is one of the world’s three largest niobium producers. As an alloying agent, niobium brings unique properties to steels, such as increased formability, corrosion resistance, weldability and strength under tough working environments, including extreme high or low temperatures. Such steels are known as high strength low alloy steels. Around 90% of total global niobium consumption is used as an alloying element, in the form of ferro-niobium (FeNb) in high strength steels, such steels being used in the manufacture of automobiles, ships, high pressure pipelines, as well as in the petroleum and construction industries. The product is exported to the main steel plants in Europe, the US and Asia. Financial overview Markets Niobium demand and prices have remained generally stable, notwithstanding volatility across world markets and uncertainty around the global economy, particularly the sovereign debt situation in Europe and the lacklustre pace of economic recovery in the US. In 2011, world crude steel production rose by 6.8% to reach a record 1,527 Mt. Total demand for niobium rose in tandem to more than 70,000 tonnes of Nb content in FeNb form for 2011, which eclipsed the previous record figure of 65,800 tonnes achieved in 2008. Operating performance Catalão’s operating profit declined by 19% to $54 million. The company’s financial performance was negatively affected by lower production and sales volumes, higher costs related to Catalão’s reintegration into the Anglo American Group, local inflationary pressures, and the impact of the Brazilian currency’s appreciation against the dollar. Production for the year of 3,900 tonnes represented a 3% decline (2010: 4,000 tonnes) following a significant change of production profile as the mine advanced further into the transition ore between weathered material and unoxidised ore, resulting in lower Nb recoveries. Set against this, improvements in the concentration and metallurgy processes at the Boa Vista plant led to higher recoveries. This, combined with higher average grades, and the inclusion of the Copebrás tailing from Mine 2, with its higher contained Nb grade, allowed Catalão to offset the impact of the transition ore. Projects The Boa Vista Fresh Rock project was approved in October 2011. The existing plant will be adapted to process new rock instead of oxidised ore, leading to an increase in production capacity to approximately 6,500 tonnes of Nb per year from the current 3,800 tonnes. Outlook Despite the record levels of sales and prices in 2011, growth rates for niobium are likely to remain capped worldwide in the near term. The European sovereign debt crisis is likely to have a significant negative bearing on sales to Europe. In the short term, additional niobium sales are likely to be diverted on a spot basis to China and, to a lesser extent, the US. Prices are expected to come under pressure from a stronger Brazilian real and the uncertain economic outlook in Europe and the US. 86 Anglo American plc Annual Report 2011 TARMAC Tarmac reported an operating loss of $35 million, compared to a profit of $48 million in 2010. On a directly comparable basis, however, taking into consideration the impact of European businesses that were sold in 2010, Tarmac’s operating profit showed a reduction of $55 million. Tarmac’s directly comparable EBITDA performance was 32% lower. Quarry materials Asphalt volumes benefited from carry-over of demand resulting from the severe weather at the end of 2010, as well as some continuing government infrastructure investment, particularly in respect of local authority road maintenance. In comparison to 2010, concrete volumes decreased, reflecting a reduction in demand from major projects such as the Olympic Village and Gatwick Airport, and reduced housing and other building expenditure. Cement production levels improved over 2010 as a result of the ongoing efficiency programme. Management efforts continue to be focused on mitigating the significant impact of rising input costs, in particular hydrocarbons, through initiatives such as increasing the use of recycled asphalt materials to recapture bitumen. The outlook for the year ahead remains uncertain and dependent to a large extent upon the UK government’s response to weak domestic growth and wider economic uncertainty across the euro zone. Against this background, volume declines are anticipated across major product categories in 2012, reflecting announced reductions in public sector spending, exacerbated by declining private sector spending. The UK joint venture discussions with Lafarge are proceeding through the required regulatory processes. Building products Performance was severely impacted by the closure of the Precast business, one-off non-recurring separation costs and the continuing decline in housing, retail and commercial markets, which affected all products. Volumes suffered as a consequence of both the general market decline and a competitive pricing environment, where customers and competitors remain more focused on price and less on other value drivers. Cost-reduction initiatives remain a high priority. Several key projects are also under way to enhance quality and improve customer service. The underlying market outlook continues to remain challenging in the short term. SCAW METALS Scaw Metals generated an operating profit of $40 million, a 76% decrease compared with 2010, largely as a result of the sale of Moly-Cop and AltaSteel that was concluded in December 2010. On a directly comparable basis, however, taking into consideration the impact of the sale of Moly-Cop and AltaSteel in 2010, Scaw Metals’ operating profit showed a reduction of $23 million. Scaw Metals’ directly comparable EBITDA performance was 24% lower. A strong performance was recorded by Grinding Media in spite of margin pressure owing to the strong rand. At Wire Rod Products, performance improved on the back of strong demand for offshore and mining products and improved business efficiencies. At Rolled Products, performance was affected by weak demand from the construction sector and selling prices not fully recovering rising input costs, resulting in reduced margins. At Cast Products, a number of foundries suffered from a lack of demand for larger castings in the year, as well as a strong rand, significantly impacting the business’ results. The situation improved towards the end of the year as the demand for railway, power generation and general engineering components saw the securing of important orders for the forthcoming year. A strong focus by management on cost- saving initiatives in all operations and sales to downstream businesses has mitigated the effects of weak margins. In addition, the closure of lossmaking operations and a focus on pursuing new markets with higher margins has enabled Scaw Metals to lessen the impact of weak economic conditions. Total production of steel products at Scaw South Africa was 677,400 tonnes, a decrease of 5% over the prior year. 01 A Tarmac National Contracting team during a major night time road resurfacing operation in the UK. 02 Catalão’s niobium plant in Goiás state, Brazil. The existing plant is being adapted to process new rock instead of oxidised ore, which will raise annual niobium production capacity from 3,800 tonnes to 6,500 tonnes. 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 01 02 Anglo American plc Annual Report 2011 87 GOVERNANCE INTRODUCTION GOOD GOVERNANCE: LEADERSHIP AND OPENNESS “ Good governance is not merely following a set of rules, but ensuring that the highest standards of behaviour begin at board level and flow throughout the organisation.” CHAIRMAN’S INTRODUCTION The UK Corporate Governance Code (the Code) states that the purpose of corporate governance is to, ‘facilitate effective, entrepreneurial and prudent management that can deliver the long term success of the company’. For us, this means not merely following a set of rules, but ensuring that the highest standards of behaviour begin at board level and flow throughout the organisation. Good governance takes different forms; whether it be adopting best practices early – such as the annual re-election of all directors in 2011, or committing to building a diverse board. Two key developments in the corporate governance field during 2011 were the publication of the report from Lord Davies on the representation of women in the boardroom and the implementation of the guidance on ‘adequate procedures’ under the Bribery Act. We believe that diversity in the boardroom, in terms of background, skills and experience, encourages independent and challenging debate and leads to better decision making. I was privileged to have served on Lord Davies’ steering group and therefore welcomed his ‘Women on Boards’ report, published in February 2011, which states that ‘evidence suggests that companies with a strong female representation at board and top management level perform better than those without and that gender diverse boards have a positive impact on performance’. In our 2010 annual report, we already announced our intention to increase the representation of women on the Board from 20% to about 30% (excluding the chairman) by 2013. The Group is also committed to increasing the pipeline of diverse talent within the organisation and specifically increasing gender diversity overall and within the management population. At a Group and business unit level we have established internal targets through to 2014, progress against which is tracked regularly, with Group assisting the spread of best practice in this area. During the year, Nicky Oppenheimer retired from the Board and in April, we welcomed Phuthuma Nhleko as a non executive director (NED) who has an excellent international business track record. These changes continue our comprehensive refreshment programme. In 2011, we intensified our Business Integrity training, that commenced in 2009, to ensure that our workforce is fully equipped to manage potential scenarios relating to bribery and corruption – more detail about this is included on page 102. New to this section on pages 98 to 100 as part of our commitment to disclosure and openness, are detailed reports on items discussed by our Committees during the year. We are pleased to confirm that we complied with the Code for the period under review. For more information on this, please see the checklist on our website. For more information visit www.angloamerican.com BOARD EFFECTIVENESS As chairman, I manage the Board and oversee the operation of its Committees. My aim is to ensure that they should operate effectively via directors with the relevant range of skill sets and experience to ensure they are fit for purpose. In this report I will explain how we cultivate a talented and diverse board whose performance is regularly reviewed and continuously improved. An external evaluation of the Board by a facilitator with no prior relationship with the Anglo American Group, commenced towards the end of 2011. This involved interviews with the Board members on an individual basis and attendance at a Board meeting by the external facilitator. The results of this review are being analysed as this report is finalised and therefore an update on the results of this externally facilitated assessment will be disclosed in next year’s report. Sir John Parker IN THIS SECTION 88 Chairman’s introduction 88 Board effectiveness 90 The Board 92 Executive Management 93 Role and composition of the Board 93 Excellence in the board room 95 Board in action 96 Investor communication 98 Board Committees 101 Audit Committee report 102 Effectiveness of internal control and risk management 88 Anglo American plc Annual Report 2011 Achievements against 2010 board effectiveness action plan Action plan resulting from 2010 board effectiveness review Action plan update 2011 Relationship between Board and management Increase contact between directors and management during intervals between board meetings Introduce more ‘free flowing’ informal discussions outside board meetings – the pre-board meeting dinners will be more ‘structured’ whilst retaining an informal style Improving Board meeting effectiveness Enhance the information flow to NEDs between board meetings to allow for a more focused board agenda The flow of management information to the Board was enhanced and the frequency of dissemination of this was improved Structured board dinners took place during the year where matters such as strategy and the HR talent review were discussed Items disseminated such as economics reports G o v e r n a n c e Introduction of iPads to ensure timely provision of board materials Successful implementation with a high percentage choosing electronic over paper copies Management to consider the optimum level of detail in presentations to the Board Ongoing – items such as company risks, operational safety and performance will be provided in such detail as is appropriate Committees S&SD Committee – outside stakeholders to be invited to address some committee meetings Implemented during the year – for more information see page 98 relating to the S&SD Committee Nomination Committee – talent strategy Detailed talent strategy presented to NEDs in February Remuneration Committee – the Committee will allot more time for ‘members only’ discussions More time allocated accordingly Key focus points highlighted by NEDs Political and regulatory uncertainty; business integrity processes – Bribery Act 2010 Please see detailed report on page 102 Safety and the environment Strategy Project execution Talent development and management succession Performance of NEDs Site visits Induction of board Board papers were amended to show more detail on these issues Two day strategy meeting held in June Detailed quarterly project ‘dashboards’ reviewed by the Board Presentations from the chief executive in February and June – see detail on succession on page 99 The number of visits was increased in 2011 including a special visit to Moranbah in Australia – see page 95 A half day exploration seminar took place in February and a full day mining seminar took place at the July board meeting The achievements against the action plan flowing from the 2010 board effectiveness review are detailed in the table above. As chairman I interviewed each director to review those issues raised during the board evaluation process and on any other issue of concern to them as individual directors. This process also provides an opportunity to review the personal performance of a director on a one-to-one basis. Following that I am happy to confirm that each board member’s performance is effective and they each continue to demonstrate full commitment to the role. In relation to NEDs’ involvement in developing the strategy of the Company, we held a two day strategy meeting in June 2011, in which the entire Board and senior management participated. Six key focus areas were agreed upon. The proposed increase in the Company’s share in the De Beers Group is but one example of the agreed strategic priorities that are being implemented. As I said last year, corporate governance is a much abused term – to us, it is much more than simply following a set of guidelines. My aim in this report is to illustrate our commitment to creating value with the right people making the right decisions within a board and committee environment that promotes challenge and debate. Sir John Parker Chairman Anglo American plc Annual Report 2011 89 GOVERNANCE THE BOARD THE BOARD Sir John Parker Cynthia Carroll René Médori David Challen Sir CK Chow Sir Philip Hampton Ray O’Rourke Mamphela Ramphele Peter Woicke In accordance with the UK Corporate Governance Code, Anglo American will continue to propose the re-election of all its directors on an annual basis. Phuthuma Nhleko Jack Thompson 90 Anglo American plc Annual Report 2011 CHAIRMAN Sir John Parker FREng DSc (Eng), ScD (Hon), DSc (Hon), DUniv (Hon), FRINA 69, joined the Board as a non executive director on 9 July 2009 and became chairman of Anglo American plc on 1 August 2009. Sir John is also chairman of the Nomination Committee and is a member of the Safety and Sustainable Development (S&SD) Committee. Sir John is recognised as a highly experienced and independent chairman, has chaired five FTSE 100 companies and brings a broad range of leadership experience across a variety of industries in many countries. He is a non executive director of Carnival Corporation, EADS and deputy chairman of DP World. Sir John is President of the Royal Academy of Engineering, and a Visiting Fellow of the University of Oxford. Sir John recently stepped down as chairman of National Grid plc and as chancellor of the University of Southampton. He was previously senior non executive director and chair of the Court of the Bank of England and joint chair of Mondi and chair of BVT and P&O plc. CHIEF EXECUTIVE Cynthia Carroll BSc, MSc, MBA 55, 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 a non executive director of BP plc and De Beers and chairs Anglo American Platinum. Key achievements: (cid:228) comprehensive internal reorganisation, new asset optimisation and supply chain initiatives, while sustaining the project pipeline during the downturn, and laying the foundation for a record financial performance in 2011 (cid:228) changed the composition of the projects team and introduced greater systematisation into the project evaluation process. In 2011, three major projects were successfully delivered – on, or ahead of schedule (cid:228) continues to drive our sustainable development agenda, including leading our corporate participation at the 2011 COP17 Summit. Cynthia Carroll is the former president and CEO of Alcan’s Primary Metals Group and a former director of AngloGold Ashanti Ltd and Sara Lee Corporation. G o v e r n a n c e FINANCE DIRECTOR René Médori Doctorate in Economics 54, 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 non executive director of SSE plc (formerly Scottish and Southern Energy plc) until 25 June 2012, De Beers and Anglo American Platinum. René Médori recently joined the board of Petrofac Limited as a non executive director. Key achievements: (cid:228) has maintained a robust balance sheet, which is well positioned for market volatility (cid:228) led the negotiations with Lafarge on the combination of the cement, aggregate, ready mixed concrete, asphalt and contracting businesses in the UK of Lafarge and Tarmac (cid:228) ensured funding of De Beers deal without recourse to acquisition financing. He is a former finance director of The BOC Group plc. SENIOR INDEPENDENT DIRECTOR David Challen MA, MBA 68, 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 chairman of the EMEA governance committee at Citigroup and senior non executive director of Smiths Group plc. He is currently a deputy chairman of the UK’s Takeover Panel. David Challen continues to demonstrate his independence by challenging and questioning management. Previously he was chairman of J. Henry Schroder & Co. Limited, where he spent most of his professional career. NON EXECUTIVE DIRECTORS Sir CK Chow DEng (Hon), CEng, FREng, HonFHKIE, FIChemE 61, was appointed to the Board on 15 April 2008 and is a member of the Nomination and Remuneration Committees. He is currently a non executive director of AIA Group Company Limited. Sir CK was knighted in 2000 for his services to industry. Sir CK recently retired as chief executive officer of the MTR Corporation in Hong Kong, a position he held between 2003 and 2011. He was formerly chief executive of Brambles Industries, GKN PLC and non executive chairman of Standard Chartered Bank (Hong Kong) Limited. Prior to joining GKN PLC he worked for The BOC Group plc for 20 years, joining its board in 1993. Sir Philip Hampton MA, ACA, MBA 58, joined the Board on 9 November 2009. He is chairman of the Remuneration Committee and a member of the Audit Committee. Sir Philip is chairman of The Royal Bank of Scotland and brings to Anglo American significant financial, strategic and boardroom experience across a number of industries. His previous appointments include chairman of J Sainsbury plc, 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 and Belgacom SA. Ray O’Rourke HONFREng, CEng, FICE, FIEI 65, joined the Board on 11 December 2009. He is a member of the Audit and S&SD Committees. 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. As a member of the S&SD Committee, he has a keen interest in safety. He 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. Phuthuma Nhleko BSc, MBA 51, joined the Board on 9 March 2011 and is a member of the Audit Committee. Phuthuma Nhleko is a non executive director of BP plc and an executive director of Pembani Group (Pty) Limited. Phuthuma Nhleko’s extensive international business experience has lent further strength to our Board. In his former position as President and CEO of MTN, Phuthuma Nhleko showed impressive leadership and vision in transforming MTN from a highly successful South African mobile operator into a considerable force in mobile telecommunications services in emerging markets. He previously served as a director on a number of boards in South Africa, including Nedbank Group, Alexander Forbes, Bidvest and Old Mutual (SA). Mamphela Ramphele PhD, BComm, MB Ch B 64, joined the Board on 25 April 2006. She is a member of the Nomination and S&SD Committees. Mamphela Ramphele is the founder of Letsema Circle, a specialist transformation advisory company and the chair of Gold Fields Limited and the Technology & Innovation Agency of South Africa. She is a non executive director of Mediclinic and Remgro, a trustee of the Nelson Mandela Foundation, and an adviser to the Veolia Institute. She is the chair of Eduloan. Her experience in international financial institutions and of South African social issues is of great value to the Company. Mamphela Ramphele 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. She was also the chair of Circle Capital Ventures, a Black Economic Empowerment Company. Jack Thompson BSc, PhD 61, joined the Board on 16 November 2009 and is a member of the Remuneration and S&SD Committees. He is currently a non executive director of Molycorp Inc. and Tidewater Inc. Jack Thompson brings experience gained at all levels of the mining industry and has received wide recognition as a mining executive. He also has extensive boardroom experience in both executive and non executive roles. Jack Thompson was previously chairman and CEO of Homestake Mining Co., vice chairman of Barrick Gold Corp. and has served on the boards of Centerra Gold Inc., Century Aluminum Co., Phelps Dodge Corp., Rinker Group Ltd and Stillwater Mining. Peter Woicke MBA 69, joined the Board on 1 January 2006, chairs the S&SD Committee and is a member of the Nomination and Remuneration Committees. He is currently chair of the trustees of the Ashesi University Foundation and a member of the boards of Saudi Aramco, the Institute for Human Rights and Business and the Chesapeake Bay Foundation. From 1999 to 2005, Peter Woicke was Executive Vice President of the International Finance Corporation (IFC) and under his leadership, the IFC expanded the provision of environmental and social know how to its clients through its Sustainability Initiative. Prior to joining the IFC, Peter Woicke held numerous positions over nearly 30 years with J.P. Morgan and he was also a managing director of the World Bank. Anglo American plc Annual Report 2011 91 GOVERNANCE EXECUTIVE MANAGEMENT EXECUTIVE MANAGEMENT The Company has two principal executive committees. The Group Management Committee (GMC) (which meets fortnightly) is responsible for formulating strategy for discussion and approval by the Board, monitoring performance and managing the Group’s portfolio. The Executive Committee (ExCo) (which meets at least every two months for a two day session) is responsible for developing and implementing Group wide policies and programmes and for the adoption of best practice standards across the Group. GMC AND EXCO MEMBERS Cynthia Carroll See page 90 for biographical details. René Médori See page 91 for biographical details. Brian Beamish BSc (Mechanical Engineering) 55, is Group director of mining and technology. He was 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 American Platinum, including four years as executive director of operations between 1996 and 1999. Mervyn Walker MA 52, is Group director of human resources and corporate affairs. He is a solicitor by training and joined Anglo American in 2008 from Mondi, where he was group HR and legal director. Mervyn Walker held a series of senior roles at British Airways, 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. David Weston MBA, BSc (Eng) 53, is Group director of business performance and projects. He spent 25 years with Shell and was president of 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 of International Power plc and Kumba Iron Ore Ltd. 92 Anglo American plc Annual Report 2011 Peter Whitcutt BCom (Hons), CA (SA), MBA 46, is Group director of strategy and business development. He joined Anglo American in 1990 within the corporate finance division. He 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 group head of finance in 2003, CFO of Base Metals in August 2008 and to his present position in October 2009. EXCO MEMBERS Paulo Castellari-Porchia BCom, MBA 41, is CEO of Iron Ore Brazil. He was previously CEO of Anglo American’s Phosphates and Niobium businesses in Brazil and served in Anglo American’s former Base Metals division. His 18 year career with the Group included positions at AngloGold Ashanti and Minorco in a number of corporate finance and capital project roles. Walter De Simoni BSc (Mining Eng) 56, 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. Seamus French BEng (Chemical) 49, 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 of business excellence from 2005. Godfrey Gomwe BAcc, CA (Z), MBL 56, is executive director, Anglo American South Africa. He is chairman of Anglo American Zimele, Anglo American’s Transformation Committee and Tshikululu Social Investments. He is a non executive director of Anglo American Platinum, Kumba Iron Ore and Thebe Investment Corporation (Pty) Ltd. He was previously finance director and COO of Anglo American South Africa and chairman and chief executive of Anglo American Zimbabwe. Chris Griffith B Eng (Mining) Hons, Pr Eng 46, is CEO of Kumba Iron Ore. He has been with Anglo American for almost two decades. He was Anglo American Platinum’s head of operations for joint ventures before being appointed CEO of Kumba Iron Ore in 2008. John MacKenzie MSc Eng, MBL 43, is CEO of Copper. He joined the Anglo American Gold and Uranium Division in 1990 and was promoted to vice president of Anglo Coal, South American Operations in 1999. In 2004, he became general manager of the Minera Loma de Níquel operation in Venezuela. John MacKenzie was appointed CEO of Base Metals’ Zinc operations in 2006, becoming CEO of Copper in 2009. Norman Mbazima FCCA, FZICA 53, is CEO of Thermal Coal. He joined the Anglo American Group in 2001 at Konkola Copper Mines PLC. He was global CFO for Anglo Coal and became executive director of finance at Anglo American Platinum in June 2006, and later stepped in as joint acting CEO. He was appointed CEO of Scaw Metals in 2008 and was appointed CEO of Thermal Coal in October 2009. Neville Nicolau BT (Mining Engineering), MBA 52, is CEO of 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 COO (Africa) of AngloGold Ashanti in 2004 and was appointed CEO of Anglo American Platinum in 2008. Duncan Wanblad BSc (Eng) Mech, GDE (Eng Management) 45, is Group director of Other Mining and Industrial. He began his career at Johannesburg Consolidated Investment Company Limited in 1990. He was appointed to the board of Anglo American Platinum and various of its subsidiaries in 2004 – becoming the executive director in charge of projects and engineering. He was appointed joint acting CEO of Anglo American Platinum in 2007, before taking over as CEO copper operations of Anglo American in 2008. He became Group director of Other Mining and Industrial in October 2009. GOVERNANCE ROLE OF THE BOARD WHAT IS THE ROLE OF THE BOARD? The Board of directors has a duty to promote the long term 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, budgets and material expenditure). For the full list, please see the Company’s website. For more information visit www.angloamerican.com Every year the Board holds a two day strategy meeting at which the non executive directors (NEDs) contribute their expertise and independent perspective in developing the strategy of the Company. HOW IS THE BOARD COMPOSED? Role of the chairman The Board is chaired by Sir John Parker. The chairman is responsible for leading the Board and for its effectiveness. Role of the chief executive 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 functions and membership of GMC and ExCo are set out on page 92. The Company has adopted the Institute of Chartered Secretaries and Administrators Statement of Division of Responsibilities between the Chairman and the Chief Executive. Role of the senior independent director (SID) David Challen is the senior independent non executive director. He is available to shareholders, acts as a sounding board and confidant for the chairman and is available as an intermediary for the other directors if necessary. Board and Committee meetings – frequency and attendance Sir John Parker Cynthia Carroll René Médori David Challen Sir CK Chow Sir Philip Hampton Phuthuma Nhleko Nicky Oppenheimer(1) Ray O’Rourke Mamphela Ramphele Jack Thompson Peter Woicke Independent n/a No No Yes Yes Yes Yes No Yes Yes Yes Yes Board (six meetings) All Audit (three meetings) – All All All All All All All All 4 All All – – All – All All – All – – – S&SD (four meetings) 3 All – – – – – – All 2 All All (1) Meetings attended prior to retirement. Remuneration (three meetings) – Nomination (three meetings) All – – All All All – – – – All All – – All All – – – – 2 – All G o v e r n a n c e Independence of directors The Board has a strong independent element and currently comprises, in addition to the chairman, two executive and eight non executive directors, all of whom are independent according to the definition contained in the UK Corporate Governance Code (the Code). The independent directors are indicated within the table above, and full biographical details for each director are given on pages 90 and 91. The letters of appointment of the NEDs (as well as the executives’ service contracts) are available for inspection at the registered office of the Company. None of the NEDs has served concurrently with an executive director for more than nine years. David Challen and Peter Woicke have both been on the Board for over six years now and their re-appointments are subject to particularly rigorous review. The Board believes that both of them continue to display all of the qualities of independence pursuant to the criteria set out in the Code. HOW DO WE PROMOTE EXCELLENCE IN THE BOARDROOM? Board effectiveness As a direct result of the last external board evaluation, changes were made in strategy planning and improving communication with major shareholders as well as in the areas of committee composition, talent management and succession planning. The action plan and resulting achievements from the internally facilitated 2010 board effectiveness review may be found on page 89. As previously noted, an external evaluation of the Board took place in 2011/2012 in accordance with the recommendations made in the Code and we will report on this next year. 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. The chairman has held individual discussions 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 NEDs prior to each board meeting. In order to facilitate openness and constructive debate between our executives and NEDs, we hold board dinners before board meetings where directors are encouraged to raise issues in an informal setting. These meetings provide an opportunity, inter alia, to discuss the performance of management and to air subjects outside the confines of the boardroom in an informal and constructive manner. At every board meeting, time is set aside for a NEDs only discussion and the Board also receives a governance update from the company secretary highlighting developments in company law, corporate governance and best practice. Board papers are circulated one week before meetings. Messrs Beamish, Walker, Weston and Whitcutt attend all board meetings. Anglo American plc Annual Report 2011 93 GOVERNANCE ROLE OF THE BOARD HOW DOES THE BOARD DEAL WITH CONFLICTS OF INTEREST? If directors become aware that they have a direct or indirect interest in an existing or proposed transaction with Anglo American, they 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. During 2011, Nicky Oppenheimer recused himself from any discussion regarding the potential increase in the Company’s interest in De Beers and David Challen recused himself from a discussion on a banking facility in which Citigroup was a participant. 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 conflicts register was updated and the conflict management procedures were adhered to and operated effectively. IPADS FOR REVIEW OF BOARD MATERIALS As part of our commitment to best practice and innovation, iPads were introduced in 2010 for the review of board papers, ensuring fast and timely provision of information to directors whilst at the same time reducing the environmental and financial impacts of board meetings. The majority of the directors use the iPads for reviewing their board papers. HOW ARE DIRECTORS TRAINED? 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 UK Corporate Governance Code 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. As part of the directors’ formal induction process, meetings are arranged with senior executives in order to develop a full understanding of the complex nature of the Anglo American Group. Training and briefings are also available to directors on appointment and throughout their tenure, 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 2011. Regular presentations are made to the Board by business management on the activities of operations. The company secretary facilitates board training and during the year, directors attended courses on inter alia: investment, director professionalism and other general matters of interest to directors. The directors are given the opportunity to discuss their development needs with the chairman in individual feedback meetings. 94 Anglo American plc Annual Report 2011 Images on opposite page 01 Jack Thompson and John MacKenzie at the Mantos Blancos mine in May 2011. 02/03/04/05 Directors visiting the Moranbah North Coal Mine, Australia in October 2011. GOVERNANCE BOARD IN ACTION 01 02 03 “The Chile visit allowed me to gain better knowledge about the ore bodies and plants but importantly it exposed me to the staff and people of the Copper business unit. Days of travel and talk over dinners provided ample opportunity to get to know the team.” Jack Thompson Non Executive Director BOARD IN ACTION Directors undertake regular visits to operations and projects and, in 2011, operations and projects in Australia, Brazil, Chile, China, South Africa, Mozambique, Peru, USA and Botswana were visited. BOARD VISIT TO AUSTRALIA In October 2011, the Anglo American plc Board met in Brisbane. Directors took the opportunity to meet with Queensland’s Deputy Premier, the Minister for Finance and Natural Resources, the Minister for Environment and other state politicians. During the course of the visit, the Board received detailed presentations from the management of the metallurgical coal operations on the strategy of the business unit, its resource base and infrastructure and the market outlook for metallurgical coal. In addition, a detailed presentation of the Grosvenor Project was delivered, followed by a visit to Anglo American Metallurgical Coal Australia’s Benchmark Performance Centre. Directors then made an operational visit to the Moranbah North Mine, touring both the surface facilities (including the coal handling and preparation plant and the waste coal mine gas power station) and the underground mining operations. In addition, certain board members visited the MBD Energy algal synthesis facility at James Cook University in Townsville and received a detailed briefing on the operations of MBD (in which Anglo American holds a 19.3% interest). G o v e r n a n c e 04 05 NEDS’ ‘FACT FINDING’ TRIPS TO SOUTH AMERICA In March 2011, Peter Woicke visited Anglo American’s sites and operations in South America accompanied by Brian Beamish, David Weston and senior managers from our Safety and Sustainability team. Sites visited were: Amapá (Brazil) and Quellaveco (Peru). Jack Thompson visited Chile accompanied by John MacKenzie in May 2011. The purpose of the trip was to familiarise him with our Copper business unit and to visit the large construction project at Los Bronces. Upon arrival in Chile, Jack Thompson received a copper business and strategy overview then visited the Chagres Smelter, Los Bronces, the El Soldado and Mantos Blancos mines. He also received a briefing on the Quellaveco and Michiquillay projects in Peru. In April 2011 Ray O’Rourke visited Los Bronces accompanied by John MacKenzie, Barro Alto (Nickel Brazil) with Walter De Simoni and Minas-Rio (Iron Ore Brazil) with Stephan Weber. During 2011 Sir John Parker also visited Chile and Brazil accompanied by John MacKenzie to familiarise himself further with the Los Bronces, Chagres Smelter and Barro Alto operations. Anglo American plc Annual Report 2011 95 GOVERNANCE BOARD IN ACTION Geographical analysis of investors “We place a great deal of importance on maintaining an active dialogue with our investor base around the world. We plan to increase our interaction in 2012 by further exposing our operating management to investors.” René Médori Finance Director UK 35% North America 18% Europe (ex-UK) 11% Asia 6% Africa 28% Other 2% Source: Anglo American Investor Relations Shareholder structure Institutions – UK 30% Institutions – ROW 50% Employees 2% Retail investors 3% Other 15% Source: Anglo American Investor Relations HOW DO WE COMMUNICATE WITH OUR INVESTORS? We place a great deal of importance on maintaining an active dialogue with our investor base around the world. We plan to increase our interaction in 2012 by further exposing our operating management to investors. The Company maintains an active engagement with its key financial audiences, including institutional shareholders and sell side analysts as well as potential shareholders. The Investor Relations department manages the interaction 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 of communication with potential shareholders is also maintained. Board oversight Any significant concerns raised by a shareholder in relation to the Company and its affairs are communicated to the Board. 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. Institutional investors During the year there were regular presentations to, and meetings with, institutional investors in the UK, South Africa, continental Europe, the US and Asia Pacific to communicate the strategy and performance of Anglo American. Executive directors, as well as key executives, including business unit heads, host such presentations, including seminars for investors and analysts, and one-on-one meetings. Throughout the year, executive management also presents at industry conferences, which are mainly organised by investment banks for their institutional investor base. In late 2010, Sir John Parker met with a number of key investors to discuss ‘Strategy, The Board, Board Changes & Operating Performance’. David Challen in his capacity as the SID works closely with Sir John to maintain his understanding of the issues and concerns of major shareholders. David Challen attended the Australian site visit dinner with analysts and investors. The chairman, SID and other non executive directors are also available to shareholders to discuss any matter they wish to raise. We look forward to increased communication with investors following the recent introduction of the Stewardship Code. The Company’s website provides the latest news and historical financial information, details about forthcoming events for shareholders and analysts, and other information on Anglo American. For more information visit www.angloamerican.com 96 Anglo American plc Annual Report 2011 Investor relations activities timeline 2011 18 February Webcast February 18 February Financial results w/c 21 February Roadshow: CFO – London, Johannesburg, Cape Town & Edinburgh 09 March Broker salesforce presentation: CEO 22–23 March Roadshow: CEO – Europe w/c 09 May Broker conference: CEO – Europe 24 May Broker salesforce presentation: CEO 09 June Broker conference: CFO – Paris March April May June July 18 February Analyst roundtable w/c 28 February Broker conference: CEO – US 10 March Broker conference: CFO – London 29 April Roadshow: CFO – Paris 05 May Broker dinner: CFO 18 May Roadshow: Copper, CEO – London 23–24 May Roadshow: CEO – London 14 June Informal gathering: Board & GMC 29 July Webcast 29 July Financial results w/c 01 August Roadshow: CFO – London August 29 July Analyst roundtable w/c 08 August Roadshow: CFO – Johannesburg & Cape Town 08 September Roadshow: CEO – Johannesburg September 12 September Roadshow: CFO – US 12 September Roadshow: CEO – London w/c 03 October Roadshow: CFO – US East Coast October 07 October Roadshow: CFO – Europe w/c 24 October Australia site visit: Analyst – Investor 02 November Broker conference: CEO – London November 04 November Analyst Roundtable w/c 07 November Roadshow: CEO – US w/c 14 November Roadshow: CFO – London December 13 December Informal gathering: Chairman & GMC 10 November Teleconference: CEO – Analyst and Investor briefing 15 November Broker conference: CEO – London w/c 05 December Roadshow: CFO – Johannesburg & Cape Town 16 December Roadshow: CFO – Paris The Company maintains an active dialogue with its key financial audiences, including institutional shareholders and sell side analysts as well as potential shareholders. G o v e r n a n c e Anglo American plc Annual Report 2011 97 GOVERNANCE BOARD IN ACTION WHAT ARE THE COMMITTEES OF THE BOARD AND WHAT DO THEY DO? Subject to those matters reserved for its decision, the Board delegates certain responsibilities to a number of standing committees – the Safety and Sustainable Development, Remuneration, 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. The Committees’ Terms of Reference may be found on the Company’s website, visit www.angloamerican.com The S&SD Committee’s remit spans across the environmental, social and workplace risks and opportunities faced by Anglo American. Increasingly, we seek out investments to effect positive change in more than one of these areas. For example, a new enterprise development fund in South Africa has been established to help create jobs while delivering environmental benefits. The Zimele Green Fund will target investment opportunities that mitigate carbon emissions, reduce energy and water consumption, and improve waste and emissions management. Created in November 2011, the Fund is already reviewing potential investments to assess their commercial and technical viability and degree of alignment with Anglo American’s environmental objectives, such as the retrofitting of low income government provided housing in South Africa with solar water heaters. 98 Anglo American plc Annual Report 2011 SAFETY & SUSTAINABLE DEVELOPMENT COMMITTEE “To be successful, sustainability considerations need to be integral to our thinking in all areas of our business, such as in the design and evaluation of our projects, mine planning and decommissioning, and the ways in which capital is allocated to fund our projects.” Peter Woicke Chairman, Safety and Sustainable Development Committee Composition (cid:228) Peter Woicke – chairman (cid:228) Cynthia Carroll (cid:228) Sir John Parker (cid:228) Ray O’Rourke (cid:228) Mamphela Ramphele (cid:228) Jack Thompson (cid:228) Brian Beamish (cid:228) David Weston Roles and responsibilities (cid:228) Reviewing the development of framework policies and guidelines for the management of sustainable development (SD) issues including safety, health and environment. (cid:228) Reviewing the performance of the Company and the progressive implementation of its safety and sustainable development (S&SD) policies. (cid:228) Receiving reports covering matters relating to material S&SD risks and liabilities. (cid:228) Monitoring key indicators and learning on incidents and, where appropriate, ensuring they are communicated throughout the Group. led by the Group chief executive, Cynthia Carroll. Safety remains a critical focus area and receives significant attention at each meeting. Key themes such as occupational health, HIV and AIDS, energy, climate change, water, social performance and SD within our supply chain were reviewed at each meeting. Other topics, such as gender diversity, received periodic focus. What did the Committee discuss in 2011? (cid:228) A detailed account of every fatal incident that occurred in the period under review by the relevant BU CEO, along with the related management response. (cid:228) Oversight of risk, including major risks such as methane explosion; technical risks such as waste containment facilities and shaft infrastructure; an annual review of legal risk across the Group; and significant outcomes of external assurance work. (cid:228) Presentations by BU CEOs on a rotational basis on that respective business’ SD performance. (cid:228) Considering material (cid:228) Presentations by NGOs national and international regulatory and technical developments in the fields of S&SD management. Besides the regular S&SD Committee members, the meetings were well attended by other Group directors and business unit (BU) CEOs. At each meeting the Committee received a functional performance review on issues important to the business. For example, the Committee received presentations by the Institute for Human Rights on the links between business, human rights and water. (cid:228) Reports on projects of strategic interest such as the value of S&SD. G o v e r n a n c e REMUNERATION COMMITTEE NOMINATION COMMITTEE “The Committee seeks to ensure that directors who deliver significant value for the Company’s shareholders are appropriately remunerated and that our world class talent is retained.” Sir Philip Hampton Chairman, Remuneration Committee “The Nomination Committee’s aim is to build on the existing diversity of the board by identifying and nominating suitably qualified candidates.” Sir John Parker Chairman, Nomination Committee Composition In compliance with the Code, the Committee comprises only independent non executive directors: (cid:228) Sir Philip Hampton – chairman (cid:228) David Challen (cid:228) Sir CK Chow (cid:228) Jack Thompson (cid:228) Peter Woicke Roles and responsibilities (cid:228) Establishing and developing the Group’s general policy on executive and senior management remuneration. (cid:228) Determining specific remuneration packages for the chairman and executive directors. (cid:228) Designing the Company’s share incentive schemes. What did the Committee discuss in 2011? In February 2011, the Committee: (cid:228) reviewed executive director personal KPIs for 2011 and Company financial targets to ensure alignment with Company strategy (cid:228) discussed with the Company chairman and chief executive respectively, the chief executive’s and finance director’s performance in 2010 to adjudicate on bonus outcomes (cid:228) discussed the new Long Term Incentive Plan (LTIP) which was subsequently approved by shareholders at the 2011 AGM. The Committee chairman had previously discussed. amendments to the LTIP with external investors. The new LTIP included a clawback provision should there be a material misstatement of the Company’s results during the performance period Composition Compliant with the Code: (cid:228) Sir John Parker – chairman (cid:228) David Challen (cid:228) Sir CK Chow (cid:228) Mamphela Ramphele (cid:228) discussed and set the asset (cid:228) Peter Woicke optimisation and supply chain targets for the 2011 LTIP award (cid:228) approved amendments to the Bonus Share Plan rules to include clawback provisions (cid:228) reviewed executive directors’ shareholdings in the Company prior to 2011 share awards being made. In April 2011, the Committee: (cid:228) discussed investor feedback on executive remuneration prior to the vote on the Directors’ Remuneration Report. In December 2011, the Committee: (cid:228) reviewed directors’ salaries, taking into account the general salary review for the broader employee population (cid:228) considered GMC and Exco remuneration and performance contracts for 2012 (cid:228) reviewed its Terms of Reference. General The Committee regularly reviews developments in corporate governance and executive pay in all meetings. Roles and responsibilities (cid:228) Setting guidelines (with the approval of the Board) for the types of skills, experience and diversity being sought when making a search for new directors and, with the assistance of external consultants, identifying and reviewing in detail each potential candidate available in the market. The Committee then agrees a ‘long list’ of candidates for each directorship and, following further discussion and research, decides upon a shortlist of candidates for interview. Shortlisted candidates are each interviewed by the Committee members who will then convene to discuss their impressions and conclusions, culminating in a recommendation to the Board. (cid:228) Making recommendations as to the composition of the Board and its Committees and the balance between executive and non executive directors (NEDs), with the aim of cultivating a board with the appropriate mix of skills, experience, independence and knowledge of the Company. (cid:228) Ensuring that the Human Resources function of the Group regularly reviews and updates the succession plans of directors and senior managers. Diversity policy To increase the representation of women on the Board (excluding the chairman) from 20% to about 30% by 2013. What did the Committee discuss in 2011? (cid:228) Following extensive research into potential candidates, Phuthuma Nhleko was appointed in March 2011. (cid:228) The Committee maintained a continuing review of board succession needs. During 2011 the Committee focused in particular on developing plans to ensure the achievement of the Company’s diversity policy (above). (cid:228) In addition to the meetings of the Committee, the chairman and NEDs as a group met twice with the chief executive and the director of HR and corporate affairs for an in depth discussion on human resources issues. In February, the chairman and NEDs received and discussed a comprehensive presentation on the Company’s HR strategy, with a particular focus on long term talent needs, and in June there was a detailed review of succession plans for the directors and the other roles on the Company’s Executive Committee. Anglo American plc Annual Report 2011 99 GOVERNANCE BOARD IN ACTION AUDIT COMMITTEE “The Audit Committee plays a pivotal role in ensuring high standards of corporate governance and provides assurance to the Board on its reports to shareholders.” David Challen Chairman, Audit Committee At the November 2011 meeting the Committee: (cid:228) received a paper on the likely accounting issues for the 2011 year end (cid:228) approved the external auditors’ terms of engagement, scope of work, the process for the annual audit and the applicable levels of materiality (cid:228) approved the internal audit plan for 2012 (cid:228) received a paper on fraud risk and how this is controlled in the Company (cid:228) reviewed the Audit Committee’s Terms of Reference (cid:228) received a paper on progress with the transformation agenda in South Africa. Composition Compliant with the Code and comprises only independent non executive directors: (cid:228) David Challen – chairman (cid:228) Sir Philip Hampton (cid:228) Phuthuma Nhleko (cid:228) Ray O’Rourke Roles and responsibilities (cid:228) Monitoring the integrity of the annual and interim financial statements, the accompanying reports to shareholders and corporate governance statements. (cid:228) Making recommendations to the Board concerning the adoption of the annual and interim financial statements. (cid:228) Overseeing the Group’s relations with the external auditors. (cid:228) Making recommendations to the Board on the appointment, retention and removal of the external auditors. (cid:228) Reviewing and monitoring the effectiveness of the Group’s internal control and risk management systems including reviewing the process for identifying, assessing and reporting all key risks. (cid:228) Approving the terms of reference and plans of the internal audit function. (cid:228) Approving the internal audit plan and reviewing regular reports from the head of internal audit on effectiveness of the internal control system. (cid:228) Receiving reports from management on the key risks of the Group and management of those risks. What did the Audit Committee discuss in 2011? At the February 2011 meeting, the 2010 year end results and press release were reviewed and the external auditors presented the findings of their work. The Committee also reviewed the Ore Reserves and Mineral Resources estimates report and the internal audit report for 2010. At the July 2011 meeting the Committee: (cid:228) reviewed the interim results and press announcement (cid:228) received a report on the Company’s measures to mitigate the risk of bribery and assessed the key risks of bribery occurring in each of the business units (cid:228) reviewed the risk profile of each business unit and the Company as a whole (cid:228) reviewed a paper on the strategy for purchasing insurance. 100 Anglo American plc Annual Report 2011 GOVERNANCE AUDIT COMMITTEE REPORT G o v e r n a n c e AUDIT COMMITTEE REPORT HOW DO WE ENSURE INDEPENDENCE OF THE EXTERNAL AUDITORS? Anglo American’s policy on auditors’ independence, is consistent with the ethical standards published by the Audit Practices Board. 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: (cid:228) results in the auditors acting as a manager or employee of the Group (cid:228) puts the auditors in the role of advocate for the Group; or (cid:228) creates a mutuality of interest between the auditors and the Group. Anglo American addresses this issue through three primary measures, namely: (cid:228) disclosure of the extent and nature of non audit services (cid:228) the prohibition of selected services – this includes the undertaking of internal audit services (cid:228) prior approval by the Audit Committee chairman of non audit services where the cost of the proposed assignment is likely to exceed $50,000. Anglo American’s policy on the provision of non audit services is regularly reviewed. 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. What other safeguards exist? (cid:228) 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. The audit engagement partner was appointed in 2010 in accordance with this requirement. (cid:228) 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. (cid:228) The external auditors are required to assess periodically, in their professional judgement, whether they are independent of the Group. (cid:228) The Audit Committee ensures that the scope of the auditors’ work is sufficient and that the auditors are fairly remunerated. (cid:228) The Audit Committee has primary responsibility for making recommendations to the Board on the appointment, re-appointment and removal of the external auditors. (cid:228) 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. (cid:228) An annual assessment is undertaken of the auditors’ performance, independence and objectivity. The results are shared with the Audit Committee. What did the Audit Committee conclude for 2011? 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 2011 and concluded that the nature and extent of the non audit fees do not present a threat to the external auditors’ independence. Details of fees paid are provided on page 140. 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 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. What will the Audit Committee do in 2012? During 2012 the Audit Committee will continue its role in monitoring the integrity of the financial statements and reviewing the effectiveness of the Company’s internal control and risk management systems. An item of key interest to the Audit Committee will be to understand how the risk and audit processes operate in De Beers and how these will be integrated into Anglo American at the appropriate time. How is the appointment of the external auditors considered? 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, at the time of the listing, of the predecessor audit firms 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. 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 2013. Resolutions to authorise the Board to re-appoint and determine their remuneration will be proposed at the AGM on 19 April 2012. What is the role of 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 the Group’s principal divisions in the period under review, reporting findings to local senior management. The internal audit function’s mandate and annual audit coverage plans were approved by the Audit Committee. The internal audit activities are performed by teams of appropriate, qualified and experienced employees, supplemented if necessary 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 Anglo American plc Annual Report 2011 101 GOVERNANCE AUDIT COMMITTEE REPORT 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. Assurance regarding the accuracy and reliability of Mineral Resources and Ore Reserves disclosure is provided through a combination of internal technically proficient staff and independent third parties. 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: (cid:228) actions that may result in danger to the health and/or safety of people or damage to the environment (cid:228) unethical practice in accounting, internal accounting controls, financial reporting and auditing matters (cid:228) criminal offences, including money laundering, fraud, bribery and corruption (cid:228) failure to comply with any legal obligation (cid:228) miscarriage of justice (cid:228) any conduct contrary to the ethical principles embraced in our Business Principles or any similar policy (cid:228) any other legal or ethical concern (cid:228) concealment of any of the above. 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. During 2011, over 420 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. HOW IS THE EFFECTIVENESS OF INTERNAL CONTROL AND RISK MANAGEMENT ASSESSED? 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. Please see pages 48 to 53 for further information on the key risk factors Anglo American is exposed to. Where appropriate, necessary action has been or is being taken to remedy any failings or weakness identified from review of the effectiveness of the internal control system. How is assurance obtained on the internal control environment? 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. The chief financial officers of the Group’s business units 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 102 Anglo American plc Annual Report 2011 BUSINESS INTEGRITY During 2011 we continued to implement the necessary procedures to ensure that our Business Integrity policy operates effectively across the Group, and minimises the risk of bribery as far as possible. We have now trained over 2,000 managers through workshops in the business units and developed supplementary online training. During the year we developed enhanced guidelines regarding acceptance and provision of gifts and entertainment and provided specific guidance on due diligence procedures for transactions where risks are considered higher. We conducted an assessment of the risks of bribery and corruption in each of our businesses taking into consideration external and internal factors and identified those areas where additional measures are necessary. We applied a risk assessment process in individual transactions to identify necessary actions that mitigate risk of bribery in those arrangements. For 2012 we will continue to develop our procedures and obtain assurance that they are being implemented as we expect across the Group. 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 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 Sustainable Development Report 2011. 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 122, 124 and 125. As referred to in the Directors’ report, the directors have expressed their view that Anglo American’s business is a going concern. G o v e r n a n c e The programme makes available a selection of telephonic, email, 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 2011, 299 reports were received via the global ‘Speakup’ facility, covering a broad spectrum of concerns, including: (cid:228) ethical (cid:228) criminal (cid:228) supplier relationships (cid:228) health and safety (cid:228) 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. How does risk management work at Anglo American? The Board’s policy on risk management encompasses all significant business risks to the Group, including: (cid:228) financial risk (cid:228) operational, including safety, technical, fraud and corruption risk (cid:228) 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 through 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 2011, over 149 separate risk assessment workshops were conducted reviewing: (cid:228) risk in business unit strategies (cid:228) risks to achieving mine plans (cid:228) risks in capital projects (cid:228) 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 48 to 53, are: (cid:228) commodity price risk (cid:228) political risk (cid:228) counterparty risk (cid:228) 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 Anglo American plc Annual Report 2011 103 GOVERNANCE DIRECTORS’ REMUNERATION REPORT REMUNERATION REPORT OF THE DIRECTORS “It is important to ensure that levels of reward are commensurate with performance and that the Company’s reward policy creates a strong alignment between its shareholders and executives.” 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 2011. 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: (cid:228) The Company’s general policy on executive and senior management remuneration. (cid:228) 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. (cid:228) The remuneration of the chairman. (cid:228) The design and operation of the Company’s share incentive schemes. The full Terms of Reference of the Committee can be found on the Anglo American website and copies are available on request. The Committee met three times during 2011 and dealt with ad hoc items between formal meetings by ‘round robin’ resolutions. For more information visit www.angloamerican.com 1.2 Membership of the Committee The Committee comprised the following non-executive directors during the year ended 31 December 2011: (cid:228) Sir Philip Hampton (Chairman) (cid:228) David Challen (cid:228) Sir CK Chow (cid:228) Jack Thompson (cid:228) Peter Woicke 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 2011, the Committee was advised by the Company’s Human Resources and Finance functions and, specifically, by 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 Deloitte’s and PwC’s worldwide member firms and non-audit related services from Mercer’s worldwide member firms. A summary of the letter from Mercer Limited containing the conclusions of their review of the Committee’s executive remuneration processes for 2011 can be found on page 116. Sir Philip Hampton Chairman of the Remuneration Committee IN THIS SECTION 104 Remuneration Committee 105 Policy on executive director remuneration 105 Elements of executive director remuneration 110 Executive shareholding targets 111 External appointments 111 Policy on non-executive director remuneration 111 Chairman’s fees 111 Directors’ service contracts 111 Historical comparative TSR performance graphs 112 Remuneration outcomes during 2011 115 Sums paid to third parties in respect of a director’s services 115 Directors’ share interests 116 Independent remuneration report review 104 Anglo American plc Annual Report 2011 Figure 1: External advice provided to the Committee Advisers PricewaterhouseCoopers LLP (PwC) Linklaters LLP (Linklaters) Mercer Limited (Mercer) Appointed by the Company, with the agreement of the Committee, to provide specialist valuation services and 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 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 undertake an audit of sections 10 and 11 of the remuneration report annually. However, they provide no advice to the Committee G o v e r n a n c e Deloitte LLP (Deloitte) – 2. 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 2012 and subsequent years, subject to ongoing review as appropriate. The policy is framed around the following key principles: (cid:228) Total rewards will be set at levels that are sufficiently competitive to enable the recruitment and retention of high-calibre executives. (cid:228) Incentive-based rewards will be earned through the achievement of demanding performance conditions consistent with shareholder interests. (cid:228) Incentive plans, performance measures and targets will be structured to operate soundly throughout the business cycle. (cid:228) The design of long-term incentives will be prudent and will not expose shareholders to unreasonable financial risk. (cid:228) In considering the market positioning of reward elements, account will be taken of the performance of the Company and of the individual executive director. (cid:228) Reward practice will conform to best practice standards as far as reasonably practicable. Incentive levels are set taking account of the median expected value of long-term incentives relative to other companies of a similar size. 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. Basic salary increases for executive directors with effect from January 2012 were limited to an inflation adjustment in line with the general salary review for the broader employee population. Representatives of the Company’s principal investors are consulted on material changes to remuneration policy. The Committee Chairman consulted with this group of investors on the LTIP changes and the Chairman’s share award in the first quarter of 2011. 3. ELEMENTS OF EXECUTIVE DIRECTOR REMUNERATION 3.1 Remuneration mix Each executive director’s total remuneration consists of basic 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 2011, 78% of the chief executive’s and 76% of the finance director’s remuneration on an expected-value basis was performance-related as shown in Figure 2 on page 106. 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 on pages 106 to 109. Anglo American plc Annual Report 2011 105 GOVERNANCE DIRECTORS’ REMUNERATION REPORT 3.3 Bonus Share Plan (BSP) The BSP was first operated in 2004 and all executive directors are normally eligible to participate in it. targets. Bonus parameters are set on an individual basis and the level of bonus payable is reduced if certain overall safety improvement targets are not met. Figure 2: CEO – Expected values 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: (cid:228) A performance-related cash element. (cid:228) Bonus Shares as a conditional award, normally to a value equal to the cash element. (cid:228) An additional performance-related element in the form of Enhancement Shares. The award and matching levels are summarised in Figure 4. The BSP operates as follows: (cid:228) The value of the bonus is calculated by reference to achievement against annual performance targets which include measures of corporate (and, if 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 13 of the financial statements). The key individual objectives are designed to support the Company’s strategic priorities and in 2011 included cost and asset optimisation, project execution, portfolio restructuring, strategic initiatives, organisational structure and capabilities, CSR initiatives and safety improvements. (cid:228) The Committee reviews these measures annually to ensure that they remain appropriate and sufficiently stretching in the context of the broader macro-economic outlook and more specific performance expectations for the Company and its operating businesses. (cid:228) In 2011, 50% of each annual bonus was based on the corporate financial measure and the remaining 50% on key personal performance measures. This split is designed to reflect the importance of the ongoing projects and strategic repositioning of the Group as well as the volatile nature of commodity prices with the implications of this on setting earnings (cid:228) In 2011 the maximum cash element was 87.5% of basic salary in the case of both Cynthia Carroll and René Médori. Normally, half of any 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 part of the bonus that is deferred is delivered in the form of a conditional award of Bonus Shares. 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’). To increase the alignment with shareholders’ interests, the Committee allows executive directors to elect to defer 75% of the total bonus. (cid:228) The Committee is able to apply a clawback of deferred Bonus Shares in the event that, during the relevant deferral period, the Committee becomes aware of a material error in the Company’s results for the relevant bonus performance period. (cid:228) 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 2011 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 as shown in Figure 3. 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. There is no retesting of this performance condition. Enhancement Shares will be subject to the same clawback provisions mentioned previously. 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. 106 Anglo American plc Annual Report 2011 3 1 2 1 Fixed 22% 2 Performance-related annual bonus 31% 3 Performance-related long-term incentive 47% FD – Expected values 3 1 2 1 Fixed 24% 2 Performance-related annual bonus 32% 3 Performance-related long-term incentive 44% Figure 3: Vesting of Enhancement Shares d e r i u q c a s e r a h S s u n o B f o e g a t n e c r e p l a n o i t i d d A 75% 33% 0% RPI +0% RPI +3% RPI +6% RPI +9% RPI +12% RPI +15% RPI +18% Real EPS growth over three years 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 2011 to executive directors under the Company’s Discretionary Option Plan (DOP) and there is no intention to make future grants under the unapproved part of the DOP to executive directors. However, the DOP is retained for use in special circumstances relating to the recruitment or retention of key executives. 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. 3.5 Long Term Incentive Plan (LTIP) At the AGM in April 2011, shareholders approved a new LTIP to replace the previous LTIP, which expired in mid-2011 and the main features are summarised in Figure 5. Award levels Conditional LTIP awards are granted annually to executive directors. The normal maximum award level under the LTIP is 350% and 300% of basic salary respectively for the chief executive and finance director, with an overall scheme maximum of 350% of basic salary. It is anticipated that, in 2012, awards under the LTIP will be made at this level. 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. These awards are discretionary and are considered on a case-by-case basis. Performance measures As in previous years, vesting of the LTIP awards made during 2011 is subject to the achievement, over a fixed three-year period, of stretching Group performance targets. Half of each award is subject to a Group Total Shareholder Return (TSR) measure, while the other half is subject to a Group operational measure, an Asset Optimisation and Supply Chain (AOSC) efficiency measure. The measures are described in greater detail on the following page. Figure 4: Bonus Share Plan Summary Performance measures Maximum bonus (cash plus Bonus Shares) Delivery ratio Cash Bonus Shares Maximum Enhancement Share potential (1) Subject to executive director election. Figure 5: Long Term Incentive Plan Summary 50% corporate financial measure 50% key personal performance measure 175% of basic salary 25%/50%(1) 75%/50%(1) 75% of Bonus Shares, subject to a performance condition (EPS) G o v e r n a n c e Maximum award level (% of basic salary) Actual award level (% of basic salary) Performance measures TSR – Sector Index TSR – FTSE 100 AOSC Maximum vesting of each element TSR – Sector Index TSR – FTSE 100 AOSC Figure 6: LTIP – Sector Index Category weighting Comparator companies 350% 350% (CEO) 300% (FD) 25% of award 25% of award 50% of award 100% 100% 100% Mining 94% BHP Billiton plc Industrial Minerals 6% CRH plc Rio Tinto plc Holcim Limited Teck Cominco Limited Lafarge Vale Heidelberg Cement Vedanta Resources plc Xstrata plc Anglo American plc Annual Report 2011 107 GOVERNANCE DIRECTORS’ REMUNERATION REPORT 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. The Committee is able to apply a clawback of conditional LTIP awards in the event that, during the relevant performance period, the Committee becomes aware of a material error in the Company’s results for the relevant performance period. At the end of each performance period, the levels of TSR and AOSC performance achieved and the level of award earned will be published in the subsequent remuneration report. There is no retesting of the performance conditions. 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. Total Shareholder Return 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 Figure 7: LTIP – Sector Index comparison The Company’s relative TSR compared with the Sector Index Below Target Target (matching the weighted median of the Sector Index) Target plus 5% per annum (or above) Figure 8: LTIP – FTSE 100 comparison The Company’s relative TSR compared with the FTSE 100 Below the median TSR of the FTSE 100 Equal to the median TSR of the FTSE 100 Equal to or above the 80th percentile TSR of the FTSE 100 Figure 9: LTIP – AOSC targets Minimum AOSC Target Maximum AOSC Target % proportion of total TSR element vesting 0 15 50 % proportion of total TSR element vesting 0 15 50 Value delivered $ bn 7.90 9.66 The Minimum and Maximum AOSC Targets are the additional operating profit and capital expenditure savings to be realised cumulatively over the three year LTIP performance period, over and above the performance expected had the programmes not been initiated. These benefits are valued employing 2010 commodity prices and exchange rates. Figure 10: LTIP – AOSC vesting Below or equal to the Minimum AOSC Target Equal to or greater than the Maximum AOSC Target % proportion of AOSC element vesting 0 100 108 Anglo American plc Annual Report 2011 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 in the following section) 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 2011, the companies constituting the Sector Index were as shown in Figure 6 on page 107. 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. 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 6 on page 107. For 2011 that part of any award that is contingent upon the Sector Index element of the TSR performance will vest as shown in Figure 7. Shares will vest on a straight-line basis for performance between the levels shown in Figure 7. 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 8 for awards in 2011. Shares will vest on a straight-line basis for performance between the levels shown in Figure 8. The targets were calibrated such that for the TSR elements of the award there is approximately a 15% chance of achieving full vesting and a 25% chance of three-quarters 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 using these proposed targets is 60% of the face value. G o v e r n a n c e 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 2007 to 31 December 2011 can be found in Figure 13 on page 110. 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: Asset Optimisation and Supply Chain AOSC is the second performance measure for LTIP awards and was introduced in 2010. The Company’s AOSC programmes strive to unlock value from the Company’s assets in a sustainable way through structured Group-wide programmes aimed at reducing costs, increasing volumes and improving overall operational efficiencies. In 2011, the Group’s AOSC programmes delivered $3.2 billion of benefits from the core businesses, excluding benefits from the Niobium and Phosphates businesses that were not core when targets were set ($3.5 billion from the total Group). This represents the additional operating profit and capital expenditure savings realised in the year, over and above the performance expected had the programmes not been initiated. The above benefits are valued employing 2011 commodity prices and exchange rates. The Committee further refined the target by determining that, for the 2011 award onwards, the effect of changes in both commodity prices and exchange rates should be stripped out of the AOSC targets and results so that only directly attributable management actions would be recognised. Tying the AOSC measure directly to a meaningful portion of executives’ incentive pay reflects the importance of the AOSC initiative in delivering increased value to shareholders, as evidenced by the very significant and stretching level of the targets. The adjudication of targets will be reviewed by internal audit and reported at the end of each performance period. The proportion of shares vesting based on AOSC will vary according to the aggregate AOSC value delivered over the performance period. Unless a certain minimum value target is met, no shares will vest under this performance measure. The maximum AOSC target is based on a stretching level of value delivered. The targets for the AOSC element of the 2011 conditional award, with the effect of changes in commodity prices and exchange rates stripped out, are shown in Figure 9. The AOSC element of the award vests as shown in Figure 10. Shares will vest on a straight-line basis for performance between the Minimum AOSC Target and the Maximum AOSC Target. (cid:228) 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. (cid:228) The Bonus Shares awarded under the BSP will be released and the Enhancement Shares awarded under the BSP will only vest to the extent that the performance condition has been met at the time of the change of control. (cid:228) Share options granted under the DOP or under the Company’s legacy Executive Share Option Scheme (ESOS) may be exercised irrespective of whether the applicable performance conditions have been met. (cid:228) SAYE options may be exercised (to the extent of savings at the date of exercise). (cid:228) Participants in the SIP may direct the SIP trustee as to how to deal with their shares. In the event that an executive director’s employment is terminated, vesting of any outstanding share options under the DOP or under the ESOS 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 an executive 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 on leaving is based on the normal performance criteria at the time of leaving and then pro rated for the proportion of the performance period for which the director served. In the case of the BSP, if an executive 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 Shares lapse and awards of Enhancement Shares are forgone. If a director 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. Enhancement Shares will vest only to the extent that the performance condition has been met and, if vesting is accelerated to the time of leaving, will be pro rated for the proportion of the performance period for which the director served. 3.7 Employee Share Ownership Trust and policy on provision of shares for incentive schemes The Group has hitherto used an Employee Share Ownership Trust (the Trust) to acquire and hold shares for use in the operation of its share schemes. As at 31 December 2011, the Trust held 985 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 meet the requirements of share incentive schemes by using a mix of Treasury Shares, shares from the Trust or by market purchases, as appropriate. The Company also has the necessary authorities to utilise newly issued shares if required. 3.8 Pensions Details of individual pension arrangements are set out on pages 112 and 115. Prior to 6 April 2011, executive directors (and UK employees more generally) had the option of all or part of their employer-funded defined-contribution pension contributions being paid into an unregistered retirement benefits scheme (an EFRBS). Since 6 April 2011, executive directors (and UK employees more generally) have the option of all or part of their employer-funded defined- contribution pension contributions being treated as being paid to an unregistered unfunded retirement benefits scheme. 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 value as the defined-contribution benefits forgone. Anglo American plc Annual Report 2011 109 GOVERNANCE DIRECTORS’ REMUNERATION REPORT Figure 11: Executive directors(1) Cynthia Carroll (Chief Executive) 15 January 2007 April 2012 René Médori (Finance Director) 01 June 2005 April 2012 Date of appointment Next AGM re-election or election (1) At each AGM all directors shall retire from office. Figure 12: Non-executive directors(1)(2) Sir John Parker (Chairman, AA plc and Nomination Committee) David Challen (SID and Chairman, Audit Committee) Sir CK Chow Sir Philip Hampton (Chairman, Remuneration Committee) Date of appointment Next AGM re-election or election 09 July 2009 April 2012 09 September 2002 April 2012 15 April 2008 April 2012 09 November 2009 April 2012 Phuthuma Nhleko 09 March 2011 April 2012 Nicky Oppenheimer (retired 2011) 18 March 1999 n/a Ray O’Rourke Mamphela Ramphele Jack Thompson Peter Woicke (Chairman, S&SD Committee) 11 December 2009 April 2012 25 April 2006 April 2012 16 November 2009 April 2012 01 January 2006 April 2012 Figure 13: Historical comparative TSR performance graphs 200 200 150 150 100 100 50 50 0 0 2006 2007 Anglo American 2008 2009 2010 2011 FTSE 100 Index Source: Thomson Datastream 200 150 100 50 0 (1) At each AGM all directors shall retire from office. (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. 2006 2007 Anglo American 2008 2009 2010 2011 LTIP Sector Index Source: Thomson Datastream 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 and a half times basic salary in the case of any other executive director. At the date of this report these shareholding targets had been exceeded. The Committee takes into consideration achievement against these targets when making grants under the Company’s various long-term incentive plans. 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, or treated as being made, into their defined-contribution pension arrangements, in return for equivalent reductions in their future basic salaries and/or other elements of their remuneration. 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. 110 Anglo American plc Annual Report 2011 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 2011, Cynthia Carroll and René Médori each retained fees amounting to £78,000 and £68,000 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: (cid:228) 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 – set by reference to the responsibilities taken on by the non-executives in chairing the Board and its Committees (cid:228) Non-executive directors may not participate in the Company’s share incentive schemes or pension arrangements. It is the intention that this policy will continue to apply for 2012 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 reviewed in 2009 and were therefore again reviewed in December 2011. It was decided that no increase would be made to the basic fees for a non-executive director, although the fees for committee chairmen and the SID would be increased with effect from January 2012 as follows: 9. HISTORICAL COMPARATIVE TSR PERFORMANCE GRAPHS G o v e r n a n c e The graphs shown in Figure 13 represent the comparative TSR performance of the Company from 1 January 2007 to 31 December 2011. 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 2009. 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. (cid:228) Chairmen of the Audit Committee, Safety and Sustainable Development Committee and Remuneration Committee to £25,000 per annum. (cid:228) Chairman of the Nomination Committee to £12,500 per annum. (cid:228) Senior Independent Director to £25,000 per annum. These fees will next be reviewed in December 2013. 7. CHAIRMAN’S FEES The chairman’s fees are reviewed periodically (on a different cycle from the review of other 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. The chairman’s fees will be reviewed during 2012. 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. Should Cynthia Carroll not be required to work her full notice, AAS is able to discharge its liability for the unexpired portion of her notice period by making a payment in lieu of her salary and other contractual benefits; in the case of René Médori, whose contract dates from 2005, the payment would also include a pro-rated bonus. 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. All non-executive directors have letters of appointment with the Company for an initial period of three years from their date of each appointment, subject to annual reappointment at the AGM as shown in Figure 12. Anglo American plc Annual Report 2011 111 GOVERNANCE DIRECTORS’ REMUNERATION REPORT 10. REMUNERATION OUTCOMES DURINg 2011 The information set out in this section and section 11 has been subject to audit. 10.1 Directors’ emoluments Executive directors Figure 14 sets out an analysis of the pre-tax remuneration during the years ended 31 December 2011 and 2010, including bonuses but excluding pensions, for individual directors who held office in the Company during the year ended 31 December 2011. 10.5 Share Incentive Plan (SIP) During the year, Cynthia Carroll and René Médori each purchased 53 shares under the SIP, in addition to the shares held by them at 1 January 2011. 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, and in common with other participants in the SIP, Cynthia Carroll and René Médori were each awarded 91 free shares under the SIP in March 2011. Participants in the SIP are entitled to receive dividends on their shares. Non-executive directors Figure 15 sets out the fees and other emoluments paid to non-executive directors during the year ended 31 December 2011 which amounted to £1,367,000 (2010: £1,489,000). 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 is open to inspection. 10.2 Bonus Share Plan Details of shares awarded under the BSP to executive directors during 2011 and their current holdings are shown in Figure 16. 10.3 Long Term Incentive Plan Conditional awards of shares were made in 2011 to executive directors under the LTIP as shown in Figure 17. 10.4 Directors’ share options No executive share options have been granted to any director since 2003. Options granted under SAYE are shown in Figure 18. The highest and lowest mid-market prices of the Company’s shares during the period 1 January 2011 to 31 December 2011 were £34.37 and £21.39 respectively. The mid-market price of the Company’s shares at 31 December 2011 was £23.79. 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 2011, 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 19 on page 114. 10.6.3 Defined benefit pension schemes No director was eligible in 2011 for membership of any defined benefit pension scheme. Figure 14: Executive directors’ emoluments(1) Figure 15: Non-executive directors’ emoluments(1)(2) Sir John Parker David Challen Sir CK Chow Sir Philip Hampton Phuthuma Nhleko Nicky Oppenheimer(3) Ray O’Rourke(4) Mamphela Ramphele Jack Thompson Peter Woicke 2011 £000 650 115 80 95 65 27 80 80 80 95 Total 2010 £000 650 115 80 90 – 88 80 80 80 90 (1) Each non-executive director, with the exception of Sir John Parker, was paid a fee of £80,000 (2010: £80,000) 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 (2010: £15,000) per annum. The chairman of the Nomination Committee was paid an additional sum of £7,500 (2010: £7,500) per annum. The senior independent director (SID) received additional fees of £20,000 per annum. In addition to the fees reported above for 2010, Chris Fay, who retired on 22 April 2010, received fees in 2010 of £30,000, Sir Rob Margetts, who retired on 22 April 2010, received fees in 2010 of £30,000 and Fred Phaswana, who retired on 1 January 2010, received fees in 2010 of £76,000. (2) (3) Nicky Oppenheimer received fees for his services as a non-executive director of Anglo American South Africa Limited amounting to £3,000 (2010: £8,000), which are included in the above table. (4) Ray O’Rourke has instructed the Company that his net fees be donated to charity. Cynthia Carroll René Médori Total basic salary(2) Annual performance bonus – cash element(3) Benefits in kind(4) 2011 £000 1,170 736 2010 £000 1,125 707 2011 £000 962 600 2010 £000 411 253 2011 £000 42 33 2010 £000 37 29 2011 £000 2,174 1,369 Total 2010 £000 1,573 989 (1) In 2011, Cynthia Carroll and René Médori held non-executive directorships of Anglo American 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. (2) AAS agreed with the executive directors that supplementary pension contributions be made into their defined-contribution pension arrangements in return for equivalent reductions in their basic salaries and in the cash elements payable under the BSP. The figures shown include these supplementary contributions. (3) The split between the cash and share elements of the Bonus Share Plan is set out on page 106 and in Figure 4 on page 107; the above figures represent the elections made in 2012 by each executive director to defer 50% of their total bonus into shares, compared to 75% in 2011. (4) 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. 112 Anglo American plc Annual Report 2011 Figure 16: Bonus Share Plan BSP interests(1) Cynthia Carroll René Médori Total interest at 1 January 2011 203,640 130,766 Number of Bonus Shares conditionally awarded during 2011 Number of Enhancement Shares conditionally awarded during 2011 Number of Bonus Shares vested during 2011 Number of Enhancement Shares vested during 2011 Number of Enhancement Shares lapsed during 2011 Total interest at 31 December 2011 Market price at date of 2011 award £ Date of vesting of Bonus Shares awarded during 2011 End date of performance period for Enhancement Shares awarded during 2011 38,422 23,650 28,816 17,737 (13,410) (8,515) – – (17,048) 240,420 32.08 01/01/2014 31/12/2013 (10,826) 152,812 32.08 01/01/2014 31/12/2013 (1) The performance period applicable to each award is three years. Cynthia Carroll and René Médori were awarded BSP shares in 2008, which vested in 2011. Shares vested (2008 BSP Award) Cynthia Carroll René Médori Number of shares vested 13,410 8,515 Dates of conditional award 29/02/2008 29/02/2008 Market price at date of award £ Market price at date of vesting £ Value at date of vesting £ 28.21 28.21 33.16 33.16 444,676 282,357 In the case of the BSP awards granted in 2008, 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 was below the threshold target over the period, the Enhancement Shares did not vest. G o v e r n a n c e Figure 17: Long Term Incentive Plan LTIP interests(1)(2) Cynthia Carroll René Médori Total beneficial interest in LTIP at 1 January 2011 Number of shares conditionally awarded during 2011 276,969 174,083 128,008 69,021 Notional number of shares vested during 2011(2) (33,492) (21,052) Number of shares lapsed during 2011 (33,493) (21,053) Total beneficial interest in LTIP at 31 December 2011 337,992 200,999 Latest performance period end date 31/12/2013 31/12/2013 (1) The LTIP awards made in 2011 are conditional on two performance conditions as outlined on pages 107 to 109: 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 the value delivered from AOSC initiatives during the medium term. Further details on the structure of the LTIP, the required level of performance for the 2011 award and how performance against targets is measured can be found on pages 107 to 109. The market price of the shares at the date of award was £31.99. (2) The performance period applicable to each award is three years. The performance period relating to the LTIP awards in 2008 (which were granted on 17 March) ended on 31 December 2010. 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; 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. Cynthia Carroll and René Médori contractually agreed with AAS that supplementary pension contributions would be made in return for their surrendering the potential right to receive shares in the Company, pursuant to an award granted in 2008 under the LTIP. Had Cynthia Carroll and René Médori not surrendered this right, vesting of the 2008 LTIP would have been: Notional shares vested Cynthia Carroll René Médori Notional number of shares vested Dates of conditional award 33,492 21,052 17/03/2008 17/03/2008 Market price at date of award £ 31.35 31.35 Market price at date of vesting £ 32.57 32.57 Notional value at date of vesting £ 1,090,834 685,664 In the case of the LTIP awards granted in 2008, 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), 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 2008 LTIP was 39.67% and the upper blended target 41.67%. The ROCE achieved was 51.85% 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 -17% which generated a nil vesting in terms of the 2008 Sector Index Comparator Group (against a median target of -2%) and a nil vesting against the FTSE 100 (being lower than the 50th percentile). The overall vesting level for those directors with a 50% Group ROCE, 25% Sectoral TSR and 25% FTSE 100 TSR split would therefore have been 50%. Figure 18: Directors’ share options (SAYE) Anglo American options René Médori Beneficial holding at 1 January 2011(1) 951 Granted Exercised Lapsed Beneficial holding at 31 December 2011 Weighted average option price £ Earliest date from which exercisable Latest expiry date 636 – – 1,587 20.98 01/09/2013 28/02/2019 (1) Beneficial holdings comprise SAYE options held in respect of shares by René Médori of 951 options with an option price of £17.97 and 636 options with an option price of £25.47. 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. Anglo American plc Annual Report 2011 113 GOVERNANCE DIRECTORS’ REMUNERATION REPORT Figure 19: Defined contribution pension schemes Cynthia Carroll(1) René Médori Normal contributions(2)(3) 2011 £000 351 221 2010 £000 338 212 (1) The contributions payable into pension arrangements for Cynthia Carroll amounted in 2011 to £343,000 (2010: £199,000), the balance, in both years, 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 figures above. The allowance does not form part of basic salary disclosed in the directors’ emoluments table on page 112 nor is it included in determining awards under the BSP. In addition, supplementary contributions of £74,000 were paid, or treated as paid, into a defined contribution pension scheme as compensation for costs incurred as a result of the Company’s implementation of the transition to new pension arrangements to reflect changes in pensions regulation. (2) Cynthia Carroll and René Médori contractually agreed with AAS that supplementary pension contributions should be made into their respective defined-contribution pension arrangements in return for reductions in their future basic salaries; these supplementary contributions of £340,000 (2010: £187,000) and £611,000 (2010: £450,000) respectively, are included in the ‘Total basic salary’ amounts disclosed in the executive directors’ emoluments table on page 112. In addition, Cynthia Carroll and René Médori contractually agreed with AAS that supplementary pension contributions should be made into their respective defined-contribution pension arrangements in return for reductions in the cash elements payable under the BSP for performance in 2010; these supplementary contributions of £411,000 (2010: £nil) and £253,000 (2010: £nil) respectively are included in the ‘Annual performance bonus – cash element’ amounts for 2010 disclosed in the executive directors’ emoluments table on page 112. (3) Cynthia Carroll and René Médori contractually agreed with AAS that supplementary pension contributions should be made into their respective defined-contribution pension arrangements in return for surrendering the potential right to receive shares, pursuant to an award granted in 2008 under the Long Term Incentive Plan; these supplementary contributions amounted to £1,095,000 (2010: £nil) and £689,000 (2010: £nil) respectively and reflected the notional value of the shares at the date of vesting plus the notional value of dividends that would have accrued on the notional net number of shares between the date of vesting and when the contributions were paid. Figure 20: Shares in Anglo American plc As at 31 December 2011 and 1 January 2012 Directors Cynthia Carroll René Médori(1) Sir John Parker(2) David Challen Sir CK Chow Sir Philip Hampton Phuthuma Nhleko(3) Ray O’Rourke(4) Mamphela Ramphele Jack Thompson(4) Peter Woicke(4) Beneficial 65,315 54,444 26,909 1,820 5,500 2,085 0 76,965 4,788 6,100 17,677 Footnotes are below Figure 22. Figure 21: Shares in Anglo American plc As at 1 January 2011 (or, if later, date of appointment) Directors Cynthia Carroll René Médori(1) Sir John Parker(2) David Challen Sir CK Chow Sir Philip Hampton Phuthuma Nhleko(3) Ray O’Rourke(4) Mamphela Ramphele Jack Thompson(4) Peter Woicke(4) Beneficial 51,787 89,811 11,655 1,820 5,500 1,200 0 34,500 3,520 5,000 10,177 Footnotes are below Figure 22. 114 Anglo American plc Annual Report 2011 SIP 786 785 – – – – – – – – – SIP 707 706 – – – – – – – – – LTIP 337,992 200,999 BSP Bonus Shares BSP Enhancement Shares 114,673 72,710 125,747 80,102 – – – – – – – – – – – – – – – – – – – – – – – – – – – LTIP 276,969 174,083 BSP Bonus Shares BSP Enhancement Shares 89,661 57,575 113,979 73,191 – – – – – – – – – – – – – – – – – – – – – – – – – – – Conditional Other – – 38,552 – – – – – – – – Conditional Other – – 31,000 – – – – – – – – Figure 22: Shares in Anglo American plc As at 16 February 2012 Directors Cynthia Carroll René Médori(1) Sir John Parker(2) David Challen Sir CK Chow Sir Philip Hampton Phuthuma Nhleko(3) Ray O’Rourke(4) Mamphela Ramphele Jack Thompson(4) Peter Woicke(4) Beneficial 65,341 54,471 26,909 1,820 5,500 2,331 597 76,965 5,386 6,100 17,677 SIP 778 778 – – – – – – – – – LTIP 337,992 200,999 BSP Bonus Shares BSP Enhancement Shares 114,673 72,710 125,747 80,102 – – – – – – – – – – – – – – – – – – – – – – – – – – – Conditional Other – – 38,552 – – – – – – – – G o v e r n a n c e (1) René Médori’s beneficial interest in 53,946 of the shares held at the date of this report arises as a result of his wife’s interest in these shares. (2) 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. As set out in last year’s report, Sir John Parker was awarded a further 7,552 shares in the Company on 28 February 2011, which will be released in full on the third anniversary of the award date, subject to his continued chairmanship. (3) Phuthuma Nhleko was appointed to the Board on 9 March 2011, although he was prevented from acquiring shares for most of 2011 due to various restricted periods in the year. (4) Included in the interests of Messrs O’Rourke, Thompson and Woicke are unsponsored ADRs representing 0.5 ordinary shares of $0.54945 each. 10.6.4 Excess retirement benefits No person who served as a director of the Company during or before 2011 has been paid or received retirement benefits in excess of the retirement benefits to which he/she 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 2011. 12. DIRECTORS’ SHARE INTERESTS The interests of directors who held office during the period 1 January 2011 to 31 December 2011 in Ordinary Shares (Shares) of the Company and its subsidiaries were as shown in Figures 20 and 21. Figure 22 outlines the changes in the above interests which occurred between 1 January 2012 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. Sir Philip Hampton Chairman, Remuneration Committee 16 February 2012 Anglo American plc Annual Report 2011 115 GOVERNANCE INDEPENDENT REMUNERATION REPORT REVIEW INDEPENDENT REMUNERATION REPORT REVIEW This letter contains the findings and conclusions from our review of the processes followed by Anglo American’s Remuneration Committee (the Committee) during 2011. 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 2011 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: (cid:228) A review of the Committee’s terms of reference (cid:228) A review of the minutes of the Committee covering the period from January to December 2011 (cid:228) A review of any briefing materials prepared for the Committee during the year (cid:228) An interview with Chris Corrin in his capacity as Secretary to the Committee (cid:228) An interview with the Chairman of the Committee FINDINGS 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 of Executive Remuneration stated in Anglo American’s Annual Report. Yours sincerely Mark Hoble Partner Mercer Limited Tower Place London EC3R 5BU 1 February 2012 The Committee comprises entirely of independent non-executive directors. It met formally on three occasions in 2011. 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. We note that the Committee received a report from an outside consultant which verified this market position. 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. Furthermore we note that the Committee undertook shareholder consultation during the year in relation to changes to the Long Term Incentive Plan. 116 Anglo American plc Annual Report 2011 GOVERNANCE DIRECTORS’ REPORT DIRECTORS’ REPORT The directors have pleasure in submitting the statutory financial statements of the Group for the year ended 31 December 2011. PRINCIPAL ACTIVITIES AND BUSINESS REVIEW Anglo American 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 bulk commodities – iron ore and manganese, metallurgical coal and thermal coal; base metals – copper and nickel; and precious metals and minerals – in which it is a global leader in both platinum and diamonds. Anglo American is committed to the highest standards of safety and responsibility across all its businesses and geographies and to making a sustainable difference in the development of the communities around its operations. The Company’s mining operations, extensive pipeline of growth projects and exploration activities span southern Africa, South America, Australia, North America, Asia and Europe. More detailed information about the Group’s businesses, activities and financial performance is incorporated in this report by reference and can be found in the Chairman’s and Chief Executive’s statements on pages 4 to 5 and 12 to 13 respectively and the Operating and financial review on pages 14 to 87. The Corporate governance statement is on pages 88 to 122 and is incorporated in this Directors’ report by reference. G o v e r n a n c e GOING CONCERN DIVIDENDS 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 42 to 47. In addition detail is given on the Group’s policy on managing credit and liquidity risk in the Principal Risks and Uncertainties section on pages 48 to 53, with details of our policy on capital risk management being set out in note 25 to the financial statements. The Group’s net debt at 31 December 2011 was $1.4 billion (2010: $7.4 billion), representing a gearing level of 3.1% (2010: 16.3%). Details of borrowings and facilities are set out in notes 24 and 25 and net debt is set out in note 31. The directors have considered the Group’s cash flow forecasts for the period to the end of March 2013. The Board is satisfied that the Group’s forecasts and projections, taking account of reasonably possible changes in trading performance 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 in preparing its financial statements. An interim dividend of 28 US cents per ordinary share was paid on 15 September 2011. The directors are recommending that a final dividend of 46 US cents per ordinary share be paid on 26 April 2012 to ordinary shareholders on the register on 30 March 2012, subject to shareholder approval at the Annual General Meeting (AGM) to be held on 19 April 2012. This would bring the total dividend in respect of 2011 to 74 US cents per ordinary share. In accordance with International Financial Reporting Standards (IFRS), the final dividend will be accounted for in the financial statements for the year ended 31 December 2012. Two shareholders have waived their rights to receive dividends. In both cases, these shareholders act as trustees/nominees holding shares for use solely in relation to the Group’s employee share plans. These shareholders and the value of dividends waived during the year were: (cid:228) Greenwood Nominees Limited $669.80 (cid:228) Security Nominees Limited $1,263,111.36 Anglo American plc Annual Report 2011 117 GOVERNANCE DIRECTORS’ REPORT SHARE CAPITAL SUSTAINABLE DEVELOPMENT EMPLOYMENT AND OTHER POLICIES The Company’s issued share capital as at 31 December 2011, together with details of share allotments during the year, is set out in note 29 on pages 164 to 167. The Company was authorised by shareholders at the AGM held on 21 April 2011 to purchase its own shares in the market up to a maximum of 14.99% of the issued share capital. No shares were purchased under this authority during 2011. This authority will expire at the 2012 AGM and in accordance with usual practice a resolution to renew it for another year will be proposed. MATERIAL SHAREHOLDINGS As at 16 February 2012, the Company was aware of the following interests in 3% or more of the Company’s ordinary share capital: Company Number of shares Percentage of common stocks BlackRock, Inc. 78,986,629 5.97% Epoch Two Investment Holdings Limited(1) 42,166,686 Legal & General plc 53,328,155 3.19% 4.03% Public Investment Corporation (PIC) Tarl Investment Holdings Limited(1) 77,592,603 5.86% 47,275,613 3.57% (1) Epoch Two Investment Holdings Ltd (Epoch 2) and Tarl Investment Holdings Limited (Tarl) are two of the independent companies which have purchased shares as part of Anglo American’s share buy back programme. Epoch 2 and Tarl have waived their right to vote all the shares they hold or will hold in Anglo American plc. DIRECTORS Biographical details of the directors currently serving on the Board are given on pages 90 and 91. Details of directors’ interests in shares and share options of the Company can be found in the Remuneration report on pages 104 to 116. Phuthuma Nhleko joined the Board on 9 March 2011. Nicky Oppenheimer retired from the Board after the conclusion of the AGM on 21 April 2011. The Sustainable Development report 2011 will be available in April 2012. 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. 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 38 to the financial statements on page 173. 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. 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, subject to the standards embodied in Anglo American’s Good Citizenship: Our Business Principles. Within all the Group’s businesses, the safe and effective performance of employees and the maintenance of positive employee relations are of fundamental importance. Managers are charged with ensuring that the following key principles are upheld: (cid:228) adherence to national legal standards on employment and workplace rights at all times (cid:228) adoption of fair labour practices (cid:228) prohibition of child labour (cid:228) prohibition of inhumane treatment of employees and any form of forced labour, physical punishment or other abuse (cid:228) continual promotion of safe and healthy working practices (cid:228) promotion of workplace equality and elimination of all forms of unfair discrimination (cid:228) provision of opportunities for employees to enhance their work related skills and capabilities (cid:228) recognition of the right of our employees to freedom of association (cid:228) adoption of fair and appropriate procedures for determining terms and conditions of employment. It is our policy that people with disabilities should have full and fair consideration for all vacancies. Employment of disabled people is considered on merit and with regard only to the ability of any applicant to carry out the role. We endeavour to retain the employment of, and arrange suitable retraining for, any employees in the workforce who become disabled during their employment. Where possible we will adjust a person’s working environment to enable them to stay in our employment. 118 Anglo American plc Annual Report 2011 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. A General Meeting took place on 6 January 2012, where shareholders passed an ordinary resolution, by a 99.94% majority, in relation to the proposed acquisition of a further interest of up to 40% in DB Investments and De Beers sa. ELECTRONIC COMMUNICATIONS Since the implementation of the electronic communications provisions in the Companies Act 2006, the Company has substantially reduced the cost of annual report production and distribution. 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. G o v e r n a n c e 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 American ‘Way’ documents, covering the safety, environmental, occupational health and social aspects of sustainable development. These set out specific standards for each of these subject areas. Copies of the Good Citizenship: Our Business Principles and the Anglo American ‘Way’ documents are available from the Company and may be accessed on the Company’s website. The Business Integrity Policy and Performance Standards set out how Group employees, business partners and major suppliers must act to ensure that our zero tolerance of corruption is upheld. All senior employees, and employees in high risk functions such as procurement, are trained to embed knowledge of the policy as well as the UK Bribery Act and how to behave in corruption risk situations. This training is ongoing and mandatory for all senior levels and others where it is deemed appropriate. 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 OurWorld, which contain items of news, current affairs and information relevant to Group employees. For more information visit www.angloamerican.com 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 $122 million (1.27% of operating profit from subsidiaries and joint ventures). Charitable donations of $1 million were made in the UK, of which the main categories were: education and training (42%) and health and welfare (12%). 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 Sustainable Development Report 2011. POLITICAL DONATIONS No political donations were made during 2011. 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 19 April 2012 when shareholders will have the opportunity to put questions to the Board, including the chairmen of the various committees. A separate booklet enclosed with this report contains the notice convening the meeting together with a description of the business to be conducted. 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. Anglo American plc Annual Report 2011 119 GOVERNANCE DIRECTORS’ REPORT 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. 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. 120 Anglo American plc Annual Report 2011 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 meeting 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 so 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 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. 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, a 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. 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. The Articles provide that 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. However, in accordance with the UK Corporate Governance Code, all directors will be subject to annual re-election. G o v e r n a n c e Significant agreements: Change of control At 31 December 2011, Anglo American had committed bilateral and syndicated borrowing facilities totalling $11.1 billion with a number of relationship banks which contain change of control clauses. The rand 20 billion South African Medium Term Note Programme and $7.2 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 21 April 2011, authority was given for the Company to purchase, in the market, up to 197.9 million Ordinary Shares of 5486/91 US cents each. The Company did not purchase any of its own shares during 2011. 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 16 February 2012 Anglo American plc Annual Report 2011 121 GOVERNANCE STATEMENT OF DIRECTORS’ RESPONSIBILITIES 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. Under that law the directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and 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). Under company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing the parent company financial statements, the directors are required to: (cid:228) select suitable accounting policies and then apply them consistently (cid:228) make judgements and accounting estimates that are reasonable and prudent (cid:228) state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements (cid:228) prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. In preparing the Group financial statements, International Accounting Standard 1 requires that directors: (cid:228) properly select and apply accounting policies (cid:228) present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information (cid:228) provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance (cid:228) make an assessment of the Company’s ability to continue as a going concern. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the 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. 122 Anglo American plc Annual Report 2011 FINANCIAL STATEMENTS CONTENTS Responsibility statement Independent auditor’s 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 124 125 126 126 127 128 129 Earnings per share Intangible assets Accounting policies Segmental information Operating profit from subsidiaries and joint ventures Operating profit and underlying earnings by segment Special items and remeasurements EBITDA Exploration expenditure Employee numbers and costs Net finance income/(costs) Financial instrument gains and losses Income tax expense Notes to the financial statements 1 2 3 4 5 6 7 8 9 10 11 12 Dividends 13 14 15 Property, plant and equipment 16 17 18 19 20 21 22 23 24 25 26 Provisions for liabilities and charges 27 Deferred tax 28 Retirement benefits 29 Called-up share capital and share-based payments 30 Consolidated equity analysis 31 Consolidated cash flow analysis 32 Disposals of subsidiaries and joint ventures 33 Disposal groups and non-current assets held for sale 34 Contingent liabilities 35 Commitments 36 Related party transactions 37 Group companies 38 Events occurring after end of year 39 130 136 139 140 141 142 143 143 144 144 144 146 146 147 148 149 Environmental rehabilitation trusts 149 Investments in associates 150 Joint ventures 150 Financial asset investments 151 Inventories 151 Trade and other receivables 151 Trade and other payables 152 Financial assets Financial liabilities 153 Financial risk management and derivative financial assets/liabilities 154 159 160 161 164 167 167 168 169 169 171 171 172 173 174 Financial statements of the parent company i F n a n c i a l s t a t e m e n t s Anglo American plc Annual Report 2011 123 FINANCIAL STATEMENTS RESPONSIBILITY STATEMENT for the year ended 31 December 2011 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 124 Anglo American plc Annual Report 2011 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ANGLO AMERICAN PLC 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: (cid:228) 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 (cid:228) 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 (cid:228) certain disclosures of directors’ remuneration specified by law are not made; or (cid:228) we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: (cid:228) the directors’ statement contained within the Directors’ report in relation to going concern; (cid:228) the part of the Corporate governance section relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code specified for our review; and (cid:228) certain elements of the report to shareholders by the Board on directors’ remuneration. Carl D. Hughes (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor London, United Kingdom 16 February 2012 i F n a n c i a l s t a t e m e n t s We have audited the financial statements of Anglo American plc for the year ended 31 December 2011 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 38 and the balance sheet of the Company and related information in note 39. 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 auditor’s 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 auditor 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 and express an opinion on 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. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: (cid:228) 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 2011 and of the Group’s and the Company’s profit for the year then ended; (cid:228) the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; (cid:228) the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and (cid:228) 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: (cid:228) the part of the Remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and (cid:228) the information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements. Anglo American plc Annual Report 2011 125 FINANCIAL STATEMENTS PRINCIPAL STATEMENTS CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2011 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 Investment income Interest expense Other financing gains/(losses) Net finance income/(costs) Profit before tax Income tax expense Profit for the financial year Attributable to: Non-controlling interests Equity shareholders of the Company Earnings per share (US$) Basic Diluted Note 2 2, 3 5 2, 17 9 11a 13 13 Before special items and remeasurements 30,580 (20,912) Special items and remeasurements (note 5) – (229) 9,668 – 978 10,646 668 (695) 7 (20) 10,626 (2,741) 7,885 1,765 6,120 5.06 4.85 (229) 183 (1) (47) – – 203 203 156 (119) 37 (12) 49 0.04 0.04 2011 Total 30,580 (21,141) 9,439 183 977 10,599 668 (695) 210 183 10,782 (2,860) 7,922 1,753 6,169 5.10 4.89 Before special items and remeasurements 27,960 (19,452) Special items and remeasurements (note 5) – 158 2010 Total 27,960 (19,294) 8,666 1,579 822 11,067 568 (801) 94 (139) 10,928 (2,809) 8,119 1,575 6,544 158 1,579 (23) 1,714 – – 105 105 1,819 (110) 1,709 141 1,568 1.30 1.22 5.43 5.18 8,508 – 845 9,353 568 (801) (11) (244) 9,109 (2,699) 6,410 1,434 4,976 4.13 3.96 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2011 US$ million Profit for the financial year Net gain on revaluation of available for sale investments Net loss on cash flow hedges Net exchange difference on translation of foreign operations (including associates) Actuarial net (loss)/gain on post employment benefit schemes Share of associates’ expense recognised directly in equity, net of tax Tax on items recognised directly in equity Net (expense)/income 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: net exchange difference on disposal of foreign operations Share of associates’ expense transferred from equity, net of tax Tax on items transferred from equity Total transferred from equity Total comprehensive income for the financial year Attributable to: Non-controlling interests Equity shareholders of the Company Note 11c 11c 2011 7,922 115 (94) (4,060) (214) (32) 24 (4,261) (10) 5 54 45 – (14) 80 3,741 1,142 2,599 2010 8,119 316 (14) 2,431 131 (50) (149) 2,665 – 4 20 (40) (8) 1 (23) 10,761 1,885 8,876 126 Anglo American plc Annual Report 2011 CONSOLIDATED BALANCE SHEET as at 31 December 2011 US$ million Intangible assets Property, plant and equipment Environmental rehabilitation trusts Investments in associates Financial asset investments Trade and other receivables Deferred tax assets Other financial assets (derivatives) Other non-current assets Total non-current assets Inventories Trade and other receivables Current tax assets Other financial assets (derivatives) Cash and cash equivalents Total current assets Assets classified as held for sale Total assets Trade and other payables Short term borrowings Provisions for liabilities and charges Current tax liabilities Other financial liabilities (derivatives) Total current liabilities Medium and long term borrowings Retirement benefit obligations Deferred tax liabilities Other financial liabilities (derivatives) 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 Non-controlling interests Total equity Note 14 15 16 17 19 21 27 25 20 21 25 31b 33 22 24, 31b 26 25 24, 31b 28 27 25 26 33 29 2011 2,322 40,549 360 5,240 2,896 437 530 668 138 53,140 3,517 3,674 207 172 11,732 19,302 – 72,442 (5,098) (1,018) (372) (1,528) (162) (8,178) (11,855) (639) (5,730) (950) (1,830) (71) (21,075) – (29,253) 43,189 738 2,714 283 35,357 39,092 4,097 43,189 2010 2,316 39,810 379 4,900 3,220 321 389 465 178 51,978 3,604 3,731 235 377 6,401 14,348 330 66,656 (4,950) (1,535) (446) (871) (80) (7,882) (11,904) (591) (5,641) (755) (1,666) (104) (20,661) (142) (28,685) 37,971 738 2,713 3,642 27,146 34,239 3,732 37,971 i F n a n c i a l s t a t e m e n t s The financial statements of Anglo American plc, registered number 3564138, were approved by the Board of directors on 16 February 2012 and signed on its behalf by: Cynthia Carroll Chief Executive René Médori Finance Director Anglo American plc Annual Report 2011 127 FINANCIAL STATEMENTS PRINCIPAL STATEMENTS CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 December 2011 US$ million Cash flows from operations Dividends from associates Dividends from financial asset investments Income tax paid Net cash inflows from operating activities Cash flows from investing activities Purchase of property, plant and equipment Cash flows from derivatives related to capital expenditure Investment in associates Purchase of financial asset investments Net repayment of loans granted Interest received and other investment income Disposal of subsidiaries, net of cash and cash equivalents disposed Sale of interests in joint ventures Repayment of capitalised loans by associates Proceeds from disposal of property, plant and equipment Other investing activities Net cash used in investing activities Cash flows from financing activities Interest paid Cash flows from derivatives related to financing activities Dividends paid to Company shareholders Dividends paid to non-controlling interests Repayment of short term borrowings Net receipt of medium and long term borrowings Movements in non-controlling interests Sale of shares under employee share schemes Purchase of shares by subsidiaries for employee share schemes (1) Other financing activities Net cash inflows from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at start of year Cash movements in the year Effects of changes in foreign exchange rates Cash and cash equivalents at end of year (1) Includes purchase of Kumba Iron Ore Limited and Anglo American Platinum Limited shares for their respective employee share schemes. Note 31a 2 2 32 32 31c 31c 2011 11,498 344 59 (2,539) 9,362 (6,203) 439 (47) (16) 22 350 514 19 4 77 (12) (4,853) (807) 226 (818) (1,404) (1,261) 964 4,964 20 (367) (43) 1,474 5,983 6,460 5,983 (711) 11,732 2010 9,924 255 30 (2,482) 7,727 (5,280) 286 (519) (134) 18 235 2,539 256 33 64 32 (2,470) (837) 217 (302) (617) (2,338) 1,194 356 42 (106) (9) (2,400) 2,857 3,319 2,857 284 6,460 128 Anglo American plc Annual Report 2011 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2011 US$ million Balance at 1 January 2010 Total comprehensive income Dividends payable to Company shareholders Dividends payable to non-controlling interests Changes in ownership interest in subsidiaries Issue of shares to non-controlling interests Consolidation by De Beers of non-controlling interest Equity settled share-based payment schemes Other Balance at 1 January 2011 Total comprehensive income Dividends payable to Company shareholders Dividends payable to non-controlling interests Changes in ownership interest in subsidiaries Issue of shares to non-controlling interests Equity settled share-based payment schemes IFRS 2 charges on black economic empowerment transactions Other Balance at 31 December 2011 Total share capital(1) 3,451 – – – – – – – – 3,451 – – – – – – – 1 3,452 Retained earnings 21,291 6,595 (302) – (471) 90 (128) 64 7 27,146 5,928 (834) – 3,027 – (19) 102 7 35,357 Share-based payment reserve 401 – – – – – – 86 (11) 476 – – – – – (18) Cumulative translation adjustment reserve (551) 2,004 – – 21 – – – – 1,474 (3,404) – – – – – Fair value and other reserves (note 30) 1,529 277 – – (107) – – – (7) 1,692 75 – – – – – Total equity attributable to equity shareholders of the Company 26,121 8,876 (302) – (557) 90 (128) 150 (11) 34,239 2,599 (834) – 3,027 – (37) Non- controlling interests 1,948 1,885 – (617) (112) 572 – 13 43 3,732 1,142 – (1,401) 788 16 (167) Total equity 28,069 10,761 (302) (617) (669) 662 (128) 163 32 37,971 3,741 (834) (1,401) 3,815 16 (204) – (5) 453 – – (1,930) – (7) 1,760 102 (4) 39,092 29 (42) 4,097 131 (46) 43,189 (1) Total share capital comprises called-up share capital of $738 million (2010: $738 million) and the share premium account of $2,714 million (2010: $2,713 million). Dividends Proposed ordinary dividend per share (US cents) Proposed ordinary dividend (US$ million) Ordinary dividends payable during the year per share (US cents) Ordinary dividends payable during the year (US$ million) Note 12 12 12 12 2011 46 557 68 834 2010 40 483 25 302 i F n a n c i a l s t a t e m e n t s Anglo American plc Annual Report 2011 129 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 IFRS Interpretations Committee (IFRIC) interpretations as 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 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. 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 117. Changes in accounting policies and disclosures A number of amendments to accounting standards and new interpretations issued by the International Accounting Standards Board (IASB) were applicable from 1 January 2011. 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). 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 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 or loss for the financial year and net assets or liabilities is attributed to the non-controlling interests as shown in the income statement and balance sheet. 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. investment. The carrying values of associates are reviewed on a regular basis and if an impairment in value has occurred, the carrying value is impaired in the period in which the relevant 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. Unrealised gains arising from transactions with associates are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way, but only to the extent that there is no evidence of impairment. Jointly controlled entities A jointly controlled 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. Jointly controlled 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 recognised in revenue. 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. 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. Goodwill is the fair value of the consideration transferred (including contingent consideration and previously held non-controlling interests) less the fair value of the Group’s share of identifiable net assets on acquisition. Transaction costs incurred in connection with the business combination are expensed. Provisional fair values are finalised within 12 months of the acquisition date. 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. 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. 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 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 recognised directly in the income statement in the period of acquisition. 130 Anglo American plc Annual Report 2011 1. ACCOUNTING POLICIES continued For non-wholly owned subsidiaries, non-controlling interests are initially recorded at the non-controlling interest’s proportion of the fair values of net assets recognised at acquisition. Property, plant and equipment Mining properties and leases include the cost of acquiring and developing mining properties and mineral rights. Mining properties are depreciated to their residual values using the unit of production method based on proven and probable ore reserves and, in certain limited circumstances, other mineral resources. Mineral resources are included in depreciation calculations where there is a high degree of confidence that they will be extracted in an economic manner. 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, an impairment loss is recognised in 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, 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 mine life, per tonne of ore expected to be mined. The cost of stripping in any period will therefore be reflective of the average stripping ratio for the orebody as a whole applied to the actual stripping costs incurred. However, where the pit profile is such that the actual stripping ratio is cumulatively below the average, 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 mine life stripping ratio is recalculated annually in light of additional knowledge and changes in estimates. Changes in the mine life stripping ratio are accounted for prospectively as a change in estimate. Properties in the course of construction are measured at cost less any recognised impairment. Depreciation commences when the assets are ready for their intended use. Buildings and plant and equipment are depreciated to their residual values at varying rates on a straight line basis over their estimated useful lives or the mine life, 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. Land is not depreciated. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components). Depreciation methods, residual values and estimated useful lives are reviewed at least annually. Assets held under finance leases are depreciated over the shorter of the lease term and the estimated useful lives of the assets. Gains or losses on disposal of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount. The gain or loss is recognised in the income statement. Non-mining licences and other intangibles Non-mining licences and other intangibles are measured at cost less accumulated amortisation and accumulated impairment losses. Estimated useful lives are usually between three and five years. Amortisation methods, residual values and estimated useful lives are reviewed at least annually. Impairment of property, plant and equipment and intangible assets excluding goodwill At each reporting date, the Group reviews the carrying amounts of its property, plant and equipment 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. 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 loss is recognised in the income statement as a special item. Where an impairment loss 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. A reversal of an impairment loss is recognised in 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. 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 loss is recognised immediately in the income statement. Impairment of goodwill is not subsequently reversed. Exploration, evaluation and development expenditure Exploration and evaluation expenditure is expensed in the year in which it is incurred. When a decision is taken that a mining property is economically feasible, all subsequent evaluation expenditure is capitalised within property, plant and equipment including, where applicable, directly attributable pre-production development expenditure. Capitalisation of such expenditure ceases when the mining property is capable of commercial production. Exploration properties acquired are recognised in the balance sheet at cost less any accumulated impairment losses. Such properties and capitalised evaluation and pre-production development 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 measured 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: (cid:228) Raw materials and consumables are measured at cost on a first in, first out (FIFO) basis or a weighted average cost basis. (cid:228) Finished products are measured at raw material cost, labour cost and a proportion of manufacturing overhead expenses. (cid:228) Metal and coal stocks are included within finished products and are measured at average cost. At precious metals operations that produce ‘joint products’, cost is allocated amongst 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 pension plans for its employees as well as post employment medical plans. For defined contribution plans the amount recognised in the income statement is the contributions paid or payable during the year. For defined benefit pension and post employment 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, is based on government bonds. Pension plan assets are measured using year end market values. Anglo American plc Annual Report 2011 131 i F n a n c i a l s t a t e m e n t s FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES continued Actuarial gains and losses, which can arise from differences between expected and actual outcomes or changes in actuarial assumptions, are recognised immediately in the 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 vest. 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 plan 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 and deferred tax charge recognised in 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 reporting date. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. 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 reporting 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. 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, based on the laws that have been enacted or substantively enacted by the reporting date. 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 recognised in the income statement in equal annual amounts over the lease term. Finance lease assets 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 recognised in the income statement 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 is 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 loss is recognised in the income statement as a special item. On classification as held for sale the assets are no longer depreciated. Comparative amounts are not adjusted. A discontinued operation is a component of the Group’s business that has been sold or is classified as held for sale and is part of a single coordinated 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. Environmental restoration and decommissioning obligations An obligation to incur environmental restoration, rehabilitation and decommissioning costs arises when 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 recognised in the income statement 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 recognised in the income statement 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 above. For some South African operations annual contributions are made to dedicated environmental rehabilitation trusts to fund the estimated cost of rehabilitation during and at the end of the life of the relevant mine. The Group exercises full control of these trusts and therefore the trusts are consolidated. The trusts’ assets are disclosed separately on the balance sheet as non- current assets. The trusts’ assets are measured based on the nature of the underlying assets in accordance with accounting policies for similar assets. Foreign currency transactions and translation Foreign currency transactions by Group companies are recognised in the functional currencies of the companies at the exchange rate ruling on the date of transaction. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. Gains and losses arising on retranslation are included in the income statement for the period and are classified as either operating or financing depending on the nature of the monetary item giving rise to them. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. 132 Anglo American plc Annual Report 2011 1. ACCOUNTING POLICIES continued On consolidation, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Group at exchange rates prevailing on the reporting 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 the statement of comprehensive income 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 its business is primarily 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. Financial instruments Financial assets 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 shown within short term borrowings in current liabilities on the balance sheet. Cash and cash equivalents in the cash flow statement are shown net of overdrafts. Cash and cash equivalents are measured at amortised cost. Trade receivables Trade receivables do not incur any interest, are short term in nature and are measured 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. Investments Investments, other than investments in subsidiaries, joint ventures and associates, are financial asset investments and are initially recognised 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 losses. 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 financial assets. Both categories are subsequently measured 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 of or impaired, at which time the cumulative gain or loss previously recognised in equity is included in the income statement. 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. 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 measured at amortised cost, using the effective interest method. Debt securities that are not intended to be held to maturity are recorded at the lower of cost and market value. 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. Impairment of financial assets (including receivables) A financial asset not measured at fair value through profit or loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. Losses are recognised in the income statement. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through the income statement. Impairment losses relating to available for sale investments are recognised when the decline in fair value is considered significant or prolonged. These impairment losses are recognised by transferring the cumulative loss that has been recognised in the statement of comprehensive income to the income statement. The loss recognised in the income statement is the difference between the acquisition cost and the current fair value. 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. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. i F n a n c i a l s t a t e m e n t s Anglo American plc Annual Report 2011 133 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES continued Trade payables Trade payables are not interest bearing and are measured 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. The gain or loss on hedging instruments relating to the effective portion of a net investment hedge is recognised in equity (part of the cumulative translation adjustment reserve). The ineffective portion is recognised immediately in the income statement. Gains or losses accumulated in the cumulative translation adjustment reserve are included in the income statement on disposal of the foreign operations to which they relate. Convertible debt Convertible bonds are classified 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 recognised 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. Bank borrowings Interest bearing bank loans and overdrafts are initially recognised at fair value, net of directly attributable transaction costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs are recognised in 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) except if they are linked to settlement and delivery of an unquoted equity instrument and the fair value cannot be measured reliably, in which case they are carried at cost. A derivative cannot be measured reliably where the range of reasonable fair value estimates is significant and the probabilities of various estimates cannot be reasonably assessed. Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows (cash flow hedges) 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 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 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 the income statement. Gains or losses from remeasuring the associated derivative are recognised in the income statement. 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 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. Changes in the fair value of any derivative instruments that are not designated in a hedge relationship 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 to which the derivative relates. 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 financial liabilities Financial assets are derecognised when the right to receive cash flows from the asset has 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 The following new or amended IFRS accounting standards not yet adopted are expected to have a significant impact on the Group: IFRS 9 Financial Instruments – Classification and Measurement reflects 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 and financial liabilities. The standard applies to annual periods beginning on or after 1 January 2015. IFRS 10 Consolidated Financial Statements replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses accounting for consolidated financial statements and SIC-12 Consolidation – Special Purpose Entities. IFRS 10 provides a single basis for consolidation with a new definition of control. The standard applies to annual periods beginning on or after 1 January 2013. IFRS 11 Joint Arrangements replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities – Non-monetary Contributions by Venturers. Under IFRS 11 a joint arrangement is classified as either a joint operation or a joint venture, and the option to proportionately consolidate joint ventures has been removed. Interests in joint ventures must be equity accounted. This standard applies to annual periods beginning on or after 1 January 2013. IFRS 12 Disclosures of Interests in Other Entities will accompany IFRS 10 and IFRS 11. This standard combines the disclosure requirements previously covered by IAS 27, related to consolidated financial statements, IAS 31 and IAS 28 Investments in Associates, as well as including additional disclosure requirements. This standard applies to annual periods beginning on or after 1 January 2013. IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine provides a model for accounting for costs associated with the removal of waste during the production phase of a surface mine, including guidance on the apportionment of the costs incurred for obtaining a current and future benefit and how capitalised costs are depreciated. This interpretation applies to annual periods beginning on or after 1 January 2013. 134 Anglo American plc Annual Report 2011 1. ACCOUNTING POLICIES continued The following new, amended or revised IFRS accounting standards and interpretations not yet adopted are not expected to have a significant impact on the Group: For property, plant and equipment depreciated on a straight line basis over its useful economic life, management reviews the appropriateness of useful economic life at least annually and any changes could affect prospective depreciation rates and asset carrying values. Impairment of assets In making assessments for impairment, 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 calculation of recoverable amount. Factors which could impact underlying cash flows include: (cid:228) commodity prices and exchange rates (cid:228) timelines of granting of licences and permits (cid:228) capital and operating expenditure (cid:228) available reserves and resources. 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 Costs for restoration of site damage, rehabilitation and 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 employment benefits under defined benefit arrangements relating to employee service during the period are determined based on financial and actuarial assumptions. 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 Group’s other comprehensive income going forward. Financial assets and liabilities at fair value through profit and loss The fair value of the Group’s financial assets and liabilities held at fair value though profit and loss represents the market value of quoted investments and other traded instruments where available. For financial assets and liabilities held at fair value through profit and loss for which market prices are not readily available, fair value is determined using discounted cash flows or other valuation techniques using assumptions considered to be reasonable and consistent with those that would be used by a market participant. The assessment of assumptions used in applying valuation techniques is inherently subjective and the use of inaccurate assumptions could result in a significant impact on financial results. Contingent liabilities On an ongoing basis the Group is a party to various legal disputes, the outcomes of which cannot be assessed with a high degree of certainty. A liability is recognised where, based on the Group’s legal views and advice, it is considered probable that an outflow of resources will be required to settle a present obligation that can be measured reliably. Disclosure of other contingent liabilities is made in note 34 unless the possibility of a loss arising is considered remote. i F n a n c i a l s t a t e m e n t s IFRS 13 Fair Value Measurement provides a single framework for all fair value measurements and applies to annual periods beginning on or after 1 January 2013. The amendment to IAS 1 Presentation of Financial Statements requires items to be grouped in other comprehensive income based on whether those items are subsequently reclassified to profit or loss. The amendment is to be applied for annual periods beginning on or after 1 July 2012. The amendment to IAS 12 Income taxes is to be applied for annual periods beginning on or after 1 January 2012. The amendment to IAS 19 Employee Benefits is to be applied retrospectively for annual periods beginning on or after 1 January 2013. Amendments have been made to IAS 27 and it has been reissued as IAS 27 Separate Financial Statements. The revised standard prescribes the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. The accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates in consolidated financial statements are prescribed by IFRS 10, IFRS 11 and IFRS 12. The revised standard is to be applied for annual periods beginning on or after 1 January 2013. Amendments have been made to IAS 28 and it has been reissued as IAS 28 Investments in Associates and Joint Ventures. The revised standard prescribes the application of the equity method when accounting for investments in associates and joint ventures. The revised standard is to be applied for annual periods beginning on or after 1 January 2013. The amendment to IFRS 7 Financial Instruments: Disclosures is effective for annual periods beginning on or after 1 July 2011. 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 ore reserves and useful economic lives of assets and impairment of assets, restoration, rehabilitation and environmental costs, retirement benefits, financial assets and liabilities at fair value through profit and loss and contingent liabilities. These are detailed below. The use of inaccurate assumptions in calculations for any of these estimates could result in a significant impact on financial results. Ore Reserve estimates and useful economic lives of assets When determining Ore Reserves, which may be used to calculate depreciation on the Group’s mining properties, 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 unit of production 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: (cid:228) Changes to Proved and Probable Reserves (cid:228) The grade of Ore Reserves varying significantly from time to time (cid:228) Differences between actual commodity prices and commodity price assumptions used in the estimation of mineral reserves (cid:228) Renewal of mining licences (cid:228) Unforeseen operational issues at mine sites (cid:228) Adverse changes in capital, operating, mining, processing and reclamation costs, discount rates and foreign exchange rates used to determine mineral reserves. Anglo American plc Annual Report 2011 135 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 2. SEGMENTAL INFORMATION The Group’s segments are aligned to the structure of business units based around core commodities. Each business unit has a management team that is accountable to the Chief Executive. 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). Following a strategic review during the year, Peace River Coal is now managed as part of the Metallurgical Coal business unit, and accordingly is presented as part of the Metallurgical Coal segment. It was previously reported within the Other Mining and Industrial reporting segment. Comparatives have been reclassified to align with current year presentation. Catalão and Copebrás, reported in the Other Mining and Industrial segment, are now considered core to the Group. Tarmac and Scaw, which were identified for divestment as part of the restructuring programme announced in October 2009, are not considered to be individually significant to the Group and are therefore also presented in the Other Mining and Industrial reporting segment. Until February 2011, this reporting segment also included the zinc operations. 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 predominantly derive revenue as follows – Iron Ore and Manganese: iron ore, manganese ore and alloys; Metallurgical Coal: metallurgical coal; Thermal Coal: thermal coal; Copper and Nickel: base metals; Platinum: platinum group metals; Diamonds: rough and polished diamonds and diamond jewellery; and Other Mining and Industrial: phosphates, niobium, heavy building materials, steel products and, until February 2011, zinc. The Exploration segment includes the cost of the Group’s exploration activities across all segments, excluding Diamonds. The segment results are stated after elimination of inter-segment transactions and include an allocation of corporate costs. Analysis by segment Revenue and operating profit by segment US$ million Iron Ore and Manganese Metallurgical Coal Thermal Coal Copper Nickel Platinum Diamonds 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) 2011 8,124 4,347 3,722 5,144 488 7,359 3,320 4,039 – 5 36,548 2010 6,612 3,522 2,866 4,877 426 6,602 2,644 5,375 – 5 32,929 (5,968) – 30,580 (4,969) – 27,960 2011 4,520 1,189 1,230 2,461 57 890 659 195 (121) 15 11,095 (1,427) (229) 9,439 2010 3,681 780 710 2,817 96 837 495 664 (136) (181) 9,763 (1,255) 158 8,666 (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 before special items and remeasurements. 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 US$ million Iron Ore and Manganese Metallurgical Coal Thermal Coal Platinum Diamonds Other Mining and Industrial Reconciliation: Associates’ net finance costs Associates’ income tax expense Associates’ non-controlling interests Share of net income from associates (before special items and remeasurements) Associates’ special items and remeasurements Associates’ special items and remeasurements tax Associates’ non-controlling interests on special items and remeasurements Share of net income from associates Associates’ revenue operating profit/(loss)(1) Associates’ 2011 926 372 1,080 269 3,320 1 5,968 2010 983 258 761 237 2,644 86 4,969 2011 165 207 482 (86) 659 – 1,427 (48) (385) (16) 978 (5) 1 3 977 2010 382 122 308 (59) 495 7 1,255 (88) (313) (9) 845 (22) (2) 1 822 (1) Associates’ operating profit is the Group’s attributable share of associates’ revenue less operating costs before special items and remeasurements. 136 Anglo American plc Annual Report 2011 2. SEGMENTAL INFORMATION continued Non-cash items Significant non-cash items included within operating profit before special items and remeasurements are as follows: US$ million Iron Ore and Manganese Metallurgical Coal Thermal Coal Copper Nickel Platinum Other Mining and Industrial Exploration Corporate Activities and Unallocated Costs Depreciation and amortisation(1) Other non-cash expenses(2) 2011 180 375 128 289 27 729 198 – 41 1,967 (3) 2010 142 343 113 269 26 750 230 – 46 1,919 (3) 2011 127 104 30 124 10 76 51 3 54 579 2010 90 76 40 97 23 57 15 4 61 463 (1) In addition the Group’s attributable share of depreciation and amortisation in associates is $286 million (2010: $301 million). This is split by segment as follows: Iron Ore and Manganese $33 million (2010: $33 million), Metallurgical Coal $13 million (2010: $11 million), Thermal Coal $52 million (2010: $49 million), Platinum $53 million (2010: $37 million) and Diamonds $135 million (2010: $171 million). (2) Other non-cash expenses include equity settled share-based payment charges and amounts included in operating costs in respect of provisions, excluding amounts recorded within special items. (3) In addition $84 million (2010: $97 million) of accelerated depreciation has been recorded within operating special items (see note 5) and $39 million (2010: nil) of pre-commercial production depreciation has been capitalised. Capital expenditure and net debt US$ million Iron Ore and Manganese Metallurgical Coal Thermal Coal Copper Nickel Platinum Other Mining and Industrial Exploration Corporate Activities and Unallocated Costs Reconciliation: Remove: cash flows from derivatives relating to capital expenditure Purchase of property, plant and equipment Interest capitalised Non-cash movements(3) Net debt in disposal groups Property, plant and equipment additions in disposal groups(4) Property, plant and equipment additions(5) Capital expenditure(1) Net debt(2) 2011 1,211 (211) 81 (781) 603 20 338 (6) 119 1,374 2010 89 (635) (50) (243) 561 (65) 385 (2) 7,403 7,443 2011 1,732 695 190 1,570 398 970 152 1 56 5,764 439 6,203 321 27 2010 1,195 235 274 1,530 525 1,011 206 – 18 4,994 286 5,280 247 305 6,551 (2) 6,549 5,832 (46) 5,786 – 1,374 (59) 7,384 i F n a n c i a l s t a t e m e n t s (1) Capital expenditure is segmented on a cash basis and is reconciled to balance sheet additions. Cash capital expenditure includes cash flows on related derivatives. (2) Segment net debt includes related hedges and excludes net debt in disposal groups. For a reconciliation of net debt to the balance sheet see note 31b. (3) Includes movements on capital expenditure accruals, movements relating to deferred stripping and the impact of realised cash flow hedges. (4) Relates to additions in businesses held in disposal groups, prior to their sale. (5) Capital expenditure on an accruals basis is split by segment as follows: Iron Ore and Manganese $2,125 million (2010: $1,536 million), Metallurgical Coal $681 million (2010: $314 million), Thermal Coal $231 million (2010: $297 million), Copper $1,877 million (2010: $1,820 million), Nickel $405 million (2010: $602 million), Platinum $1,014 million (2010: $1,043 million), Other Mining and Industrial $159 million (2010: $153 million), Exploration $1 million (2010: $1 million) and Corporate Activities and Unallocated Costs $56 million (2010: $20 million). Anglo American plc Annual Report 2011 137 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 2. SEGMENTAL INFORMATION continued Segment assets and liabilities The following balance sheet segment measures are provided for information: US$ million Iron Ore and Manganese Metallurgical Coal Thermal Coal Copper Nickel Platinum 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) Other financial assets/(liabilities) – derivatives Cash and cash equivalents Other non-operating assets/(liabilities) Borrowings Other provisions for liabilities and charges Net assets Segment assets(1) Segment liabilities(2) Net segment assets/(liabilities) 2011 13,646 5,660 2,650 8,767 2,655 12,288 3,923 2 375 49,966 5,240 2,896 530 840 11,732 1,238 – – 72,442 2010 12,333 5,159 2,897 7,300 2,443 14,701 4,148 3 402 49,386 4,900 3,220 389 842 6,401 1,518 – – 66,656 2011 (577) (968) (764) (1,124) (120) (1,097) (722) (3) (584) (5,959) – – (5,730) (1,112) – (2,715) (12,873) (864) (29,253) 2010 (632) (827) (786) (1,009) (109) (1,223) (755) (12) (377) (5,730) – – (5,641) (835) – (2,233) (13,439) (807) (28,685) 2011 13,069 4,692 1,886 7,643 2,535 11,191 3,201 (1) (209) 44,007 5,240 2,896 (5,200) (272) 11,732 (1,477) (12,873) (864) 43,189 2010 11,701 4,332 2,111 6,291 2,334 13,478 3,393 (9) 25 43,656 4,900 3,220 (5,252) 7 6,401 (715) (13,439) (807) 37,971 (1) Segment assets at 31 December 2011 are operating assets and consist of intangible assets of $2,322 million (2010: $2,316 million), property, plant and equipment of $40,549 million (2010: $39,810 million), biological assets of $17 million (2010: $2 million), environmental rehabilitation trusts of $360 million (2010: $379 million), retirement benefit assets of $70 million (2010: $112 million), inventories of $3,517 million (2010: $3,604 million) and operating receivables of $3,131 million (2010: $3,163 million). (2) Segment liabilities at 31 December 2011 are operating liabilities and consist of non-interest bearing current liabilities of $3,982 million (2010: $3,834 million), environmental restoration and decommissioning provisions of $1,338 million (2010: $1,305 million) and retirement benefit obligations of $639 million (2010: $591 million). (3) See note 17 for a split of investments in associates by segment. Revenue by product The Group’s analysis of segment revenue by product (including attributable share of revenue from associates) is as follows: US$ million Iron ore Manganese ore and alloys Metallurgical coal Thermal coal Copper Nickel Platinum Palladium Rhodium Diamonds Phosphates Heavy building materials Steel products Other 2011 6,830 926 3,444 4,621 5,023 948 4,578 1,076 703 3,320 571 2,347 931 1,230 36,548 2010 5,234 983 2,711 3,707 4,782 824 4,053 697 782 2,644 461 2,376 1,568 2,107 32,929 Geographical analysis Revenue by destination and non-current segment assets by location 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 Brazil Chile Other South America North America Australia China India Japan Other Asia United Kingdom (Anglo American plc’s country of domicile) Other Europe (1) Non-current segment assets are non-current operating assets and consist of intangible assets and property, plant and equipment. 138 Anglo American plc Annual Report 2011 Revenue Non-current segment assets(1) 2011 3,589 618 1,177 2,030 50 1,861 312 6,446 2,343 4,925 3,487 3,962 5,748 36,548 2010 3,307 502 1,135 1,940 207 1,805 474 5,075 2,021 4,198 2,818 3,980 5,467 32,929 2011 15,215 357 12,622 7,001 655 685 4,170 – – – 47 2,117 2 42,871 2010 17,389 373 11,159 5,628 589 540 4,022 5 – – 42 2,331 48 42,126 2. SEGMENTAL INFORMATION continued Revenue and operating profit by origin Segment revenue and operating profit before special items and remeasurements by origin (including attributable share of revenue and operating profit from associates) are provided for information: US$ million South Africa Other Africa Brazil Chile Other South America North America Australia and Asia Europe 2011 17,855 2,763 1,404 5,170 1,364 615 5,058 2,319 36,548 Revenue 2010 15,711 2,329 1,127 5,224 1,141 679 4,141 2,577 32,929 Operating profit/(loss) before special items and remeasurements 2011 6,059 501 152 2,581 512 256 1,318 (284) 11,095 2010 5,001 501 82 2,967 367 14 911 (80) 9,763 Segment assets and liabilities by location The Group’s geographical analysis of segment assets and liabilities, allocated based on where assets and liabilities are located, is provided for information: US$ million South Africa Other Africa Brazil Chile Other South America North America Australia and Asia Europe Segment assets(1) Segment liabilities Net segment assets 2011 18,364 385 13,188 7,950 808 782 5,450 3,039 49,966 2010 21,294 377 11,576 6,727 679 611 4,849 3,273 49,386 2011 (2,620) (20) (303) (1,101) (48) (107) (953) (807) (5,959) 2010 (2,815) (26) (358) (1,005) (21) (38) (851) (616) (5,730) 2011 15,744 365 12,885 6,849 760 675 4,497 2,232 44,007 2010 18,479 351 11,218 5,722 658 573 3,998 2,657 43,656 (1) Investments in associates of $5,240 million (2010: $4,900 million) are not included in segment assets. The geographical distribution of these investments, based on the location of the underlying assets, is disclosed in note 17. 3. OPERATING PROFIT FROM SUBSIDIARIES AND JOINT VENTURES US$ 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 7) Operating profit from subsidiaries and joint ventures i F n a n c i a l s t a t e m e n t s 2011 30,580 (17,343) 13,237 (1,788) (2,034) 145 (121) 9,439 2010 27,960 (15,949) 12,011 (1,740) (1,815) 346 (136) 8,666 (1) Includes operating special item charges of $164 million (2010: $228 million), see note 5. Operating remeasurements are included in Other gains and losses (see below). US$ million Operating profit is stated after charging: Depreciation of property, plant and equipment (see note 15)(1) Amortisation of intangible assets (see note 14) Rentals under operating leases Research and development expenditure Operating special items (see note 5) Employee costs (see note 8) Adjustment due to provisional pricing(2) Royalties(3) Other gains and losses comprise: Operating remeasurements (see note 5) Other fair value (losses)/gains on derivatives – realised Foreign exchange gains/(losses) on other monetary items Gains on initial recognition of biological assets Total other gains and losses 2011 2010 1,947 20 128 38 164 4,707 286 742 (65) (57) 256 11 145 1,888 31 121 29 228 4,367 (168) 586 386 84 (124) – 346 (1) In addition $84 million (2010: $97 million) of accelerated depreciation has been recorded within operating special items (see note 5) and $39 million (2010: nil) of pre-commercial production depreciation has been capitalised. (2) Provisionally priced contracts resulted in a total (realised and unrealised) loss in revenue of $283 million (2010: gain of $199 million) and total (realised and unrealised) loss in operating costs of $3 million (2010: $31 million). (3) Excludes those royalties which meet the definition of income tax on profit and accordingly have been accounted for as taxes. Anglo American plc Annual Report 2011 139 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 3. OPERATING PROFIT FROM SUBSIDIARIES AND JOINT VENTURES continued US$ million Auditors’ remuneration Audit United Kingdom Overseas Other services provided by Deloitte(1) United Kingdom Overseas 2011 2010 2.4 7.5 1.1 2.6 2.6 7.9 1.3 1.7 (1) Includes $0.2 million (2010: $0.1 million) for services required to be undertaken by Deloitte in their capacity as auditors. A more detailed analysis of auditors’ remuneration is provided below: US$ million Statutory audit services 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 Other Total Paid/payable to Deloitte 2011 Paid/payable to auditor (if not Deloitte) Paid/payable to Deloitte 2010 Paid/payable to auditor (if not Deloitte) United Kingdom Overseas Total Overseas United Kingdom Overseas Total Overseas 1.7 – 0.7 0.7 2.4 0.5 0.4 0.2 1.1 (2) – 4.3 3.2 7.5 7.5 0.8 0.4 1.4 2.6 1.7 4.3 3.9 8.2 9.9 1.3 0.8 1.6 3.7 – 0.1 0.6 0.7 0.7 0.1 0.3 0.5 0.9 1.7 – 0.9 0.9 2.6 0.5 0.1 0.7 1.3 (2) – 4.4 3.5 7.9 7.9 0.8 0.4 0.5 1.7 1.7 4.4 4.4 8.8 10.5 1.3 0.5 1.2 3.0 – 0.1 0.4 0.5 0.5 – 0.2 0.2 0.4 (1) (2) Includes $0.1 million (2010: $0.2 million) in respect of the audit of Group pension plans. Includes $0.2 million (2010: $0.1 million) for services required to be undertaken by Deloitte in their capacity as auditors. 4. OPERATING PROFIT AND UNDERLYING EARNINGS BY SEGMENT The following table analyses operating profit (including attributable share of associates’ operating profit) by segment and reconciles it to underlying earnings by segment. In 2011 Peace River Coal has been reclassified from Other Mining and Industrial to Metallurgical Coal to align with internal management reporting. Comparatives have been reclassified to align with current year presentation. Underlying earnings is an alternative earnings measure, which the directors consider to be a useful additional measure of the Group’s performance. Underlying earnings is profit for the financial year attributable to equity shareholders of the Company before special items and remeasurements and is therefore presented after net finance costs, income tax expense and non-controlling interests. For a reconciliation from ‘Profit for the financial year attributable to equity shareholders of the Company’ to ‘Underlying earnings for the financial year’, see note 13. Operating profit/(loss) before special items and remeasure- ments(1) Operating profit/(loss) after special items and remeasure- ments Operating special items and remeasure- ments (note 5) Net finance costs, income tax expense and non- controlling interests US$ million Iron Ore and Manganese Metallurgical Coal Thermal Coal Copper Nickel Platinum Diamonds Other Mining and Industrial Exploration Corporate Activities and Unallocated Costs Total Analysed as: Core operations Non-core operations(2) 4,520 1,189 1,230 2,461 57 890 659 195 (121) 4,441 1,189 1,231 2,460 (15) 884 641 125 (121) 15 11,095 13 10,848 11,088 10,911 7 (63) 79 – (1) 1 72 6 18 70 – 2 247 177 70 2011 Underlying earnings 1,525 844 902 1,610 23 410 443 107 (118) 374 6,120 Operating profit/(loss) before special items and remeasure- ments(1) Operating profit/(loss) after special items and remeasure- ments Operating special items and remeasure- ments (note 5) Net finance costs, income tax expense and non- controlling interests 3,681 780 710 2,817 96 837 495 664 (136) (181) 9,763 4,037 803 708 2,832 45 765 466 564 (136) (192) 9,892 (356) (23) 2 (15) 51 72 29 100 – 11 (129) (2,258) (194) (198) (1,096) (21) (412) (193) (143) 8 (280) (4,787) 2010 Underlying earnings 1,423 586 512 1,721 75 425 302 521 (128) (461) 4,976 (2,995) (345) (328) (851) (34) (480) (216) (88) 3 359 (4,975) (4,962) 6,126 9,245 9,460 (215) (4,706) 4,539 (13) (6) 518 432 86 (81) 437 (1) Operating profit includes attributable share of associates’ operating profit which is reconciled to ‘Share of net income from associates’ in note 2. (2) Non-core operations relate to Tarmac and Scaw Metals and, until February 2011, the zinc operations. 140 Anglo American plc Annual Report 2011 4. OPERATING PROFIT AND UNDERLYING EARNINGS BY SEGMENT continued Underlying earnings by origin US$ million South Africa Other Africa South America North America Australia and Asia Europe 2011 2,726 326 2,080 218 967 (197) 6,120 2010 2,218 350 2,154 (12) 668 (402) 4,976 5. 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 paragraph 97. Special items that relate to the operating performance of the Group are classified as operating special items and principally include impairment charges and reversals and restructuring costs. Non-operating special items include profits and losses on disposals of investments and businesses as well as certain adjustments relating to business combinations. 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: (cid:228) unrealised gains and losses on ‘non-hedge’ derivative instruments open at the year end (in respect of future transactions) and the reversal of the historical marked to market value of such instruments settled in the year. Where the underlying transaction is recorded in the income statement, the 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 operating when the underlying exposure is in respect of the operating performance of the Group and otherwise as financing. (cid:228) 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. US$ million Impairment and related charges Restructuring costs Operating special items Operating remeasurements Operating special items and remeasurements Disposal of Lisheen and Black Mountain Platinum BEE transactions and related charges Disposals of Tarmac businesses Disposal of Moly-Cop and AltaSteel Gain on Bafokeng-Rasimone Platinum mine transaction Disposal of undeveloped coal assets Disposal of Skorpion Other Net profit on disposals Financing special items Financing remeasurements Total special items and remeasurements before tax and non-controlling interests Special items and remeasurements tax Non-controlling interests on special items and remeasurements Net total special items and remeasurements attributable to equity shareholders of the Company (1) Relates to the Diamonds segment. i F n a n c i a l s t a t e m e n t s Subsidiaries and joint ventures (154) (10) (164) (65) (229) 397 (141) (75) – – – – 2 183 – 203 157 (119) 12 50 Associates(1) – (9) (9) (9) (18) – – – – – – – 20 20 (9) 2 (5) 1 3 (1) 2011 Total (154) (19) (173) (74) (247) 397 (141) (75) – – – – 22 203 (9) 205 152 (118) 15 49 Subsidiaries and joint ventures (107) (121) (228) 386 158 – – (294) 555 546 505 244 23 1,579 – 105 1,842 (110) (141) 1,591 Associates(1) (15) (10) (25) (4) (29) – – – – – – – 19 19 (13) 1 (22) (2) 1 (23) 2010 Total (122) (131) (253) 382 129 – – (294) 555 546 505 244 42 1,598 (13) 106 1,820 (112) (140) 1,568 Operating special items Impairment and related charges were $154 million in the year ended 31 December 2011 (2010: $122 million). This principally comprises an impairment of Tarmac Building Products of $70 million (Other Mining and Industrial segment) and accelerated depreciation of $84 million (2010: $97 million), mainly arising at Loma de Níquel (Nickel segment). The accelerated depreciation charge at Loma de Níquel has arisen due to ongoing uncertainty over the renewal of three concessions that expire in 2012 and over the restoration of 13 concessions that have been cancelled. Restructuring costs principally relate to retrenchment and consultancy costs within the Platinum and Diamond segments (2010: Other Mining and Industrial, Platinum and Diamond segments). Operating remeasurements Operating remeasurements reflect a net loss of $74 million (2010: gain of $382 million) principally in respect of non-hedge derivatives of capital expenditure in Iron Ore Brazil. Derivatives which have been realised in the year had a cumulative net operating remeasurement gain since their inception of $383 million (2010: gain of $255 million). Anglo American plc Annual Report 2011 141 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 5. SPECIAL ITEMS AND REMEASUREMENTS continued Profits and losses on disposals In February 2011 the Group completed the disposal of its 100% interest in the Lisheen operation (Lisheen) and its 74% interest in Black Mountain Mining (Proprietary) Limited (Black Mountain), which holds 100% of the Black Mountain mine and Gamsberg project, resulting in a net cash inflow of $499 million, generating a profit on disposal of $397 million. Lisheen and Black Mountain were included in the Other Mining and Industrial segment. The charge for Platinum BEE transactions principally relates to an IFRS 2 charge of $131 million resulting from a community economic empowerment transaction involving certain of Platinum’s host communities, which completed in December 2011. The Group sold Tarmac’s businesses in China, Turkey and Romania in July, October and November 2011 respectively. Tarmac is included in the Other Mining and Industrial segment. Financing remeasurements Financing remeasurements reflect a net gain of $205 million (2010: gain of $106 million) and relate to an embedded interest rate derivative, non-hedge derivatives of debt and other financing remeasurements. Special items and remeasurements tax Special items and remeasurements tax amounted to a charge of $118 million (2010: charge of $112 million). This relates to a credit for one-off tax items of $137 million (2010: nil), a tax remeasurement charge of $230 million (2010: credit of $122 million) and a tax charge on special items and remeasurements of $25 million (2010: charge of $234 million). The total tax charge relating to subsidiaries and joint ventures of $119 million (2010: charge of $110 million), comprises a current tax charge of $12 million (2010: charge of $107 million) and a deferred tax charge of $107 million (2010: charge of $3 million). The credit relating to one-off tax items of $137 million (2010: nil) principally relates to the recognition of deferred tax assets in Iron Ore Brazil which were originally written off as part of the impairment charges related to the Amapá iron ore system in 2009, and a capital gains tax refund related to a prior year disposal. 6. EBITDA Earnings before interest, tax, depreciation and amortisation (EBITDA) is operating profit before special items and remeasurements, depreciation and amortisation in subsidiaries and joint ventures and includes attributable share of EBITDA of associates. US$ million Iron Ore and Manganese Metallurgical Coal(1) Thermal Coal Copper Nickel Platinum Diamonds Other Mining and Industrial(1) Exploration Corporate Activities and Unallocated Costs EBITDA 2011 4,733 1,577 1,410 2,750 84 1,672 794 393 (121) 56 13,348 2010 3,856 1,134 872 3,086 122 1,624 666 894 (136) (135) 11,983 (1) In 2011 Peace River Coal has been reclassified from Other Mining and Industrial to Metallurgical Coal to align with internal management reporting. Comparatives have been reclassified to align with current year presentation. EBITDA 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 Net profit on disposals Associates’ net special items and remeasurements Share of associates’ net finance costs, tax and non-controlling 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 flows from operations’ as follows: US$ million EBITDA Share of operating profit of associates before special items and remeasurements Cash element of operating special items Share of associates’ depreciation and amortisation Share-based payment charges Provisions Increase in inventories Increase in operating receivables Increase in operating payables Deferred stripping Other adjustments Cash flows from operations 142 Anglo American plc Annual Report 2011 2011 10,599 229 (183) 1 449 11,095 1,967 286 13,348 2011 13,348 (1,427) (59) (286) 254 6 (352) (264) 457 (171) (8) 11,498 2010 11,067 (158) (1,579) 23 410 9,763 1,919 301 11,983 2010 11,983 (1,255) (94) (301) 219 (37) (309) (587) 516 (196) (15) 9,924 7. EXPLORATION EXPENDITURE US$ million By commodity Iron ore Metallurgical coal Thermal coal Copper Nickel Platinum group metals Zinc Central exploration activities 2011 5 5 9 27 26 5 – 44 121 2010 14 3 21 19 27 11 3 38 136 8. 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 Iron Ore and Manganese Metallurgical Coal Thermal Coal Copper Nickel Platinum Other Mining and Industrial Corporate Activities and Unallocated Costs The average number of employees by principal location of employment was: Thousand South Africa Other Africa South America North America(1) Australia and Asia Europe (1) The average number of employees in North America during 2011 was less than 500, following the disposal of Moly-Cop and AltaSteel on 31 December 2010. Payroll costs in respect of the employees included in the tables above were: US$ million Wages and salaries Social security costs Post employment benefits(1) Share-based payments (see note 29) Total payroll costs Reconciliation: Less: employee costs capitalised Less: employee costs included within operating special items Employee costs included in operating costs 2011 8 3 9 5 2 55 16 2 100 2011 79 1 10 – 4 6 100 2010 8 3 9 4 2 52 20 2 100 2010 77 1 9 1 4 8 100 2011 4,201 142 343 260 4,946 (229) (10) 4,707 2010 3,880 173 281 223 4,557 (132) (58) 4,367 i F n a n c i a l s t a t e m e n t s (1) Includes contributions to defined contribution pension and medical plans, current and past service costs related to defined benefit pension and medical schemes and other benefits provided to certain employees during retirement. In accordance with IAS 24 Related Party Disclosures (Amended), 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. Compensation for key management was as follows: US$ million Salaries and short term employee benefits Social security costs Post employment benefits Share-based payments 2011 23 2 8 22 55 2010 19 5 2 15 41 Key management comprises members of the Board and the Executive Committee. 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. Anglo American plc Annual Report 2011 143 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 9. NET FINANCE INCOME/(COSTS) Finance costs and exchange gains/(losses) are presented net of hedges for respective interest bearing and foreign currency borrowings. The weighted average capitalisation rate applied to qualifying capital expenditure was 5.0% (2010: 4.8%). US$ million Investment income Interest income from cash and cash equivalents Other interest income Expected return on defined benefit arrangements Dividend income from financial asset investments Less: interest income capitalised Total investment income Interest expense Interest and other finance expense Interest payable on convertible bond Unwinding of discount on convertible bond Interest cost on defined benefit arrangements Unwinding of discount relating to provisions and other non-current liabilities Less: interest expense capitalised Total interest expense Other financing gains/(losses) Net foreign exchange (losses)/gains Net fair value gains/(losses) on fair value hedges Other net fair value gains/(losses) Total other financing gains/(losses) Net finance costs before remeasurements Remeasurements (see note 5) Net finance income/(costs) after remeasurements 10. 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 transferred from equity(1) Fair value hedge derivatives Fair value hedge underlying instruments Foreign exchange (losses)/gains Other fair value movements(2) Loans and receivables Foreign exchange gains/(losses) Interest income at amortised cost(3) Available for sale Net gain transferred on sale from equity Dividend income Other financial liabilities Foreign exchange gains Interest expense at amortised cost(3) (1) These amounts are included in Group revenue. (2) Includes the impact of provisional pricing, see note 3, and operating and financing remeasurements, see note 5. Interest income and expense at amortised cost are shown net of amounts capitalised. Comparatives have been adjusted accordingly. (3) 11. INCOME TAX EXPENSE a) Analysis of charge for the year US$ million United Kingdom corporation tax at 26.5% (2010: 28%) South Africa tax Other overseas tax Prior year adjustments Current tax(1) Deferred tax Income tax expense before special items and remeasurements Special items and remeasurements tax Income tax expense (1) Includes royalties which meet the definition of income tax and are in addition to royalties recorded in operating costs. 144 Anglo American plc Annual Report 2011 2011 2010 239 194 199 59 691 (23) 668 (615) (68) (71) (205) (80) (1,039) 344 (695) (16) 16 7 7 (20) 203 183 118 224 205 30 577 (9) 568 (632) (68) (65) (219) (73) (1,057) 256 (801) 17 (7) (21) (11) (244) 105 (139) 2011 2010 (5) (263) 279 (9) (198) 9 361 10 59 240 (345) (4) (112) 105 9 752 (292) 160 – 30 167 (376) 2011 16 1,307 1,067 (92) 2,298 443 2,741 119 2,860 2010 24 1,199 1,333 (7) 2,549 150 2,699 110 2,809 11. INCOME TAX EXPENSE continued b) Factors affecting tax charge for the year The effective tax rate for the year of 26.5% (2010: 25.7%) is the same as (2010: lower than) the applicable weighted average statutory rate of corporation tax in the United Kingdom of 26.5% (2010: 28%). The reconciling items, excluding the impact of associates, are: US$ million Profit before tax Less: share of net income from associates Profit before tax (excluding associates) Tax on profit (excluding associates) calculated at United Kingdom corporation tax rate of 26.5% (2010: 28%) Tax effects of: Items not taxable/deductible for tax purposes Exploration expenditure Non-deductible/taxable net foreign exchange loss/(gain) Non-taxable/deductible net interest (income)/expense Other non-deductible expenses Other non-taxable income Temporary difference adjustments Current year losses not recognised Utilisation of losses not previously recognised Recognition of losses not previously recognised Enhanced tax depreciation Other temporary differences Special items and remeasurements 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 2011 10,782 (977) 9,805 2,598 2010 10,928 (822) 10,106 2,830 27 24 (20) 60 (57) 38 – (103) – (57) 13 (3) 2 125 (40) 19 (8) (61) (41) (69) 77 (406) 407 (61) (92) 19 2,860 657 (218) (7) 16 2,809 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 2011 is $384 million (2010: $315 million). Excluding special items and remeasurements this becomes $385 million (2010: $313 million). The effective rate of tax before special items and remeasurements including attributable share of associates’ tax for the year ended 31 December 2011 was 28.3%. The decrease compared to the equivalent effective rate of 31.9% for the year ended 31 December 2010 is due to a number of non-recurring factors that include the recognition of previously unrecognised tax losses and the reassessment of certain withholding tax provisions across the Group. In future periods it is expected that the effective tax rate, including associates’ tax, will remain above the United Kingdom statutory tax rate. i F n a n c i a l s t a t e m e n t s c) Tax amounts included in total comprehensive income An analysis of tax by individual item presented in the Consolidated statement of comprehensive income is presented below: US$ million Tax on items recognised directly in equity Net gain on revaluation of available for sale investments Net loss on cash flow hedges Net exchange difference on translation of foreign operations Actuarial net loss/(gain) on post employment benefit plans Tax on items transferred from equity Transferred to income statement: cash flow hedges Transferred to initial carrying amount of hedged items: cash flow hedges 2011 2010 (26) 20 11 19 24 (2) (12) (14) (46) (2) (82) (19) (149) (1) 2 1 d) Tax amounts recognised directly in equity Capital gains tax of $1,017 million relating to the profit on sale of a 24.5% share in Anglo American Sur SA (AA Sur) in November 2011, has been charged directly to equity. There were no other material current tax amounts charged directly to equity in 2011 or 2010. Deferred tax of $127 million has been charged (2010: $68 million credited) directly to equity. See note 27. Anglo American plc Annual Report 2011 145 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 12. DIVIDENDS Dividends payable during the year are as follows: US$ million Final ordinary dividend for 2010 – 40 US cents per ordinary share (2009: nil) Interim ordinary dividend for 2011 – 28 US cents per ordinary share (2010: 25 US cents per ordinary share) (1) Of this, $561 million (2010: $212 million) was recognised in the parent Company. 2011 495 339 834 (1) 2010 – 302 302 (1) Total dividends paid during the year were $818 million (2010: $302 million). The difference to dividends payable arises due to movements in exchange rates between the date of recognition and the date of payment. The directors are proposing a final dividend in respect of the financial year ended 31 December 2011 of 46 US cents per share. Based on shares eligible for dividends at 31 December 2011, this will result in an estimated distribution of $557 million of shareholders’ funds, of which $350 million will be distributed by the parent Company. These financial statements do not reflect this dividend payable as it is still subject to shareholder approval. As stated in note 29, the employee benefit trust has waived the right to receive dividends on the shares it holds. 13. EARNINGS PER SHARE US$ 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 2011 5.10 4.89 4.89 4.69 5.06 4.85 2010 5.43 5.18 4.27 4.09 4.13 3.96 (1) Basic and diluted earnings per share are also 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 basic and diluted earnings per share is based on the following data: 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 payable 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) 2011 2010 6,169 50 52 6,271 1,210 10 62 1,282 6,544 49 47 6,640 1,206 14 61 1,281 (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 2011 there were 270,095 (2010: nil) share options which were potentially dilutive but were not included in the calculation of diluted earnings because they were anti-dilutive. The Group has $1.7 billion of senior convertible notes in issue (see note 24). The impact of the potential conversion of these notes has been included in diluted earnings and the diluted number of ordinary shares outstanding. 146 Anglo American plc Annual Report 2011 13. EARNINGS PER SHARE continued Underlying earnings is presented after non-controlling interests and excludes special items and remeasurements (see note 5). Underlying earnings is distinct from ‘Headline earnings’, which is a JSE Limited defined performance measure. The calculation of basic and diluted earnings per share, based on headline and underlying earnings, uses the following earnings data: US$ million Profit for the financial year attributable to equity shareholders of the Company Operating special items Operating special items – non-controlling interests Net profit on disposals Net profit on disposals – tax Net profit on disposals – non-controlling interests Financing special items Tax special items Headline earnings for the financial year Operating special items(1) Operating remeasurements Net loss on disposals(2) Financing remeasurements Special items and remeasurements tax(3) Non-controlling interests on special items and remeasurements Underlying earnings for the financial year (1) (2) (3) Includes restructuring costs, accelerated depreciation and related charges. Includes Platinum BEE transactions and related charges (2010: Anglo American Inyosi Coal BEE transaction). Includes certain tax special items. 2011 6,169 70 – (347) 36 – 9 (24) 5,913 103 74 144 (205) 106 (15) 6,120 2010 6,544 14 (3) (1,684) 123 138 13 – 5,145 239 (382) 86 (106) (11) 5 4,976 14. INTANGIBLE ASSETS US$ million Net book value At 1 January Additions Disposals and transfer to assets held for sale Amortisation charge for the year Impairments Adjustments relating to deferred and contingent consideration Currency movements At 31 December Cost Accumulated amortisation Licences and other intangibles Goodwill(1) Total Licences and other intangibles Goodwill(1) Total 2011 2010 85 26 – (20) – – (8) 83 182 (99) 2,231 – (25) – (15) 81 (33) 2,239 2,239 – 2,316 26 (25) (20) (15) 81 (41) 2,322 2,421 (99) 82 43 (17) (31) – – 8 85 168 (83) 2,694 – (339) – – (90) (34) 2,231 2,231 – 2,776 43 (356) (31) – (90) (26) 2,316 2,399 (83) i F n a n c i a l s t a t e m e n t s (1) The goodwill balances provided are net of cumulative impairment charges of $337 million at 31 December 2011 (2010: $323 million). Impairment tests for goodwill Goodwill is allocated for impairment testing purposes to cash generating units (CGUs) or groups of CGUs which reflect how it is monitored for internal management purposes. This allocation largely represents the Group’s segments. Any goodwill associated with CGUs subsumed within these segments is not significant when compared to the goodwill of the Group, other than in Iron Ore and Manganese and Other Mining and Industrial where the material components of goodwill are split out. The allocation of goodwill to CGUs or groups of CGUs is as follows: US$ million Iron Ore and Manganese Iron Ore Brazil Thermal Coal Copper Nickel Platinum Other Mining and Industrial Tarmac Other 2011 2010 1,123 88 124 10 230 456 208 2,239 1,148 88 124 10 230 504 127 2,231 For the purposes of goodwill impairment testing, the recoverable amount of a CGU is determined based on a fair value less costs to sell basis, with the exception of Tarmac which is determined on a value in use basis. Value in use is based on the present value of future cash flows expected to be derived from the CGU or reportable segment in its current state. Fair value less costs to sell is normally supported by observable market data (in the case of listed subsidiaries, market share price at 31 December of the respective entity) or discounted cash flow models taking account of assumptions that would be made by market participants. Anglo American plc Annual Report 2011 147 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 14. INTANGIBLE ASSETS continued Expected future cash flows are inherently uncertain and could materially change over time. They are significantly affected by a number of factors including ore 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 amounts are based would not cause the carrying amounts to exceed their recoverable amounts. Cash flow projections are based on financial budgets and mine life plans or non-mine production plans, incorporating key assumptions as detailed below: Reserves and resources Ore reserves and, where considered appropriate, mineral resources are incorporated in projected cash flows, based on ore reserves and mineral resource statements and exploration and evaluation work undertaken by appropriately qualified persons. Mineral resources are included where management has a high degree of confidence in their economic extraction, despite additional evaluation still being required prior to meeting the requirements of reserve classification. For further information refer to the Ore Reserves and Mineral Resources section of the Annual Report. Commodity prices Commodity prices are based on latest internal forecasts for commodity prices, benchmarked with external sources of information, to ensure they are within the range of available analyst forecasts. Where existing sales contracts are in place, the effects of such contracts are taken into account in determining future cash flows. Operating costs and capital expenditure Operating costs and capital expenditure are based on financial budgets covering a three year period. Cash flow projections beyond three years are based on mine life plans or non-mine production plans as applicable, and internal management forecasts. Cost assumptions incorporate management experience and expectations, as well as the nature and location of the operation and the risks associated therewith. Non-commodity based businesses For non-commodity based businesses, margin and revenue are based on financial budgets covering a three year period. Beyond the financial budget, revenue is forecast using a steady growth rate consistent with the markets in which those businesses operate, and for those periods five years or more from the balance sheet date, at a rate not exceeding the long term growth rate for the country of operation. Where existing sales contracts are in place, the effects of such contracts are taken into account in determining future cash flows. Discount rates Cash flow projections used in fair value less costs to sell impairment models are discounted based on a real post-tax discount rate of 6% (2010: 6%). The discount rate for Tarmac is a real pre-tax rate of 8% (2010: 8%). Adjustments to the rate are made for any risks that are not reflected in the underlying cash flows. Foreign exchange rates Foreign exchange rates are based on latest internal forecasts for foreign exchange, benchmarked with external sources of information for relevant countries of operation. 15. PROPERTY, PLANT AND EQUIPMENT US$ million Net book value At 1 January Additions Disposal of assets Disposal of businesses Depreciation charge for the year(3) Net impairment (charge)/reversal Reclassifications(4) Reversal of contingent consideration(5) Transfer to assets held for sale Currency movements At 31 December Cost Accumulated depreciation 2011 2010 Mining properties and leases(1) 15,376 352 (2) (39) Land and buildings Plant and equipment Other(2) Total 2,004 76 (7) (4) 10,839 287 (39) (13) 11,591 5,834 (28) (1) 39,810 6,549 (76) (57) Mining properties and leases(1) 14,776 296 (5) (260) Land and buildings Plant and equipment 1,807 48 (4) (5) 10,003 237 (36) (39) Other(2) Total 8,612 5,205 (4) (110) 35,198 5,786 (49) (414) (414) (113) (1,501) (42) (2,070) (465) (89) (1,392) (39) (1,985) – 532 – – (1,162) 14,643 19,532 – 826 – – (162) 2,620 3,450 (61) 6,408 – (7,929) (61) (163) 2 583 – – – (293) – (1,098) 14,822 24,116 – (961) 8,464 8,648 – (3,383) 40,549 55,746 (84) 826 15,376 20,289 – 268 – (125) 104 2,004 2,792 12 1,765 – (491) 780 10,839 19,651 – (2,616) 14 – – (293) (24) 567 11,591 11,863 (724) 2,277 39,810 54,595 (4,889) (830) (9,294) (184) (15,197) (4,913) (788) (8,812) (272) (14,785) (1) (2) (3) Includes amounts in relation to deferred stripping. Includes $8,088 million (2010: $11,190 million) of assets in the course of construction, which are not depreciated. Includes $1,947 million (2010: $1,888 million) of depreciation within operating profit, $84 million (2010: $97 million) of accelerated depreciation (see note 5) and $39 million (2010: nil) of pre-commercial production depreciation which has been capitalised. See note 2 for a split of depreciation, and amortisation for intangibles, by segment. (4) Relates mainly to amounts transferred from assets in the course of construction. The net amount of $163 million (2010: nil) relates to federal tax credits on qualifying capital projects in Brazil. These credits have been reclassified, as appropriate, to reflect the expected realisation. (5) Relates to Iron Ore Brazil. Included in the additions above is $321 million (2010: $247 million) of net interest expense incurred on borrowings funding the construction of qualifying assets which has been capitalised during the year. Assets held under finance leases relate to plant and equipment with a net book value of $25 million (2010: $18 million). Depreciation charges in the year amounted to $9 million (2010: $7 million). 148 Anglo American plc Annual Report 2011 15. PROPERTY, PLANT AND EQUIPMENT continued The net book value of land and buildings comprises: US$ million Freehold Leasehold – long Leasehold – short (less than 50 years) 2011 2,604 8 8 2,620 2010 1,989 6 9 2,004 16. 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. The funds comprise the following investments: US$ million Equity Bonds Cash 2011 146 130 84 360 2010 121 147 111 379 These assets are primarily rand denominated. Cash is held in short term fixed deposits or earns interest at floating inter-bank rates. Bonds earn interest at a weighted average fixed rate of 6% (2010: 6%) for an average period of four years (2010: six years). Equity investments are recorded at fair value through profit and loss whilst other assets are treated as loans and receivables. 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 provisions (see note 26). 17. INVESTMENTS IN ASSOCIATES US$ million At 1 January Net income from associates Dividends received Transfer from subsidiary/joint venture(1) Share of expense recognised directly in equity, net of tax Other equity movements Investment in equity and capitalised loans(2) Interest on capitalised loans Repayment of capitalised loans Transfer to available for sale investments Disposals and transfer to assets held for sale Other movements Currency movements At 31 December(3) 2011 4,900 977 (344) – (32) – 47 23 (4) (66) – (1) (260) 5,240 2010 3,312 822 (255) 643 (41) (140) 632 16 (33) (100) (126) 19 151 4,900 i F n a n c i a l s t a t e m e n t s (1) Year ended 31 December 2010 represents the transfer to investments in associates of Anglo American Platinum Limited’s retained 33% holding in Bafokeng-Rasimone Platinum mine. (2) Year ended 31 December 2010 includes $450 million to subscribe to the Group’s share of De Beers’ rights issue. (3) The fair value of the Group’s investment in Anooraq Resources Corporation at 31 December 2011 was $51 million (2010: $179 million). The Group’s total investments in associates comprise: US$ million Equity Loans(1) 2011 4,593 647 5,240 2010 4,194 706 4,900 (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. The Group’s attributable share of the summarised income statement information of associates is shown in note 2. Summarised balance sheet information of associates is as follows: US$ million Non-current assets Current assets Current liabilities Non-current liabilities Group’s share of associates’ net assets 2011 6,111 2,188 (742) (2,317) 5,240 2010 6,923 1,805 (738) (3,090) 4,900 Anglo American plc Annual Report 2011 149 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 17. INVESTMENTS IN ASSOCIATES continued Segmental information is provided as follows: US$ million By segment Iron Ore and Manganese Metallurgical Coal Thermal Coal Platinum Diamonds Other Mining and Industrial US$ million By geography South Africa Other Africa South America North America Australia and Asia Europe Share of net income Aggregate investment 2011 2010 2011 2010 142 141 317 (65) 442 – 977 287 84 220 (44) 270 5 822 936 294 932 848 2,230 – 5,240 880 223 749 1,112 1,936 – 4,900 Aggregate investment 2011 2010 1,950 996 917 343 794 240 5,240 2,334 1,220 729 376 698 (457) 4,900 The Group’s share of associates’ contingent liabilities incurred jointly by investors is $112 million (2010: $75 million). Details of principal associates are set out in note 37. 18. JOINT VENTURES The Group’s share of the summarised financial information of joint venture entities that are proportionately consolidated in the Group financial statements is as follows: US$ million Non-current assets Current assets Current liabilities Non-current liabilities Group’s share of joint venture entities’ net assets Revenue Operating costs Net finance costs Income tax expense Group’s share of joint venture entities’ profit for the financial year 2011 2,546 572 (434) (703) 1,981 1,932 (944) (44) (230) 714 2010 2,308 872 (516) (869) 1,795 2,014 (761) (61) (272) 920 The Group’s share of joint venture entities’ contingent liabilities incurred jointly with other venturers is $32 million (2010: $33 million) and its share of capital commitments is $74 million (2010: $12 million). Within the Metallurgical Coal segment, the Group also holds interests in a number of proportionately consolidated jointly controlled operations. The Group’s share of net assets of such operations is $1,538 million (2010: $1,693 million) and its share of profit for the financial year is $615 million (2010: $593 million). The Group’s share of these operations’ contingent liabilities incurred jointly with other venturers is $19 million (2010: $19 million) and its share of capital commitments is $80 million (2010: $65 million). Details of principal joint ventures are set out in note 37. 19. FINANCIAL ASSET INVESTMENTS US$ million At 1 January Additions Interest receivable Net repayments Disposals Movements in fair value Currency movements At 31 December Loans and receivables 1,920 4 76 (22) – (10) (278) 1,690 Available for sale investments 1,300 84 – – (14) 115 (279) 1,206 2011 Total 3,220 88 76 (22) (14) 105 (557) 2,896 Loans and receivables 1,595 124 84 (15) – (5) 137 1,920 Available for sale investments 1,131 187 – – (440) 316 106 1,300 2010 Total 2,726 311 84 (15) (440) 311 243 3,220 No provision for impairment is recorded against financial assets classified as Loans and receivables (2010: nil). 150 Anglo American plc Annual Report 2011 20. INVENTORIES US$ million Raw materials and consumables Work in progress Finished products 2011 837 1,488 1,192 3,517 2010 823 1,520 1,261 3,604 The cost of inventories recognised as an expense and included in cost of sales amounted to $16,146 million (2010: $14,262 million). Inventories held at net realisable value amounted to $285 million (2010: $352 million). Write-down of inventories (net of revaluation of provisionally priced purchases) amounted to $16 million (2010: $38 million). There were no inventory write-downs reversed and recognised as a reduction in the inventory expense for the year (2010: $29 million). 21. TRADE AND OTHER RECEIVABLES US$ million Trade receivables Other receivables Prepayments and accrued income Due within one year 2,704 744 226 3,674 Due after one year 168 236 33 437 2011 Total 2,872 980 259 4,111 Due within one year 2,816 755 160 3,731 Due after one year 178 134 9 321 2010 Total 2,994 889 169 4,052 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 Greater than one month, less than two months Greater than two months, less than three months Greater than three months 2011 137 16 7 19 179 2010 130 18 12 21 181 The overdue debtor ageing profile above is typical of the industry in which certain of the Group’s businesses operate. Given this, the existing insurance cover (including letters of credit from financial institutions) and the nature of the related counterparties, these amounts are considered recoverable. Total trade receivables are stated net of the following impairment provision: US$ million At 1 January Charge for the year Disposals and transfer to assets held for sale Currency movements At 31 December 22. TRADE AND OTHER PAYABLES US$ million Trade payables Amounts owed to related parties Tax and social security Other payables Accruals and deferred income 2011 53 6 (3) (2) 54 2011 3,001 – 177 939 981 5,098 2010 51 4 (2) – 53 2010 2,748 59 162 954 1,027 4,950 i F n a n c i a l s t a t e m e n t s Anglo American plc Annual Report 2011 151 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 23. FINANCIAL ASSETS The carrying amounts and fair values of financial assets are as follows: 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 Estimated fair value 596 840 11,732 3,256 1,647 1,206 19,277 2011 Carrying value 596 840 11,732 3,256 1,690 1,206 19,320 Estimated fair value 777 842 6,401 3,106 1,871 2010 Carrying value 777 842 6,401 3,106 1,920 1,300 14,297 1,300 14,346 (1) Trade and other receivables exclude prepayments and accrued income. (2) Derivative instruments are analysed between those which are ‘Held for trading’ and those designated into hedge relationships in note 25. For financial assets which are traded on an active market, such as listed investments, fair value is determined by reference to market value. For non-traded financial assets, fair value is calculated using discounted cash flows, considered to be reasonable and consistent with those that would be used by a market participant, unless carrying value is considered to approximate fair value. Fair value hierarchy An analysis of financial assets carried at fair value is set out below: US$ million At fair value through profit and loss Trade and other receivables Other financial assets (derivatives) Available for sale investments Financial asset investments Level 1(1) Level 2(2) Level 3(3) – – 1,142 1,142 596 677 10 1,283 – 163 54 217 2011 Total 596 840 1,206 2,642 Level 1(1) Level 2(2) Level 3(3) – – 1,223 1,223 777 801 22 1,600 – 41 55 96 2010 Total 777 842 1,300 2,919 (1) Valued using unadjusted quoted prices in active markets for identical financial instruments. This category includes listed equity shares. (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 (3) on the valuation are directly or indirectly based on observable market data. 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, financial asset investments and certain cross currency swaps of Brazilian real denominated borrowings, whose valuation depends upon unobservable inputs. There have been no significant transfers between levels in 2011 or 2010. The movements in the fair value of the level 3 financial assets are shown in the following table: US$ million At 1 January Net gain/(loss) recorded in remeasurements Net gain recorded in the statement of comprehensive income Cash flow Additions Disposals and transfer to assets held for sale Reclassification from/to level 3 financial liabilities Currency movements At 31 December 2011 96 37 9 (29) 9 (12) 123 (16) 217 2010 71 (6) 10 – 3 (26) 41 3 96 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 at 31 December 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 Other financial assets (derivatives) Financial asset investments Change in assumption Increase of 5% in dividend forecast Decrease of 5% in dividend forecast Shift of TJLP curve(1) Decrease of 10% in liquidity discount percentage Increase of 10% in liquidity discount percentage 2011 2010 Increase/(decrease) in fair value of assets 10 (10) n/a 11 (11) Increase/(decrease) in fair value of assets 11 (11) 38 14 (14) (1) TJLP is a Brazilian domestic interest rate. The sensitivities at 31 December 2011 are provided on the net liability position of such level 3 financial instruments and are disclosed in note 24. Financial asset risk exposures are set out in note 25. 152 Anglo American plc Annual Report 2011 24. FINANCIAL LIABILITIES The carrying amounts and fair values of financial liabilities are as follows: US$ million At fair value through profit and loss Trade and other payables(1) Other financial liabilities (derivatives)(2) Designated into fair value hedge Borrowings Financial liabilities at amortised cost Trade and other payables(1) Borrowings(3) Other non-current liabilities(4) Total financial liabilities Estimated fair value 262 1,112 2011 Carrying value 262 1,112 Estimated fair value 434 835 2010 Carrying value 434 835 8,867 8,074 8,815 8,192 4,637 5,526 55 20,459 4,637 4,799 55 18,939 4,317 7,216 87 21,704 4,317 5,247 87 19,112 (1) Trade and other payables exclude tax and social security and deferred income. (2) Derivative instruments are analysed between those which are ‘Held for trading’ and those designated into hedge relationships in note 25. (3) The fair value of the convertible bond represents the quoted price of the debt and therefore includes the portion accounted for in equity. (4) Other non-current liabilities exclude non-current deferred income. For financial liabilities which are traded on an active market, such as listed debt instruments, fair value is determined by reference to market value. For non-traded financial liabilities, fair value is calculated using discounted cash flows, considered to be reasonable and consistent with those that would be used by a market participant, unless carrying value is considered to approximate fair value. Fair value hierarchy An analysis of financial liabilities carried at fair value is set out below: US$ million At fair value through profit and loss Trade and other payables Other financial liabilities (derivatives) Level 1(1) Level 2(2) Level 3(3) – – – 262 924 1,186 – 188 188 2011 Total 262 1,112 1,374 Level 1(1) Level 2(2) Level 3(3) – – – 434 775 1,209 – 60 60 2010 Total 434 835 1,269 (1) Valued using unadjusted quoted prices in active markets for identical financial instruments. (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 (3) on the valuation are directly or indirectly based on observable market data. 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 and certain cross currency swaps of Brazilian real denominated borrowings, whose valuation depends upon unobservable inputs and commodity sales contracts which do not meet the conditions for the ‘own use’ exemption under IAS 39. There have been no significant transfers between levels in 2011 or 2010. The movements in the fair value of the level 3 financial liabilities are shown in the following table: i F n a n c i a l s t a t e m e n t s US$ million At 1 January Net gain recorded in remeasurements Cash flow Reclassification to/from level 3 financial assets Currency movements At 31 December 2011 60 (5) 15 123 (5) 188 2010 113 (121) – 41 27 60 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 at 31 December 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 Other financial liabilities (derivatives) Change in assumption Shift of TJLP curve(1) 2011 2010 Increase in fair value of liabilities 21 Increase in fair value of liabilities n/a (1) TJLP is a Brazilian domestic interest rate. The sensitivities at 31 December 2011 are provided on the net liability position of such level 3 financial instruments. Financial liability risk exposures are set out in note 25. Anglo American plc Annual Report 2011 153 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 24. FINANCIAL LIABILITIES continued Analysis of borrowings An analysis of borrowings, as presented on the Consolidated balance sheet, is set out below: US$ million Secured Bank loans and overdrafts(1) Obligations under finance leases(2) Unsecured Bank loans and overdrafts Bonds issued under EMTN programme US bonds Convertible bond(3) Other loans Total Due within one year Due after one year 55 4 59 673 163 – – 123 959 1,018 276 17 293 1,722 4,167 3,408 1,504 761 11,562 11,855 2011 Total 331 21 352 2,395 4,330 3,408 1,504 884 12,521 12,873 Due within one year Due after one year 57 5 62 1,276 62 – – 135 1,473 1,535 404 5 409 1,536 4,346 3,249 1,434 930 11,495 11,904 2010 Total 461 10 471 2,812 4,408 3,249 1,434 1,065 12,968 13,439 (1) Assets with a book value of $408 million (2010: $569 million) have been pledged as security, of which $170 million (2010: $212 million) are property, plant and equipment, $113 million (2010: $183 million) are financial assets and $125 million (2010: $174 million) are inventories. Related to these assets are borrowings of $331 million (2010: $461 million) in respect of project financing arrangements. (2) Details of assets held under finance leases are provided in note 15. The minimum lease payments under finance leases fall due as follows: US$ 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 2011 4 12 13 29 (8) 21 2010 5 4 1 10 – 10 (3) The debt component of the convertible bond includes cumulative unwinding of discount of $175 million (2010: $104 million) and the effect of conversions during the year of $1 million (2010: nil). Net additional medium and long term borrowings were $964 million (2010: $1,194 million) and net repayments of short term borrowings were $1,261 million (2010: $2,338 million) as disclosed in the Consolidated cash flow statement. Additional borrowings during 2011 primarily comprised funding from the Banco Nacional de Desenvolvimento Econômico e Social (BNDES) for the Barro Alto and Minas-Rio projects in Brazil. During 2010 the Group raised $150 million through the issuance of notes under the Euro Medium Term Note (EMTN) programme, R1 billion ($151 million) through the issuance of notes under the South African Domestic Medium Term Note programme and $1.25 billion through the issuance of senior notes (US bonds). Convertible bond During 2009 the Group issued $1.7 billion of 4% senior convertible notes (the Notes) which, at the holders’ election, could be exchanged for ordinary shares of Anglo American plc at a conversion price of £18.6370. The Group will have the option to call the Notes after three years from the date of issuance subject to certain conditions and, unless the Notes are redeemed, converted or cancelled, they will mature in 2014. Following the 2010 final dividend declaration and in accordance with the terms and conditions of the Notes, the conversion price was adjusted to £18.3600 with effect from 13 April 2011. On issuance of the Notes, the fair values of the debt and equity conversion feature were $1,330 million and $355 million respectively. The equity conversion feature is presented in equity within Fair value and other reserves. 25. FINANCIAL RISK MANAGEMENT AND DERIVATIVE FINANCIAL ASSETS/LIABILITIES The Group is exposed in varying degrees to a variety of financial instrument related risks. The Board has approved and monitors the risk management processes, inclusive of documented treasury policies, counterparty limits, controlling and reporting structures. The risk management processes of the Group’s independently listed subsidiaries are in line with the Group’s own policy. The types of risk exposure, the way in which such exposure is managed and quantification of the level of exposure in the balance sheet at year end is provided as follows (subcategorised into credit risk, liquidity risk and market risk). Credit risk The Group’s principal financial assets are cash, trade and other receivables and investments. The Group’s maximum exposure to credit risk primarily arises from these financial assets and is as follows: US$ million Cash and cash equivalents Trade and other receivables(1) Financial asset investments(2) Other financial assets (derivatives) Financial guarantees(3) 2011 11,732 3,852 1,690 840 51 18,165 2010 6,401 3,883 1,920 842 92 13,138 (1) Trade and other receivables exclude prepayments and accrued income. (2) Financial asset investments exclude available for sale investments. (3) Financial guarantees issued by the Group in respect of third party liabilities represent an exposure to credit risk in excess of the Group’s financial assets. 154 Anglo American plc Annual Report 2011 25. FINANCIAL RISK MANAGEMENT AND DERIVATIVE FINANCIAL ASSETS/LIABILITIES continued The Group limits exposure to credit risk on liquid funds and derivative financial instruments through adherence to a policy of, where possible: (cid:228) 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) (cid:228) daily counterparty settlement limits (which are not to exceed three times the credit limit for an individual bank) (cid:228) exposure diversification (the aggregate Group exposure to key financial counterparties cannot exceed 5% of the counterparty’s shareholders’ 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. 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 are disclosed in note 21. 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. In addition, certain projects are financed by means of limited recourse project finance, if appropriate. 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: US$ million Financial liabilities (excluding derivatives) Net settled derivatives(2) US$ million Financial liabilities (excluding derivatives) Net settled derivatives(2) Within one year 2011 One to two years Within one year 2010 One to two years Fixed interest Floating interest Capital repayment Fixed interest Floating interest Capital repayment Fixed interest Floating interest Capital repayment Fixed interest Floating interest Capital repayment (549) 470 (79) (181) (246) (427) (5,962)(1) 2 (5,960) (549) 470 (79) (127) (250) (377) (2,433) (140) (2,573) (566) 485 (81) (148) (303) (451) (6,356)(1) 13 (6,343) (566) 486 (80) (126) (306) (432) (1,155) 3 (1,152) Two to five years Greater than five years Two to five years Greater than five years Fixed interest Floating interest Capital repayment Fixed interest Floating interest Capital repayment Fixed interest Floating interest Capital repayment Fixed interest Floating interest Capital repayment 2011 2010 (798) 761 (37) (254) (305) (559) (6,551)(3) (468) (7,019) (354) 350 (4) (104) (127) (231) (3,952) (219) (4,171) (1,197) 1,083 (114) (137) (619) (756) (7,504)(3) (337) (7,841) (530) 530 – (1,400) (282) (1,682) (3,241) (291) (3,532) (1) Assumes maximum cash outflow in respect of third party guarantees issued by the Group and repayment of all short term borrowings with no refinancing. (2) The expected maturities are not materially different from the contracted maturities. (3) Includes the full outstanding value of the convertible bond and assumes no further conversion. The Group had the following undrawn committed borrowing facilities at 31 December: i F n a n c i a l s t a t e m e n t s 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 2011 2010 1,781 1,268 5,294 76 8,419 (2) 3,781 12 7,269 58 11,120 (1) (2) Includes undrawn rand facilities equivalent to $1.6 billion (2010: $1.7 billion) in respect of a series of facilities with 364 day maturities which roll automatically on a daily basis, unless notice is served. In February 2011 the Group retired a $2.25 billion revolving credit facility maturing in June 2011. Market risk Market risk is the risk that financial instrument fair values will fluctuate due to changes in market prices. The significant market risks to which the Group is exposed are foreign exchange risk, interest rate risk and commodity price risk. Foreign exchange risk As a global business, the Group is exposed to many currencies principally as a result of non-US dollar operating costs and to a lesser extent, from non-US dollar revenues. The Group’s policy is generally not to hedge such exposures as hedging is not deemed appropriate given the diversified nature of the Group, though exceptions can be approved by the Group Management Committee. In addition, currency exposures exist in US dollar functional currency entities in respect of non-US dollar expenditure on approved capital projects and non-US dollar borrowings. The Group’s policy is that such exposures should be hedged subject to a review of the specific circumstances of the exposure. Anglo American plc Annual Report 2011 155 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 25. FINANCIAL RISK MANAGEMENT AND DERIVATIVE FINANCIAL ASSETS/LIABILITIES continued The exposure of the Group’s financial assets and liabilities (excluding intra-group loan balances) to currency risk is as follows: US$ million US dollar Rand Brazilian real Sterling Australian dollar Euro Other currencies Total financial assets US$ million US dollar Rand Brazilian real Sterling Australian dollar Euro Other currencies Total financial liabilities Financial assets (excluding derivatives) 10,639 5,761 839 467 383 9 382 18,480 Financial liabilities (excluding derivatives) (6,970) (3,595) (1,608) (1,181) (564) (3,436) (473) (17,827) Impact of currency derivatives(1) (186) 186 – – – – – – Impact of currency derivatives(1) (5,282) (37) 1,138 740 – 3,428 13 – 2011 Total financial assets – exposure to currency risk 11,195 6,045 839 467 383 9 382 19,320 2011 Total financial liabilities – exposure to currency risk (13,348) (3,648) (470) (441) (564) (8) (460) (18,939) Derivative assets 742 98 – – – – – 840 Derivative liabilities (1,096) (16) – – – – – (1,112) Financial assets (excluding derivatives) 5,293 6,065 571 386 811 20 358 13,504 Financial liabilities (excluding derivatives) (6,444) (3,906) (1,098) (2,136) (595) (3,500) (598) (18,277) Impact of currency derivatives(1) (140) 140 – – – – – – Impact of currency derivatives(1) (5,797) (22) 462 1,796 – 3,486 75 – 2010 Total financial assets – exposure to currency risk 5,918 6,282 571 386 811 20 358 14,346 2010 Total financial liabilities – exposure to currency risk (13,054) (3,950) (636) (340) (595) (14) (523) (19,112) Derivative assets 765 77 – – – – – 842 Derivative liabilities (813) (22) – – – – – (835) (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. Interest rate risk Interest rate risk arises due to fluctuations in interest rates which impact on the value of short term investments and financing activities. Exposure to interest rate risk relates principally to changes in US and South African interest rates. The Group policy is to borrow funds at floating rates of interest as, over the longer term, this is considered by management 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. Strategic hedging using fixed rate debt may also 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. The exposure of the Group’s financial assets (excluding intra-group loan balances) to interest rate risk is as follows: US$ million Financial assets (excluding derivatives)(2) Derivative assets Financial asset exposure to interest rate risk 2011 2010 Interest bearing financial assets Non-interest bearing financial assets Interest bearing financial assets Non-interest bearing financial assets Floating rate 12,623 638 Fixed rate(1) 689 – Equity investments 1,206 – Other Total 3,962 18,480 840 202 Floating rate 6,981 315 Fixed rate(1) 1,068 – Equity investments 1,300 – Total Other 4,155 13,504 842 527 13,261 689 1,206 4,164 19,320 7,296 1,068 1,300 4,682 14,346 (1) Includes $534 million (2010: $643 million) of preference shares in BEE entities. (2) At 31 December 2011 and 31 December 2010 no interest rate swaps were held in respect of financial asset exposures. Floating rate financial assets consist mainly of cash and bank term deposits. Interest on floating rate financial assets is based on the relevant national inter-bank rates. Fixed rate financial assets consist mainly of financial asset investments and cash, and have a weighted average interest rate of 12.7% (2010: 11.7%) for an average period of three years (2010: three years). Equity investments have no maturity period and the majority are fully liquid. The exposure of the Group’s financial liabilities (excluding intra-group loan balances) to interest rate risk is as follows: US$ million 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 (3,254) (8,074) (158) (11,486) Fixed rate (9,610) 8,074 – (1,536) Non-interest bearing financial liabilities (4,963) – (954) (5,917) 2011 Total (17,827) – (1,112) (18,939) Interest bearing financial liabilities Floating rate (3,921) (8,046) (44) (12,011) Fixed rate (9,507) 8,046 – (1,461) Non-interest bearing financial liabilities (4,849) – (791) (5,640) 2010 Total (18,277) – (835) (19,112) (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. 156 Anglo American plc Annual Report 2011 25. FINANCIAL RISK MANAGEMENT AND DERIVATIVE FINANCIAL ASSETS/LIABILITIES continued Interest on floating rate financial liabilities is based on the relevant national inter-bank rates. Remaining fixed rate borrowings accrue interest at a weighted average interest rate of 9.3% (2010: 9.3%) for an average period of two years (2010: three years). Average maturity on non-interest bearing instruments is 12 months (2010: 14 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. 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 Total net financial instruments (excluding derivatives) Commodity derivatives (net) Non-commodity derivatives (net) Total financial instrument exposure to commodity risk Commodity price linked Subject to price movements 352 (17) – 335 Fixed price(1) 945 – – 945 Not linked to commodity price (644) – (255) (899) 2011 Total 653 (17) (255) 381 Commodity price linked Subject to price movements (136) (26) – Fixed price(1) 1,322 – – Not linked to commodity price (5,959) – 33 2010 Total (4,773) (26) 33 (162) 1,322 (5,926) (4,766) (1) Includes receivables and payables for commodity sales and purchases not subject to price adjustment at the balance sheet date. Derivatives In accordance with IAS 32 Financial Instruments: Presentation and IAS 39, the fair values of 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 certain 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 for accounting purposes. 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 foreign currency 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 Group’s policy) have been designated as fair value hedges. The carrying value of the hedged debt is adjusted at each balance sheet date to reflect the impact on its fair value of changes in market interest rates. Changes in the fair value of the hedged debt are offset against fair value changes in the interest rate swap and classified within net finance costs in the income statement. Non-hedges The Group may choose not to designate certain derivatives as hedges. This may occur where the Group is economically hedged but IAS 39 hedge accounting cannot be achieved or where gains and losses on both the derivative and hedged item naturally offset in the income statement, which for example may be the case for certain cross currency swaps of non-US dollar debt. 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. i F n a n c i a l s t a t e m e n t s Anglo American plc Annual Report 2011 157 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 25. FINANCIAL RISK MANAGEMENT AND DERIVATIVE FINANCIAL ASSETS/LIABILITIES continued 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: US$ million Cash flow hedge Forward foreign currency contracts Fair value hedge Interest rate swaps Forward commodity contracts Non-hedge (‘Held for trading’) Forward foreign currency contracts Cross currency swaps Other Asset 6 – – 117 49 – 172 2011 Liability (1) – (5) (121) – (35) (162) Current 2010 Liability – – – (34) – (46) (80) Asset 50 – – 307 20 – 377 2011 Asset Liability Asset Non-current 2010 Liability – 538 – 11 55 64 668 – – – (33) (908) (9) (950) – 309 – 119 3 34 465 – (44) – – (676) (35) (755) 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. 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 may also sell non-core assets to reduce debt. The Group monitors capital on the basis of the ratio of net debt to total capital (gearing). Net debt is calculated as total borrowings less cash and cash equivalents (including derivatives which provide an economic hedge of debt and the net debt of disposal groups). Total capital is calculated as Net assets (as shown in the Consolidated balance sheet) excluding net debt. Total capital and gearing are as follows: US$ million Net assets Net debt including hedges (see note 31c) Total capital Gearing 2011 43,189 1,374 44,563 3.1% 2010 37,971 7,384 45,355 16.3% The decrease in gearing since 31 December 2010 reflects the 81% reduction in net debt in the year. Net assets at 31 December 2011 were 14% higher than at 31 December 2010 due to retained profit for the year and other net gains in equity. A significant portion of these profits and gains were realised in cash, which is excluded from the calculation of total capital. Consequently, total capital remained broadly flat year on year. 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 (at 31 December) to changes in commodity prices, interest rates and foreign currencies. 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 at 31 December. The following assumptions were made in calculating the sensitivity analysis: (cid:228) All income statement sensitivities also impact equity. (cid:228) For debt and other deposits carried at amortised cost, carrying value does not change as interest rates move. (cid:228) 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. (cid:228) 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. (cid:228) 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. (cid:228) All hedge relationships are assumed to be fully effective on the grounds of materiality. (cid:228) 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. (cid:228) Translation of foreign subsidiaries and operations into the Group’s presentation currency has been excluded from the sensitivity. Using the above assumptions, the following table shows the illustrative effect on the income statement and equity that would result from reasonably possible changes in the relevant commodity price. The Group has determined that at 31 December 2011 and 31 December 2010, based on the above assumptions there is no significant sensitivity to changes in market interest rates. 158 Anglo American plc Annual Report 2011 25. FINANCIAL RISK MANAGEMENT AND DERIVATIVE FINANCIAL ASSETS/LIABILITIES continued US$ million Foreign currency sensitivities(1) +10% US dollar to rand -10% US dollar to rand +10% US dollar to Brazilian real(2) -10% US dollar to Brazilian real(2) +10% US dollar to Australian dollar -10% US dollar to Australian dollar +10% US dollar to Chilean peso(2) -10% US dollar to Chilean peso(2) Commodity price sensitivities 10% increase in the copper price 10% decrease in the copper price 10% increase in the platinum price 10% decrease in the platinum price Income statement (81) 81 402 (279) 36 (36) 15 (18) 37 (37) (15) 15 2011 Equity (77) 77 405 (282) 36 (36) 15 (18) 37 (37) (15) 15 Income statement (76) 76 456 (297) 23 (23) 38 (46) 59 (59) (19) 19 2010 Equity (76) 76 482 (302) 23 (23) 60 (73) 59 (59) (19) 19 (1) + represents strengthening of US dollar against the respective currency. (2) Includes sensitivities for non-hedge derivatives related to capital expenditure. 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: (cid:228) fluctuating trade receivable and trade payable balances (cid:228) derivative instruments and borrowings settled throughout the year (cid:228) fluctuating cash balances (cid:228) changes in currency mix. 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, whilst in reality commodity prices, interest rates and foreign currencies do not move independently. 26. PROVISIONS FOR LIABILITIES AND CHARGES US$ million At 1 January Charged to the income statement Capitalised Unwinding of discount Amounts applied Unused amounts reversed Disposal of businesses Currency movements At 31 December Environmental restoration(1) Decommissioning(1) 931 112 21 51 (9) (12) (1) (104) 989 374 1 25 19 (1) (27) (1) (41) 349 Employee benefits 262 121 – 1 (117) – – (10) 257 Other 545 164 71 6 (153) (25) (1) – 607 2011 Total 2,112 398 117 77 (280) (64) (3) (155) 2,202 i F n a n c i a l s t a t e m e n t s (1) The Group makes contributions to controlled funds to meet the cost of some of its environmental restoration and decommissioning liabilities (see note 16). Maturity analysis of total provisions: US$ million Current Non-current 2011 372 1,830 2,202 2010 446 1,666 2,112 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. Employee benefits Provision is made for statutory or contractual employee entitlements including long service leave, annual leave, sickness pay obligations and cash settled share-based payment obligations. It is anticipated that these costs will be incurred when employees choose to take their benefits. Other Other provisions primarily relate to indemnities, warranties and legal claims. It is anticipated that these costs will be incurred over a five year period. Anglo American plc Annual Report 2011 159 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 27. DEFERRED TAX The movement in deferred tax balances during the year is as follows: US$ million Deferred tax assets At 1 January Credited to the income statement Credited/(charged) to the statement of comprehensive income (Charged)/credited directly to equity Transfers Disposal of businesses Currency movements At 31 December US$ million Deferred tax liabilities At 1 January Charged to the income statement Charged to the statement of comprehensive income (Charged)/credited directly to equity Acquired/released in respect of business combinations Transfers Disposal of businesses Currency movements At 31 December The amount of deferred tax recognised in the balance sheet is as follows: US$ million Deferred tax assets Tax losses Post employment 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 The amount of deferred tax (charged)/credited 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 The current expectation regarding the maturity of deferred tax balances is as follows: US$ million Deferred tax assets Recoverable within one year Recoverable after one year Deferred tax liabilities Payable within one year Payable after one year 160 Anglo American plc Annual Report 2011 2011 2010 389 207 15 (21) – (1) (59) 530 288 69 (16) 51 (27) – 24 389 2011 2010 (5,641) (757) (5) (106) – – 6 773 (5,730) 2011 273 35 15 207 530 (3,334) (1,806) 103 (167) (435) (91) (5,730) 2011 (615) (118) 167 36 82 (102) (550) 2011 52 478 530 (5,192) (222) (76) 17 98 52 119 (437) (5,641) 2010 105 45 55 184 389 (3,121) (1,903) 103 (211) (507) (2) (5,641) 2010 (162) 168 42 (105) (44) (52) (153) 2010 49 340 389 (505) (5,225) (5,730) (283) (5,358) (5,641) 27. DEFERRED TAX continued The Group has the following balances in respect of which no deferred tax asset has been recognised: US$ million Expiry date Within one year Greater than one year, less than five years Greater than five years No expiry date Tax losses – revenue Tax losses – capital Other temporary differences – – 111 3,082 3,193 – – – 1,067 1,067 – – – 403 403 2011 Total – – 111 4,552 4,663 Tax losses – revenue Tax losses – capital Other temporary differences – 15 84 3,023 3,122 – – – 1,252 1,252 – – – 8 8 2010 Total – 15 84 4,283 4,382 The Group also has unused tax credits of $18 million (2010: $84 million) for which no deferred tax asset is recognised in the balance sheet. None of these credits expire within five years. No deferred tax 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 such investments in subsidiaries, branches and associates and interests in joint ventures is represented by the contribution of those investments to the Group’s retained earnings and amounted to $25,876 million (2010: $20,277 million). 28. RETIREMENT BENEFITS The Group operates a number of defined contribution and defined benefit pension plans. It also operates post employment medical arrangements in southern Africa. 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 2011 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 plans (net of amounts capitalised) was $254 million (2010: $216 million) and for defined contribution medical plans (net of amounts capitalised) was $57 million (2010: $23 million). Defined benefit pension plans and post employment 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 employment 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 employment medical plan liability. Independent qualified actuaries carry out full valuations every three years using the projected unit credit method. The actuaries have updated the valuations to 31 December 2011. 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): i F n a n c i a l s t a t e m e n t s % 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(3) Post employment medical plans Average discount rate for plan liabilities Average rate of inflation Expected average increase in healthcare costs Southern Africa The Americas (1) 8.5 6.5 7.8 6.5 5.2 8.5 6.5 7.9 7.8 3.6 6.5 3.3 12.8 n/a n/a n/a 2011 Europe (2) 4.8 2.7 n/a 3.0 5.0 n/a n/a n/a Southern Africa The Americas 8.5 5.8 7.0 5.8 9.1 8.5 5.8 7.2 8.5 3.8 6.8 3.6 12.4 n/a n/a n/a 2010 Europe 5.4 3.2 0.4 3.5 6.1 n/a n/a n/a (1) Plans in southern Africa have ceased future accrual of benefits but some benefits remain linked to salary increases. (2) European plans have ceased future accrual of benefits. (3) The long term expected return on plan assets has been set with reference to current market yields on government and corporate bonds, plus expected equity and corporate bond- outperformance over government bonds in the relevant jurisdictions. The expected return on cash assets has been set with reference to current bank base rates. The overall long term expected rate of return for each asset class is weighted by the asset allocation to the asset class at the balance sheet date. Anglo American plc Annual Report 2011 161 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 28. RETIREMENT BENEFITS continued 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 (2010: PA90 tables) are used. The main plans in Europe use the SAPS tables (2010: SAPS tables). The main plans in the Americas use the RV2009 and AT2000 tables (2010: RV2004 and AT2000 tables). The mortality tables used imply that a male or female aged 60 at the balance sheet date has the following future life expectancy: Years Southern Africa The Americas Europe 2011 20.9 23.2 27.4 Male 2010 20.6 23.2 27.4 2011 25.8 27.2 30.0 Female 2010 25.5 27.2 30.0 Summary of plans by geography The Group’s plans in respect of pension and post employment healthcare are summarised as follows: US$ million Assets(1) Defined benefit pension plans in surplus Liabilities Defined benefit pension plans in deficit Post employment medical plans in deficit (1) Amounts are included in Other non-current assets. Five year summary of plan assets and liabilities US$ million Defined benefit pension plans Fair value of plan assets Present value of plan liabilities Net (deficit)/surplus Surplus restriction Net deficit after surplus restriction Actuarial (loss)/gain on plan assets(1) Actuarial (loss)/gain on plan liabilities(2) Post employment medical plans Fair value of plan assets Present value of plan liabilities Net deficit Actuarial gain on plan assets(3) Actuarial (loss)/gain on plan liabilities(4) Southern Africa The Americas Europe 70 – – – (287) (287) (181) – (181) (171) – (171) 2011 Total 70 (352) (287) (639) Southern Africa The Americas Europe 112 – – – (312) (312) (178) – (178) (101) – (101) 2010 Total 112 (279) (312) (591) 2011 2010 2009 2008 2007 2,583 (2,792) (209) (73) (282) (32) (135) 22 (309) (287) 1 (22) 2,732 (2,840) (108) (59) (167) 76 19 25 (337) (312) 2 (13) 2,731 (2,975) (244) (106) (350) 184 (361) 20 (322) (302) – (10) 2,073 (2,157) (84) (61) (145) (392) 208 17 (241) (224) 1 16 3,148 (3,095) 53 (136) (83) 39 (48) 20 (329) (309) 1 (29) (1) Net experience losses on pension plan assets were $32 million (2010: gains of $76 million; 2009: gains of $184 million; 2008: losses of $392 million; 2007: gains of $32 million). (2) Net experience losses on pension plan liabilities were $10 million (2010: gains of $38 million; 2009: losses of $17 million; 2008: losses of $29 million; 2007: losses of $112 million). (3) Net experience gains on medical plan assets were $1 million (2010: gains of $2 million; 2009: nil; 2008: gains of $1 million; 2007: losses of $1 million). (4) Net experience losses on medical plan liabilities were $1 million (2010: gains of $5 million; 2009: losses of $3 million; 2008: losses of $7 million; 2007: losses of $4 million). The actuarial loss recognised in the Consolidated statement of comprehensive income of $214 million (2010: gain of $131 million) includes a charge for the increase in the surplus restriction of $26 million (2010: credit for the decrease of $57 million) and, in 2010, an actuarial loss of $10 million related to disposal groups. The movement in the surplus restriction in the Consolidated statement of comprehensive income differs from that in the table above due to exchange differences. Cumulative net actuarial losses recognised in the Consolidated statement of comprehensive income are $592 million (2010: $378 million; 2009: $509 million; 2008: $292 million; 2007: $163 million). Income statement The amounts recognised in the income statement are as follows: US$ million Analysis of the amount charged to operating profit Current service costs Past service costs and effects of settlements and curtailments 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 to net finance costs Total charge to the income statement (1) (2) Included in Investment income. See note 9. Included in Interest expense. See note 9. 162 Anglo American plc Annual Report 2011 Post employment medical plans Pension plans 18 – 18 (197) 181 (16) 2 3 – 3 (2) 24 22 25 2011 Total 21 – 21 (199) 205 6 27 Post employment medical plans Pension plans 28 9 37 (203) 193 (10) 27 3 (6) (3) (2) 26 24 21 2010 Total 31 3 34 (205) 219 14 48 28. RETIREMENT BENEFITS continued Pension plan assets and liabilities by geography The split of the present value of funded and unfunded obligations in defined benefit pension plans, the fair value of the pension assets and the long term expected rate of return at 31 December are as follows: Southern Africa The Americas Equity Bonds Other Fair value of pension plan assets(1) Present value of funded obligations(1) Present value of unfunded 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 Rate of return % 7.5 4.1 2.9 Fair value US$ million 283 512 42 837 (718) – (718) 119 (49) 70 70 – 70 Rate of return % 14.6 12.6 11.8 Fair value US$ million 13 124 5 Rate of return % 7.0 3.7 1.4 142 (150) (173) (323) (181) – (181) – (181) (181) Europe Fair value US$ million 726 715 163 2011 Total Fair value US$ million 1,022 1,351 210 1,604 2,583 (1,751) (2,619) – (173) (1,751) (2,792) (147) (209) (24) (73) (171) (282) – (171) (171) 70 (352) (282) Southern Africa The Americas Rate of return % 11.3 8.0 6.5 Fair value US$ million 359 597 62 1,018 (847) – (847) 171 (59) 112 112 – 112 Rate of return % 16.8 12.0 10.8 Fair value US$ million 13 128 6 147 (155) (170) (325) (178) – (178) – (178) (178) Europe Fair value US$ million 822 582 163 Rate of return % 7.7 4.7 3.0 2010 Total Fair value US$ million 1,194 1,307 231 1,567 2,732 (1,667) (2,669) (1) (171) (1,668) (2,840) (101) (108) – (59) (101) (167) – (101) (101) 112 (279) (167) (1) The fair value of assets was used to determine the funding level of the plans. The fair value of the assets of the funded plans was sufficient to cover 99% (2010: 102%) 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. Movement analysis The changes in the fair value of plan assets are as follows: US$ million At 1 January Past service costs and effects of settlements and curtailments Expected return Actuarial (losses)/gains Contributions paid by employer(2) Benefits paid Contributions paid by plan participants Transfer to liabilities directly associated with assets held for sale Currency movements At 31 December Post employment medical plans 25 – 2 1 – (1) – – (5) 22 (1) Pension plans 2,732 (31) (1) 197 (32) 81 (136) 1 – (229) 2,583 2011 Total 2,757 (31) 199 (31) 81 (137) 1 – (234) 2,605 Post employment medical plans 20 – 2 2 – (1) – – 2 25 Pension plans 2,731 (127) 203(1) 76(1) 53 (160) 2 (113) 67 2,732 (1) The actual return on assets in respect of pension plans was $165 million (2010: $279 million). (2) The Group expects to contribute approximately $38 million to its pension plans and $16 million to its post employment medical plans in 2012. The changes in the present value of defined benefit obligations are as follows: US$ million At 1 January Current service costs Past service costs and effects of settlements and curtailments Interest costs Actuarial (losses)/gains Benefits paid Contributions paid by plan participants Transfer to liabilities directly associated with assets held for sale Reclassification Currency movements At 31 December Post employment medical plans (337) (3) – (24) (22) 16 – – – 61 (309) Pension plans (2,840) (18) 31 (181) (135) 136 (1) – – 216 (2,792) 2011 Total (3,177) (21) 31 (205) (157) 152 (1) – – 277 (3,101) Post employment medical plans (322) (3) 6 (26) (13) 17 – 40 – (36) (337) Pension plans (2,975) (28) 118 (193) 19 160 (2) 128 (8) (59) (2,840) i F n a n c i a l s t a t e m e n t s 2010 Total 2,751 (127) 205 78 53 (161) 2 (113) 69 2,757 2010 Total (3,297) (31) 124 (219) 6 177 (2) 168 (8) (95) (3,177) Anglo American plc Annual Report 2011 163 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 28. RETIREMENT BENEFITS continued Healthcare sensitivity analysis Amounts recognised in the income statement in respect of post employment medical plans are sensitive to assumed healthcare cost trend rates. A 1% change in assumed healthcare cost trend rates would have the following effects: US$ million Effect on the sum of service costs and interest costs Effect on defined benefit obligations 1% increase 1% decrease 2011 4 35 2010 3 37 2011 (3) (28) 2010 (3) (31) 29. CALLED-UP SHA RE CAPITAL AND SHARE-BASED PAYMENTS Called-up share capital Called-up, allotted and fully paid: 5% cumulative preference shares of £1 each Ordinary shares of 5486/91 US cents each: At 1 January Allotted during the year At 31 December Number of shares US$ million Number of shares US$ million 2011 2010 50,000 – 50,000 – 1,342,932,714 34,744 1,342,967,458 738 – 738 1,342,927,138 5,576 1,342,932,714 738 – 738 During 2011 5,487 ordinary shares of 5486/91 US cents each were allotted to certain non-executive directors by subscription of their after tax directors’ fees (2010: 5,576 ordinary shares). In addition, 29,257 ordinary shares of 5486/91 US cents each were allotted upon the conversion of Anglo American plc convertible bonds due 2014 (2010: nil), see note 24. 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 and carrying value of called-up, allotted and fully paid ordinary shares as at 31 December 2011 was 1,323,428,547 and $727 million (2010: 1,320,052,246; $725 million). At general meetings, every member who is present in person has one vote on a show of hands and, on a poll, every member who is present in person or by proxy has one vote for every ordinary share held. In the event of winding up, the holders of the cumulative preference shares will be entitled to the repayment of a sum equal to the nominal capital paid up, or credited as paid up, on the cumulative preference shares held by them and any accrued dividend, whether such dividend has been earned or declared or not, calculated up to the date of the winding up. No ordinary shares were allotted on exercise of employee share option plans (2010: nil). Treasury shares At 31 December 2011 the Company held 19,538,911 ordinary shares of 5486/91 US cents in treasury (2010: 22,880,468 ordinary shares). During 2011 3,341,557 treasury shares (2010: 3,553,042 treasury shares) were transferred to employees in settlement of share awards. 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 Investment 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 $6.69 per share to Epoch, $10.41 per share to Epoch Two and $8.64 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 on 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. At 31 December 2011 the Investment Companies together held 112,300,129 (2010: 112,300,129) Anglo American plc shares with a market value of $4,125 million (2010: $5,852 million) which represented 8.5% (2010: 8.5%) 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 continue to meet the accounting definition of a subsidiary in accordance with IAS 27. As a result, the Investment Companies are consolidated in accordance with the definitions of IAS 27 and the principles set out in SIC-12. 164 Anglo American plc Annual Report 2011 29. CALLED-UP SHA RE CAPITAL AND SHARE-BASED PAYMENTS continued Employee benefit trust The provision of shares to certain of the Company’s share option and share incentive schemes may be facilitated by an employee benefit trust or settled by the issue of treasury shares. During 2011 no shares (2010: 948,259 shares) from the trust were transferred to employees in settlement of share awards. 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 985 shares (2010: 985 shares) held by the trust at 31 December 2011 was $36,000 (2010: $51,000). The costs of operating the trust are borne by the Group but are not material. Share-based payments During the year ended 31 December 2011, the Group had share-based payment arrangements with employees relating to shares of the Company, the details of which are described in the Remuneration report. All of these Company schemes are equity settled, either by award of ordinary shares (BSP, LTIP and SIP) or award of options to acquire ordinary shares (ESOS and SAYE). The ESOS is now closed to new participants, having been replaced with the BSP. The DOP has since replaced the ESOS for use in special circumstances, relating to the recruitment or retention of key executives. No options have been granted under the DOP. The total share-based payment charge relating to Anglo American plc shares for the year is split as follows: US$ million BSP LTIP Other schemes Share-based payment charge relating to Anglo American plc shares(1) 2011 92 36 15 143 2010 69 41 16 126 (1) There are equity settled employee share-based payment charges of $47 million (2010: $27 million) relating to Kumba Iron Ore Limited shares and $72 million (2010: $61 million) relating to Anglo American Platinum Limited shares. In addition business units had a net cash settled employee share-based payment credit of $2 million (2010: charge of $9 million). Schemes settled by award of ordinary shares The fair value of ordinary shares awarded under the BSP, LTIP and LTIP – AOSC, 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 are set out below: Arrangement(1) Date of grant Number of instruments Share price at the date of grant (£) Contractual life (years) Vesting conditions Expected volatility Risk free interest rate Expected departures Expected outcome of meeting performance criteria (at date of grant) Fair value at date of grant (weighted average) (£) BSP 04/03/11 3,364,610 32.08 3 (2) LTIP LTIP – AOSC 04/03/11 267,407 31.99 3 (4) 04/03/11 879,630 31.99 3 (3) 40% 1.9% 5% pa 40% 1.9% 5% pa 40% 1.9% 5% pa 2011 LTIP – TSR 04/03/11 267,407 31.99 3 (5) 40% 1.9% 5% pa BSP 19/03/10 3,007,996 23.80 3 (2) 40% 1.9% 5% pa LTIP 12/03/10 871,864 25.69 3 (3) 40% 1.9% 5% pa LTIP – AOSC 12/03/10 220,369 25.69 3 (4) 40% 1.9% 5% pa 2010 LTIP – TSR 12/03/10 220,369 25.69 3 (5) 40% 1.9% 5% pa 100% 100% 100% n/a 100% 100% 100% n/a 33.25 33.25 33.25 21.80 26.64 27.08 27.08 23.56 i F n a n c i a l s t a t e m e n t s (1) The number of instruments used in the fair value models may differ 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) Three years of continuous employment with enhancement shares having variable vesting based on non-market based performance conditions. (3) Three years of continuous employment. (4) Variable vesting dependent on three years of continuous employment and Group AOSC target being achieved. (5) 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 risk free interest rate is the yield on zero-coupon UK government bonds with a term similar to the expected life of the award. The charges arising in respect of the other Anglo American plc employee share schemes that the Group operated during the year are not considered material. Anglo American plc Annual Report 2011 165 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 29. CALLED-UP SHA RE CAPITAL AND SHARE-BASED PAYMENTS continued The movements in the number of shares for the more significant share-based payment arrangements are as follows: Bonus Share Plan(1) Ordinary shares of 5486/91 US cents may be awarded under the terms of this scheme for no consideration. Outstanding at 1 January Conditionally awarded in year Vested in year Forfeited in year Outstanding at 31 December 2011 9,020,260 3,366,076 (1,052,193) (1,227,770) 10,106,373 2010 8,589,412 3,009,494 (1,592,468) (986,178) 9,020,260 (1) The BSP was approved by shareholders in 2004 as a replacement for the ESOS. Further information in respect of the BSP, including performance conditions, is shown in the Remuneration report. Long Term Incentive Plan(1)(2) Ordinary shares of 5486/91 US cents may be awarded under the terms of this scheme for no consideration. Outstanding at 1 January Conditionally awarded in year Vested in year Forfeited in year Outstanding at 31 December 2011 4,012,568 1,414,444 (730,807) (975,670) 3,720,535 2010 4,790,915 1,312,602 (1,195,667) (895,282) 4,012,568 (1) The early vesting of share awards is permitted at the discretion of the Company upon, inter alia, 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. Share Incentive Plan Ordinary shares of 5486/91 US cents may be awarded under the terms of this scheme for no consideration. Share Incentive Plan Awards outstanding at 31 December 2011 1,016,074 Awards outstanding at 31 December 2010 915,652 Latest release date 7 December 2014 Schemes settled by award of options The fair value of options granted under the SAYE scheme, being the only material option scheme, was calculated using a Black Scholes model. No ESOS awards were granted in 2011 or 2010. 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 (weighted average) Expected departures Fair value per option granted (weighted average) (£) 2011 SAYE 20/04/11 115,026 25.47 31.85 3.5-7.5 3-7 40% 3.5-7.5 2.3% 5% pa 11.77 2010 SAYE 26/04/10 172,650 22.99 28.74 3.5-7.5 3-7 40% 3.5-7.5 2.7% 5% pa 13.29 (1) The number of instruments used in the fair value models may differ 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. 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. A reconciliation of option movements for the more significant share-based payment arrangements over the year to 31 December 2011 and the prior year is shown below. All options outstanding at 31 December 2011 with an exercise date on or prior to 31 December 2011 are deemed exercisable. Options were exercised regularly during the year and the weighted average share price for the year ended 31 December 2011 was £27.96 (2010: £26.71). 166 Anglo American plc Annual Report 2011 29. CALLED-UP SHA RE CAPITAL AND SHARE-BASED PAYMENTS continued 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: Outstanding at 1 January Exercised in year Forfeited in year Outstanding at 31 December Number 3,488,329 (949,341) (38,881) 2,500,107 (1) The early exercise of share options is permitted at the discretion of the Company upon, inter alia, termination of employment, ill health or death. 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: Outstanding at 1 January Granted in year Exercised in year Forfeited in year Outstanding at 31 December Number 1,669,812 115,026 (125,333) (138,828) 1,520,677 (1) The early exercise of share options is permitted at the discretion of the Company upon, inter alia, termination of employment, ill health or death. 2011 Weighted average exercise price £ 11.22 10.75 10.09 11.42 2011 Weighted average exercise price £ 12.33 25.47 14.99 14.47 12.91 Number 4,774,568 (1,228,787) (57,452) 3,488,329 Number 2,037,426 172,650 (330,368) (209,896) 1,669,812 2010 Weighted average exercise price £ 10.90 9.99 10.49 11.22 2010 Weighted average exercise price £ 11.49 22.99 12.41 12.77 12.33 30. CONSOLIDATED EQUITY ANALYSIS Fair value and other reserves comprise: US$ million Balance at 1 January 2010 Total comprehensive income Changes in ownership interest in subsidiaries Other Balance at 1 January 2011 Total comprehensive income Other Balance at 31 December 2011 Convertible debt reserve 355 – – – 355 – – 355 Available for sale reserve 305 270 (107) – 468 108 – 576 Cash flow hedge reserve 31 7 – – 38 (33) – 5 Total fair value and other reserves 1,529 277 (107) (7) 1,692 75 (7) 1,760 Other reserves(1) 838 – – (7) 831 – (7) 824 i F n a n c i a l s t a t e m e n t s (1) Other reserves comprise a legal reserve of $675 million (2010: $682 million), a revaluation reserve of $34 million (2010: $34 million) and a capital redemption reserve of $115 million (2010: $115 million). 31. CONSOLIDATED CASH FLOW ANALYSIS a) Reconciliation of profit before tax to cash flows from operations US$ 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 Increase in inventories Increase in operating receivables Increase in operating payables Deferred stripping Other adjustments Cash flows from operations 2011 10,782 1,967 254 (183) (138) 105 20 (977) 6 (352) (264) 457 (171) (8) 11,498 2010 10,928 1,919 219 (1,579) (491) 134 244 (822) (37) (309) (587) 516 (196) (15) 9,924 Anglo American plc Annual Report 2011 167 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 31. CONSOLIDATED CASH FLOW ANALYSIS continued b) Reconciliation to the balance sheet US$ million Balance sheet Balance sheet – disposal groups(1) Net debt classifications Cash and cash equivalents Short term borrowings 2011 11,732 – 11,732 2010 6,401 59 6,460 2011 (1,018) – (1,018) 2010 (1,535) – (1,535) Medium and long term borrowings 2011 (11,855) – (11,855) 2010 (11,904) – (11,904) (1) 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 2010 Cash flow Unwinding of discount on convertible bond Disposal of businesses Reclassifications Movement in fair value Other non-cash movements Currency movements Balance at 1 January 2011 Cash flow Unwinding of discount on convertible bond Disposal of businesses Reclassifications Movement in fair value Other non-cash movements Currency movements Balance at 31 December 2011 Cash and cash equivalents(1) 3,319 2,857 – – – – – 284 6,460 5,983 – – – – – (711) 11,732 Debt due within one year (1,498) 2,338 – 1 (2,359) (6) – (11) (1,535) 1,261 – 5 (777) – (18) 46 (1,018) Debt due after one year (12,819) (1,194) (65) 2 2,359 (180) (11) 4 (11,904) (964) (71) – 777 (264) (38) 609 (11,855) Current financial asset investments 3 (7) – – – – 3 1 – – – – – – – – – Net debt excluding hedges (10,995) 3,994 (65) 3 – (186) (8) 278 (6,979) 6,280 (71) 5 – (264) (56) (56) (1,141) Net debt including hedges (11,280) 3,777 (65) 3 – (91) (8) 280 (7,384) 6,054 (71) 5 – 140 (56) (62) (1,374) Hedges(2) (285) (217) – – – 95 – 2 (405) (226) – – – 404 – (6) (233) (1) The Group operates in certain countries where the existence of exchange controls may restrict the use of certain cash balances (principally South Africa and Venezuela). These restrictions are not expected to have a material effect on the Group’s ability to meet its 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 $82 million (2010: $2 million) and net non-current derivative liabilities of $315 million (2010: $407 million) which are classified within Other financial assets (derivatives) and Other financial liabilities (derivatives) on the balance sheet. 32. DISPOSALS OF SUBSIDIARIES AND JOINT VENTURES US$ million Net assets disposed Property, plant and equipment Other non-current assets Current assets Current liabilities Non-current liabilities Net assets Non-controlling interests Group’s share of net assets immediately prior to disposal Fair value adjustment to retained investments(1) Less: retained investments Net assets disposed Cumulative translation differences recycled from reserves Net gain/(loss) on disposals(1) Net sale proceeds Net cash and cash equivalents disposed Non-cash/deferred consideration Accrued transaction costs and similar items Net cash inflow from disposals(2) Lisheen and Black Mountain Tarmac disposals Other Total Total 2011 2010 110 53 431 (39) (100) 455 (42) 413 – – 413 42 397 852 (356) – 3 499 54 25 15 (7) (7) 80 – 80 – – 80 5 (75) 10 (2) – – 8 3 1 15 (9) (1) 9 – 9 – – 9 (2) 15 22 – – – 22 167 79 461 (55) (108) 544 (42) 502 – – 502 45 337 884 (358) – 3 529 1,443 658 852 (240) (412) 2,301 (14) 2,287 440 (826) 1,901 (40) 1,246 3,107 (280) (83) 51 2,795 (1) (2) Included in net profit on disposals, see note 5. In addition, in the year ended 31 December 2011, there was a net cash inflow of $4 million in respect of disposals in 2010, resulting in a total net cash inflow from disposals of $533 million (2010: $2,795 million). Of this, a net cash inflow of $514 million (2010: $2,539 million) related to disposals of subsidiaries and $19 million (2010: $256 million) related to the sale of interests in joint ventures. 168 Anglo American plc Annual Report 2011 32. DISPOSALS OF SUBSIDIARIES AND JOINT VENTURES continued Disposals in 2011 Disposals of subsidiaries during the year ended 31 December 2011 mainly related to the disposal of Lisheen and a 74% interest in Black Mountain (the Group’s remaining zinc operations) and disposals of Tarmac businesses (China, Turkey and Romania) in the Other Mining and Industrial segment. Lisheen and Black Mountain The Group announced the sale of its zinc portfolio to Vedanta Resources plc on 10 May 2010, for a total consideration of $1,338 million, on an attributable debt and cash free basis. The completion of the sale of Lisheen and Black Mountain took place in February 2011 for a combined net cash inflow of $499 million. Disposals in 2010 Disposals of subsidiaries and joint ventures during 2010 mainly related to disposals in the Other Mining and Industrial, Platinum and Metallurgical Coal segments. Disposals in the Other Mining and Industrial segment related to Moly-Cop and AltaSteel, the Skorpion zinc operation and Tarmac’s Polish and French and Belgian concrete products businesses and the majority of the European aggregates businesses. Disposals in the Platinum segment mainly related to the Bafokeng-Rasimone Platinum mine transaction and disposals in the Metallurgical Coal segment related to undeveloped coal assets. 33. DISPOSAL GROUPS AND NON-CURRENT ASSETS HELD FOR SALE There were no assets or liabilities in disposal groups or non-current assets classified as held for sale at 31 December 2011. US$ million Intangible assets Property, plant and equipment 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 Total current liabilities Deferred tax liabilities Provisions for liabilities and charges Other non-current liabilities Total non-current liabilities Total liabilities Net assets 2010(1) 4 117 49 170 26 75 59 160 330 (40) (40) (23) (72) (7) (102) (142) 188 (1) Related to the Group’s portfolio of zinc operations for which disposal transactions had not completed at 31 December 2010 (Lisheen and a 74% interest in Black Mountain). Lisheen and Black Mountain were sold during 2011. See note 32. 34. CONTINGENT LIABILITIES 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 the Mondi Group have agreed to indemnify each other, subject to certain limitations, against certain liabilities. Anglo American has also provided Mitsubishi Corporation LLC with indemnities against certain liabilities as part of the sale of a 24.5% interest in AA Sur. Having taken appropriate legal advice, the Group believes that a material liability arising from the indemnities provided is unlikely. At 31 December 2011 the Group and its subsidiaries had provided aggregate amounts of $873 million (2010: $813 million) of loan and performance guarantees to banks and other third parties primarily in respect of environmental restoration and decommissioning obligations. For information relating to contingent liabilities in respect of associates and joint ventures, see notes 17 and 18 respectively. No contingent liabilities were secured on the assets of the Group at 31 December 2011 or 31 December 2010. Other Anglo American Sur SA (AA Sur) Anglo American and Enami, a wholly owned Chilean state controlled minerals company, amended an agreement Anglo American inherited when it acquired AA Sur in 2002. In 2008 the option under this agreement was transferred by Enami to Codelco, the Chilean state copper company. AA Sur is majority owned by the Group and owns the Los Bronces and El Soldado copper mines and the Chagres smelter. The agreement granted Codelco the right, subject to certain conditions and limitations, to acquire up to a 49% interest in AA Sur. The right to exercise the option was restricted to a window that occurred once every three years in the month of January until January 2027. The previous option exercise window was in January 2009. The calculations of the price at which Codelco could have exercised its rights take account of company profitability over a five year period, shareholder loans and undistributed earnings. Under IAS 39, the fair valuation of an option is required to be performed from the perspective of a market participant in an arm’s length transaction and does not take into account specific factors relevant to any individual counterparty. In particular, the IAS 39 valuation does not incorporate any capital gains tax payable by the Group on exercise of the option to Codelco’s shareholder, the Chilean government. The valuation also excludes any commercial or strategic benefit to Anglo American in extinguishing the option. The option’s fair value is calculated as the difference between the estimated fair value of the underlying assets to which the option relates and the estimated option price. The estimated fair value of the underlying assets may vary based on a market participant’s assumptions at any point in time, including, inter alia, commodity prices, foreign exchange rates and discount rates. In addition, the option price cannot be finalised in advance of the option window and must be estimated based on assumptions about inputs that are subject to significant fluctuations. Further, Anglo American had a right to sell up to 100% of its interest in AA Sur to a third party at any time prior to the exercise of the option, which would correspondingly reduce any value attributed to the option during the non-exercise period. Anglo American plc Annual Report 2011 169 i F n a n c i a l s t a t e m e n t s FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 34. CONTINGENT LIABILITIES continued Based on a range of scenarios for these key variables, it was concluded that the option had insufficient value to warrant recognition on the balance sheet at 31 December 2010 and 30 June 2011. In the fourth quarter of 2011 Anglo American entered into discussions with Mitsubishi to sell 24.5% of AA Sur, as it was entitled to do under the option agreement. This highlighted new information about the value of AA Sur from a third party which was not previously available. The fair value of a 24.5% equity interest in AA Sur, based on the consideration received by the Group from its disposal of a 24.5% equity interest in AA Sur to Mitsubishi in November 2011, was $5.4 billion. The option exercise price in the January 2012 option exercise window would have been $2.8 billion, representing a 24.5% equity interest in AA Sur for $2.5 billion, plus 24.5% of shareholder loans. On 22 December 2011 Anglo American filed a writ with the Court of Appeals in Santiago against Codelco for breach of contract. The breach consisted of Codelco’s premature attempt to exercise the option outside of a contractual exercise window and Codelco’s actions aimed at preventing Anglo American from exercising its contractual rights under the option agreement. The writ seeks to render ineffective the potential future exercise of the option by Codelco and also seeks damages. In accordance with Anglo American’s legal advice, as a result of Codelco’s breach of contract, it is no longer entitled to enforce the option to acquire shares of AA Sur and any attempt to do so is ineffective. The Group remains confident that this position will be upheld should the various claims and counter claims proceed to judgment. As a liability would only be recognised by the Group where a present obligation, that could be measured reliably, existed at the balance sheet date, no liability has been recognised as at 31 December 2011. If the option over 24.5% of AA Sur had been legally enforceable at 31 December 2011 an option liability of $2.9 billion would have been recognised by the Group. Had the option been validly exercised in January 2012 this liability would have been reversed and, in addition, an accounting gain of approximately $1.0 billion would have been recognised in equity. The Group remains open to reaching a commercial settlement with Codelco but to date no settlement has been reached. Kumba Iron Ore (Kumba) Sishen Supply Agreement arbitration Sishen Iron Ore Company (SIOC) notified ArcelorMittal South Africa Limited (ArcelorMittal) on 5 February 2010 that it was no longer entitled to receive 6.25 Mtpa of iron ore contract mined by SIOC at cost plus 3% from Sishen mine, as a result of the fact that ArcelorMittal had failed to convert its old order mining rights. This contract mining agreement, concluded in 2001, was premised on ArcelorMittal owning an undivided 21.4% interest in the mineral rights of Sishen mine. As a result of ArcelorMittal’s failure to convert its old order mining right, the contract mining agreement automatically lapsed and became inoperative in its entirety as of 1 May 2009. As a result, a dispute arose between SIOC and ArcelorMittal, which SIOC has referred to arbitration. During 2011, three arbitrators were appointed and May 2012 was set as the date for the arbitration to begin. On 9 December 2011, SIOC and ArcelorMittal agreed to postpone the arbitration until the final resolution of the mining right dispute (see below). SIOC and ArcelorMittal reached an interim pricing arrangement in respect of the supply of iron ore to ArcelorMittal from the Sishen mine. This interim arrangement endured until 31 July 2011. SIOC and ArcelorMittal agreed to an addendum to the interim supply agreement which extended the terms and conditions of the current interim agreement. The new interim pricing agreement, which is on the same terms and conditions as the first interim pricing agreement, commenced on 1 August 2011 and will endure to 31 July 2012. 21.4% undivided share of the Sishen mine mineral rights After ArcelorMittal failed to convert its old order rights, SIOC applied for the residual 21.4% mining right previously held by ArcelorMittal and its application was accepted by the Department of Mineral Resources (DMR) on 4 May 2009. A competing application for a prospecting right over the same area was also accepted by the DMR. SIOC objected to this acceptance. Notwithstanding this objection, a prospecting right over the 21.4% interest was granted by the DMR to Imperial Crown Trading 289 (Pty) Limited (ICT). SIOC initiated a review application in the North Gauteng High Court on 21 May 2010 in relation to the decision of the DMR to grant a prospecting right to ICT. The High Court Review, in which SIOC challenged the award of the 21.4% prospecting right over Sishen mine by the DMR to ICT, was presided over by Judge Raymond Zondo in the North Gauteng High Court in Pretoria, South Africa, from 15 to 18 August 2011. On 21 December 2011 judgment was delivered in the High Court regarding the status of the mining rights at the Sishen mine. The High Court held that, upon the conversion of SIOC’s old order mining right relating to the Sishen mine properties in 2008, SIOC became the exclusive holder of a converted mining right for iron ore and quartzite in respect of the Sishen mine properties. The High Court held further that as a consequence, any decision taken by the DMR after such conversion in 2008, to accept or grant any further rights to iron ore at the Sishen mine properties was void. Finally, the High Court reviewed and set aside the decision of the Minister of Mineral Resources or her delegate to grant a prospecting right to ICT relating to iron ore as to a 21.4% share in respect of the Sishen mine properties. On 3 February 2012, both the DMR and ICT submitted applications for leave to appeal against the High Court judgment. The High Court order does not affect the interim supply agreement between ArcelorMittal and SIOC, which will endure until 31 July 2012 as indicated above. SIOC will continue to take the necessary steps to protect its shareholders’ interests in this regard. Anglo American South Africa Limited (AASA) AASA, a wholly owned subsidiary of the Company, is a defendant in 24 separate lawsuits in South Africa each one of them brought by a former mineworker (or his dependant) 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. In addition, AASA is a defendant in one lawsuit filed in England on behalf of 19 former mineworkers, and a claim form for a second lawsuit has been filed in the High Court in London on behalf of 756 claimants and a ‘representative claim’ on behalf of all black underground miners in ‘Anglo gold mines’ seeking damages in relation to silicosis and related diseases, although this second claim has not yet been served. The aggregate amount of the 24 South African claims is less than $5 million. No specific amount of damages has been specified in the claims filed in England. If these claims are determined adversely to AASA there are a substantial number of additional former mineworkers (or their dependants) who may seek to bring similar claims or whose claims could become part of the representative claim filed in England. The first trials of the South African claims are not expected before 2013. AASA is contesting the jurisdiction of the English courts to hear the claims filed against it in that jurisdiction. 170 Anglo American plc Annual Report 2011 35. COMMITMENTS At 31 December the Group had the following outstanding capital commitments: US$ million Contracted but not provided 2011 2,131 2010 2,669 In addition, Kumba Iron Ore Limited had outstanding commitments under contracts relating to shipping services of $1,186 million (2010: $11 million). At 31 December the Group had the following commitments under non-cancellable operating leases: US$ million Expiry date Within one year Greater than one year, less than two years Greater than two years, less than five years Greater than five years Operating leases relate principally to land and buildings, vehicles and shipping vessels. 2011 161 112 185 347 805 2010 135 85 158 339 717 36. RELATED PARTY TRANSACTIONS The Group has a related party relationship with its subsidiaries, joint ventures and associates (see note 37). 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 to the Group than those arranged with third parties. These transactions are not considered to be significant. Dividends received from associates during the year totalled $344 million (2010: $255 million), as disclosed in the Consolidated cash flow statement. At 31 December 2011 the Group had provided loans to joint ventures of $263 million (2010: $319 million). These loans are included in Financial asset investments. No amounts were payable to joint ventures at 31 December 2011 (2010: $59 million). In addition to Investments in associates as disclosed on the Consolidated balance sheet, the Group had provided loans to associates at 31 December 2011 of $572 million (2010: $531 million). These are included in Financial asset investments. At 31 December 2011 the directors of the Company and their immediate relatives controlled 0.1% (2010: 2.5%) of the voting shares of the Company. Remuneration and benefits received by directors are disclosed in the Remuneration report. Remuneration and benefits of key management personnel including directors are disclosed in note 8. Information relating to pension fund arrangements is disclosed in note 28. Related party transactions with De Beers The Group has in prior years entered into various transactions with DB Investments SA and De Beers SA (together De Beers) which were considered to be related party transactions for the purposes of the United Kingdom Listing Authority Listing Rules as a result of the interest in De Beers held by CHL Holdings Limited (CHL) and certain of its subsidiaries in which Mr N. F. Oppenheimer, a director of the Company at the time of these transactions, had a relevant interest for the purpose of the rules. The related party transactions entered into and which continue to be relevant in the current year are detailed below. At 31 December 2011 the amount of outstanding loans owed by De Beers (and included in the loans to associates amount disclosed above) was $301 million (2010: $355 million), which includes accrued interest of $10 million (2010: net unamortised discount of $3 million). These loans are subordinated in favour of third party lenders and include: (cid:228) dividend reinvestment loans of $133 million (2010: $133 million) advanced during 2008 and 2009. These loans were interest free for two years from the date of advance and subsequently became interest bearing in line with market rates at the date of the initial reinvestment. (cid:228) a further shareholder loan of $158 million (2010: $225 million) advanced in 2009. This loan was interest free for two years after which it reverted to a rate of interest equal to LIBOR plus 700 basis points. From April 2016, provided all interest payments are up to date, the rate of interest reduces to LIBOR plus 300 basis points. During 2011, De Beers repaid $67 million of this loan, along with accrued interest of $5 million. On 4 November 2011 Anglo American announced it had entered into an agreement with CHL and Centhold International Limited (‘CHL Sellers’), together representing the Oppenheimer family interests in De Beers, to acquire their 40% interest in De Beers for a total cash consideration of $5.1 billion, subject to adjustment and conditions as provided for in the agreement (the ‘Transaction’). Under the terms of the existing shareholders’ agreement between Anglo American, CHL and the Government of the Republic of Botswana (GRB), the GRB has pre-emption rights in respect of the interests in De Beers to be sold, enabling it to participate in the Transaction and to increase its interest in De Beers, on a pro rata basis, to up to 25%. In the event that the GRB does not exercise pre-emption rights, in whole or in part, Anglo American’s interest in De Beers will, assuming satisfaction of the conditions to the Transaction, increase to 85%. In the event that the GRB exercises its pre-emption rights in full, Anglo American, under the Transaction, would acquire an incremental 30% interest in De Beers, taking its total interest to 75%, and the consideration payable by Anglo American to the sellers would be reduced proportionately. In view of the fact that the CHL Sellers are ultimately controlled through intermediary companies by trusts (the ‘Seller Trusts’) of which Mr N. F. Oppenheimer is a potential discretionary beneficiary and Mr N. F. Oppenheimer has been a director of Anglo American within the 12 months preceding agreement of the Transaction, the Transaction is categorised as a related party transaction. As a result, the Transaction required the approval of Anglo American shareholders (other than Mr N. F. Oppenheimer and his associates), which approval was obtained at a general meeting of the Company held on 6 January 2012. The Transaction remains conditional on the satisfaction or waiver of certain specified regulatory and government approvals. Further information in relation to the Transaction is set out in the circular posted to the Company’s shareholders in December 2011. i F n a n c i a l s t a t e m e n t s Anglo American plc Annual Report 2011 171 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 37. GROUP COMPANIES The principal subsidiaries, joint ventures, associates and proportionately consolidated joint arrangements of the Group at 31 December 2011, 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. Subsidiary undertakings 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 American Metallurgical Coal Holdings Limited Peace River Coal Inc.(2) Thermal Coal Anglo Coal(3) 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 Platinum Anglo American Platinum Limited(4) Other Mining and Industrial Copebrás Limitada Mineração Catalão de Goiás Limitada Tarmac Group Limited Tarmac Building Products Limited Anglo American Aggregates (Huzhou) Limited(5) Tarmac Agrega Mining and Construction Industry and Trading Company Limited(5) Tarmac SRL(5) Lisheen(6) Black Mountain Mining (Proprietary) Limited(7) Gamsberg Zinc(7) Scaw South Africa (Proprietary) Limited See page 173 for footnotes. Country of incorporation Business South Africa Brazil Brazil Brazil Australia Canada South Africa Chile Chile Peru Brazil Brazil Venezuela Iron ore Iron ore Iron ore project Iron ore system Coal Coal Coal Copper Copper Copper project Nickel project Nickel Nickel Percentage of equity owned(1) 2011 2010 65.2% 100% 100% 70% 65.3% 100% 100% 70% 100% 100% 100% 74.8% 100% 100% 75.5% 99.9% 81.9% 100% 100% 91.4% 100% 99.9% 81.9% 100% 100% 91.4% South Africa Platinum 79.8% 79.7% Brazil Brazil UK UK China Turkey Romania Ireland South Africa South Africa South Africa Fertilisers and acid Niobium Construction materials Construction materials Construction materials Construction materials Construction materials Zinc and lead Zinc, lead and copper Zinc project Steel, engineering works and grinding media 100% 100% 100% 100% – – – – – – 74% 100% 100% 100% 100% 100% 100% 100% 100% 74% 74% 74% 172 Anglo American plc Annual Report 2011 37. GROUP COMPANIES continued Joint ventures LLX Minas-Rio Logística Comercial Exportadora SA Compañía Minera Doña Inés de Collahuasi SCM AI Futtain Tarmac Quarry Products Limited Midland Quarry Products Limited Tarmac Oman Limited Midmac Tarmac Qatar LLC Country of incorporation Brazil Chile Dubai UK Hong Kong Qatar Business Port Copper Construction materials Construction materials Construction materials Construction materials Associates Samancor Holdings (Pty) Limited(9) Groote Eylandt Mining Company (Pty) Limited (GEMCO)(9) Tasmanian Electro Metallurgical Company (Pty) Limited (TEMCO)(9) Jellinbah Group (Pty) Limited(10) Cerrejón Zona Norte SA Carbones del Cerrejón LLC DB Investments SA Country of incorporation South Africa Australia Australia Australia Colombia Anguilla Luxembourg Business Manganese Manganese Manganese Coal Coal Coal Diamonds Proportionately consolidated jointly controlled operations(11) Drayton Moranbah North German Creek(12) Foxleigh Dawson Location Australia Australia Australia Australia Australia Business Coal Coal Coal Coal Coal Percentage of equity owned(8) 2011 49% 44% 49% 50% 50% 50% 2010 49% 44% 49% 50% 50% 50% Percentage of equity owned(8) 2011 40% 40% 40% 33.3% 33.3% 33.3% 45% 2010 40% 40% 40% 33.3% 33.3% 33.3% 45% Percentage owned 2011 88.2% 88% 70% 70% 51% 2010 88.2% 88% 70% 70% 51% (1) The proportion of voting rights of subsidiaries held by the Group is the same as the proportion of equity owned. (2) During 2011 Peace River Coal Inc. purchased the non-controlling interests of the Peace River Coal Partnership which was subsequently dissolved. Peace River Coal Inc. is now the principal subsidiary for the Canadian coal operations. (3) A division of Anglo Operations Limited, a wholly owned subsidiary. (4) Anglo Platinum Limited changed its name to Anglo American Platinum Limited in 2011. (5) The Group sold Tarmac’s businesses in China, Turkey and Romania in July, October and November 2011 respectively. (6) The Group’s interest in Lisheen was held through Anglo American Lisheen Mining Limited, Killoran Lisheen Mining Limited and Lisheen Milling Limited. The Group owned 100% of the equity of each of these companies at 31 December 2010. Lisheen was sold in February 2011. See note 32. (7) Gamsberg Zinc was a division of Black Mountain Mining (Proprietary) Limited, which was sold in February 2011. See note 32. (8) All equity interests shown are ordinary shares. (9) These entities have a 30 June year end. (10) Queensland Coal Mine Management (Pty) Limited changed its name to Jellinbah Group (Pty) Limited during 2011. The Group’s effective interest in the Jellinbah operation is 23.3%. (11) The wholly owned subsidiary Anglo American Metallurgical Coal Holdings Limited holds the proportionately consolidated jointly controlled operations. (12) The German Creek operation includes both Capcoal Open Cut and Underground operations. i F n a n c i a l s t a t e m e n t s Changes in ownership interests in subsidiaries In September 2011 the Group completed the purchase of the non-controlling interests in the Peace River Coal Partnership for $166 million. In November 2011 the Group sold a 24.5% interest in AA Sur to Mitsubishi Corporation LLC for proceeds of $5.39 billion. As disclosed in note 11d, capital gains tax of $1,017 million relating to the profit on sale has been charged directly to equity. 38. EVENTS OCCURRING AFTER END OF YEAR On 6 January 2012 the Group’s shareholders approved, by way of resolution, the acquisition of an incremental interest in De Beers, to take the Group’s holding from 45% to up to 85%. The transaction remains subject to regulatory and government approvals. With the exception of the above and the proposed final dividend for 2011, see note 12, there have been no material reportable events since 31 December 2011. Anglo American plc Annual Report 2011 173 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 39. FINANCIAL STATEMENTS OF THE PARENT COMPANY a) Balance sheet of the Company, Anglo American plc, as at 31 December 2011 US$ 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 Amounts owed to subsidiaries Amounts owed to other group undertakings 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) Note 39c 2011 2010 13,046 12,904 13,496 4 23 13,523 (236) (159) (12) (407) 13,116 26,162 (1,504) 24,658 738 2,714 115 1,955 1 355 18,780 24,658 7,209 8 74 7,291 (190) (25) (14) (229) 7,062 19,966 (1,434) 18,532 738 2,713 115 1,955 6 355 12,650 18,532 39b 39b 39b 39b 39b 39b 39b The financial statements of Anglo American plc, registered number 3564138, were approved by the Board of directors on 16 February 2012 and signed on its behalf by: Cynthia Carroll Chief Executive René Médori Finance Director 174 Anglo American plc Annual Report 2011 39. FINANCIAL STATEMENTS OF THE PARENT COMPANY continued b) Reconciliation of movements in equity shareholders’ funds US$ million Balance at 1 January 2010 Profit for the financial year Dividends paid(3) 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 Balance at 1 January 2011 Profit for the financial year Dividends paid(3) Issue of treasury shares under employee share schemes Share-based payments Capital contribution to Group undertakings Shares issued on conversion of bond Transfer between share-based payment reserve and profit and loss account Balance at 31 December 2011 Called-up share capital 738 – – Share premium account 2,713 – – Capital redemption reserve 115 – – Other reserves(1) 1,955 – – Share-based payment reserve 15 – – Convertible debt reserve 355 – – – – – – 738 – – – – – – – – – – 2,713 – – – – – 1 – – – – 115 – – – – – – – – – – 1,955 – – – – – – – 738 – 2,714 – 115 – 1,955 – 3 – (12) 6 – – – 1 – – (6) 1 Profit and loss account(2) 10,106 2,582 (212) 42 – 120 12 12,650 6,520 (561) 18 – 147 – Total 15,997 2,582 (212) 42 3 120 – 18,532 6,520 (561) 18 1 147 1 – – – – 355 – – – – – – – 355 6 18,780 – 24,658 (1) At 31 December 2011 other reserves of $1,955 million (2010: $1,955 million) were not distributable under the Companies Act 2006. (2) At 31 December 2011 $2,685 million (2010: $385 million) of the Company profit and loss account of $18,780 million (2010: $12,650 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 directors are proposing a final dividend in respect of the year ended 31 December 2011 of 46 US cents per share (see note 12). The audit fee in respect of the parent company was $7,156 (2010: $7,000). Fees payable to Deloitte for non-audit services to the Company are not required to be disclosed because they are included within the consolidated disclosure in note 3. c) Fixed asset investments US$ million Cost At 1 January Capital contributions(1) Additions At 31 December Provisions for impairment At 1 January Impairment charge At 31 December Net book value i F n a n c i a l s t a t e m e n t s Investment in subsidiaries 2011 2010 13,232 140 2 13,374 (328) – (328) 13,046 13,112 120 – 13,232 (8) (320) (328) 12,904 (1) This amount is net of $7 million (2010: nil) of intra-group recharges. Impairment testing of fixed asset investments As a result of the Group’s ongoing disposal of non-core operations during the year, the Company’s investment in Anglo American Finance (UK) plc (AA Finance) was tested for impairment at 31 December 2011 and 31 December 2010. The carrying value of the Company’s investment in AA Finance is supported by a number of businesses, including the Tarmac group. In 2010, consistent with the Group’s loss on disposal of certain Tarmac European businesses during the year, the Company recognised an impairment charge of $320 million. A value in use model, using a discount rate of 6%, was utilised to determine the recoverable amount of the investment. 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. 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 $6,520 million (2010: $2,582 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. Anglo American plc Annual Report 2011 175 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 39. FINANCIAL STATEMENTS OF THE PARENT COMPANY continued 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 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 a Monte Carlo model at the grant date. The fair value of share options issued with non-market vesting conditions has been calculated using a 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 29 to the consolidated financial statements of the Group for the year ended 31 December 2011. Investments Investments represent equity holdings in subsidiaries and are held at cost less provision for impairment. Convertible debt Convertible bonds are classified 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 recognised 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 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. 176 Anglo American plc Annual Report 2011 ORE RESERVES AND MINERAL RESOURCES 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) Reporting of Exploration Results, Mineral Resources and Ore Reserves standard. This standard 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 Exploration Results, 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 Reserves are dynamic and are more likely to be affected by fluctuations in the prices of commodities, uncertainties in production costs, processing costs and other mining, legal, environmental, social and governmental factors which may impact the financial condition and prospects of the Group. 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. To accommodate the various factors that are important in the development of a classified Mineral Resource estimate, a scorecard approach can be used. Mineral Resource classification defines the confidence associated with different parts of the Mineral Resource. The confidence that is assigned refers collectively to the reliability of the Grade and Tonnage estimates. This reliability includes consideration for the fidelity of the base data, the geological continuity predicated by the level of understanding of the geology, the likely precision of the estimated grades and understanding of grade variability, as well as various other factors that may influence the confidence that can be placed on the Mineral Resource. Platinum, Nickel and Kumba Iron Ore have developed and applied their own scorecard approaches to the classification of Mineral Resources. The estimates of Ore Reserves and Mineral Resources are stated as at 31 December 2011. Unless otherwise stated, Mineral Resources are additional to those resources which have been modified to produce the Ore Reserves and are reported on a dry tonnes basis. 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. It is accepted that mine design and planning may include a portion of Inferred Mineral Resources. Inferred Mineral Resources in the Life of Mine Plan (LOMP) are described as ‘Inferred (in LOMP)’ separately from the remaining Inferred Mineral Resources described as ‘Inferred (ex. LOMP)’, as required. These resources are declared without application of any modifying factors. The direct legal ownership that Anglo American holds in each operation and project is presented as the Attributable Percentage beside the name of each entity. Operations and projects which fall below the internal threshold for reporting (25% attributable interest) are excluded from the Ore Reserves and Mineral Resources estimates. A number of assets were disposed of during 2011 hence the following operations and projects are not reported in 2011: Black Mountain, Lisheen, Gamsberg and River Valley. 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: (cid:228) 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 Ore Reserves and Mineral Resources have been included in the statement. (cid:228) 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 Mineral Resources have been included in the statement (any associated comments appear in the footnotes). O r e R e s e r v e s a n d M n e r a i l R e s o u r c e s Anglo American plc Annual Report 2011 177 ORE RESERVES AND MINERAL RESOURCES ESTIMATED ORE RESERVES(1) (PROVED + PROBABLE) as at 31 December 2011 Detailed Proved and Probable figures appear on the referenced pages KUMBA IRON ORE (See page 180 for details) Total Saleable Tonnes Kolomela (OP) 48.2% (23) 203 Mt @ 64.7% Fe Sishen (OP) 48.2% (18) 744 Mt @ 65.0% Fe Thabazimbi (OP) 48.2% (4) 8 Mt @ 63.1% Fe SAMANCOR MANGANESE (See page 182 for details) Total ROM Tonnes GEMCO (OP)(2) 40.0% (12) 105.3 Mt @ 46.3% Mn 74.4 Mt @ 37.2% Mn Mamatwan (OP) 29.6% (21) Wessels (UG) 29.6% (48) 71.8 Mt @ 43.1% Mn METALLURGICAL COAL (See page 183 for details) Total Saleable Tonnes(3) Callide (OC) 100% (25) Thermal-Domestic: 246.8 Mt @ 4,350 kcal/kg Capcoal (OC) 76.8% (25) Metallurgical-Coking: 28.6 Mt @ 7.0 CSN Metallurgical-Other: 72.1 Mt @ 6,980 kcal/kg Thermal-Export: 4.0 Mt @ 7,050 kcal/kg Capcoal (UG) 70.0% (12) Metallurgical-Coking: 42.7 Mt @ 9.0 CSN Dawson (OC) 51.0% (11) Metallurgical- Coking: 27.5 Mt @ 7.5 CSN Thermal-Export: 101.0 Mt @ 6,500 kcal/kg Drayton (OC) 88.2% (5) Thermal-Export: 17.3 Mt @ 6,260 kcal/kg Foxleigh (OC) 70.0% (4) Metallurgical- Other: 14.8 Mt @ 6,840 kcal/kg KEY Operation name (OP/OC/UG)(5) 100% 1 (YY) 2 1 2 Anglo American attributable % Mine Life(6) Moranbah North (UG) 88.0% (18) Metallurgical-Coking: 101.3 Mt @ 8.0 CSN Trend (OC) 100% (13) Metallurgical- Coking: 15.4 Mt @ 7.0 CSN Thermal- Export: 0.2 Mt @ 5,070 kcal/kg THERMAL COAL (See page 186/7 for details) Total Saleable Tonnes(3) Cerrejón (OC) 33.3% (20) Thermal-Export: 778.7 Mt @ 6,290 kcal/kg Goedehoop (UG&OC) 100% (11) Thermal-Export: 45.9 Mt @ 6,220 kcal/kg Greenside (UG) 100% (11) Thermal-Export: 27.8 Mt @ 6,200 kcal/kg Isibonelo (OC) 100% (14) Synfuel: 69.9 Mt @ 4,590 kcal/kg Kleinkopje (OC) 100% (13) Thermal-Export: 29.3 Mt @ 6,170 kcal/kg Thermal- Domestic: 21.8 Mt @ 4,550 kcal/kg Kriel (UG&OC) 73.0% (14) Thermal- Domestic: 113.5 Mt @ 4,580 kcal/kg Landau (OC) 100% (9) Thermal-Export: 29.8 Mt @ 6,240 kcal/kg Thermal-Domestic: 5.0 Mt @ 4,340 kcal/kg Mafube (OC) 50.0% (19) Thermal- Export: 33.8 Mt @ 6,210 kcal/kg Thermal- Domestic: 31.8 Mt @ 5,110 kcal/kg THERMAL COAL (Continued) Total Saleable Tonnes(3) New Denmark (UG) 100% (23) Thermal-Domestic: 111.1 Mt @ 5,050 kcal/kg New Vaal (OC) 100% (20) Thermal-Domestic: 359.8 Mt @ 3,490 kcal/kg Nooitgedacht 5 Seam (UG) 100% (1) Metallurgical-Other: 0.3 Mt @ 6,370 kcal/kg COPPER (See page 190 for details) Total Contained Copper El Soldado (OP) 75.5% (23) Flotation: 1,448kt [162.7 Mt @ 0.89% TCu] Heap Leach: 16kt [3.5 Mt @ 0.46% TCu] Los Bronces (OP) 75.5% (34) Flotation: 9,261kt [1,498.4 Mt @ 0.62% TCu] Dump Leach: 2,235kt [683.7 Mt @ 0.33% TCu] Collahuasi (OP) 44.0% (68) Heap Leach: 224kt [35.4 Mt @ 0.63% TCu] Flotation – direct: 18,219kt [1,925.3 Mt @ 0.95% TCu] Flotation – stockpile: 4,596kt [935.2 Mt @ 0.49% TCu] Zibulo (UG&OC) 73.0% (19) Thermal-Export: 56.3 Mt @ 6,090 kcal/kg Thermal-Domestic: 35.4 Mt @ 4,770 kcal/kg Mantoverde (OP) 100% (6) Heap Leach: 248kt [42.7 Mt @ 0.58% ASCu] Dump Leach: 116kt [45.4 Mt @ 0.26% ASCu] Mantos Blancos (OP) 100% (10) Flotation: 376kt [46.0 Mt @ 0.82% ICu] Vat & Heap Leach: 99kt [24.7 Mt @ 0.40% ASCu] Dump Leach: 119kt [51.7 Mt @ 0.23% ASCu] NICKEL (See page 193 for details) Total Contained Nickel Barro Alto (OP) 100% (32) 833kt [52.2 Mt @ 1.60% Ni] Loma de Níquel (OP) 91.4% (4) 68kt [4.6 Mt @ 1.48% Ni] Niquelândia (OP) 100% (25) 63kt [4.6 Mt @ 1.35% Ni] PLATINUM(4) (See page 194 for details) Total Contained PGE Merensky Reef 79.8% UG2 Reef 79.8% Platreef 79.8% Main Sulphide Zone 79.8% 18.5 Moz (4E) 89.9 Moz (4E) 67.7 Moz (4E) 4.7 Moz (4E) OMI – PHOSPHATES (See page 197 for details) Total ROM Tonnes Copebrás (OP) 100% (41) 239.2 Mt @ 13.4% P2O5 OMI – NIOBIUM (See page 198 for details) Total Contained Product Catalão (OP) 100% (4) 45kt [4.3 Mt @ 1.03% Nb2O5] (1) Estimated Total Ore Reserves are the sum of Proved and Probable Ore Reserves (on an exclusive basis, i.e. Mineral Resources are reported as additional to Ore Reserves). Please refer to the detailed Business Units/Commodities Ore Reserve estimates tables for the individual Proved and Probable estimates. The Ore Reserve estimates were compiled in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code, 2004) as a minimum standard. Ore Reserve estimates for operations in South Africa were compiled in accordance with The South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves, (The SAMREC Code, 2007). The figures reported represent 100% of the Ore Reserves, the percentage attributable to Anglo American plc is stated separately. Rounding of figures may cause computational discrepancies. (2) GEMCO Manganese grades are given as per washed ore samples and should be read with the respective yield of 54.7%. (3) Total Saleable Tonnes represents the product tonnes produced quoted as metric tonnes on a Product moisture basis. The coal quality for 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). CV is rounded to the nearest 10 kcal/kg and CSN to the nearest 0.5 index. Coal quality parameters for the Coal Reserves for Metallurgical - Coking, Metallurgical - Other and Thermal - Export collieries meet the contractual specifications for Coking Coal, PCI, metallurgical coal, steam coal and domestic coal. Coal quality parameters for the Coal Reserves for Thermal - Domestic and Synfuels collieries meet the specifications of the individual supply contracts. Metallurgical - Coking: High-, medium- or low-volatile semi-soft, soft or hard coking coal primarily for blending and use in the steel industry. Metallurgical - Other: 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. Thermal - Export: Low- to high-volatile thermal coal primarily for export in the use of power generation; quality measured by calorific value (CV). Thermal - Domestic: Low- to high-volatile thermal coal primarily for domestic consumption for power generation. Synfuel: Coal specifically for the domestic production of synthetic fuel and chemicals. (4) Details of the individual operations appear in the Anglo American Platinum Annual Report. The figures reported represent 100% of the Ore Reserves attributable to Anglo American Platinum unless otherwise noted. 4E is the sum of Platinum, Palladium, Rhodium and Gold. (5) Mining method: OP = Open Pit, OC = Open Cast, UG = Underground. (6) Mine Life is the extraction period in years for scheduled Ore Reserves comprising Proved and Probable Reserves only. 178 Anglo American plc Annual Report 2011 ORE RESERVES AND MINERAL RESOURCES ESTIMATED MINERAL RESOURCES(1) (MEASURED + INDICATED) as at 31 December 2011 Detailed Measured, Indicated and Inferred figures appear on the referenced pages KUMBA IRON ORE (See page 180 for details) In-situ Tonnes IRON ORE BRAZIL (See page 181 for details) In-situ Tonnes(2) Kolomela (OP) 48.2% Sishen (OP) 48.2% Thabazimbi (OP) 48.2% 62.7 Mt @ 65.0% Fe 385.9 Mt @ 61.5% Fe 8.3 Mt @ 61.9% Fe Amapá 70.0% Itapanhoacanga 100% Serra do Sapo 100% Serro 100% Canga: 13.1 Mt @ 49.6% Fe Colluvium: 68.0 Mt @ 38.7% Fe Friable Itabirite and Hematite: 145.5 Mt @ 41.4% Fe Friable Itabirite and Hematite: 244.2 Mt @ 41.7% Fe Compact Itabirite: 106.7 Mt @ 33.7% Fe Friable Itabirite and Hematite: 1,839.8 Mt @ 37.5% Fe Compact Itabirite: 2,818.9 Mt @ 31.1% Fe Friable Itabirite and Hematite: 9.5 Mt @ 63.6% Fe Compact Itabirite: Inferred only KEY Operation name (OP/OC/UG)(6) 100% 1 1 Anglo American attributable % SAMANCOR MANGANESE (See page 182 for details) In-situ Tonnes METALLURGICAL COAL (See page 184 for details) In-situ Tonnes(4) THERMAL COAL (See page 188 for details) In-situ Tonnes(4) THERMAL COAL (Continued) In-situ Tonnes(4) COPPER (See page 191 for details) Contained Copper GEMCO (OP)(3) 40.0% Mamatwan (OP) 29.6% Wessels (UG) 29.6% 115.8 Mt @ 46.8% Mn Callide (OC) 100% 525.7 Mt @ 4,870 kcal/kg Cerrejón (OC) 33.3% 1,081.1 Mt @ 6,450 kcal/kg 119.5 Mt @ 35.2% Mn Capcoal (OC) 76.8% 41.7 Mt @ 7,080 kcal/kg 143.3 Mt @ 44.4% Mn Capcoal (UG) 70.0% 144.3 Mt @ 6,680 kcal/kg Goedehoop (UG&OC) 100% Greenside (UG) 100% 155.4 Mt @ 5,470 kcal/kg 14.2 Mt @ 5,650 kcal/kg Dawson (OC) 51.0% 441.7 Mt @ 6,660 kcal/kg Isibonelo (OC) 100% 20.9 Mt @ 5,210 kcal/kg Drayton (OC) 88.2% Foxleigh (OC) 70.0% Moranbah North (UG) 88.0% Trend (OC) 100% 14.7 Mt @ 6,850 kcal/kg 33.3 Mt @ 7,110 kcal/kg 76.9 Mt @ 6,640 kcal/kg Kleinkopje (OC) 100% Kriel (UG&OC) 73.0% Landau (OC) 100% 28.5 Mt @ 4,970 kcal/kg 19.3 Mt @ 5,060 kcal/kg 60.8 Mt @ 5,020 kcal/kg 21.2 Mt @ 6,500 kcal/kg Mafube (OC) 50.0% 9.9 Mt @ 5,210 kcal/kg New Denmark (UG) 100% New Vaal (OC) 100% Nooitgedacht 5 Seam (UG) 100% Zibulo (UG&OC) 73.0% Inferred only - 1.1 Mt @ 5,370 kcal/kg 320.6 Mt @ 4,910 kcal/kg El Soldado (OP) 75.5% Flotation: 315kt [40.7 Mt @ 0.77% TCu] Heap Leach: 1kt [0.2 Mt @ 0.71% TCu] Los Bronces (OP) 75.5% Flotation: 4,918kt [1,133.9 Mt @ 0.43% TCu] Dump Leach: Inferred only Collahuasi (OP) 44.0% Heap Leach: 90kt [15.1 Mt @ 0.60% TCu] Flotation – direct: 5,704kt [630.1 Mt @ 0.91% TCu] Flotation – stockpile: 704kt [153.7 Mt @ 0.46% TCu] Mantoverde (OP) 100% Heap Leach: 131kt [34.2 Mt @ 0.38% ASCu] Dump Leach: Inferred only Mantos Blancos (OP) 100% Flotation: 738kt [116.0 Mt @ 0.64% ICu] Vat & Heap Leach: 111kt [24.5 Mt @ 0.45% ASCu] Dump Leach: 17kt [8.3 Mt @ 0.20% ASCu] NICKEL (See page 193 for details) Contained Nickel Barro Alto (OP) 100% Loma de Níquel (OP) 91.4% Niquelândia (OP) 100% 171kt [13.2 Mt @ 1.30% Ni] 75kt [5.7 Mt @ 1.32% Ni] 75kt [6.0 Mt @ 1.25% Ni] PLATINUM(5) (See page 195 for details) Contained PGE Merensky Reef 79.8% UG2 Reef 79.8% Platreef 79.8% Main Sulphide Zone 79.8% 77.8 Moz (4E) 158.8 Moz (4E) 86.2 Moz (4E) 4.0 Moz (4E) OMI – PHOSPHATES (See page 197 for details) In-situ Tonnes Copebrás (OP) 100% 64.2 Mt @ 11.9% P2O5 OMI – NIOBIUM (See page 198 for details) Contained Product Catalão (OP) 100% 35kt [2.8 Mt @ 1.22% Nb2O5] (1) Estimated Measured plus Indicated Resources are the sum of the Measured and Indicated Mineral Resources (on an exclusive basis, i.e. Mineral Resources are reported as additional to Ore Reserves). Please refer to the detailed Business Units/Commodities Mineral Resource estimates tables for the individual Measured, Indicated and Inferred estimates. The Mineral Resource estimates were compiled in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code, 2004) as a minimum standard. The Mineral Resource estimates for operations in South Africa were compiled in accordance with The South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves, (The SAMREC Code, 2007). The figures reported represent 100% of the Mineral Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of figures may cause computational discrepancies. (2) Tonnages are reported on a wet basis. (3) GEMCO Manganese grades are given as per washed samples and should be read with the respective yield of 47.4% (4) 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. 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. (5) Details of the individual operations appear in the Anglo American Platinum Annual Report. Merensky Reef and UG2 Reef Mineral Resources are estimated over a practical minimum mining width suitable for the deposit known as the ‘Resource Cut’. The minimum mining width over which Mineral Resources are declared is 90cm. The ‘Resource Cut’ width takes cognisance of the mining method and geotechnical aspects in the hanging wall or footwall of the reef. The figures reported represent 100% of the Ore Reserves attributable to Anglo American Platinum unless otherwise noted. 4E is the sum of Platinum, Palladium, Rhodium and Gold. (6) Mining method: OP = Open Pit, OC = Open Cast, UG = Underground. O r e R e s e r v e s a n d M n e r a i l R e s o u r c e s Anglo American plc Annual Report 2011 179 ORE RESERVES AND MINERAL RESOURCES IRON ORE estimates as at 31 December 2011 KUMBA IRON ORE The Ore Reserve and Mineral Resource estimates were compiled in accordance with The South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves, (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. Kumba Iron Ore – Operations ORE RESERVES Kolomela Mine (OP)(1) Attributable % 48.2 Mine Life 23 Sishen Mine (OP)(2) 48.2 18 Thabazimbi Mine (OP)(3) 48.2 4 Kumba Iron Ore – Operations MINERAL RESOURCES Kolomela Mine (OP)(4) Attributable % 48.2 Sishen Mine (OP)(5) 48.2 Thabazimbi Mine (OP)(6)(7) 48.2 Classification Proved Probable Total Proved Probable Total Proved Probable Total Classification Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred THE MINERAL RESOURCES ARE REPORTED AS ADDITIONAL TO ORE RESERVES. Kumba Iron Ore – Projects MINERAL RESOURCES Phoenix Project(7) Attributable % 48.2 Classification Inferred Saleable product 2010 2011 Mt %Fe 110 65.0 94 64.4 Mt %Fe 118 64.5 84 64.1 203 64.7 202 64.3 439 65.5 393 65.0 351 65.1 366 65.1 744 65.0 805 65.3 2 63.2 6 63.0 8 63.1 8 62.6 4 61.9 12 62.3 2011 Mt 109.7 93.7 203.4 525.8 458.1 983.9 2.7 7.7 10.4 2011 Mt 46.6 16.1 62.7 45.9 53.7 99.6 111.1 274.8 385.9 173.4 217.2 390.6 1.1 7.2 8.3 3.0 3.9 6.9 2011 Mt 11.3 Tonnes 2010 Mt 118.5 84.0 202.4 576.3 500.6 1,077.0 9.0 4.9 13.9 Tonnes 2010 Mt 49.1 20.0 69.2 35.1 47.7 82.7 127.0 410.5 537.5 17.9 116.2 134.1 3.4 1.2 4.6 0.9 0.9 1.8 Tonnes 2010 Mt – 2011 %Fe 64.9 64.3 64.6 %Fe 58.9 59.3 59.1 %Fe 61.4 60.4 60.7 2011 %Fe 65.0 65.1 65.0 64.3 62.7 63.4 %Fe 61.3 61.6 61.5 49.1 53.8 51.7 %Fe 61.1 62.0 61.9 61.8 61.8 61.8 2011 %Fe 63.0 Grade 2010 %Fe 64.5 64.1 64.3 %Fe 59.8 58.7 59.3 %Fe 61.1 60.6 61.0 Grade 2010 %Fe 65.1 65.0 65.1 65.7 62.5 63.9 %Fe 59.4 58.5 58.7 59.7 59.6 59.6 %Fe 61.8 61.2 61.6 61.9 61.5 61.7 Grade 2010 %Fe – Mining method: OP = Open Pit. Mine Life = The extraction period in years for scheduled Ore Reserves comprising Proved and Probable Reserves only. 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 is below the internal threshold for reporting. Details of this project are presented in the Kumba Iron Ore Annual Report. (1) (2) (3) (4) (5) (6) (7) Kolomela Mine – Ore Reserves: The increase is primarily due to production which has been offset by a lowering of the cut-off grade applied during the Life of Mine Plan scheduling to equalise plant feed grade in the initial years which previously exceeded client quality specifications. A revision of the Mineral Resource classification using a quantitative scorecard approach was carried out in 2011 and impacts on the Ore Reserve classification. The calculated 2011 Mine Life excludes Inferred Resources. Sishen Mine – Ore Reserves: The net decrease is due to production as well as a revision of the Life of Mine schedule necessitated by a downgrade of Banded Iron Formation Mineral Resources. The impact of this reduction was offset by blending in lower quality material that in the previous Life of Mine Plan remained on run-of-mine stockpiles after the Mine Life ran out and were considered as mining losses. Inclusion of this material has been confirmed by economic studies. The calculated 2011 Mine Life excludes Inferred Resources. Thabazimbi Mine – Ore Reserves: The decrease is due to a revision of the geological interpretations, geological modelling and subsequent Mineral Resource estimation, the effects of which were carried through to the Ore Reserves, especially in the Kumba mining area. Kolomela Mine – Mineral Resources: The net increase is primarily the result of geological model refinements undertaken in 2011 to consider a structural re-interpretation conducted for the ore bodies scheduled in the Life of Mine Plan by an external structural geology expert. 3.6 Mt of the Inferred Mineral Resources are extrapolated Inferred Mineral Resources as opposed to the rest being interpolated Inferred Mineral Resources. Sishen Mine – Mineral Resources: The significant increase in Mineral Resources can primarily be attributed to a re-allocation of Banded Iron Formation lower grade iron ore (Jig beneficiation feed) Mineral Resources to an Inferred status to appropriately reflect the uncertainty in grade estimates associated with historical selective high grade sampling practices. This caused a decrease in the overall average grade above the 40% Fe cut-off. Thabazimbi Mine – Mineral Resources: The primary contributing factor to the increase in Mineral Resources was a significant increase in the long term forward looking iron ore price, which is converted to a revenue factor to derive an optimistic pit shell which spatially defines eventual economic extraction for the Kumba Iron Ore Group. This had the effect of converting Mineral Inventory into Mineral Resources, especially at the Kumba mining area. The increase was offset by the revised geological model which resulted in Mineral Resource write-offs, particularly at the Kumba mining area as well as Mineral Resource classification downgrading to consider the fact that Thabazimbi Mine mainly relies on percussion drilling to define Mineral Resources as compared to other Kumba operations which use a combination of percussion and core drilling, with the latter a large portion of the data used for Mineral Resource grade estimations. Phoenix Project: The Phoenix Project addresses possible or potential beneficiation opportunities for the Hematite ore (reported as Vanderbijl Pit Hematite in 2010 for the ring-fenced Vanderbijl mining area) in combination with other low grade material in the same area (not reported in 2010). The total Hematite Mineral Resource for this project has been reclassified as Inferred, primarily due to the low confidence associated with the historical information currently considered in the project resource definition. Assumption with respect to Mineral Tenure Sishen Mine: On 21 December 2011 judgment was delivered in the North Gauteng High Court regarding the status of the Mining Rights at the Sishen Mine. The High Court held that, upon the conversion of Sishen Iron Ore Company’s (SIOC) Old Order Mining Right relating to the Sishen Mine properties in 2008, SIOC became the exclusive holder of a converted Mining Right for iron ore and quartzite in respect of the Sishen Mine properties. Accordingly, Kumba Iron Ore Group attributable percentage in SIOC increased to 73.9% in 2011. As a consequence, the Anglo American plc attributable percentage in Sishen Mine increases to 48.2%. On 3 February 2012 both the South African Department of Mineral Resources, as well as Imperial Crown Trading 289 (Pty) Ltd, submitted applications seeking leave to appeal against the High Court order. 180 Anglo American plc Annual Report 2011 ORE RESERVES AND MINERAL RESOURCES IRON ORE estimates as at 31 December 2011 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 Compact Itabirite, have been identified at Serra do Sapo and Itapanhoacanga. Only the friable material is being considered for Phase 1 of the project. The planned annual capacity of Phase 1 is 26.5 Mtpa of iron ore pellet feed (wet tonnes), for start up during in the second half of 2013. The Mineral Resource estimates were compiled in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code, 2004) as a minimum standard. The figures reported represent 100% of the Mineral Resources. Rounding of figures may cause computational discrepancies. Iron Ore Brazil – Operations MINERAL RESOURCES Amapá (OP)(1)(2) Attributable % 70.0 Canga Colluvium Friable Itabirite and Hematite Iron Ore Brazil – Projects MINERAL RESOURCES Itapanhoacanga (OP)(3)(4) Attributable % 100 Friable Itabirite and Hematite Compact Itabirite Serra do Sapo (OP)(3)(5) 100 Friable Itabirite and Hematite Compact Itabirite Serro (OP)(3)(6) 100 Friable Itabirite and Hematite Compact 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 2011 Mt 2.6 10.5 13.1 1.3 12.0 56.0 68.0 18.6 33.5 112.0 145.5 26.0 2011 Mt 25.0 219.2 244.2 74.7 10.9 95.8 106.7 43.9 561.3 1,278.5 1,839.8 165.1 565.0 2,253.9 2,818.9 477.3 – 9.5 9.5 74.2 – – – 308.2 Tonnes 2010 Mt – 12.0 12.0 3.9 13.5 34.3 47.9 25.8 14.7 78.9 93.7 54.5 Tonnes 2010 Mt 25.0 219.2 244.2 74.7 10.9 95.8 106.7 43.9 502.7 1,070.0 1,572.6 275.8 497.7 1,819.8 2,317.5 709.2 – 9.5 9.5 74.2 – – – 308.2 2011 %Fe 54.2 48.5 49.6 41.5 40.4 38.3 38.7 34.7 40.5 41.7 41.4 40.1 2011 %Fe 42.5 41.6 41.7 41.7 33.2 33.8 33.7 33.2 %Fe 35.3 38.5 37.5 36.3 31.0 31.1 31.1 31.1 %Fe – 63.6 63.6 35.3 – – – 31.6 Grade 2010 %Fe – 53.1 53.1 45.1 41.9 40.5 40.9 35.6 44.5 42.6 42.9 40.3 Grade 2010 %Fe 42.5 41.6 41.7 41.7 33.2 33.8 33.7 33.2 %Fe 37.8 37.2 37.4 39.9 31.5 31.0 31.1 30.2 %Fe – 63.6 63.6 35.3 – – – 31.6 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) (2) (3) (4) (5) (6) 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 11.3 wt% for Canga, 10.5 wt% for Colluvium and 9.9 wt% for Friable Itabirite and Hematite ore. Mineral Resources increase due to new in-fill drilling information and the inclusion of the Dragão area. The classification methodology was also refined during 2011. Additional metallurgical studies will be completed to assess the viability of processing Hydrothermally Altered Itabirite (ZAH) and Magnetite-bearing carbonated rock (RCB). Amapá: Friable Itabirite and Hematite includes Friable Itabirite, Altered Friable Itabirite and Friable Hematite. The Mineral Resources comprise the Mário Cruz, Mário Cruz Leste, Martelo, Taboca, Taboca Leste, Vila do Meio, Vila do Meio Leste and Dragão areas. 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 4.2 wt% for Friable ore. Friable Itabirite and Hematite includes Friable Itabirite, Semi-Compact Itabirite, High Alumina Itabirite, Soft Hematite and Canga. The Minas Rio Project comprises the following sub-areas: Itapanhoacanga, Serra do Sapo and Serro. Itapanhoacanga: Friable Itabirite and Hematite includes Friable Itabirite, Semi-Compact Itabirite, Soft Hematite and Hard Hematite. Serra do Sapo: Friable Itabirite and Hematite includes Friable Itabirite, Semi-Compact Itabirite, High Alumina Itabirite, Soft Hematite and Canga. The Mineral Resources increase due to new information obtained from infill drilling in the North Domain (100x100m) and deep drill holes as well as a refinement to the geotechnical model resulting in new geotechnical domains and slope angles. The classification methodology was also refined during 2011. The Canga material (Indicated: 34.5 Mt at 60.6% Fe; Inferred: 6.8 Mt at 56.5% Fe) is included and supported by geometallurgical tests. Serro: Friable Itabirite and Hematite includes Friable Itabirite, Semi-Compact Itabirite and Hard Hematite (9.5 Mt @ 63.6% Fe). Audits related to the generation of the Mineral Resource statements were carried out by independent consultants during 2011 at the following operations and projects: Amapá. Anglo American plc Annual Report 2011 181 O r e R e s e r v e s a n d M n e r a i l R e s o u r c e s ORE RESERVES AND MINERAL RESOURCES MANGANESE estimates as at 31 December 2011 SAMANCOR MANGANESE The Ore Reserve and Mineral Resource estimates were compiled in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code, 2004) and The South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves (The SAMREC Code, 2007) as applicable. The figures reported represent 100% of the Ore Reserves and Mineral Resources (source: BHP Billiton). Rounding of figures may cause computational discrepancies. Samancor Manganese – Operations ORE RESERVES GEMCO (OP)(1) Attributable % 40.0 Mine Life 12 Hotazel Manganese Mines 29.6 Mamatwan (OP)(2) Wessels (UG)(3) 21 48 Samancor Manganese – Operations MINERAL RESOURCES GEMCO (OP)(4) Attributable % 40.0 Hotazel Manganese Mines 29.6 Mamatwan (OP)(5) Wessels (UG)(6) THE MINERAL RESOURCES INCLUDE ORE RESERVES Samancor Gabon – Projects MINERAL RESOURCES Franceville Project – Beniomi(7) Attributable % 40.0 Plaquette Ore Transition Ore Franceville Project – Bordeaux(7) 40.0 Plaquette Ore Transition Ore 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 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 2011 Mt 79.4 25.9 105.3 43.9 30.5 74.4 4.1 67.7 71.8 2011 Mt 87.0 28.7 115.8 49.4 64.8 54.7 119.5 4.2 13.8 129.5 143.3 – 2011 Mt 11.0 6.6 17.5 2.9 4.1 2.4 6.5 5.0 4.6 0.8 5.4 0.8 2.3 0.5 2.8 1.8 Tonnes 2010 Mt 63.2 42.0 105.2 48.9 32.0 80.9 5.0 76.4 81.4 Tonnes 2010 Mt 67.0 45.5 112.4 38.9 68.9 54.7 123.6 4.2 14.6 128.4 143.0 – Tonnes 2010 Mt 11.0 6.6 17.5 2.9 4.1 2.4 6.5 5.0 4.6 0.8 5.4 0.8 2.3 0.5 2.8 1.8 2011 %Mn 46.5 45.6 46.3 %Mn 37.3 37.1 37.2 44.0 43.0 43.1 2011 %Mn 47.1 46.0 46.8 43.9 %Mn 35.7 34.5 35.2 34.4 46.0 44.2 44.4 – 2011 %Mn 36.1 36.1 36.1 36.1 24.3 24.5 24.4 24.2 %Mn 36.4 36.1 36.4 36.8 24.7 24.1 24.6 25.1 Grade 2010 %Mn 46.9 46.4 46.7 %Mn 37.2 37.0 37.1 45.1 42.9 43.1 Grade 2010 %Mn 46.3 45.9 46.2 43.3 %Mn 35.6 34.6 35.2 34.4 45.9 44.2 44.4 – Grade 2010 %Mn 36.1 36.1 36.1 36.1 24.3 24.5 24.4 24.2 %Mn 36.4 36.1 36.4 36.8 24.7 24.1 24.6 25.1 2011 % 54.8 54.2 54.7 2011 % 47.4 47.6 47.4 47.8 2011 % 72.0 74.4 72.9 71.8 73.1 75.1 73.8 68.4 72.0 67.8 71.4 69.5 74.0 70.3 73.3 67.1 Yield 2010 % 50.7 47.6 49.5 Yield 2010 % 44.4 43.9 44.2 45.2 Yield 2010 % 72.0 74.4 72.9 71.8 73.1 75.1 73.8 68.4 72.0 67.8 71.4 69.5 74.0 70.3 73.3 67.1 Mining method: OP = Open Pit, UG = Underground. Mine Life = The extraction period in years for scheduled Ore Reserves comprising Proved and Probable Reserves only. 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: Production during 2011 has been balanced by the inclusion of additional G Quarry Ore Reserves. Manganese grades are given as per washed ore samples and should be read together with their respective yields. (2) Mamatwan – Ore Reserves: The decrease is primarily due to production depletion and the re-running of the resource model. A Section 102 application has been approved by the South African (3) (4) (5) (6) (7) Department of Mineral Resources to amend the Mamatwan Mining Rights area to include the Ntsimbintle Prospecting Right. Wessels – Ore Reserves: The decrease is primarily due to a revised Upper Body pillar design, redefinition of mining areas as per Life of Mine Plan and updating of geological and mining losses. A Section 102 application has been approved by the South African Department of Mineral Resources to amend the Wessels Mining Rights area to include the Ntsimbintle Prospecting Right. The Wessels and Ntsimbintle Lower Body Mineral Resources and Ore Reserves, which were previously declared separately, are therefore combined and declared as a single Ore Reserve and a single Mineral Resource respectively. GEMCO – Mineral Resources: The change is primarily due to the inclusion of additional resource definition drilling data, resulting in the upgrade in confidence of a large proportion of Indicated to Measured Mineral Resources and the inclusion of Inferred Resources from the Eastern Exploration Areas into the Mineral Resource statement. Mamatwan – Mineral Resources: A cut-off grade of 35% Mn is used to declare Mineral Resources within the M, C and N Zones at Mamatwan. Mineral Resources have also been declared from the X Zone, using a cut-off of 35% Mn, however, the Top Cut Resources comprising a total of 42.3 Mt are declared above a cut-off of 28% Mn. Wessels – Mineral Resources: A new Mineral Resource model was developed during 2010 and this model has resulted in the increase in Mineral Resource after consideration of depletion. Beniomi and Bordeaux: Mn grades are for +0.15mm screen size fraction and should be read together with their respective tonnage yields. The feasibility phase study for the establishment of a 300 ktpa mine in Franceville, Gabon, commenced in July 2010 and the study is expected to be completed in the first quarter of FY2012. The pre-feasibility phase study for phase 2 to increase the production capacity to 1.8 mtpa is expected to commence in the second quarter of FY2012. However, the Gabon Mining Concession and Mining Convention remain subject to ongoing negotiation. No Ore Reserves are yet reportable. 182 Anglo American plc Annual Report 2011 ORE RESERVES AND MINERAL RESOURCES COAL estimates as at 31 December 2011 METALLURGICAL COAL The Coal Reserve and Coal Resource estimates were compiled in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code, 2004) as a minimum standard. The figures reported represent 100% of the Coal Reserves and Coal Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of figures may cause computational discrepancies. Anglo American Metallurgical Coal comprises export metallurgical and thermal coal operations located in Australia and Canada. Metallurgical Coal – Australia Operations COAL RESERVES(1) Callide (OC) Attributable % 100 (2) Mine Life Classification 25 Thermal – Domestic Capcoal (OC) Metallurgical – Coking 76.8 25 Metallurgical – Other Thermal – Export Capcoal (UG) Metallurgical – Coking 70.0 12 Dawson (OC) Metallurgical – Coking 51.0 11 Thermal – Export Drayton (OC) Thermal – Export Foxleigh (OC) Metallurgical – Other 88.2 70.0 5 4 Moranbah North (UG) Metallurgical – Coking 88.0 18 Australia Metallurgical – Coking 77.5 Australia Metallurgical – Other 75.6 Australia Thermal – Export 57.1 Australia Thermal – Domestic 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) 2011 Mt 199.9 52.0 251.9 77.1 72.5 149.5 2010 Mt 130.6 90.6 221.2 84.7 72.5 157.1 40.6 14.7 55.3 15.0 149.0 163.9 3.2 19.7 22.9 4.1 13.7 17.8 114.8 11.3 126.1 Mt 454.6 332.8 787.4 45.7 14.7 60.4 17.9 156.0 173.8 4.2 24.3 28.5 5.8 14.7 20.5 116.8 13.1 130.0 Mt 405.5 385.8 791.4 2011 ROM % 98.0 98.0 98.0 2010 ROM % 98.1 99.5 98.7 2011 Mt 195.8 51.0 246.8 2010 Mt 128.1 90.1 218.2 20.4 16.4 18.5 46.3 46.5 46.4 2.8 2.3 2.6 73.7 72.0 73.2 19.9 16.0 16.4 65.2 59.4 59.9 75.3 75.6 75.6 79.3 77.2 77.7 76.4 72.7 76.1 Plant % 68.2 35.8 59.0 49.1 54.0 51.7 57.3 60.7 60.3 98.0 98.0 98.0 21.2 16.8 19.2 44.3 46.7 45.4 3.0 2.3 2.7 72.9 72.0 72.7 22.1 17.7 18.2 61.3 57.6 58.0 76.7 76.7 76.7 76.9 76.8 76.8 76.9 72.3 76.4 Plant % 62.3 29.6 52.4 34.0 48.3 40.8 55.0 59.9 59.2 98.1 99.5 98.7 16.3 12.3 28.6 37.0 35.0 72.1 2.3 1.7 4.0 31.6 11.2 42.7 3.1 24.5 27.5 10.0 90.9 101.0 2.4 14.9 17.3 3.5 11.3 14.8 92.6 8.7 101.3 Mt 143.5 56.6 200.1 40.5 46.3 86.8 14.7 107.5 122.2 195.8 51.0 246.8 18.7 12.3 31.0 39.0 35.0 74.0 2.7 1.7 4.4 35.2 11.2 46.3 4.0 28.4 32.4 11.2 92.4 103.7 3.2 18.6 21.8 4.8 12.0 16.8 94.8 10.0 104.8 Mt 152.7 61.9 214.5 43.7 47.1 90.8 17.1 112.7 129.8 128.1 90.1 218.2 2011 kcal/kg 4,380 4,250 4,350 CSN 7.0 6.5 7.0 kcal/kg 6,970 6,990 6,980 kcal/kg 7,060 7,030 7,050 CSN 9.0 9.0 9.0 CSN 7.5 7.5 7.5 kcal/kg 6,500 6,500 6,500 kcal/kg 6,260 6,260 6,260 kcal/kg 6,940 6,810 6,840 CSN 8.0 8.0 8.0 CSN 8.0 7.5 8.0 kcal/kg 6,970 6,940 6,960 kcal/kg 6,550 6,480 6,480 kcal/kg 4,380 4,250 4,350 2010 kcal/kg 3,740 3,890 3,800 CSN 7.0 6.5 7.0 kcal/kg 6,970 6,990 6,980 kcal/kg 7,060 7,030 7,050 CSN 9.0 9.0 9.0 CSN 7.5 7.5 7.5 kcal/kg 6,500 6,500 6,500 kcal/kg 6,260 6,260 6,260 kcal/kg 6,960 6,810 6,850 CSN 8.0 8.0 8.0 CSN 8.0 7.5 8.0 kcal/kg 6,970 6,940 6,960 kcal/kg 6,540 6,470 6,480 kcal/kg 3,740 3,890 3,800 Metallurgical Coal – Canada Operations COAL RESERVES(1) Trend (OC) Attributable % 100 (2) Metallurgical – Coking Thermal – Export Mine Life Classification 13 Proved Probable Total Proved Probable Total ROM Tonnes(3) Yield(4) Saleable Tonnes(3) Saleable Quality (5) 2011 Mt 20.3 2.3 22.6 2010 Mt 20.4 2.4 22.8 2011 ROM % 65.0 61.7 64.7 0.7 1.1 0.7 2010 ROM % 64.6 62.2 64.4 0.7 1.1 0.7 2011 Mt 13.9 1.5 15.4 0.1 0.0 0.2 2010 Mt 13.9 1.5 15.4 0.2 0.0 0.2 2011 CSN 7.0 7.0 7.0 kcal/kg 5,070 5,070 5,070 2010 CSN 7.0 7.0 7.0 kcal/kg 5,300 5,300 5,300 Mining method: OC = Open Cut, UG = Underground. Mine Life = The extraction period in years for scheduled Ore Reserves comprising Proved and Probable Reserves only. 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. Metallurgical – Coking refers to a high-, medium- or low-volatile semi-soft, soft or hard coking coal primarily for blending and use in the steel industry; quality measured as Crucible Swell Number (CSN). Metallurgical – Other 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; quality measured by calorific value (CV). Thermal – Export refers to low- to high-volatile thermal coal primarily for export in the use of power generation; quality measured by calorific value (CV). Thermal – Domestic refers to low- to high-volatile thermal coal primarily for domestic consumption for power generation; quality measured by calorific value (CV). Anglo American plc Annual Report 2011 183 O r e R e s e r v e s a n d M n e r a i l R e s o u r c e s ORE RESERVES AND MINERAL RESOURCES COAL estimates as at 31 December 2011 Metallurgical Coal – Australia Operations COAL RESOURCES(6) Callide Attributable % 100 (2) Capcoal (OC) Capcoal (UG) Dawson Drayton Foxleigh Moranbah North 76.8 70.0 51.0 88.2 70.0 88.0 Australia – Mine Leases 77.3 THE COAL RESOURCES ARE REPORTED AS ADDITIONAL TO COAL RESERVES. Metallurgical Coal – Canada Operations COAL RESOURCES(6) Trend (OC) Attributable % 100 (2) THE COAL RESOURCES ARE REPORTED AS ADDITIONAL TO COAL RESERVES. Classification Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) (8) (8) (8) (8) (8) (8) (8) (8) (6) 2011 MTIS 260.7 265.1 525.7 15.3 13.8 27.9 41.7 36.6 76.3 68.0 144.3 0.3 163.1 278.6 441.7 103.5 2.4 12.3 14.7 0.4 17.3 16.1 33.3 7.0 55.7 21.3 76.9 0.1 589.2 689.2 1,278.4 163.3 Classification Measured Indicated Measured and Indicated Inferred (in LOMP) (8) (6) 2011 MTIS 15.9 5.3 21.2 1.4 Tonnes 2010 (6) MTIS 220.0 324.0 543.9 12.1 13.8 27.9 41.7 36.6 76.3 68.0 144.3 0.3 163.1 278.6 441.7 103.5 2.4 12.3 14.7 0.4 17.3 16.1 33.3 7.0 39.5 20.4 59.9 0.2 532.3 747.3 1,279.6 160.2 Tonnes 2010 (6) MTIS 15.9 5.3 21.2 1.4 Coal Quality 2010 (7) kcal/kg 4,870 4,790 4,820 4,260 7,080 7,080 7,080 6,710 6,730 6,620 6,680 6,630 6,670 6,660 6,660 6,870 6,870 6,850 6,850 6,050 7,130 7,090 7,110 6,830 6,630 6,500 6,590 6,680 5,960 5,870 5,910 6,630 (7) 2011 kcal/kg 4,940 4,810 4,870 4,240 7,080 7,080 7,080 6,710 6,730 6,620 6,680 6,630 6,670 6,660 6,660 6,870 6,870 6,850 6,850 6,050 7,130 7,090 7,110 6,830 6,670 6,570 6,640 6,980 5,940 5,970 5,960 6,580 Coal Quality 2010 (7) kcal/kg 6,500 6,500 6,500 6,500 (7) 2011 kcal/kg 6,500 6,500 6,500 6,500 Metallurgical Coal – Australia Projects COAL RESERVES(1) Grosvenor Attributable % 100 (2) Metallurgical – Coking Mine Life Classification 21 Proved Probable Total ROM Tonnes (3) Yield (4) Saleable Tonnes (3) Saleable Quality (5) 2011 Mt 76.1 62.6 138.7 2010 Mt 63.3 49.9 113.2 2011 ROM % 66.2 65.2 65.7 2010 ROM % 64.9 64.3 64.6 2011 Mt 53.2 43.1 96.3 2010 Mt 43.3 33.8 77.2 2011 CSN 8.5 8.0 8.5 2010 CSN 8.5 8.0 8.5 Metallurgical Coal – Australia Projects COAL RESOURCES(6)(8) Dartbrook Attributable % 83.3 (2) Drayton South Grosvenor Moranbah South Theodore Australia – Projects 88.2 100 50.0 51.0 73.9 184 Anglo American plc Annual Report 2011 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 (6) 2011 MTIS 386.1 24.8 410.9 405.7 173.4 579.2 145.1 72.5 217.6 191.5 307.1 498.6 – 258.5 258.5 1,128.4 836.3 1,964.7 Tonnes 2010 (6) MTIS 386.1 24.8 410.9 405.7 173.4 579.2 168.5 55.3 223.8 146.4 325.4 471.7 – 258.5 258.5 1,106.7 837.4 1,944.1 Coal Quality 2010 (7) kcal/kg 5,720 5,460 5,700 6,580 6,540 6,570 6,410 6,430 6,410 6,030 6,300 6,220 – 6,260 6,260 6,180 6,320 6,240 (7) 2011 kcal/kg 5,720 5,460 5,700 6,580 6,540 6,570 6,420 6,550 6,460 6,050 6,350 6,230 – 6,260 6,260 6,180 6,350 6,250 ORE RESERVES AND MINERAL RESOURCES COAL estimates as at 31 December 2011 Metallurgical Coal – Australia Operations and Projects COAL RESOURCES(6) Total Attributable % 75.2 (2) THE COAL RESOURCES ARE REPORTED AS ADDITIONAL TO COAL RESERVES. Metallurgical Coal – Canada Projects COAL RESOURCES(6)(8) Belcourt Saxon Attributable % 50.0 (2) Roman Mountain Canada – Projects 100 56.8 Metallurgical Coal – Canada Operations and Projects COAL RESOURCES(6) Total Attributable % 61.0 (2) Classification Measured Indicated Measured and Indicated Inferred (in LOMP) (8) (6) 2011 MTIS 1,717.6 1,525.5 3,243.1 172.8 Tonnes 2010 (6) MTIS 1,638.9 1,584.7 3,223.6 196.0 Classification Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Classification Measured Indicated Measured and Indicated Inferred (in LOMP) (8) (6) 2011 MTIS 166.7 4.3 171.0 20.0 6.8 26.7 186.7 11.0 197.7 (6) 2011 MTIS 202.7 16.3 219.0 1.4 Tonnes 2010 (6) MTIS 166.7 4.3 171.0 20.0 6.8 26.7 186.7 11.0 197.7 Tonnes 2010 (6) MTIS 202.7 16.3 219.0 1.4 Coal Quality 2010 (7) kcal/kg 6,110 6,110 6,110 6,590 Coal Quality 2010 (7) kcal/kg 7,000 7,000 7,000 6,970 6,970 6,970 7,000 6,980 7,000 Coal Quality 2010 (7) kcal/kg 6,960 6,830 6,950 6,920 (7) 2011 kcal/kg 6,090 6,180 6,130 6,570 (7) 2011 kcal/kg 6,500 6,500 6,500 6,640 6,660 6,650 6,510 6,600 6,520 (7) 2011 kcal/kg 6,510 6,570 6,520 6,500 (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 2011 only. For the 2010 Reported and Attributable figures, please refer to the 2010 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) (5) (6) (7) (8) Yield – ROM % 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 whereas Plant % is based on the ‘Feed to Plant’ tonnes. The product yields (ROM %) for Proved, Probable and Total are calculated by dividing the individual Saleable reserves by the total ROM reserves per classification. 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. 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. 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. Inferred (in LOMP) 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 Life of Mine Plan but within the mine lease area are not reported due to 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, 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. Jellinbah is not reported as Anglo American’s shareholding is below the internal threshold for reporting. Monash Energy’s resources have been removed from the 2011 report following the cancellation of their tenure near Flynn in the Latrobe Valley, Victoria. Anglo American is in liaison with the Victorian Government regarding the cancellation. Estimates for the following operations were updated by depletion and new geological models and revised Life of Mine Plans are scheduled for 2012: Capcoal (OC), Capcoal (UG), Dawson and Foxleigh. Summary of material changes (±10%) at reporting level Callide: Drayton: Moranbah North: Trend: Increase in Coal Reserves mainly due to conversion of resources to reserves following re-estimation based on a revised Life of Mine Plan. Decrease in Coal Reserves due to production. Increase in Coal Resources resulting from changes in mine design (wider panels and shorter blocks). Estimates by depletion due to time constraints following incorporation of Peace River Coal into Anglo American Metallurgical Coal (AAMC). Minor differences in coal qualities are as a result of a detailed review of available quality data and subsequent update to the appropriate default quality values. Increase in Coal Reserves as a result of additional drilling information and model update as part of the requirements for a Feasibility Study and conversion of resources to reserves. Increase in Coal Resources due to new exploration data incorporated into the geological model, including a new mine plan as part of Pre-Feasibility study. Minor differences in coal qualities are as a result of a detailed review of available quality data and subsequent update to the appropriate default quality values. Minor differences in coal qualities are as a result of a detailed review of available quality data and subsequent update to the appropriate default quality values. Grosvenor: Moranbah South: Belcourt Saxon: Roman Mountain: Assumption with respect to Mineral Tenure Callide: Foxleigh: Grosvenor: A Mining Lease Application has been lodged for the northern part of the Kilburnie area and AAMC has reasonable expectation that it will be granted. A Mining Lease Application has been lodged for the Amy’s Find area as an extension to the existing mining area at The Hut and AAMC has reasonable expectation that it will be granted. A Mining Lease Application has been submitted for part of the Plains area, and an application for the remainder together with the associated Environmental Impact Statement (EIS) will be submitted in early 2012. AAMC has reasonable expectation that both will be granted. A Mining Lease Application has been submitted and AAMC has a reasonable expectation that it will granted; land purchase is currently in progress. Reviews by independent third parties were carried out in 2011 on the following operations and projects: Foxleigh, Moranbah North and Grosvenor. Anglo American plc Annual Report 2011 185 O r e R e s e r v e s a n d M n e r a i l R e s o u r c e s ORE RESERVES AND MINERAL RESOURCES COAL estimates as at 31 December 2011 THERMAL COAL The Coal Reserve and Coal Resource estimates were compiled in accordance with The South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves, (The SAMREC Code, 2007) and the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code, 2004) as applicable. The figures reported represent 100% of the Coal Reserves and Coal Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of figures may cause computational discrepancies. Anglo American Thermal Coal comprises the dominantly export and domestic thermal coal operations, located in Colombia and South Africa. ROM Tonnes (3) Yield (4) Saleable Tonnes (3) Saleable Quality (5) 2010 Mt 659.0 64.1 723.1 659.0 64.1 723.1 2011 ROM % 96.8 96.8 96.8 96.8 96.8 96.8 2010 ROM % 95.2 95.3 95.2 95.2 95.3 95.2 2011 Mt 695.5 83.2 778.7 695.5 83.2 778.7 2010 Mt 634.8 61.7 696.5 634.8 61.7 696.5 2011 kcal/kg 6,300 6,240 6,290 kcal/kg 6,300 6,240 6,290 2010 kcal/kg 6,230 6,230 6,230 kcal/kg 6,230 6,230 6,230 ROM Tonnes (3) Yield (4) Saleable Tonnes (3) Saleable Quality (5) 2011 ROM % 53.0 51.7 52.3 2010 ROM % 53.9 55.0 54.4 58.1 53.9 56.2 100 – 100 35.9 45.9 37.5 33.8 – 28.5 100 100 100 48.5 48.5 48.5 8.8 7.3 8.2 46.5 33.1 36.7 27.1 37.3 34.5 100 100 100 58.6 62.8 58.8 100 – 100 37.1 45.8 38.3 31.7 – 27.4 100 100 100 50.7 48.7 50.0 8.5 8.5 8.5 49.0 – 49.0 23.1 – 23.1 100 100 100 2011 Mt 20.2 25.6 45.9 15.5 12.3 27.8 69.9 – 69.9 23.7 5.6 29.3 21.8 – 21.8 2010 Mt 25.7 25.6 51.3 22.7 1.5 24.2 74.9 – 74.9 29.0 5.7 34.7 24.9 – 24.9 46.0 67.5 113.5 61.2 69.6 130.8 17.8 11.9 29.8 3.2 1.8 5.0 11.6 22.2 33.8 6.8 25.0 31.8 23.0 12.2 35.2 3.8 2.1 6.0 14.8 – 14.8 6.9 – 6.9 30.2 80.9 111.1 40.4 92.9 133.3 2011 kcal/kg 6,230 6,210 6,220 kcal/kg 6,200 6,190 6,200 kcal/kg 4,590 – 4,590 kcal/kg 6,170 6,180 6,170 kcal/kg 4,550 – 4,550 kcal/kg 4,790 4,430 4,580 kcal/kg 6,240 6,230 6,240 kcal/kg 4,550 3,970 4,340 kcal/kg 6,220 6,210 6,210 kcal/kg 5,460 5,010 5,110 kcal/kg 4,880 5,120 5,050 2010 kcal/kg 6,220 6,220 6,220 kcal/kg 6,190 6,190 6,190 kcal/kg 4,640 – 4,640 kcal/kg 6,220 6,240 6,220 kcal/kg 4,460 – 4,460 kcal/kg 4,800 4,450 4,610 kcal/kg 6,250 6,250 6,250 kcal/kg 4,100 4,400 4,210 kcal/kg 6,270 – 6,270 kcal/kg 5,490 – 5,490 kcal/kg 4,930 5,070 5,030 2011 Mt 718.8 86.0 804.8 718.8 86.0 804.8 2011 Mt 37.4 48.6 86.0 25.8 21.9 47.8 69.9 – 69.9 64.5 12.0 76.4 2010 Mt 46.8 45.6 92.4 37.3 2.3 39.6 74.9 – 74.9 77.5 12.3 89.8 46.0 67.5 113.5 36.4 24.4 60.7 61.2 69.6 130.8 44.7 24.7 69.4 24.8 66.6 91.3 30.1 – 30.1 30.2 80.9 111.1 40.4 92.9 133.3 Thermal Coal – Colombia Operations COAL RESERVES(1) Cerrejón (OC) Attributable % 33.3 (2) Mine Life 20 Thermal – Export Colombia Thermal – Export 33.3 Thermal Coal – South Africa Operations COAL RESERVES(1) Attributable % Goedehoop (UG&OC) 100 (2) Mine Life 11 Thermal – Export Greenside (UG) Thermal – Export 100 11 Isibonelo (OC) Synfuel 100 14 Kleinkopje (OC) Thermal – Export 100 13 Thermal – Domestic Kriel (UG&OC) Thermal – Domestic 73.0 14 Landau (OC) Thermal – Export 100 9 Thermal – Domestic Mafube (OC) Thermal – Export 50.0 19 Thermal – Domestic New Denmark (UG) Thermal – Domestic 100 23 Classification Proved Probable Total Proved Probable Total Classification Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total 186 Anglo American plc Annual Report 2011 ORE RESERVES AND MINERAL RESOURCES COAL estimates as at 31 December 2011 Thermal Coal – South Africa Operations continued COAL RESERVES(1) New Vaal (OC) Thermal – Domestic Mine Attributable % 100 (2) Life Classification 20 Nooitgedacht 5 Seam (UG) Metallurgical – Other 100 1 Zibulo (UG&OC) Thermal – Export 73.0 19 Thermal – Domestic South Africa Thermal – Export 85.6 South Africa Thermal – Domestic 91.7 South Africa Synfuel 100 South Africa Metallurgical – Other 100 Thermal Coal – Operations TOTAL COAL RESERVES(1) Thermal – Export Attributable % 44.9 (2) Thermal – Domestic 91.7 Synfuel Metallurgical – Other 100 100 ROM Tonnes (3) 2011 Mt 371.8 – 371.8 0.4 – 0.4 86.1 28.6 114.7 2010 Mt 397.5 – 397.5 1.2 – 1.2 – 111.9 111.9 Mt 793.3 350.5 1,143.8 Mt 811.7 359.3 1,171.0 2011 ROM % 93.4 – 93.4 63.6 – 63.6 49.4 46.1 48.6 29.8 30.4 29.9 Plant % 48.2 45.9 47.0 86.9 87.2 86.8 100 – 100 63.6 – 63.6 Yield (4) 2010 ROM % 93.4 – 93.4 28.4 – 28.4 – 41.0 41.0 – 35.6 35.6 Plant % 49.3 46.6 48.1 90.2 86.2 88.9 100 – 100 28.4 – 28.4 Saleable Tonnes (3) Saleable Quality (5) 2011 Mt 359.8 – 359.8 0.3 – 0.3 43.0 13.3 56.3 26.4 8.9 35.4 Mt 131.8 90.9 222.7 494.2 184.1 678.4 69.9 – 69.9 0.3 – 0.3 2010 Mt 384.6 – 384.6 0.4 – 0.4 – 46.3 46.3 – 40.9 40.9 Mt 115.7 91.3 207.0 522.0 205.5 727.5 74.9 – 74.9 0.4 – 0.4 2011 kcal/kg 3,490 – 3,490 kcal/kg 6,370 – 6,370 kcal/kg 6,090 6,070 6,090 kcal/kg 4,820 4,640 4,770 kcal/kg 6,170 6,190 6,180 kcal/kg 3,850 4,820 4,110 kcal/kg 4,590 – 4,590 kcal/kg 6,370 – 6,370 2010 kcal/kg 3,490 – 3,490 kcal/kg 6,280 – 6,280 kcal/kg – 6,320 6,320 kcal/kg – 4,990 4,990 kcal/kg 6,230 6,280 6,250 kcal/kg 3,830 4,840 4,120 kcal/kg 4,640 – 4,640 kcal/kg 6,280 – 6,280 ROM Tonnes (3) Yield (4) Saleable Tonnes (3) Saleable Quality (5) 2011 Mt 1,512.1 436.5 1,948.6 2010 Mt 1,470.7 423.3 1,894.0 2011 Plant % 89.1 70.2 85.7 86.9 87.2 86.8 100 – 100 63.6 – 63.6 2010 Plant % 88.1 66.2 84.4 90.2 86.2 88.9 100 – 100 28.4 – 28.4 2011 Mt 827.3 174.2 1,001.4 494.2 184.1 678.4 69.9 – 69.9 0.3 – 0.3 2010 Mt 750.5 153.1 903.6 522.0 205.5 727.5 74.9 – 74.9 0.4 – 0.4 2011 kcal/kg 6,280 6,210 6,270 kcal/kg 3,850 4,820 4,110 kcal/kg 4,590 – 4,590 kcal/kg 6,370 – 6,370 2010 kcal/kg 6,230 6,260 6,230 kcal/kg 3,830 4,840 4,120 kcal/kg 4,640 – 4,640 kcal/kg 6,280 – 6,280 Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Classification Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Mining method: OC = Open Cast, UG = Underground. Mine Life = The extraction period in years for scheduled Ore Reserves comprising Proved and Probable Reserves only. 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. Thermal – Export refers to low- to high-volatile thermal coal primarily for export in the use of power generation; quality measured by calorific value (CV). Thermal – Domestic refers to low- to high-volatile thermal 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). Metallurgical – Other 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; quality measured by calorific value (CV). Anglo American plc Annual Report 2011 187 O r e R e s e r v e s a n d M n e r a i l R e s o u r c e s ORE RESERVES AND MINERAL RESOURCES COAL estimates as at 31 December 2011 Thermal Coal – Colombia Operations COAL RESOURCES(6) Cerrejón Attributable % 33.3 (2) Colombia – Mine Leases 33.3 THE COAL RESOURCES ARE REPORTED AS ADDITIONAL TO COAL RESERVES. Thermal Coal – South Africa Operations COAL RESOURCES(6) Goedehoop Attributable % 100 (2) Greenside Isibonelo Kleinkopje Kriel Landau Mafube New Denmark New Vaal Nooitgedacht 5 Seam Zibulo 100 100 100 73.0 100 50.0 100 100 100 73.0 South Africa – Mine Leases 84.7 THE COAL RESOURCES ARE REPORTED AS ADDITIONAL TO COAL RESERVES. Thermal Coal – Operations COAL RESOURCES(6) Total Attributable % 52.2 (2) THE COAL RESOURCES ARE REPORTED AS ADDITIONAL TO COAL RESERVES. 188 Anglo American plc Annual Report 2011 Classification Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) (8) (8) (6) 2011 MTIS 907.2 173.9 1,081.1 69.2 907.2 173.9 1,081.1 69.2 Classification Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) Measured Indicated Measured and Indicated Inferred (in LOMP) (8) (8) (8) (8) (8) (8) (8) (8) (8) (8) (8) (8) (6) 2011 MTIS 79.8 75.6 155.4 – 11.4 2.8 14.2 – – 20.9 20.9 – 28.5 – 28.5 – 9.0 10.2 19.3 – 26.5 34.3 60.8 – 2.5 7.4 9.9 17.0 – – – 17.0 – – – – 1.1 – 1.1 – 136.3 184.2 320.6 29.3 295.2 335.4 630.6 63.3 Tonnes 2010 (6) MTIS 870.4 194.4 1,064.8 47.7 870.4 194.4 1,064.8 47.7 Tonnes 2010 (6) MTIS 111.2 79.9 191.1 – – – – 13.0 – 20.3 20.3 – 30.2 – 30.2 – 7.4 18.4 25.8 – 30.4 41.7 72.1 – 79.9 – 79.9 – – – – 18.6 – – – – 1.1 – 1.1 – 79.7 174.6 254.3 43.7 339.9 334.9 674.8 75.4 Coal Quality 2010 (7) kcal/kg 6,420 6,490 6,430 6,910 6,420 6,490 6,430 6,910 Coal Quality 2010 (7) kcal/kg 5,460 5,280 5,380 – – – – 5,470 – 5,360 5,360 – 5,020 – 5,020 – 5,240 4,810 4,930 – 5,730 4,600 5,080 – 5,320 – 5,320 – – – – 5,220 – – – – 4,990 – 4,990 – 4,980 4,870 4,900 5,400 5,290 4,960 5,130 5,370 (7) 2011 kcal/kg 6,460 6,370 6,450 6,750 6,460 6,370 6,450 6,750 (7) 2011 kcal/kg 5,470 5,480 5,470 – 5,700 5,430 5,650 – – 5,210 5,210 – 4,970 – 4,970 – 5,290 4,860 5,060 – 4,810 5,180 5,020 – 5,090 5,250 5,210 5,170 – – – 5,310 – – – – 5,370 – 5,370 – 4,950 4,880 4,910 5,470 5,120 5,080 5,100 5,350 Classification Measured Indicated Measured and Indicated Inferred (in LOMP) (8) (6) 2011 MTIS 1,202.4 509.3 1,711.7 132.4 Tonnes 2010 (6) MTIS 1,210.3 529.2 1,739.5 123.0 (7) 2011 kcal/kg 6,130 5,520 5,950 6,080 Coal Quality 2010 (7) kcal/kg 6,100 5,520 5,930 5,970 ORE RESERVES AND MINERAL RESOURCES COAL estimates as at 31 December 2011 Thermal Coal – South Africa Projects COAL RESOURCES(6)(8) Elders Attributable % 73.0 (2) Kriel Block F Kriel East New Largo Nooitgedacht 2+4 Seam South Rand Vaal Basin South Africa – Projects 100 73.0 73.0 100 73.0 100 82.1 Thermal Coal – Operations and Projects COAL RESOURCES(6) Total Attributable % 68.4 (2) 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 Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Classification Measured Indicated Measured and Indicated Inferred (in LOMP) (8) (6) 2011 MTIS 218.1 107.9 326.0 – 62.8 62.8 81.5 36.0 117.5 484.9 159.3 644.3 34.7 10.6 45.3 78.6 168.1 246.7 208.2 362.5 570.7 1,106.0 907.2 2,013.2 (6) 2011 MTIS 2,308.3 1,416.6 3,724.9 132.4 Tonnes 2010 (6) MTIS 207.9 30.8 238.6 – 62.8 62.8 81.5 36.0 117.5 350.8 286.0 636.8 55.5 3.4 59.0 78.9 142.2 221.1 128.9 149.3 278.2 903.5 710.5 1,613.9 Tonnes 2010 (6) MTIS 2,113.8 1,239.7 3,353.5 123.0 Coal Quality 2010 (7) kcal/kg 4,980 5,390 5,030 – 5,310 5,310 4,940 4,950 4,940 4,400 4,230 4,320 5,330 5,300 5,330 4,870 4,840 4,850 3,730 4,000 3,870 4,580 4,490 4,540 (7) 2011 kcal/kg 5,110 5,400 5,210 – 5,310 5,310 4,940 4,950 4,940 4,300 3,920 4,210 5,310 5,450 5,340 4,850 4,770 4,800 3,980 4,140 4,080 4,520 4,500 4,510 Coal Quality 2010 (7) kcal/kg 5,450 4,930 5,260 5,970 (7) 2011 kcal/kg 5,360 4,860 5,170 6,080 THE COAL RESOURCES ARE REPORTED AS ADDITIONAL TO COAL RESERVES. 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 2011 only. For the 2010 Reported and Attributable figures, please refer to the 2010 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) (5) (6) (7) (8) Yield – ROM % 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 whereas Plant % is based on the ‘Feed to Plant’ tonnes. The product yields (ROM %) for Proved, Probable and Total are calculated by dividing the individual Saleable reserves by the total ROM reserves per classification. 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. 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. 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. 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. Inferred (in LOMP) 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 Life of Mine Plan but within the mine lease area are not reported due to 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, 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. Greenside: Kleinkopje: Kriel: Landau: Mafube: New Denmark: Nooitgedacht: Zibulo: Elders: South Rand: Vaal Basin: Mafube: New Largo: Royalty Payment South Africa: Summary of material changes (±10%) at reporting level Cerrejón: Goedehoop: Increase in Coal Reserves due to conversion of Resources resulting from changes in mine design to enable expansion from 32 mtpa to 40 mtpa. Decrease in Coal Resources resulting from the transfer of Resources to Deposit due to re-evaluation of market potential, limited washability data and remnant blocks which have been removed from the mine plan. Increase in Coal Reserves primarily due to conversion of Resources as result of increased geological confidence. Increase in Coal Resources as a result of model update and interpretation. Decrease in Coal Reserves resulting from the removal of the pre-mined 3A East 2 & 1 seam from the mine plan, which was transferred to Deposit due changes in economic assumptions and the transfer of virgin 3A East 4 seam to Greenside Colliery. Decrease in Coal Reserves primarily due to production. Decrease in Coal Resources attributed to re-evaluation of mini-pits and removal of remnant blocks due to lack of accessibility. Decrease in Coal Reserves primarily due to production. Decrease in Coal Resource primarily due to Concept study on Landau Life Extension which resulted in additional surface and environmental changes being considered. Following the submission of the Mining Right Application, Nooitgedacht 2 seam Resources were converted to Probable Reserve. Inferred Resources in Mine Lease were moved to Inferred (in LOMP). The conversion to reserves resulted in the increase of Mine Life from 6 to 19 years. Inferred Resources in Mine Plan comprise of 15% of the Reserves, however these Resources are outside of the five year horizon. Drilling is planned to reduce proportion to below 10% by mid 2012. Decrease in Coal Reserves primarily due to transfer of Resources to Deposit resulting from change in the reserve thickness cut-off parameter, previously applied a standard 1.5 m cut-off, now applying the mining layout and practical equipment limits. Consequently Mine Life has been reduced from 27 to 23 years. Decrease in 5 seam Coal Reserves primarily due to production. Decrease in 2 and 4 seam Coal Resources attributed to reclassification of resources using an alternative methodology. Increase in Coal Resources due to upgrade of Zondagsfontein West resources resulting from increased drilling and geological confidence. Inferred Resources in Mine Plan comprise 12% of the Reserves, however these Resources are outside of the five year horizon. Drilling is planned to reduce proportion to below 10% by mid 2012. Upgrade of Coal Resources resulting from additional drilling and washability data. Upgrade of Coal Resources resulting from additional drilling. Increase in Coal Resources as estimates are now based on raw qualities due to proven lack of export potential. There are significantly more boreholes with raw qualities, hence resource categories were upgraded. Assumption with respect to Mineral Tenure Cerrejón: Reserves are estimated for the area defined by the current approved Mining Right which expires in 2033. In order to exploit the Coal Resources, a renewal will be applied for at the appropriate time, Anglo American Thermal Coal has reasonable expectation that such renewal will not be withheld. Application for conversion to a Mining Right has been submitted; in addition the environmental permitting applications will be submitted in 2012 as per legislative requirements. There is a reasonable expectation that such conversion will not be withheld. The New Largo Mining Right Application was submitted in April 2011. The relevant South African Departments responsible for approvals, as well as key stakeholders, have been actively engaged with regard to the Colliery’s potential impacts on wetlands. There is a reasonable expectation that such conversion will not be withheld. Royalty payments commenced in February 2010 in accordance with the Royalties Act (No. 28 of 2008) and have been taken into consideration in economic assessment of the reserves. Reviews by independent third parties were carried out in 2011 on the following operations and project areas: Goedehoop, Greenside, Mafube and New Denmark. Anglo American plc Annual Report 2011 189 O r e R e s e r v e s a n d M n e r a i l R e s o u r c e s ORE RESERVES AND MINERAL RESOURCES COPPER estimates as at 31 December 2011 COPPER The Ore Reserve and Mineral Resource estimates were compiled in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code, 2004) as a minimum standard. 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 % 44.0 Mine Life 68 Classification Copper – Operations ORE RESERVES Collahuasi (OP)(1) Oxide and Mixed (TCu) Heap Leach Sulphide (TCu) Flotation – direct feed Low Grade Sulphide (TCu) Flotation – stockpile El Soldado (OP) Sulphide (TCu) Flotation(2) Oxide (TCu) Heap Leach(3) Los Bronces (OP)(4) Sulphide (TCu) Flotation(5) Sulphide (TCu) Dump Leach(6) 75.5 23 75.5 34 Mantos Blancos (OP) 100 10 Sulphide (ICu) Flotation(7) Oxide (ASCu) Vat and Heap Leach(8) Oxide (ASCu) Dump Leach(9) Mantoverde (OP) Oxide (ASCu) Heap Leach(10) Oxide (ASCu) Dump Leach(11) 100 6 2011 Mt 0.0 35.4 35.4 285.0 1,640.3 1,925.3 – 935.2 935.2 95.4 67.3 162.7 – 3.5 3.5 899.6 598.8 1,498.4 486.6 197.1 683.7 26.3 19.7 46.0 8.3 16.3 24.7 2.1 49.6 51.7 33.3 9.5 42.7 27.2 18.2 45.4 Tonnes 2010 Mt 0.1 29.3 29.4 286.6 1,366.8 1,653.4 – 775.9 775.9 84.2 52.4 136.6 1.9 3.5 5.4 712.9 794.5 1,507.4 384.4 350.1 734.5 16.2 29.6 45.8 6.2 15.6 21.8 2.3 57.2 59.5 36.5 15.3 51.8 29.1 22.1 51.2 2011 %Cu 0.60 0.63 0.63 1.07 0.93 0.95 – 0.49 0.49 %Cu 0.96 0.79 0.89 – 0.46 0.46 %Cu 0.69 0.51 0.62 0.35 0.27 0.33 %Cu 0.83 0.80 0.82 0.54 0.33 0.40 0.18 0.23 0.23 %Cu 0.59 0.55 0.58 0.24 0.28 0.26 Grade Contained metal 2010 %Cu 1.66 0.66 0.66 1.04 0.95 0.96 – 0.51 0.51 %Cu 1.00 0.83 0.93 0.81 0.52 0.62 %Cu 0.73 0.55 0.64 0.37 0.29 0.33 %Cu 0.88 0.84 0.85 0.53 0.30 0.37 0.19 0.23 0.23 %Cu 0.57 0.55 0.56 0.24 0.28 0.26 2011 kt 0 224 224 3,042 15,177 18,219 – 4,596 4,596 915 533 1,448 – 16 16 6,208 3,054 9,261 1,703 532 2,235 218 157 376 45 54 99 4 115 119 196 52 248 65 51 116 2010 kt 2 193 195 2,985 12,968 15,952 – 3,924 3,924 843 433 1,276 16 18 33 5,205 4,370 9,575 1,421 1,015 2,436 143 249 392 33 47 80 4 134 138 208 84 292 70 62 132 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. Mine Life = The extraction period in years for scheduled Ore Reserves comprising Proved and Probable Reserves only. TCu = total copper, ICu = insoluble copper (total copper less acid soluble copper), ASCu = acid soluble copper. 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) Collahuasi: The increase in Ore Reserves is due to a combination of conversion from Mineral Resources to Ore Reserves due to new information and higher Long Term metal prices resulting in changes to the pit designs for Rosario along with a decrease in overall cut-off grade (0.34%-0.30%TCu). The sub-product average estimated grade for molybdenum is 0.022% for Ore Reserves and the average estimated grade for Mineral Resources is 0.021%. (2) El Soldado – Sulphide (Flotation): Changes in Ore Reserves are primarily due to economic assumptions (increase in metal price) resulting in the addition of a new phase 7 to the Life of Mine Plan which is supported by new drilling information from the ‘Manto Rojo’ area leading to conversion of Mineral Resources to Ore Reserves. Other changes influencing the increase in Ore Reserves include the closure of the underground operations in November 2010, resulting in the re-allocation of Ore Reserves from underground to the revised open-pit. Mineral Resources decreased due to conversion to Ore Reserves as a result of the change in the Life of Mine Plan. This was partially offset by a gain as a result of the increase in the Long Term Copper price and new Information. (3) El Soldado – Oxide (Heap Leach): The decrease in Ore Reserves is primarily due to production. The Mineral Resources decrease due to conversion to Ore Reserves. (4) Los Bronces: The sub-product average estimated grade for molybdenum is 0.014% for the total Ore Reserves quoted and the average estimated grade for Mineral Resources is 0.008%. (5) Los Bronces – Sulphide (Flotation): The decrease in Ore Reserves is due to production and changes in the reserve model as a result of the 2010–11 infill drilling programme. Mineral Resources increase due to an increase in the Long Term metal prices and new information included within the Mineral Resource model. Los Bronces – Sulphide (Dump Leach): The decrease in Ore Reserves is primarily due to production and changes in the reserves model due to new drilling information, which was partially offset by conversion of Mineral Resources to Ore Reserves. (6) (7) Mantos Blancos – Sulphide (Flotation): While there are no significant changes in Ore Reserves, the increase in Mineral Resources is mainly due to the change in economic assumptions (increase in (8) Long Term metal price) and new drilling information at Argentina deposit. Mantos Blancos – Oxide (Vat and Heap Leach): The increase in Ore Reserves is due to increased Long Term metal prices resulting in changes to cut-off grade criteria and the inclusion of new drilling information in oxide pits. The increase in Long Term metal price also accounts for the increase in the Mineral Resources. (9) Mantos Blancos – Oxide (Dump Leach): The decrease in Ore Reserves is primarily due to production. The increase in Mineral Resources is primarily due to the addition of inferred stockpile material primarily from Phase 2 of the Mercedes Dump, followed by old vat tailings from other sources such as ‘Banquedaño’ Dump. (10) Mantoverde – Oxide (Heap Leach): The decrease in Ore Reserves is primarily due to production and losses associated with a change in model estimation methodology for Kuroki heap material. These losses were partially offset by the addition of Kuroki phase 3 due to the purchase of the Laura-Laurita-Las Casas property. The effects of the increased metal price are offset by higher costs (acid, energy) which result in a decrease in the Mineral Resources. The decrease was partially offset by the re-allocation of Ore Reserves to Mineral Resources at Llano Sur due to higher strip ratios. (11) Mantoverde – Oxide (Dump Leach): The decrease in Ore Reserves is primarily due to production, while the decrease in Mineral Resources is primarily driven by the increase in process and mining costs (acid, energy, contractor mining) resulting in the loss of satellite oxide pits and smaller resource increments. (12) 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. Audits related to the generation of the Ore Reserve and Mineral Resource statements were carried out by independent consultants during 2011 at the following operations: El Soldado, Los Bronces, Mantos Blancos and Mantoverde. 190 Anglo American plc Annual Report 2011 ORE RESERVES AND MINERAL RESOURCES COPPER estimates as at 31 December 2011 Copper – Operations MINERAL RESOURCES Collahuasi (OP)(1)(12) Oxide and Mixed (TCu) Heap Leach Attributable % 44.0 Sulphide (TCu) Flotation – direct feed Low Grade Sulphide (TCu) Flotation – stockpile El Soldado (OP)(12) Sulphide (TCu) Flotation(2) 75.5 Oxide (TCu) Heap Leach(3) Los Bronces (OP)(4)(12) 75.5 Sulphide (TCu) Flotation(5) Sulphide (TCu) Dump Leach(6) Mantos Blancos (OP)(12) 100 Sulphide (ICu) Flotation(7) Oxide (ASCu) Vat and Heap Leach(8) Oxide (ASCu) Dump Leach(9) Mantoverde (OP)(12) Oxide (ASCu) Heap Leach(10) 100 Oxide (ASCu) Dump Leach(11) Classification Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred 2011 Mt – 15.1 15.1 3.9 0.3 4.2 1.2 628.9 630.1 660.6 1,944.6 2,605.3 1.2 152.5 153.7 579.0 736.8 1,315.8 21.9 18.8 40.7 20.9 12.7 33.6 0.1 0.1 0.2 – 0.1 0.1 211.1 922.9 1,133.9 83.7 3,115.6 3,199.3 – – – 114.4 – 114.4 47.8 68.1 116.0 2.7 27.8 30.5 14.1 10.5 24.5 1.9 3.3 5.2 – 8.3 8.3 65.8 – 65.8 21.1 13.1 34.2 0.6 0.9 1.5 – – – 0.9 – 0.9 Tonnes 2010 Mt – 10.5 10.5 10.2 9.4 19.7 2.6 411.2 413.8 567.7 2,329.8 2,897.5 3.7 151.1 154.7 234.4 909.8 1,144.2 27.8 17.0 44.8 17.5 22.3 39.8 0.3 0.2 0.5 0.2 0.5 0.7 118.2 1,030.0 1,148.1 68.0 2,853.4 2,921.4 – – – 108.4 – 108.4 16.4 101.8 118.2 0.8 8.3 9.1 5.8 16.6 22.4 0.6 3.5 4.1 – – – 0.3 13.0 13.3 22.3 25.8 48.1 0.7 2.5 3.2 – – – 2.3 – 2.3 2011 %Cu – 0.60 0.60 0.62 0.61 0.62 0.78 0.91 0.91 0.99 0.91 0.93 0.44 0.46 0.46 0.44 0.46 0.45 %Cu 0.82 0.72 0.77 0.81 0.71 0.77 0.75 0.69 0.71 – 0.69 0.69 %Cu 0.45 0.43 0.43 0.58 0.39 0.39 – – – 0.26 – 0.26 %Cu 0.75 0.56 0.64 0.57 0.55 0.55 0.47 0.43 0.45 0.53 0.47 0.49 – 0.20 0.20 0.23 – 0.23 %Cu 0.36 0.42 0.38 0.53 0.29 0.38 – – – 0.22 – 0.22 Grade Contained metal 2010 %Cu – 0.61 0.61 0.84 0.72 0.78 0.75 0.92 0.92 0.99 0.93 0.94 0.45 0.47 0.47 0.49 0.47 0.47 %Cu 0.73 0.67 0.71 0.81 0.61 0.70 0.82 0.78 0.80 0.66 0.74 0.72 %Cu 0.48 0.42 0.43 0.54 0.38 0.38 – – – 0.26 – 0.26 %Cu 0.75 0.63 0.65 0.78 0.57 0.59 0.43 0.42 0.42 0.38 0.44 0.43 – – – 0.17 0.24 0.24 %Cu 0.33 0.35 0.34 0.50 0.31 0.35 – – – 0.22 – 0.22 2011 kt – 90 90 24 2 26 9 5,694 5,704 6,532 17,676 24,208 5 698 704 2,564 3,414 5,978 180 135 315 169 90 260 1 1 1 – 0 0 950 3,968 4,918 485 12,151 12,636 – – – 298 – 298 359 379 738 16 153 168 66 45 111 10 16 26 – 17 17 154 – 154 76 55 131 3 3 6 – – – 2 – 2 2010 kt – 64 64 86 68 153 19 3,787 3,806 5,602 21,736 27,338 17 703 720 1,153 4,273 5,426 203 114 317 142 136 278 2 2 4 1 3 5 567 4,326 4,893 367 10,843 11,210 – – – 282 – 282 123 642 765 6 47 53 25 70 95 2 15 18 – – – 1 31 32 74 90 164 3 8 11 – – – 5 – 5 O r e R e s e r v e s a n d M n e r a i l R e s o u r c e s THE MINERAL RESOURCES ARE REPORTED AS ADDITIONAL TO ORE RESERVES. Anglo American plc Annual Report 2011 191 ORE RESERVES AND MINERAL RESOURCES COPPER estimates as at 31 December 2011 Copper – Projects ORE RESERVES Quellaveco (OP)(1) Sulphide (TCu) Flotation Attributable % 81.9 Mine Life 28 Copper – Projects MINERAL RESOURCES Quellaveco (OP)(1) Sulphide (TCu) Flotation Attributable % 81.9 Mantoverde Sulphide Project(2) Sulphide (TCu) Flotation Pebble (OP/UG)(3)(4)(5)(6)(7) Cu-Au-Mo Porphyry 100 50.0 Classification Proved Probable Total Classification Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred Measured(4) Indicated(5) Measured and Indicated Inferred(6) 75.5 Los Sulfatos(8) Sulphide (TCu) San Enrique Monolito(9) Sulphide (TCu) West Wall(10) Sulphide (TCu) THE MINERAL RESOURCES ARE REPORTED AS ADDITIONAL TO ORE RESERVES. 50.0 75.5 Inferred Inferred Inferred 2011 Mt 701.8 214.6 916.4 2011 Mt 196.8 627.0 823.8 8.1 174.9 183.0 109.8 34.2 144.0 44.3 Tonnes 2010 Mt 701.8 214.6 916.4 Tonnes 2010 Mt 196.8 627.0 823.8 8.1 174.9 183.0 81.1 37.8 119.0 53.1 507.9 4,761.0 5,268.8 2,709.5 510.0 4,890.0 5,400.0 2,840.0 1,200 1,200 900 750 900 750 2011 %Cu 0.65 0.63 0.65 2011 %Cu 0.40 0.45 0.44 0.72 0.44 0.45 %Cu 0.67 0.63 0.66 0.65 %Cu 0.34 0.46 0.45 0.32 %Cu 1.46 %Cu 0.81 %Cu 0.54 Grade 2010 %Cu 0.65 0.63 0.65 Grade 2010 %Cu 0.40 0.45 0.44 0.72 0.44 0.45 %Cu 0.68 0.68 0.68 0.64 %Cu 0.34 0.46 0.45 0.32 %Cu 1.46 %Cu 0.81 %Cu 0.54 Contained metal 2011 kt 4,562 1,352 5,914 2010 kt 4,562 1,352 5,914 Contained metal 2011 kt 787 2,822 3,609 58 770 828 736 216 951 288 2010 kt 787 2,822 3,609 58 770 828 552 257 809 340 1,715 21,739 23,454 8,587 1,734 22,494 24,228 9,088 17,520 17,520 7,290 4,050 7,290 4,050 Mining method: OP = Open Pit, UG = Underground. Mine Life = The extraction period in years for scheduled Ore Reserves comprising Proved and Probable Reserves only. 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) (2) (3) Quellaveco: During 2011 no new drilling was completed at Quellaveco project, therefore Ore Reserves and Mineral Resources remain unchanged. The sub-product estimated grade for molybdenum is 0.019% for Ore Reserves, while the average estimated grade for Mineral Resources is 0.016%. Mantoverde Sulphide Project: Drilling information, a higher copper price and an acquisition of Laura-Laurita-Las Casas sector resulted in the increase of Mineral Resources. Pebble: The Mineral 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 278 Mt at 0.40% Cu, 0.42 g/t Au, 0.020% Mo while the estimate of Indicated Resources is 3,319 Mt at 0.55% Cu, 0.42 g/t Au, 0.030% Mo. (4) Pebble co-product estimated grades 2011 (Measured): Gold 0.36g/t, Molybdenum 0.018%, CuEq average grade 0.66%. (5) Pebble co-product estimated grades 2011 (Indicated): Gold 0.37g/t, Molybdenum 0.027%, CuEq average grade 0.85%. (6) Pebble co-product estimated grades 2011 (Inferred): Gold 0.31g/t, Molybdenum 0.026%, CuEq average grade 0.67%. (7) (8) Pebble: The property comprises 2,042 located Alaska State mineral claims which total 209,996 acres (84,982 hectares) and which are currently valid. Los Sulfatos: The development of ‘Tunel Sur’, an 8km exploration tunnel that provides safe access to continue drilling the deposit, was completed in 2011. During 2012 drill stations are planned to be excavated, whilst further exploration and resource drilling is expected to start in 2013. The reported resources include mineralisation inside a 1% nominal copper grade cut-off envelope down to the current drillhole depths of 1,000 metres below surface. The test for reasonable prospects of eventual economic extraction is based on an underground operation. San Enrique Monolito: The test for reasonable prospects of eventual economic extraction is based on an underground operation. (9) (10) West Wall: The test for reasonable prospects of eventual economic extraction is based on an open pit operation to a depth of 600m below surface. 192 Anglo American plc Annual Report 2011 ORE RESERVES AND MINERAL RESOURCES NICKEL estimates as at 31 December 2011 NICKEL The Ore Reserve and Mineral Resource estimates were compiled in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code, 2004) as a minimum standard. 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 – Operations ORE RESERVES Barro Alto (OP)(1) Laterite Attributable % 100 Mine Life 32 Loma de Níquel (OP)(2) 91.4 4 Laterite Niquelândia (OP)(3) Laterite 100 25 Nickel – Operations MINERAL RESOURCES Barro Alto (OP)(1) Laterite Attributable % 100 Loma de Níquel (OP)(2) 91.4 Laterite Niquelândia (OP)(3) Laterite 100 Classification Proved Probable Total Proved Probable Total Proved Probable Total Classification Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred THE MINERAL RESOURCES ARE REPORTED AS ADDITIONAL TO ORE RESERVES. Nickel – Projects MINERAL RESOURCES Jacaré(4) Ferruginous Laterite Attributable % 100 Saprolite Classification Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred 2011 Mt 21.2 31.0 52.2 2.1 2.5 4.6 3.7 0.9 4.6 2011 Mt 7.8 5.3 13.2 45.4 16.2 61.6 1.8 3.9 5.7 0.1 1.5 1.7 2.9 3.1 6.0 – – – 2011 Mt 6.3 53.8 60.1 125.0 – 39.6 39.6 81.9 Tonnes 2010 Mt 16.0 31.6 47.5 3.9 5.8 9.7 5.8 1.9 7.7 Tonnes 2010 Mt 9.1 9.8 18.9 45.5 17.1 62.6 0.5 1.5 2.0 0.1 1.1 1.3 1.0 2.2 3.2 – – – Tonnes 2010 Mt 0.5 96.8 97.3 73.9 – 33.9 33.9 83.7 2011 %Ni 1.66 1.55 1.60 %Ni 1.53 1.44 1.48 %Ni 1.35 1.33 1.35 2011 %Ni 1.42 1.12 1.30 1.51 1.20 1.43 %Ni 1.37 1.30 1.32 1.38 1.38 1.38 %Ni 1.26 1.24 1.25 – – – 2011 %Ni 1.15 1.21 1.21 1.17 – 1.49 1.49 1.39 Grade 2010 %Ni 1.75 1.65 1.68 %Ni 1.54 1.44 1.48 %Ni 1.29 1.24 1.28 Grade 2010 %Ni 1.50 1.22 1.35 1.51 1.18 1.42 %Ni 1.43 1.37 1.39 1.78 1.59 1.61 %Ni 1.25 1.24 1.24 – – – Grade 2010 %Ni 1.19 1.18 1.18 1.15 – 1.52 1.52 1.37 Contained metal 2011 kt 352 481 833 32 36 68 50 12 63 2010 kt 279 520 798 60 83 143 74 24 98 Contained metal 2011 kt 111 59 171 686 194 880 24 51 75 2 21 23 37 39 75 – – – 2010 kt 137 119 256 685 202 887 7 21 28 2 18 20 12 27 40 – – – Contained metal 2011 kt 72 653 726 1,468 – 589 589 1,138 2010 kt 6 1,144 1,149 850 – 517 517 1,149 Mining method: OP = Open Pit. Mine Life = The extraction period in years for scheduled Ore Reserves comprising Proved and Probable Reserves only. 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) (2) (3) (4) Barro Alto: The increase in Ore Reserves is as a result of the application of a higher metal price resulting in updated mining factors allowing the inclusion of lower grade blocks. The increased high-grade production, higher mining rate and therefore higher dilution also contributed to the decrease in overall grade. The decrease in Mineral Resources is as a result of conversion to Ore Reserves due to infill drilling leading to an updated geological model. Mineral Resources are quoted above a 0.9% Ni cut-off and below an iron content of 30% Fe. The Mineral Resources include 7.2 Mt of Ferruginous Laterite at an average grade of 1.18% Ni. Loma de Níquel: The decrease in Ore Reserves is primarily due to re-allocation of Ore Reserves to Mineral Resources as a result of the final pit being redesigned and constrained within the concession areas covered by the relevant permits. Production accounts for 1.6 Mt of the decrease in Ore Reserves. The Mineral Resources increased solely as a result of re-allocation of Ore Reserves to Mineral Resources. Refer to note 5 in the Financial statements. The mining concessions are due for renewal in November 2012. Mineral Resources include all mineralisation inside a saprolite envelope defined by Nickel and Iron grade boundaries (>0.80% Ni and <35% Fe). Niquelândia: The decrease in Ore Reserves is a result of increased mining and processing costs within the latest mine plan developed for Niquelândia and the re-allocation of Ore Reserves to Mineral Resources, increasing the the Mineral Resources. Mineral Resources are quoted above a 0.9% Ni cut-off and below an Iron content of 30% Fe. Codemin is the the Ferro-Nickel smelter adjacent to the Niquelândia Mine. Jacaré: The overall increase in the Ferruginous Laterite and Saprolite Mineral Resources is due to the completion of a drilling campaign, the results of which have been included in the current Mineral Resource model with a new classification methodology applied. In addition to the Resource pit shell developed for the Concept Study and use of a cut-off of 1.3% Ni, a minimum mineralised width of 1m must be present to allow material to be categorised as higher-grade Saprolite Mineral Resource. The Plano de Aproveitamento Economico (PAE) is currently under consideration by Brazil’s Departamento Nacional de Produção Mineral (DNPM). The Saprolite Resources tabulated are a combination of higher-grade resources (>1.3% Ni) that are expected to feed a pyrometallurgical treatment facility and lower-grade resources (1.3% – 0.9% Ni) that could be used to neutralise the acid in the proposed hydrometallurgical treatment of the Ferruginous Laterite material while still recovering Nickel in the process. Anglo American plc Annual Report 2011 193 O r e R e s e r v e s a n d M n e r a i l R e s o u r c e s ORE RESERVES AND MINERAL RESOURCES PLATINUM GROUP METALS estimates as at 31 December 2011 PLATINUM The Ore Reserve and Mineral Resource estimates were compiled in compliance with The South African Code for the Reporting of Exploration Results, 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 Exploration Results, Mineral Resources and Ore Reserves (The JORC Code, 2004) as a minimum standard. Details of the individual operations appear in Anglo American Platinum’s Annual Report. Merensky Reef and UG2 Reef Mineral Resources are reported over an economic and mineable cut appropriate to the specific reef. The figures reported represent 100% of the Mineral Resources and Ore Reserves attributable to Anglo American Platinum Limited unless otherwise noted. Rounding of figures may cause computational discrepancies. Anglo American plc’s interest in Anglo American Platinum Limited is 79.8%. Platinum – South Africa Operations ORE RESERVES Merensky Reef(4)(5) Classification Proved Probable Total Proved Probable Total Proved Proved primary ore stockpile(8) UG2 Reef(4)(6) Platreef(7) All Reefs Tailings(10) Platinum – Zimbabwe Operations ORE RESERVES Main Sulphide Zone(11) Probable Total Proved Probable Total(9) Proved Probable Total Classification Proved Probable Total Tonnes (1) Grade(2) Contained metal(3) Contained metal (3) 2011 Mt 63.9 49.1 113.0 390.7 250.0 640.7 538.8 20.0 166.5 725.4 1,013.4 465.7 1,479.1 – 18.9 18.9 2011 Mt 15.0 23.7 38.7 2010 Mt 89.2 51.0 140.2 425.9 204.2 630.2 381.3 11.7 216.3 609.3 908.1 471.5 1,379.7 – 21.8 21.8 Tonnes (1) 2010 Mt 14.3 27.3 41.7 2011 4E PGE 5.05 5.16 5.10 4.10 4.78 4.36 2.84 1.71 3.24 2.90 3.44 4.27 3.70 – 0.86 0.86 2011 4E PGE 3.68 3.85 3.79 2010 4E PGE 4.97 5.05 5.00 4.14 4.72 4.33 2.93 1.96 2.68 2.82 3.69 3.82 3.73 – 1.13 1.13 2011 4E tonnes 322.7 253.4 576.2 1,600.7 1,194.1 2,794.8 1,532.3 34.3 539.9 2,106.6 3,490.1 1,987.4 5,477.5 – 16.2 16.2 2010 4E tonnes 443.5 257.7 701.3 1,762.2 963.3 2,725.4 1,118.5 23.0 579.4 1,720.9 3,347.2 1,800.4 5,147.6 – 24.6 24.6 2011 4E Moz 10.4 8.1 18.5 51.5 38.4 89.9 49.3 1.1 17.4 67.7 112.2 63.9 176.1 – 0.5 0.5 2010 4E Moz 14.3 8.3 22.5 56.7 31.0 87.6 36.0 0.7 18.6 55.3 107.6 57.9 165.5 – 0.8 0.8 Grade(2) Contained metal(3) Contained metal (3) 2010 4E PGE 3.69 3.82 3.78 2011 4E tonnes 55.2 91.2 146.5 2010 4E tonnes 52.9 104.4 157.3 2011 4E Moz 1.8 2.9 4.7 2010 4E Moz 1.7 3.4 5.1 (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). The reported grades are as delivered for treatment. (3) Contained Metal: Contained Metal is presented in metric tonnes and million troy ounces (Moz). (4) Merensky Reef and UG2 Reef: The pay limits built into the basic mining equation are directly linked to the 2012 Business plan. The pay limit is based on 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 reserve pay-limit varies across all operations between 1.8g/t and 3.7g/t (4E PGE). The range is a function of various factors including depth of the ore body, geological complexity, infrastructure and economic parameters. Merensky Reef: The global Ore Reserve 4E ounce content decreased primarily due to re-allocation of previously reported Ore Reserves back to Mineral Resources as a result of changes in economic assumptions and extraction strategy at Thembelani Mine (-17.7 Mt / -2.9 Moz) and portions of the 4-shaft area at Tumela Mine (-3.2 Mt / -0.6 Moz). In addition, changes in reserve classification for portions of Tumela’s 4-shaft area contribute to the Proved Ore Reserve tonnage decrease as Proved Ore Reserves have been re-classified as Probable Ore Reserves. UG2 Reef: The global Ore Reserve 4E ounce content increased primarily due to conversion of Mineral Resources to Ore Reserves at Thembelani Mine (+26.0 Mt / +3.5 Moz) and Siphumelele Mine (+9.2 Mt / +0.9 Moz) with additional contributions from Union, Twickenham and Khomanani Mines. However, the UG2 Ore Reserves were negatively influenced due to changes in extraction strategy for portions of Tumela’s 4-shaft area which resulted in the re-allocation of previously reported Ore Reserves back to Mineral Resources (-19.6 Mt / -2.8 Moz). Platreef: The Ore Reserves 4E ounce content (inclusive of Proved primary ore stockpiles) increased due to additional drilling and re-evaluation at Mogalakwena South (+118.6 Mt / +13.0 Moz), previously this area was not considered for conversion to Ore Reserves. The Mine Life has been extended significantly as a result. For Mogalakwena North, Central and South (previously known as Zwartfontein North) the 4E pay limit is 1.0 g/t. For Sandsloot and Zwartfontein South the pay limit is unchanged at 1.7 g/t. (5) (6) (7) (8) Platreef stockpiles: Mined ore being held for long-term future treatment. These are reported separately as Proved Ore Reserves and aggregated into the summation tabulations. (9) Alternative units – All Reefs Total: Tonnage in million short tons (Mton) and associated grade in troy ounces per short ton (oz/ton) for 2011 is: Total – 1,630.4 Mton (2010: 1,520.8 Mton) Total – 0.108 oz/ton (2010: 0.109 oz/ton) (10) Tailings: Operating tailings dams cannot be geologically assessed and therefore are not reported as part of the Ore Reserves. At Rustenburg mines a dormant dam has been evaluated and the tailings form part of the Ore Reserves statement. Tailings dam Ore Reserves are reported separately as Ore Reserves and are not aggregated to the global Ore Reserve summation. (11) Main Sulphide Zone: The Main Sulphide Zone within the Great Dyke of Zimbabwe is the orebody mined at Unki Mine. The Ore Reserves for the Main Sulphide Zone relate to the Unki East mine only. Anglo American Platinum owns an effective 100% interest in Southridge Limited. 194 Anglo American plc Annual Report 2011 ORE RESERVES AND MINERAL RESOURCES PLATINUM GROUP METALS estimates as at 31 December 2011 Platinum – South Africa Operations MINERAL RESOURCES Merensky Reef(4)(5) Classification UG2 Reef(4)(6) Platreef(7) All Reefs Tailings(9) Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated(8) Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Tonnes (1) Grade(2) Contained metal(3) Contained metal (3) 2011 Mt 162.1 273.5 435.6 22.7 547.1 569.8 391.9 547.2 939.1 9.0 660.1 669.1 219.1 980.9 1,199.9 10.0 1,575.5 1,585.5 773.1 1,801.5 2,574.7 41.7 2,782.7 2,824.4 87.6 17.9 105.5 – – – 2010 Mt 152.5 254.2 406.7 30.6 584.9 615.5 408.4 521.0 929.4 25.1 735.4 760.5 110.3 860.1 970.3 90.0 1,110.1 1,200.1 671.2 1,635.3 2,306.4 145.7 2,430.5 2,576.1 87.6 0.4 88.1 – – – 2011 4E PGE 5.57 5.54 5.55 8.05 5.08 5.20 5.33 5.21 5.26 4.97 5.23 5.22 2.38 2.20 2.23 4.15 2.12 2.14 4.55 3.62 3.90 6.45 3.44 3.48 1.08 1.13 1.09 – – – 2010 4E PGE 5.53 5.54 5.54 8.22 5.28 5.43 5.42 5.48 5.45 4.95 5.55 5.53 2.38 2.19 2.21 2.96 1.80 1.88 4.95 3.76 4.10 4.41 3.77 3.81 1.08 0.89 1.08 – – – 2011 4E tonnes 903.7 1,515.4 2,419.1 182.7 2,778.8 2,961.5 2,090.5 2,849.6 4,940.1 44.9 3,449.4 3,494.3 522.0 2,158.3 2,680.3 41.3 3,344.8 3,386.0 3,516.2 6,523.3 10,039.5 268.9 9,572.9 9,841.8 94.3 20.2 114.5 – – – 2010 4E tonnes 843.1 1,408.8 2,251.9 251.3 3,089.0 3,340.3 2,213.6 2,853.1 5,066.7 124.0 4,080.0 4,204.0 262.3 1,883.2 2,145.5 266.6 1,993.6 2,260.2 3,319.0 6,145.1 9,464.1 642.0 9,162.5 9,804.5 94.3 0.4 94.7 – – – 2011 4E Moz 29.1 48.7 77.8 5.9 89.3 95.2 67.2 91.6 158.8 1.4 110.9 112.3 16.8 69.4 86.2 1.3 107.5 108.9 113.0 209.7 322.8 8.6 307.8 316.4 3.0 0.6 3.7 – – – 2010 4E Moz 27.1 45.3 72.4 8.1 99.3 107.4 71.2 91.7 162.9 4.0 131.2 135.2 8.4 60.5 69.0 8.6 64.1 72.7 106.7 197.6 304.3 20.6 294.6 315.2 3.0 0.0 3.0 – – – THE MINERAL RESOURCES ARE REPORTED AS ADDITIONAL TO ORE RESERVES. Platinum – Zimbabwe Operations MINERAL RESOURCES Main Sulphide Zone(10) Classification Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Tonnes (1) Grade(2) Contained metal(3) Contained metal (3) 2011 Mt 8.7 21.2 29.8 14.2 35.5 49.6 2010 Mt 8.7 19.2 27.9 14.2 35.5 49.7 2011 4E PGE 4.15 4.13 4.14 4.19 4.09 4.12 2010 4E PGE 4.12 4.17 4.16 4.19 4.09 4.12 2011 4E tonnes 36.0 87.5 123.5 59.5 144.9 204.4 2010 4E tonnes 35.7 80.2 116.0 59.6 144.8 204.5 2011 4E Moz 1.2 2.8 4.0 1.9 4.7 6.6 2010 4E Moz 1.1 2.6 3.7 1.9 4.7 6.6 THE MINERAL RESOURCES ARE REPORTED AS ADDITIONAL TO 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) 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) Merensky Reef and UG2 Reef: The Mineral Resources are estimated over a practical minimum mining width suitable for the deposit known as the ‘Resource Cut’. The minimum mining width over which Mineral Resources are declared is 90cm. The ‘Resource Cut’ width takes cognisance of the mining method and geotechnical aspects in the hanging wall or footwall of the reef. The delineation of the Resources that meet the requirements of reasonable expectation of eventual economic extraction has been defined using the modifying factors as defined in the SAMREC code. These include but are not limited to mineability, geological complexity, processability and economic factors relevant to Anglo American Platinum. The minimum resource grades per reef and per operation are in all instances greater than the Cost 4 pay limit. Investigations conducted in 2011 to determine maximum mining depths related to virgin rock temperatures have been concluded. A virgin rock temperature of 75° Celsius is currently considered to be the limit to mining given anticipated technology, metal prices and energy costs. The affected portions of the Inferred Mineral Resources within the Mining Rights of Tumela Mine, Twickenham Mine and Ga-Phasha PGM Project are therefore re-classified as Deposit within the Anglo American Platinum’s portfolio (-128.7 Mt / -26.1 Moz). During 2011 Wesizwe Platinum issued additional shares which diluted Anglo American Platinum’s attributable share in Wesizwe Platinum to 13% (from the previous 26.6%). As a result Anglo American Platinum can no longer apply equity accounting but has to reflect the investment as an asset held for sale valued at market value (-27.0 Mt / -4.6 Moz). Merensky Reef: The decrease in Mineral Resources is primarily due to previously reported Mineral Resources being re-classified as Deposit in areas where the virgin rock temperature is expected to be above 75° Celsius. This applies mainly to Tumela Mine (-26.6 Mt / -6.7 Moz). Disposal of Wesizwe’s Mineral Resources (-12.0 Mt / -2.4 Moz) also contributes to the decrease. However the Merensky Reef Mineral Resources were positively influenced due to re-allocation of previously reported Ore Reserves back to Mineral Resources as a result of changes in economic assumptions at Thembelani Mine (+13.8 Mt / + 3.1 Moz). UG2 Reef: The decrease in Mineral Resources is primarily due to previously reported Mineral Resources being re-classified as Deposit in areas where the virgin rock temperature is expected to be above 75° Celsius. This applies to Tumela Mine, Twickenham Mine and Ga-Phasha PGM Project (-101.9 Mt / -19.4 Moz). The exclusion of Wesizwe’s Mineral Resources (-15.0 Mt / -2.2 Moz) and conversion of Mineral Resources to Ore Reserves at Thembelani and Siphumelele (-27.1 Mt / -4.5 Moz) also contributes to the decrease. The decrease is offset by an increase of Mineral Resources at the Der Brochen Project due to a change in the mining method (from ultra-low profile to low-profile mechanised board and pillar mining) which increases the resource cut (+81.0 Mt / +2.8 Moz). Platreef: A 1.0g/t (4E PGE) cut-off has been used to define Mineral Resources. The Mineral Resource 4E ounce content increased primarily due to additional borehole information which has confirmed the presence of the Platreef at higher elevation in localised areas to the west and below the original pit shell. Until a better understanding of this structure has been determined, a low classification confidence and a 100m swathe of geological loss have been applied to these elevated resources. Conceptual pit shell evaluations have indicated that the pit could extend to the west and deeper to exploit these resources. Consequently, the Mineral Resource reporting depth has increased by approximately 200m to 650m below surface elevation (equivalent to 400m a.m.s.l.). Due to this increase in reporting depth the Mineral Resources increase substantially. Pit design test work has confirmed that these resources are potentially open pitable. The increase in tonnage is offset by the decrease of Mineral Resources due to additional conversion of Mineral Resources to Ore Reserves at Mogalakwena South (-123.6 Mt / -13.9 Moz) and at Sandsloot, where previously reported Mineral Resources are excluded as the limit of surface mining has been reached (-34.6 Mt / -3.2 Moz). No Mineral Resources applicable to underground mining have been included. However, stockpile material is included which comprises calc-silicate and oxidised material with a cut-off grade of greater than 3g/t (5.2 Mt / 0.6 Moz). (5) (6) (7) (8) Alternative units – All Reefs Measured and Indicated: Tonnage in million short tons (Mton) and associated grade in troy ounces per short ton (oz/ton) for 2011 is: (9) Measured and Indicated – 2,838.1 Mton (2010: 2,542.4 Mton) Measured and Indicated – 0.114 oz/ton (2010: 0.120 oz/ton) Tailings: Operating tailings dams cannot be geologically assessed and therefore are not reported as part of the Mineral Resources. At Rustenburg mines a dormant dam has been evaluated and the tailing forms part of the Mineral Resource statement. During 2010 the tailings dams at Union Mine were reactivated and their resources were removed from the Mineral Resource statement. However, for 2011, some of the Union tailings were de-activated and as consequence now form part of the Mineral Resource statement. A dormant tailings dam at Amandelbult is currently being drilled and its resources will be evaluated in 2012. (10) Main Sulphide Zone: The Main Sulphide Zone is the orebody mined at Unki Mine. The Mineral Resources for the Main Sulphide Zone relate to the Unki East and West mines only. Anglo American Platinum owns an effective 100% interest in Southridge Limited. During 2011 a new resource evaluation was completed covering Unki South, Helvetia and Paarl projects (contained within the special mining lease held by Southridge Limited). However, an independent external review of these Mineral Resource is outstanding and will only be completed during the first quarter of 2012 and therefore the Mineral Resources reported re-state the Unki East and West mines resources. Anglo American plc Annual Report 2011 195 O r e R e s e r v e s a n d M n e r a i l R e s o u r c e s ORE RESERVES AND MINERAL RESOURCES PLATINUM GROUP METALS estimates as at 31 December 2011 Platinum – Other Projects MINERAL RESOURCES South Africa Classification Boikgantsho(4) Platreef Sheba’s Ridge(5) Brazil Pedra Branca(6) Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Inferred Tonnes (1) Grade(2) Contained metal(3) Contained metal (3) 2011 Mt – 37.0 37.0 1.8 28.0 34.0 62.0 149.9 6.6 2010 Mt – 86.6 86.6 51.0 111.8 128.4 240.1 0.9 6.6 2011 3E PGE – 1.30 1.30 1.14 3E PGE 0.88 0.85 0.87 0.96 3E PGE 2.27 2010 3E PGE – 1.35 1.35 1.23 3E PGE 0.85 0.95 0.90 0.85 3E PGE 2.27 2011 3E tonnes – 47.9 47.9 2.1 24.6 29.1 53.6 144.5 15.0 2010 3E tonnes – 116.9 116.9 62.7 95.1 122.1 217.2 0.8 15.0 2011 3E Moz – 1.5 1.5 0.1 0.8 0.9 1.7 4.6 0.5 2010 3E Moz – 3.8 3.8 2.0 3.1 3.9 7.0 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) (5) Boikgantsho: Anglo American Platinum holds an attributable interest of 49% of the Joint Venture between Anglo American Platinum and Anooraq Resources. During 2011 a new resource evaluation was completed resulting in a significant change to the previous reporting which was unchanged since 2004. A cut-off grade of 1g/t (3E) was applied, the same as for Mogalakwena Platreef (1g/t 4E). The new evaluation excludes oxidised material up to a depth of 40m. The resources are reported only to a depth of 300m below surface and excludes losses due to the major dykes and a swathe of 200m either side of the major Drenthe fault, which has a displacement of approximately 2.2km. Sheba’s Ridge: Anglo American Platinum holds an attributable interest of 35% of the Joint Venture between Anglo American Platinum, Aquarius Platinum and the South African Industrial Development Corporation (IDC). Re-interpretation of the geology together with structural complexity resulted in a revised model with a significant decrease of the resource classification confidence. Additionally, the reporting depth below surface has been reduced. Note that since 2011 the joint venture area encompasses all Prospects Rights of the Sheba’s Ridge project. The geological loss increased from a previously used 0.5% to 5% within the Measured category and to 10% within the Indicated and Inferred categories. Previously the cutoff grade used was $10.5/t recoverable value, a figure supplied by Ridge Mining using metal price projections and metallurgical recoveries. This was changed to 0.5g/t (3E) in the current model. (6) Pedra Branca: Anglo American Platinum holds an attributable interest of 51% of the Joint Venture between Anglo American Platinum and Solitario Resources & Royalty. A cut-off of 0.7g/t (3E PGE) was applied for resource definition. The following Operations and Projects contributed to the combined 2011 Ore Reserve and Mineral Resource estimates stated per reef (excluding Other Projects): Operations: Bafokeng Rasimone Platinum Mine (BRPM) – MR/UG2 Bathopele Mine – UG2 Bokoni Platinum Mine – MR/UG2 Dishaba Mine – MR/UG2 Khomanani Mine – MR/UG2 Khuseleka Mine – MR/UG2 Kroondal Platinum Mine – UG2 Marikana Platinum Mine – UG2 Modikwa Platinum Mine – MR/UG2 Mogalakwena Mine – PR Mototolo Platinum Mine – UG2 Pandora – UG2 Siphumelele Mine – MR/UG2 Thembelani Mine – MR/UG2 Tumela Mine – MR/UG2 Twickenham Platinum Mine – MR/UG2 Union Mine – MR/UG2 Unki Mine – MSZ Projects: Der Brochen Project – MR/UG2 Ga-Phasha PGM Project – MR/UG2 Magazynskraal Project – MR/UG2 Other Exploration Projects (portions of Driekop/Rustenburg) – MR/UG2 Rustenburg – Non Mine Projects – MR/UG2 Mine Life 30+ 15 30+ 30+ 17 27 7 7 19 30+ 5* 23 30+ 27 30+ 30+ 26 27 % 33% 100% 49% 100% 100% 100% 50% 50% 50% 100% 50% 42.5% 100% 100% 100% 100% 85% 100% % 100% 49% 20% 37.5% to 100% 100% MR = Merensky Reef, UG2 = UG2 Reef, PR = Platreef, MSZ = Main Sulphide Zone; % = Anglo American Platinum Limited attributable interest; Mine Life = The extraction period in years for scheduled Ore Reserves comprising Proved and Probable Reserves only considering the combined MR and UG2 production where applicable; * Only 5 years of Ore Reserves are declared as per Xstrata policy. Information was provided by the Joint Venture partners for the following operations and projects: Operations – BRPM, Bokoni, Kroondal, Marikana, Modikwa, Mototolo, Pandora, (only Ore Reserve information for BRPM and Modikwa) Projects – Pedra Branca, Sheba’s Ridge, Ga-Phasha, Magazynskraal Audits related to the generation of the Ore Reserve and Mineral Resource statements were carried out by independent consultants during 2011 at the following operations: Bathopele, Dishaba, Khomanani, Mogalakwena, Siphumelele, Thembelani, Tumela, Union. 196 Anglo American plc Annual Report 2011 ORE RESERVES AND MINERAL RESOURCES PHOSPHATE PRODUCTS estimates as at 31 December 2011 OTHER MINING AND INDUSTRIAL The Ore Reserve and Mineral Resource estimates were compiled in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code, 2004) as a minimum standard. 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. Phosphate Products – Operations ORE RESERVES Copebrás (OP)(1) Attributable % 100 Mine Life 41 Carbonatite Complex Oxide Phosphate Products – Operations MINERAL RESOURCES Copebrás (OP)(2) Attributable % 100 Carbonatite Complex Oxide Phosphate Products – Projects MINERAL RESOURCES Coqueiros (OP)(3) Attributable % 100 Carbonatite Complex Oxide Carbonatite Complex Fresh Rock Classification Proved Probable Total Classification Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Classification Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred 2011 Mt 87.9 151.3 239.2 2011 Mt 3.9 60.2 64.2 7.6 50.7 58.2 2011 Mt 1.8 16.5 18.3 26.2 1.2 34.0 35.2 16.2 Tonnes 2010 Mt 92.4 151.5 243.9 Tonnes 2010 Mt 4.0 60.2 64.2 7.9 51.0 58.9 Tonnes 2010 Mt 1.8 16.5 18.3 26.2 1.2 34.0 35.2 16.2 2011 %P2O5 14.0 13.0 13.4 2011 %P2O5 13.4 11.8 11.9 13.2 10.9 11.2 2011 %P2O5 10.5 12.9 12.6 11.2 7.3 8.5 8.5 7.6 Grade 2010 %P2O5 14.0 13.0 13.4 Grade 2010 %P2O5 13.4 11.8 11.9 13.0 10.9 11.1 Grade 2010 %P2O5 10.5 12.9 12.6 11.2 7.3 8.5 8.5 7.6 THE MINERAL RESOURCES ARE REPORTED AS ADDITIONAL TO ORE RESERVES. Mining method: OP = Open Pit. Mine Life = the extraction period in years for scheduled Ore Reserves comprising Proved and Probable Reserves only. 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) (2) (3) Copebrás – Oxide Ore Reserves: The decrease is due to production. Copebrás – Oxide Mineral Resources: Mineral Resources are quoted above a 7% P2O5 cut-off and a CaO/P2O5 ratio between 1 and 1.4. Coqueiros: The Oxide mineralisation is defined by a cut-off grade of 7% P2O5 and a CaO/ P2O5 ratio between 1 and 1.4. The Fresh Rock resources are defined by a cut-off grade of 5% P2O5. The metallurgical recovery characteristics of the Fresh Rock appear superior to those of the oxidised materials, permitting the application of a lower cut-off grade. A further exploration drilling campaign is awaiting approval of the exploration report from Brazil’s Departamento Nacional de Produção Mineral (DNPM). O r e R e s e r v e s a n d M n e r a i l R e s o u r c e s Anglo American plc Annual Report 2011 197 ORE RESERVES AND MINERAL RESOURCES NIOBIUM estimates as at 31 December 2011 Niobium – Operations ORE RESERVES Catalão (OP) Carbonatite Complex Oxide(1) Attributable % 100 Mine Life 4 Niobium – Operations MINERAL RESOURCES Catalão (OP) Carbonatite Complex Oxide(2) Attributable % 100 Niobium – Projects MINERAL RESOURCES Catalão (OP) Carbonatite Complex Fresh Rock(3) Attributable % 100 Classification Proved Probable Total Classification Measured Indicated Measured and Indicated Inferred (in LOMP) Inferred (ex. LOMP) Total Inferred Classification Measured Indicated Measured and Indicated Inferred 2011 Mt 3.4 1.0 4.3 2011 Mt 2.0 0.8 2.8 0.3 0.8 1.1 2011 Mt 13.7 19.5 33.2 18.1 Tonnes 2010 Mt 4.0 1.1 5.1 Tonnes 2010 Mt 2.0 0.8 2.8 0.4 0.8 1.2 Tonnes 2010 Mt 13.7 19.5 33.2 18.1 2011 %Nb2O5 1.03 1.04 1.03 2011 %Nb2O5 1.30 1.04 1.22 0.95 0.87 0.89 2011 %Nb2O5 1.24 1.24 1.24 1.37 Grade 2010 %Nb2O5 1.09 1.01 1.07 Grade 2010 %Nb2O5 1.30 1.04 1.22 0.94 0.86 0.89 Grade 2010 %Nb2O5 1.24 1.24 1.24 1.37 Contained product 2011 kt 35 10 45 2010 kt 44 11 55 Contained product 2011 kt 26 8 35 3 7 9 2010 kt 26 8 35 4 7 10 Contained product 2011 kt 170 243 413 248 2010 kt 170 243 413 248 THE MINERAL RESOURCES ARE REPORTED AS ADDITIONAL TO ORE RESERVES. Mining method: OP = Open Pit. Mine Life = the extraction period in years for scheduled Ore Reserves comprising Proved and Probable Reserves only. 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) (2) (3) Catalão – Oxide Ore Reserves: The decrease is primarily due to production. Catalão – Oxide Mineral Resources: The Oxide Resources are reported above a 0.5% Nb2O5 cut-off. The Mineral Resources are split into Oxide and Fresh Rock due to the recognition of distinct differences in mineralogical characteristics. Catalão – Fresh Rock Mineral Resources: The Fresh Rock Resources are reported above a 0.7% Nb2O5 cut-off. A drilling campaign is being undertaken, the geological model and geotechnical study will be updated once this is completed. It is anticipated that Ore Reserves will be declared in 2012. 198 Anglo American plc Annual Report 2011 ORE RESERVES AND MINERAL RESOURCES DEFINITIONS ORE RESERVES 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. MINERAL RESOURCES 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. COMMON TERMINOLOGY Deposit A deposit is a concentration (or occurrence) of material of possible economic interest, in or on the earth’s crust, that may include mineralized material that cannot be estimated with sufficient confidence to be classified in the Inferred category. Portions of a deposit that do not have reasonable and realistic prospects for eventual economic extraction are not included in a Mineral Resource. Inferred (in LOMP) / Inferred (ex. LOMP) Inferred (in LOMP): Inferred Resources within the scheduled Life of Mine Plan (LOMP). Inferred (ex. LOMP): The portion of Inferred Resources with reasonable prospects for eventual economic extraction not considered in the Life of Mine Plan (LOMP). Mine Life The extraction period in years for scheduled Ore Reserves comprising Proved and Probable Reserves only. This is the current view of the period of production based on current Ore Reserve tonnes and applicable mining rates. Coal products Metallurgical – Coking: High-, medium- or low-volatile semi-soft, soft or hard coking coal primarily for blending and use in the steel industry; quality measured as Crucible Swell Number (CSN). Metallurgical – Other: 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; quality measured by calorific value (CV). Thermal – Export: Low- to high-volatile thermal coal primarily for export in the use of power generation; quality measured by calorific value (CV). Thermal – Domestic: Low- to high-volatile thermal coal primarily for domestic consumption for power generation; quality measured by calorific value (CV). Synfuel: Coal specifically for the domestic production of synthetic fuel and chemicals; quality measured by calorific value (CV). O r e R e s e r v e s a n d M n e r a i l R e s o u r c e s Anglo American plc Annual Report 2011 199 ORE RESERVES AND MINERAL RESOURCES GLOSSARY MINING METHODS OC: OP: UG: Open Cut Open Pit Underground MASS UNITS kt: Moz: Mt: MTIS: mtpa: ROM: tonnes: kilotonne; metric system unit of mass equal to 1,000 metric tonnes million troy ounces (a kilogram is equal to 32.1507 ounces; a troy ounce is equal to 31.1035 grams) million tonnes, metric system unit of mass equal to 1,000 kilotonnes Mineable Tonnage In-Situ; quoted in million tonnes million tonnes per annum Run Of Mine metric system unit of mass equal to 1,000 kilograms GRADE UNITS (expressed on a moisture-free basis) Acid soluble copper (%) ASCu: Crucible Swell Number (CSN is rounded to the nearest 0.5 index) CSN: Copper equivalent based on long-term metal prices and taking into consideration the recovery of Copper, Gold and Molybdenum (%) CuEq: Calorific Value (CV is rounded to the nearest 10 kcal/kg) CV: Insoluble copper, total copper less acid soluble copper (%) ICu: kilocalories per kilogram kcal/kg: Total copper (%) TCu: The sum of Platinum, Palladium, Rhodium and Gold grades in grammes per tonne (g/t). 4E PGE: The sum of Platinum, Palladium and Gold grades in grammes per tonne (g/t) 3E PGE: weight percent Copper % Cu: weight percent Iron % Fe: weight percent Manganese % Mn: weight percent Molybdenum % Mo: weight percent Nickel % Ni: weight percent Niobium pentoxide % Nb2O5 : weight percent Phosphorus pentoxide % P2O5 : Flotation: PROCESSING METHODS Dump Leach: A process similar to Heap Leaching, but usually applied to lower grade material. Rather than constructing a heap of material with a controlled grain size, the material grain sizes are as mined, similar to the situation found within a waste rock dump. This material is then irrigated with a leach solution that dissolves the valuable minerals, allowing recovery from the drained leach solution. A process for concentrating minerals based on their surface properties. Finely ground mineral is slurried with water and specific reagents that increase the water repellent nature of the valuable mineral and agitated with air. The water repellent mineral grains cling to froth bubbles that concentrate the mineral at the top of the flotation cell, from where it is mechanically removed. A process in which mineral-bearing rock is crushed and built into a designed heap. The heap is irrigated with a leach solution that dissolves the desirable mineral and carries it into a drain system from which solution is pumped and the mineral/elements of interest are recovered. A process whereby crushed rock containing valuable minerals is placed within vats. The vats are filled with a leach solution and the valuable mineral(s) dissolve. The leach solution is pumped to a recovery circuit and the vats are drained and emptied of the spent ore and recharged. Heap Leach: Vat Leach: ORE TYPES Banded Iron Formation: Canga: Carbonatite Complex: A chemical sedimentary rock consisting of silica and iron oxide. The rock texture is characteristically laminated or banded. An iron rich rock formed where material weathered from an original iron ore deposit has been cemented by iron minerals. A group of overlapping igneous intrusions of alkaline rocks including magmatic carbonate (sövite) rock. These complexes are frequently host to phosphate, niobium and rare-earth element deposits. Loose, unconsolidated material that accumulates above the weathering iron ore bodies. An especially iron-rich laterite. An iron oxide mineral with the chemical formula Fe2O3. Colluvium: Ferruginous Laterite: Hematite: Itabirite (Friable/Compact): Itabirite is a banded quartz hematite schist, very similar to banded iron formation in appearance and composition. Laterite: Main Sulphide Zone (MSZ): The Main Sulphide Zone is the principal host of Platinum Group Metals within the Great Dyke of Zimbabwe. The Main Sulphide Zone Friable Itabirite is extensively weathered leading to disaggregation of the individual mineral grains comprising the rock. Compact Itabirite, previously known as Hard Itabirite, is the unweathered equivalent. A claylike soil horizon rich in iron and aluminium oxides that formed by weathering of igneous rocks under tropical conditions. Merensky Reef (MR): Oxide: Platreef (PR): Porphyry (Copper): Saprolite: Sulphide: UG2 Reef (UG2): is a tabular zone of sulphide-bearing rock within the uppermost P1 Pyroxenite. One of the three major Platinum Group Metals bearing units within the Bushveld Complex. The Merensky Reef is located within the Upper Critical Zone of the Bushveld Complex and ranges in width from 0.8m to 4m. The Merensky Reef occurs at the interface between the Merensky Pyroxenite and the underlying anorthosite to norite. The Merensky Reef is characterised by the occurrence of one or more narrow chromitite stringers and frequently includes a coarse-grained pegmatoidal pyroxenite. Oxide ores are those found within close proximity to surface and whose mineralogy is dominated by oxidised species, including oxides and sulphates. Frequently, silicate minerals have broken down partially or completely to clay-rich species. The Platreef is only present within the Northern Limb of the Bushveld Complex, in the vicinity of Polokwane, South Africa. The Platreef is a heterogenous unit dominated by felspathic pyroxenite, but including serpentinised pyroxenites and xenoliths of footwall rock. The Platreef dips steeply to the west and ranges in thickness between 60m and 200m. Platinum Group Metal mineralisation occurs disseminated within the Platreef and in frequent association with base-metal sulphides. Large copper deposits hosted by intermediate felsic rocks. These deposits form close to large-scale subduction zones. A decomposed clay-rich rock that has been weathered in place. Sulphide ores contain sulphide minerals that have not been subjected to surface oxidation. The UG2 Reef is located between 20m and 400m below the Merensky Reef and is the second chromitite unit within the Upper Group. The UG2 is typically a massive chromitite unit ranging in thickness from 0.6m to 1.2m. The hangingwall of the UG2 is a felspathic pyroxenite unit that may include several narrow chromitite stringers. The footwall of the UG2 is a coarse-grained pegmatoidal pyroxenite. 200 Anglo American plc Annual Report 2011 OTHER INFORMATION 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 the Copper segment and De Beers which are quoted on a 100% basis. Iron Ore and Manganese segment (tonnes) Kumba Iron Ore(1) Lump Fines Amapá Sinter feed Pellet feed Total iron ore production Samancor(2) Manganese ore Manganese alloys(3) Coal (tonnes) Metallurgical Coal segment Australia Export metallurgical Thermal Canada Export metallurgical Total Metallurgical Coal segment coal production(4) Thermal Coal segment South Africa Metallurgical Thermal (non-Eskom) Eskom Colombia Export thermal Total Thermal Coal segment coal production Other Mining and Industrial segment South America Thermal Total Other Mining and Industrial segment coal production(4) Total coal production Coal (tonnes) Metallurgical Coal segment Australia Callide Drayton Capcoal Jellinbah Moranbah North Dawson Foxleigh Canada Peace River Coal Total Metallurgical Coal segment coal production(4) Thermal Coal segment South Africa Greenside Goedehoop Isibonelo Kriel Kleinkopje Landau New Denmark New Vaal Mafube Zibulo(5) 2011 2010 25,445,100 15,822,500 25,922,300 17,462,600 1,401,000 3,420,500 46,089,100 2,136,900 1,892,500 47,414,300 2,786,800 300,500 2,952,800 312,000 13,253,400 13,426,500 26,679,900 14,701,800 14,460,500 29,162,300 936,300 27,616,200 868,000 30,030,300 323,400 21,388,100 35,296,000 57,007,500 436,500 21,612,000 36,403,400 58,451,900 10,751,700 67,759,200 10,060,100 68,512,000 – – 95,375,400 441,400 441,400 98,983,700 8,038,700 3,991,900 5,047,900 1,829,600 2,450,100 3,904,600 1,417,100 26,679,900 8,515,600 4,206,000 5,460,300 1,792,500 3,937,800 3,584,400 1,665,700 29,162,300 936,300 27,616,200 868,000 30,030,300 2,853,100 5,200,800 4,338,200 8,151,700 4,400,600 4,171,200 4,812,600 17,399,700 2,313,100 3,366,500 57,007,500 3,425,000 6,026,200 4,569,100 9,526,100 4,423,600 4,085,800 5,051,600 17,235,300 2,447,700 1,661,500 58,451,900 (1) Kolomela commenced commercial production on 1 December 2011. Costs associated with 984,700 tonnes of production (2010: nil) have been capitalised before commercial production was reached. (2) Saleable production. (3) Production includes Medium Carbon Ferro Manganese. (4) In 2011 Peace River Coal has been reclassified from Other Mining and Industrial to Metallurgical Coal to align with internal management reporting. Comparatives have been reclassified to align with current year presentation. (5) Zibulo commenced commercial production on 1 October 2011. Revenue and related costs associated with 2,155,200 tonnes (2010: 1,661,500 tonnes) of production have been capitalised before commercial production was reached. The 2,155,200 tonnes includes Eskom coal of 633,400 tonnes (2010: 764,700 tonnes) and export thermal coal production of 1,521,800 tonnes (2010: 896,800 tonnes). O t h e r i n f o r m a t i o n Anglo American plc Annual Report 2011 201 OTHER INFORMATION PRODUCTION STATISTICS Coal (tonnes) (continued) Thermal Coal segment (continued) Colombia Carbones del Cerrejón Total Thermal Coal segment coal production Other Mining and Industrial segment South America Carbones del Guasare Total Other Mining and Industrial segment coal production(1) Total coal production Total coal production by commodity (tonnes) Metallurgical South Africa Australia – Export Canada – Export Total metallurgical coal production Thermal South Africa – Thermal (non-Eskom) South Africa – Eskom Australia South America Total thermal coal production Total coal production Copper segment Collahuasi 100% basis (Anglo American share 44%) Ore mined Ore processed Ore grade processed Production Total copper production for Collahuasi Anglo American’s share of copper production for Collahuasi Anglo American Sur Los Bronces mine Ore mined Marginal ore mined Las Tortolas concentrator Confluencia concentrator Production El Soldado mine Ore mined Ore processed Ore grade processed Production Chagres smelter Production Total copper production for Anglo American Sur(2) 2011 2010 10,751,700 67,759,200 10,060,100 68,512,000 – – 95,375,400 441,400 441,400 98,983,700 323,400 13,253,400 936,300 14,513,100 21,388,100 35,296,000 13,426,500 10,751,700 80,862,300 95,375,400 436,500 14,701,800 868,000 16,006,300 21,612,000 36,403,400 14,460,500 10,501,500 82,977,400 98,983,700 45,240,000 8,075,800 47,747,400 0.7 1.0 1,535,800 36,000 417,300 453,300 199,500 26,587,500 30,515,600 20,595,700 0.9 85.8 3,329,400 0.7 84.3 658,300 38,400 4,600 178,800 221,800 10,197,700 – – 10,197,700 1,887,000 7,209,100 0.7 0.8 171,900 5,000 41,900 46,900 143,000 138,200 487,500 268,700 84,060,000 7,226,800 49,119,900 0.5 1.1 1,789,300 38,800 465,200 504,000 221,800 20,021,600 43,266,400 18,909,400 1.0 88.2 – – – 598,300 42,600 4,100 174,700 221,400 4,890,400 101,900 1,390,200 6,382,500 1,532,200 7,176,100 0.7 0.6 174,000 4,700 35,700 40,400 142,100 137,900 466,700 261,800 Oxide Sulphide Oxide Sulphide Copper concentrate Copper cathode Copper in concentrate Ore processed Ore grade processed Average recovery Ore processed Ore grade processed Average recovery Copper concentrate Copper cathode Copper in sulphate Copper in concentrate Total Open pit – ore mined Open pit – marginal ore mined Underground (sulphide) Total Oxide Sulphide Oxide Sulphide Copper concentrate Copper cathode Copper in concentrate Total Copper concentrate smelted Copper blister/anode Acid tonnes tonnes tonnes % Cu % Cu dry metric tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes % Cu % tonnes % Cu % dry metric tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes % Cu % Cu dry metric tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes (1) (2) In 2011 Peace River Coal has been reclassified from Other Mining and Industrial to Metallurgical Coal to align with internal management reporting. Comparatives have been reclassified to align with current year presentation. Includes cathode, copper in sulphate and copper in concentrate production. 202 Anglo American plc Annual Report 2011 Oxide Sulphide Marginal ore Oxide Sulphide Marginal ore Copper concentrate Copper cathode Copper in concentrate Total Oxide Marginal ore Oxide Marginal ore Copper cathode Copper segment (continued) 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 Black Mountain copper production Total attributable copper production(1) Nickel segment Codemin Ore mined(2) Ore processed Ore grade processed Production Loma de Níquel Ore mined Ore processed Ore grade processed Production Barro Alto(3) Ore mined Ore processed Ore grade processed Production Total Nickel segment nickel production Platinum nickel production Total attributable nickel production Platinum segment(4) Platinum Palladium Rhodium Copper(5) Nickel(5) Gold Equivalent refined platinum Diamonds segment (De Beers) (diamonds recovered – carats) 100% basis (Anglo American share 45%) Debswana Namdeb De Beers Consolidated Mines De Beers Canada Total diamonds production for De Beers Anglo American's share of diamonds production for De Beers tonnes tonnes tonnes % Cu (soluble) % Cu (insoluble) % Cu (soluble) dry metric tonnes tonnes tonnes tonnes tonnes tonnes % Cu (soluble) % Cu (soluble) tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes % Ni tonnes tonnes tonnes % Ni tonnes tonnes tonnes % Ni tonnes tonnes tonnes tonnes troy ounces troy ounces troy ounces tonnes tonnes troy ounces troy ounces 2011 2010 4,563,400 4,186,600 5,109,400 0.6 1.0 0.2 119,000 36,000 36,100 72,100 10,012,200 8,025,300 0.6 0.3 58,700 130,800 599,000 12,800 300 612,100 549,900 562,900 1.9 9,500 1,302,600 1,014,200 1.5 13,400 978,000 456,500 2.0 6,200 29,100 20,300 49,400 2,530,100 1,430,700 337,600 12,800 20,300 105,100 2,410,100 4,380,900 3,924,700 5,628,900 0.6 1.1 0.2 119,300 39,100 39,500 78,600 9,223,200 5,237,000 0.7 0.3 61,100 139,700 623,300 10,900 2,500 636,700 493,900 488,300 1.9 8,500 714,200 798,000 1.6 11,700 723,600 – – – 20,200 18,500 38,700 2,569,900 1,448,500 328,900 10,900 18,500 81,300 2,484,000 22,890,000 1,335,000 5,443,000 1,660,000 31,328,000 14,097,000 22,218,000 1,472,000 7,556,000 1,751,000 32,997,000 14,849,000 (1) Includes cathode, copper in sulphate and copper in concentrate production. (2) Represents ore mined at Barro Alto for processing at Codemin. (3) Barro Alto is currently not in commercial production and therefore all revenue and related costs associated with 6,200 tonnes (2010: nil) of production have been capitalised. (4) See the published results of Anglo American Platinum Limited for further analysis of production information. (5) Also disclosed within total attributable copper and nickel production. O t h e r i n f o r m a t i o n Anglo American plc Annual Report 2011 203 OTHER INFORMATION PRODUCTION STATISTICS Other Mining and Industrial segment Copebrás Phosphates Catalão Niobium Ore mined Ore processed Ore grade processed Production Tarmac Aggregates Lime products Concrete Scaw Metals South Africa Steel Products International Steel Products(1) Zinc and lead Lisheen(2) Ore mined Ore processed Ore grade processed Production Black Mountain(2) Ore mined Ore processed Ore grade processed Production Skorpion(2) Ore mined Ore processed Ore grade processed Production Total attributable zinc production Total attributable lead production 2011 2010 tonnes 1,060,900 1,002,000 tonnes tonnes Kg Nb/tonne tonnes 866,600 902,600 8.1 3,900 1,209,400 909,300 6.6 4,000 tonnes tonnes m3 tonnes tonnes tonnes tonnes % Zn % Pb tonnes tonnes tonnes tonnes % Zn % Pb % Cu tonnes tonnes tonnes tonnes tonnes % Zn tonnes tonnes tonnes 42,878,400 1,264,000 3,285,700 58,875,600 1,255,900 3,305,800 677,400 – 710,000 794,200 152,800 156,200 13.4 2.7 19,200 2,900 132,800 126,200 3.4 4.5 0.4 3,300 5,400 300 – – – – 22,500 8,300 1,531,700 1,587,600 12.2 1.9 175,100 20,600 1,415,500 1,378,600 3.3 4.2 0.3 36,100 50,600 2,500 1,412,600 1,358,000 11.2 138,500 349,700 71,200 Zinc Lead Zinc in concentrate Lead in concentrate Zinc Lead Copper Zinc in concentrate Lead in concentrate Copper in concentrate Zinc Zinc (1) Relates to production from Moly-Cop and AltaSteel. The Group sold its interests in Moly-Cop and AltaSteel in December 2010. (2) The Group sold its interest in Skorpion in December 2010 and its interests in Lisheen and Black Mountain in February 2011. 204 Anglo American plc Annual Report 2011 OTHER INFORMATION QUARTERLY PRODUCTION STATISTICS 31 December 2011 30 September 2011 30 June 2011 31 March 2011 31 December 2010 31 December 2011 v 30 September 2011 31 December 2011 v 31 December 2010 Quarter ended % Change (Quarter ended) Iron Ore and Manganese segment (tonnes) Iron ore(1) Manganese ore(2) Manganese alloys(2)(3) Metallurgical Coal segment (tonnes) Export metallurgical(4) Thermal Thermal Coal segment (tonnes)(5) RSA thermal (non-Eskom) Eskom RSA metallurgical Colombia export thermal 12,427,300 722,500 78,000 12,182,900 807,600 77,600 11,534,100 716,100 76,100 9,944,800 540,600 68,800 11,807,700 731,600 76,800 4,060,600 3,358,700 4,015,000 3,978,000 3,949,400 3,087,500 2,164,700 3,002,300 3,891,500 3,727,500 5,846,000 9,487,000 84,500 2,752,700 5,198,400 8,751,400 75,600 2,851,800 5,264,400 8,782,600 83,800 2,537,700 5,079,300 8,275,000 79,500 2,609,500 5,885,000 9,484,800 103,000 2,315,700 Copper segment (tonnes)(6) 170,000 139,900 150,300 138,800 154,400 Nickel segment (tonnes)(7)(8) 9,900 6,500 6,600 6,100 4,400 Platinum segment Platinum (troy ounces) Palladium (troy ounces) Rhodium (troy ounces) Nickel (tonnes) Equivalent refined platinum (troy ounces) Diamonds segment (De Beers) (diamonds recovered – carats) Total diamond production for De Beers Anglo American’s share of diamond production for De Beers Other Mining and Industrial segment (tonnes)(9) Phosphates Niobium South Africa Steel Products Coal production by commodity (tonnes) Metallurgical Thermal (non-Eskom)(10) Eskom 710,000 392,700 96,800 5,100 583,200 646,500 376,000 75,200 4,900 666,800 640,700 373,800 79,900 5,500 592,500 532,900 288,200 85,700 4,800 567,600 872,400 502,600 111,400 5,000 640,100 6,489,000 9,305,000 8,138,000 7,396,000 8,532,000 2,920,000 4,187,000 3,662,000 3,328,000 3,839,000 274,900 1,000 163,100 284,500 1,100 158,000 260,700 900 183,100 240,800 900 173,200 270,900 1,200 151,000 4,145,100 11,957,400 9,487,000 4,090,600 12,028,200 8,751,400 4,033,200 10,889,600 8,782,600 2,244,200 10,691,100 8,275,000 3,994,500 11,928,200 9,484,800 2% (11)% 1% 1% (16)% 12% 8% 12% (3)% 22% 52% 10% 4% 29% 4% (13)% (30)% (30)% (3)% (9)% 3% 1% (1)% 8% 5% (1)% 2% 4% (10)% (1)% – (18)% 19% 10% 125% (19)% (22)% (13)% 2% (9)% (24)% (24)% 1% (17)% 8% 4% – – (1) Kolomela commenced commercial production on 1 December 2011. Costs associated with 984,700 tonnes of production (2010: nil) have been capitalised before commercial production was reached. (2) Saleable production. (3) Production includes Medium Carbon Ferro Manganese. (4) Includes Peace River Coal which in 2011 has been reclassified from Other Mining and Industrial to Metallurgical Coal to align with internal management reporting. Comparatives have been reclassified to align with current year presentation. (5) Zibulo commenced commercial production on 1 October 2011. Revenue and related costs associated with 2,155,200 tonnes (2010: 1,661,500 tonnes) of production have been capitalised before commercial production was reached. The 2,155,200 tonnes includes Eskom coal of 633,400 tonnes (2010: 764,700 tonnes) and export thermal coal production of 1,521,800 tonnes (2010: 896,800 tonnes). (6) Excludes Platinum and Black Mountain copper production. (7) Excludes Platinum nickel production. (8) Includes Barro Alto which is currently not in commercial production and therefore all revenue and related costs associated with 6,200 tonnes (2010: nil) of production have been capitalised. (9) Excludes Tarmac. (10) The quarter ended 31 December 2010 excludes 48,600 tonnes of production from Carbones del Guasare. O t h e r i n f o r m a t i o n Anglo American plc Annual Report 2011 205 OTHER INFORMATION EXCHANGE RATES AND COMMODITY PRICES US$ exchange rates Year end spot prices Rand Brazilian real Sterling Australian dollar Euro Chilean peso Average prices for the year Rand Brazilian real Sterling Australian dollar Euro Chilean peso Commodity prices Year end spot prices Iron ore (FOB Australia)(1) Thermal coal (FOB South Africa)(2) Thermal coal (FOB Australia)(2) Hard coking coal (FOB Australia)(3) Copper(4) Nickel(4) Platinum(5) Palladium(5) Rhodium(5) Average market prices for the year Iron ore (FOB Australia)(1) Thermal coal (FOB South Africa)(2) Thermal coal (FOB Australia)(2) Hard coking coal (FOB Australia)(6) Copper(4) Nickel(4) Platinum(5) Palladium(5) Rhodium(5) 2011 8.11 1.87 0.65 0.98 0.77 520 7.26 1.67 0.62 0.97 0.72 484 2011 127 105 112 285 343 829 1,388 636 1,400 160 116 121 289 400 1,035 1,725 736 2,022 2010 6.60 1.66 0.64 0.98 0.75 468 7.32 1.76 0.65 1.09 0.75 510 2010 163 129 126 209 442 1,132 1,755 797 2,425 136 92 99 191 342 989 1,610 527 2,453 US$/tonne US$/tonne US$/tonne US$/tonne US cents/lb US cents/lb US$/oz US$/oz US$/oz US$/tonne US$/tonne US$/tonne US$/tonne US cents/lb US cents/lb US$/oz US$/oz US$/oz (1) Source: Platts. (2) Source: McCloskey. (3) Source: Represents the quarter four benchmark. (4) Source: LME daily prices. (5) Source: Johnson Matthey. (6) Source: Represents the average quarterly benchmark, with quarter one 2010 being the final quarter of the annual settlement for JFY 2009–2010. 206 Anglo American plc Annual Report 2011 OTHER INFORMATION SUMMARY BY BUSINESS OPERATION US$ million Iron Ore and Manganese Kumba Iron Ore Iron Ore Brazil Samancor Metallurgical Coal(4) Australia Canada Projects and corporate Thermal Coal South Africa Colombia Projects and corporate Copper Anglo American Sur Anglo American Norte Collahuasi Projects and corporate Nickel Codemin Loma de Níquel Projects and corporate Platinum Diamonds Other Mining and Industrial(4) Core(4) Copebrás Catalão Projects and corporate Non-core(4) Tarmac(5) Scaw Metals(6) Lisheen(7) Black Mountain(7) Skorpion(7) Projects, corporate and other Revenue(1) EBITDA(2) Operating profit/(loss)(3) Underlying earnings 2011 8,124 6,717 481 926 4,347 4,068 279 – 3,722 2,642 1,080 – 5,144 2,320 1,136 1,688 – 488 203 285 – 7,359 3,320 4,039 720 571 149 – 3,319 2,347 931 36 5 – – 2010 6,612 5,310 319 983 3,522 3,377 145 – 2,866 2,105 761 – 4,877 2,075 1,073 1,729 – 426 195 231 – 6,602 2,644 5,375 613 461 152 – 4,762 2,376 1,579 265 197 311 34 2011 4,733 4,546 (11) 198 1,577 1,526 82 (31) 1,410 902 535 (27) 2,750 1,247 641 1,052 (190) 84 77 86 (79) 2010 3,856 3,514 (73) 415 1,134 1,147 18 (31) 872 539 358 (25) 3,086 1,263 661 1,276 (114) 122 83 82 (43) 1,672 1,624 794 393 215 160 57 (2) 178 106 70 17 3 – (18) 666 894 173 104 71 (2) 721 188 213 114 73 154 (21) 2011 4,520 4,397 (42) 165 1,189 1,161 59 (31) 1,230 775 482 (27) 2,461 1,092 606 957 (194) 57 73 66 (82) 890 659 195 188 136 54 (2) 7 (35) 40 17 3 – (18) 2010 3,681 3,396 (97) 382 780 814 (3) (31) 710 426 309 (25) 2,817 1,125 624 1,186 (118) 96 76 65 (45) 837 495 664 146 81 67 (2) 518 48 170 114 73 134 (21) 2011 1,525 1,462 (81) 144 844 831 44 (31) 902 611 318 (27) 1,610 746 444 617 (197) 23 52 29 (58) 410 443 107 113 80 35 (2) (6) (31) 27 14 1 – (17) 2010 1,423 1,210 (77) 290 586 616 1 (31) 512 314 223 (25) 1,721 685 419 738 (121) 75 48 55 (28) 425 302 521 84 48 38 (2) 437 67 119 99 47 133 (28) Exploration – – (121) (136) (121) (136) (118) (128) Corporate Activities and Unallocated Costs 5 36,548 5 32,929 56 13,348 (135) 11,983 15 11,095 (181) 9,763 374 6,120 (461) 4,976 (1) 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 and refining charges (TC/RCs). (2) Earnings before interest, tax, depreciation and amortisation (EBITDA) is operating profit before special items, remeasurements, depreciation and amortisation in subsidiaries and joint ventures and includes attributable share of EBITDA of associates. (3) Operating profit includes operating profit before special items and remeasurements from subsidiaries and joint ventures and attributable share of operating profit (before interest, tax, (4) (5) non-controlling interests, special items and remeasurements) of associates. In 2011 Peace River Coal has been reclassified from Other Mining and Industrial to Metallurgical Coal to align with internal management reporting, and Copebrás and Catalão are considered core within the Other Mining and Industrial segment following a strategic review. Comparatives have been reclassified to align with current year presentation. In the year ended 31 December 2011 the Group sold Tarmac’s businesses in China, Turkey and Romania (2010: the Polish and French and Belgian concrete products businesses and the majority of the European aggregates businesses). (6) Results for 2010 include Moly-Cop and AltaSteel, which were disposed of in December 2010. (7) Skorpion, Lisheen and Black Mountain comprised the Group’s portfolio of zinc operations. The Group sold its interest in Skorpion in December 2010, and its interests in Lisheen and Black Mountain in February 2011. See note 32 to the financial statements. O t h e r i n f o r m a t i o n Anglo American plc Annual Report 2011 207 OTHER INFORMATION 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 non-controlling interests of associates Total profit from operations and associates Net finance income/(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 Non-controlling 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 (US$) – continuing operations Earnings per share (US$) – discontinued operations Earnings per share (US$) – total Group Underlying earnings per share (US$) – continuing operations Underlying earnings per share (US$) – discontinued operations Underlying earnings per share (US$) – 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 2011 36,548 (5,968) 30,580 2010 32,929 (4,969) 27,960 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 11,095 9,763 4,957 10,085 9,590 8,888 5,549 3,832 (44) 1,727 (208) (330) (227) 24 16 556 (452) 10,599 (423) 11,067 183 10,782 (139) 10,928 (2,860) 7,922 – 7,922 (1,753) 6,169 6,120 – 6,120 5.10 – 5.10 5.06 – 5.06 74.0 – 1,210 13,348 – 13,348 n/a (2,809) 8,119 – 8,119 (1,575) 6,544 4,976 – 4,976 5.43 – 5.43 4.13 – 4.13 65.0 – 1,206 11,983 – 11,983 42.0 (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 27.4 (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 30.4% 29.6% 20.1% 30.6% 28.4% 25.4% 18.5% 14.7% 6.8 6.4 – 9.9 3.5 3.5 2.9 2.7 Balance sheet Intangible assets and property, plant and equipment 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 Non-controlling interests Equity attributable to equity shareholders of the Company Total capital(7) Cash flows from operations – continuing operations Cash flows from operations – discontinued operations Cash flows 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) 42,871 10,269 2,093 (1,683) (9,220) (1,141) – 43,189 (4,097) 39,092 44,563 11,498 – 11,498 403 – 403 26.5% 29.7% 3.1% 42,126 9,852 2,385 (785) (8,757) (7,038) 188 37,971 (3,732) 34,239 45,355 9,924 – 9,924 285 – 285 24.8% 28.3% 16.3% 37,974 7,303 2,168 (272) (8,487) (11,046) 429 28,069 (1,948) 26,121 39,349 4,904 – 4,904 32,551 7,607 861 (840) (7,567) (11,051) 195 21,756 (1,535) 20,221 33,096 9,579 – 9,579 639 659 – – 639 14.4% 19.1% 28.7% 659 36.9% 38.0% 34.3% 25,090 9,271 1,966 (911) (6,387) (5,170) 471 24,330 (1,869) 22,461 29,181 9,375 470 9,845 311 52 363 38.0% 40.8% 16.6% 25,632 8,258 3,096 (1,430) (5,826) (3,244) 641 27,127 (2,856) 24,271 30,258 9,012 1,045 10,057 251 37 288 32.6% 38.8% 10.3% 33,368 5,585 3,538 (1,429) (8,491) (4,993) – 27,578 (3,957) 23,621 32,558 5,963 1,302 7,265 468 2 470 18.8% 26.2% 15.3% 35,816 5,547 3,543 (611) (8,339) (8,243) – 27,713 (4,588) 23,125 35,806 3,857 1,434 5,291 380 16 396 16.9% 21.3% 22.6% (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 profit attributable to equity shareholders of the Company before special items and remeasurements and is therefore presented after net finance costs, income tax and non-controlling interests. (3) EBITDA is operating profit before special items and 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, unwinding of discount relating to provisions and other non-current liabilities, financing special items and remeasurements, and including attributable share of associates’ net interest expense, which in 2011 results in a net finance income and therefore the ratio is not applicable. (5) Comparatives for 2008, 2007, 2006 and 2005 were adjusted in the 2009 Annual Report in accordance with IAS 1 Presentation of Financial Statements – Improvements to reclassify non-hedge derivatives whose expected settlement date was more than one year from the period end from current to non-current. (6) This differs from the Group’s measure of net debt as it excludes the net cash/(debt) of disposal groups (2011: nil; 2010: $59 million; 2009: $48 million; 2008: $8 million; 2007: $(69) million; 2006: $(80) million; 2005: nil; 2004: nil) and excludes related hedges (2011: net liabilities of $233 million; 2010: net liabilities of $405 million; 2009: net liabilities of $285 million; 2008: net liabilities of $297 million; 2007: net assets of $388 million; 2006: net assets of $193 million; 2005: nil; 2004: nil). See note 31 to the financial statements. (7) Total capital is net assets excluding net debt. (8) Return on capital employed is calculated as total operating profit before impairments for the year divided by the average of total capital less other investments and adjusted for impairments. (9) Net debt to total capital is calculated as net debt (including related hedges) divided by total capital. Comparatives are presented on a consistent basis. 208 Anglo American plc Annual Report 2011 OTHER INFORMATION RECONCILIATION OF SUBSIDIARIES’ AND ASSOCIATE’S REPORTED EARNINGS TO THE UNDERLYING EARNINGS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011 Note only key reported lines are reconciled. Kumba Iron Ore Limited US$ million IFRS headline earnings(1) Exploration Other adjustments Non-controlling 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 Anglo American Platinum Limited US$ million IFRS headline earnings(1) Exploration Operating and financing remeasurements (net of tax) Restructuring costs included in headline earnings (net of tax) BEE transactions and related charges Other adjustments Non-controlling 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 De Beers Société Anonyme US$ million 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 Contribution to Anglo American plc underlying earnings 2011 2,366 4 3 2,373 (826) (27) (9) (49) 1,462 2011 527 5 (27) 6 141 – 652 (132) (1) (55) (54) 410 2011 968 17 985 443 – 443 2010 1,964 9 1 1,974 (710) 2 (9) (47) 1,210 2010 674 11 (21) 28 – (1) 691 (140) 29 (102) (53) 425 2010 598 53 651 293 9 302 (1) The US$ equivalent of the rand IFRS headline earnings published by Kumba Iron Ore Limited and Anglo American Platinum Limited is calculated by translating the movement each month at the average exchange rate for the month. O t h e r i n f o r m a t i o n Anglo American plc Annual Report 2011 209 OTHER INFORMATION THE BUSINESS – AN OVERVIEW as at 31 December 2011 Iron Ore and Manganese Kumba Iron Ore (South Africa) Minas-Rio (Brazil) Amapá (Brazil) LLX Minas-Rio (Brazil)(1) Samancor (South Africa and Australia) Metallurgical Coal 100% owned Australia Callide Australia – other Monash Energy Holdings Ltd Canada Peace River Coal Thermal Coal 100% owned South Africa Goedehoop Greenside Isibonelo Kleinkopje Landau New Denmark New Vaal Copper 100% owned Mantos Blancos (Chile) Mantoverde (Chile) Michiquillay (Peru) Nickel 100% owned Brazil Codemin Barro Alto 65.2% 100% 70% 49% 40% Overall ownership: 100% 83.3% 51% 88.2% 70% 23.3% 88% 70% 25.4% 17.6% Overall ownership: 100% 50% 50% 73% 73% 24.2% 33.3% Overall ownership: 100% 75.5% 75.5% 75.5% 44% 16.8% 81.9% 50% Other interests Australia Dartbrook Dawson Drayton German Creek(2) Jellinbah Moranbah North Foxleigh Australia – other Dalrymple Bay Coal Terminal Pty Ltd Newcastle Coal Shippers Pty Ltd Other interests South Africa Mafube Phola plant Kriel(3) Zibulo(3) South Africa – other Richards Bay Coal Terminal Colombia Carbones del Cerrejón Other interests Chagres (Chile) El Soldado (Chile) Los Bronces (Chile) Collahuasi (Chile) Palabora (South Africa) Quellaveco (Peru) Pebble (US) Other interests Loma de Níquel (Venezuela) 91.4% Overall ownership: 100% (1) Owns the port of Açu (currently under construction). (2) The German Creek operation includes both Capcoal Open Cut and Underground operations. (3) Kriel and Zibulo form part of the Anglo American Inyosi Coal black economic empowerment (BEE) company of which Anglo American owns 73%. 210 Anglo American plc Annual Report 2011 Platinum 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) Mortimer Smelter Polokwane Smelter Rustenburg Base Metals Refinery Precious Metals Refinery Twickenham Mine Zimbabwe Unki Mine Other interests South Africa Union Section Masa Chrome Company Joint ventures or sharing agreements Modikwa Platinum Joint Venture Kroondal Pooling and Sharing Agreement Marikana Pooling and Sharing Agreement Mototolo Joint Venture Associates Bokoni Pandora Bafokeng-Rasimone Anooraq Johnson Matthey Fuel Cells South Africa – Other Wesizwe Platinum Limited Royal Bafokeng Platinum Limited Overall ownership: 79.8% 85% 74% 50% 50% 50% 50% 49% 42.5% 33% 27% 17.5% 13% 12.6% De Beers(1) 100% owned South Africa De Beers Group Services (Exploration and Services) De Beers Marine Industrial Diamonds Element Six Technologies Other Mining and Industrial 100% owned Phosphate products Copebrás (Brazil) Niobium Catalão (Brazil) Aggregates and Building Materials Tarmac Quarry Materials Tarmac Building Products Other(5) 100% owned Vergelegen (South Africa) Canada De Beers Canada Snap Lake Victor Trading and Marketing The Diamond Trading Company Forevermark Diamdel Other interests South Africa De Beers Consolidated Mines Venetia Voorspoed Namaqualand mines(3) Kimberley Tailings Botswana Debswana Damtshaa Jwaneng Orapa Letlhakane Overall ownership: 45% Namibia Namdeb Holdings(4) 50% 74%(2) Namdeb Diamond Company Mining Area No. 1 Orange River Mines Elizabeth Bay Marine concessions De Beers Marine Namibia 50% Trading and Marketing DTC Botswana Namibia DTC Industrial Diamonds Element Six Abrasives Diamond Jewellery Retail De Beers Diamond Jewellers 50% 50% 60% 50% Overall ownership: 100% Other interests Aggregates and Building Materials Tarmac Middle East Steel products Scaw Metals (South Africa) 50% 74% Other interests Exxaro Resources (southern Africa and Australia) 9.8% (1) An independently managed associate. (2) De Beers’ 74% interest represents its legal ownership share in De Beers Consolidated Mines (DBCM). For accounting purposes De Beers consolidates 100% of DBCM as it is deemed to control the BEE entity which holds the remaining 26% after providing certain financial guarantees on its behalf during 2010. In May 2011 De Beers announced that it had entered into an agreement to sell Namaqualand mines. In November 2011 the Government of the Republic of Namibia and De Beers restructured their mining partnership, creating a 50/50 holding company, Namdeb Holdings (Pty) Limited, with full ownership of Namdeb Diamond Company (Pty) Limited and De Beers Marine Namibia (Pty) Limited (now trading as Debmarine Namibia). All mining licences transferred to the newly formed company. Included within Corporate Activities and Unallocated Costs segment. (3) (4) (5) O t h e r i n f o r m a t i o n Anglo American plc Annual Report 2011 211 other information Shareholder information Annual General Meeting Will be held at 2.30 pm on Thursday 19 April 2012, at The Royal Society, 6-9 Carlton House Terrace, London SW1Y 5AG. Shareholders’ diary 2012/13 Interim results announcement Annual results announcement Annual Report Annual General Meeting July 2012 February 2013 March 2013 April 2013 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* From outside the UK: +44 121 415 7558 Transfer Secretaries in South Africa Link Market Services South Africa (Pty) Limited 13th Floor, Rennie House 19 Ameshoff Street Braamfontein 2001, South Africa (PO Box 4844, Johannesburg, 2000) Telephone: +27 (0) 11 713 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 www.angloamerican.com 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. * Calls to all 0871 numbers stated in this notice are charged at 8p per minute from a BT landline. Lines are open 8:30am to 5:30pm Monday to Friday. Other telephony providers’ costs may vary. 212 Anglo American plc Annual Report 2011 OTHER INFORMATION OTHER ANGLO AMERICAN PUBLICATIONS (cid:228) 2011/12 Fact Book (cid:228) Notice of 2012 AGM and Shareholder Information Booklet (cid:228) Sustainable Development Report 2011 (cid:228) Optima – Anglo American’s current affairs journal (cid:228) Good Citizenship: Business Principles (cid:228) The Environment Way (cid:228) The Occupational Health Way (cid:228) The Projects Way (cid:228) The Safety Way (cid:228) The 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 at: www.angloamerican.com/investors/reports Sustainable development reports may be found at: www.angloamerican.com/development/reports/aareports/2011gr However, the 2011 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 the 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.com/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 2011: Designed and produced by Salterbaxter This document is printed on Revive 50 White Silk and Revive Pure White Offset which has been independently certified according to the rules of the Forest Stewardship Council® (FSC). Revive 50 White Silk contains 50% recycled and 50% virgin fibre. The recycled fibre is bleached in a Process Chlorine Free (PCF) process and the virgin fibre is Elemental Chlorine Free (ECF) bleached. Revive Pure White Offset is 100% recycled and is Process Chlorine Free (PCF) bleached. The manufacturing mill is accredited with the ISO 14001 Environmental Standard. This document has been printed using vegetable based inks and is recyclable. Printed by PurePrint ISO 14001:2004, FSC certified and CarbonNeutral®. 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.com Find us on Facebook Follow us on Twitter A N G L O A M E R I C A N P L C A N N U A L R E P O R T 2 0 1 1