A BALANCED PORTFOLIO WITH THE FUTURE IN MIND ANNUAL REPORT 2012 WITH THE FUTURE IN MIND SUBHEAD Copy to come. At Anglo American, we will achieve our ambition to be the leading mining company if we make sound decisions that focus on delivering long term value. It is these decisions made by our talented workforce that are driving the business forward with the future in mind. 01 02 Other sources of information You can fi nd 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-fi nancial 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/ reportingcentre A UNIQUE TRANSACTION Our acquisition of a further 40% interest in De Beers was a unique opportunity to consolidate control of the world’s leading diamond company. The benefi ts of our scale, expertise and fi nancial resources, combined with the De Beers business and its iconic brand, will enhance De Beers’ position across the diamond pipeline and capture the potential presented by a rapidly evolving diamond market. For more information on this story go to page 82 in this report 03 04 06 05 01 Preparation plant assistant Jessica Smith and environmentalist Matt Goddard at the train load-out facility at Metallurgical Coal’s Capcoal open cut mine. 02 Molten platinum being poured at Platinum’s precious metals refi nery. 03 Construction work at Thermal Coal’s eMalahleni water treatment plant. 04 Reclaimer operator Bobby Marthinus at the reclaimer bucket wheel at Kolomela mine’s stack and reclaim yard. 05 Arc furnace at Codemin’s nickel smelter in Brazil. 06 Anodes supervisor Ricardo Villalon at the anodes stockpile at the Chagres copper smelter. Cover De Beers’ sea walker drill platform, drilling the surf zone on the Atlantic coast in Namibia. AT A GLANCE AT A GLANCE 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 we are a global leader in both platinum and diamonds. Revenue by origin: North America Global total: $32,785 million $559 m Revenue by origin: Other Africa Global total: $32,785 million $3,256 m Revenue by origin: Other South America Global total: $32,785 million $1,131 m Revenue by origin: Chile Global total: $32,785 million $5,122 m Revenue by origin: Brazil Global total: $32,785 million $1,274 m Iron Ore and Manganese Metallurgical Coal Thermal Coal Copper Nickel Platinum Diamonds Other Mining and Industrial Headquarters Corporate and representative offi ces North America London, United Kingdom South America Africa Australia and Asia Beijing, China Belo Horizonte, Brazil Brisbane, Australia Johannesburg, South Africa Kinshasa, DRC Luxembourg Maputo, Mozambique New Delhi, India Rio de Janeiro, Brazil Santiago, Chile São Paulo, Brazil Singapore Ulan Bator, Mongolia Revenue by origin: Europe Global total: $32,785 million $2,235 m Revenue by origin: Australia and Asia Global total: $32,785 million $4,616 m Revenue by origin: South Africa Global total: $32,785 million $14,592 m Underlying operating profit $ million Iron Ore and Manganese: 2,949 Metallurgical Coal: 405 Thermal Coal: 793 Copper: 1,687 Nickel: 26 Platinum: (120) Diamonds: 496 Other Mining and Industrial: 337 Exploration: (206) Corporate: (203) Total: $6,164 million Net segment assets $ million Iron Ore and Manganese: 9,356 Metallurgical Coal: 5,219 Thermal Coal: 1,965 Copper: 8,536 Nickel: 2,509 Platinum: 10,419 Diamonds: 12,944 Other Mining and Industrial: 786 Exploration: 4 Corporate: (285) Total: $51,453 million Revenue by destination $ million South Africa Other Africa Brazil Chile Other South America North America Europe China Incorporating: Australia India Japan Other Asia Total 3,115 715 1,093 1,241 46 1,274 8,846 5,927 340 2,544 4,049 3,595 32,785 PERFORMANCE HIGHLIGHTS CONTENTS O v e r v e w i SAFEGUARDING VALUE WITH THE FUTURE IN MIND DIVIDENDS PER SHARE Cents 2008 Nil 2009 Nil 2010 2011 2012 44 25 28 40 46 32 UNDERLYING OPERATING PROFIT (2011: $11.1 bn) $6.2 bn UNDERLYING EARNINGS (2011: $6.1 bn) $2.8 bn CAPITAL EXPENDITURE $ bn 53 UNDERLYING EARNINGS PER SHARE (2011: $5.06) $2.26 (LOSS)/PROFIT ATTRIBUTABLE TO EQUITY SHAREHOLDERS (2011: $6.2 bn) $(1.5) bn Underlying operating profi t includes attributable share of associates’ operating profi t (before attributable share of associates’ interest, tax, and non-controlling interests) and is before special items and remeasurements, unless otherwise stated. See notes 2 and 4 to the fi nancial statements for operating profi t. For defi nition of special items and remeasurements, see note 5 to the fi nancial statements. See note 13 to the fi nancial statements for the basis of calculation of underlying earnings. ‘Tonnes’ are metric tons, ‘Mt’ denotes million tonnes, ‘kt’ denotes thousand tonnes and ‘koz’ denotes thousand ounces; ‘$’ and ‘dollars’ denote US dollars and ‘cents’ denotes US cents. Net debt includes related hedges and net cash in disposal groups. See note 31 to the fi nancial statements. 5.3 4.8 5.0 5.8 5.7 11,340 11,280 7,384 8,615 2008 2009 2010 2011 2012 NET DEBT $ m 2008 2009 2010 2011 1,374 2012 Overview 02 Chairman’s statement 04 Marketplace 08 Our strategy and business model 10 Chief Executive’s statement Strategy in action Iron Ore and Manganese Operating and fi nancial review 12 Key performance indicators (KPIs) 14 36 Resources and technology 42 Group fi nancial performance 48 Risk 54 60 Metallurgical Coal 64 Thermal Coal 68 Copper 72 Nickel 76 Platinum 82 Diamonds 86 Other Mining and Industrial Introduction The Board Governance 90 92 94 Executive management 96 Role of the Board 98 Board in action 104 Audit Committee report 108 Directors’ remuneration report 128 Directors’ report 134 Statement of directors’ responsibilities Financial statements 136 Responsibility statement 137 138 Principal statements 142 Notes to the fi nancial statements Independent auditor’s report Introduction Ore Reserves and Mineral Resources 191 192 Summary 196 Iron Ore 199 Manganese 200 Coal 208 Copper 213 Nickel 214 Platinum Group Metals 217 Diamonds 222 Phosphate products 223 Niobium 224 Reconciliation overview 228 Defi nitions 229 Glossary Other information 231 Production statistics 235 Quarterly production statistics 236 Exchange rates and commodity prices 237 Summary by business operation 238 Key fi nancial data 239 Non-fi nancial data 240 Reconciliation of reported earnings 242 The business – an overview 244 Shareholder information IBC Other Anglo American publications Anglo American plc Annual Report 2012 01 OVERVIEW CHAIRMAN’S STATEMENT CHAIRMAN’S STATEMENT In a very tough year, we made signifi cant progress in overcoming the most serious challenges to our business, to the benefi t of everyone invested, directly or indirectly, in Anglo American. Sir John Parker Given the increased challenges involved in developing large and complex greenfi eld sites, the Board will apply a highly disciplined approach to the allocation of capital. OUR PERFORMANCE It was a diffi cult year for the mining industry and Anglo American encountered its share of challenges. Against a backdrop of a marked economic slowdown in China, a troubled euro zone and only a sputtering recovery in the US, the industry faced falling prices, while profi tability was further impacted as costs continued to rise well above infl ation in many countries. In our own business, in South Africa, we had to contend with lengthy illegal industrial action at our Platinum and Kumba Iron Ore operations – which ultimately had the effect of tipping Anglo American Platinum into making a loss for the year. In the fi rst half of the year, we also encountered operational setbacks in our Copper business, where output is now stabilising. At our largest capital project, the Minas-Rio iron ore project in Brazil, a diversity of problems led to a revised delivery date and capital-cost increases. This led us to review the carrying value of the asset, writing it down by $4 billion (after tax). DIVIDENDS AND CAPITAL ALLOCATION In spite of all these challenges affecting cash fl ow, the Board was able to recommend a fi nal dividend of 53 cents per share, giving a rebased total dividend for the year of 85 cents, a 15% increase, refl ecting our confi dence in the underlying business. This increase completes the rebuilding of our dividend from zero in 2009, to a new base level competitive with our diversifi ed peer group. The three major projects we commissioned in 2011 – Barro Alto nickel, Los Bronces copper expansion and Kolomela iron ore – have all been ramping up. At Minas-Rio, however, the inevitable knock-on effect of permitting and other delays have resulted in the project’s capital expenditure rising to an expected $8.8 billion, if a Group-held risk contingency of $600 million is consumed, with the fi rst iron ore shipment due by the end of 2014. I am confi dent, however, that Minas-Rio will become one of the world’s great high-quality iron ore mines, with high potential cash generation and a published resource base of well over 5 billion tonnes, a more than fourfold increase since acquisition. Anglo American’s objective is to maintain a strong investment grade rating – which demands rigorous capital discipline. We 02 Anglo American plc Annual Report 2012 recognise that over the next two years we will bear a heavier capital expenditure burden as we seek to complete the development of Minas-Rio and Grosvenor in Australia, after which we expect capital expenditure to be moderated. We have a substantial potential pipeline of high-quality growth options in the most attractive commodities. However, given the increased challenges involved in developing large and complex greenfi eld sites, the Board will apply a highly disciplined approach to the allocation of capital, with smaller, lower-risk brownfi eld expansion projects more likely to fi nd favour. Prior to Board approval of large greenfi eld projects we will explore the merits of seeking suitable partners. DELIVERING VALUE In these volatile times, boards have a heightened responsibility to ensure that management delivers enduring value for shareholders. That is why, following almost a year of studying various options and social plans, we have announced a proposed major restructuring of our Platinum business. We aim to return it to a sustainable profi t and a more secure future for the 45,000 employees who would remain. I am glad to report we have had positive dialogue with the South African government, with a joint commitment to work together on this restructuring and the fi nalisation of our recovery plans. It is pleasing to report that, following the dispute with the Chilean state copper producer, Codelco, we were able to retain majority control of Anglo American Sur and to establish a new relationship that positions us to build a strong future for our business in Chile. We were also able to generate $2.3 billion of incremental proceeds for shareholders compared to the original option price. Our acquisition from the Oppenheimer family of its 40% shareholding in De Beers now gives shareholders greater exposure to the world’s No. 1 diamond company. We believe De Beers is well positioned to capitalise on the positive fundamentals in diamonds, with the supply of gem diamonds likely to fall well short of demand over the long term. SAFETY AND SUSTAINABLE DEVELOPMENT The number of people who lost their lives on company business fell to 13; sadly, this is 13 too many. Our lost-time injury frequency rate, which had reached a plateau in recent years, also resumed a downward trend. Overall, during Cynthia Carroll’s six-year watch, on a like-for-like basis, the annual number of deaths Group-wide fell by half. This step change in performance is great testimony to Cynthia’s safety leadership, as well as the commitment of her senior management team. Their tireless endeavours in leading the safety agenda have brought about real and lasting change in the way we approach our drive for zero harm. I know our incoming chief executive Mark Cutifani, during whose watch at AngloGold Ashanti, over a similar timeframe, the company’s safety record improved signifi cantly, is also determined to take the lead on this most fundamental of issues. As a company, Anglo American takes climate-change mitigation and water management particularly seriously – with targets for these included in the performance contracts O v e r v e w i The number of people who lost their lives on company business fell to 13, while our lost-time injury frequency rate, which had reached a plateau in recent years, also resumed a downward trend. For more information turn to page 27 AN EVALUATION OF THE BOARD BY AN EXTERNAL FACILITATOR, WITH NO PRIOR RELATIONSHIP WITH ANGLO AMERICAN, WAS COMPLETED IN FEBRUARY 2012. For more information turn to page 96 REPRESENTATION OF WOMEN ON THE BOARD 27% For more information turn to page 91 of our business unit CEOs. It is pleasing, therefore, that our approach to sustainable development continues to receive global recognition. At the Quellaveco copper project in Peru – historically, a challenging environment in which to conduct mining operations – we successfully concluded a community ‘dialogue table’; this resulted in ground- breaking agreements that satisfy our host communities on water use, the environment and social responsibility. In 2012, Anglo American was recognised for the 10th year running for excellence in sustainability by the Dow Jones Sustainability Index, achieving the highest ranking in the mining industry. We were also awarded a platinum ranking in the 2012 Business in the Community Corporate Responsibility Index, the UK’s leading voluntary benchmark of corporate responsibility – the only mining group to secure platinum status. GOVERNANCE Over the past few years, governance pressures on listed companies have been growing in intensity. Shareholders, institutional and individual alike, have sought to hold underperforming managements and boards to account. In the 3½ years I have been chairman of your company, therefore, I have sought to refresh and strengthen the Board by bringing in members with a range of skill-sets and experiences that can add value to our business and maintain capital discipline. It is in that light that we appointed Anne Stevens in May 2012. Anne is an engineer with extensive industrial experience, including operating in a range of South American countries in which we are present. I also wish to take this opportunity to thank Dr Mamphela Ramphele, who stepped down in July, for the wealth of experience and insight she brought to the Board’s affairs. Mamphela, who was a key fi gure in South Africa’s struggle for democracy, later had a distinguished career, including serving as vice-chancellor of the University of Cape Town and as a managing director of the World Bank. Peter Woicke will also be standing down from the Board at the forthcoming AGM. He has been a director since 2006 and chairman of the Safety and Sustainable (S&SD) Committee for the past three years. Peter has brought a wealth of experience and knowledge about development in emerging economies to our proceedings and has ensured that Anglo American remains at the forefront of the major sustainability issues facing our industry. We are indeed grateful for his leadership in this important area of our operations. We are fortunate to have Jack Thompson’s extensive mining experience and knowledge of safety to take over as chairman of the S&SD Committee and to build on Peter Woicke’s excellent work. The Board is also proposing the appointment of Dr Byron Grote as a non-executive director at the forthcoming AGM. Byron has more than three decades’ experience in the natural resources sector, including nine years as chief fi nancial offi cer of BP. He will be retiring from BP and stepping down from the BP board in April. It is intended that Byron will, after a period of induction, take over the chairmanship of the Audit Committee from David Challen, who has rendered outstanding service in this role. I am glad that David, whose independence is not in doubt, has agreed, given the extensive changes to Board membership since late 2009, to serve for at least another year as the senior independent non-executive director. In terms of the Board’s composition, the biggest change, of course, was Cynthia Carroll’s decision in October to step down as chief executive and from the Board, in April, with the agreement of the Board. Cynthia’s leadership has had a transformational impact on Anglo American. She developed a clear strategy and created a strong and unifi ed culture and a streamlined organisation. Cynthia lived out Anglo American’s values to the full and her legacy includes, among many other things, a step-change improvement in safety, sustainability and the quality of our dialogue with governments, communities and other stakeholders around the world. As a Board, we not only thank her but wish her all success and good wishes in the years ahead. I led the Board’s global search to identify the best possible candidate for the role of chief executive. Mark Cutifani was the Board’s unanimous choice to succeed Cynthia, and he will take up his post on 3 April 2013. Mark comes to us from AngloGold Ashanti, where he led the successful restructuring and development of its business. He is an experienced listed-company chief executive who has a focus on creating value, and a seasoned miner, with broad experience of mining operations and projects across a wide range of commodities and geographies, including South Africa and the Americas, as well as his native Australia. He is a highly respected leader in the global mining industry, with values strongly aligned to those of Anglo American. In terms of enhancing the Board’s contribution to Anglo American’s affairs, during the year the Board joined the company’s most senior executives in an internal strategy forum, and will do so again in June 2013. In addition, the results of an external effectiveness review of the Board, which I commissioned in 2011, were presented to the Board in 2012. The results of the review, together with details of all of our governance arrangements, can be found in the Corporate Governance section (pages 90–134) of this report. OUTLOOK During 2012 there were signifi cant macroeconomic policy changes, which should support a stronger recovery in 2013 and beyond. There are now clear signs of an upturn in US housing, which should reinforce a broader economic recovery helped by ultra-loose monetary policy. In China, the authorities have also eased policy to stimulate faster growth. But the country’s newly installed leadership is mindful of the need to rebalance the economy, which will restrain growth over the next few years. In Europe and Japan, activity has been weak, but there are signs of improvement and changes in policy should boost growth in 2013. In the medium term, we see continuing robust demand for industrial commodities as emerging economies continue to industrialise and advanced economies invest in upgrading their infrastructure. Sir John Parker Chairman Anglo American plc Annual Report 2012 03 OVERVIEW MARKETPLACE A BRIGHTER OUTLOOK FOR OUR KEY COMMODITIES THE ECONOMY ECONOMIC SLOWDOWN The world economy slowed in 2012. According to the IMF, global real GDP increased by 3¼ %, following 4% in 2011 and 5% in 2010. There was broad-based weakness, with both advanced and developing economies experiencing lower growth. In aggregate, real GDP in the advanced economies rose by 1¼ % in 2012, after 1½ % in 2011 and 3% in 2010. Emerging and developing economies recorded aggregate real GDP growth of 5% in 2012, down from 6¼ % in 2011 and 7½ % in 2010. The growth in world trade slowed more sharply, to 2¾ % in 2012, after 6% in 2011 and 12½ % in 2010. In spite of the fragile global environment, the US economy grew slightly more strongly in 2012. The housing market OECD’s long-term GDP projections Real GDP, at 2005 PPP, annual average % change China India World S Africa US Brazil OECD Euro zone Japan 4 6 8 10 12 0 2 1997–07 2012–20 2020–30 Source: OECD improved signifi cantly through the year and rising sales and prices encouraged a recovery in new housing starts. The labour market also improved, though more fi tfully. During the year, the corporate sector scaled back its investment spending owing to increasing uncertainty about the path of fi scal policy in 2013. This restrained the economy’s growth rate to 2¼ % in 2012. The Federal Reserve responded to the economy’s modest growth rate with the implementation of open- ended quantitative easing (‘QE3’) in the autumn. The European economy weakened signifi cantly in 2012. In the euro zone, real GDP contracted by ½ % following growth of 1½ % in 2011. Economic activity was particularly weak in the heavily indebted countries that are receiving fi nancial help from the EU and the IMF. But there were also signs of more broad-based weakness as Germany and France slowed through 2012. Three factors have undermined growth. First, the debt crisis has signifi cantly increased risk premiums on European fi nancial assets. Second, the banking system remains impaired in many economies. Third, many governments are implementing multi-year fi scal consolidation plans. The Chinese economy slowed abruptly in 2012. Real GDP grew by 7¾ %, following 9¼ % in 2011 and 10½% in 2010. The slowdown extended to the third quarter, refl ecting two main factors. First, there was signifi cant weakness in China’s exports to the US and Europe. Unsurprisingly, in the light of Europe’s problems, China’s exports to the EU fell during 2012. Second, the downturn in the property market undermined domestic demand. The authorities responded to the downturn with modest policy stimulus. Policymakers brought forward some spending on infrastructure and the People’s Bank of China eased monetary conditions with several cuts in its required reserve ratio for large banks. The renminbi depreciated a little, supporting exports. By the end of the year, GDP growth had recovered. Other large emerging economies experienced notably weaker growth in 2012. Concerns about stubborn infl ation and government economic reforms weighed on India’s growth. 04 Anglo American plc Annual Report 2012 We expect a gradual strengthening of economic activity in 2013, with the emerging economies expected to lead the improvement. World trade and industrial production % change, latest three months on previous three months 10 5 0 -5 -10 -15 2005 Trade Industrial production Source: CPB Netherlands 2012 Brazil’s economy was disappointingly weak in spite of looser macro- economic policies and currency depreciation. Industrial unrest added to the weakness of South Africa’s economy late in 2012. PROSPECTS We expect a gradual strengthening of economic activity in 2013. Global GDP growth should be around 3½ %, slightly below the longer term trend rate, with the emerging economies expected to lead the improvement. China’s growth rate is likely to recover to 8% in 2013, as export markets stabilise and domestic demand strengthens. India, Brazil and South Africa should pick up in response to improving external conditions, lower infl ation and looser domestic policy. The recovery will be patchier in the advanced economies. The European Central Bank has headed off the threat of a euro breakdown, removing one of the biggest downside risks. But monetary and fi scal policy settings will not stimulate economic growth. The recovery in Europe looks as though it will be painfully slow in 2013. O v e r v e w i Indexed 2012 commodity prices(1) 0 0 1 = 1 1 0 2 r e b m e c e D , x e d n I e c i r P 140 130 120 110 100 90 80 70 60 50 40 Dec 2011 Feb 2012 Apr 2012 Jun 2012 Aug 2012 Oct 2012 Dec 2012 Iron Ore (FOB Aus) Metallurgical Coal Thermal Coal (1) Monthly average prices Source: Anglo American Commodity Research Copper Nickel Platinum In an increasingly uncertain macro- economic climate, 2012 was a year of commodity price weakness and heightened volatility. of inventories having run its course and even reversed, prices of both began to improve from October, and, by December, iron ore prices were back to December 2011 levels. Thermal coal prices also declined markedly for most of 2012, but began to improve during Q4 following the closure of some US supply and an increase in gas prices. European prices continued to be dampened by coal displaced by gas, while Asian offtake has been muted. Globally, supply cutbacks have been limited and the near term outlook is for continued supply additions from Indonesia, exerting a drag effect on any price recovery. In 2013, the easing of macroeconomic policy globally, renewed infrastructure spending in China and stronger manufacturing output should help support commodity demand growth. Coupled with price-induced project deferral (constrained capex) and supply curtailments, this should tighten markets, thereby providing some price support where there have been recent lows. This expectation is supported by the analysts’ consensus, which forecasts 2013 average prices above current levels for most of Anglo American’s key commodities. The platinum price increased by 8% during 2012, with higher prices refl ecting not only the support provided by South African supply disruptions, but also the relatively poor platinum pricing environment seen in late 2011. The price moved sharply upwards in both the fi rst and third quarters of 2012, in response to industrial action in South Africa, with the resulting losses in output helping to offset the impact of a generally fragile demand environment, most notably in the European auto sector. The copper price also rose by 8%, underpinned by stockpiling of cathodes in Chinese bonded warehouses, which ‘sterilised’ a considerable amount of metal. Estimated global stocks of copper are still well below those of other base metals and also somewhat below ‘normal’ working levels, while visible terminal market stocks are also reasonably low. Investors and speculators have therefore been reluctant to ‘short’ the copper market in the light of the relatively low levels of readily available stocks, the continued mine disruptions and supply under performance. In 2012, the fall in the prices of bulk commodities, notably those used for steel making, was signifi cant. Annual average steel prices were down by 16% (HRC FOB Eur). However, 2012 iron ore and hard coking coal prices were 24% and 35% lower respectively, while molybdenum, which is also used in steels, was down by 17%. The slowdown in Chinese demand, which has been magnifi ed by destocking activity, has been a principal factor in these markets and, with the run-down Anglo American plc Annual Report 2012 05 The US economy also faces a more challenging domestic policy environment. The recent debate about the ‘fi scal cliff’ has exposed the absence of a credible medium term plan to reduce the US’ federal budget defi cit and arrest the rise in debt. In coming years, US policymakers will have to balance the need for signifi cant fi scal retrenchment against providing support for economic activity in the short term. This implies a prolonged period of monetary accommodation from the Federal Reserve and sustained dollar weakness. In the medium term, we expect the US to return to its underlying trend growth of around 2½ –3% a year. Europe’s growth rate will remain more anaemic. But economic growth should remain more robust in the main emerging economies. There is considerable scope for further catch-up growth, especially in China and India. But China’s increasing scale implies the new leadership must implement reforms to rebalance growth gradually away from investment towards consumption. The next stage of the country’s urbanisation will take place in the western inland provinces, while growth in coastal provinces should slow modestly in the medium term. COMMODITY MARKETS In an increasingly uncertain macro- economic climate, 2012 was a year of commodity price weakness and heightened volatility. Average annual prices were down for all of Anglo American’s key commodities, with falls ranging from 10% for copper to 35% for hard coking coal. Price weakness in 2012 was a continuation of a trend that emerged in the second half of 2011. Although annual average prices were down across the Group’s portfolio, a number of commodities spent much of the year at prices equal to or above those seen in December 2011. In this respect there was a marked contrast in performance between the precious and base metals and the bulk commodities, with platinum and copper trading above December 2011 price levels for much of 2012, while bulk commodity prices weakened materially. OVERVIEW MARKETPLACE WELL PLACED FOR ALL STAGES OF THE ECONOMIC CYCLE Anglo American’s current portfolio is uniquely diversifi ed, with material exposure to commodities that are key to the continued early-stage industrialisation of emerging economies, such as metallurgical coal and iron ore, as well as having exposure to mid- and late-cycle commodities, such as copper, nickel, platinum and diamonds. Over the past decade, China and other emerging economies have experienced an unprecedented phase of industrialisation and urbanisation. In spite of the current challenging global economic environment, this growth is set to continue. As the populations of the cities in these emerging economies grow, so too do their incomes and desire to spend. EARLY STAGE Creating the building blocks of the urban environment As economies start to develop and grow there is a need to expand infrastructure, construct residential and commercial buildings and build port capacity for the inevitable rise in import and export activity. 60 % INCREASE IN GLOBAL INFRASTRUCTURE SPEND REQUIRED BY 2030 IRON ORE THERMAL COAL METALLURGICAL COAL MANGANESE Lower GDP/capita 600 GW OF THERMAL COAL POWER GENERATION CAPACITY TO BE ADDED BY CHINA OVER NEXT 17 YEARS 70% OF CHINESE POPULATION EXPECTED TO LIVE IN URBAN AREAS BY 2030 VS. C. 50% TODAY Sources: NBS, UN, McKinsey Global Institute, FAO, NDRC, ICA, De Beers 06 Anglo American plc Annual Report 2012 O v e r v e w i MID STAGE The rise of the consuming class As developing economies mature, populations move to cities and start to enjoy a higher disposable income and a more comfortable standard of living. Households purchase ‘white goods’ and mobile phone communication becomes widespread. Diets shift from being grain based to being high in protein. LATE STAGE Aspiring to an affl uent lifestyle As purchasing power increases, so too does the appetite for ‘luxury’ goods and services, including cars, jewellery, advanced technological goods and travelling for leisure. 7,000 31 % METRO LINES WILL BE BUILT IN 40 CHINESE CITIES BY 2040, WITH EACH KM REQUIRING 107 TONNES OF COPPER FIRST-TIME BRIDES IN CHINA WHO RECEIVE A DIAMOND ENGAGEMENT RING – A CAGR* OF ALMOST 24% IN 16 YEARS COPPER NICKEL PGMs NIOBIUM PHOSPHATES DIAMONDS 1 billion 40 Mt PEOPLE WHO ARE EXPECTED TO ENTER THE GLOBAL ‘CONSUMING CLASS’ BY 2025 OF EXPECTED FERTILISER NUTRIENT DEMAND GROWTH (C. 23%) OVER THE NEXT DECADE AS DIETS CHANGE IN EMERGING ECONOMIES 1.7 billion GLOBAL CAR FLEET TO DOUBLE TO 1.7 BILLION BY 2030 Higher GDP/capita 60 million HOUSEHOLDS IN EMERGING ECONOMIES EXPECTED TO BE IN THE HIGH INCOME BRACKET (>$70,000 PA) BY 2025 * Compound Annual Growth Rate Anglo American plc Annual Report 2012 07 OVERVIEW OUR STRATEGY AND BUSINESS MODEL OUR STRATEGY AND BUSINESS MODEL INVESTING World class assets in the most attractive commodities ORGANISING Effi ciently and effectively BECOMING THE LEADING MINING COMPANY OPERATING Safely, sustainably and responsibly EMPLOYING The best people Anglo American aims to become 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 through a resolute commitment to the highest standards of safe and sustainable mining. As our business model illustrates, mining is only part of the story. Our sector-leading exploration teams strive to fi nd the resources we will mine in the future and we engage with a broad range of stakeholders – from governments to local communities and NGOs – to secure our right to mine those resources. Many of the commodities we mine are processed and refi ned further before we apply our market knowledge to deliver a quality product our customers value. We believe we can achieve our aim of becoming the leading global mining company through our four strategic elements: Investing in world class assets in those commodities that we believe deliver the best returns through the economic cycle and over the long term – namely, iron ore, metallurgical coal, thermal coal, copper, nickel, platinum and diamonds. Organising effi ciently and effectively to outperform our competition throughout our value chain. Operating safely, sustainably and responsibly, in the belief not only that this is fundamental to our licence to operate, but also that this is an increasingly important source of competitive advantage. The safety of our people is our key core value and we are relentless in striving to achieve our goal of zero harm. Employing the best people. We recognise that attracting, developing and retaining the best talent is essential to achieving our ambition. Our strategic elements are put into action across our business model. 08 Anglo American plc Annual Report 2012 FIND SECURE Our exploration teams discover ore deposits in a safe and responsible way to replenish the reserves that underpin our future success. Gaining and maintaining our social and legal licence to operate, through open and honest engagement with our stakeholders, is critical to the sustainability of our business. OPERATING INVESTING The LT-SQUID has been employed by our fi eld teams to help search for so-called blind deposits that have no visible expression on the ground surface. It has revolutionised how we look at and model the picture beneath the ground surface, particularly at depth. Go to page 41 for more information on this story During the year, outstanding injunctions were lifted at our Minas-Rio iron ore project in Brazil. Following a detailed review, capital expenditure has increased to $8.8 billion and fi rst ore on ship is expected at the end of 2014. Go to page 58 for more information on this story OPERATING Securing our licence to build and operate a mine depends on winning the trust of many stakeholders. We participated in an extensive, structured ‘dialogue table’ with local and national stakeholders in our Quellaveco copper project in Peru, which helped us to reach agreement with the local community and regional government to develop the project. Go to page 22 for more information on this story O v e r v e w i MINE PROCESS MOVE SELL We apply more than 95 years of opencast and deep-level mining experience along with unique in-house technological expertise to extract mineral resources in the safest, most effi cient way. We generate extra value by processing and refi ning many of our commodities. Whether providing innovative haulage solutions within a mine, or coordinating global cargo deliveries, we offer effi cient and effective transport of our commodities. We collaborate with our customers around the world to tailor products to their specifi c needs. INVESTING ORGANISING ORGANISING ORGANISING Our Kolomela mine, commissioned fi ve months ahead of schedule in 2011, produced 8.5 Mt of iron ore in 2012, above expectations of 4–5 Mt. Go to page 14 for more information on this story EMPLOYING The technical team at our Phosphates business proposed an innovative solution to re-use phosphate waste in the fertiliser production process. The technique was put into full- scale production during 2012, with 40% of phosphate waste being re-used in the year, resulting in lower production costs and a signifi cant environmental benefi t. Go to page 87 for more information on this story In September 2012, our recently installed fl exible conveyor train produced 116,708 tonnes of thermal coal at Greenside mine, achieving the highest monthly coal output ever recorded outside the US. Go to page 36 for more information on this story During 2012, we opened our new sales and marketing hub in Singapore, enabling us to be closer to our customers in the Asia-Pacifi c market and be more agile and responsive to their needs. Go to page 18 for more information on this story OPERATING OPERATING Our Nickel business is addressing the shortage of qualifi ed people at its operations in Brazil by tailoring a trainee graduate programme to develop the businesses engineers and leaders of the future. On successful completion of the programme, the trainees will be ready to start their career at Anglo American. Go to page 73 for more information on this story Following completion of the Los Bronces expansion in Chile, our Copper business implemented a water recirculation system to help reduce the water requirement in an already stretched catchment area. Go to page 69 for more information on this story Working with the aerospace industry, Sishen developed a unique collision avoidance system for mining vehicles, dramatically reducing the number of vehicle-related accidents at the mine. Go to page 55 for more information on this story Anglo American plc Annual Report 2012 09 OVERVIEW CHIEF EXECUTIVE’S STATEMENT CHIEF EXECUTIVE’S STATEMENT Cynthia Carroll UNDERLYING OPERATING PROFIT (2011: $11.1 bn) $6.2 bn For more information turn to page 42 FINAL DIVIDEND PER SHARE (2011: 46 cents) 53 cents As a result of markedly weaker commodity prices, ongoing cost pressures and an operating loss in our Platinum business, Anglo American reported an underlying operating profi t of $6.2 billion, a 44% decrease. Underlying EBITDA decreased by 35% to $8.7 billion and underlying earnings decreased by 54% to $2.8 billion. Our safety performance has always been my fi rst priority and our efforts continue to build on the progress we have made since 2006, both in terms of lives lost and lost time injuries sustained. I am deeply saddened that 13 of our colleagues lost their lives in 2012 – a constant reminder that we must persevere to achieve zero harm. Anglo American continued its drive for strong operational performance throughout 2012 in an environment of tough macroeconomic headwinds and a number of industry-wide and company-specifi c challenges. Record volumes of metallurgical coal, achieving benchmark equipment performance levels, and of iron ore and increased volumes of export thermal coal and copper helped offset the impact of illegal industrial action, declining grades and higher waste stripping. The new mining operations and expansions delivered and commissioned during 2011 contributed to production growth and generated $1.2 billion of underlying operating profi t. The Los Bronces expansion contributed 196,100 tonnes of copper in 2012 and has achieved full ramp up since August 2012, while Kumba’s Kolomela mine exceeded expectations by producing 8.5 million tonnes for the year – both considerable achievements – while we have been slowly ramping up Barro Alto. Beyond organic growth, we have completed our acquisition of the Oppenheimer family’s 40% interest in De Beers, taking our holding to 85%. In Chile, our joint ownership of Anglo American Sur (AA Sur) with Codelco, Mitsubishi and Mitsui, while we retain control of the business, fi rmly aligns our interests in one of the most exciting producing and prospective copper orebodies in the world – the Los Bronces district. During the year, we also increased our shareholding in 10 Anglo American plc Annual Report 2012 01 The new mining operations and expansions delivered and commissioned during 2011 contributed to production growth and generated $1.2 billion of underlying operating profi t. Kumba Iron Ore, lifting our ownership by 4.5% to 69.7%, refl ecting our view on the quality of the business and its highly attractive performance and growth profi le. Our divestment programme has generated proceeds as announced of $4 billion on a debt and cash free basis, which excludes $7.4 billion cash generated from the sale of 49.9% of AA Sur. In line with our divestment programme of non-core businesses as set out in October 2009, I am delighted that Tarmac’s UK joint venture with Lafarge was completed in January 2013, creating a leading UK construction materials company with signifi cant synergies expected. We are focused on delivering shareholder value and returns through the cycle by maintaining a prudent and disciplined approach to managing our businesses and capital allocation. Despite the macroeconomic headwinds and likely sustained higher capital and operating cost environment for the industry, we are committed to returning cash to shareholders and have recommended an increase to our fi nal dividend of 15% to 53 cents per share, bringing total dividends for the year to 85 cents per share, a 15% 01 At Thermal coal’s 02 Cleaning copper anodes in the tank house at Los Bronces in Chile. Highveld hospital in Mpumalanga province in South Africa, Sister Evah Molefe takes a sputum sample to test for TB from Kleinkopje colliery plant operator Sipho Mhlabane. 04 Specialist asset strategy engineer Sylvester Hennessy monitoring data at Metallurgical Coal’s offi ces in Brisbane, Australia. 03 As part of the Board’s visit to Minas-Rio in October, the directors visited the CRCA (Cultural and Environment Centre), which houses specialist information in the fi elds of archaeology, biodiversity and water. O v e r v e w i Together with the safety and well-being of employees, our primary sustainability issues are adapting to climate change, securing access to water and energy, and managing relationships with stakeholders, particularly communities. During 2012, we made good progress implementing our long term water and energy strategies. To date, more than 70% of our operational water requirements are met by recycling/re-using water. 03 In support of our commitments to protect and enhance the health of our people, contractors and communities, we are extending our industry-leading health and wellness programmes, which include HIV/AIDS and TB treatment and care, to long term contract employees in South Africa. 02 04 In Platinum, we completed our review and have put forward proposals to create a sustainable, competitive and profi table business. increase. This refl ects our confi dence in the underlying business and completes the reinstatement journey to rebase our dividends to be competitive with our diversifi ed peers. We recorded impairments totalling $4.6 billion (post-tax) in relation to Minas-Rio and a number of platinum projects that are uneconomical, which is disappointing. In Platinum, we completed our review in January 2013 and have put forward proposals to create a sustainable, competitive and profi table business. We, of course, regret the potential impact on jobs and communities and have designed an extensive social plan to more than offset any such impact. In Brazil, Minas-Rio is a world class iron ore project of rare magnitude and quality, representing one of the world’s largest undeveloped resources. The published resource has increased more than fourfold since acquisition, of which we have subsequently converted 1.45 billion tonnes to Ore Reserves; we anticipate increases in the resource confi dence and further conversion of resources to reserves through our ongoing infi ll drilling programme. Despite the diffi culties we have faced that have caused a signifi cant increase in capital expenditure, we continue to be confi dent of the medium and long term attractiveness and strategic positioning of Minas-Rio and we remain committed to the project. The fi rst phase of the project will begin its ramp up at the end of 2014, with operating costs expected to be highly competitive in the fi rst quartile of the FOB cash cost curve, generating signifi cant free cash fl ow for many decades to come. We continue to sequence investment by prioritising capital to commodities with the most attractive market dynamics and projects with the lowest execution risks. The 5 Mtpa Grosvenor metallurgical coal project in Australia is under way and on schedule while, in Peru, successful completion of our community dialogue process at the Quellaveco copper project will allow us to target submission to the Board for approval in 2013. 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. Looking ahead, recent months have brought a degree of renewed optimism to the economic prospects. While European and Japanese economic activity remains weak, recent policy changes ought to stimulate growth in 2013. Alongside a continuing recovery in the US, we expect robust growth in the major emerging economies – especially China and India – as they benefi t from continuing urbanisation. Rising living standards and an expanding middle class should support demand for our products across our diversifi ed mix. I step down from my role as chief executive after six years knowing that Anglo American is a safer place to work, with a clear strategy and a much changed culture of performance. There is no doubt in my mind that Anglo American’s people and asset base are unmatched in the industry and I wish my successor, Mark Cutifani, every success in leading this great company. I sincerely thank the Board of directors, my executive management team and all our employees for their support and relentless effort since 2007. Cynthia Carroll Chief Executive Anglo American plc Annual Report 2012 11 OPERATING AND FINANCIAL REVIEW KEY PERFORMANCE INDICATORS MEASUREMENT AND TARGETS Strategic elements KPI targets INVESTING In world class assets in the most attractive commodities Turn to page 14 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 ORGANISING Effi ciently and effectively Turn to page 18 Return on capital employed (ROCE) Total underlying operating profi t before impairments for the year divided by the average total capital less other investments and adjusted for impairments In two vital areas of our business – asset optimisation (AO) and supply chain – we have beaten our own expectations. By the end of 2011, we had exceeded our targets for both AO and supply chain, each of which delivered more than $1 billion from core businesses since 2009. As a result, we no longer report against Group-wide AO and supply chain targets Underlying earnings per share Underlying earnings are net profi t attributable to equity shareholders, before special items and remeasurements We do, however, continue to deliver on both programmes and examples of how our operations are achieving and surpassing ‘industry benchmark’ performance are detailed throughout this report. Further details on the AO and supply chain functions can be found on pages 18–21 OPERATING(1) Safely, sustainably and responsibly Turn to page 22 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 Total water use Total water use includes only water used for primary activities, measured in million m3 Corporate social investment Social investment as defi ned 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 profi t before tax Enterprise development Number of companies supported and number of jobs sustained by companies supported by Anglo American enterprise development initiatives Voluntary HIV counselling and testing (VCT)(2) Percentage of employees in southern Africa undertaking voluntary annual HIV tests with compulsory counselling and support EMPLOYING(1) The best people Turn to page 32 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 (1) With the exception of corporate social investment, which includes the results of De Beers from the date of acquisition, the results and targets for the Operating and Employing strategic elements include wholly owned subsidiaries and joint ventures over which Anglo American has management control, and does not include De Beers or other major non-managed operations such as Collahuasi, Cerrejón and Samancor. In addition, results for the Employing strategic element exclude OMI – non-core operations. (2) 2012 HIV/AIDS statistics exclude Scaw Metals South Africa. 12 Anglo American plc Annual Report 2012 Results and targets Return on capital employed (ROCE) Underlying earnings per share Capital projects and investment 2012 2011 13.3% 26.5% 2012 2011 $2.26 $5.06 For a summary of the Group’s capital projects and investments turn to pages 14–17 Total shareholder return (TSR) Please refer to the Remuneration report turn to pages 108–127 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 Work-related fatal injury frequency rate (FIFR) Target: Zero fatal incidents 2012 2011 13 fatalities, 0.008 FIFR Energy consumption Corporate social investment(3) 2012 2011 108 million GJ total energy used 102 million GJ total energy used 2012 2011 $154m, 3% of profit before tax $129m, 1% of profit before tax 17 fatalities, 0.009 FIFR GHG emissions Lost-time injury frequency rate (LTIFR) Target: Zero incidents – the ultimate goal of zero harm remains 2012 2011 18 Mt CO2 equivalent 19 Mt CO2 equivalent 2012 2011 0.60 0.64 Total water use Target: Under revision 2012 2011 122 Mm3 115 Mm3 Voluntary labour turnover Gender diversity 2012 2011 2.4% 3.0% 2012 2011 15% females 23% female managers 15% females 22% female managers (3) CSI expenditure for 2011 was restated from $122 million to $129 million due to increased expenditure reported by Kumba following publication of the 2011 Anglo American Annual Report. Enterprise development Target: Businesses supported: 3,500 Jobs sustained: 18,000 2012 2011 17,598 businesses supported 64,927 jobs sustained 38,681 businesses supported 47,070 jobs sustained Voluntary HIV counselling and testing (VCT) Target: Over 90% of employees in high disease burden countries 2012 2011 82% 92% Anglo American plc Annual Report 2012 13 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION STRATEGIC ELEMENT: Investing in world class assets and the most attractive commodities SURPASSING STANDARDS WITH THE FUTURE IN MIND 14 Anglo American plc Annual Report 2012 We have a clear strategy of deploying capital in those commodities with strong fundamentals and the most attractive risk-return profi les that deliver long term, through-the-cycle returns for our shareholders. 718 HOMES ARE BEING BUILT TO ACCOMMODATE KOLOMELA’S EMPLOYEES. BY THE END OF 2012, 615 HAD BEEN COMPLETED, WITH THE REMAINDER DUE BY Q2 2013. EXCEEDING EXPECTATIONS Kumba’s Kolomela mine, which was brought into production fi ve months ahead of schedule in December 2011, is a key element of our South African iron ore growth strategy. Although, initially the operation was expected to ramp up through 2012 to produce between 4 and 5 Mt of saleable product, it surpassed expectations to achieve design capacity by the third quarter, shipping 8.5 Mt of iron ore to customers in the year. Safety performance at Kolomela has been outstanding; the project and operations achieved a combined 29 million man hours, without a fatal incident or lost-time injury between March 2010 and October 2012, setting a new benchmark for the Group and for projects of this nature in South Africa. 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 IRON ORE PRODUCTION FOR KUMBA (MT) 70 Mtpa Kumba plans to grow organically to achieve production of 70 Mtpa from South Africa. 70.0 41.9 43.4 41.3 43.1 02 2009 2010 2011 2012 Target “Kumba is studying opportunities to expand Kolomela’s production through a benefi ciation process, which could add a further 6 Mtpa of production.” Norman Mbazima CEO, Kumba Iron Ore 63.7% Fe AVERAGE GRADE OF UNBENEFICIATED ORE – KOLOMELA. Main Fitter Martha Zenda at Kolomela iron ore plant’s load-out station feed conveyor. The conveyor transfers iron ore from the stacker reclaimer yard to bins which feed the Sishen-Saldanha export rail system. 01 The Kumba/ Kolomela rail loading facility is designed to transfer iron ore rapidly to rail wagons on the export rail system. 02 Maintenance operator Mattieus Dikwidi at the Kolomela plant. Anglo American plc Annual Report 2012 15 “It is such occasions as today, the opening of a new mine, the creation of new economic activity and jobs which makes one proud and emphasises the importance of mining in our country.” Susan Shabangu South Africa’s Minister of Mineral Resources c. 85% OF PERMANENT EMPLOYEES ARE FROM THE NORTHERN CAPE PROVINCE, VERSUS A TARGET OF 75%. OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION STRATEGIC ELEMENT: Investing in world class assets and the most attractive commodities PROJECT DELIVERY TO CONTINUE TO DRIVE HIGH QUALITY PRODUCTION GROWTH The Group’s extensive portfolio of undeveloped world class resources and pipeline of growth opportunities spans our chosen core commodities. IN BRIEF • Cerrejón P40 8 Mtpa export thermal coal expansion in Colombia – fi rst coal in 2013. • Minas-Rio 26.5 Mtpa iron ore project in Brazil – injunctions lifted and fi rst ore on ship (FOOS) end of 2014. • Grosvenor 5 Mtpa metallurgical coal project in Australia – longwall production in 2016. CAPEX: 4 strategic growth projects $ bn 2012 2011 2010 1.7 2.4 2.3 CAPEX: Other projects $ bn 2012 2011 2010 1.3 1.0 1.0 CAPEX: Stay in business $ bn 2012 2011 2010 2.7 2.4 1.7 The Group’s extensive portfolio of undeveloped world class resources and pipeline of growth options span its chosen core commodities. It offers the Group fl exibility to sequence investment in line with the Group’s view of market dynamics and the geopolitical environment. Capital is prioritised to maximise value accretion while minimising risk exposure, taking into consideration the Group’s resulting funding capacity. We have a number of projects in the execution phase and are progressing with the development of other growth projects, including the 225,000 tonnes per annum (tpa) Quellaveco greenfi eld copper project in Peru. The Minas-Rio iron ore project in Brazil is expected to capture a signifi cant part of the pellet feed market with its premium product featuring high iron content and low contaminants. Phase 1 of the Minas-Rio project is expected to produce 26.5 million tonnes per annum (Mtpa), with potential optimisation to 29.8 Mtpa. During the year Anglo American completed a detailed cost and schedule review of the project. The review included third party input and examined the outstanding capital expenditure requirements in light of current development progress and the disruptive challenges faced by the project. The review included a detailed re-evaluation of all aspects of the outstanding schedule, with a focus on maximising value and mitigating risk. Following completion of the review, estimated capital expenditure for the Minas-Rio project increased to $8.8 billion, if a centrally held risk contingency of $600 million is utilised in full. On the basis of the revised capital expenditure requirements and assessment of the full potential of Phase 1 of the project (excluding at this stage the potential for future expansions up to 90 Mtpa), Anglo American will record an impairment charge of $4 billion at 31 December 2012, on a post-tax basis. The fi rst phase of the project will begin its ramp up at the end of 2014. The published resource has increased more than fourfold since acquisition to 5.77 billion tonnes in 2011, of which we have recently converted 1.45 billion tonnes to Ore Reserves. We anticipate increases in the resource confi dence and further conversion of resources to reserves through our ongoing infi ll drilling programme. In Colombia, the brownfi eld expansion project, P40, aims to increase value by increasing export thermal coal production capacity by 8 Mtpa to 40 Mtpa (100% basis), through additional mining equipment and the debottlenecking of key logistics infrastructure along the coal chain. The project was approved by Cerrejón’s shareholders in the third quarter of 2011. The project is progressing well and is expected to be delivered on schedule, with fi rst coal expected in 2013. The greenfi eld Grosvenor metallurgical coal 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 high quality metallurgical coal from its underground longwall operation over a projected life of 26 years and to benefi t from operating costs in the lower half of the cost curve. Grosvenor forms a major part of the Group’s strategy of tripling hard coking coal production from its Australian assets, using a standard longwall and coal handling and preparation plant (CHPP) design. In its fi rst phase of development, Grosvenor will consist of a single new underground longwall mine, targeting the same well understood Goonyella Middle coal seam as Moranbah North, and will process its coal through the existing Moranbah North CHPP and train loading facilities. The Grosvenor project is currently in execution, with engineering work progressing to plan, construction under way and longwall 16 Anglo American plc Annual Report 2012 benefi ting from attractive ore grades, low waste stripping and molybdenum by-product production. Anglo American completed the feasibility study for the project in late 2010, and took the decision to suspend progress in order to engage more actively with the local communities through a formal dialogue table process, following requests from local stakeholders. The dialogue process reached agreement in early July 2012 in relation to water usage, environmental responsibility and Anglo American’s social contribution over the life of the mine, and has been held as a model for stakeholder engagement in Peru. The project received three critical permits during the fourth quarter of 2012 and Anglo American is targeting submission to the Board for approval in 2013. production targeted to begin in 2016. A pre-feasibility study for expansion by adding a second longwall at Grosvenor is under way. Quellaveco is a greenfi eld copper project in the Moquegua region of southern Peru that has the potential to produce 225,000 tpa of copper from an open pit over a mine life of approximately 28 years. The project is expected to operate in the lower half of the cash operating cost curve, SELECTED MAJOR PROJECTS Approved 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 Sector Project Iron Ore and Manganese Minas-Rio Phase 1 Metallurgical Coal Thermal Coal Copper Platinum Diamonds Groote Eylandt Expansion Project Grosvenor Phase 1 Cerrejón P40 Collahuasi expansion Phase 2 Mantoverde desalination plant Twickenham Bathopele Phase 4 Bathopele Phase 5 Jwaneng – Cut-8 Venetia U/G Other Mining and Industrial – Core Boa Vista Fresh Rock Unapproved Sector Iron Ore and Manganese Metallurgical Coal Thermal Coal Copper Nickel Platinum Project Kolomela Expansion Sishen Lower Grade Sishen Concentrates (Phase 1) Minas-Rio Phase 1 AO Minas-Rio Expansion Moranbah South Grosvenor Phase 2 Drayton South New Largo Elders Multi-product Mafube Quellaveco Michiquillay Collahuasi Expansion Phase 3 Pebble Los Bronces District/Los Sulfatos Jacaré Morro Sem Boné Tumela Central Shaft Country Brazil Australia Australia Colombia Chile Chile South Africa South Africa South Africa Botswana South Africa Brazil Country South Africa South Africa South Africa Brazil Brazil Australia Australia Australia South Africa South Africa South Africa Peru Peru Chile USA Chile Brazil Brazil South Africa Mogalakwena NC Debottlenecking South Africa Mogalakwena Expansion Phase 2 South Africa Diamonds Gahcho Kué(10) Other Mining and Industrial – Core Goiás II Canada Brazil Greenfi eld (G)/ Brownfi eld (B) First production date Full production date G B G B B B G B B B B B 2014 2013 2014 2013 2013 2013 2016 2013 2013 2016 2021 2014 2016 2013 2016 2015 2014 2013 2021 2013 2017 2018(4) 2024 2015 Greenfi eld (G)/ Brownfi eld (B) B B B B B G B B G G B G G B G B/G G G B B B G B Capex $ bn(1) Production volume(2) 8.8(3) 26.5 Mtpa iron ore <1 <2 <2 <1 <1 <2 <1 <1 3(5) <3 <1(6) 0.6 Mtpa manganese ore 5.0 Mtpa metallurgical 8.0 Mtpa thermal 20 ktpa copper To sustain current copper production plans 180 kozpa refi ned platinum 65 kozpa refi ned platinum 139 kozpa refi ned platinum approx. 10 million carats pa approx. 4 million carats pa 6.5 ktpa total niobium production Indicative production volume(2) 6.0 Mtpa iron ore 6.0 Mtpa iron ore 1.1 Mtpa iron ore 3.3 Mtpa iron ore TBD 12.0 Mtpa metallurgical 6.0 Mtpa metallurgical 4.0 Mtpa export thermal 11.0 Mtpa thermal 3.1 Mtpa thermal 4.3 Mtpa thermal 225 ktpa copper 222 ktpa copper(7) 469 ktpa copper 187 ktpa copper(8) TBD(9) TBD TBD 128 kozpa refi ned platinum 70 kozpa refi ned platinum TBD 4.5 million carats pa 1.4 Mtpa phosphates concentrate (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) 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. (4) Waste stripping at Cut-8, an extension to Jwaneng mine, began in 2010. Carat recovery will commence in 2016, with Cut-8 becoming the main ore source for Jwaneng from 2018. (5) Infrastructure expenditure of approximately $450 million has already been spent. Project expenditure, including infrastructure expenditure, is likely to total approximately $3 billion and is anticipated to create access to 95 million carats over the life of the mine. (6) An extension to mine life by mining the unweathered ore after oxides have been depleted. New processing plant (from crushing to leaching) required. (7) Expansion potential to 300 ktpa. (8) Pebble will produce molybdenum and gold by-products. Other copper projects will produce molybdenum and silver by-products. (9) Projected underground mine. (10) Gahcho Kué has received De Beers board approval subject to completion of the permitting process and receipt of certain regulatory clearances. Anglo American plc Annual Report 2012 17 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION STRATEGIC ELEMENT: Organising effi ciently and effectively LIFTING PERFORMANCE WITH THE FUTURE IN MIND 18 Anglo American plc Annual Report 2012 We organise our business effi ciently and effectively to outperform our competition throughout our value chain. DRIVING VALUE THROUGH COMMERCIAL EXCELLENCE During 2012, we introduced a more globally coordinated and strategic approach to the way we manage our commercial activities, aimed at delivering substantial additional value for the Group. A key element of the new approach is the location of business units’ export sales and marketing activities in Singapore and London, to enable us to be closer to our customers in the Asia-Pacifi c and European markets, and be more agile and responsive to their needs. The new Singapore hub opened in July 2012, with Metallurgical Coal, Thermal Coal and Platinum establishing a base there during the year and others, including Iron Ore and Copper, following in 2013. New global competence centres will also support value creation by driving excellence and innovation in areas such as logistics, shipping and market intelligence. For instance, all our global shipping activities have now been consolidated into a single freight book, with an increasing proportion of cargo deliveries arranged by us rather than the buyer. Consolidating our freight book improves our purchasing power and enables us to be more effi cient in managing shipments through our loading facilities. Sharing vessels and coordinating deliveries will also make better use of global shipping routes, reducing freight costs and turnaround times. 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 50 Mt GROUP’S FREIGHT PORTFOLIO TARGET BY 2015. 2012 REVENUE GENERATED BY CUSTOMERS IN CHINA(1) $5.9 bn $5.1 bn $3.5 bn $6.4 bn $5.9 bn 2009 2012 (1) The Group’s revenue including attributable share of revenue from associates. 2010 2011 “This new approach brings us closer to our customers, enabling us to be more responsive to their needs. We can also create signifi cant additional commercial value by coordinating our approach globally, improving our product mix, enhancing our logistics, and using more sophisticated marketing tools and techniques.” Dr Alexander Schmitt Group Head,Commercial Coordination 02 01 Main and 02 The recently opened Anglo American sales and marketing hub, in Singapore. 01 Iron ore from Kumba’s Sishen mine, 861 kilometres away, is transferred from rail wagons at the dedicated export port of Saldanha on South Africa’s Atlantic coast. c.57 Mt YEAR-ON-YEAR INCREASE IN IRON ORE IMPORTS TO CHINA IN 2012. 574 vessels IRON ORE VESSELS INTO QINGDAO PORT, CHINA IN 2012. Source: MySteel and Anglo American data Anglo American plc Annual Report 2012 19 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION STRATEGIC ELEMENT: Organising effi ciently and effectively EMBEDDING OPERATIONAL EXCELLENCE GROUPWIDE ASSET OPTIMISATION We continue to deliver on our asset optimisation (AO) programme that has been in place since 2009. Having surpassed our $1 billion target set in terms of the sustainable AO benefi ts from core businesses by the end of 2011, we continue to focus on embedding the methodologies, and infl uencing mindsets and behaviours necessary for delivering AO benefi ts across our operations. One of the key features of the AO programme remains 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 identifi cation and prioritisation of business improvement opportunities, in accordance with our technical standards and our commitment to safety and sustainable development. The ORs are a collaborative effort that combine our central technical capability with our operational expertise across the Group, thereby creating teams that are able to identify value improvement opportunities and share leading practices across the Group’s entire mining value chain, which includes the resource, mine, plant and product. During 2012, ORs were conducted at Collahuasi (Copper joint venture); Mantos Blancos (Copper); Bathopele/Waterval UG2 Concentrator and Precious Metal Refi nery (Platinum); Bokoni (Platinum joint venture); Orapa, Letlhakane and Damtshaa mines (De Beers); and our Phosphates business. A prominent element of the AO programme is to embed business improvement knowledge and skills within the business. This is being achieved through our AO change management programme, which encompasses skills development and sharing of key learnings, practices, and case studies through dedicated internal communication channels. We continue to develop our employees’ business improvement skills and have trained approximately 1,300 people through the Group’s central AO Academy. As we continue to equip our people with the necessary skills and tools to advance business improvement, we are also creating unifying systems and frameworks that will result in improved operational performance. We are currently developing an Operational Excellence Framework (OEF), the purpose of which is to provide a clear and consistent reference for how we operate and maximise the value proposition for Anglo American. The OEF focuses on those priority areas that are fundamental to driving operational performance, bringing together, and ensuring consistent application of all the relevant standards and processes to support the operations. We continue to develop our employees’ business improvement skills and have trained approximately 1,300 people through our central AO Academy. Supporting operational excellence are the Resource to Market (R2M) optimisation and Group Benchmarking programmes. The objective of the R2M programme is to integrate planning and execution across the mining value chain. This ensures that an operation is managed with an understanding of how decisions made are likely to impact other parts of the value chain. During 2012, R2M was launched at Copper’s Los Bronces mine in Chile and Platinum’s Mogalakwena mine in South Africa and has delivered improved performance and enhanced mining fl exibility. As an example of specifi c improvements, blasted rock stock and average tonnage per blast have increased substantially at Los Bronces, leading to reduced congestion at the mine. In 2012, we launched the fi rst phase of our Group Benchmarking Tool. The tool aims to deliver a platform that provides a single and validated source for benchmarking information in Anglo American. The fi rst phase of the project delivered KPIs for equipment effi ciency in opencast mines. The next phase, planned for completion by end of 2013, will include additional KPIs for opencast benchmarking as well as the launch of underground and metallurgical benchmarking information. 20 Anglo American plc Annual Report 2012 SUPPLY CHAIN Supplier partnerships Our relationships with suppliers have been strengthened considerably in recent years. These relationships have resulted in minimised lead times for major equipment delivery and have mitigated infl ationary pressure and supply risk to our operations. Supply Chain is working with key suppliers in each region as part of our ‘Top 40’ initiative to identify additional savings, waste elimination opportunities and to minimise cost infl ation through 2013. Proactive reviews of equipment and services on our operations have led to the identifi cation of savings opportunities and are delivering total cost of ownership (TCO) benefi ts across the business units. Framework agreements are now in place with 33 key suppliers, representing a formal alignment in our commercial relationships. These agreements are critical in the current market as they provide the platform for value creation and greater transparency of cost, demand and capacity. Regional gross expenditure 2012 % of total expenditure South Africa Australia Chile Brazil Other 45% 18% 20% 15% 2% Sustainable and responsible supply chain Local procurement Anglo American’s procurement spend on goods and services represents a signifi cant development opportunity. Expenditure on suppliers based in the host communities close to our operations was $1.5 billion. We proactively design local procurement initiatives to optimise opportunities to integrate local businesses into our global supply chain. In doing so, we believe we can make a signifi cant socioeconomic contribution to our host communities, as well as effi ciencies in our supply chain by lowering logistics costs and securing access to critical goods and services. Anglo American’s Group-wide local procurement policy, launched in 2010, is now embedded in all our operations. During the year, all operations made progress in developing their local procurement strategies and are now measuring and reporting local spend. In making sourcing decisions, however, we also need to ensure that we remain competitive. Sourcing from countries where we do not operate is sometimes essential if the products are not available locally. China is a key customer and strategic business partner and we have a sourcing strategy to build long term, valuable relationships with Chinese suppliers. This includes identifying Chinese suppliers from whom local businesses can source and provide maintenance and support services locally. Local procurement is a particular priority in our South African operations, forming an important part of our contribution to the country’s drive to promote black economic empowerment. In 2012, managed businesses spent ZAR 25.8 billion ($3.1 billion), 54% of South African discretionary expenditure, with historically disadvantaged South African businesses (not including goods and services procured from parastatal companies and municipalities). TOTAL COST OF OWNERSHIP IMPROVEMENTS AT PLATINUM O p e r a t i n g a n d fi n a n c a i l r e v e w i The Anglo Converting Process (ACP) uses a rubber hose in its matte feed transfer into the furnace via a submerged steel lance. The value of the product transported through the matte transfer system and hose is $12.5 million per day. Any unplanned downtime, therefore, incurs signifi cant cost to the plant through reduced production, maintenance and overtime costs. The ACP previously made use of standard specialised rubber hoses. These hoses, however, had a lifespan to transport approximately 1,500 tonnes, meaning they had to be replaced 11 times a month on average. Aside from the replacement costs, this had a signifi cant impact on production. A focus team from ACP critically evaluated the hoses, developed alternatives, then approached Dunlop Industrial Products for the supply of the alternative hoses. The ACP focus team, together with Dunlop, were able to develop a fi t-for-purpose ceramic tiled rubber hose. The new hoses are able to transport on average 25,000 tonnes and only need to be replaced once a month, resulting in realised value that has, to date, exceeded expectations. Image Platinum’s ACP plant in Rustenburg, South Africa. For more information, visit www.angloamerican.com Anglo American plc Annual Report 2012 21 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION STRATEGIC ELEMENT: Operating safely, sustainably and responsibly BUILDING RELATIONSHIPS WITH THE FUTURE IN MIND 22 Anglo American plc Annual Report 2012 We believe that operating safely, sustainably and responsibly is not only fundamental to our licence to operate, but is also an increasingly important source of competitive advantage. OPEN DIALOGUE IN PERU In late 2010, our Quellaveco copper project located near Moquegua in southern Peru faced considerable local opposition from communities concerned at what they saw as its potential negative impact, in particular on water availability in a severely water-stressed area. In response, Anglo American agreed to pause the project and to participate in an extensive, structured ‘dialogue table’ with local and national stakeholders, led by the regional president Martín Vizcarra, with a view to addressing community concerns. During 18 months of detailed negotiations, the project team was able to understand the root cause of local worries, address the lack of information about both the environmental safeguards of the project and its multiple potential social and economic benefi ts, and adapt aspects of the project design to increase those benefi ts. The result? Agreement at the dialogue table, broad social and political support for Quellaveco, and Anglo American’s approach held up as best practice for socially responsible mining in Peru. 01 KEY FACTS Reserves and Resources • 916.4 Mt Proved and Probable Reserves (at 0.65% TCu) • 1,092.0 Mt Measured and Indicated Resources (at 0.39% TCu) • Contained copper = 5.9 Mt Dialogue table • Began March 2011 • Ended July 2012 • 22 plenary meetings • 45 sub-committee meetings • 31 organisations participating • A fi nal agreement comprising 26 wide-ranging programmes addressing water, environment and regional development issues OUR QUELLAVECO COPPER PROJECT IS LOCATED IN SOUTHERN PERU 02 “This was a victory for openness, transparency and engagement and all participants in the process are to be congratulated. Together we showed that our project can bring huge benefi ts to Peru and Moquegua. We now need to ensure we deliver on our commitments and continue the work to maintain our licence to operate.” Eduardo Serpa Anglo American’s chief negotiator Lima Cuzco Arequipa Puno Moquegua Tacna 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 Main At our Quellaveco project in Peru, process manager Gonzalo Manrique uses a model of the proposed mine and processing facilities to ‘dialogue table’ representatives from the local Moquegua community. 01 Participants representing local and national stakeholders and Anglo American attend the fi nal meeting of the dialogue table in Moquegua. 02 Selma Fernandes, from our Supply Chain team in Copper, with local procurement analyst Milagros Myrick, at the Quellaveco project’s Moquegua offi ce. Anglo American plc Annual Report 2012 23 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION STRATEGIC ELEMENT: Operating safely, sustainably and responsibly SUSTAINABLE DEVELOPMENT IN EVERYTHING WE DO As a company that exploits a fi nite resource, we aspire to operating our mines in a way that is environmentally responsible, benefi ts host communities and leaves a positive social legacy. MAKING A DIFFERENCE Our aim is always to operate safely, sustainably and responsibly. Making a tangible difference is fundamental to our licence to operate and an important source of competitive advantage. We strive to realise exceptional operational value by embedding sustainable development in everything we do – from our systems, risk processes and procedures, to the way in which we consult and work with our stakeholders. Mining can be a high-risk business – but we do not accept that anyone should be injured while working for us. Safety, therefore, remains our number one priority. As a company that exploits a fi nite resource, we aspire to operating our mines in a way that is environmentally responsible, benefi ts host communities and leaves a positive social legacy. Our strong governance structures relating to sustainable development support this aspiration, providing clear lines of responsibility from the operational level through to the Board. A dedicated global Safety and Sustainable Development Risk and Assurance team provides expert opinion, in conjunction with our internal Anglo American Business Assurance Services, on the adequacy of risk-control measures to ensure that current and emerging risks are effectively controlled. This second- party perspective, together with subject matter expertise (internal and external), enables us to identify critical safety, health, social and environmental improvement opportunities. Sustainable Development is fully integrated within the project management and asset optimisation processes, ensuring that broader sustainability and licence-to- operate issues are duly taken into account in operational and decision making processes. In this section we provide an overview of our management approach and performance relating to social and community activities, safety and health, and environmental performance. Our website www.angloamerican.com provides additional information on our sustainability performance, including a stand-alone sustainability report as well as separate reports from certain of our individual companies and operations. SOCIAL AND COMMUNITY Most of our operations are located in emerging economies, many of which have low levels of socioeconomic development. To ensure a lasting positive social and environmental legacy, we supplement the value generated through our core activities – paying taxes, salaries, and payments to suppliers – with initiatives designed to develop host communities over the long term, many of which are undertaken in partnership with NGOs, communities, and local governments. If we fail to account for our actions and do not engage appropriately with our communities, we risk undermining our reputation and jeopardising our licence to develop and operate projects. The relative importance of labour relations and local economic development activities has grown, as witnessed by the industrial action in South Africa’s mining industry in the second half of 2012. Our strategy and management approach Anglo American’s social strategy focuses on observance of human rights, proactive engagement with our stakeholders and leveraging our core business to support long term social development. Community development activities prioritise local procurement and supplier development, building local capacity, including providing infrastructure for health care, housing and sanitation, and investing in enterprise and skills development. The Anglo American Social Way contains a mandatory set of standards that prescribe rigorous minimum requirements for social performance across the Group. The requirements of the Social Way are integrated into the stage-gate reviews of our new capital projects and our due diligence procedures for mergers and acquisitions. 24 Anglo American plc Annual Report 2012 Social investment output indicators Total number of community development projects delivering benefi ts to communities in 2012 Total number of businesses supported Jobs created/maintained through enterprise development initiatives Benefi ciaries of education projects Benefi ciaries of sports, arts, culture and heritage projects Benefi ciaries of community development projects Benefi ciaries of disaster and emergency relief projects Benefi ciaries with improved livelihood 1,602 17,598 64,927 256,980 645,211 1,065,821 43,684 448,395 Promoting sustainability in our supply chain and local procurement We expect and encourage our suppliers to act in a safe, sustainable and responsible manner. This expectation is given effect through our policy on sustainable development in the Anglo American supply chain and our Supplier Sustainable Development Code. We are also committed to promoting local procurement throughout our mining life cycle. In doing so, we believe we can make a signifi cant socioeconomic contribution to our host communities as well as improve effi ciencies in our supply chain by lowering logistics costs, and securing access to critical goods and services. Our commitment to respecting human rights forms the foundation of our approach to community engagement and development. Human rights best practice requirements are integrated into the Social Way and all other relevant policies, systems and tools throughout the business. In 2012, we rolled out a Group- wide community development peer review process, which draws on internal expertise, as well as external partners such as CARE International to ensure that our investments in community development are as effective as possible. Our industry leading Socio-Economic Assessment Toolbox (SEAT) is the primary means by which we enhance the development outcomes and capacities of host communities. We use SEAT to improve operations’ understanding of their socioeconomic impacts (both positive and negative), enhance stakeholder dialogue and the management of social issues, build our ability to support local socioeconomic development, and foster greater transparency and accountability. The third version of SEAT was published during the year and has been made available publicly, as a leading practice resource for other companies to use. BUILDING STRONG TOWNS IN MINING REGIONS O p e r a t i n g a n d fi n a n c a i l r e v e w i A lack of municipal capacity in our host communities can have a negative effect on residents and on Anglo American’s ability to plan. Our new partnership approach to capacity building in South Africa and Brazil aims to offer an effective and sustainable solution. In South Africa, we have teamed up with the Development Bank of South Africa to improve capacity in host mining areas and create the country’s fi rst example of a public-private partnership in this fi eld, with the aim of enabling municipalities to supply basic services like water and electricity effectively, rather than Anglo American supplying them directly. At our Barro Alto nickel operation in Brazil, Anglo American has been collaborating with Agenda Pública since 2008, in an effort to prepare both the local government and citizens to live in a society that would grow as mining revenues started to fl ow into the town. In both Brazil and South Africa, the projects follow two broad strands: empowerment of communities to enable them to understand their rights and hold the government to account; and training and skills development for public offi cials to enable them to fulfi l their roles and respond to public demand. Although Anglo American provides funding in both cases, our knowledge of the local area, our input into project planning and evaluation, and our local relationships have all proved important elements of the work. Image Liomar Vidal, an Anglo American community relations offi cer, at the Professora Maria Siqueira Pinto school, which Anglo American helped to build in Barro Alto. Anglo American plc Annual Report 2012 25 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION STRATEGIC ELEMENT: Operating safely, sustainably and responsibly Enterprise development is one of the most effective means of ensuring that the benefi ts for host communities as a result of our mining activities will be sustainable. 2012 Global social investment expenditure Total: $154m Community development Education and training Health and welfare Environment Sports, arts, culture and heritage Water and sanitation Incorporating: Disaster and emergency relief Institutional capacity development Employee matched giving Other 43% 21% 11% 5% 5% 2% 1% 1% 1% 10% 2012 Global social investment expenditure by region Total: $154 m South Africa Rest of Africa United Kingdom Americas Other 62% 1% 1% 33% 3% Our local procurement policy is now embedded across the Group and all operations have made encouraging progress in developing local procurement strategies. In 2012, expenditure on suppliers based in the communities close to our operations was $1.5 billion (2011: $1.1 billion). In 2012, we hosted a conference for our leading on-site suppliers in South Africa and agreed a number of initiatives to improve the welfare of our contractor employees and their families. A number of commitments were made by both parties during the conference, including a requirement that all employees on our operations in South Africa would have access to basic medical care (facilitated by Anglo American where necessary), as well as making Anglo American’s highly regarded tools, initiatives and resources in the areas of community engagement and community development available to contractors. Enterprise development Enterprise development is one of the most effective means of ensuring that the benefi ts for host communities as a result of our mining activities will be sustainable. Since the 1980s, we have been pioneering approaches to building small businesses in South Africa, and have now extended our reach fi rmly into Chile and Brazil. In 2012, we took a more strategic approach to enterprise development that has involved specifi cally designing schemes for countries such as Peru, Brazil and Botswana, as well as for particular focus areas such as housing and low-carbon technologies. Infrastructure and local capacity development Our mines are often situated in areas that are underdeveloped and remote, where the associated infrastructure – such as roads, health facilities and water – can be used to the advantage of local communities. A particular focus is addressing South Africa’s acute shortage of affordable housing. Notably, we have entered into a partnership agreement with the Development Bank of Southern Africa (DBSA) to build the capacity of 10 of our host municipalities. This initiative will enable local governments to deliver on their basic public service obligations; for example, in the fi elds of water and electricity supply, management of local infrastructure projects and revenue collection. We have also briefed the South African Chamber of Mines so that other companies may replicate this model. Our capacity development activities focus on strengthening the skills, competencies and abilities of employees and community members to promote robust, self-suffi cient local economies long after our mines have closed. Corporate social investment In 2012, Anglo American’s corporate social investment (CSI) spend in local communities totalled $154 million (3% of profi t before tax), up from $129 million in 2011. We have a standardised reporting process for all our social investments, with robust metrics to monitor the level of social performance. This facilitates consistent reporting of outputs, and helps to identify the most effective projects, delivery methods and partners, in order to try and maximise the value that Anglo American and its host communities get from these investments. A fuller analysis of the Group’s social investment activities can be found in the Sustainable Development Report 2012. 26 Anglo American plc Annual Report 2012 SAFETY Offering a safe and healthy workplace is a core component of our ‘employer of choice’ agenda. We aim to achieve ‘zero harm’ by creating and instilling a company and industry culture that protects people from harm and improves their health and well-being. Performance Although the number of people who lost their lives while working for us declined to 13 for the year (2011: 17), any loss of life is unacceptable and no one should have to risk their life while working for us. Seven of these deaths occurred at our Platinum business, where the majority of fatal incidents still occur, despite a signifi cant improvement of 61% over the past fi ve years. Our lost-time injury frequency rate (LTIFR) improved from 0.64 in 2011 to 0.60 in 2012. Furthermore, our total recordable case frequency rate, which includes any injury that requires more than fi rst aid treatment, has started to improve. Our strategy and management approach Anglo American’s safety strategy is founded on three key principles: a mindset of zero harm; the elimination of repeat incidents; and the consistent application of simple, non-negotiable standards. We use the Anglo American safety ‘journey model’ – which recognises the importance of the roles of both people and systems in a mining business – to measure our progress in delivering against our safety strategy. We believe we are currently at the ‘compliant’ stage, with a growing number of operations moving to ‘proactive’ and a decreasing number being characterised as ‘reactive’. Our current suite of Group safety programmes focuses on issues that will improve our level of maturity on the journey model. These programmes involve: operational risk management; learning from incidents; risk and change management; leadership; developing people; leading indicators; corporate safety work streams; supply chain safety initiatives; integrating safety throughout the business; and our 2012 safety leadership summit. Total number of fatal injuries and fatal injury frequency rate 2008–2012 Fatalities 30 25 20 15 10 5 0 FIFR 0.016 0.014 0.012 0.010 0.008 0.006 0.004 0.002 0 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 Total number of lost-time injuries and lost-time injury frequency rate 2008–2012 Lost-time injuries 2,500 LTIFR 1.2 2,000 1,500 1,000 500 0 1 0.8 0.6 0.4 0.2 0 2008 2009 FIFR 2011 2010 Fatalities 2012 2008 2009 2010 2011 2012 LTIFR Lost-time injuries Occupational health Our approach is governed by the Anglo American Occupational Health Way, which sets out a series of standards, guidelines and assurance processes aimed at preventing harm to our employees. In 2012, we continued to roll 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. We also refreshed the risk management approach within the Occupational Health Way to align with our Group-wide integrated risk management approach. The ability to capture and manage health information is critical if we are to keep our workforce and their families healthy. Building this capability within our business was a central activity in 2012 and will continue in the coming year. The number of occupational disease cases reported in 2012 was 170, compared with 197 in 2011. This translates to an incidence rate of 0.189, an 8% reduction. All operations have safety improvement plans that prioritise these elements based on operational risk. The operational risk management and ‘learning from incidents’ programmes are a particular focus for all business units. 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 benefi cial for everyone. Our strategy and management approach We strive to proactively identify and manage the source of potential health risks in the workplace, and to eliminate exposure to hazards that can cause disease to develop. Building on these initiatives is our employee health and wellness programme, which includes a strong emphasis on combating HIV/AIDS and tuberculosis (TB) within our workforce and their families, particularly in southern Africa. Beyond our immediate workforce, we strive to help strengthen healthcare systems in under-serviced rural areas and build partnerships to improve access to quality health care. Anglo American plc Annual Report 2012 27 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION STRATEGIC ELEMENT: Operating safely, sustainably and responsibly We remain one of the key private-sector supporters of the Global Fund to Fight AIDS, Tuberculosis and Malaria and of the Global Alliance for Vaccines and Immunisations. Tackling TB and HIV We are recognised leaders for our HIV/AIDS programmes in the workplace. The continued high prevalence of HIV in southern Africa is linked to a rising incidence of TB, which has become a most disturbing and pressing issue for us and our employees. We have an active programme aimed at addressing the escalating TB epidemic. This is evidenced in our TB incidence rate, which continues to decline and is, at 958 per 100,000 employees, lower than both the national and industry averages. Despite these efforts, it is with deep regret that 59 employees died from TB in 2012. We do not accept that anyone should die from this preventable and treatable disease. People enrolled in our HIV Wellness Programme are also offered TB prevention therapy. Testing (through our wellness programme) is the entry point to our comprehensive programme of prevention, care, support and treatment for HIV and AIDS and all employees who test positive are invited to enrol. In 2012, we tested and counselled 95,244 employees and contractors (2011: 110,010), while more than 90% of our employees in southern Africa check their HIV status every year, on average. In 2012, we saw a signifi cant increase in the number of employees who are estimated to be HIV-positive enrolling on the programme – 70% against 61% in 2011. By year end, we had 5,332 employees on anti-retroviral therapy (ART) (2011: 4,730). A major challenge is ensuring people’s adherence to treatment, and extra emphasis is placed on providing support and counselling and ensuring diligent care at a primary care level. Promoting healthcare in the broader community Our activities to promote healthcare in the broader community include planned investments in health systems strengthening in our neighbouring communities, as well as activities aimed at supporting health care in developing countries more broadly. We remain one of the key private- sector supporters of the Global Fund to Fight AIDS, Tuberculosis and Malaria and the Global Alliance for Vaccines and Immunisations, a public-private partnership that is increasing access to immunisation in the world’s poorest countries. We use the knowledge and experience gained from our workplace health programmes to support community outreach programmes and strengthen community health systems; that is, the people, the processes and the technology that make local health services work. In South Africa, we are working with the provincial health departments in the Eastern Cape, Mpumalanga, Northern Cape and North West provinces, which are all associated with our operations or are labour-sending areas, to improve health services. In Brazil, we continue to work with the highly regarded Brazilian NGO, Reprolatina, to improve access to quality health services, particularly with regard to reproductive health for women and girls with a current focus on the communities surrounding the Barro Alto nickel operation. ENVIRONMENT While the extraction and processing of minerals and metals is fundamental to the global economy, its associated activities result in the unavoidable disturbance of land, the consumption of resources, and the generation of waste and pollutants. Growing regulatory and social pressure, increasing demands for limited natural resources, and the escalating costs of energy and water all highlight the business imperative of responsible environmental management. Within this context, the principal environmental risks facing our business relate to water, climate change and energy. Please refer to our stand-alone Sustainable Development Report for a review of our management approach and performance relating to land management, biodiversity, waste and air quality. Our strategy and management approach We seek to effectively manage our environmental risks by minimising our impacts and by taking advantage of opportunities that deliver long term benefi ts to our stakeholders. The potential gains to our business include access to secure, affordable and sustainable supplies of water and energy for our operations, reduced costs, improved productivity, shorter permitting times and an enhanced reputation. Implementation of our strategy is through the following three areas of activity: driving operational excellence; investing in technology; and engaging and partnering with our stakeholders. The Anglo American Environment Way and its mandatory performance standards on social and environmental impact assessments, water, air quality, mineral and non-mineral waste, hazardous substances, biodiversity, rehabilitation and mine closure, all guide our approach to responsible environmental management. 28 Anglo American plc Annual Report 2012 WATER Security of water supply is a core business risk and a critical element of our social and legal licence to operate. Our operations need large volumes of the right quality of water for both production and processing. Yet more than 70% of our mines are in water-stressed areas where access to water is already a signifi cant socioeconomic concern. At the same time, our operations present a potential environmental risk in terms of water quality. We are committed, therefore, to providing water security for our operations and the communities where we operate. Our strategy and management approach We have an ambitious 10-year strategy that is split into three distinct steps. The fi rst step, ‘Be disciplined’, is about getting the basics right. The second step, ‘Be proactive’, encourages operations to go beyond compliance, while the third, ‘Build resilience’, takes us to being part of broader, catchment- level water solutions. Our intention is to achieve ‘water neutrality’ at our new mines by 2030. Two years into the strategy, we have largely consolidated the fi rst stage of our journey and are now targeting the more advanced ‘proactive’ and ‘resilient’ stages. Operational excellence Operational excellence in relation to water management is mainly about being smarter in the way we use and manage water. Our Group technical standard includes detailed requirements on water-reduction target setting, water monitoring and reporting, and site-level water action plans (WAPs), which have driven a positive shift in our approach to managing water at operations. In 2011, we implemented our water effi ciency target tool (WETT), which forecasts the projected business-as- usual water demand of individual operations and establishes a register of water-saving projects. The rolling out of WETT across the Group during 2012 has led to tangible water savings, more effective water management, better tracking and reporting, and increased awareness of water conservation. Total water required, by use in 2012 % 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 Total water consumed 2008–2012 Million m3 180 170 160 150 140 130 Water re-used/recycled in process Water used for primary activities Water used for non-primary activities 73% 24% 3% 2008 2009 2010 2011 2012 Anglo American actual Business as usual (BAU) baseline In 2012, we also completed a water-quality audit protocol and undertook a series of audits across the Group, which will inform our understanding of how to better manage water quality risk. Technology To achieve our long term goal of becoming water neutral, we estimate we will have to halve the current consumption of ‘new’ water at operations and ensure that more than 80% of that water is recycled. We will need to identify and invest in new technology solutions to achieve this. To better understand and defi ne our water technology pathway, we have researched what ‘water neutrality’ would mean for a mine, as well as how to achieve a ‘carbon neutral’ mine, recognising the potential trade-offs between water and energy savings. Another focus has been working with the UK Met Offi ce, Imperial College London and others, on modelling the potential regional impacts of changes in precipitation resulting from climate change. 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. Our performance Despite acquisitions, expansions and production increases, and taking into account disposals, the Group has maintained a reasonably stable level of water demand since 2007. Anglo American’s consumption of water used for primary activities has increased by 6%, from 115 million m3 in 2011 to 122 million m3 in 2012. The primary driver was Los Bronces copper mine in Chile, which increased our Copper business’ water consumption by 7 million m3. This fi gure would have been signifi cantly higher if it were not for the large increase in water recycled from the operation’s tailings dam (this more than doubled to 82 million m3 of water in 2012). The increase was further mitigated by 26 water savings projects around the Group that saved 7 million m3 of water. More than 70% of our operational water requirements were met by recycling/re-using water over the past two years. Within the Group there have been several high performers in terms of recycling, with some reaching levels as high as 90–97%. Our operations are also seeking to reduce their dependency on high-quality water by switching to the use of lower water- quality grades where this is deemed fi t for the intended use. Currently, potable water accounts for just 18% of our total. Anglo American plc Annual Report 2012 29 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION STRATEGIC ELEMENT: Operating safely, sustainably and responsibly CLIMATE CHANGE AND ENERGY Climate change presents a signifi cant business challenge. The key risks we face are: increasing energy and compliance costs associated with new policy measures, including potentially signifi cant costs from carbon pricing; changing demand for our products; and increased risks associated with the physical impacts of climate change on our operations and neighbouring communities. We aim to enable our operations and local communities to address and adapt to the causes and effects of climate change. Our strategy and management approach Climate change is integrated into multi-disciplinary, Group-wide risk management processes. We are in the second year of our 10-year climate change strategy. Operational excellence Our leading energy and carbon management programme, ECO2MAN, has enabled us to understand how energy management can be used to create additional business value. It provides a structured approach to achieve our objectives and it helps our people understand their responsibilities and accountabilities. Each mine has a programme in place to continually improve how it manages energy usage, with targets to reduce consumption in relation to a business- as-usual projection. During 2012, we established a Group carbon steering committee to coordinate activities that lower our exposure to carbon compliance costs, including building our capacity to buy and sell carbon allowances. 30 Anglo American plc Annual Report 2012 Total energy consumed 2008–2012 Million GJ 120 115 110 105 100 2008 2009 2010 2011 2012 Anglo American actual Business as usual (BAU) baseline Total GHG emissions 2008–2012 Million tonnes 25 20 15 2008 2009 2010 2011 2012 Anglo American actual Business as usual (BAU) baseline Technology Achieving our long term milestones in energy management hinges on identifying and implementing innovative, ‘step-change’ technologies. We are researching many opportunities with key stakeholders, and have invested nearly $200 million to date in low carbon technology, such as the Capcoal and Moranbah North methane-fi red power stations in Australia. Our technology vision is to run cost effi cient, low-carbon (if not carbon neutral) mines by 2030. Our approach focuses on three areas: reducing how much energy we use; recovering and re-using some of that energy; and using alternative energy sources. In parallel, we continually investigate opportunities for carbon offsetting. Our longer term research areas include using liquefi ed petroleum gas (LPG) and methane capture to power trucks, introducing clean coal technology, and piloting platinum- based fuel cells as an alternative power system for underground locomotives. In recent years we have focused on assessing the potential physical impacts of climate change in a number of potentially high-risk operational regions and sites. Building on this climate change impact assessment work, in 2012 we worked with the UK Met Offi ce to prioritise all our projects across the Group in terms of when climate change ‘time of emergence’ signals will arise. We are also piloting a study to capture issues around climate and weather model data into project design. Engagement and partnerships We continue to work with governments, our business peers, and other stakeholders to help shape equitable and effective climate change policies. In South Africa, we are especially active in discussions around a carbon pricing policy and have welcomed the opportunity to participate in the debate and in the development of a solid fact base to infl uence an effective carbon policy aligned with the country’s development objectives. Our performance Anglo American’s energy consumption has increased by 6 million gigajoules (GJ) year-on-year to 108 million GJ in 2012. The rise is primarily as a result of electricity consumption increases at Los Bronces copper mine and Nickel’s Barro Alto operation. A further increase of 1 million GJ at Metallurgical Coal as a result of production increases at the open cut mines was mitigated by a relatively small reduction at Platinum arising from industrial action. These increases were further mitigated by 215 energy-saving projects, accounting for reductions of nearly 5% (equal to saving 4 million GJ of energy and $75 million), that were completed in 2012. Anglo American’s greenhouse gas emissions (GHG) have dropped slightly year-on-year from 19 Mt of CO2 equivalent (CO2e) emissions to 18 Mt of CO2e in 2012. An expected rise in GHG emissions associated with increased energy consumption was mitigated by methane management activities at Metallurgical Coal and our decision to discontinue public reporting on methane emissions associated with spontaneous combustion(1). (1) The reason for this is two-fold: our peers do not report on emissions from spontaneous combustion and there is currently no consistent methodology for doing so. We will, however, continue to monitor and manage these emissions internally. MANAGING METHANE 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 Methane emissions represent a signifi cant challenge to our underground coal mining operations in Australia and South Africa. As methane is 21 times more damaging to the environment than carbon dioxide (CO2), we have made it a priority to identify and implement technologies that will mitigate the impact of this greenhouse gas (GHG) and transform an environmental liability into an asset. Methane is found, in differing concentrations, in the majority of coal seams. For safety reasons, it needs to be continually ventilated for underground mines but its impact on the environment also has to be considered. Since 2008, we have been piping methane-rich gas from our underground Moranbah North and Capcoal mines to two dedicated gas fi red power stations. When burned, methane is one of the cleanest fossil fuels, producing less CO2 for each unit of heat produced than other hydrocarbon fuels. By capturing methane, the two power stations together prevent 2.5 Mt of CO2 equivalent emissions from entering the atmosphere each year – the equivalent of taking 500,000 cars off the road, or planting 3.6 million trees – and generate 77 MW of electricity for the Australian national grid, which is enough to power 48,000 homes per year. In South Africa, our New Denmark mine has helped to design and develop a ‘world fi rst’ mobile fl aring system that will reduce its annual methane emissions from ventilation boreholes by an expected 15%. Flaring burns off methane, rendering it 18.5 times less harmful to the environment than venting. Under the Kyoto Protocol, methane fl aring is an eligible Clean Development Mechanism activity. The project could therefore generate more than $8 million in revenue in its fi rst decade through the sale of Certifi ed Emission Reduction (CER) credits, depending on prevailing CER prices. Another facet to this challenge is the ventilation systems, which run continuously and require signifi cant energy. At Goedehoop mine we have reduced our GHGs related to ventilated air methane by improving how we manage these systems. By isolating the areas underground that require ventilation and identifying and addressing any leaks, we have reduced the amount of methane fl ushed out of the machinery as well as the electricity required to run the ventilation system. Ventilation systems at other underground mines in Thermal Coal are also set to be optimised, contributing greatly towards our 2015 ECO2MAN targets. Image Senior project manager Ellis Lawrie (foreground) and Energy Developments Limited project manager Michael Ball inspect a gas engine at the Capcoal underground waste coal mine gas power station. Anglo American plc Annual Report 2012 31 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION STRATEGIC ELEMENT: Employing the best people WORKING WITH COMMUNITIES WITH THE FUTURE IN MIND 32 Anglo American plc Annual Report 2012 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 We offer a range of housing options to our South African mineworkers as part of our broader strategy to improve the living conditions of our employees. IMPROVING HOUSING IN SOUTH AFRICA We want all our employees to enjoy quality housing and living conditions. In South Africa, where there is a shortage of affordable housing and long waiting lists for units being built, this is a particular challenge. In partnership with local and provincial government, we help to alleviate this problem. We invest in improving the housing and living conditions of employees and making it possible for them to buy their own homes in sustainable areas near our mining operations. Our vision is that all of our employees in mining communities who would like family accommodation have that option. Our Platinum, Iron Ore, Thermal Coal businesses and De Beers proactively engage in developing properly serviced land to facilitate housing development in areas where services are inadequate or do not exist. The business units collaborate with reputable developers to encourage and promote affordable home ownership among employees at all levels. Where possible, land is donated to the municipality to facilitate the rehousing of communities residing in informal settlements. We engage with the Chamber of Mines and with organised labour to address issues and options for home ownership. While 11,648 employees currently reside in mine accommodation, our objective is to lessen employee dependency on the company to provide accommodation. Thermal Coal • Currently 33% of employees live in mine-provided accommodation. • 203 houses have been built for sale to date. • A new project to provide an additional 272 units in the eMalahleni area has commenced. De Beers • De Beers has no hostels at its three South African operations. • Currently engaging with South Africa’s National Union of Mineworkers (NUM) regarding the facilitation of home ownership. • Approximately 550 houses planned to be built across three operations and investigations on rent-to-buy options are under way. 11,648 EMPLOYEES AT OUR SOUTH AFRICAN OPERATIONS STAYING IN MINE ACCOMMODATION. Platinum • 6,743 employees reside in company and privately leased houses. • All hostels have been converted into single accommodation villages. • There are four ongoing housing projects in its portfolio. Iron Ore • From March 2012, employees no longer stay in hostels. • Sishen has built 1,662 houses to accommodate their employees. • Sishen plans to build an additional 1,720 houses in Kathu for current and future housing needs. “As an industry, we need to work with our stakeholders to discuss openly how the migrant labour system can be changed to create more sustainable lives and communities.” Cynthia Carroll Chief Executive Main Platinum Union south mine time and attendance operator Gift Mpho takes possession of one of the 400 new houses being built at the Northam Extension 6 Housing Project. 01 These houses for Thermal Coal employees and their families are being built with bricks made partly from gypsum – which was formerly discarded as a waste product – from the eMalahleni water-treatment plant. 01 Anglo American plc Annual Report 2012 33 OPERATING AND FINANCIAL REVIEW STRATEGY IN ACTION STRATEGIC ELEMENT: Employing the best people THE RIGHT PEOPLE IN THE RIGHT PLACES OUR PEOPLE Our people are as vital to our success as our mining assets. They determine how effectively we operate, represent our values and are critical to building and maintaining our reputation with stakeholders. Ultimately, it is our people who will realise our ambition and deliver on our strategy of being the leading global mining company. OUR STRATEGY AND MANAGEMENT APPROACH Our human resources (HR) strategy is anchored in Anglo American’s objective ‘to be the leading global mining company’ and in supporting the objective of being ‘the employer of choice’. We see the quality of our people as a key source of competitive advantage. To attract and retain the best people we need to: • Demonstrate that we have a clear and compelling strategy for success • Offer safe, worthwhile and stimulating work • Be organised for effectiveness and effi ciency • Maintain the right leadership culture • Support people to develop and progress • Pay people competitively. The Group HR function operates as part of a lean corporate centre and focuses on: essential governance; capturing synergies across the Group; and sharing knowledge and expertise. Policies and standards are set through a collaborative process involving the businesses. Once set, compliance with these is mandatory. Along with these standards, our HR management systems and processes provide the foundation that allows us to deliver on our HR agenda. We are implementing a wide-ranging three year plan of work to further improve these foundations. Resourcing with the future in mind Having the right people in place is vital to achieving our business objectives. Within the context of a very competitive job market, ensuring we understand our current and future skills needs, and actively drive plans to meet these, is a key strategic priority for HR. Throughout 2011 we put in place foundations to enable more effective workforce planning. This included a Group-wide monthly headcount reporting process and system and a common framework for categorising roles across the organisation. During 2012, we built on these foundations, implementing a new annual strategic workforce planning process and system that ran successfully to support the 2012 planning cycle. Our improved workforce planning capability will play a pivotal role in targeting our talent sourcing activities and guiding the work we do to build global talent pools. Talented graduates, bursars, interns, apprentices and other trainees form an important part of our sourcing strategy. During 2012, we saw nearly 3,000 graduates, bursars, apprentices and other trainees supported by the company. At certain of our operations we are legally required to recruit a percentage of mining related roles from within the immediate and local communities in which we operate. The recent implementation of text-based job applications has enabled us to more effectively access community members in remote locations particularly across South Africa. Supporting our people to develop and progress Managing our people’s performance plays a key role in guiding their behaviour and development. During 2012 we continued to roll out our Group-wide performance management process and system, which aligns individual objectives with the company’s strategy while reinforcing our values. Our management and professional employees have regular performance and career development reviews with their managers. For the remaining employees, performance management is largely team-based. 34 Anglo American plc Annual Report 2012 Number of permanent employees and contractors by region(1) 2012 Africa Europe North America South America Australia Asia 97,298 396 583 31,319 6,619 104 (1) Excludes associates and OMI non-core operations. Alongside our performance management process, we continued to embed the People Development Way, our global capability framework detailing the behaviours, knowledge, skills and experience required of our employees to achieve our strategic objectives. 2012 also saw the introduction of career path tools aimed at guiding employees’ career development decisions. Formal learning is delivered at both business unit and Group level with external training expenditure across Anglo American amounting to $98 million, 3% of total employee costs in 2012 (2011: $79 million, 2.2% of total employee costs). The continued development of fi rst-line managers to improve operational and people management capabilities has been the focus of 2012. The fi rst-line managers development programme builds on current best practice across the Group and will be rolled out during 2013. The Adult Basic Education and Training programme, which is run by our businesses and corporate centre offi ce in South Africa provides general education to adults who have not had access to formal schooling. In 2012, 1,239 employees, contractors and community members enrolled in the programme. In addition, 2,638 employees and community members were provided with portable skills O p e r a t i n g a n d fi n a n c a i l r e v e w i A signifi cant part of our operational workforce consists of contractors; therefore, the effectiveness of the relationships between us and our contracting companies, and between those companies and their employees, will remain important. Protecting labour rights As signatories to the United Nations Global Compact, we are committed to the labour rights principles provided in the International Labour Organisation core conventions, including the right to freedom of association and collective bargaining, the eradication of child and forced labour and non-discrimination. We do not tolerate any form of unfair discrimination, inhumane treatment, forced labour, child labour, harassment or intimidation in the Anglo American workplace. Full observance of these issues is also required of our suppliers in tenders and compliance is audited. At our operations, we have clear policies and processes in place in order to ensure that we do not employ any underage or forced labour. No incidents of employing under-age or forced labour were reported in 2012. Across our businesses, targets have been set to increase further female representation, both within the management population and the workforce as a whole. training. This puts emphasis on training people in skills not traditionally needed within the company, so that they are employable after mine closure. Building leadership capability We see strong leadership and managerial capabilities as central to achieving our business objectives and sustained success in the mining sector. Beyond capability, we see maintaining the right leadership culture as critical to encouraging people to want to work with Anglo American. For this reason we focus on and continuously review high quality leadership development and have a range of over 200 external and internal development programmes currently in use across the Group. Recognising and rewarding performance 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 within which we operate. We benchmark our remuneration schemes against our peers and implement comprehensive performance-based reward systems with the aim of attracting and retaining the best people. Creating a diverse organisation By year end, 23% of managers were women, representing an increase from 22% in 2011. 15% of our overall workforce is female. Across our businesses, targets have been set to increase further female representation, both within the management population and the workforce as a whole. In our South African operations we continued to promote transformation in the workforce. By year end, 62% of our management were ‘historically disadvantaged South Africans’ (HDSAs), representing a signifi cant increase on the 51% recorded at the end of 2011. HDSA employees, including white women, represent 80% of our workforce as a whole in South Africa. Fostering sound industrial relations During 2012, two strikes exceeding one week’s duration were recorded. Platinum experienced eight weeks of illegal industrial action and unrest at fi ve of its mines where operations were halted. Kumba Iron Ore experienced 12 days’ unprotected occupation of the company’s Sishen Mine. Approximately 84% of our permanent workforce is represented by work councils, trade unions or other similar bodies and covered by collective bargaining agreements. The nature of these agreements varies by country of operation. However, protecting the rights of employees and ensuring fair and compliant employment practices are principles that apply to everyone who is employed by Anglo American, regardless of any recognised, formal representation employees may form part of for collective bargaining purposes. Building and maintaining sound relationships with our employees and trade unions is fostered through: • A culture of inclusivity and, consistent with our company value of care and respect, a genuine concern for the well-being of our employees, partners and communities. • Ongoing, open and meaningful dialogue, ensuring that relevant changes to the organisation or its practices are tabled with trade unions for discussion prior to their implementation and that, in turn, any employee concerns are brought for discussion with the organisation before they become the subject of disputes. • Our appreciation of the fact that many of the issues affecting our employees are issues that affect the rest of the mining sector and, in some cases, society as a whole. In these instances, as a responsible corporate citizen, we have a broader role to play in tabling and positively infl uencing discussion and issue resolution. Anglo American plc Annual Report 2012 35 OPERATING AND FINANCIAL REVIEW RESOURCES AND TECHNOLOGY INNOVATING SOLUTIONS WITH THE FUTURE IN MIND 36 Anglo American plc Annual Report 2012 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 Thermal Coal’s fl exible conveyor train is set to be a game-changer in the safe and effi cient production of coal from underground mines. FLEXIBLE CONVEYOR TRAIN SETS NEW RECORD In producing 116,708 tonnes in September 2012, the 110-metres-long fl exible conveyor train (FCT) based underground at Greenside achieved the highest monthly coal output ever recorded outside the US. Developed in conjunction with Joy Mining Machinery, the FCT is a continuous haulage system that eliminates bottlenecks, thus allowing continuous miners to operate at maximum capacity. The key to the FCT’s effectiveness is its fl exible conveyor and traction system that permits it to be operated, by remote control, as a single unit. The ability to continuously convey material along its entire length, while simultaneously moving to follow the continuous miner’s every move, offers a distinct advantage over all other types of haulage. The FCT also offers safety benefi ts through eliminating the need for shuttle cars, thereby reducing vehicle and pedestrian interaction. 25 % PRODUCTIVITY IMPROVEMENT IN CONTINUOUS MINER OUTPUT TARGETED BY 2014. HIGHEST MONTHLY PRODUCTION IN 2012 +116,708 tonnes To achieve the targeted productivity increase, Greenside must average 116 kt per month. 117 kt 116 kt 100 kt 102 kt Sept 2012 Oct 2012 Nov 2012 Dec 2012 02 “The FCT’s successful introduction demonstrates the value being delivered from Thermal Coal’s technology partnerships; this system has the potential to transform our underground coal mining operations in South Africa.” Godfrey Gomwe CEO, Thermal Coal “The Greenside FCT project team are among the most competent people in the business.” Avery Bailey FCT specialist 01 Main, 01 and 02 Members of the Greenside team who assisted in the successful implementation of the mine’s 110 metre long fl exible conveyor train – the fi rst of its kind in South Africa. Anglo American plc Annual Report 2012 37 OPERATING AND FINANCIAL REVIEW RESOURCES AND TECHNOLOGY INNOVATION TO DELIVER VALUE OUR RESOURCES TECHNOLOGY The resources Anglo American considers critical to achieving its strategic aims include: • Knowledge and expertise. • Proved and Probable Reserves (a summary is contained on pages 192–193). Full details of the Group’s Ore Reserves and Mineral Resources estimates are found on pages 191–230. 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 specifi c value- adding areas, made a signifi cant contribution to the Group on several fronts. In collaboration with the business units, the heads of the Mining, Metallurgy, Geosciences and Engineering disciplines have fi nalised a global set of Group Technical Standards and associated guidelines aimed at enhancing project delivery, sharing best practice, optimising value added to operations and mitigating technical risks. Gap analyses are conducted by business units and operations to determine compliance with the standards, and plans are being put in place to address any gaps that have been identifi ed. The discipline heads with their team of experts continue to provide technical assurance to projects and support the identifi cation of signifi cant asset optimisation opportunities at the operations. The effective development and management of technical talent within the Group has also been a focal point. Our Technical Solutions division supports business units, operations and project teams as well as the various Group functions across the entire mining value chain, from exploration to mine closure. The division provides fundamental research as well as development and piloting services. Multi-disciplinary teams are made up of in-house experts from all the traditional engineering disciplines, as well as mining, metallurgy, geometallurgy, process and chemistry, industrial engineering, materials handling, safety, occupational health, sustainable development, geophysics, hydrogeology, and quality and compliance. In addition, project engineering and change management specialists provide consulting services 38 Anglo American plc Annual Report 2012 A concerted systems approach has now been adopted in order to facilitate mining’s transition to a more modern, automated and technologically mature era. to our operations. The teams also develop and implement or assist operations with the implementation of techno-economic solutions. The Field Services section provides hands-on machine health monitoring expertise to operations. Technical Solutions recently developed and is now implementing an integrated drill and blast solution for surface operations comprising mine planning, drill and hole monitoring, on-bench explosive quality testing as well as on-bench blast monitoring and analysis. The solution provides operations with the capability to reconcile actual performance with designed performance, in real time, which increases the visibility of actual bottlenecks and allows enhanced decision making at the mine site. The Equipment Monitoring System (EMS), aimed at identifying equipment condition remotely, has successfully been rolled out to sites in Australia, South America and South Africa and has been expanded from haul truck monitoring to monitoring other critical equipment. An integrated water management solution has been developed to meet the growing needs of the Group’s operations in this area. On the fundamental research side, Technical Solutions has successfully combined molecular modelling with fast track chemical effectiveness evaluation to quickly identify non-toxic and more effective reagents without having to rely on traditional trial and error experimentation. Our Technology Development unit manages, coordinates and integrates technology development across the Group. Progress continues on realising Anglo American’s long term technology vision and is concentrated on laying the platform for a radical change in technology over the coming years. The work focuses on long term, high value projects in underground mining, metal recovery and energy effi ciency, as well as the shorter term demonstration of automation technologies to improve safety and add value. Mine life per commodity(1) Years, minimum to maximum 6 to 24 2 to 35 8 to 26 5 to 70 17 to 22 3 to 30 4 to 27 0 Range (years) 70 Iron ore Metallurgical coal Thermal coal Copper Nickel Platinum Diamonds (1) Mine life is the extraction period in years for scheduled Ore Reserves comprising Proved and Probable Reserves only. For diamonds, life of mine (years) is reported and is based on scheduled Probable Reserves including Indicated and some Inferred Resources considered for life of mine planning. 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. The development of proprietary exploration tools remains a priority, with some already in use and improved models undergoing testing prior to the piloting of prototypes. These provide a signifi cant competitive advantage for Anglo American in the search for new Tier One orebodies. The shorter term projects will see various automated vehicles being demonstrated at certain opencast mines during 2013 and multiple novel underground mining machines being tested on platinum mines. Success in these projects would make a signifi cant impact on the safety and competitiveness of Group operations. A concerted systems approach has now been adopted in order to facilitate mining’s transition to a more modern, automated and technologically mature era. Effort is being concentrated on creating the necessary building blocks to support both open pit and underground methods in steadily moving up the steps towards automation maturity. In particular, attention is currently being placed, inter alia, on automation-specifi c technologies such as underground mapping, positioning and obstacle detection. Emphasis, too, is being placed on integrated operations centres as the hub of the automation approach needed to command integrated data in a risk-managed environment in order to deliver improved performance, as well as to coordinate and drive sustainable performance improvement. 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 Our Thermal Coal business has identifi ed 15 technologies in order to form a prioritised pipeline for technology development. During 2012, Thermal Coal achieved a number of technology milestones and is the fi rst coal mining company in South Africa to commission Flexible Conveyor Train technology (FCT) underground at Greenside and Goedehoop. The implementation of the technology resulted in a marked reduction in underground coal transport vehicles, thereby signifi cantly improving safety while also increasing productivity. Thermal Coal has started the journey of automation of some of the opencast fl eets, including articulated dump trucks, overburden drills and bulldozers. Furthermore, automation provides opportunity for improvements in utilisation, productivity and quality, as well as safety and health. At our Metallurgical Coal business, we are making progress in several areas on the technological front. The ‘Smart Cap’ fatigue-management system has moved to the commercialisation phase. Signifi cant work has been undertaken to reduce carbon emissions from the underground mines through improved monitoring, capture and utilisation of potential fugitive emissions. Remote monitoring of equipment health and performance has been embedded through the Brisbane-based Benchmark Performance Centre, where the health and performance of both open cut and underground equipment is being monitored and actions taken to improve performance. In coal processing, laboratory scale trials have been completed on enhanced processing for coals with high inherent ash and clay; if successful, our reserves base of high quality metallurgical coal could potentially increase. Anglo American plc Annual Report 2012 39 OPERATING AND FINANCIAL REVIEW RESOURCES AND TECHNOLOGY Nickel exploration expenditure was $4 million and related mainly to nickel laterite exploration in the Morro Sem Boné district in Brazil. Elsewhere, near-mine exploration was undertaken at Niquelândia (Codemin), also in Brazil. Phosphates and Niobium exploration expenditure was $2 million and was focused on greenfi elds projects in central Brazil and near-mine exploration at Boa Vista (niobium). Platinum exploration accounted for $4 million and was focused on investigating new opportunities within South Africa’s Bushveld Complex and on fulfi lling of the statutory work programme requirements to keep tenure in good standing. The potential for shallow resources that may be mined using opencast methods was investigated through drilling programmes during the year. Platinum exploration continued at Unki in Zimbabwe. Since acquisition in August 2012, De Beers has spent $23 million ($59 million for the full year, on a 100% basis) on exploration programmes in Angola, Botswana, Canada and India. The exploration team continued to provide technical services to the resource extension programmes for the Jwaneng and Orapa mines in Botswana, and the Victor mine in Canada. Exploration expenditure by commodity in 2012 Iron Ore Metallurgical Coal Thermal Coal Copper Nickel Platinum Phosphates and Niobium Diamonds Central exploration activities $23m $18m $14m $39m $32m $4m $2m $23m $51m Copper exploration expenditure of $39 million consisted mainly of near-mine and greenfi elds exploration drilling in Chile where key activities included drilling at Los Bronces and Mantos Blancos. Greenfi elds exploration was also conducted in Argentina, Brazil, Chile, Colombia, Greenland, Indonesia, Peru, the US and Zambia. Polymetallic (copper-nickel-platinum group elements) exploration expenditure (included within the Nickel commodity line as disclosed in note 7 to the fi nancial statements) amounted to $28 million and concentrated on Sakatti in northern Finland. Exploration at this advanced project aimed to defi ne the limits of the orebody and to test other surrounding high priority targets. Greenfi elds polymetallic exploration was conducted elsewhere in northern Finland, western Brazil, the Musgraves region of Western Australia and the Canadian Arctic. EXPLORATION Global exploration activity for 2012 focused on greenfi eld projects across a number of mature and frontier locations, as well as on adding value, through increasing resources and reserves, to our operations and advanced projects. Our exploration expenditure in 2012 amounted to $206 million and covered 18 countries. Iron Ore exploration expenditure of $23 million was concentrated around operations and projects in Africa, Australia and Brazil. In South Africa, exploration was undertaken to support Kumba’s Sishen and Kolomela operations; reconnaissance drilling on high priority targets confi rmed mineralisation and drilling capacity has been increased to further investigate their potential. In Brazil, activity related to preliminary drilling and geological activities around the Minas-Rio project. Metallurgical Coal exploration expenditure of $18 million focused on drilling, seismic surveys, and coal quality analysis near existing operations in Australia and Canada with the aim of improving the defi nition of additional coking coal resources. In Australia, drilling and seismic activities were performed, including at the Foxleigh and Rolfe Creek projects. In Canada, the exploration team was strengthened at the Peace River Coal Trend mine and surrounding exploration leases, with the aim of defi ning additional coking coal resources. Thermal Coal exploration expenditure totalled $14 million, being spent primarily on drilling and analysis in South Africa. During 2012, exploration drilling was undertaken at 10 project areas, with the objectives of meeting both statutory work programme requirement as well as providing geological evaluation information and geological models for project advancement through the various stage gates. 40 Anglo American plc Annual Report 2012 HIGH-TECH EXPLORATION IN FINLAND Global exploration activity for 2012 focused on greenfi eld projects across a number of mature and frontier locations, as well as on adding value, through increasing resources and reserves, to our operations and advanced projects. 01 04 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 02 03 A Low Temperature Superconducting Quantum Interference Device (LT-SQUID) is a very sensitive magnetometer that is capable of measuring and distinguishing between discrete magnetic responses using superconducting loops. The LT-SQUID is considered particularly useful for discriminating between metallic deposits such as nickel sulphides, which can be masked by certain rock types that can also hold an electric current – for example, shale. The LT-SQUID was developed in collaboration between Anglo American and the Institute for Physical High Technology (IPHT) in Jena, Germany. The LT-SQUID is the sensor, cooled using liquid helium (-298°C), and measures the response to an electromagnetic current response after the current has been transmitted into the ground. The LT-SQUID has been employed by Anglo American fi eld teams to help search for so-called blind deposits that have no visible expression on the ground surface. It has revolutionised how we look at and model the picture beneath the ground surface, particularly at depth. This has enabled Anglo American to discover signifi cant deposits such as Gamsberg East (zinc) in Namaqualand, South Africa. Conventional Transient Electromagnetic (TEM) methods would not have been enable to identify the fl at-lying metallic conductor located 250 metres beneath the ground surface, or distinguish between two metallic sulphide types that have different levels of electromagnetic conductance. The LT-SQUID sensor also helped to defi ne the geometric dimensions of the Gamsberg East deposit as it enabled a greater penetration depth to be reached. Another example is at the Sakatti polymetallic project in Finland. Owing to the highly conductive nature of the interconnected mineralisation at the project, normal TEM geophysical techniques were not able to provide accurate readings. The team then used the LT-SQUID system, and that information ultimately supported the discovery of the main mineralised body. Images 01 Project geoscientist Circé Malo-Lalande with the LT-Squid. 02 Exploration manager Mattias Johansson (foreground) and exploration geologist Craig Hartshorne examine drill cores. 03 Drilling in progress at the Sakatti drill site. 04 Drill operators Jarmo Kairaaja (left), and Tiejo Apukairaasa on Sakatti rig No. 8. Anglo American plc Annual Report 2012 41 OPERATING AND FINANCIAL REVIEW GROUP FINANCIAL PERFORMANCE FINANCIAL PERFORMANCE UNDERLYING OPERATING PROFIT (2011: $11.1 bn) $6.2 bn UNDERLYING EARNINGS (2011: $6.1 bn) $2.8 bn UNDERLYING EARNINGS PER SHARE (2011: $5.06) $2.26 (LOSS)/PROFIT ATTRIBUTABLE TO EQUITY SHAREHOLDERS (2011: $6.2 bn) $(1.5) bn Production increases were delivered at the Kumba Iron Ore, Metallurgical Coal, Thermal Coal, Copper, Nickel, and the Phosphates and Niobium business units. REVIEW OF GROUP RESULTS Anglo American reported underlying earnings of $2.8 billion, compared with $6.1 billion in 2011, with underlying operating profi t of $6.2 billion, 44% lower than 2011. This decrease in underlying operating profi t was mainly driven by the Platinum, Metallurgical Coal, Iron Ore and Manganese and Copper business units, whose fi nancial performance was affected by lower prices and higher costs, with the exception of Metallurgical Coal where costs decreased. There was a decline in realised prices across the majority of commodities produced by the Group. Iron Ore and Manganese generated an underlying operating profi t of $2,949 million, 33% lower. Within this commodity group, Kumba Iron Ore reported an underlying operating profi t of $2,980 million, 34% lower than 2011, owing to lower average prices, the unprotected strike at Sishen and an increase in waste stripping, partially offset by the ramp up of Kolomela mine. Samancor reported an underlying operating profi t of $103 million, 38% lower, driven by lower ore prices, partially offset by lower costs. Metallurgical Coal delivered an underlying operating profi t of $405 million, a 66% decrease, primarily due to lower realised export selling prices, partially offset by record production and higher sales. Thermal Coal’s underlying operating profi t of $793 million was 36% lower, mainly as a result of lower export thermal coal prices for both South African and Colombian coal and, in South Africa, above infl ation cost increases. This was partially offset by increased sales volumes, mainly from the full incorporation of Zibulo as an operating asset, and despite the closure of high cost production sections. Copper delivered an underlying operating profi t of $1,687 million, 31% lower, as a result of lower realised sales prices, lower by-product quantities and higher operating, exploration and study costs, partly offset by increased sales volumes. Nickel reported an underlying operating profi t of $26 million, 54% lower, due to lower realised prices and an extended export ban imposed by the Venezuelan government from the beginning of June 2012 resulting in the cessation of production in September 2012, partially offset by a self-insurance recovery of $59 million. Platinum generated an underlying operating loss of $120 million, due to lower metal prices, higher unit costs and the illegal strike that signifi cantly affected production and sales during the fi nal four months of the year, partially offset by a $172 million positive stock adjustment. Diamonds underlying operating profi t (on a 100% basis) fell by $676 million to $815 million, 45% lower, refl ecting the impact of diffi cult trading conditions brought about by predominantly weaker demand and changing product requirements from Sightholders. Anglo American’s share of De Beers underlying operating profi t totalled $496 million, a decrease of 25%, the overall reduction being partly offset by Anglo American’s higher shareholding. Other Mining and Industrial Core delivered a combined underlying operating profi t of $169 million, a decrease of 8% compared to the prior year. This was driven by higher labour costs at both the Phosphates and Niobium operations and lower phosphate prices, partially offset by an increase in sales volumes of both phosphates and niobium. Production change % change versus 2011 4% 1% 11% 10% (8%) (11%) 35% -20 -10 0 10 20 30 40 Kumba Iron Ore Metallurgical Coal Thermal Coal Copper Nickel Platinum Diamonds 42 Anglo American plc Annual Report 2012 Underlying operating profi t $ million Iron Ore and Manganese Metallurgical Coal Thermal Coal Copper Nickel Platinum Diamonds Other Mining and Industrial Exploration Corporate activities and unallocated costs Operating profi t including associates before special items and remeasurements Year ended 31 Dec 2012 Year ended 31 Dec 2011 2,949 405 793 1,687 26 (120) 496 337 (206) (203) 4,400 1,189 1,230 2,461 57 890 659 315 (121) 15 6,164 11,095 Underlying operating profi t from the non-core businesses was $168 million, a $37 million increase, due to lower depreciation as a result of the transfer of Tarmac Quarry Materials and Scaw South Africa to ‘held for sale’ and the reversal of penalty provisions at Amapá which were in place at the end of 2011, partly offset by lower realised iron ore prices at Amapá. Exploration costs for the year were $206 million, a 70% increase, mainly driven by the inclusion of exploration costs at De Beers (following the acquisition of the additional 40% interest), increased drilling due to favourable weather conditions in Australia and Chile, and a ramp up in drilling activities at the Sakatti polymetallic project in Finland. Corporate costs (after cost allocations) of $203 million were incurred in 2012. In 2011, following the reassessment of estimates of likely outcomes of existing insurance claims, liabilities decreased signifi cantly in the insurance captive, offsetting the unallocated corporate costs and resulting in an operating profi t for 2011 of $15 million. Production Production increases were delivered at the Kumba Iron Ore, Metallurgical Coal, Thermal Coal, Copper, Nickel, Phosphates and Niobium business units. Iron Ore and Manganese – production of iron ore increased by 4% to 43.1 Mt due to the ramp up of Kolomela, partially offset by the unprotected strike which resulted in lost production of approximately 5 Mt. Manganese ore production increased by 20% to 3.3 Mt. Metallurgical Coal – production increased by 11% to 30.6 Mt, with record metallurgical coal production of 17.7 Mt, benefi ting from productivity improvements at both the open cut and underground operations and a reduction in weather related stoppages. Thermal Coal – production improved by 1% to 68.7 Mt, despite the closure of high cost production sections in South Africa, driven by the Zibulo ramp up and strong operational performance supported by favourable weather conditions at Cerrejón. Copper – production increased by 10% to 659,700 tonnes, mainly owing to the ramp up of the Los Bronces expansion project, partly offset by expected lower ore grades at Collahuasi and operational challenges at the Los Bronces mine and at Collahuasi. Nickel – production increased by 35% to 39,300 tonnes due to the ramp up of Barro Alto, partially offset by the cessation of production at Loma de Níquel from September 2012. 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 – equivalent refi ned production was 8% lower than 2011 mainly due to the illegal strike action that occurred between September and November 2012 at the Rustenburg, Amandelbult, Union and Bokoni mines and operational challenges in the fi rst half of the year. Diamonds – production decreased by 11% to 27.9 million carats, with Debswana production impacted by the Jwaneng slope failure. In light of prevailing rough diamond market trends, and in keeping with De Beers’ stated production strategy for 2012, operations continued to focus on maintenance and waste stripping backlogs. Phosphates – record production of 1.1 Mt of fertiliser, a 5% increase year on year, due to a number of asset optimisation initiatives which improved overall performance at Catalão and Cubatão. Niobium – production increased 13%, as declining ore quality was more than offset by improvements in both throughput and recoveries. FINANCIAL OVERVIEW Group underlying operating profi t was $6,164 million, 44% lower than 2011. The main reason for the reduction in underlying operating profi t was a decline in the realised prices of most of the commodities produced by the Group. These included falls in realised prices of 29% in the case of export metallurgical coal, 19% in South African export thermal coal and 23% in iron ore. The Group’s results are affected by currency fl uctuations in the countries where the operations are based. The strengthening of the US dollar against the South African rand and the Brazilian real resulted in a $945 million positive exchange variance in underlying operating profi t compared to 2011. CPI infl ation had a negative $591 million impact on underlying operating profi t compared to the prior year. Sales volumes were higher than 2011, owing to increased production at Kolomela and Los Bronces as the expansion projects ramped up, offset by operational issues at the Los Bronces mine and Collahuasi, as Anglo American plc Annual Report 2012 43 OPERATING AND FINANCIAL REVIEW GROUP FINANCIAL PERFORMANCE Summary income statement $ million Operating profi t before special items and remeasurements Operating special items Operating remeasurements Operating (loss)/profi t from subsidiaries and joint ventures Non-operating special items and remeasurements Share of net income from associates (see reconciliation below) Year ended 31 Dec 2012 Year ended 31 Dec 2011 5,405 9,668 (6,977) (116) (164) (65) (1,688) 9,439 1,394 432 183 977 Total profi t from operations and associates 138 10,599 Net fi nance costs before remeasurements Financing remeasurements (Loss)/profi t before tax Income tax expense (Loss)/profi t for the fi nancial year Non-controlling interests (288) (89) (239) (375) (614) (879) (20) 203 10,782 (2,860) 7,922 (1,753) (Loss)/profi t for the fi nancial year attributable to equity shareholders of the Company (1,493) 6,169 Basic earnings per share ($) (1.19) 5.10 Group operating profi t including associates before special items and remeasurements(1) Operating profi t from associates before special items and remeasurements Operating special items and remeasurements Net profi t on disposals Net fi nance 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 6,164 759 11,095 1,427 (58) – (58) 1 (205) (7) 432 (18) 20 (48) (7) (384) (13) 977 (1) Operating profi t before special items and remeasurements from subsidiaries and joint ventures was $5,405 million (2011: $9,668 million) and attributable share from associates was $759 million (2011: $1,427 million). For special items and remeasurements, see note 5 to the fi nancial statements. well as the industrial action at Kumba and Platinum and the extended ban and subsequent loss of mining concessions at Loma de Níquel. Industry-wide, above-CPI cost pressures continued, particularly in South Africa and Australia, although were mitigated by the continued positive performance of our asset optimisation and procurement programmes. Group underlying earnings were $2,839 million, a 54% decrease on 2011, which refl ects the operational results above and a reduction in our shareholding in Anglo American Sur (AA Sur), partially offset by the increased holding in Kumba Iron Ore. Net fi nance costs, before remeasurements, excluding associates, were $288 million (2011: $20 million). The effective rate of tax, before special items and remeasurements and including attributable share of associates’ tax, increased from 28.3% in 2011 to 29.0%. Group underlying earnings per share were $2.26 compared with $5.06 in 2011. Special items and remeasurements Operating special items Minas-Rio An impairment charge of $4,960 million has been recorded in relation to the Minas-Rio iron ore project (Iron Ore Brazil). Of this charge, $1,105 million has been recorded against goodwill and $3,855 million has been recorded against mining properties, with an associated deferred tax credit of $960 million. The post-tax impairment charge is $4,000 million. Platinum operations The impairment charge of $860 million relates to certain Platinum projects and other assets, not in use, that are not considered economically viable in the current market environment. The charge includes a write-off of fair value uplifts associated with these assets held at a Group level of $89 million. Reversal of De Beers inventory uplift Inventory held by De Beers at the date of the acquisition is required to be recognised at fair value under International Financial Reporting Standards (IFRS). This results in 44 Anglo American plc Annual Report 2012 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 negligible margins being realised upon the subsequent sale of inventory held at the acquisition date. The reversal of fair value uplifts on inventory sold in 2012 of $421 million has been excluded from the Group’s underlying earnings so as not to distort the operating margins of De Beers and to provide more useful information about the performance of the Group. Other A charge of $159 million has arisen at Loma de Níquel due to the cancellation of its mining concessions in November 2012. Other impairments and related charges of $230 million (2011: $70 million) relates to various impairments across the Group, including an impairment of $42 million of fi xed assets relating to onerous contracts at Callide (Metallurgical Coal); an impairment of $44 million relating to Wesizwe, an available for sale asset held in Platinum where the fair value has had a signifi cant and prolonged decline; and $50 million of asset impairments recognised in Samancor, an associate investment. The charge of $386 million in relation to onerous contracts principally refl ects a provision increase of $292 million for coal supply agreements inherited on acquisition of Callide in 2000. Operating remeasurements Operating remeasurements refl ect a net loss of $112 million (2011: loss of $74 million) principally in respect of non-hedge derivatives related to capital expenditure in Iron Ore Brazil. Derivatives which have been realised during the period had a cumulative net gain since their inception of $71 million (2011: $383 million). The depreciation charge arising due to the fair value uplift on the pre-existing 45% shareholding of De Beers, which was required on acquisition of a controlling stake, is $41 million in 2012. Non-operating special items In May 2012, the Competition Commission approved the formation of a 50:50 joint venture between the Group and Lafarge combining their cement, aggregates, ready-mix concrete, asphalt and asphalt surfacing, maintenance services, and waste services businesses in the UK subject to a number of prior conditions. Full year underlying operating profit variances $bn 12.0 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0 . ) 9 2 ( s k u B l . ) 0 1 ( d e d a r T ) 9 3 ( . ) 1 ( e c i r P . 1 1 1 1 1 0 2 l a u t c A 9 0 . e g n a h c x E . ) 6 0 ( ) 2 ( n o i t a fl n I 6 7 . 2 0 . ) 3 ( e m u o v s e l l a S . ) 3 0 ( ) 4 ( s t s o c h s a C . ) 5 0 ( ) 5 ( s e k i r t S . ) 2 0 ( n o i t a i c e r p e D . ) 3 0 ( s e t a i c o s s A . ) 2 0 ( ) 6 ( s r e e B e D . 2 6 2 1 0 2 l a u t c A . ) 1 0 ( r e h t O Price(1) Exchange Inflation(2) Sales volume(3) Cash costs(4) Strikes(5) Depreciation Associates De Beers(6) Other (3.9) 0.9 (0.6) 0.2 (0.3) (0.5) (0.2) (0.3) (0.2) (0.1) (1) Price variance calculated as increase/decrease in price multiplied by current period sales volume. (2) Inflation variance calculated using CPI on prior period cash operating costs that have been impacted directly by inflation. (3) Volume variance calculated as the increase/decrease in sales multiplied by prior period profit margin; Full impact of Los Bronces expansion project ($0.6bn) and Kolomela ($0.4bn) operating profit vs. 2011 is included within Volume. Includes stripping and inventory movements. (4) (5) Lost sales volume measured at forgone 2012 cash contribution. (6) De Beers was acquired on 16 August 2012. Variance reflects all movements associated with De Beers in 2012. Reconciliation of loss for the year to underlying earnings $m 4 9 5 2 1 1 ) 8 8 9 1 ( , 8 8 ) 0 1 1 1 ( , ) 3 0 4 ( 9 3 8 2 , 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 -1,000 -2,000 ) 3 9 4 1 ( , 9 3 0 7 , (1,493) Loss for the year 7,039 Operating special items 112 Operating remeasurements 594 Non-operating special items (1,988) Non-operating remeasurement 88 Financing remeasurements Special items and remeasurements tax (1,110) Non-controlling interests on special items (403) 2,839 Underlying earnings Anglo American plc Annual Report 2012 45 OPERATING AND FINANCIAL REVIEW GROUP FINANCIAL PERFORMANCE Tax $ million (unless otherwise stated) Profi t before tax Tax Profi t for the fi nancial year Effective tax rate including associates Year ended 31 Dec 2012 Year ended 31 Dec 2011 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 5,610 (1,488) 4,122 208 5,818 (202) (1,690) 6 4,128 10,626 (2,741) 7,885 401 (385) 16 29.0% Including associates 11,027 (3,126) 7,901 28.3% The completion of our acquisition of an additional 40% interest in De Beers in August 2012 resulted in a cash outfl ow of $4,816 million, net of cash acquired. In July 2012, the Group accepted the conditions of the Competition Commission and consequently the associated assets of Tarmac Quarry Materials were classifi ed as held for sale and recognised at fair value less costs to sell. This resulted in a loss being recognised of $135 million. In December 2012 the Group agreed the sale of its 70% interest in the Amapá iron ore system. The net assets have been reclassifi ed to held for sale and recognised at fair value less costs to sell. This resulted in a loss being recognised of $404 million. Non-operating remeasurements The non-operating remeasurement of $1,988 million (2011: nil) refl ects the gain of $2,017 million, net of transaction costs, resulting from the remeasurement to fair value of the Group’s existing 45% shareholding held in De Beers at the date a controlling stake was acquired. This includes a $2.7 billion uplift on depreciable assets which will unwind through operating remeasurements in the current and future years. Financing remeasurements Financing remeasurements refl ect a net loss of $88 million (2011: gain of $205 million) and relates to an embedded interest rate derivative, non-hedge derivatives relating to debt and other fi nancing remeasurements. Special items and remeasurements tax Special items and remeasurements tax amounted to a credit of $1,110 million (2011: charge of $118 million). This relates to a credit for one-off tax items of $922 million (2011: credit of $137 million), a tax remeasurement charge of $189 million (2011: charge of $230 million) and a tax credit on special items and 46 Anglo American plc Annual Report 2012 remeasurements of $377 million (2011: charge of $25 million). The credit for one-off tax items of $922 million (2011: credit of $137 million) relates principally to the net deferred tax credit of $960 million at Minas-Rio and a net deferred tax credit of $70 million owing to the reassessment of deferred tax assets as a result of changes in tax regimes within operating segments, partially offset by the write-off of the deferred tax asset in Amapá of $108 million following the decision to sell the mine. Net fi nance costs Net fi nance costs, before remeasurements, excluding associates, were $288 million (2011: $20 million). This increase was driven by a decrease in investment income of $71 million, owing to lower average levels of cash and a higher interest expense of $103 million, refl ecting the increase in debt during the year. Foreign exchange losses on net debt also increased by $74 million compared with 2011. Tax The effective rate of tax before special items and remeasurements including attributable share of associates’ tax for the year ended 31 December 2012 was 29.0%. The increase compared to the equivalent effective rate of 28.3% for the year ended 31 December 2011 is due to the reduced impact of certain non-recurring factors. The non- recurring factors in 2012 include further 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. Balance sheet Equity attributable to equity shareholders of the Company was $37,657 million at 31 December 2012 (31 December 2011: $39,092 million). This decrease refl ects the loss for the period of $1,493 million. Investments in associates were $2,177 million lower than at 31 December 2011, principally as a result of De Beers becoming a subsidiary following the acquisition of a further 40% shareholding. Property, plant and equipment increased by $4,540 million compared to 31 December 2011, as a result of ongoing investment in growth projects and the acquisition of De Beers, partially offset by an increase in depreciation, the transfer of Amapá and Tarmac Quarry Materials to ‘held for sale’ and the disposal of Scaw South Africa. Cash fl ow Net cash infl ows from operating activities were $5,562 million (2011: $9,362 million). Underlying EBITDA was $8,686 million, a decrease of 35% from $13,348 million in the prior year, refl ecting weaker prices across the Group’s core commodities and changes in operational performance. Net cash used in investing activities was $9,821 million (2011: $4,853 million). Purchases of property, plant and equipment, net of related derivative cash fl ows, amounted to $5,678 million, a decrease of $86 million, refl ecting the Group’s disciplined approach to capital allocation in the current economic environment while maintaining expenditure on strategic growth projects. Proceeds from disposals, principally the disposal of Scaw South Africa (net of cash and cash equivalents disposed), were $100 million (2011: $533 million). Movements in non-controlling interest during the year resulted in a cash infl ow of $1,220 million mainly $1,907 million from the disposal of 25.4% of AA Sur, partly offset by the purchase of 4.5% of Kumba for $698 million. Net cash infl ow from fi nancing activities was $1,950 million compared with $1,474 million in 2011. During the year the Group paid dividends of $970 million to company shareholders, Sensitivity analysis in respect of currency and commodity prices Set out below is the impact on underlying earnings of a 10% fl uctuation 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) 2012 2011 $1,555/oz $1,725/oz $178/t $92/t 361c/lb 794c/lb $122/t $647/oz 8.21 0.97 486 $251/t $114/t 400c/lb 1,035c/lb $158/t $736/oz 7.26 0.97 484 10%(7) sensitivity US$ million 150 195 209 280 37 191 41 434 190 69 (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 2012. 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. and $1,267 million in dividends to non-controlling interests. The completion of our acquisition of an additional 40% interest in De Beers in August 2012 resulted in a cash outfl ow of $4,816 million, net of cash acquired. Liquidity and funding Net debt, including related hedges, was $8,615 million, an increase of $7,241 million from $1,374 million at 31 December 2011. The increase in net debt refl ects weaker operating cash fl ows owing to lower commodity prices in 2012 and the acquisition of 40% of De Beers, partially offset by the disposal of 25.4% in AA Sur. Net debt at 31 December 2012 comprised $17,759 million of debt, partially offset by $9,312 million of cash and cash equivalents, and the current position of derivative liabilities related to net debt of $168 million. Net debt to total capital(1) at 31 December 2012 was 16.4%, compared with 3.1% at 31 December 2011. At 31 December 2012, the Group had undrawn committed bank facilities of $9.3 billion. (1) Net debt to total capital is calculated as net debt divided by total capital. Total capital is net assets excluding net debt. 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 Corporate costs which are considered to be value adding to the business units are allocated to each business unit. Costs reported externally as Group corporate costs only comprise costs associated with parental or direct shareholder-related activities. Dividends Anglo American’s dividend policy will provide a base dividend that will be maintained or increased through the cycle. Consistent with the policy, the Board has recommended a fi nal dividend of 53 cents per share, giving a total rebased dividend for the year of 85 cents per share, subject to shareholder approval at the Annual General Meeting to be held on 19 April 2013. This refl ects confi dence in the underlying business and completes the reinstatement journey to rebase the dividend to be competitive with diversifi ed peers. 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 This recommendation is consistent with the commitment to have a disciplined balance between the maintenance of a strong investment grade rating, returns to shareholders and sequencing of future investment in line with resulting funding capacity. From time to time any cash surplus to requirements will be returned to shareholders. Analysis of dividends US cents per share 2012 Interim dividend Recommended fi nal dividend Total dividends 32 53 85 2011 28 46 74 Related party transactions Related party transactions are disclosed in note 37 to the fi nancial statements. Basis of disclosure This operating and fi nancial review (OFR) describes the main trends and factors underlying the development, performance and position of Anglo American plc (the Group) during the year ended 31 December 2012, 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 fi nance review issued by the UK Accounting Standards Board in January 2006. Forward looking statements This OFR contains certain forward looking statements with respect to the fi nancial condition, results, operations and businesses of 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 2012 47 OPERATING AND FINANCIAL REVIEW RISK EFFECTIVE RISK MANAGEMENT David Challen Chairman, Audit Committee “Understanding our key risks and developing appropriate responses is critical to our future success. We are committed to a robust system of risk identifi cation and an effective response to such risks.” Anglo American assessment of strategic, operational, project and sustainable development related risks 1. Identifying risks A consistently applied methodology is used to identify key risks across the Group; at business units, operations and projects. This has been effected through the development, roll-out and ongoing implementation of a Group integrated risk management standard. 2. Analysing risks and controls to manage identifi ed risks Once identifi ed, the process will evaluate identifi ed risks to establish root causes, fi nancial and non-fi nancial impacts and likelihood of occurrence. Consideration of risk treatments is taken into account to enable the creation of a prioritised register. 3. Determining management actions required Effectiveness and adequacy of controls are assessed. If additional controls are required these will be identifi ed and responsibilities assigned. 4. Reporting and monitoring Management is responsible for monitoring progress of actions to treat key risks and is supported through the Group’s internal audit programme, which evaluates the design and effectiveness of controls. The risk management process is continuous, key risks are reported to the Audit Committee with sustainability risk also being reported to the S&SD Committee. HOW WE MANAGE RISK Management of risk is critical to the success of Anglo American. Our Group is exposed to a variety of risks that can have a fi nancial, operational or reputational impact. Effective management of risk supports the delivery of our objectives and the achievement of sustainable growth. We also recognise that risks cannot be viewed in isolation. Emergence of one risk may be caused by one or more other risks or may cause another risk to emerge. For example, project delivery risk can be infl uenced by risks relating to supply, infl ation, political matters, legal and regulatory requirements, infrastructure or community relations. This interconnectivity and the relationship of risks to our abovementioned four strategic elements requires signifi cant emphasis to be placed on the management of risk and the effectiveness of our risk controls, with the identifi cation and understanding of our risks being the fi rst step in what is a continuous process. HOW DOES RISK RELATE TO OUR STRATEGIC INTENTS? Risks can arise from events outside of our control or from operational matters. Each of the key risks described on the following pages can have an impact on our ability to achieve our strategic intents. This is illustrated by reference to each of our strategic intents; namely: • Investing in world class assets in the most attractive commodities • Organising effi ciently and effectively • Operating safely, sustainably and responsibly • Employing the best people. As mining is a business that can span decades, many of its attendant risks are long term in nature, and there may not be any signifi cant change year on year. During 2012, however, we experienced changes in our risk profi le; these are indicated in each of our risk descriptions, with appropriate commentary where we have seen change. 48 Anglo American plc Annual Report 2012 EXTERNAL RISKS Linking to our 4 strategic pillars for more information INVESTING Page 14 ORGANISING Page 18 Change in risk during 2012 Increased risk OPERATING Page 22 EMPLOYING Page 32 No change in risk Decreased risk COMMODITY PRICES LIQUIDITY RISK Commodity prices for all products that Anglo American produces are subject to wide fl uctuation. Our Group is exposed to liquidity risk in terms of being able to fund operations and growth. Impact: Commodity price volatility can result in a material and adverse movement in the Group’s operating results, asset values, revenues and cash fl ows. Falling commodity prices could prevent us from completing transactions that are important to the business and which may have an adverse effect on Anglo American’s fi nancial position – e.g. the inability to sell assets at the values or within the timelines expected. Impact: If we are unable to obtain suffi cient credit as a result of prevailing capital market conditions, we may not be able to raise suffi cient funds to develop new projects, compete for new complex projects requiring signifi cant capital expenditure, fund acquisitions or meet our ongoing fi nancing needs. As a result, our revenues, operating results, cash fl ows or fi nancial position may be adversely affected. If commodity prices remain weak for a sustained period, our ability to deliver growth in future years may be adversely affected as growth projects may not be viable at lower prices, and we may not be able to compete for new, complex projects that require signifi cant capital investment. Root cause: Liquidity risk arises from uncertainty or volatility in the capital or credit markets owing 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 our long term cash generative capacity. 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 Root cause: Commodity prices are determined primarily by international markets and global supply and demand. Demand for commodities will largely be determined by the strength of the global economic environment. Mitigation: The diversifi ed nature of the commodities that Anglo American produces provides some protection to this risk, and our policy is not to engage in commodity price hedging. We constantly monitor the markets in which we operate, reviewing capital expenditure programmes accordingly so as to ensure the supply of our products refl ects forecast market conditions. Commentary: During 2012, prices in all the commodities we mine fell as a result of global economic weakness. Further detail of price movements is provided on page 5. Increased risk INVESTING Page 14 ORGANISING Page 18 OPERATING EMPLOYING CLIMATE CHANGE Our 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. Impact: Potential impacts from climate change are diffi cult to assess and will depend on the circumstances at individual sites, but could include increased rainfall, fl ooding, 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 profi tability of the Group. Regulatory measures may infl uence energy prices, demand or the margins achieved for carbon intensive products such as coal. Root cause: Anglo American is a signifi cant user of energy. We are also a major coal producer and exporter. Mitigation: In addition to the initiatives to monitor and limit the impact of operations on the environment, we continuously seek to reduce energy input levels at our operations. Our asset optimisation programme seeks to make operations more energy effi cient. No change in risk INVESTING ORGANISING Page 18 OPERATING Page 22 EMPLOYING Mitigation: We have an experienced Treasury team which is responsible for ensuring that there are suffi cient committed loan facilities in place to meet short term business requirements after taking into account cash fl ows from operations and holdings of cash, as well as any Group distribution restrictions that exist. We limit exposure on liquid funds through a policy of minimum counterparty credit ratings, daily counterparty settlement limits and exposure diversifi cation. No change in risk INVESTING OPERATING ORGANISING Page 18 EMPLOYING POLITICAL, LEGAL AND REGULATORY Wherever we operate, our businesses may be affected by political or regulatory developments, including changes to fi scal 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 benefi ciation. Political instability can also result in civil unrest and nullifi cation 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. Commentary: During 2012 we saw new or increased taxes and royalties introduced in Australia, Brazil, Chile, Colombia, South Africa and Zimbabwe, resolution of a legal dispute in Chile regarding the option over ownership of part of our Anglo American Sur assets and the loss of our mining concession in Venezuela. These matters are further explained on pages 62, 70 and 73 respectively and all are indicative of a more diffi cult political, legal and regulatory environment. Increased risk INVESTING Page 14 ORGANISING Page 18 OPERATING Page 22 EMPLOYING Page 32 Anglo American plc Annual Report 2012 49 OPERATING AND FINANCIAL REVIEW RISK EXTERNAL RISKS continued Linking to our 4 strategic pillars for more information OPERATIONAL RISKS Linking to our 4 strategic pillars for more information INFLATION HEALTH AND SAFETY The Group is exposed to potentially high rates of infl ation in the countries in which it operates. Impact: Higher rates of infl ation 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. Failure to maintain the high levels of safety management can result in harm to our 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 (TB). This may have a negative impact on profi t margins and fi nancial results. In sub-Saharan Africa in particular, HIV/AIDS is a threat to economic growth and development. Impact: In addition to injury, health and environmental damage, impacts could include fi nes and penalties, liability to employees or third parties, impairment of Anglo American’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 affected 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. No change in risk INVESTING ORGANISING OPERATING Page 22 EMPLOYING ENVIRONMENT Certain of our 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 our employees, contractors, the communities near our operations, air quality, water purity and land contamination. Impact: Potential impacts include fi nes and penalties, statutory liability for environmental remediation and other fi nancial consequences that may be signifi cant. 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 of orebodies, can generate dust and noise and requires 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. No change in risk INVESTING ORGANISING OPERATING Page 22 EMPLOYING Root cause: Cost infl ation in the mining sector is more apparent during periods of high commodity prices as demand for input goods and services can exceed supply. Mitigation: We closely manage costs through our asset optimisation and supply chain initiatives and, where necessary, through adjusting employee and contractor numbers. Commentary: Despite commodity price reductions throughout 2012, cost infl ation in the mining sector continued during the period, which, combined with commodity price reductions, squeezed operating margins. Further detail is provided on pages 42–47. Increased risk INVESTING OPERATING ORGANISING Page 18 EMPLOYING COUNTERPARTY RISK The Group is exposed to counterparty risk from customers, certain suppliers and holders of cash. 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 fi nancial institutions and other counterparties with whom we have relationships to meet their obligations. Mitigation: Our 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 fi nancial risks greater than the Group’s own policies would permit. For other counterparty risks our businesses have credit management procedures in place. No change in risk INVESTING OPERATING ORGANISING Page 18 EMPLOYING CURRENCY RISK The Group is exposed to currency risk when transactions are not conducted in US dollars. Impact: Fluctuations in the exchange rates of the most important currencies infl uencing our own operating costs and asset valuations (the South African rand, Chilean peso, Brazilian real, Australian dollar, and pound sterling) may materially affect the Group’s fi nancial results. Root cause: The global nature of the Group’s businesses exposes the Group to currency risk. Mitigation: Given the diversifi ed 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. No change in risk INVESTING OPERATING ORGANISING Page 18 EMPLOYING 50 Anglo American plc Annual Report 2012 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 INVESTING Page 14 ORGANISING Page 18 Change in risk during 2012 Increased risk OPERATING Page 22 EMPLOYING Page 32 No change in risk Decreased risk EXPLORATION ORE RESERVES AND MINERAL RESOURCES Exploration and development are costly activities, with no guarantee of success, but are necessary for future growth. Anglo American’s Ore Reserves and Mineral Resources estimates are subject to a number of assumptions that may be incorrect. Impact: Failure to discover and develop new mineral resources of suffi cient magnitude could have an adverse bearing on future results and the Group’s fi nancial 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. No change in risk INVESTING Page 14 ORGANISING Page 18 OPERATING Page 22 EMPLOYING SUPPLY RISK The inability to obtain key consumables, raw materials, mining and processing equipment in a timely manner. Impact: Any interruption to the Group’s supplies or increase in costs has a negative effect on our fi nancial 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 infl uence over manufacturers and suppliers. Mitigation: We take a proactive approach to developing relationships with critical suppliers and to leveraging the Group’s purchasing power. Contingency plans are developed to mitigate loss of critical supplies. No change in risk INVESTING ORGANISING Page 18 OPERATING Page 22 EMPLOYING 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. Root cause: Mining contractors are used at several Group 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 the establishment of effective working relationships with critical contractors help mitigate this risk. No change in risk INVESTING OPERATING ORGANISING EMPLOYING Page 32 Impact: Deviations from the estimated price of commodities, production costs and mining and processing recovery rates may have an impact on the fi nancial 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 infl uences. Mitigation: Anglo American is experienced in managing Ore Reserves and Mineral Resources and has robust procedures in place to reduce the likelihood of signifi cant 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 191. No change in risk INVESTING Page 14 ORGANISING Page 18 OPERATING EMPLOYING 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, thus affecting our operational and fi nancial performance. Failure to meet project delivery timetables and budgets may delay cash infl ows, increase capital costs and reduce profi tability, 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 infl uenced by technical and engineering factors as well as events or circumstances that have an impact on other critical inputs to the mining and processing of minerals. Mitigation: Management oversight of operating performance and project delivery through regular executive management briefi ngs, a continuous focus on improvement of operations through our asset optimisation programme, and consistent application of the company’s methodology for new projects are vital aspects in managing this risk. Commentary: While some of our growth projects ramped up production during 2012 as planned, our key project in Brazil, Minas-Rio is behind schedule as a result of permit delays and legal challenges, as described on pages 58 and 59. In addition, some of our business units did not meet expected production volumes due to operational performance challenges as indicated on page 43. Production performance was also affected by industrial strike action in South Africa as described on pages 57 and 80. Increased risk INVESTING Page 14 ORGANISING Page 18 OPERATING Page 22 EMPLOYING Page 32 Anglo American plc Annual Report 2012 51 OPERATING AND FINANCIAL REVIEW RISK OPERATIONAL RISKS continued Linking to our 4 strategic pillars for more information EVENT RISK BUSINESS INTEGRITY Damage to physical assets from fi re, explosion, natural catastrophe or breakdown of critical machinery. Failure to prevent acts of fraud, bribery, corruption or anti-competitive behaviour. Impact: The direct costs of repair or replacement combined with business interruption losses can result in fi nancial losses. Impact: Potential impacts include prosecution, fi nes, penalties and reputational damage. Anglo American may suffer fi nancial 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: Anglo American 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, procedures 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. Commentary: The continued implementation of our programme of measures to raise awareness, understanding and management of bribery risk during 2012 should have a positive impact in reducing the likelihood of this risk materialising. The global spread of our business, however, means we can never eliminate this risk. Decreased risk INVESTING ORGANISING OPERATING Page 22 EMPLOYING 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. 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 through implementation of ongoing governance processes in existing joint ventures. Commentary: During 2012, we completed the acquisition of the Oppenheimer family shares in the De Beers business, which includes a number of joint ventures. We also completed the Tarmac joint venture with Lafarge in early 2013, (refer page 89). Thus, as the number of joint ventures in the Group increases, the profi le of this risk has increased in consequence. Increased risk INVESTING Page 14 ORGANISING Page 18 OPERATING Page 22 EMPLOYING Root cause: Some of our operations are located in areas exposed to natural catastrophes such as earthquake/extreme weather conditions. The impact of climate change may intensify the severity of weather events. The nature of our operations exposes us to potential failure of mining pit slopes and tailings dam walls, fi re, 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 in order to prevent or limit the effects of such a loss. Contingency plans are developed to respond to signifi cant events and restore normal levels of business activity. Anglo American purchases insurance to protect itself against the fi nancial consequences of an event, subject to availability and cost. No change in risk INVESTING ORGANISING OPERATING Page 22 EMPLOYING EMPLOYEES The ability to recruit, develop and retain appropriate skills for the Group. Strikes or other industrial relations disputes frequently occur. 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. Industrial disputes have an adverse effect on production levels, costs and the results of operations. Root cause: We are subject to global competition for skilled labour. Our assets and development projects are often in remote places or in countries where it is a challenge to recruit suitably skilled employees. In the key countries where the Group operates, the majority of employees are members of trade unions. Negotiations over wage levels or working conditions can sometimes fail to result in agreement. 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. Commentary: During the second half of 2012 we suffered from strike action in our Platinum and Kumba Iron Ore business units in South Africa. These strikes had a signifi cant impact on production levels as described on pages 57 and 80. Decreased risk INVESTING OPERATING ORGANISING EMPLOYING Page 32 52 Anglo American plc Annual Report 2012 ACQUISITIONS AND DIVESTMENTS 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 negatively affect Anglo American’s reputation as well as our ability to bring projects into production. Root cause: We operate 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. Mitigation: We have developed comprehensive processes to enable our business units to effectively manage relationships with communities and we actively seek to engage with all communities impacted by our operations. No change in risk INVESTING ORGANISING Page 18 OPERATING Page 22 EMPLOYING 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 benefi ts from any acquisition or value from assets or businesses sold. Impact: Failing to deliver expected benefi ts from acquisitions can result in adverse fi nancial performance, lower production volumes or problems with product quality. The Group could fi nd 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: Benefi ts may not be achieved as a result of changing or incorrect assumptions or materially different market conditions or defi ciencies 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, including those that require the approval of the Investment Committee and Group Management Committee and, subject to size, the Board. Commentary: The acquisition of Oppenheimer family shares in De Beers has enabled benefi ts to be identifi ed that will be delivered during the integration process. This acquisition increases the profi le of this risk. Please refer to pages 83–85 for further detail. Increased risk INVESTING Page 14 ORGANISING Page 18 OPERATING Page 22 EMPLOYING INFRASTRUCTURE Inability to obtain adequate supporting facilities, services and installations (water, power, road, rail and port, etc.). 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 profi t margins. Root cause: The potential disruption of ongoing generation and supply of power is a risk faced by Anglo American in a number of countries in which it operates. Our 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. We rely upon effective rail and port facilities for transporting our products and will be expected to provide shipment of product in some circumstances to customers’ premises. We use third parties to provide these services. Mitigation: We seek to work closely with suppliers of infrastructure to mitigate the risk of failure and have established contingency arrangements. Long term agreements with suppliers are sought where appropriate. No change in risk INVESTING ORGANISING Page 18 OPERATING Page 22 EMPLOYING Anglo American plc Annual Report 2012 53 OPERATING AND FINANCIAL REVIEW IRON ORE AND MANGANESE IRON ORE AND MANGANESE Norman Mbazima CEO – Kumba Paulo Castellari-Porchia CEO – Iron Ore Brazil UNDERLYING OPERATING PROFIT (2011: $4,400 m) $2,949 m SHARE OF GROUP UNDERLYING OPERATING PROFIT (2011: 40%) 48% UNDERLYING EBITDA (2011: $4,586 m) $3,198 m Key fi nancial and non-fi nancial performance indicators $ million (unless otherwise stated)(1) Underlying operating profi t Kumba Iron Ore Iron Ore Brazil Samancor Projects and Corporate Underlying EBITDA Net operating assets Capital expenditure Share of Group underlying operating profi t Share of Group net operating assets Non-fi nancial indicators(2) Number of fatal injuries Kumba Iron Ore Iron Ore Brazil Lost-time injury frequency rate Kumba Iron Ore Iron Ore Brazil Total energy consumed in 1,000 GJ Kumba Iron Ore Iron Ore Brazil Total greenhouse gas emissions in 1,000 tonnes CO2e Kumba Iron Ore Iron Ore Brazil Total water used for primary activities in 1,000 m3 Kumba Iron Ore Iron Ore Brazil 01 2011 4,400 4,491 (141) 165 (115) 4,586 12,427 1,659 40% 28% 2011 – 1 0.08 0.01 7,045 2,074 907 112 8,179 5,273 2012 2,949 2,980 (5) 103 (129) 3,198 9,356 2,077 48% 18% 2012 2 – 0.10 0.01 7,603 713 945 49 8,803 895 01 Construction of the pump station at our Minas-Rio iron ore project in Brazil. (1) (2) In 2012, Amapá was reclassifi ed from Iron Ore and Manganese to Non-core within the Other Mining and Industrial (OMI) segment to align with internal management reporting. Financial comparatives have been reclassifi ed to align with current presentation. In a given year, non-fi nancial data is reported within the business unit that had management control of the operation; therefore non-fi nancial data for Amapá is reported within OMI and Iron Ore Brazil for 2012 and 2011 respectively. 54 Anglo American plc Annual Report 2012 2012 Iron ore demand Global 1,092Mt(1) North America Europe Japan and rest of Asia China India CIS Incorporating: South America Rest of World 49Mt 92Mt 132Mt 628Mt 54Mt 71 Mt 39Mt 27Mt Source: CRU, AME, company reports and Anglo American Commodity Research estimates (1) Global iron ore, Fe unit basis 2012 Iron ore production Global 1,092Mt(1) North America South America China India CIS Australia Incorporating: Europe Rest of World 61Mt 288Mt 159 Mt 82Mt 110Mt 295Mt 48Mt 49Mt Source: CRU, AME, company reports and Anglo American Commodity Research estimates (1) Global iron ore, Fe unit basis BUSINESS OVERVIEW Our Iron Ore portfolio is based in South Africa and Brazil. In South Africa, we have a 69.7% (2011: 65.2%) shareholding in Kumba Iron Ore Limited, a leading supplier of seaborne iron ore. Our Brazilian interests comprise the Minas-Rio project (composed of Iron Ore Brazil’s 100% share in Anglo Ferrous Minas-Rio Mineração S.A., and its 49% holding in LLX Minas-Rio, which owns the port of Açu currently under construction, and from which the project’s iron ore will be exported). Our 70% interest in the Amapá iron ore system is now held in Other Mining and Industrial. Kumba, listed on the Johannesburg Stock Exchange, produces a leading quality lump ore and also produces premium fi ne ore, in a lump-to-fi ne ratio of 60:40. Kumba operates three mines – Sishen mine in the Northern Cape, which produced 33.7 million tonnes (Mt) of iron ore in 2012; the new Kolomela mine, situated close to Sishen mine, which was brought into production during 2011 and produced 8.5 Mt during 2012; and Thabazimbi mine in Limpopo, with an output of 0.8 Mt. Export ore is transported via the Sishen/Kolomela-Saldanha iron ore export channel (IOEC) 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 growing Asia-Pacifi c and Middle East markets and European steel markets. In 2012, the company exported 90% of its total iron ore sales volumes of 44.4 Mt, with 69% of these exports destined for China and the remainder for Europe, Japan, South Korea and India. 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 benefi ciation 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. Kumba produces a leading quality lump ore and also produces a premium fi ne ore. OPERATING DRIVING PIT SAFETY TO A NEW LEVEL 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 As its vehicle population increases, one of the world’s biggest open pit operations is tackling the issue of vehicle collisions. As no suitable, off-the-shelf solutions were available, Sishen’s engineers joined forces with FLARM, specialists in aviation collision avoidance technology, to design a system tailor-made for open pit mining. The ensuing collision avoidance system (CAS) links all vehicles and safety features in one intelligent system. It allows for vehicles to be remotely monitored, and manual control to be overridden. Notably, CAS eliminates haul trucks’ notoriously blind spots, giving drivers a much better all-round view. As operators gain experience in CAS, Sishen is seeing a signifi cant fall in vehicle collisions and ‘near misses’. Meanwhile, FLARM has established SAFEmine, a company set up specifi cally to bring Sishen’s CAS technology to a worldwide market. Image Kumba’s Keitumetse Hynes has been trained in CAS. She drives a haul truck at the Sishen iron ore mine in South Africa. Anglo American plc Annual Report 2012 55 OPERATING AND FINANCIAL REVIEW IRON ORE AND MANGANESE 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 manganese ore and is among the top global producers of manganese alloy. Its operations produce a combination of ores and alloys from sites in South Africa and Australia. INDUSTRY OVERVIEW Global demand for iron ore is linked primarily to the state of the global steel industry and, more specifi cally, 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. Manganese alloy is a key input into the steelmaking process. Manganese high-grade ore is particularly valuable to alloy producers because it is proportionately more effi cient than low-grade ore in the alloying process. STRATEGY A key element of Anglo American’s strategy is to grow its 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 profi le, with extensive, high quality resource bases in South Africa and Brazil. Kumba seeks to maximise total shareholder value by enhancing the value of its current operations through its asset optimisation programmes, capturing value across the value chain through its commercial and logistics strategies, executing its growth projects effi ciently, and ensuring that it has the organisational capability to execute its strategy. The company plans to grow its business organically in order to achieve production of 70 Mtpa from Iron ore price (FOB Australia) Anglo American has a unique iron ore resource profi le, with extensive, high quality resource bases in South Africa and Brazil. 200 180 160 140 120 100 80 t / $ Jan 11 Jun 11 Dec 11 Jun 12 Dec 12 Spot QAMOM(1) Source: Anglo American Commodity Research (1) QAMOM is a pricing mechanism based on average quarter in arrears minus one month. Operating safely, sustainably and responsibly Kumba faces a number of material issues in its current operating environment and at the forefront is meeting rising expectations and demands from stakeholders – including government, employees, communities and shareholders – in a fi nancially and resource constrained economic and social environment. Achieving and maintaining our licence to operate also remains of the utmost importance – including social and environmental compliance – amidst increasing regulatory, cost and governance requirements in South Africa. The attraction, retention and development of human resources remain critical priorities for Kumba. We address these issues through a considered and proactive approach to talent management and retention as well as workplace health and safety, responsible environmental management, and the application of leading social performance standards and management systems. At the core of each of these strategic work streams is a culture of regular and transparent two-way engagement. South Africa and, in the longer term, through expanding its production footprint into other countries in Africa. Minas-Rio will capture a signifi cant part of the 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 potential optimisation to 29.8 Mtpa. During the year Anglo American completed a detailed cost and schedule review of the Minas-Rio iron ore project. The review included third party input and examined the outstanding capital expenditure requirements in light of current development progress and the disruptive challenges faced by the project. The review included a detailed re-evaluation of all aspects of the outstanding schedule, with a focus on maximising value and mitigating risk. Following completion of the review, capital expenditure for the Minas-Rio project is projected to increase to $8.8 billion, if a centrally held risk contingency of $600 million is utilised in full. On the basis of the revised capital expenditure requirements and assessment of the full potential of Phase 1 of the project (excluding at this stage the potential for future expansions to 90 mtpa), Anglo American has recorded an impairment charge of $4 billion at 31 December 2012, on a post-tax basis. The fi rst phase of the project will begin its ramp up at the end of 2014. 56 Anglo American plc Annual Report 2012 01 Moving sections into position along the 525 kilometre iron ore slurry pipeline at our Minas-Rio project in Brazil. 02 Preparation work under way on installing power supply at the site of Minas-Rio’s milling plant. Following successful commissioning in 2011, Kolomela continued its ramp up ahead of expectations and delivered an outstanding performance in 2012, producing 8.5 Mt of iron ore. 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 end of 2012, with steel mills returning to the market, which was refl ected in a marked increase in index iron ore prices. Overall, index prices averaged $130/t (CFR 62% Fe Platts) in 2012, 23% lower than the $169/t average achieved in 2011. Operating performance Kumba Iron Ore Underlying operating profi t decreased by 34% from $4,491 million to $2,980 million principally as a result of 23% weaker average export iron ore prices, partly offset by a 7% increase in export sales volumes. Total operating costs rose by 16%, driven primarily by a $254 million increase in operating costs at Kolomela mine owing to operating costs being capitalised in 2011, above infl ation cost increases and the mining of 14.5 Mt of additional waste at Sishen mine. Total production of iron ore increased by 4% to 43.1 Mt due to the ramp up of Kolomela, partially offset by the impact of the unprotected strike during the fourth quarter. Total tonnes mined at Sishen rose by 4% to 171.6 Mt (2011: 165.0 Mt), of which waste mined amounted to 133.5 Mt, an increase of 12% (2011: 119.0 Mt). Iron ore production at Sishen, however, decreased by 13% to 33.7 Mt (2011: 38.9 Mt) mainly owing to the effects of the unprotected strike. On 3 October, around 300 Sishen employees commandeered most of the mining equipment at the mine. The situation ended on 16 October and production recommenced on 20 October, though on a limited basis as attendance in the mining section remained low in the immediate aftermath of the strike. Operations are subsequently being ramped up. Production rates continue to improve and are expected to return to normal operating levels by the end of the fi rst half of 2013. Sishen lost around 5 Mt of production as a result of the industrial action and the subsequent ramp up of operations. These losses exacerbated the production challenges experienced earlier in the year resulting from mining feedstock and quality constraints that affected the availability of material supplied to the mine’s two processing plants. Anglo American plc Annual Report 2012 57 01 02 FINANCIAL AND OPERATIONAL OVERVIEW Underlying operating profi t decreased by 33% from $4,400 million to $2,949 million, principally as a result of weaker average export iron ore prices at Kumba and lower prices and alloy volumes at Samancor. This was partially offset by an increase in export iron ore at Kumba and record manganese ore volumes at Samancor. Safety and environment Kumba Iron Ore Regrettably, Kumba suffered its fi rst loss of life since 2010, when two employees were fatally injured at Sishen mine during 2012. Kumba recorded a lost-time injury rate (LTIFR) of 0.10 (2011: 0.08), a 25% increase year on year. Kolomela continued its impressive safety record and achieved 29 million man-hours without a fatal incident or LTI between March 2010 and October 2012. Iron Ore Brazil There were no losses of life at Iron Ore Brazil sites in the year. The LTIFR of 0.01 was in line with the prior year. Markets Global crude steel production increased by 2% in 2012 to 1,550 Mt (2011: 1,526 Mt). This increase was driven primarily by China, where crude steel output increased by around 3% to 717 Mt (2011: 695 Mt). In the rest of the world, crude steel output was fairly fl at at 833 Mt. Seaborne iron ore supplies were subject to adverse weather conditions in both Brazil and Australia in the fi rst quarter of 2012, and ongoing Indian supply disruptions following the ban on iron ore mining in Goa. For the year as a whole, seaborne supplies were 0.3% higher, reaching a level of 1,062 Mt. Considerable price volatility marked 2012, especially during the third quarter when prices fell by as much as 36%, as Chinese steel mills depleted stockpiles and reduced raw material inventory levels to as little as 17 days’ worth of production requirements. Iron ore prices reached a high of $151/t (62% Fe CFR China) in April 2012, but fell to a low of $89/t in early September, before stabilising at around $130/t towards the end of the year. The market recovered at the OPERATING AND FINANCIAL REVIEW IRON ORE AND MANGANESE Following successful commissioning in 2011, Kolomela continued its ramp up ahead of schedule and delivered an outstanding performance in 2012, producing 8.5 Mt. Production has exceeded monthly design capacity since July 2012, and reached record levels during the second half of the year. Total tonnage mined increased by 26% to 43.5 Mt (2011: 34.6 Mt), of which waste mined was 33.5 Mt, 11% higher than the prior year fi gure of 30.3 Mt. Kumba’s sales volumes were 2% higher at 44.4 Mt (2011: 43.5 Mt). Export sales volumes for the year increased by 7% to 39.7 Mt (2011: 37.1 Mt) as production losses at Sishen were offset by production from Kolomela and by sales from stock. The production losses caused by the unprotected strike reduced export stock levels across the value chain and impacted export spot sales volumes. Notwithstanding the impact of the strike, Kumba met all its export customer sales commitments for 2012. Domestic sales volumes to AMSA reduced by 27% to 4.7 Mt (2011: 6.4 Mt). Export sales volumes to China accounted for 69% of the company’s total export volumes for the year, compared to 68% in 2011. Iron Ore Brazil Iron Ore Brazil generated an underlying operating loss of $5 million, refl ecting the pre-operational state of the Minas-Rio project. Samancor Underlying operating profi t declined by 38% to $103 million (2011: $165 million), driven by lower prices and lower alloy volumes, partly offset by lower costs and strong ore sales volumes. A slowdown in steel production weighed heavily on ore and alloy prices. Production of ore increased by 20% from 2.8 Mt to a record 3.3 Mt (attributable basis) owing to a consistently strong operating performance and improved plant availability at both GEMCO in Australia and Hotazel in South Africa. Alloy production, however, decreased by 34% to 198,400 tonnes (attributable basis) following the termination of energy-intensive silica-manganese production at the Metalloys plant in South Africa and the temporary suspension of production at TEMCO in Australia during the fi rst half of the year. TEMCO subsequently returned to full capacity during the third quarter. Projects The components of Kumba’s growth include new developments, expansions at existing operations, and growth though technological advances that will allow the processing of lower grade ore. Kumba is currently studying opportunities to expand Kolomela’s production through a benefi ciation process, which could add a further 6 Mtpa to its output. The project has progressed to pre-feasibility study and further decisions will be made in due course, depending on prevailing market conditions. The SEP 1B commenced construction during the year, and is expected to be commissioned in 2013, within the $48 million capex budget. The growth portfolio is constantly being reviewed taking into account the macroeconomic environment, the outcome of project studies and the status of the IOEC expansion study. Construction is under way at the fi rst phase of the 26.5 Mtpa Minas-Rio iron ore project, with optimisation to 29.8 Mtpa. Anglo American announced in December 2012 that all three injunctions that had disrupted the project in the year, contributing to the delay of fi rst ore on ship (FOOS) to the end of 2014, had been lifted. 58 Anglo American plc Annual Report 2012 01 02 We announced in December 2012 that all three injunctions that had disrupted the Minas-Rio project during the year, contributing to the delay of fi rst ore on ship to the end of 2014, had been lifted. Construction progress is in line with the revised construction schedule announced in July 2012, namely: • The mine and benefi ciation plant are on track – 92% of the earthworks have been completed at the benefi ciation plant, the fi rst of two grinding mills has been installed and the civil works for the secondary crusher are complete; • At the 525 kilometre slurry pipeline, almost 50% of the pipeline has been laid (approximately 247 kilometres), with 76% of the land cleared for earthworks and pipe installation to take place; • The fi ltration plant is on schedule for completion by June 2013; • The port’s two stackers and reclaimer have been erected and the shiploader installation is under way. Kolomela mine remains on track to produce 9 Mt in 2013, in line with design capacity. 01 At the Kumba/Kolomela rail loading facility iron ore is transferred to rail wagons for the 861 kilometre journey to the dedicated iron-ore export terminal at Saldanha Bay on South Africa’s Atlantic coast. 02 The jig plant at Sishen mine is one of the biggest of its type in the world. The primary drivers of the capital expenditure increase from the previous estimate in 2011 relate to: • The delay in FOOS from late 2013 to late 2014; • Scope changes, including those agreed as part of the review process and taking into consideration additional land access costs and purchases, increased earth and civil works required following access to various sites along the pipeline and the increased costs of meeting licence conditions; • Construction infl ation costs, including contract adjustments and mining equipment price increases; • A centrally held risk contingency of $600 million to accommodate a number of potential factors to achieve the FOOS date of the end of 2014, including the potential for additional price escalation, productivity acceleration and fi nalisation of the extent of earth and civil works required on land that is yet to be accessed. Following its approval in 2011, the $279 million GEEP2 project (Anglo American’s 40% share: $112 million) will increase GEMCO’s benefi ciated product capacity from 4.2 Mtpa to 4.8 Mtpa through the introduction of a dense media circuit by-pass facility. The project is expected to be completed, on schedule and budget, in late 2013. 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 expansion. The addition of a $91 million (on a 100% basis) high carbon ferro- manganese furnace at the Metalloys smelter in South Africa will add an additional 130,000 tonnes of capacity per year. Hot commissioning was completed, on schedule, in the fourth quarter of 2012, with full production expected in the second quarter of 2013. O p e r a t i n g a n d fi n a n c a i l r e v e w i Outlook A similar level of growth in global crude steel production is expected for 2013, with China’s production rising marginally to about 740 Mt, while growth in production in other developing countries is expected to be countered by a reduction in output in some of the developed markets. In 2013, Indian iron ore production is expected to remain under pressure as a result of domestic policy changes. However, new supply capacity, primarily from Australia, is expected to partially offset this reduction in Indian supply. The start of 2013 has seen a rapid recovery in iron ore prices. The consensus view is that this rally will not be sustained throughout the year; however some positive sentiment in relation to Chinese steel consumption growth has been restored and is expected to provide support to prices throughout the year. Seaborne iron ore supply growth may lead to iron ore prices softening in the second half of 2013, but on average prices are anticipated growth to be fi rmer than in 2012. The knock-on effect of the 2012 unprotected strike at Sishen mine is expected to result in lower production volumes than originally planned in 2013. Sishen mine is anticipated to produce at least 37.0 Mt in 2013. The ramp up in waste mining at Sishen mine continues and will continue to put upward pressure on the mine’s cash unit costs. Kolomela mine remains on track to produce 9 Mt in 2013, in line with design capacity. Export sales volumes are expected to be in line with 2012 levels. Due to a weaker market, a supply side response provided price support for manganese ore in the latter part of 2012. The recovery in pricing is expected to continue into 2013, however, muted demand expectations are expected to limit the rate and extent of the recovery in the near term. Kumba Iron Ore update Sishen supply agreement arbitration A dispute arose between Sishen Iron Ore Company Proprietary Limited (SIOC) and ArcelorMittal South Africa Limited (AMSA) in February 2010, in relation to SIOC’s contention that the contract mining agreement concluded between them in 2001 had become inoperative as a result of the fact that AMSA had failed to convert its old order mining rights. This dispute has been referred to arbitration. On 9 December 2011, SIOC and AMSA agreed to delay the arbitration proceedings in relation to the Sishen Supply Agreement until the fi nal resolution of the mining rights dispute. This arbitration is only expected to commence in the fourth quarter of 2013, with possible resolution only expected in the third quarter of 2014 at the earliest. An Interim Pricing Agreement (IPA2) between SIOC and AMSA was in place until 31 July 2012 and was extended to 31 December 2012. In December 2012 a further interim agreement was concluded, after negotiations which were facilitated by the Department of Trade and Industry (DTI). The further interim agreement will govern the sale of iron ore from the Sishen mine to AMSA for the period 1 January 2013 to 31 December 2013, or until the conclusion of the legal processes in relation to the 2001 Sishen Supply agreement (whichever is sooner), at a weighted average price of $65/t. Of the total 4.8 Mt, about 1.5 Mt is anticipated to be railed to Saldanha Steel and the rest to AMSA’s inland operations. 21.4% undivided share of the Sishen mine mineral rights On 3 February 2012 both the Department of Mineral Resources (DMR) and Imperial Crown Trading 289 Proprietary Limited (ICT) submitted applications for leave to appeal against the High Court judgment. SIOC applied for leave to present a conditional cross-appeal, in order to protect its rights. The Supreme Court of Appeal (SCA) hearing will be held on 19 February 2013, and the SCA judgement is expected to be received early in the second half of 2013. The High Court order did not affect the interim supply agreement between AMSA and SIOC, which was in place until 31 July 2012 and was extended to 31 December 2012. SIOC will continue to take the necessary steps to protect its shareholders’ interests in this regard. Anglo American plc Annual Report 2012 59 OPERATING AND FINANCIAL REVIEW METALLURGICAL COAL METALLURGICAL COAL Seamus French CEO UNDERLYING OPERATING PROFIT (2011: $1,189 m) $405 m SHARE OF GROUP UNDERLYING OPERATING PROFIT (2011: 11%) 7% UNDERLYING EBITDA (2011: $1,577 m) $877 m Key fi nancial and non-fi nancial performance indicators $ million (unless otherwise stated) Underlying operating profi t Underlying EBITDA Net operating assets Capital expenditure Share of Group underlying operating profi t Share of Group net operating assets Non-fi nancial indicators Number of fatal injuries Lost-time injury frequency rate Total energy consumed in 1,000 GJ Total greenhouse gas emissions in 1,000 tonnes CO2e Total water used for primary activities in 1,000 m3 01 2012 405 877 5,219 1,028 7% 10% 2012 0 1.75 14,787 3,919 14,717 2011 1,189 1,577 4,692 695 11% 11% 2011 0 2.47 13,695 3,629 14,385 01 Mine site offi cer Nicolette Martens and production supervisor Gordon Barwick inspect the conveyor near the coal handling and preparation plant at Moranbah North, in Queensland, Australia. 60 Anglo American plc Annual Report 2012 (1) Throughout the (2) CRU Metallurgical Coal (3) Customs Information Metallurgical Coal commentary, all volumes are expressed on an attributable basis. Market Report (February 2013) (Global Trade Information Services Inc.) BUSINESS OVERVIEW Anglo American is Australia’s second largest metallurgical coal producer and third largest global exporter of metallurgical coal.(1) Its coal operations in Australia are based on the east coast, from where the business serves a range of customers throughout Asia and the Indian sub-continent, Europe and South America. Our operation in Canada, Peace River Coal, mainly serves customers in Europe, Japan and South America. Metallurgical Coal operates six mines in Australia and one metallurgical coal mine, Peace River Coal, in British Colombia, Canada. In Australia there is one wholly owned mine, and fi ve in which Metallurgical Coal has a majority interest. Five of the mines are located in Queensland’s Bowen Basin: Moranbah North (metallurgical coal), Capcoal (metallurgical and thermal coal), Foxleigh (metallurgical coal), Dawson (metallurgical and thermal coal) and Callide (thermal coal). Drayton mine (thermal coal) is in the Hunter Valley, New South Wales. All of the mines are in well-established locations and have direct access to rail and port facilities at Dalrymple Bay and Gladstone in Queensland and Newcastle in New South Wales. Moranbah North (88%) is an underground longwall mining operation with a mining lease covering 100 km2. Coal is mined from the Goonyella Middle Seam, approximately 200 metres below the surface. The mine’s annual capacity is 4.5 million tonnes (Mt) of hard coking coal for steel manufacturing. Capcoal (70%) operates two underground mines and an open cut mine. Together, they produced around 6.0 Mt of hard coking, pulverised coal injection (PCI) and thermal coals in 2012. Dawson (51%) is an open cut operation, with production of 4.6 Mt of coking and thermal coal in 2012. Foxleigh (70%) is an open cut operation which produced 1.9 Mt of high quality PCI coal in 2012. Peace River Coal (100%) is an open cut operation in Canada, with an output of 1.4 Mt of metallurgical coal in 2012, an increase of 47% over the prior year. Metallurgical Coal owns an effective 23% interest in the Jellinbah and Lake Vermont mines in Queensland, producing 2.1 Mt of coking, PCI and thermal coals in 2012. Anglo American has agreed to acquire a 58.9% interest in the Revuboè metallurgical coal project in Mozambique from the Talbot Estate for a total cash consideration of A$540 million (approximately US$555 million). The Revuboè project is an incorporated joint venture and includes Nippon Steel Corporation (33.3% interest) and POSCO (7.8% interest). Revuboè comprises hard coking and thermal coal suitable for open cut mining, with the potential to support the export of 6 to 9 million tonnes per annum (Mpta) on a 100% basis. The transaction remains subject to a number of conditions and is in line with Anglo American’s strategic commitment to grow the global metallurgical coal business to supply our customers from each of the key metallurgical coal supply regions of Australia, Canada and Mozambique. Metallurgical Coal’s resource base, consisting of Measured, Indicated and Inferred (in LOM) Resources additional to Coal Reserves, totals 3.8 billion tonnes on a 100% basis (2.7 billion tonnes on an attributable basis). Details of Metallurgical Coal Resources appear in the Coal Reserves and Resources section of the Annual Report, pages 200–203. INDUSTRY OVERVIEW Metallurgical coal, composed of coking coal and PCI coal, is an essential raw material in blast-furnace steel production, which represents approximately 70% of global crude steel output. Global metallurgical coal supply amounts to approximately 1 billion tonnes per year. China is the biggest consumer of metallurgical coal, with total consumption of approximately 730 Mt(2) in 2012. Owing to its large domestic metallurgical coal production, China only needs to import about 7%, or 50 Mt(3), of its total metallurgical coal requirement. This, however, represents a signifi cant portion (20%) of the total global seaborne metallurgical coal market. Metallurgical coal, composed of coking coal and PCI coal, is an essential raw material in blast-furnace steel production. ORGANISING CAPCOAL OPEN CUT – AUSTRALIAN MINE OF THE YEAR O p e r a t i n g a n d fi n a n c a i l r e v e w i Metallurgical Coal’s Capcoal Open Cut operation won the Mining Prospect Award’s Australian Mine of the Year Award in 2012 owing to safety improvements, increased throughput at the coal handling and preparation plant (CHPP) and production milestones delivered over an 18 month period. The site experienced a real step change in safety, with the total recordable case frequency rate decreasing by 75% since 2010 and the electrical maintenance workshop achieving 22 years’ lost-time injury free in July 2012. The site experienced the benefi ts of an upgrade to the CHPP, which increased capacity at the plant with the installation of a new 5 Mt capacity module. In June 2012, the CHPP achieved record feed tonnes with 1.4 Mt of coal processed through the plant in the month. The introduction of a new rope shovel at Capcoal has allowed the site to take advantage of double sided loading. In the fi rst half of 2012, the mine experienced record metallurgical coal production, delivering its highest fi rst half of the year run of mine tonnes at 3.3 Mt, a 28% improvement on the previous best half production. Image Metallurgical Coal’s Capcoal open cut mine in Queensland. Anglo American plc Annual Report 2012 61 OPERATING AND FINANCIAL REVIEW METALLURGICAL COAL 2012 Metallurgical coal demand Global 1,095 Mt North America Western Europe Japan China India CIS Incorporating: South America Other Asia Rest of World 29 Mt 73Mt 65 Mt 746 Mt 41Mt 66 Mt 21Mt 47 Mt 6 Mt Source: AME, Wood Mackenzie, CRU, company reports and Anglo American Commodity Research estimates 2012 Metallurgical coal production Global 1,095 Mt China Oceania North America CIS Mongolia Rest of World 669Mt 169Mt 109 Mt 100Mt 20Mt 29 Mt Source: AME, Wood Mackenzie, CRU, company reports and Anglo American Commodity Research estimates In 2012, the international seaborne metallurgical coal market totalled around 250 Mt(2), the major consuming regions being Japan, South Korea, Taiwan, Europe, India, China and Brazil. On average, Australia supplies roughly two-thirds of the seaborne metallurgical coal market. Historically, annual contract pricing has predominated in the market. A shift to shorter term pricing in 2010–2012 saw the majority of contracts priced on a quarterly basis, with a growing proportion being priced on a monthly basis. The Queensland State Budget was delivered in September 2012, with a royalty rate increase which equates to a 22% increase on the royalty rate payable per tonne of coal sold for $200/t or more, with effect from 1 October 2012. STRATEGY Emerging markets, particularly in the Asia-Pacifi c region, are likely to remain the driving force behind metallurgical coal demand. In light of this, Metallurgical Coal’s strategy is to increase the value of the business by optimising existing operations and investing in growth projects in the supply regions best placed to produce the high-margin export metallurgical coals sought by our customers. To implement this strategy: • A structured programme of asset optimisation has been designed to deliver industry-best operational performance over the existing asset base, targeting longwall performance at the underground operations and key equipment at the open cut mines; • An attractive organic growth pipeline with the potential to triple hard coking coal production to satisfy growing market demand, including opportunities in Australia and Canada. To underpin its industry leading growth plans, Anglo American has several export port options under study in Queensland, Australia, and has secured port access for the Roman Project in Canada; 62 Anglo American plc Annual Report 2012 Metallurgical Coal has an attractive organic growth pipeline with the potential to triple hard coking coal production to satisfy growing market demand. • In line with demand from the steelmaking industry in both existing and emerging markets, Metallurgical Coal is realising increased value from developing superior specialised product offerings tailored to individual customers in the steel sector. Operating safely, sustainably and responsibly Water management and rehabilitation are key environmental focus areas for Metallurgical Coal. Climate variability in the regions in which we operate requires water management strategies that are equally effective in periods of fl ood and drought. Our rehabilitation strategy requires disciplined management of disturbed land and the development of mine closure plans. To play our part in mitigating the emissions which may contribute to climate change and reduce our exposure to the carbon pricing mechanism, we have invested more than $120 million over the past fi ve years to abate 8 Mt of CO2e emissions using available commercial-scale technologies. FINANCIAL AND OPERATIONAL OVERVIEW Metallurgical Coal recorded an underlying operating profi t of $405 million, 66% lower than the 2011 record of $1,189 million. This was driven by a 29% decrease in export metallurgical coal prices, partially offset by a 25% increase in metallurgical coal sales volumes. Productivity improvements at both the open cut and underground operations and a reduction in weather related stoppages, supported by the rigorous preparation for seasonal rain, led to a signifi cant increase in metallurgical coal production and sales. Year-on-year FOB cash unit costs improved, with a 10% reduction at the Australian export operations, and a 20% reduction achieved in the second half of the year. Safety and environment There were no fatal injuries at our Metallurgical Coal operations in 2012. The lost-time injury frequency rate of 1.75 is the lowest on record and represented a 29% improvement over 2011 and was attributable to visible and proactive leadership and accountability at all levels, a focus on contractor management, and a reduction in the number of risks associated with vehicles and machinery. Markets Anglo American weighted average achieved sales prices ($/tonne) Export metallurgical coal (FOB) Export thermal coal (FOB) Domestic thermal coal Attributable sales volumes (’000 tonnes) Export metallurgical coal Export thermal coal Domestic thermal coal 2012 2011 178 96 37 251 101 35 2012 2011 17,413 13,983 6,043 6,274 6,921 7,455 Prices for seaborne metallurgical coal dropped sharply in the latter half of the year, resulting in the average 2012 hard coking coal price falling by 27% to $210/t from the 2011 average hard coking coal benchmark price of $289/t. Overall supply of metallurgical coal was ahead of 2011 levels, owing to increased exports from the US, while Australian hard coking coal supply remained below 2010 levels. Hard coking coal prices fell, with lower quality PCI and semi-soft prices falling more signifi cantly. The majority of Anglo American’s metallurgical coal sales were placed against term contracts with quarterly negotiated price settlements. Hard coking coal accounted for 67% of Metallurgical Coal’s export metallurgical coal sales in 2012. Operating performance Attributable production (’000 tonnes) 2012 2011 Export metallurgical coal Export thermal coal Domestic thermal coal 17,664 14,190 6,046 6,064 6,925 7,362 Export metallurgical coal production increased by 24% to 17.7 Mt, with record production in the second half, and the full year, while thermal coal production was in line with the prior year at 13.0 Mt. Production improved at both underground and open cut operations by 29% and 22% respectively, with record run of mine production achieved at all of the export open cut operations. Increased production was driven by asset optimisation programmes and a reduction in rain-related stoppages, supported by rain mitigation initiatives implemented during 2011. Record coal production was achieved at the Capcoal open cut mine, with a 28% increase over the prior year, driven by best in class rates on large capacity shovels and optimal alignment of equipment to pit conditions. Dawson delivered a notable turnaround in performance with total production increasing by 18% to a record of 4.6 Mt. This was due to improved equipment performance and the optimisation of the terrace mine design that was implemented in 2012. Peace River Coal in Canada signifi cantly lifted its coal production by 47%, underpinned by productivity improvements and upgrades to the coal handling and preparation plant. At the underground operations in Australia, production increased by 29%, driven by improved longwall performance. Moranbah delivered a 45% increase in volumes as a result of a recovery from the partial drift failure and a 47% increase in cutting hours in the second half of the year compared to the fi rst half. Thermal coal production was impacted by wet weather in New South Wales and industrial action in the fi rst quarter at Drayton. Projects Phase 1 of our wholly owned Grosvenor project continues to be developed on schedule. All key permits and licences are in place and engineering and procurement activities are progressing to plan. Construction has commenced on site, with the access road complete and bulk earthworks well under way. Production of longwall coal is forecast to commence in 2016. Record coal production was achieved at the Capcoal open cut mine, with a 28% increase over the prior year. O p e r a t i n g a n d fi n a n c a i l r e v e w i Studies for the next phase of our investment programme include Grosvenor Phase 2, a 6 Mtpa second longwall; and Moranbah South, a 12 Mtpa (on a 100% basis), 50%-owned joint venture, comprising two longwalls. Exploration and environmental approval activities to support these projects are in progress. Concept studies are also under way to develop options to further expand our operations in Australia and British Columbia. The Drayton South project is planned to replace export thermal capacity for the Drayton mine in New South Wales. Outlook Strong production from Australia combined with exports from the US led to oversupply into the weakened market during 2012, resulting in substantially lower spot and monthly settlement prices in the third and fourth quarters. It is anticipated that there will be a rebalancing of the market during the fi rst half of 2013, with demand recovery from China and idling of some high cost US and Australian production. Price differentiation between premium and lower quality products is expected to remain, with continued supply of second tier products from the US. Metallurgical Coal is positioned to take advantage of any future coal price increases as a result of the focus on delivering high margin, low cost capacity, and the demonstrated benefi ts of asset optimisation initiatives. Anglo American plc Annual Report 2012 63 OPERATING AND FINANCIAL REVIEW THERMAL COAL THERMAL COAL Godfrey Gomwe CEO UNDERLYING OPERATING PROFIT (2011: $1,230 m) $793 m SHARE OF GROUP UNDERLYING OPERATING PROFIT (2011: 11%) 13% UNDERLYING EBITDA (2011: $1,410 m) $972 m Key fi nancial and non-fi nancial performance indicators $ million (unless otherwise stated) Underlying operating profi t South Africa Colombia Projects and corporate Underlying EBITDA Net operating assets Capital expenditure Share of Group underlying operating profi t Share of Group net operating assets Non-fi nancial indicators Number of fatal injuries Lost-time injury frequency rate Total energy consumed in 1,000 GJ Total greenhouse gas emissions in 1,000 tonnes CO2e Total water used for primary activities in 1,000 m3 01 2011 1,230 779 482 (31) 1,410 1,886 190 11% 4% 2011 2 0.19 5,823 2,583 8,260 2012 793 482 358 (47) 972 1,965 266 13% 4% 2012 2 0.20 5,742 1,620 8,525 01 Production geologist Elsie Phelane and drilling assistant Thabo Mdluli check core samples in October 2011 at Zibulo, now Thermal Coal’s newest colliery. 64 Anglo American plc Annual Report 2012 ORGANISING CARRYING THEIR PROPER WEIGHT 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 Loading of haul trucks has been identifi ed as one of Landau’s biggest opportunities for improvement. An internal survey found that contractor operators had been consistently underloading the colliery’s fl eet of haul trucks. They did so to avoid the vehicles’ cut-out switch being activated automatically once a truck reached its maximum permitted capacity – a practice that resulted in throughput ineffi ciencies at this round the clock operation. Faced with this under-performance, the mine instigated a plan that included comparing Landau’s haul truck operations with its peers, using the lessons learned to adopt best-practice operator training. This was then supplemented by systematic recalibration of truck loads with calibrated weights. These actions resulted in a 20% improvement in truck load factor in 2012 and signifi cant cost savings. Image A front end loader loads coal on to a conveyor belt in the open pit. Demand for seaborne thermal coal has increased by 73.5% since 2001. BUSINESS OVERVIEW Our Thermal Coal business operates in South Africa and Colombia. In South Africa, Thermal Coal wholly owns and operates seven mines. It also has a 73% stake in two mines, Kriel and the new Zibulo colliery, a multi-product operation which produces thermal coal for both export and Eskom, the state-owned power utility, with the balance held by Inyosi Coal, a broad-based black economic empowerment entity. In addition, Thermal Coal has a 50% interest in the Mafube colliery and Phola washing plant. Six of the mines collectively supply 23 million tonnes per annum (Mtpa) of thermal coal to both the export and local markets. New Vaal, New Denmark and Kriel collieries are domestic product operations supplying 29 Mtpa of thermal coal to Eskom. Isibonelo mine produces 5 Mtpa of thermal coal for Sasol Synthetic Fuels, the coal-to-liquids producer, under a 20 year supply contract. Thermal Coal’s South African operations currently route all export thermal coal through the Richards Bay Coal Terminal (RBCT), in which it has a 24.2% shareholding, to customers throughout the Mediterranean-Atlantic and Asia-Pacifi c regions. Export production volumes are expected to increase in the future owing to yield improvements and increased production of lower calorifi c value coal. In Colombia, Anglo American, BHP Billiton and Xstrata each have a one-third shareholding in Cerrejón, the country’s largest thermal coal exporter. In 2011, an expansion (P40) was approved to increase this capacity by 8 Mtpa to 40 Mtpa by 2015 (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) markets. Thermal Coal’s attributable measured and indicated resources in addition to coal reserves totals some 2.6 billion tonnes as detailed in the Coal Reserves and Resources section of the Annual Report, pages 204–207. INDUSTRY OVERVIEW Thermal coal is the most abundant source of fossil fuel energy in the world. Exceeding known reserves of oil and gas, it accounts for more than 40% of electricity generation. Thermal coal has dominated global energy demand, accounting for 45% of primary energy demand growth from 2011–2012. The near 55% increase in coal demand over the past decade is roughly equivalent to three times US coal consumption on an energy- adjusted basis. The bulk of coal production is used in power generation; decisions that affect the energy mix of power generation therefore infl uence coal demand. These include long term industry dynamics for nuclear, gas and renewable power generation and policy decisions on climate/ environmental legislation. In 2012, export seaborne thermal coal accounted for 910 Mt or 17.5% of total coal production, with a large proportion of seaborne production coming from four key basins: Indonesia, Australia, Colombia and South Africa. Demand for seaborne thermal coal has increased by 73.5% since 2001, and is expected to continue to grow for at least the next decade, driven by India and China’s import requirements. Consequently, the key risks to the medium term growth of export seaborne thermal revolve around the ability of India and China to sustain their rates of economic growth, as well as logistical constraints and cost infl ation pressures. In the last few years, the coal industry has seen growth in US exports, particularly to Europe, due to the availability of low priced US natural gas. In 2012, US exports peaked to 55 Mt from 25 Mt in 2010, driving down export coal prices. US power utilities continue to substitute coal with gas-powered generation; however the long term view is that the natural gas price will remain between $4-6/million British Thermal Unit (mmBtu), at which point most of the coal volumes currently lost to gas should revert to being economically viable. Anglo American plc Annual Report 2012 65 OPERATING AND FINANCIAL REVIEW THERMAL COAL 01 Engineering professionals in training Keith Roelofse and Clair Nel carrying out a routine lift-cage inspection at Zibulo. STRATEGY The business is focused on being a high margin producer of thermal coal, with a growth strategy based on participating in and expanding into the most attractive export markets, while maintaining its domestic market commitments. It aims to deliver on this ambition, in the near term, by developing its current portfolio of expansion projects. In the longer term, if appropriate, the business will consider asset purchases to supplement growth. Thermal coal demand is being driven by Asian economic growth and its reliance on low cost, readily available supply. China and India will constitute the majority of thermal coal growth, with demand likely to exceed domestic thermal coal supply, thereby causing an upswing in seaborne thermal coal markets in future years. In South Africa, demand for new coal supply is increasing and is expected to continue to grow in order to supply Eskom’s future coal requirements. In support of its strategy to maximise the value of its portfolio of operating mines, Thermal Coal’s current primary focus is on implementing a collection of asset optimisation initiatives (Project Khulisa) and integrated mine planning (Project EVO). The goal of Khulisa (meaning ‘to grow’) is to determine Thermal Coal’s true performance potential and implement programmes to achieve these targets. In 2012, the project identifi ed and pursued a total of 88 initiatives, ranging from operational improvements to changing mind-sets and behaviours. Project Khulisa will continue in 2013. In addition to developing and growing operations in its existing geographies, Thermal Coal is constantly evaluating potential opportunities in new and strategic geographies. 2012 Thermal coal demand Global 910 Mt Europe Japan South Korea Taiwan India China Incorporating: USA Rest of World 158Mt 125Mt 107 Mt 61Mt 96Mt 236Mt 8Mt 119 Mt 2012 Thermal coal production Global 910 Mt Indonesia Australia Colombia Russia South Africa USA Incorporating: China Mozambique Rest of World 358 Mt 182 Mt 80 Mt 100Mt 74Mt 50 Mt 5 Mt 1Mt 62Mt Source: Wood Mackenzie, AME, IEA, McCloskey, and Anglo American Commodity Research estimates 66 Anglo American plc Annual Report 2012 In 2012, Thermal Coal identifi ed and pursued a total of 88 asset optimisation initiatives as part of Project Khulisa. 01 Operating safely, sustainably and responsibly Two principal risks facing Thermal Coal are water and climate change. Coal mining has the potential to affect the quality of water in catchments that are already under stress – a risk that is mitigated by careful operational water management and our leading water treatment facilities. Two carbon- and energy-related risks Thermal Coal is engaging on are the South African government’s proposed energy price increases, which could double the energy bill in South Africa over the next few years, and the anticipated introduction of a long term price on carbon. In South Africa, we are participating in a fact-building exercise with the government to help shape effective carbon policy that is aligned with the country’s development objectives. FINANCIAL AND OPERATIONAL OVERVIEW Thermal Coal generated an underlying operating profi t of $793 million, a 36% decrease, mainly driven by lower average export thermal coal prices and above-infl ation cost pressures. This was partly offset by the closure of high cost sections, a weaker South African rand and increased sales volumes from the full incorporation of Zibulo as an operating asset, supported by record production at Cerrejón. South African thermal coal exports into Asia continued to increase, principally driven by India. Safety and environment Sadly, two colleagues lost their lives while working at Thermal Coal operations in South Africa in 2012. Thorough incident investigations were conducted to ensure that the root causes of these incidents are understood, corrected and shared across the Group. Thermal Coal has been on a journey of continuous improvement in safety over the past fi ve years, refl ected in the decrease in the lost-time injury frequency rate (LTIFR) from 0.31 in 2008 to the current 0.20. Markets Anglo American weighted average achieved sales prices ($/tonne) South Africa export thermal coal (FOB) South Africa domestic thermal coal Colombia export thermal coal (FOB) Attributable sales volumes (‘000 tonnes) South Africa export thermal coal(1) South Africa domestic thermal coal(1) (2) Colombia export thermal coal 2012 2011 92 21 89 114 21 101 2012 2011 17,151 16,532 40,110 40,454 10,926 10,685 (1) (2) Includes capitalised sales from Zibulo mine of 1,580,800 (export) and 632,200 (domestic) tonnes for the year ended 31 December 2011. Includes domestic metallurgical coal of 91,800 tonnes for the year ended 31 December 2012 (year ended 31 December 2011: 318,000 tonnes). The international seaborne market experienced an overall decline in prices during the year owing to oversupply. The average API4 index price fell by 20% to $93/t (2011: $116/t) and closed the year at $90/t (2011: $105/t). Although international seaborne demand grew by 14% to 910 Mt, it remained below supply growth as a result of unprecedented US export volumes, strong production growth and fewer weather-related supply disruptions from the major supply regions of Indonesia, Australia, Colombia and South Africa. Cheap US natural gas displaced a signifi cant volume of US domestic thermal coal in O p e r a t i n g a n d fi n a n c a i l r e v e w i Projects Feasibility studies on the New Largo project were completed in 2012. There are two stages to the project: Stage 1 comprises a 23 kilometre overland conveyor, which will run from an existing coal processing plant to Eskom’s Kusile power station, transporting a secondary product as well as other third-party coal. Stage 2 entails the construction of a new opencast colliery and associated infrastructure. The project is expected to be presented for board approval once all environmental permits have been obtained for both stages of the project and the coal supply and other commercial agreements have been concluded. The Cerrejón expansion project (P40), to increase the port and logistics chain capacity to handle a total mine output of 40 Mtpa (currently 32 Mtpa), is being implemented and is expected to be delivered on schedule. Outlook The international seaborne thermal coal market is expected to remain oversupplied into 2013. Pricing pressure, therefore, is expected to remain. Thermal coal production cuts are already taking effect to some extent and producers around the globe continue to review operations and growth projects which could favourably impact prices. Global seaborne demand is expected to continue to grow in 2013, driven mainly by China and India. The Chinese domestic market price and the high US break-even price for producers should act, respectively, as a natural fl oor and ceiling for seaborne thermal coal prices. 2012, as utility companies switched from coal to gas. For the South African thermal coal industry, exports into Asia continued to increase, principally driven by India. Asia accounted for 66% of South African thermal coal shipments (2011: 64%). South African thermal coal exports increased by 4% to 68.3 Mt (2011: 65.7 Mt), supported by a more stable performance by Transnet Freight Rail (TFR) and drawdown from stockpiles. TFR railed 68.5 Mt to the RBCT, a 4% increase over 2011. Operating performance Attributable production (‘000 tonnes) 2012 2011 South Africa export thermal coal(1) (2) Colombia export thermal coal South Africa Eskom coal(1) South Africa domestic other(2) 17,132 16,328 11,549 10,752 33,706 35,296 6,293 5,383 (1) (2) Includes capitalised production from Zibulo mine of 1,521,800 (export) and 633,400 (domestic) tonnes for the year ended 31 December 2011. Includes domestic metallurgical coal of 91,800 tonnes for the year ended 31 December 2012 (year ended 31 December 2011: 323,400 tonnes). South Africa Underlying operating profi t from South African operations decreased by 38% to $482 million, driven by lower average export thermal coal prices and above-infl ation cost increases in labour, power and fuel. This was partly offset by the incorporation of Zibulo as an operating asset, a weaker South African rand and higher sales volumes, supported by a more stable TFR rail performance. Export production increased by 5% as a result of Zibulo’s continued ramp up and a change to include lower calorifi c value coals, resulting in higher yielding products at Zibulo and Goedehoop, partly offset by the planned closure of high cost sections at Goedehoop, Greenside and pits at Kleinkopje. Colombia At Cerrejón, underlying operating profi t of $358 million was 26% down on 2011 owing to the impact of lower thermal coal prices, compensated to some extent by a strong operational performance and drier weather conditions, with record production and sales. Anglo American plc Annual Report 2012 67 OPERATING AND FINANCIAL REVIEW COPPER COPPER John MacKenzie CEO UNDERLYING OPERATING PROFIT (2011: $2,461 m) $1,687 m SHARE OF GROUP UNDERLYING OPERATING PROFIT (2011: 22%) 27% UNDERLYING EBITDA (2011: $2,750 m) $2,179 m Key fi nancial and non-fi nancial performance indicators $ million (unless otherwise stated) Underlying operating profi t Underlying EBITDA Net operating assets Capital expenditure Share of Group underlying operating profi t Share of Group net operating assets Non-fi nancial indicators Number of fatal injuries Lost-time injury frequency rate Total energy consumed in 1,000 GJ Total greenhouse gas emissions in 1,000 tonnes CO2e Total water used for primary activities in 1,000 m3 01 2012 1,687 2,179 8,536 996 27% 17% 2012 0 0.20 15,559 1,601 35,667 2011 2,461 2,750 7,643 1,570 22% 17% 2011 1 0.19 12,887 1,467 28,701 01 José Arancibia, operator, at the Mantoverde electrowinning copper cathode plant. 68 Anglo American plc Annual Report 2012 Applications that make use of copper’s electrical conductivity make up approximately 60% of total global demand. automobiles and electricity infrastructure. The key growth area will continue to be the developing world, led by China and, in the longer term, India, where early-stage industrialisation and urbanisation on a large scale continues to propel copper demand growth. Moreover, the intensity of copper consumption is still at a high level in the case of China, while in India it is on an upward trajectory. This is in contrast with the advanced economies and their much lower levels of intensity. In spite of near term supply growth that could well be noticeably above that of the past six or seven years, constraints on the supply side are likely to prove a structural feature of the market. This will be 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 in more challenging locations. Combined with the need to develop infrastructure in new geographies, this requires greater economies of scale if mines are to be commercially viable. Scarcity of water in some countries, such as Chile and Peru, is also necessitating the construction of capital- and energy- intensive desalination plants. During the period 2000–2011, China increased its share of fi rst-use refi ned metal consumption from 12% to an estimated 39%. Consumption continued to increase in 2012, while demand elsewhere fell in aggregate for the second year running, moving China’s share of refi ned demand above 40%. BUSINESS OVERVIEW We have interests in six copper operations in Chile. The Mantos Blancos and Mantoverde mines are wholly owned and we hold a 50.1% interest in Anglo American Sur (AA Sur), which includes the Los Bronces and El Soldado mines and the Chagres smelter. We also have a 44% shareholding in the Collahuasi mine. The mines produce a combination of copper in concentrate and copper cathode together with associated by-products such as molybdenum and silver. In addition, we have a controlling interest in the Quellaveco (81.9%) and Michiquillay (100%) projects in Peru and a 50% interest in the Pebble project in Alaska. 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 global demand. The metal’s corrosion- resistant properties fi nd 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. Access to quality orebodies, located in regions providing stable political, social and regulatory support for responsible and sustainable mining, are likely to continue to be the key factor distinguishing project returns and mine profi tability. However, such orebodies are scarce, and it will be increasingly necessary for mining companies to develop mines in more challenging environments. 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, OPERATING WATER MANAGEMENT IN THE ANDES 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 Our Copper business in Chile was faced with the challenge of increased water requirements in an already water-constrained environment. With signifi cant demand on water by various local users, the Los Bronces operation needed to minimise its use of fresh water from the Metropolitan Region catchment area, home to more than 7 million people. When expanding Los Bronces, we constructed a water recirculation system stretching from the Las Tórtolas tailings dam back to the Los Bronces mine. The system returns water, previously used to transport ore, back to the mine, located some 3,600 metres above sea level. Water is pumped through a pipeline 52.5 kilometres long, with a total elevation difference of 2.5 kilometres from end to end. At a total cost of $180 million, the decision to opt for a water recirculation system went well beyond short term economic considerations. A feat of world class engineering was required – entailing a trade-off between higher energy requirements and carbon emissions on the one hand and water savings on the other – if the mine was to have the capability to adapt successfully to current and anticipated future water supply limitations. The initiative has reduced the mine’s water requirement from 0.81 to 0.52 million m3/tonne, with more than 22 million m3 being recirculated during 2012. Image Las Tórtolas tailings dam, close to the Los Bronces copper mine in Chile. Anglo American plc Annual Report 2012 69 OPERATING AND FINANCIAL REVIEW COPPER STRATEGY We continue to believe our Copper business has attractive long term fundamentals. Short term growth is being delivered from the successful ramp up of the Los Bronces expansion following delivery of its fi rst production in the fourth quarter of 2011. The expansion produced a total of 196,100 tonnes of copper in 2012 and is now running at full capacity. Additional growth in the medium term is expected to come from the Quellaveco project in Peru, which is targeted to be put forward for board approval in 2013. We continue to explore for low operating cost and long life development opportunities and evaluate longer term projects, including Michiquillay, Pebble, Los Bronces District and West Wall. On 24 August 2012, Anglo American completed the disposal of 25.4% of AA Sur, to a Codelco and Mitsui joint venture company for a cash consideration of $1.9 billion. As part of this transaction, all litigation between Anglo American and Codelco has been terminated. The agreement demonstrates our focus on delivering value to shareholders. We remain fully committed to our major inward investment programme in the Chilean business and to continuing our signifi cant social and community investment commitments in Chile. In September 2011, we announced our participation in a sales process to dispose of our effective 16.8% interest in Palabora Mining Company in South Africa. On 11 December 2012, we reached an agreement to sell our interest for ZAR893 million (approximately $103 million), subject to regulatory approvals in South Africa and China which are expected to take four to six months. We continue to explore for low operating cost and long life development opportunities and evaluate longer term projects, including Michiquillay, Pebble, Los Bronces District and West Wall. 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 09 Jan 10 Jan 11 Jan 12 500 450 400 350 300 250 200 150 100 C o p p e r p r i c e ( c / b ) l Shanghai Stocks LME Stocks Comex Stocks Copper price (c/lb) Source: Anglo American Commodity Research Operating safely, sustainably and responsibly Water effi ciency, re-use and recycling are a particular focus for our Copper operations, which are situated in extremely water-scarce regions. The business is implementing 11 different water projects to achieve its water reduction target. FINANCIAL AND OPERATIONAL OVERVIEW Copper generated an underlying operating profi t of $1,687 million, a 31% decrease. Higher sales volumes from the Los Bronces expansion were more than offset by the lower average copper price and higher operating, exploration and study costs. Lower grade profi les in particular impacted production, and consequently unit costs, at Collahuasi, Los Bronces, and Mantos Blancos. Safety and environment Copper’s lost-time injury frequency rate (LTIFR) was 0.20 (2011: 0.19), while no fatal incidents occurred at managed operations. The business’ safety efforts have involved closing gaps identifi ed in the risk and change management reviews conducted in 2011, with a particular focus on leadership, contractor management, and fi ghting fatigue. Copper’s energy initiatives have delivered a 3-4% reduction, if the impact of the Los Bronces expansion is excluded. A portfolio of additional energy savings programmes is under way to sustain the progress made in 2012. Markets Average price 2012 2011 Average market prices (c/lb) Average realised prices (c/lb) 361 364 400 378 The copper price rose in the early part of 2012, from 343 c/lb at the start of the year to 387 c/lb by May. As Europe’s sovereign debt crisis took hold and Chinese economic growth slowed, concerns grew over the outlook for the world economy and the price softened into the second half of the year. Yet despite an environment of macroeconomic uncertainty, which continues to have an impact on demand, the price recovered in September, held up on the back of supply-side shortfalls, and ended the year at 359 c/lb. For the full year, the realised price averaged 364 c/lb, a decrease of 4% compared with 2011. This included a positive provisional price adjustment for 2012 of $47 million versus a net negative adjustment in the prior year of $278 million. 70 Anglo American plc Annual Report 2012 Operating performance Attributable production (tonnes) 2012 2011 Copper 659,700 599,000 Total copper production (including our share of the Collahuasi joint venture) of 659,700 tonnes was 10% higher than in 2011. This was mainly due to the increased contribution from the Los Bronces expansion, offset by lower production at the established Los Bronces operation and at Collahuasi and Mantos Blancos. Production at Los Bronces was 65% higher at 365,300 tonnes, with the mine benefi ting from the 196,100 tonnes (2011: 19,000 tonnes) achieved from the expansion as it ramped up to full production. The new processing plant reached throughput design capacity ahead of expectations in August 2012. This increase in output was partially offset by lower grades accessed during the year. Production at the established Los Bronces operation was impacted by reduced pit fl exibility, lower stockpiles and safety driven reductions in slope angles. Production at El Soldado increased by 15% to 53,800 tonnes, owing to improved plant performance, expected higher ore grades and better recoveries. Production at Mantoverde also increased, by 6%, to 62,300 tonnes, driven by improved Leading copper consumers (2012 estimated refined copper consumption) 2012 estimated world total: 19.9Mt Mt 8.2 3.8 3.3 China Europe Rest of world N. America 1.9 Japan 1.0 South Korea 0.7 India 0.6 Brazil 0.4 Source: Brook Hunt – a Wood Mackenzie company crushing performance. Mantos Blancos’ production of 54,200 tonnes decreased by 25%, affected by an incident involving a loader necessitating a change in mine plan, resulting in a lower ore grade area being mined. Our share of production at Collahuasi fell by 38% to 124,100 tonnes, partly owing to anticipated lower grades being mined during the year. This was exacerbated by lower recoveries, adverse weather conditions in the early months, safety stoppages and a ball mill failure. In response to the performance issues at Collahuasi, the joint venture partners put in place a business improvement plan, with an Anglo American and Xstrata joint management team assuming leadership from July. The team has implemented a number of improvement plans aimed at delivering improved operating performance in 2013. A new CEO was appointed at Collahuasi with effect from 19 December 2012. Projects In Peru, the Quellaveco project received three critical permits in the fourth quarter: an amendment to the environmental impact assessment, the benefi ciation concession and the key water permit. Community engagement continued through the ‘dialogue table’ process, where agreement was reached in July in relation to water usage, environmental responsibility and Anglo American’s social contribution over the life of the mine. Anglo American is targeting submission of the project to its Board for approval in 2013. The concept level study for the Michiquillay project was completed and is under review. Activity at the Pebble project in Alaska continues, with the focus on completing a pre-feasibility study and preparing to commence permitting. The draft Bristol Bay Watershed Assessment was released by the Environmental Protection Agency (EPA) in May 2012. The EPA has announced that it has revised the draft watershed assessment report to take account of feedback and it intends to have the revised assessment peer reviewed and commented on publicly with a view to fi nalising the assessment in 2013. In Peru, the Quellaveco project received three critical permits in the fourth quarter: an amendment to the environmental impact assessment, the benefi ciation concession and the key water permit. O p e r a t i n g a n d fi n a n c a i l r e v e w i At Collahuasi, the project to increase concentrator plant throughput to 160,000 tonnes of ore per day was reduced in scope and the pre-feasibility study on the further expansion potential was put on hold, both pending restoring operational stability of current operations. Outlook Production levels in 2013 are expected to benefi t from the expanded Los Bronces operation running at full capacity for the full year. Mine development and improving mine fl exibility will be a continued focus at Los Bronces, which will also impact costs. Increased production is also expected at Collahuasi following implementation of the improvement plans put in place during 2012, as well as the No. 3 ball mill coming back in to operation from November 2012, and planned mining of higher ore grade phases. Challenges remain in managing continuing industry-wide input cost pressures, and this will be a key focus for the business in 2013. Ongoing market concerns arising from uncertainties over the near term outlook for the global economy may lead to short term volatility in the copper price. The medium to long term fundamentals for copper, however, remain strong, predominantly driven by robust demand from the emerging economies and supply constraints owing to ageing mines and steadily declining average grades. Anglo American plc Annual Report 2012 71 OPERATING AND FINANCIAL REVIEW NICKEL NICKEL Walter De Simoni CEO UNDERLYING OPERATING PROFIT (2011: $57 m) $26 m SHARE OF GROUP UNDERLYING OPERATING PROFIT (2011: 1%) 0.4% UNDERLYING EBITDA (2011: $84 m) $50 m Key fi nancial and non-fi nancial performance indicators $ million (unless otherwise stated) Underlying operating profi t Underlying EBITDA Net operating assets Capital expenditure Share of Group underlying operating profi t Share of Group net operating assets Non-fi nancial indicators Number of fatal injuries Lost-time injury frequency rate Total energy consumed in 1,000 GJ Total greenhouse gas emissions in 1,000 tonnes CO2e Total water used for primary activities in 1,000 m3 01 2011 57 84 2,535 398 1% 6% 2011 – 0.23 2012 26 50 2,509 100 0.4% 5% 2012 1 0.11 19,154 15,364 1,421 7,090 1,423 7,138 01 Risk engineer Renner Ferreira de Freitas on the observatory of the Barro Alto ferronickel plant, which is steadily ramping up to full capacity. 72 Anglo American plc Annual Report 2012 The nickel industry faced a variety of challenges in 2012. Demand was affected by the European debt crisis and the slowdown in the Chinese economy, while the supply side continued to face increased capital expenditure pressure and technical issues that delayed the ramp up of many projects in the industry. STRATEGY Our Nickel business focuses on the safe and responsible operation of world class assets that have long life of mine and competitive production costs. We leverage our expertise in operating ferronickel plants to ensure we have optimal processes in place across our operations; our Codemin plant celebrated 30 years of operations in 2012. Delivery of effi cient production is supported by our asset optimisation initiatives which are driving improved output, reduced costs and revenue enhancements, and will extend the lives of both our operations. At full production, both Barro Alto and Codemin are positioned in the fi rst half of the industry’s cash cost curve. In addition to driving value from existing operations, Nickel continues to assess its portfolio of expansionary and exploration projects. Our strategy and growth ambitions rely on attracting and retaining a suitably qualifi ed workforce. The mining industry in Brazil continues to face a diffi cult labour market, with a shortage of qualifi ed people with specifi c knowledge of the mining industry. Only by addressing and overcoming this challenge will we be able to deliver on our strategy. One of the ways we are doing so is through our tailored trainee programme designed to develop engineers and other professionals capable of meeting our future needs. BUSINESS OVERVIEW Our Nickel business unit comprises two Brazilian operating assets: Codemin and Barro Alto, both ferronickel producers in the state of Goiás. Within the portfolio there are also two promising growth projects, Jacaré and Morro Sem Boné, both laterite deposits which are also located in Brazil. In Venezuela, despite attempts by Minera Loma de Níquel to obtain concession and permit renewal to enable a continuation of our operations, the application for renewal was refused and the concessions and permits granted by the government expired on 10 November 2012. As of 10 November 2012, therefore, Anglo American’s mining and production activities at Loma de Níquel ceased permanently and, in light of this, Anglo American has taken action to end its working relationship with the majority of its Loma de Níquel employees and is seeking to wind up the operations in an orderly fashion. INDUSTRY OVERVIEW Nickel demand is linked to the state of the stainless steel industry, which consumes two-thirds of the metal and all ferronickel production. Nickel used in the manufacture of alloy steel and other non-ferrous alloys accounts for a further 17% of output. China is the largest stainless steel producing country, with more than 44% of world production in 2012, with 70% of the related nickel requirement produced domestically. Of this, nickel pig iron (NPI) accounted for around 60% in 2012. The next most important producer is Europe, which accounts for 22% of world output, while the US produces 6%. Nickel can be produced from two different ore types: sulphides and laterites. This has resulted in a large number of processing technologies that have made the industry a very complex one, with high processing costs and capital intensity. Production is concentrated among the biggest fi ve producers, which between them are responsible for almost half of global output. EMPLOYING TRAINING OUR FUTURE PROFESSIONALS 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 Our Nickel business focuses on the safe and responsible operation of world class assets that have long life of mine and competitive production costs. One of the ways we are addressing the shortage of qualifi ed people at our Nickel operations in Brazil is through our tailored trainee programme to develop engineers into future leaders. The selection process for the inaugural intake in 2012 took place during the preceding year, with 11,649 graduates competing for 31 vacancies. Those selected were knowledgeable in such areas as: supply chain, sustainable development, geology, production and maintenance, human resources and information management. In early 2012, the trainees were sent to gain hands-on work experience at Barro Alto, Niquelândia, our São Paulo corporate offi ce and Nickel’s project offi ce in Belo Horizonte. The trainees are working, on a rotation basis, at the various sites, until the programme ends in mid- 2013. On successful completion of the programme, the trainees will be considered completely prepared professionals, ready to meet the challenges of their career in Anglo American. Image Part of the inaugural intake of graduate trainees at our Nickel business in Brazil. Anglo American plc Annual Report 2012 73 OPERATING AND FINANCIAL REVIEW NICKEL 01 Electricians Cesar Augusto de Lima and Antonio Milhomen Silva next to one of Barro Alto’s 185 metre rotary kilns, where nickel-bearing ore is reduced prior to smelting. Operating safely, sustainably and responsibly Safety and sustainable development are central to our strategy. We manage safety and environment risks through our Integrated Management System, which is certifi ed to the ISO 9001, ISO 14001 and OHSAS 18001 global standards and we continue to focus on risk identifi cation and control, employee training and leadership commitment. Our environmental strategy includes a focus on water, energy and greenhouse gas emissions. We have made pleasing progress in these areas and incorporated what we have learned from Codemin into the design of Barro Alto. Our opencast mining processes can have a notable impact on the landscape, and can be diffi cult to fully rehabilitate, particularly in sloped areas. We have partnered with biodiversity NGOs and scientifi c groups to develop regional specifi c plans for the remediation of fauna and fl ora in order to determine the best solutions to overcome this diffi culty, while aligning them to our closure plans. Recognising the importance of the role we play in the local community, we also have invested signifi cantly in long term programmes related to female empowerment, sexual and reproductive health, citizenship and rural entrepreneurship. In recognition of this work, the business received the ‘Sustainable Company of the Year 2012’ award from Exame business magazine, one of the most prestigious sustainability awards in Brazil. FINANCIAL AND OPERATIONAL OVERVIEW Underlying operating profi t for the year was $26 million (net of $32 million project evaluation operating costs), 54% lower than in 2011. It included a self-insurance recovery of $59 million (offset at Anglo American Group) and an amount of $12 million in terms of the favourable settlement of an outstanding tax claim with the Brazilian government. The results, however, were affected signifi cantly by a 23% decline in the London Metal Exchange (LME) nickel price and by an extended Nickel’s environmental strategy includes a focus on water, energy and greenhouse gas emissions and we have incorporated what we have learned from Codemin into the design of Barro Alto. Nickel stocks and price ) 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 09 Jan 10 Jan 11 Jan 12 LME Stocks LME Price Source: Anglo American Commodity Research 01 i N c k e l p r i c e ( c / b ) l 25 20 15 10 5 0 74 Anglo American plc Annual Report 2012 Barro Alto, which produced its fi rst metal in March 2011, delivered around 21,600 tonnes of nickel in 2012. 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 Production from Loma de Níquel totalled 8,100 tonnes in the year, 40% lower than 2011, as a result of the cessation of operations, exacerbated by the extended export ban. Codemin’s production was stable at around 9,600 tonnes, with a decline in grade being offset by a series of asset optimisation initiatives. Projects The unapproved projects in the pipeline at Jacaré and Morro Sem Boné have the potential to signifi cantly increase the Group’s total nickel production. The pre-feasibility study of Jacaré was completed in the year and we will focus on obtaining environmental licences during 2013. Outlook Production in 2013 is expected to be higher than 2012 as the increasing contribution from Barro Alto more than offsets the loss of Loma de Níquel. Barro Alto is targeting to reach full capacity during 2013. Both demand and supply are expected to increase further in 2013 and a surplus of 13,000 tonnes is forecast. The market is expected to remain relatively challenging owing to the prevailing macroeconomic environment and ramp up of new nickel supply, including NPI – though any further underachievement in terms of the ramping up of new nickel supply could provide some upside to current forecasts. Leading nickel consumers (2012 estimated refined nickel consumption) 2012 estimated world total: 1,700 kt kt 705 404 China Europe Japan 163 N. America 144 South Korea India 79 66 Rest of World 58 Taiwan 57 South Africa 22 Source: Brook Hunt – a Wood Mackenzie company export ban imposed by the Venezuelan government from the beginning of June, resulting in the cessation of production in September. The underlying operating result for Barro Alto was capitalised throughout 2012. The nickel market recorded a surplus of 50,000 tonnes for the year compared with a surplus of 32,000 tonnes in 2011. Nickel consumption increased by 4.9% to 1.7 million tonnes (Mt), but supply also rose following the ramping up of a number of new nickel plants. The growth in supply was lower than expected as a result of problems at many new operations. Operating performance Attributable production (tonnes) 2012 2011 Nickel 39,300 29,100 Nickel production increased by 35% to 39,300 tonnes, with the increasing production profi le from Barro Alto offsetting the lower output from Loma de Níquel. Barro Alto, which produced its fi rst metal in March 2011, delivered around 21,600 tonnes of nickel in 2012. Production and the ramp up schedule at the new operation was, however, affected by three major stoppages during the year in order to address kiln performance issues and to rebuild the sidewalls in line 1’s electric furnace, following a partial collapse. Safety and environment Regrettably, a fatal incident occurred at the Barro Alto mine, ending Nickel’s record fi ve year fatality-free period. The incident has sparked renewed efforts to prevent further harm. Since the end of the fi nal stoppage, with the furnace returning to a temperature which can support normal operations in mid-December, line 1 has achieved a feed rate averaging 85% of nominal capacity. As a preventative measure, line 2’s electric furnace sidewalls are now also being rebuilt and following this, the operation is expected to complete its ramp up to nominal capacity. Issues in the furnace hearths were discovered during the year. The situation is being closely monitored by the operation, together with the supplier, and since discovery has not worsened. With continued close monitoring this is not expected to alter the ability to reach nominal capacity. The business’ lost-time injury frequency rate (LTIFR) improved by 52% to 0.11 (2011: 0.23). Markets Average nickel price (c/lb) Average market price (LME, cash) Average realised price (c/lb) 2012 2011 794 1,035 765 1,015 Despite LME nickel price strengthening at the start of 2012, with the nickel price reaching 983 c/lb at the end of January, prices dropped to a low of 689 c/lb in August owing to the worsening macroeconomic environment which affected stainless steel production and nickel demand. Anglo American plc Annual Report 2012 75 OPERATING AND FINANCIAL REVIEW PLATINUM PLATINUM Chris Griffi th CEO – Anglo American Platinum Limited UNDERLYING OPERATING (LOSS)/PROFIT (2011: $890 m) $(120) m SHARE OF GROUP UNDERLYING OPERATING PROFIT (2011: 8%) (2)% UNDERLYING EBITDA (2011: $1,672 m) $580 m Key fi nancial and non-fi nancial performance indicators $ million (unless otherwise stated) Underlying operating (loss)/profi t Underlying EBITDA Net operating assets Capital expenditure Share of Group underlying operating profi t Share of Group net operating assets Non-fi nancial indicator Number of fatal injuries Lost-time injury frequency rate Total energy consumed in 1,000 GJ Total greenhouse gas emissions in 1,000 tonnes CO2e Total water used for primary activities in 1,000 m3 01 2012 (120) 580 2011 890 1,672 10,419 11,191 822 (2)% 20% 2012 7 1.15 24,399 5,743 28,755 970 8% 25% 2011 12 1.27 25,168 5,991 31,248 01 No. 1 shaft at Siphumelele, one of our Platinum business’ fi ve mines at its Rustenburg section, the world’s biggest producer of primary platinum. 76 Anglo American plc Annual Report 2012 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 refi nes 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 signifi cant 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 refi nery and a precious metals refi nery. Concentrating, smelting and refi ning of the output are undertaken at Rustenburg Platinum Mines’ (RPM) metallurgical facilities. Platinum’s 100%-owned mining operations currently consist of the fi ve 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 implementation of the state’s recently approved indigenisation plan. 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 Since 2000, China has been the leading platinum jewellery market, followed by Europe, Japan and North America. Marikana mines. The company owns 49% of Bokoni mine and holds, through RPM, 27% of Atlatsa Resources. 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. 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. 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 fi tted. The intensifying stringency of emissions legislation will drive growth in PGM demand. Palladium’s principal application, accounting for some 45% of demand, is in autocatalysts, particularly in gasoline vehicles. The metal is also used in electronic components, dental alloys and, more recently, has become an emerging jewellery metal in markets such as China. Rhodium is an important metal in autocatalytic activity, which accounts for nearly 80% of net demand. 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 PORTFOLIO REVIEW On 15 January 2013, Anglo American announced the proposals of its portfolio review, the objective of which was to assess the options available to create a sustainable, competitive and profi table Anglo American Platinum. The entire value chain was reviewed, including costs, resources, mining, processing, the marketing and commercial strategy, as well as the optimal shape and size of the portfolio. The main recommendation is to reduce Platinum’s production target by around 400,000 ounces a year to between 2.1 and 2.3 million ounces per annum and to more closely align output with expected demand, while retaining the fl exibility to meet potential increased demand. This recommendation may be achieved through the proposals made within the consultation process embarked upon in terms of the requirements of the Labour Relations Act 66 of 1995, i.e. the closure of Khuseleka and Khomanani mines (four shafts) and placing them on long term care and maintenance, and through consolidating Rustenburg into three operating mines. Should these proposals ultimately be implemented, production at Rustenburg mines would reduce to a sustainable level of between 320,000 and 350,000 ounces a year. Production from high cost assets will be replaced with that from low cost, high quality assets over the next decade. The production profi le indicates excess smelting and refi ning capacity in the short to medium term and provides an opportunity to improve capital effi ciency. Options are being evaluated to fi ll capacity and reduce costs. The cost base will also be reduced to align with the revised production levels, with a focus on labour and organisational structure. Anglo American plc Annual Report 2012 77 OPERATING AND FINANCIAL REVIEW PLATINUM STRATEGY In reformulating its strategy, Platinum has reviewed the business across the entire value chain to address structural challenges that have eroded profi tability over time with the intention of creating a safe, sustainable, competitive and profi table platinum business for the long term benefi t of all its stakeholders. This will be achieved through the alignment of baseline production with long term demand expectations, focusing on a high quality portfolio of operations to produce PGMs on an economically sustainable basis. An organisational design has been developed to ensure that the operations are supported by an appropriate level of overhead, while the commercial strategy aims to ensure value and stability for Platinum and customers, while promoting new PGM applications. Operationally, the business intends to increase exposure to lower risk, higher margin, less capital intensive mines, supporting a signifi cant reduction in the cost base and a more effi cient allocation of capital. Flexibility for long term growth options will nevertheless be retained, ensuring Platinum is well positioned should demand increase above expectation. Platinum continues to take its social responsibility seriously, particularly to its employees and surrounding communities. The implementation of the strategy aims to deliver a stable, competitive and profi table business that will be best placed to sustain and create employment over the long term. Operating safely, sustainably and responsibly The journey to zero harm remains a key strategic objective. Although the company’s safety strategy remains sound, it continues to review and adjust it in order to ensure that it specifi cally targets the major causes of injuries and fatalities. Platinum is also working tirelessly with its partners in government and its workforce to implement more effective means of addressing major risks and non-compliance with standards. Platinum price Platinum’s implementation of its strategy aims to deliver a stable, competitive and profi table business that will be best placed to sustain and create employment over the long term. 2,000 1,800 1,600 ) z o ( $ 1,400 1,200 1,000 800 25,000 20,000 15,000 10,000 R a n d ( o z ) 5,000 0 H1 2011 market price: $1,792/oz H1 2011 achieved basket price: R20,194/oz H2 2011 market price: $1,650/oz H2 2011 achieved basket price: R19,061/oz H1 2012 market price: $1,558/oz H1 2012 achieved basket price: R20,086/oz H2 2012 market price: $1,551/oz H2 2012 achieved basket price: R19,504/oz Jan 11 Jun 11 Rand Pt. basket Platinum Source: Anglo American Commodity Research Dec 11 Jun 12 Dec 12 Gross platinum demand by application ’000 oz Gross platinum supply by country ’000 oz 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 0 4,500 9,000 0 3,500 7,000 Autocatalyst Jewellery Chemical Electrical Glass investment Incorporating: Medical and Biomedical Petroleum Other Source: Johnson Matthey Interim Review 2012 South Africa Russia North America Zimbabwe Others Source: Johnson Matthey Interim Review 2012 78 Anglo American plc Annual Report 2012 FINANCIAL AND OPERATIONAL OVERVIEW Platinum recorded an underlying operating loss of $120 million in 2012, compared with $890 million underlying operating profi t in 2011. This was primarily due to lower sales volumes, the impact of higher mining infl ation on costs and lower average realised prices. Platinum sales volumes for the period were lower owing to the two month illegal industrial action experienced at most of the mining operations in the fourth quarter. This was compensated in part by a weaker average rand against the dollar and a positive stock adjustment of $172 million. Cash operating costs per equivalent refi ned platinum ounce increased by 21% to ZAR16,364 (2011: ZAR13,552), primarily due to the impact of the strike and increases in the costs of labour, electricity, diesel and key inputs of processing operations. Productivity decreased by 4% to 6.05m2 (2011: 6.32m2). Refi ned platinum production and sales decreased by 6% and 17% respectively. Safety and environment Seven employees lost their lives during the period and Platinum extends its sincere condolences to their families, friends and colleagues. The causes of the loss of life included falls of ground and transport related incidents. The company’s safety performance has improved since 2007, and the fatal injury and lost-time injury frequency rates have come down by 54% and 44% respectively. The proactive management of safety risks resulted in a decrease in the number of safety stoppages during the year. In 2012, there were 52 safety stoppages in Platinum’s operations, compared with 81 in 2011. Since the safety stoppages were contained to the areas where deviations were observed, the impact on production was considerably reduced in 2012. 01 At Mogalakwena North, maintenance work takes place on a spare grizzly unit, which forms part of the mine’s secondary crusher circuit. Keeping a complete spare unit in working order cuts downtime to a minimum when the original grizzly has to go in for maintenance. 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 Markets Gross platinum demand declined by 140,000 ounces, or 2%, in 2012, as a result of weaker demand for autocatalyst and industrial applications more than offsetting increases in jewellery demand initiated by lower platinum pricing. Primary supply of platinum was negatively affected by labour stoppages and mine closures in South Africa. In addition, autocatalyst recycling decreased by 16% in the year, in response to lower platinum prices. The palladium market moved from a surplus in 2011 to a signifi cant defi cit in 2012. South African output was lower for the same reasons as for platinum, while less metal was sold from Russian stockpiles. Gross demand for palladium rose by 15%, or 900,000 ounces, in 2012, following an increase in demand from the autocatalyst sector and a return of investor interest. Following a prolonged surplus, the rhodium market moved into balance in 2012, with reductions in supply balancing increased demand from the autocatalyst and chemical sectors. Autocatalysts Global light vehicle sales grew by 5% in 2012 to 81 million units refl ecting, for vehicles lighter than 3.5 tonnes, growth in North America, Japan and the BRIC nations (Brazil, Russia, India and China). This growth was offset by weakness in Europe and other regions. Ongoing economic uncertainty in Europe, for example, continued to impact demand for new vehicles there, with sales approximately 8% below those in 2011. Increased substitution of palladium for platinum, together with a rise in the production of gasoline vehicles in North America and China, resulted in a 7% increase in demand for palladium. Higher output of gasoline vehicles in 2012 also underpinned a 6% increase in rhodium demand. Supplies of PGMs from recycling of spent catalysts decreased by 12% to 2.8 million ounces. Anglo American plc Annual Report 2012 79 OPERATING AND FINANCIAL REVIEW PLATINUM 01 Unki mine’s 02 Fitter assistant Moses concentrator plant in Zimbabwe. Nyamunda and chairlift operator Sankie Mafoko working on maintaining the conveyors at Marikana No. 4 shaft decline. Jewellery Gross platinum demand for the fabrication of jewellery rose by 10% to 2.7 million ounces, as strong demand from China and India balanced generally weaker economic conditions across the globe. With platinum trading at a discount to gold throughout the year, manufacturers were able to receive higher margins, encouraging the use of platinum in China, while demand in India continues to grow faster than other markets in percentage terms. Gross demand for platinum for the fabrication of jewellery in China rose by 14% in 2012, to approximately 1.9 million ounces, of which recycled platinum jewellery represented half a million ounces. Platinum purchases by manufacturers increased by 16% to 1.4 million ounces. Industrial Following record demand for platinum in 2011, as purchasers addressed delayed consumption, platinum offtake for industrial applications decreased by 16% to 1.7 million ounces. Investment Investment demand for platinum was fl at at 460,000 ounces in 2012, although the performance during the year was erratic. Japanese buyers of large bars were very active in the months when the price was lower than Yen 4,000/gram ($1,550 per ounce). The release of the Canadian Platinum Maple Leaf and the Australian Platinum Platypus bullion coins also boosted interest in demand. After signifi cant liquidation of palladium ETFs in 2011, positive sentiment resulted in a 16% increase in net holdings in 2012, to 2.04 million ounces. 80 Anglo American plc Annual Report 2012 01 02 Operating performance Production Platinum’s own mines, including Western Limb Tailings Retreatment, produced 1.46 million of equivalent refi ned platinum ounces, a decrease of 9%. The illegal strike action at our mining operations from 18 September to 15 November 2012 resulted in a loss of platinum production of 306,000 ounces, of which 82,000 ounces were lost during the subsequent ramp up period. Equivalent refi ned platinum production for the year totalled 2.22 million ounces, 8% down on 2011. Production at the Western Limb operations (Rustenburg, Union and Amandelbult mines) was negatively affected by the industrial action during the second half of 2012. Production at the Rustenburg Complex mines decreased by 43,300 ounces, or 8%, while Union and Amandelbult mines’ production decreased by 13% and 23% respectively. Mogalakwena mine output decreased by 2% to 300,200 ounces, following lower throughput at the concentrators and lower head grade. The fall in production was partly compensated by higher volumes from Unki mine. Equivalent refi ned platinum production at Unki increased by 20% to 62,100 ounces as the mine exceeded its ramp up schedule, reaching steady state production levels ahead of schedule. The new nickel tank house at the Base Metal Refi nery continues to experience some operational challenges and this is expected to impact production in 2013. Refi ned platinum production decreased by 6% to 2.38 million ounces as the processing of pipeline stocks into refi ned ounces in the second half of 2012 reduced the impact of the industrial action. O p e r a t i n g a n d fi n a n c a i l r e v e w i The rhodium market is expected to remain in balance during 2013. Modest growth in autocatalyst and new industrial demand is likely to be balanced by an increase in recycled supply. Following the conclusion of the recent portfolio review, Platinum expects to produce between 2.1 and 2.3 million ounces of refi ned platinum in 2013. Cost infl ation challenges are likely to continue in 2013, with mining infl ation expected to remain above the average infl ation rate in South Africa. In spite of the diffi cult infl ationary environment, Platinum aims to contain cash unit costs to between ZAR16,000 and ZAR16,500 per equivalent refi ned platinum ounce. The unit cost target excludes the cost of implementing the portfolio review proposals. Platinum’s project portfolio has been aligned with the proposals of the portfolio review, with the capital expenditure target reduced by 25% to ZAR100 billion over the next decade. Capital allocation will continue to focus on the highest return and lowest risk opportunities. Projects Several projects were halted during the year owing to the current diffi cult economic and operating environment, including the Thembelani 2 shaft, Tumela 4 shaft, and slag cleaning furnace 2 projects. The subsequent write-down for Thembelani 2 shaft project was ZAR2.2 billion ($251 million) while the write-down for Tumela 4 shaft, slag cleaning furnace 2 and other projects was ZAR4.4 billion ($579 million). Outlook Despite the lacklustre outlook for global economic growth, Platinum believes that global platinum demand is likely to be balanced in the short term. Overall platinum demand is expected to grow marginally in 2013, despite the lack of economic growth in the European market. Tightening emissions legislation in all markets, and the overall global increase in vehicle production, especially in China and India, is expected to offset lower volumes in Japan, North American and Europe. Jewellery demand is expected to grow, primarily owing to the continuing growth in the popularity of platinum jewellery in China and India and the expansion of retail outlets in China by Hong Kong jewellers. Primary supply challenges are expected to continue during 2013, with higher mining infl ation exerting margin pressure and the increased risk of supply disruptions from industrial action in South Africa. The ongoing constraint on capital investment posed by low prices continues to limit South African output. However, supplies of metal from the recycling of spent autocatalysts are expected to rise as pipeline stocks are processed. Palladium demand is expected to grow in 2013, supported by global vehicle production growth, particularly in China, and tightening emissions legislation. Primary supply is also expected to be constrained by the same factors as those affecting platinum production. As a result, the palladium market is expected to remain in defi cit in 2013. Anglo American plc Annual Report 2012 81 OPERATING AND FINANCIAL REVIEW DIAMONDS DIAMONDS Philippe Mellier CEO – De Beers Group UNDERLYING OPERATING PROFIT (2011: $659 m) $496 m SHARE OF GROUP UNDERLYING OPERATING PROFIT 8% UNDERLYING EBITDA (2011: $794 m) $711m 01 Key fi nancial and non-fi nancial performance indicators $ million (unless otherwise stated) Underlying operating profi t Underlying EBITDA Net operating assets Capital expenditure Share of Group underlying operating profi t Share of Group net operating assets Group’s associate investment in De Beers(3) Non-fi nancial indicators Number of fatal injuries Lost-time injury frequency rate Year ended 31 Dec 2012 Year ended 31 Dec 2011 De Beers (100%) 815 1,075 Anglo American share(1) 496 711 De Beers (100%)(2) 1,491 1,763 Anglo American share(1) 659 794 12,944 12,944 249 n/a n/a n/a 94 8% 25% n/a 2012 3 0.13 n/a 2,230 2011 7 0.15 (1) Amounts based on the Group’s 45% shareholding to 16 August 2012 and a 100% basis thereafter. Underlying earnings from 16 August 2012 excludes the 15% non-controlling interest. (2) Underlying operating profi t and underlying EBITDA for 2011 on a 100% basis is provided for information. (3) Excludes outstanding loans owed by De Beers, including accrued interest of $301 million in 2011. 01 The diamond recovery process plant at Venetia, South Africa’s biggest diamond mine, which produced just over 3 million carats in 2012. 82 Anglo American plc Annual Report 2012 BUSINESS OVERVIEW De Beers is the world’s leading diamond company. Together with its joint venture partners, De Beers produces approximately 35% of the world’s rough diamonds by value, and employs more than 23,000 people around the world. In August 2012, Anglo American completed its acquisition of the 40% shareholding in De Beers, for a total cash consideration of $5.2 billion, thereby increasing Anglo American’s shareholding in De Beers to 85%. The remaining interest is held by the Government of the Republic of Botswana (GRB). De Beers operates across key parts of the diamond value chain, including exploration, production, the selling of rough diamonds, the marketing of polished diamonds through its proprietary diamond brand, Forevermark, and retail sales through De Beers Diamond Jewellers (DBDJ), a 50:50 joint venture with LVMH Moët Hennessy Louis Vuitton SA. De Beers’ mines are located in four countries: Botswana, Canada, Namibia and South Africa. All operations are open pit with the exception of Snap Lake, an underground mine in Canada, and Namdeb Holdings’ alluvial and marine mining operations in Namibia. In Botswana, De Beers’ interests are held through the Debswana Diamond Company, a 50:50 joint venture with the GRB. Debswana’s operations include Jwaneng, the world’s richest diamond mine; Orapa, the world’s largest open-pit diamond mine; Letlhakane; and Damtshaa. In South Africa, De Beers has a 74% interest in De Beers Consolidated Mines (DBCM), with the remaining 26% held by Ponahalo Holdings, which is a black economic empowerment consortium. DBCM’s operations include Venetia, which produces about 70% of De Beers production from South Africa; Voorspoed, a source of large and exotic coloured diamonds; and Kimberley Mines, a tailings processing facility. In Namibia, De Beers’ interests are held through Namdeb Holdings (NH), a 50:50 joint venture with the Government of the Republic of Namibia (GRN). Diamonds are mined on land by Namdeb, and at sea by Debmarine Namibia, both of which are wholly owned by NH. Marine mining is performed by a fl eet of fi ve mining vessels. In Canada, De Beers wholly owns its two mining operations; Victor, located in Northern Ontario; and Snap Lake, in the Northwest Territories. De Beers Consumer demand forecasts $ Polished wholesale prices Consumer demand forecasts $ Polished wholesale prices 2012 2017 F USA 37% China/Hong Kong 13% 9% India 10% Japan 8% Gulf 22% Rest of World USA 34% China/Hong Kong 17% 14% India 7% Japan 9% Gulf 19% Rest of World Source: De Beers Source: De Beers Note: These fi gures provide estimates and forecasts of the size and growth of main diamond consumer markets based on pipeline and consumer research commissioned by De Beers Group Strategy. 2012 results are preliminary. De Beers’ mines are located in four countries: Botswana, Canada, Namibia and South Africa. INVESTING FOREVERMARK – A UNIQUE PROMISE 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 When it comes to purchasing luxury products, consumers want assurance of the superior quality and provenance of the product. De Beers Group provides this through Forevermark, our proprietary diamond brand, available in over 900 retail partners in 12 markets including the core diamond jewellery markets of China, Japan, India and the US. Every Forevermark diamond comes with a promise of quality and integrity, symbolised by the unique inscription inside the diamond. Each one is inscribed with the Forevermark icon and a unique identifi cation number using patented technology developed by the De Beers Group. Since the launch of Forevermark, more than 500,000 diamonds have received the Forevermark inscription as evidence that they have met the brand’s high standards of quality, ethical integrity and provenance. The rigorous standards that apply to Forevermark incorporate the De Beers Best Practice Principles Assurance Programme that provides consumers with assurance that the entire journey of their diamond has met the highest standards of ethical, social and environmental performance, and can be worn with pride. Image The unique Forevermark inscription. For more information turn to page 84 Anglo American plc Annual Report 2012 83 OPERATING AND FINANCIAL REVIEW DIAMONDS In 2012, De Beers continued the migration of its London- based sales operations to Gaborone, Botswana. also has a 51% shareholding in a joint venture in Gahcho Kué, a project in the vicinity of Snap Lake. The project is at an advanced permitting stage. When operational, Gahcho Kué is expected to produce approximately 4.5 million carats per annum over a life of mine of 11 years. De Beers sells rough diamonds through two distribution channels: over 90% is sold via long term contract sales to clients (known as Sightholders), with the remainder being sold via regular auctions. De Beers is also an equal joint venture partner in DTC Botswana and in Namibia DTC with the GRB and GRN, respectively. The local companies facilitate local sales and benefi ciation, and are intermediaries in the global selling function. As part of its long term contract sales, De Beers sorts and values production into 14,000 price points. These diamonds are aggregated and sold to Sightholders at one of 10 Sights each year. De Beers is a global leader in the use of innovative online systems to auction rough, uncut diamonds to small, mid-tier and large manufacturing, retailing and trading businesses. De Beers participates at the polished end of the value chain through its proprietary diamond brand, Forevermark, and, at the retail end, through DBDJ. Diamonds inscribed as Forevermark provide consumers with confi dence that their diamonds are beautiful, rare and responsibly sourced. They are available in carefully selected, authorised jewellers in the major consumer markets around the world. DBDJ’s high-end retail stores are located in the most fashionable areas in the world, including New York, Beijing, Hong Kong, London, Paris, Tokyo and Dubai. Element Six is the global leader in the design, development and production of synthetic diamond supermaterials for a range of applications. It comprises two businesses: Technologies which is wholly owned; and Abrasives, in which De Beers has a 60% interest (Umicore SA hold the remaining 40%). 84 Anglo American plc Annual Report 2012 INDUSTRY OVERVIEW Around 60% of the world’s diamonds, by value, originate from south and central Africa, with signifi cant sources also found in Russia, Australia and Canada. Most diamonds come from the mining of kimberlite deposits. Another important source of gem diamonds, however, has been secondary alluvial deposits formed by the weathering of primary kimberlites and the subsequent deposition of released diamonds in rivers and beach gravels. Rough or uncut diamonds are broadly classifi ed 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 retail jewellery, where aspects such as size, colour, shape and clarity have a large impact on valuation. STRATEGY De Beers’ vision is to unlock the full economic value of its leadership position in the diamond industry. De Beers is a demand-driven business, with a clear understanding that consumer desire is the overwhelming source of value for its diamonds. With growth in demand for diamonds expected to outstrip production growth in the medium to long term, the company aims to maximise the value of every carat mined, sorted and sold. To achieve this objective, De Beers focuses on optimising the value of its mining assets, selling to selected leading diamantaires and offering consumers the integrity and confi dence of its brands. Operating safely, sustainably and responsibly De Beers goes beyond maintaining the company’s social licence to operate, to ensure consumers can be confi dent in the ethical integrity of De Beers’ diamonds. De Beers’ activities in support of sustainable development are a core part of the company’s business model and span the diamond pipeline. Upstream, this strategy includes ensuring employee safety, health and well-being; and effective environmental stewardship. De Beers also works in partnership with host governments and other stakeholders to assist in the provision of long term and sustainable economic development, including support for local and indigenous procurement, enterprise development, social investment, and benefi ciation. Through benefi ciation, De Beers supports the development of value-adding downstream activities in producer countries. In 2012, De Beers continued the migration of its London-based sales operations to Gaborone, Botswana. Agreed in 2011, as part of a 10-year sales agreement between De Beers and the GRB for the sorting, valuing and sale of Debswana’s diamond production, the relocation of De Beers’ international aggregation and sales activity will be completed by the end of 2013. The move will bolster De Beers’ long term benefi ciation activities in the region, through helping establish southern Africa as a world leading downstream diamond centre. De Beers also supports initiatives to drive best practice throughout the diamond pipeline. These include the Kimberley Process Certifi cation Scheme, an inter-governmental initiative that seeks to eliminate confl ict diamonds from the global supply chain, as well as a bespoke ethical, environmental and social assurance programme that covers more than 300,000 diamond sector workers across the world. FINANCIAL AND OPERATIONAL OVERVIEW De Beers’ underlying operating profi t (on a 100% basis) fell by $676 million to $815 million, 45% lower, refl ecting the impact of diffi cult trading conditions brought about predominantly by weaker demand and changing product requirements from Sightholders. Anglo American’s share of underlying operating profi t from De Beers totalled $496 million, a decrease of 25%, the overall reduction being partly offset by Anglo American’s higher shareholding. O p e r a t i n g a n d fi n a n c a i l r e v e w i Projects In Botswana, construction of the infrastructure at Jwaneng’s Cut-8 project is largely complete. Cut-8 will provide access to approximately 95 million carats of mainly high quality diamonds and extend the life of the world’s richest diamond mine to at least 2028. In South Africa, the Venetia underground project was approved by the De Beers and Anglo American Boards. Environmental authorisation was granted in July and the Environmental Management Plan was approved by the Department of Mineral Resources in October. The fi nal outstanding regulatory clearances were obtained in February 2013 and the project will commence shortly. De Beers will invest approximately $2 billion to build the new underground mine, which will extend the life of the resource until 2042 and replace the open pit as South Africa’s largest diamond mine. In Canada, the Environmental Impact Review documentation for the Gahcho Kué project has been submitted for review and the Review Panel is expected to issue a decision report in 2013. Outlook De Beers expects moderate growth in diamond jewellery demand in 2013. This will be supported primarily by a more positive picture emerging from China and India compared to 2012. Some upside is possible in the US, while trading conditions in other markets are likely to be challenging. The rough diamond manufacturing sector closed 2012 with high levels of inventory, particularly in the higher-end categories of diamonds, and faces continued pressure in terms of liquidity. In the medium to long term, industry fundamentals are expected to strengthen as diamond production plateaus and demand continues to increase. De Beers Diamond Jewellers currently has 43 stores in leading diamond consumer markets around the world. Safety and environment In 2012, De Beers recorded three fatalities (2011: 7) and a lost-time injury frequency rate (LTIFR) of 0.13 (2011: 0.15). Safety remains the fi rst priority for De Beers and the company continues to drive improvement in safety performance through the ongoing roll-out of a standardised safety management system that aims to embed a safety culture across the business. Following a slope failure and tragic loss of life at Jwaneng in June, pit operations were suspended for a period of seven weeks to allow for a comprehensive geotechnical review, ensuring that it was safe to recommence mining. Markets Demand for diamond jewellery in the key markets of the US, China and Japan grew, albeit at a slower pace than in 2011. This, together with higher polished stock levels, resulted in a decline in polished prices particularly in the third quarter of the year. Although rough diamond prices remained broadly stable in the fi rst half of 2012, a combination of weaker polished prices, high levels of cutting centre stock and tightening liquidity in the mid-stream, resulted in a price correction during the third quarter. By the end of 2012, rough diamond prices stabilised, refl ecting a modest improvement in consumer demand during the holiday sales season in most major diamond jewellery markets. Operating performance Mining and manufacturing De Beers’ full-year production declined by 11% to 27.9 million carats (2011: 31.3 million carats). In light of prevailing diamond market trends, as well as operational challenges, the company’s stated strategy of producing to demand has been maintained. Operations continue to focus on maintenance and waste stripping backlogs, while a number of factors impacted production at specifi c sites. At Debswana, this included the Jwaneng mine slope failure in June. DBCM saw lower grades from Venetia and production was also impacted by the disposal of Finsch in September 2011. Canada’s Snap Lake showed signifi cant improvement during 2012 as work continues on optimising the mine to enable economic access to the promising, though challenging, orebody. Debmarine Namibia’s Grand Banks mining vessel was re-commissioned in 2012 and Namdeb’s Elizabeth Bay mining area in Northern Bay was brought back into operation during the year. Element Six experienced a challenging year, with weakness in a number of key end-markets, particularly in the second half of the year. In response, Element Six focused on cost containment and improved operational performance and made signifi cant progress on a number of its strategic milestones, including improved customer service and innovation. Sales De Beers’ total sales decreased to $6.1 billion (100% basis), primarily as a result of diminished demand for rough diamonds, changing product requirements from Sightholders and reduced availability of some goods. Brands Forevermark continued to grow strongly in 2012, particularly in the core markets of China, Japan, India and the US, and was launched in South Africa, Canada and the UAE. It is now available in more than 900 retail partners in 12 markets. Since the launch of Forevermark, more than 500,000 diamonds have been inscribed with a unique identifi cation number showing that they have met the brand’s high standards of quality, ethical integrity and provenance. DBDJ faced the challenging market conditions experienced by most high-end jewellers in 2012, but continued to focus on expanding its store network in China, a market of signifi cant opportunity for high-end jewellery brands. New stores were opened in Shanghai and Nanjing, giving DBDJ fi ve stores in China, with an additional store scheduled to open in 2013. Franchise partners will open further stores in Kuala Lumpur, Baku and Vancouver in 2013. DBDJ currently has 43 stores in leading diamond consumer markets around the world. Other The agreement entered into by De Beers in the US in 2006 to settle all outstanding class actions against it became unconditional and effective in May. The $295 million settlement, plus interest, held in escrow since 2006 is now being distributed in accordance with the court ordered plan. Anglo American plc Annual Report 2012 85 OPERATING AND FINANCIAL REVIEW OTHER MINING AND INDUSTRIAL OTHER MINING AND INDUSTRIAL Ruben Fernandes CEO – Phosphates and Niobium Duncan Wanblad Group Director Other Mining and Industrial – Tarmac, Amapá and Scaw Metals UNDERLYING OPERATING PROFIT (2011: $315 m) $337 m SHARE OF GROUP UNDERLYING OPERATING PROFIT (2011: 3%) 5% UNDERLYING EBITDA (2011: $540 m) $485 m Key fi nancial and non-fi nancial performance indicators $ million (unless otherwise stated)(1) Underlying operating profi t Phosphates Niobium Amapá Tarmac Scaw Metals Zinc Corporate Underlying EBITDA Net operating assets Capital expenditure Share of Group underlying operating profi t Share of Group net operating assets Non-fi nancial indicators(2) Number of fatal injuries Phosphates and Niobium Amapá, Tarmac and Scaw Metals Lost-time injury frequency rate Phosphates and Niobium Amapá, Tarmac and Scaw Metals Total energy consumed in 1,000 GJ(3) Total greenhouse gas emissions in 1,000 tonnes CO2e (3) Total water used for primary activities in 1,000 m3 (3) 01 2011 315 134 52 120 (38) 37 20 (10) 540 3,843 225 3% 9% 2011 – 1 0.15 0.21 2012 337 91 81 54 73 49 – (11) 485 786 260 5% 2% 2012 – 1 0.39 0.25 2,710 2,222 93 65 8,313 8,569 01 A granulator at Phosphates’ Cubatão plant, where fertiliser is made into granulated form. (1) (2) In 2012, Amapá was reclassifi ed from Iron Ore and Manganese to Non-core within the Other Mining and Industrial segment to align with internal management reporting. Financial comparatives have been reclassifi ed to align with current presentation. In a given year, non-fi nancial data is reported within the business unit that had management control of the operation, therefore non-fi nancial data for Amapá is reported within OMI and Iron Ore Brazil for 2012 and 2011 respectively. (3) Non-fi nancial performance data given for Phosphates and Niobium only. 86 Anglo American plc Annual Report 2012 ORGANISING VALUE FROM WASTE AT PHOSPHATES 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 Phosphates is applying the ‘reduce, re-use, recycle’ philosophy on an industrial scale. A leading Brazilian producer of phosphate fertilisers, each year Phosphates generates 7,800 tonnes of phosphate waste, with 20% being re-used at the granulation stage of production. The rest was traditionally sold as a low-value by-product or disposed of in waste lagoons. Following laboratory and, later, industrial-scale tests, a Phosphates technical team demonstrated that phosphate waste could also be re-used in the intermediate acidulation stage. The technique was put into full-scale production in March 2012. Phosphate waste recovered and re-used has now increased to 40% – with a target of 60%. This has led to lower production costs, with no loss of quality, and the environmental benefi t of signifi cantly reduced waste disposal. Image Laboratory analyst Thiago Araujo. Our phosphates mine, containing some of Brazil’s highest grades of ore has approximately 15% of current Brazilian phosphate mineral resources. BUSINESS OVERVIEW Phosphates Our Phosphates business is the second largest integrated phosphate fertiliser producer in Brazil. Its operations are vertically integrated, covering mining of phosphate ore, benefi ciation of the ore to produce phosphorus pentoxide (P2O5) concentrate, and processing into intermediate and fi nal products. Our phosphates mine at Ouvidor, in Goiás state, currently produces, on average, around 5.9 Mt of ore per annum (dry basis). It is a prime phosphate deposit, containing some of Brazil’s highest grades of ore (approximately 13% P2O5). The company has approximately 15% of current Brazilian phosphate mineral resources and has a remaining mine life of 40 years at current production rates. Run-of-mine phosphate ore is treated at a benefi ciation facility on the same site, and approximately 1.36 million tonnes per annum (Mtpa) of fi nal phosphate concentrate is produced at an average grade of around 35% P2O5. Phosphates operates two chemical processing complexes: one in Catalão in Goiás, the other at Cubatão in the state of São Paulo. The company produces a wide variety of products for the Brazilian agriculture sector, including low analysis (approximately 20% P2O5 content) and high analysis (40%-55% P2O5 content) phosphate fertilisers, dicalcium phosphate (DCP) for the animal feed industry, as well as phosphoric and sulphuric acids for the food and animal feed industries. Niobium Our Niobium business is located in the cities of Catalão and Ouvidor, in Goiás state, Brazil, and is one of the world’s three principal niobium producers. In operation since 1973, our Boa Vista mine produces and exports approximately 4,000 tonnes of niobium per year. Now, approaching the end of the weathered ore, the Niobium business is investing in adapting the existing plant to process fresh rock. INDUSTRY OVERVIEW Phosphates Phosphate fertiliser demand is driven by strong fundamental trends, including expanding food needs from a growing global population, changing dietary habits in major emerging economies such as China and India, and increased demand for biofuels. Brazil, a major agricultural nation, is the fourth largest phosphate market globally and needs to import almost 50% of its required phosphate fertilisers. Our phosphates mine, situated in Brazil’s under-supplied Central-West region, gives us a competitive cash-cost advantage. Niobium As an alloying agent, niobium brings unique properties to high strength steel alloys (HSSA), such as increased formability, corrosion resistance, weldability and strength under tough working environments, including extreme high or low temperatures. Around 90% of total global niobium consumption is used as an alloying element, in the form of ferroniobium (FeNb) in high strength steels, which are used in the manufacture of automobiles, ships and high pressure pipelines, as well as in the petroleum and construction industries. The product is exported to major steel plants in Europe, the US and Asia. STRATEGY Phosphates and Niobium’s core strategy is to expand the existing operations and mineral reserves in both commodities through a rigorous focus on operational excellence, and the execution of selected low cost and high returning projects. At Phosphates, signifi cant brownfi eld expansion opportunities are currently being evaluated in order to meet the expected growing demand needs of the Brazilian agricultural market, which is strategically placed to address the global shifts in dietary habits and where the outlook for the production of fertiliser products is very positive. At Niobium, our investment in the Boa Vista Fresh Rock project is expected to consolidate the business as the second largest producer of niobium worldwide, feeding mainly into, and increasing our market share in, the HSSA market. Anglo American plc Annual Report 2012 87 OPERATING AND FINANCIAL REVIEW OTHER MINING AND INDUSTRIAL 01 Phosphates stockpile in Cubatão. 02 Processing plant and water-treatment area at Cubatão. Brazilian fertiliser consumption has been growing faster than the global average and this performance is expected to continue in future years. FINANCIAL AND OPERATIONAL OVERVIEW Safety and environment In 2012, no fatalities were recorded in Phosphates and Niobium, however the LTIFR increased to 0.39 (2011: 0.15). All 14 injuries were of low potential severity and most involved injury to hands and feet. The lessons learned from the incident investigations are being used to improve risk assessment, promote safe behaviour and prevent unsafe operating conditions. Water consumption was marginally reduced as more water was re-used, particularly at the phosphate operations. While energy consumption decreased year on year, CO2 emissions increased due to an alignment of conversion factors with Group standards. Markets Phosphates Fertiliser demand in Brazil rose around 4% in 2012, refl ecting the strong fundamentals of the Brazilian agricultural sector. Brazilian fertiliser consumption has been growing faster than the global average and this performance is expected to continue in future years, supported by favourable weather conditions, plentiful access to water and the widespread use of advanced farming techniques by Brazilian farmers. Continued high prices of soybean and corn have also incentivised farmers to increase grain production through more intensive fertiliser application. This favourable market scenario resulted in Phosphates reporting a record fertiliser sales performance of 1.2 Mt for the year. Niobium Global steel mill activity was subdued in 2012, with producers reluctant to resume idle operations, replenish stocks, and to commit to further investment in their businesses. Despite the challenging environment, however, increased production of HSSA in both emerging and developed countries, ensured that niobium demand remained strong for the year. Operating performance Phosphates Despite record fertiliser sales, underlying operating profi t decreased by 32% to $91 million, driven mainly by unfavourable international fertiliser 88 Anglo American plc Annual Report 2012 01 02 prices, coupled with increased labour costs and general infl ationary pressures. DCP sales were also adversely affected by diffi culties in the cattle industry, which had a negative impact on the operating results. Phosphates production increased by 5% to a record of 1.1 Mt, due to a number of asset optimisation initiatives which improved overall performance at Catalão and Cubatão. Niobium Niobium generated an underlying operating profi t of $81 million, a 56% increase over 2011. Sales volumes of niobium rose by 15%, mainly due to an increase in production arising from a better performance at the tailings plant and improvements in the concentration process at the Boa Vista mine. Unit production costs declined owing to lower aluminium and power prices and more effi cient use of consumables, combined with the impact of higher production. Projects Niobium The Boa Vista Fresh Rock project continued to make progress, with additional capital expenditure approved in June 2012. The existing plant will be adapted to process new rock instead of oxide ore, leading to an increase in production capacity to approximately 6,500 tonnes of niobium per year (2012: 4,400 tonnes). Outlook Phosphates Strong grain prices continue to support fertiliser demand, and fertiliser prices are expected to remain high during 2013. The market expects farmers to expand the area given over to agriculture, as the current ratio between fertiliser and grain prices remains positive. In addition, the high level of corn prices will be a motivating factor for an aggressive ‘mini crop’ (a smaller secondary crop, mainly corn, grown in the fi rst half of the year) in the fi rst quarter of 2013. Niobium Demand is expected to remain subdued in Europe and in Pacifi c Rim/East Asian countries, such as Japan, South Korea and, to a lesser degree, China. Production is expected to decline in 2013, owing to lower grades and recoveries as lower quality ore is extracted from Boa Vista mine as it approaches the end of the weathered ore and encounters lower grades and higher contaminants. Tailings production is also expected to decrease as a result of lower niobium grades contained in the phosphate tailings. In early 2013, Anglo American and Lafarge announced the completion of their 50:50 joint venture. AMAPÁ TARMAC Amapá generated an underlying operating profi t of $54 million, a decrease of $66 million on the prior year. Production increased signifi cantly, in line with planned ramp up and also due to higher mass recovery in the benefi ciation plant as a result of the plant’s improved stability. The operation is now at design production capacity. Higher sales were also achieved following fewer delays associated with transportable moisture limits. Transhipment at Trinidad and Tobago from smaller capacity Handymax to the larger capacity Capesize vessels for onward shipment to the Middle and Far East was successfully implemented in the second half of 2012. The favourable impact of improved production and higher sales, however, was more than offset by a sharp decrease in prices during 2012, though tight cost control and improved operating effi ciencies, partly compensated their effect. Underlying operating profi t also benefi ted from the reversal of penalty provisions, which were in place at the end of 2011, as a result of contract renegotiations. Regrettably, one fatality occurred at Amapá iron ore system in Brazil during 2012. The LTIFR has improved over the past six years, and encouragingly, the severity of injuries also continues to decline. On 4 January 2013, Anglo American announced an agreement to sell its 70% interest in Amapá to Zamin Ferrous Ltd. The transaction is subject to regulatory approval and is expected to complete in 2013. We have always maintained that we did not envisage holding our interest in Amapá over the long term and, in July 2012, reported that we had transferred responsibility for Amapá to our Other Mining and Industrial business unit and stated that we were exploring the possibility of divesting our interest. Anglo American has transformed the operational performance of Amapá since acquisition in 2008, increasing annual production from 1.2 Mt in 2008 to 6.1 Mt in 2012. Tarmac reported an underlying operating profi t of $73 million, compared with a loss of $38 million in 2011. Tarmac’s underlying EBITDA was $148 million, 44% higher than in 2011. Quarry materials The business’ profi tability was at higher levels than last year, mainly as a result of the operation being treated as ‘held for sale’ from the end of July 2012, and the subsequent cessation of recorded depreciation. There has been a decline in asphalt volumes, with few major road schemes commencing in 2012 as a result of the UK government’s austerity measures. Private-sector growth remained muted throughout the year, thus keeping pressure on ready-mix concrete prices and volumes, but was offset in part by the resilient central London market. A continued focus on maximising the use of substitute fuel and recycled asphalt materials is helping to mitigate the impact of rising hydrocarbon costs and to support margins. On 7 January 2013, Anglo American and Lafarge announced the completion of their 50:50 joint venture which will combine their cement, aggregates, ready-mix concrete, asphalt and asphalt surfacing, maintenance services, and waste services businesses in the UK. The joint venture will be known as Lafarge Tarmac. Completion of the Lafarge Tarmac joint venture followed fi nal clearance from the UK Competition Commission, predicated on the completed sale of a portfolio of Tarmac and Lafarge construction materials operations in the UK, which also occurred on 7 January 2013. Building products Performance was affected by the continued general economic downturn, compounded by disruption to building activity following unseasonal wet weather during the summer months. The weak building products market resulted in a highly competitive pricing environment affecting sales volumes, although cost reduction projects and improvements in operating effi ciencies are helping to mitigate some of the impact. O p e r a t i n g a n d fi n a n c a i l r e v e w i A number of initiatives continue to be developed to ensure improved longer term performance, but the short term remains diffi cult owing to the prevailing weak market conditions. SCAW METALS Scaw Metals experienced a 32% increase in underlying operating profi t to $49 million for the 11 months to end November 2012 compared with the full year 2011, mainly as a result of the company being treated as ‘held for sale’ from 24 April 2012, and the subsequent cessation of recorded depreciation. Cast Products showed a marked improvement, owing to fi rm demand across all segments and a reduction in costs following the closure of a loss making foundry in the prior year. Grinding Media reported a decrease in underlying operating profi t as a result of lower demand from the mining sector owing to industrial action in the second half of 2012. This business is expected to recover as mining operations revert to full production. The performance of Wire Rod Products suffered as a consequence of a decline in mining activity, but nevertheless reported stable earnings. Demand for construction products remained weak, but in spite of this the Rolled Products business, through cost containment measures and operational improvements, was able to minimise its losses. Total production of steel products was 611,600 tonnes for the 11 months to end November 2012, a decrease of 9.7% over the full year 2011. On 24 April 2012, Anglo American announced the sale of its interest in Scaw South Africa to an investment consortium led by the Industrial Development Corporation of South Africa and the Group’s partners in Scaw South Africa, being Izingwe Holdings (Pty) Limited, Shanduka Resources (Pty) Limited and the Southern Palace Group of Companies (Pty) Limited. On 23 November, the sale of Scaw South Africa and related companies completed for a total consideration of ZAR3.4 billion ($440 million) on a cash- and debt-free basis as announced. Anglo American plc Annual Report 2012 89 GOVERNANCE INTRODUCTION GOVERNANCE Sir John Parker “Corporate governance is a dynamic process that requires continuous review and improvement.” IN THIS SECTION 90 Chairman’s introduction 92 The Board 94 Executive management 96 The role of the Board 98 Board in action 100 Board committees 104 Audit Committee report 108 Remuneration report 128 Directors’ report 134 Statement of directors’ responsibilities The following section sets out how we have complied and, on our website, we provide a handy checklist that relates our corporate governance arrangements to each of the relevant principles in the Code. For more information visit www.angloamerican.com BOARD EVALUATION One of the ways in which we seek to adapt and improve our governance arrangements is via the annual Board evaluation. In 2012, the evaluation was conducted by an external facilitator and led to recommendations for, inter alia, enhancing the quality of our strategic discussions and re-programming our scheduled Board agenda somewhat to include discussions of a range of areas highlighted by directors. I regard an external board evaluation as a very useful process although, in well-established companies, one should not expect the annual evaluation to result in revolutionary changes nor be surprised if the results often focus on the same areas. What it does provide is an independent, external perspective on the effectiveness of our Board and a valuable opportunity for directors to take the time to refl ect specifi cally on how we are doing and where we might improve. CHAIRMAN’S INTRODUCTION In 2012 we saw both the 20th anniversary of the introduction of the UK Corporate Governance Code (the Code) and, in September, its latest incarnation as the Financial Reporting Council (FRC) published revisions aimed at enhancing corporate reporting and audit. These events serve to underline the fact that corporate governance is a dynamic process that requires continuous review and improvement. For me they also highlight the wisdom of Sir Adrian Cadbury and his committee in devising a principles- based approach that has enabled and encouraged the periodic updating of the Code to ensure it remains relevant. At Anglo American, I am pleased to confi rm once again that we complied with the Code for the period. The following section sets out how we have complied and, on our website, we provide a handy checklist that relates our corporate governance arrangements to each of the relevant principles in the Code. Nonetheless, we recognise that corporate governance arrangements are never ‘complete’, and must continually adapt and evolve. The following section explains how we endeavour to achieve that and I hope this is of interest to shareholders. In this introduction I will briefl y draw attention to just two areas that I hope illustrate our commitment to continuous improvement. 90 Anglo American plc Annual Report 2012 Board and Committee meetings – frequency and attendance Sir John Parker Cynthia Carroll René Médori David Challen Sir CK Chow Sir Philip Hampton Phuthuma Nhleko Ray O’Rourke Mamphela Ramphele(1) Anne Stevens(2) Jack Thompson Peter Woicke Independent Board (six meetings) Audit (three meetings) S&SD (four meetings) Remuneration (four meetings) Nomination (fi ve meetings) N/a No No Yes Yes Yes Yes Yes Yes Yes Yes Yes All All All All All Five All All 1/4 All All All – – – All – All All All – All – – Three All – – – – – All 1/3 – All All – – – All All All – – – – All All All – – All All – – – 1/3 – – All G o v e r n a n c e As the justifi able clamour for diversity on company boards intensifi es, there is a risk that this comes to be seen as a mere compliance issue. It is not. The following sections of this report contain much information detailing our compliance with the Code. What I hope is also clear is our commitment to the spirit of the Code and our belief that good corporate governance is good business – that it is about making the best decisions we can, for the right reasons, in the long term interests of the Company. Sir John Parker Chairman (1) Meetings attended prior to retirement. (2) Meetings attended since appointment. DIVERSITY We continue to develop the mix of skills and experience on the Board. During the year, it included three female directors (achieving a 27% representation of women on the Board – excluding the chairman) and comprised individuals with engineering, banking, mining, telecoms, construction and automotive sector backgrounds, hailing from the US, UK, South Africa, France, Germany, Ireland and Hong Kong. As the justifi able clamour for diversity on company boards intensifi es, there is a risk that this comes to be seen as a mere compliance issue. It is not. Making sure we utilise all of the talent available to us, and fostering a mix of skills and backgrounds to provide challenge and different perspectives around the board table, is all about making better decisions in the interests of the Company. Anglo American plc Annual Report 2012 91 GOVERNANCE THE BOARD THE BOARD CHAIRMAN Sir John Parker GBE, FREng, DSc (Eng), ScD (Hon), DSc (Hon), DUniv (Hon), FRINA 70, joined the Board as a non- executive director on 9 July 2009 and became chairman 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. He is a non-executive director of Carnival Corporation and EADS as well as deputy chairman of DP World. Sir John is also President of the Royal Academy of Engineering and a Visiting Fellow of the University of Oxford. Sir John was previously chairman of National Grid plc, senior non-executive director and chair of the Court of the Bank of England, joint chair of Mondi and chair of BVT and P&O plc. CHIEF EXECUTIVE Cynthia Carroll MSc, MBA, DSc (Hon) 56, was appointed CEO on 1 March 2007, having joined the Board on 15 January 2007. Cynthia 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 chairs Anglo American Platinum and De Beers. Cynthia is the former president and CEO of Alcan’s Primary Metals Group and a former director of AngloGold Ashanti Ltd and Sara Lee Corporation. In October 2012 Cynthia announced her decision to step down as CEO with effect from 3 April 2013. She will also step down from the Board at the AGM on 19 April 2013. 92 Anglo American plc Annual Report 2012 FINANCE DIRECTOR René Médori Doctorate in Economics 55, was appointed to the Board on 1 June 2005, becoming fi nance director on 1 September 2005. René is a member of GMC and ExCo and chairman of the Investment Committee. He is a non-executive director of Anglo American Platinum. René recently joined the board of Petrofac Limited as a non-executive director. He is a former fi nance director of The BOC Group plc and was a non-executive director of SSE plc (formerly Scottish and Southern Energy plc) until June 2012. SENIOR INDEPENDENT DIRECTOR David Challen MA, MBA 69, 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 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. 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 62, was appointed to the Board on 15 April 2008 and is a member of the Nomination and Remuneration Committees. He is currently chairman of Hong Kong Exchanges and Clearing Limited and a non-executive director of AIA Group Limited. Sir CK was appointed as a member of the Executive Council of the Hong Kong Special Administrative Region in July 2012. He is chairman of the Hong Kong General Chamber of Commerce, and was recently appointed chairman of the Advisory Committee on Corruption by the Hong Kong SAR Government. Between 2003 and 2011 he was CEO of the MTR Corporation in Hong Kong. Former positions include those of CEO 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 59, 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 signifi cant fi nancial, strategic and boardroom experience across a number of industries. His previous appointments include chairman of J Sainsbury plc; fi nance director of Lloyds TSB Group plc, BT Group plc, BG Group plc, British Gas plc and British Steel plc, executive director of Lazards, and non-executive director of RMC Group plc and Belgacom SA. Phuthuma Nhleko BSc (Eng), MBA 52, joined the Board on 9 March 2011 and is a member of the Audit Committee. Phuthuma is also a non-executive director of BP plc and chairman of Pembani Group (Pty) Limited. He previously served as a director on a number of boards in South Africa, including Nedbank Group, Alexander Forbes, Bidvest and Old Mutual (SA). Ray O’Rourke KBE, HonFREng, CEng, FICE, FIEI 66, joined the Board on 11 December 2009. He is a member of the Audit and S&SD Committees. Ray 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 is chairman and CEO. Ray 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. Sir John Parker Cynthia Carroll René Médori David Challen Sir CK Chow Sir Philip Hampton Phuthuma Nhleko Ray O’Rourke Anne Stevens Jack Thompson Peter Woicke Anne Stevens PhD, BSc 64, joined the Board on 15 May 2012 and is a member of the Audit Committee. She has served on the board of Lockheed Martin Corporation as a non-executive director since 2002 and is also the chairman and CEO of a privately held IT services business, SA IT. Anne’s 16-year career with Ford Motor Company culminated in her appointment as chief operating offi cer (COO) for the Americas, a position she held until 2006. Prior to joining Ford in 1990, Anne spent ten years in a number of engineering, product development and sales and marketing roles at Exxon Chemical Co and three years as chairman and CEO of Carpenter Technology. Anne brings a wealth of experience from a number of global industries. Her engineering training and wide- ranging commercial acumen and experience gained across North, Central and South America has strengthened the experience of the Board. Jack Thompson BSc, PhD 63, joined the Board on 16 November 2009 and is a member of the Remuneration and S&SD Committees. He will become chairman of the S&SD Committee upon the retirement of Peter Woicke in April 2013. He is currently a non-executive director of Molycorp Minerals LLC and Tidewater Inc. Jack 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. Jack brings experience gained at all levels of the mining industry and has received wide recognition as a mining executive. Peter Woicke MBA 70, joined the Board on 1 January 2006, is chairman of the S&SD Committee and is a member of the Nomination and Remuneration Committees. He is currently a member of the board of 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 was executive vice president of the International Finance Corporation (IFC). Prior to joining the IFC, Peter held numerous positions for nearly 30 years with J.P. Morgan and he was also a managing director of the World Bank. Peter has indicated that he wishes to retire from the Board this year and accordingly will not be standing for re-election at the AGM in April. INCOMING CEO Mark Cutifani BE (Mining Engineering) 54, has been appointed as a director and CEO with effect from 3 April 2013. Mark is currently CEO of AngloGold Ashanti Limited, a position he has held since 2007. Before joining AngloGold Ashanti, Mark was COO at Vale Inco where he was responsible for Vale’s global nickel business. Prior to this he held senior executive positions with the Normandy Group, Sons of Gwalia, Western Mining Corporation, Kalgoorlie Consolidated Gold Mines and CRA (Rio Tinto). Mark Cutifani Incoming CEO Byron Grote Nominated independent non-executive director Mark has over 35 years’ experience of the mining industry across a wide range of geographies and commodities. G o v e r n a n c e NOMINATED INDEPENDENT NON-EXECUTIVE DIRECTOR Byron Grote PhD Quantitative Analysis 64, is a non-executive director of Unilever NV and Unilever plc and a member of the Cornell University Johnson Graduate School of Management Advisory Council. He joined The Standard Oil Company of Ohio in 1979 and in 1985 became director of planning for its mining subsidiary, Kennecott. In 1988 Byron was appointed as commercial vice president for BP’s Alaskan North Slope production activities. In 1989 he became commercial general manager of BP exploration, based in London, and then group treasurer and CEO of BP fi nance in 1992. In 1994 he took up the position of regional chief executive in Latin America. In 1995 Byron became deputy CEO of BP Exploration. Following the merger of BP and Amoco in 1999, Byron was appointed executive vice president, exploration and production. He was appointed to the BP board in 2000 and he served for two years as CEO of BP Chemicals and then as BP’s chief fi nancial offi cer (CFO) from 2002 until 31 December 2011. He will retire from the board of BP in April 2013. Byron has been nominated for election as a director at the AGM on 19 April 2013. Anglo American plc Annual Report 2012 93 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 92 for biographical details. René Médori See page 92 for biographical details. Brian Beamish BSc (Mechanical Engineering) 56, is Group director, mining and technology. He is a member of the S&SD and Investment Committees and is a non-executive director of Anglo American Platinum and De Beers. He was CEO of Base Metals between 2007 and 2009 and prior to this spent 20 years at Anglo American Platinum and its forerunner, Johannesburg Consolidated Investment Company Limited, including four years as executive director of operations between 1996 and 1999. Brian has more than 30 years of mining industry experience in various commodities and geographies. Mervyn Walker MA 53, is Group director, HR 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. He is currently also non-executive chairman of pension schemes for AMEC plc. Mervyn previously held a series of senior roles at British Airways, including HR director, legal director, director of purchasing and director of UK airports. David Weston MBA, BSc (Eng) 54, is Group director, business performance and projects. He is a member of the S&SD and Investment Committees. He spent 25 years with Shell and was president of Shell Canada Products before joining Anglo American in 2006 as CEO of Industrial Minerals (Tarmac). David served as the Group’s technical director between April and October 2009. He is also a non-executive director of Kumba Iron Ore Ltd. and of GDF SUEZ Energy International (formerly International Power plc). 94 Anglo American plc Annual Report 2012 Cynthia Carroll René Médori Brian Beamish Mervyn Walker David Weston Peter Whitcutt Paulo Castellari-Porchia Walter De Simoni Ruben Fernandes Seamus French Godfrey Gomwe Chris Griffi th Khanyisile Kweyama John MacKenzie Norman Mbazima Philippe Mellier Duncan Wanblad Peter Whitcutt BCom (Hons), CA (SA), MBA 47, is Group director, strategy and business development. He joined Anglo American in 1990 within the corporate fi nance division. He worked on the merger of Minorco with Anglo American, the listing of Anglo American in 1999 and the subsequent unwinding of the cross- holding with De Beers. Peter was appointed Group head of fi nance in 2003, CFO of Base Metals in August 2008 and to his present position in October 2009. EXCO MEMBERS Paulo Castellari-Porchia BCom, MBA 42, 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. Paulo’s career with the Group started in 1993 and has included positions at AngloGold Ashanti and Minorco in a number of corporate fi nance and capital project roles. Walter De Simoni BSc (Mining Eng) 57, is CEO of Nickel. Walter joined Anglo American in 1978. He was appointed president of Anglo Base Metals Brazil in 2005. Walter became CEO of Anglo American Brazil in 2006, a position he held until becoming CEO of Nickel in October 2009. Ruben Fernandes MSc (Metallurgical Engineering), MBA 47, was appointed CEO of Niobium and Phosphates in July 2012. Ruben was head of mining at Votorantim Metals in Brazil from 2011, in charge of projects, exploration activities around the world and operations in Peru and Colombia. He was COO at Vale Fertilizers from 2009, responsible for the fertiliser operations, sales and marketing. Ruben was CEO of Kaolin Companies – Pará Pigments and Cadam – two subsidiaries of Vale, from 2007, held various analysis and marketing roles in Vale’s Base Metals department from 1999 and, prior to this, worked in Votorantim’s zinc business and at Eletrometal Special Metals in Brazil. Seamus French BEng (Chemical) 50, is CEO of Metallurgical Coal. He joined WMC Resources in Australia in 1994, initially in a strategic planning and business development role and progressed to various operational management roles, gaining extensive experience in the gold and nickel businesses before advancing to the position of executive general manager Copper-Uranium division. Seamus joined BHP Billiton as global vice president, business excellence following its takeover of WMC in 2005. He was appointed regional CEO of Anglo Coal Australia in 2007, bringing strong skills in operations, safety and business improvement to the role. Godfrey Gomwe BAcc, CA (Z), MBL 57, was appointed CEO of Thermal Coal with effect from 1 September 2012. Godfrey is also responsible for Anglo American’s manganese interests. He is a non-executive director of Thebe Investment Corporation (Pty) Ltd. Until his appointment as CEO of Thermal Coal, he was a non-executive director of Anglo American Platinum and Kumba Iron Ore. Godfrey was previously fi nance director and COO of Anglo American South Africa and chairman and CEO of Anglo American Zimbabwe. Chris Griffi th BEng (Mining) Hons, Pr Eng 47, was appointed CEO of Anglo American Platinum Limited with effect from 1 September 2012. He was previously CEO of Kumba Iron Ore from 2008. Prior to this he was Anglo American Platinum’s head of operations for joint ventures. Chris has been with Anglo American for more than two decades. Khanyisile Kweyama BS Administration (USA), PDM, MM Human Resources 47, was appointed executive director, Anglo American South Africa Limited with effect from 1 September 2012. Khanyisile formerly served on the executive committee of Platinum, during which time she enhanced HR programmes and signifi cantly improved relations with unions and brought wage negotiations to a successful conclusion. She gained corporate experience in a number of international companies, including BMW, Altech and Barloworld Ltd, holding executive roles incorporating human resources, industrial relations, corporate affairs, stakeholder relations and transformation. John MacKenzie MSc Eng, MBL 44, 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 was appointed CEO of Base Metals’ zinc operations in 2006, and was appointed to his current position in 2009. G o v e r n a n c e Norman Mbazima FCCA, FZICA 54, was appointed CEO of Kumba Iron Ore with effect from 1 September 2012. He joined Anglo American in 2001 at Konkola Copper Mines plc. He was subsequently appointed global CFO for Anglo Coal. He became executive director of fi nance at Anglo American Platinum in June 2006 and later stepped in as joint acting CEO. Prior to this, Norman was CEO of Scaw Metals from May 2008 and later CEO of Thermal Coal from October 2009, a position he held until 2012. Philippe Mellier Msc Eng, MBA 57, was appointed CEO of De Beers Group in July 2011. He began his career in 1980 with the Ford Motor Company, where he occupied various senior management positions over 19 years. In 1999 Philippe joined Renault as a senior vice president in charge of European sales, and was a member of the management board. In 2001 he moved to Volvo AB to become chairman and CEO of Renault Trucks, and a member of the Volvo Group executive committee. In 2003, Philippe became president of Alstom Transport and was appointed executive vice president of Alstom Group a year later. Duncan Wanblad BSc (Eng) Mech, GDE (Eng Management) 46, is Group director, Other Mining and Industrial businesses. He began his career at Johannesburg Consolidated Investment Company Limited in 1990. He was appointed to the board of Anglo American Platinum in 2004. Duncan was appointed joint interim CEO of Anglo American Platinum in 2007, before taking over as CEO of Anglo American’s copper operations in 2008. He was appointed to his current position in October 2009. Anglo American plc Annual Report 2012 95 GOVERNANCE ROLE OF THE BOARD 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. 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. 96 Anglo American plc Annual Report 2012 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 The CEO is responsible for the execution of strategy and the day-to-day management of the Group, supported by the GMC and the ExCo, both of which are currently chaired by Cynthia Carroll. The functions and membership of GMC and ExCo are set out on pages 94–95. The Company has adopted the Institute of Chartered Secretaries and Administrators’ Statement of Division of Responsibilities between the Chairman and the CEO. Role of the senior independent director David Challen is the senior independent non-executive director (SID). He is available to shareholders, acts as a sounding board and confi dant for the chairman and is available as an intermediary for the other directors if necessary. Independence of directors The Board has a strong independent element and currently comprises, in addition to the chairman, two executive directors and eight NEDs, all of whom are independent according to the defi nition contained in the Code. Full biographical details for each director are given on pages 92–93. The letters of appointment of the NEDs (as well as the executive directors’ service contracts) are available for inspection at the registered offi ce of the Company. None of the NEDs has served concurrently with an executive director for more than nine years. As David Challen has been on the Board for over six years his re-appointment is subject to particularly rigorous review. The Board believes that through his challenging and questioning of management he continues to display all of the qualities of independence pursuant to the criteria set out in the Code. Board evaluation An evaluation of the Board by an external facilitator, with no prior relationship with Anglo American, was completed in February 2012. This involved a series of one- to-one interviews with board members to gather views, and attendance at a Board meeting by the facilitator. Overall, directors felt that the Board was functioning well. The composition and balance of the Board is good, and continues to develop. The frequency of meetings is appropriate, and they are well organised and well chaired, with an inclusive style encouraging open, healthy debate. It was agreed that fi nance and risk management, in particular, were well covered and that the chairman was very effective at communicating with external stakeholders – for example, investors and media. There is always room for improvement of course, and the evaluation identifi ed a number of areas where we could do even better. As ever, directors would like to have more time for strategic discussions, and for those discussions to be informed by more detail on strategic alternatives to the relevant investment/project under review. As part of the evaluation, directors raised a number of strategic questions to be addressed. It has been agreed that these will be scheduled into the Board’s agenda for discussion over the coming 12 to 18 months – in addition to the annual two-day strategy meeting. Directors also suggested a number of areas that might be programmed into the Board’s agenda to allow a deeper discussion, including: business unit (BU) presentations; competitor benchmarking; succession planning; retrospective review of major project decisions to establish key learnings; and external political and market updates. In order to facilitate openness and constructive debate between our executive directors and NEDs, dinners are arranged for the day before each Board meeting. At these, directors are encouraged to raise issues in an informal setting. These dinners provide an opportunity, inter alia, to discuss the performance of management and to air subjects outside the confi nes of the boardroom in an informal and constructive manner. At every Board meeting, time is set aside for a NEDs only discussion. The Board receives regular governance updates from the company secretary highlighting developments in company law, corporate governance and best practice. Board papers are circulated one week before meetings – both electronically, via iPads, and in paper form. Members of the GMC attend all Board meetings. Dealing with confl icts 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 2012 Mr Nhleko recused himself from a discussion on an item of business where there was a potential confl ict of interest. In accordance with the Company’s Articles and relevant legislation, a quorum of the Board, which does not include the director with the potential confl ict of interest, can authorise potential confl icts of interest and such authorisations can be limited in scope and are reviewed on an annual basis. During the year under review, the confl icts register was updated and the confl ict management procedures were adhered to and operated effectively. G o v e r n a n c e Director training Anglo American’s directors have a wide range of expertise as well as signifi cant experience in strategic, fi nancial, commercial and mining activities. 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 Financial Services Authority (FSA), the Company’s Articles, the 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 was signifi cantly updated during 2012 and will continue to be 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 Anglo American Group. Training and briefi ngs are also available to directors on appointment and throughout their tenure, as necessary, taking into account existing qualifi cations and experience. Directors also have access to management, and to the advice of the company secretary. Furthermore, all directors are entitled to seek independent professional advice concerning the affairs of Anglo American at the Company’s expense, although no such advice was sought during 2012. Regular presentations are made to the Board by BU management on the activities of operations. The company secretary facilitates board training and during the year directors attended courses on, inter alia, corporate governance, strategy, compliance, current audit and remuneration committee issues and general director duties and responsibilities. The directors are given the opportunity to discuss their development needs with the chairman during individual feedback meetings. Anglo American plc Annual Report 2012 97 GOVERNANCE BOARD IN ACTION BOARD VISIT TO BRAZIL: OCTOBER 2012 Directors and executives during the course of the visit to the Minas-Rio Project in October 2012. 98 Anglo American plc Annual Report 2012 BOARD IN ACTION Directors undertake regular visits to operations and projects and, in 2012, operations and projects in Brazil and Alaska were visited. BOARD VISIT TO BRAZIL In October 2012 the Board met in Brazil. Directors took the opportunity to meet with the Governor of the State of Minas Gerais and other state politicians. Directors then visited the project, touring the benefi ciation plant and the pipeline as well as the local SENAI training centre funded by Anglo American. During the course of the visit, the Board received detailed presentations from the management of the Minas- Rio Project. NEDs’ fact fi nding trips Some of the NEDs attended meetings in Alaska with Anglo American employees, the Alaskan government and local communities involved in the Pebble Project. Some also visited the Niobium and Phosphate operations in Brazil following the Board meeting that was held there. COMMUNICATING WITH OUR INVESTORS The Company maintains an active engagement with its key fi nancial 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 fi nal results as well as during the rest of the year. An active programme of communication with potential shareholders is also maintained. A schedule of investor relations activities carried out during 2012 is shown on the following page. Investor relations activities timeline 2012 January February 23 January Chairman shareholder meeting 17 February Financial results webcast and analyst roundtable 17 February Preliminary financial results w/c 20 February Roadshow: CFO – London & Edinburgh w/c 20 February Roadshow: CEO & BU Heads – London, videoconference to Cape Town, Johannesburg & Boston 27–28 February Broker conference: Investor relations – Florida March 01 March Roadshow: CFO – Johannesburg April May June 08 March Broker conference: Investor relations – London 14 March Chairman shareholder meeting 14 & 20 March Roadshow: Chairman – London 20 March Chairman shareholder meeting 21 March Broker conference: Investor relations – London 22 March Sales briefing: CFO – London 23 March Broker reverse roadshow: Investor relations – London 26 March Broker reverse roadshow: Investor relations – London 04 April 19 April 20 April 30 April Sales briefing: Investor relations – London AGM: – London Roadshow: Investor relations – Frankfurt Broker reverse roadshow: Investor relations – London 10 May Broker conference: Investor relations – Milan 15–17 May Broker conference: CEO – Miami 16 May 25 May 06 June 08 June 12 June 14 June 19 June 19 June Sales briefing: CFO – London Roadshow: CFO – Paris Chairman shareholder meeting Roadshow: BU Head – Boston Informal gathering: Board & ExCo – London Investor day webcast (Coal) Chairman shareholder meeting Roadshow: Chairman – Johannesburg 21–26 June Roadshow: CFO – East & West Coast US 27 June Chairman shareholder meeting July 02–04 July Roadshow: CFO – Singapore 27 July 27 July Interim financial results Interim financial results webcast and roundtable August September October November 06–18 September Roadshow: CEO – London, Edinburgh, Boston, Cape Town, Johannesburg 14 September Roadshow: CFO – London 17 September Sales briefing: CFO – London 19 September Broker conference: Investor relations – London 20 September Sales briefing: CFO – London 21 September Roadshow meetings: Investor relations – VCs to Japan 24 September Roadshow: CEO – New York 01–03 October Roadshow: Investor relations – Chicago & Canada 09 October Sales briefing: CEO – London 29–30 October Roadshow: Investor relations – Benelux 07 November Broker conference: Investor relations – London 09 November Chairman shareholder meeting 14 November Broker conference: CFO – London 15 November Broker reverse roadshow: Investor relations – London 16 November Roadshow: CFO – Paris 30 November Investor Day webcast (Diamonds) G o v e r n a n c e Board oversight Any signifi cant 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 Pacifi c to communicate the strategy and performance of Anglo American. Executive directors as well as key executives, including business unit heads, host such presentations, which include seminars for investors and analysts and one-on-one meetings. Throughout the year, executive management also presents at industry conferences that are mainly organised by investment banks for their institutional investor base. During 2012, the chairman attended investor roadshows in London and Cape Town. David Challen, in his capacity as the SID, works closely with the chairman to maintain his understanding of the issues and concerns of major shareholders. The chairman, SID and other NEDs are also available to shareholders to discuss any matter they wish to raise. The Company’s website provides the latest news and historical fi nancial information, details about forthcoming events for shareholders and analysts, and other information regarding Anglo American. Anglo American plc Annual Report 2012 99 GOVERNANCE BOARD IN ACTION BOARD COMMITTEES 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. 100 Anglo American plc Annual Report 2012 SAFETY AND SUSTAINABLE DEVELOPMENT (S&SD) COMMITTEE Role and responsibilities • Reviewing the development of framework policies and guidelines for the management of sustainable development and socio-political risks, including safety, health and environment Peter Woicke Chairman, S&SD Committee • Reviewing the performance of the Company and the progressive implementation of its S&SD and corporate affairs policies • Receiving reports covering matters relating to material S&SD risks and liabilities • Monitoring key indicators and learning from incidents and, where appropriate, ensuring they are communicated throughout the Group • Considering material national and international regulatory and technical developments in the fi eld of S&SD management. Committee discussions in 2012 • At each meeting, the Committee reviewed and discussed a quarterly report covering the Group’s performance across a range of S&SD areas, including safety, occupational health, HIV/AIDS, energy and water usage and social performance • Sadly, 13 colleagues lost their lives in work- related incidents during the year. The Committee received a detailed account of each fatal incident from the relevant BU CEO, together with the related management response • BU CEOs present to the Committee on all aspects of their units’ S&SD performance on a rotational basis. During 2012, the Committee received reports from Kumba Iron Ore, Thermal Coal, Phosphates and Niobium, Exploration, Iron Ore Brazil and Nickel • The Committee discussed a range of topics related to its oversight of S&SD risks, including methane and explosive dust control, slope stability, tailings risk and shaft integrity • In recent years, the Committee has invited its NGO partners, and other third parties with S&SD expertise, to give briefi ngs on areas of interest and to provide a valuable external perspective on the Group’s performance and progress. In 2012 the Committee welcomed presentations from CARE International on its health and education work in partnership with Anglo American, and from PricewaterhouseCoopers on the results of their annual audit of the Group’s sustainable development reporting. Composition • Peter Woicke – chairman • Brian Beamish • Cynthia Carroll • Ray O’Rourke • Sir John Parker • Jack Thompson • David Weston In addition to the members, Committee meetings are attended by business unit CEOs, S&SD and corporate affairs functional specialists from across the Group, all of whom participate actively in the Committee’s discussions. “Since joining the S&SD Committee in 2007, I have witnessed a step change in the attitude to safety and sustainable development throughout the Group.” Peter Woicke Chairman, S&SD Committee REMUNERATION COMMITTEE Role and responsibilities • Establishing and developing the Group’s general policy on executive and senior management remuneration In December 2012, the Committee: • Reviewed directors’ salaries, taking into account the general salary review for the broader employee population • Determining specifi c remuneration packages • Considered GMC and ExCo remuneration for the chairman and executive directors elements and performance contracts for 2013 • Designing the Company’s share incentive • Discussed the early adoption of the BIS proposals and reviewed the impact of them on the Remuneration Report for 2012 • Reviewed its terms of reference • Reviewed corporate governance issues that had arisen since the previous meeting. G o v e r n a n c e schemes. Committee discussions in 2012 In February 2012, the Committee: • Reviewed executive director personal key performance indicators for 2012 and Company fi nancial and safety targets to ensure alignment with Company strategy • Discussed with the Company chairman and CEO respectively, the CEO’s and fi nance director’s performance in 2011 to adjudicate on bonus outcomes • Approved a proposal that a dividend equivalent be paid on shares vesting under Long-Term Investment Plan (LTIP) awards from the 2012 award onwards • Reviewed executive directors’ shareholdings in the Company prior to 2012 share awards being made • Discussed the Department of Business Innovation and Skills’ (BIS) proposals that were announced on 23 January. In April 2012, the Committee: • Formally confi rmed the vesting of 2009 Bonus Share Plan (BSP) and LTIP awards and the granting of 2012 BSP and LTIP awards • Reviewed the proposal for asset optimisation and supply chain targets for the 2012 LTIP award • Discussed investor feedback on executive remuneration prior to the vote on the Directors’ Remuneration Report • Discussed the further consultation launched by BIS in March. In June 2012, the Committee: • Set the asset optimisation and supply chain targets for the 2012 LTIP award • Reviewed corporate governance issues in the previous quarter and major issues arising from the main AGM voting season. Sir Philip Hampton Chairman, Remuneration Committee Composition In compliance with the Code, the Committee comprises only independent non-executive directors: • Sir Philip Hampton– chairman • David Challen • Sir CK Chow • Jack Thompson • Peter Woicke “It is the role of the Remuneration Committee to ensure that the remuneration arrangements for executive directors offer every encouragement to enhance the Company’s performance and deliver our strategy – responsibly.” Sir Philip Hampton Chairman, Remuneration Committee Anglo American plc Annual Report 2012 101 GOVERNANCE BOARD IN ACTION NOMINATION COMMITTEE AUDIT COMMITTEE Sir John Parker Chairman, Nomination Committee Composition Compliant with the Code: • Sir John Parker – chairman • David Challen • Sir CK Chow • Peter Woicke “The Nomination Committee’s aim is to enhance the current diversity of the Board by identifying and nominating suitably qualifi ed candidates.” Sir John Parker Chairman, Nomination Committee David Challen Chairman, Audit Committee Composition Compliant with the Code and comprises only independent non-executive directors: • David Challen – chairman • Sir Philip Hampton • Phuthuma Nhleko • Ray O’Rourke • Anne Stevens “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 Role and responsibilities • 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 then convene to discuss their impressions and conclusions, culminating in a recommendation to the Board; • Making recommendations as to the composition of the Board and its committees and the balance between executive directors and NEDs, with the aim of cultivating a board with the appropriate mix of skills, experience, independence and knowledge of the Company; • Ensuring that the HR 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. In 2012 the representation of women on the Company’s Board (excluding the chairman) reached 27%. With the resignation of Dr Ramphele in July 2012, this fell to 20%. Committee discussions in 2012 • Following extensive research into potential candidates, Anne Stevens was appointed in May 2012; • The Board received biannual presentations from the Group director, HR and corporate affairs. These presentations dealt with succession management at ExCo level and long term talent management across the Group; • Following the October 2012 announcement that Cynthia Carroll would be standing down as CEO of the Company, the Committee immediately set in motion the process to identify a successor, resulting in the appointment of Mark Cutifani; • The Committee initiated a search for a further non-executive director to join the Board and the Audit Committee with the intention that the appointee will succeed David Challen as chairman of the Audit Committee; • Following an extensive search, Byron Grote was identifi ed by the Committee and has been nominated by the Board for election at the AGM on 19 April 2013. Role and responsibilities • Monitoring the integrity of the annual and interim fi nancial statements, the accompanying reports to shareholders and corporate governance statements; • Making recommendations to the Board concerning the adoption of the annual and interim fi nancial statements; • Overseeing the Group’s relations with the external auditors; • Making recommendations to the Board on the appointment, retention and removal of the external auditors; • 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; • Approving the terms of reference and plans of the internal audit function; • Approving the internal audit plan and reviewing regular reports from the head of internal audit on effectiveness of the internal control system; • Receiving reports from management on the key risks of the Group and management of those risks. Committee discussions in 2012 At the February 2012 meeting the Committee: • Reviewed and approved the 2011 year end results, accounting matters and press release subject to comments from the Committee to improve the disclosures; • Reviewed the accounting treatment and disclosure in connection with the option for the Chilean state-owned entity, Codelco, to buy a stake up to 49% in Anglo American Sur. The Committee approved the accounting treatment and disclosure following the discussion with management and the external auditors; • Discussed the external auditors’ report that included comments on internal control fi ndings, a statement on their independence and objectivity and compliance with the Audit Practices Board ethical standards and the letter of representation. The Committee noted the report; • Reviewed a report on the Group’s ore reserves and mineral resources. Signifi cant changes in the statements from prior years were highlighted and discussed along with the three-year audit plan conducted by independent third-party auditors; • Noted and approved the register of non-audit assignments conducted by the external auditors in 2011; 102 Anglo American plc Annual Report 2012 G o v e r n a n c e At the December 2012 meeting the Committee: • Reviewed the signifi cant audit and accounting items for the 2012 year end. This included the process for reviewing the valuation of the Minas-Rio project, the accounting implications of the Platinum structure review and the accounting treatment for De Beers; • Approved the external auditors’ terms of engagement, scope of work, the process for the annual audit, the applicable levels of materiality and the audit fee for 2012. The Committee noted the key audit risks highlighted by the external auditors; • Approved the internal audit plan for 2013 having reviewed the plan and the process of how it is generated. The Committee satisfi ed itself that the plan was risk-based in its design; • Discussed and reviewed signifi cant changes to the Group’s risk profi le and approved the 2013 integrated risk management plan; • Discussed the responsibilities of the Committee arising from the changes to the Code following a review and consultation process undertaken by the FRC in 2012. The Committee reviewed its terms of reference considering changes to the Code that relate to the role of audit committees and concluded the current terms of reference were broad enough to cover the changes. No amendments were therefore made. • Received a report regarding internal audit, including the results of internal audit work and whistleblowing activity in 2011; • Reviewed and approved a paper on the Group’s insurance arrangements and approach for 2012. At the July 2012 meeting the Committee: • Received a report from management on signifi cant accounting issues for the six-month period ending 30 June 2012, including the accounting treatment of the Codelco option; • Reviewed and discussed the 2012 interim results and disclosures. The Committee provided various comments on the disclosures; • Reviewed a report from the external auditors, their management letter highlighting internal control fi ndings from the 2011 audit and the draft letter of representation; • Reviewed and approved the register of non- audit assignments undertaken by the external auditors in the period to 30 June 2012. The committee also approved changes to the policy covering the provision of non-audit services by the external auditors; • Received a report on the work of the internal auditors to 30 June 2012; • Received and discussed a report covering the key risks facing the Group and each of its business units based on the output of risk management work undertaken by management. The Committee noted and approved the report; • Received an update on the review of the Group’s insurance arrangements and noted the new structure in place for insurance of the Group’s assets and business interruption exposures; • Reviewed the process undertaken by management to assess the external auditors’ independence, objectivity and effectiveness during the 2011 audit. The Committee noted that Deloitte LLP had conducted the audit effectively in an independent and objective manner. Anglo American plc Annual Report 2012 103 Conclusions of the Audit Committee for 2012 The Audit Committee has satisfi ed itself that the UK 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 2012 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 152. 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 a review conducted by management, 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. GOVERNANCE AUDIT COMMITTEE REPORT AUDIT COMMITTEE REPORT ENSURING 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 that: • Results in the auditors acting as a manager or employee of the Group • Puts the auditors in the role of advocate for the Group or • Creates a mutuality of interest between the auditors and the Group. Anglo American addresses this issue through three primary measures, namely: • Disclosure of the extent and nature of non-audit services • The prohibition of selected services – this includes the undertaking of internal audit services • Prior approval by the Audit Committee chairman of non-audit services where the cost of the proposed assignment is likely to exceed $50,000. Anglo American’s policy on the provision of non-audit services is regularly reviewed and was updated during 2012. The defi nition of prohibited non-audit services corresponds with the European Commission’s recommendations on auditors’ independence and with the Ethical Standards issued by the Audit Practices Board in the UK. Other safeguards • 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 fi ve years and, for any key audit partner, seven years. The audit engagement partner was appointed in 2010 in accordance with this requirement. • Any partner designated as a key audit partner of Anglo American shall not be employed by Anglo American in a key management position unless a period of at least two years has elapsed since the conclusion of the last relevant audit. • The external auditors are required to assess periodically, whether in their professional judgement, they are independent of the Group. • The Audit Committee ensures that the scope of the auditors’ work is suffi cient and that the auditors are fairly remunerated. • The Audit Committee has primary responsibility for making recommendations to the Board on the appointment, re-appointment and removal of the external auditors. • The Audit Committee has the authority to engage independent counsel and other advisers as they determine necessary in order to resolve issues on auditors’ independence. • An annual assessment is undertaken of the auditors’ effectiveness, independence and objectivity. The effectiveness assessment involves a review, with the senior fi nance managers in each of the business units and relevant corporate functions, of the audit process, including the planning, execution and reporting activities along with an assessment of the quality, quantity and leadership of each of the external audit teams involved in the audit. Any improvement opportunities identifi ed are discussed with the external auditors. The independence and objectivity assessment is conducted by a review of compliance with the policies in place in the Group and within the external auditors to maintain independence and objectivity. The results of the review are shared with the Audit Committee. 104 Anglo American plc Annual Report 2012 Audit Committee actions in 2013 During 2013 the Audit Committee will continue its role in monitoring the integrity of the fi nancial 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 satisfy itself that the risk and audit processes within De Beers are fully integrated into Anglo American as appropriate. Consideration given to the appointment of the external auditors The appointment of Deloitte LLP as the Group’s external auditors (incumbents since the listing of Anglo American in 1999) is kept under annual review and, if satisfactory, the Committee will recommend the re-appointment of the audit fi rm. The appointment of Deloitte LLP followed a detailed evaluation, at the time of the listing, of the predecessor audit fi rms 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 2014. Resolutions to authorise the Board to re-appoint and determine the remuneration of Deloitte LLP will be proposed at the AGM on 19 April 2013. Assessment of the effectiveness of internal control and risk management The GMC, as mandated by the Board, maintains a Group-wide system of internal control to manage signifi cant Group risks. This system, which has been operating throughout the year and to the date of this report, supports the Board in discharging its responsibility for ensuring that the wide range of risks associated with the Group’s diverse international operations is effectively managed in support of the creation and preservation of shareholder wealth. Please see pages 48–53 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 identifi ed as a result of the review of the effectiveness of the internal control system. G o v e r n a n c e 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 fi ndings of this internal audit work with 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 fi ndings to local senior management. The internal audit function’s mandate and annual audit coverage plans have been approved by the Audit Committee. The internal audit activities are performed by teams of appropriate, qualifi ed and experienced employees, supplemented if necessary through the engagement of external practitioners upon specifi ed and agreed terms. A summary of audit results and risk management information was presented to the Committee and Group senior management at regular intervals throughout the year. The Group’s head of internal audit reports to the Audit Committee on the internal audit function’s performance against the agreed internal audit plan. During 2012, 440 audit projects were completed covering a variety of fi nancial, 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. During 2013 the internal audit resources in De Beers will be integrated into the Anglo American team and will adopt a consistent approach to internal audit work. Anglo American plc Annual Report 2012 105 GOVERNANCE AUDIT COMMITTEE REPORT Obtaining assurance 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 defi ned by the Board. Regular management reporting, which provides a balanced assessment of key risks and controls, is an important component of board assurance. In addition, certain Board committees focus on specifi c risks such as safety and capital investment and provide assurance to the Board. The chief fi nancial offi cers of the Group’s business units provide confi rmation, on a six-monthly basis, that fi nancial and accounting control frameworks have operated satisfactorily. The Board also receives assurance from the Audit Committee, which derives its information, in part, from regular internal audit reports on risk and internal control throughout the Group and external audit reporting. The Group’s internal audit function has a formal collaboration process in place with the external auditors to ensure effi cient 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 signifi cant 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 profi cient staff and independent third parties. 106 Anglo American plc Annual Report 2012 During 2012, 332 reports were received via the global ‘Speakup’ facility, covering a broad spectrum of concerns, including: • Ethical • Criminal • Supplier relationships • Health and safety • HR issues. Reports received were kept strictly confi dential and were referred to appropriate line managers within the Group for resolution. Where appropriate, action was taken to address the issues raised. The reports are analysed and monitored to ensure the process is effective. Whistle-blowing programme The Group has had a whistle-blowing programme in place for a number of years in all its managed operations. This facility operates in addition to a standardised Group-wide stakeholder complaints and grievance procedure that is operated at all managed operations (see the 2012 Sustainable Development Report for more details). The whistle-blowing programme, which is monitored by the Audit Committee, is designed to enable employees, customers, suppliers, managers or other stakeholders on a confi dential basis to raise concerns in cases where conduct is deemed to be contrary to our values. It may include: • Actions that may result in danger to the health and/or safety of people or damage to the environment • Unethical practice in accounting, internal accounting controls, fi nancial reporting and auditing matters • Criminal offences, including money laundering, fraud, bribery and corruption • Failure to comply with any legal obligation • Miscarriage of justice • Any conduct contrary to the ethical principles embraced in our business principles or any similar policy • Any other legal or ethical concern • Concealment of any of the above. 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. Risk management at Anglo American The Board’s policy on risk management encompasses all signifi cant business risks to the Group, including: • Financial risk • Operational, including safety, technical, fraud and corruption risk • Compliance risk that could undermine the achievement of business objectives. This system of risk management is designed so that the different businesses are able to tailor and adapt their risk-management processes to suit their specifi c circumstances. This fl exible approach has the commitment of the Group’s senior management. There is clear accountability for risk management, which is a key performance area of line managers 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 2012, more than 135 separate risk assessment workshops were conducted reviewing: • Risk in business unit strategies • Risks to achieving mine or business plans • Risks in capital projects • Risks to key change programmes, including the integration of De Beers. 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-specifi c risk areas, provides the basis for regular and exception reporting to business management, ExCo, the Audit Committee and the Board. Some of the headline risk areas, which have been elaborated upon in the fi nancial review set out on pages 48–53, are: • Commodity price risk • Political risk • Counterparty risk • 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 Audit Committee, 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 fi ndings from the ongoing monitoring and reporting processes, management assertions and independent assurance reports. The Board also takes account of material changes and trends in the risk profi le and considers whether the control system, including reporting, adequately supports the Board in achieving its risk management objectives. During the course of the year the Board considered the Group’s responsiveness to changes within its business environment. The Board is satisfi ed that there is an ongoing process, which has been operational during the year, and up to the date of approval of the Annual Report, for identifying, evaluating and managing the signifi cant risks faced by the Group. 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 2012. G o v e r n a n c e Accountability and audit The Board is required to present a balanced and understandable assessment of Anglo American’s fi nancial position and prospects. Such assessment is provided in the chairman’s and CEO’s statements and the operating and fi nancial review of this Annual Report. The respective responsibilities of the directors and external auditors are set out on pages 134, 136 and 137. As referred to in the directors’ report, the directors have expressed their view that Anglo American’s business is a going concern. Business integrity During 2012 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 more than 3,500 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 specifi c guidance on due diligence procedures for transactions where risks are considered higher. We updated our assessment of the risks of bribery and corruption in each of our businesses, taking into consideration external and internal factors and identifi ed action plans for implementation based on those risk assessments. We applied a due diligence process in individual transactions to identify necessary actions that mitigate risk of bribery in those transactions. During 2013 we will continue to develop our procedures and obtain assurance that they are being implemented as we expect across the Group. Anglo American plc Annual Report 2012 107 GOVERNANCE DIRECTORS’ REMUNERATION REPORT REMUNERATION REPORT OF THE DIRECTORS IN THIS SECTION 108 Introductory letter 109 Policy on director remuneration 116 Director remuneration in 2012 120 Outstanding share interests 125 Chief executive arrangements 126 Remuneration Committee in 2012 127 Other information required Sir Philip Hampton Sir Philip Hampton Chairman of the Chairman of the Remuneration Remuneration Committee Committee “It is the role of the Company’s Remuneration Committee to ensure that the remuneration arrangements for executive directors offer every encouragement to enhance the Company’s performance and deliver our strategy – responsibly.” 1. INTRODUCTORY LETTER • The signifi cant drop in the Dear Shareholder, It is the role of the Company’s Remuneration Committee to ensure that the remuneration arrangements for executive directors and other members of the Executive Committee offer every encouragement to enhance the Company’s performance and deliver our strategy – responsibly. We also need to ensure that the actual rewards received by the executive directors are proportionate to the levels of performance achieved and the returns received by you as shareholders. As a Committee, we therefore give full consideration to the Company’s priorities, its performance, your interests and the interests of the wider communities we touch. To help us clearly explain what our executive remuneration arrangements are and what rewards have been received over the past year and why, we have decided to adopt many of the changes being proposed by the UK Government to the reporting of directors’ remuneration a year earlier than required. The contents of our new form of report are set out on the left and the new ‘Single Figure’ is shown in Figure 13 on page 119. As the chief executive reported in her introduction to this year’s Annual Report, the current volatility in commodity prices is affecting the Company’s short-term earnings but the Company continues to make progress towards sustainable growth over the mid to long-term. These challenges and successes are refl ected in the remuneration received by executive directors for 2012. Company’s earnings in 2012 means that no bonus was payable to executive directors in respect of earnings performance. The bonus amount that was earned refl ects management action taken in weak market conditions and the successful delivery of key strategic operational priorities. For more information go to section 3.2 • The drop in earnings also means that, of the Enhancement Shares initially awarded in 2010, none vested at the end of 2012, as the required three-year earnings growth was not achieved. For more information go to section 3.3 • The success over the last three years of the Company’s longer-term effi ciency programmes means that around half the LTIP awards initially granted to executive directors in 2010 are likely to vest. The other half will not vest as the full value of these savings have yet to be returned to you as shareholders in the form of superior TSR. For more information go to section 3.4 • With respect to 2012 there are two aspects of our remuneration arrangements that I would like to highlight: • The Committee decided to remove the opportunity for executive directors to defer future additional amounts of bonus into shares and to receive correspondingly higher awards of Enhancement Shares; and • The Chairman voluntarily waived the increase in his fee level that was due to take effect from August 2012. There has, therefore, been no increase to his fees taken since joining the Company in 2009. 108 Anglo American plc Annual Report 2012 G o v e r n a n c e 2. POLICY ON DIRECTOR REMUNERATION 2.1 Remuneration policy Figures 1 and 2 summarise key aspects of the Company’s remuneration policy for executive and non-executive directors from 1 January 2013. This policy remains unchanged from 2012, except as highlighted below. Further details on the Company’s arrangements are contained in Parts 3 and 4 of this report. Investors will be aware from the announcement on 8 January that Cynthia Carroll will step down from the Board at the Company’s Annual General Meeting in April 2013 and will leave Anglo American at the end of that month. She will be succeeded as chief executive by Mark Cutifani whose appointment will take effect from 3 April 2013. The details of Mr Cutifani’s remuneration package and Mrs Carroll’s termination arrangements can be found on page 125 of this report. With the advent of a new chief executive, the Committee intends to review the performance measures for the Company’s incentive plans during 2013, to ensure that they remain aligned with Company strategy and are suffi ciently stretching. We will of course consult with shareholders before making any changes. We hope you fi nd the new form of report helpful and look forward to your feedback. Sir Philip Hampton Remuneration Committee Chairman Anglo American plc Annual Report 2012 109 GOVERNANCE DIRECTORS’ REMUNERATION REPORT Figure 1: Key aspects of the remuneration policy for executive directors Purpose Maximum opportunity Operation Overall remuneration Basic salary Bonus Share Plan (BSP) To recruit and retain high-calibre executives and encourage them to enhance the Company’s performance, responsibly, in line with the Company’s strategy and shareholder interests To recruit and retain high-calibre executives To encourage and reward delivery of the Company’s strategic priorities To help ensure, through the share-based elements, that any resulting performance is sustained over the longer-term in line with shareholder interests Levels for individual pay elements are set out below Section 2.3 sets out the total opportunity levels for executive directors under different scenarios of Company performance The Committee reviews the structure of the executive directors’ arrangements every few years and otherwise as required Remuneration levels are reviewed annually to ensure they remain competitive with reference to median levels in relevant FTSE 50 and global extractive companies There is no prescribed maximum annual increase. The Committee is guided by the general increase for the broader UK employee population but on occasions may need to recognise, for example, development in role, change in responsibility, and/or specifi c retention issues Basic salary levels are reviewed annually by the Committee, taking account of Company performance, individual performance, changes in responsibility and levels of increase for the broader UK population Reference is also made to median levels within relevant FTSE 50 and global extractive companies, as mentioned above The Committee considers the impact of any basic salary increase on the total remuneration package Cash award Maximum award: 87.5% of salary Performance measures: 50% – earnings per share (EPS) 50% – individual objectives linked to the Company’s strategic priorities Safety (loss of life and Lost Time Injury Frequency Rate) Performance period: 1 year Bonus Shares Maximum award: 87.5% of salary Annual performance measures and period: as for the cash award Further holding period: 3 years Enhancement Shares Maximum award: 75% of Bonus Shares (65.6% of salary) Performance measure: Real EPS growth Performance period: 3 years There are three elements to the BSP: • A performance-related cash element, payable after the end of the relevant fi nancial year • A performance-related share element, in the form of a conditional award of Bonus Shares made after the end of the relevant fi nancial year with a value equal to the cash element and vesting subject to a further three-year holding period • An additional performance-related element, in the form of Enhancement Shares granted after the end of the fi nancial year to a face value of 75% of the Bonus Shares The Committee reviews the BSP measures annually to ensure they remain appropriate BSP targets are reviewed at the same time to ensure they are demanding yet realistic, given latest company strategy, prior performance, and external expectations Dividends are payable on the Bonus Shares during the holding period The Committee is able to claw back any unvested Bonus and Enhancement Shares in the event of a material misstatement in the Company’s results Change for 2013: In response to investor views, the Committee has decided to remove the opportunity for executives to voluntarily elect to defer up to 50% of the cash element into Bonus Shares The Committee makes an annual conditional award of shares to each executive director Prior to grant the Committee reviews the performance targets for each measure to ensure they remain suffi ciently stretching Dividend equivalents are paid on any shares that vest The Committee is able to claw back any unvested grant (or future grants) in the event of a material misstatement in the Company’s results The LTIP performance measures will be reviewed once the new chief executive has assumed his duties. On the basis that the review is completed before the end of the fi nancial year the Committee reserves the right to apply any new measures retrospectively to the 2013 award Long-Term Incentive Plan (LTIP) To encourage and reward signifi cant and sustained operating effi ciencies and the delivery of superior shareholder returns, in line with shareholder interests Maximum award 350% of salary (received by the chief executive only) Performance measures 50%: Total shareholder returns (TSR) 50%: Asset Optimisation and Supply Chain (AOSC) Performance period 3 years 110 Anglo American plc Annual Report 2012 Purpose Maximum opportunity Operation Pension To offer market- competitive levels of benefi t Other benefi ts To provide market- competitive benefi ts Company contribution: 30% of basic salary Executive directors participate in defi ned contribution pension arrangements Prior to 6 April 2011, executive directors had the option of all or part of their employer-funded defi ned contribution arrangements to be paid into an unregistered retirement benefi ts scheme (an EFRBS). Since 6 April 2011, executive directors have the option for all or part of these contributions to be treated as if paid to an unregistered unfunded retirement benefi t scheme (an UURBS) The Committee is prepared to consider requests from executive directors for a pension allowance to be paid in place of defi ned contribution arrangements Not pre-determined The Company provides: All-employee share plans To offer all UK-based employees the opportunity to build a shareholding in a tax-effi cient way Recruitment and promotion arrangements To secure the appointment and promotion of high-calibre executives Maximum SAYE saving: £3,000 pa, with which all employees have the option to buy Company shares at a 20% discount Maximum SIP investment: £1,500 pa to purchase Company shares, with the potential for a 1:1 matching award from the Company and, from time to time, a limited number of free shares Not pre-determined G o v e r n a n c e • Car allowance • Medical insurance • Death and disability insurance • Limited personal taxation and fi nancial advice • One club membership • Access to company car and driver, as required • Other ancillary benefi ts, including attendance at relevant public events Executive directors are entitled to 28 days’ leave per annum and may only carry over 8 days from one leave year to the next (up to a maximum balance of 20 days). The Company buys out any accumulated leave in excess of 20 days UK-based executive directors are eligible to participate in the Company’s Save As You Earn (SAYE) scheme and Share Incentive Plan (SIP) For external appointments the Committee may offer additional cash and/or share-based elements when it considers these to be in the best interests of the Company (and therefore shareholders). Such payments would take account of remuneration relinquished when leaving the former employer and would refl ect the nature, time horizons and performance requirements attaching to that remuneration. Shareholders will be informed of any such payments at the time of appointment. The Company has retained its Discretionary Option Plan to use in such circumstances, if appropriate For an internal appointment, any variable pay element awarded in respect of the prior role may be allowed to pay out according to its terms, adjusted as relevant to take into account the appointment. In addition, any other ongoing remuneration obligations existing prior to appointment may continue, provided that they are put to shareholders for approval at the earliest opportunity For external and internal appointments, the Committee may agree that the Company will meet certain relocation expenses as appropriate Anglo American plc Annual Report 2012 111 GOVERNANCE DIRECTORS’ REMUNERATION REPORT Figure 1: Key aspects of the remuneration policy for executive directors continued Purpose Maximum opportunity Operation Retention arrangements To allow the Company to retain top executive talent Not pre-determined The Committee may make one-off share based awards to executive directors in exceptional circumstances (such as where an acute retention risk is present) The Committee will only make such an award if it is considered to be the most effective mitigation against such a risk and if it is deemed to be in the long-term interests of the Company (and shareholders) to do so Any such awards would vest subject to continuing employment and could have performance conditions attaching to them should the Committee consider these to be appropriate The Committee has no plans to make any such awards at this time Figure 2: Key aspects of the remuneration policy for non-executive directors Purpose Maximum opportunity Operation Chairman – Fees Chairman – Other benefi ts Non-executive directors – Fees To attract and retain a high-calibre chairman by offering a market- competitive fee level To provide market- competitive benefi ts To attract and retain high-calibre non-executive directors by offering market- competitive fees Current fee of chairman: £650,000 The chairman is paid a single fee for all his responsibilities The level of these fees is reviewed every two to three years by the Committee and chief executive, with reference to UK market levels (FTSE 30 companies) and a recommendation is then made to the Board (in the absence of the Chairman). The Chairman voluntarily waived the increase to his fee level that was due to take effect in August 2012 Fees are paid in cash with the fl exibility to forgo all or part of the net fees in exchange for shares in the Company In 2009 (on appointment) and in 2011 the Chairman was granted shares in the Company which he committed to match with his personal funds. These shares will be released after three years subject to continued chairmanship Reasonable use of a car and driver Medical insurance Basic fee: £80,000 pa Additional fees: Senior Independent Director: £25,000 pa Committee chairman: £25,000 pa (except Nomination Committee chairman: £12,500) These fees will next be reviewed in December 2013 The non-executives are paid a basic fee. The chairmen of the main board committees and the senior independent director are paid an additional fee to refl ect their extra responsibilities These fee levels are reviewed every few years by the Chairman and executive directors, with reference to UK market levels, and a recommendation is then made to the Board Fees are paid in cash with the fl exibility to forgo all or part of the net fees to acquire shares in the Company 112 Anglo American plc Annual Report 2012 2.2 Supplementary information The Company has additional guidance for executive directors on shareholding targets and external and internal directorships. Shareholding targets Within fi ve years of appointment, executive directors are expected to hold Company shares with a value of two times basic salary for the chief executive and one and a half times basic salary for other executive directors. The Committee takes into consideration achievement against these targets when making grants under the Company’s various long-term incentive plans. External directorships Executive directors are not permitted to hold external directorships or offi ces without the prior approval of the Board. If approved, they may each retain the fees payable from only one such appointment. Internal directorships Any fees earned through internal directorships must be ceded to the Company. In addition: • The remuneration provisions within the service contracts for Cynthia Carroll and René Médori are consistent with the policy outlined in Figure 1 above and in Figure 4 (termination provisions). • The remuneration arrangements for the executive directors outlined in Figure 1 are consistent with those for other executives serving on the Group Management Committee and the Executive Committee, although opportunity levels vary. • The performance conditions attaching to the longer-term incentive arrangements for executive directors were chosen to ensure alignment with the Company’s strategic objective of operating effi ciency (AOSC – LTIP) and with the returns being delivered to shareholders (TSR – LTIP) or the funding of those returns (real EPS growth – BSP Enhancement Shares). Figure 3: Executive director total remuneration at different levels of performance £8.8m £6.1m G o v e r n a n c e Chief Executive Above l e v e L e c n a m r o f r e P Target Below £1.6m Finance Director Above l e v e L e c n a m r o f r e P Target Below £5.1m £3.6m £1.0m Indicative total pay (£m) 0 2.0 4.0 6.0 8.0 10.0 Basic salary Benefits Pension BSP (cash) BSP (deferred shares) BSP (enhancement shares) LTIP Above The Company’s three-year TSR would need to out-perform sector peers by 5% pa and be ranked 20th against the FTSE 100. Target The Company’s three-year TSR would need to out-perform sector peers by 2.5% pa and be ranked 35th against the FTSE 100. Below Total pay for below threshold performance includes basic salary, benefits and pension only. (1) Charts have not been included for the non-executive directors as their fees are fi xed and do not vary with performance. (2) Share price movement and dividend accrual have been excluded from all fi gures. (3) Participation in the SAYE and SIP has been excluded given the relative size of the opportunity levels. (4) Total pay for above target performance comprises basic salary, benefi ts, pension, 100% of maximum bonus opportunity (50% of which is deferred into Bonus Shares), a 0.75 for 1 match of Enhancement Shares (100% of maximum) and 100% of maximum LTIP opportunity. For this level of pay, three-year EPS growth would need to be RPI+15% or higher and the Company’s three-year TSR would need to out-perform sector peers by 5% pa and be ranked 20th or higher against the FTSE 100. (5) Total pay for target performance comprises basic salary, benefi ts, pension, 65% of maximum bonus opportunity (50% of which is deferred into Bonus Shares), a 0.5 for 1 match of Enhancement Shares (i.e. 67% of maximum) and 65% of maximum LTIP opportunity. For this level of pay, three-year EPS growth would need to be RPI+11.4%, the Company’s three-year TSR would need to out-perform sector peers by 2.5% pa and be ranked 35th against the FTSE 100. (6) Total pay for below threshold performance comprises basic salary, benefi ts and pension only. 2.3 Indicative total remuneration levels The Company’s policy results in a signifi cant portion of remuneration received by executive directors being dependent on Company performance. Figure 3 illustrates how the total pay opportunities for the current chief executive and the fi nance director vary under three different performance scenarios: above, target and below. These charts are indicative as share price movement and dividend accrual have been excluded. All assumptions made are noted below the charts. Anglo American plc Annual Report 2012 113 GOVERNANCE DIRECTORS’ REMUNERATION REPORT 2.4 Service agreements and termination 2.4.1 Executive directors Cynthia Carroll and René Médori are employed by Anglo American Services (UK) Ltd. The service agreements for both can be terminated at 12 months’ notice by either party, in line with the Company’s policy that the period of notice for executive directors should not exceed 12 months, except on appointment, when the Committee may agree an extended Company notice period only for the fi rst year following appointment. Figure 4 sets out key provisions relating to termination of employment from the executive directors’ service agreements and from the incentive plan rules. It also sets out key provisions relating to change of control, where there is no termination. There are no provisions for enhanced payments in the event of a change of control of the Company. 2.4.2 Non-executive directors All non-executive directors have letters of appointment with the Company for an initial period of three years, subject to annual re-appointment at the AGM. The Chairman’s appointment may be terminated by the Company with six months’ notice. The appointment letters for the Chairman and non-executive directors provide that no compensation is payable on termination, other than accrued fees and expenses. Figure 4: Executive director contractual provisions relating to termination of employment and change of control Service agreement provisions relating to termination Incentive plan provisions relating to termination Salary and benefi ts The period of notice for both executive directors is 12 months. Should Cynthia Carroll not be required to work her full notice, Anglo American Services 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 benefi ts; 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 liquidated damages Annual bonus For 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) Bonus Shares and Enhancement Shares If an executive director resigns voluntarily before the end of the three-year vesting period: • Bonus Shares lapse • Enhancement Share awards are foregone If an executive 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 will be pro-rated for the proportion of the performance period for which the director served LTIP awards For outstanding 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 is based on the normal performance criteria at the end of the normal performance period and then pro-rated for the proportion of the performance period for which the director has served • The Committee retains fl exibility to accelerate the vesting of outstanding awards on termination. In such circumstances vesting is based on the normal performance criteria at the time of leaving and then pro-rated for the proportion of the performance period served Incentive plan provisions relating to change of control (without termination) Bonus Shares and Enhancement Shares The Bonus Shares awarded under the BSP will be released 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 LTIP awards 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 114 Anglo American plc Annual Report 2012 2.5 Development of director remuneration policy In developing and reviewing the Company’s remuneration policy for executive directors and other senior executives, the Committee is receptive to the views of shareholders and sensitive to the relationship between the arrangements for executive directors and those for other employee groups. Specifi cally: • Whenever any signifi cant changes are made to remuneration, the Committee seeks feedback from investors. The Committee also listens to and takes into consideration investor views throughout the year. For example, following investor feedback, the Committee has decided, with effect from 2013, to withdraw the ability of executive directors and other executives to defer additional amounts of bonus into shares and receive correspondingly higher awards of Enhancement Shares; • The Committee considers the general basic salary increase for the broader UK employee population when determining the annual salary increases for the executive directors. For 2012 and 2013, the rate of basic salary increase for the chief executive and the fi nance director has been the same as or lower than the general increase for the UK employee population (at 4% and 0% respectively); • Each year the Committee also reviews in detail how the arrangements for the executive directors compare to those for other members of the Group Management Committee and Executive Committee to ensure an appropriate relationship and to support career development and succession. Figure 5: Terms of service – Executive directors Cynthia Carroll Chief Executive 15 January 2007 n/a René Médori Finance Director 01 June 2005 April 2013 Date of initial appointment Next AGM re-election or election Figure 6: Terms of service – Non-executive directors Date of initial appointment 09 July 2009 Next AGM re-election or election April 2013 G o v e r n a n c e 09 September 2002 April 2013 15 April 2008 09 November 2009 09 March 2011 11 December 2009 25 April 2006 14 May 2012 16 November 2009 01 January 2006 April 2013 April 2013 April 2013 April 2013 n/a April 2013 April 2013 n/a Chairman and Chairman, Nomination Committee SID and Chairman, Audit Committee Chairman, Remuneration Committee Sir John Parker David Challen Sir CK Chow Sir Philip Hampton Phuthuma Nhleko Ray O’Rourke Mamphela Ramphele (resigned 2012) Anne Stevens Jack Thompson Peter Woicke Chairman, S&SD Committee (retiring 2013) Given the geographic spread of the Company’s workforce, the Committee does not consider that consulting with employees on the remuneration policy for directors is a viable use of resources. Many of the Company’s UK-based employees are shareholders, through the SAYE and SIP schemes and they, like other shareholders, are able to express their views on director remuneration at each general meeting. Anglo American plc Annual Report 2012 115 GOVERNANCE DIRECTORS’ REMUNERATION REPORT 3. DIRECTOR REMUNERATION IN 2012 The information set out in this section has been subject to external audit. 3.1 Basic salary for 2012 In 2012 basic salary increases for the executive directors were limited to an infl ation adjustment in line with the increase for the broader UK employee population. Figure 7: Basic salaries for 2012 (all amounts in ’000) CYNTHIA CARROLL (2011: £1,170 – increase of 4% in 2012) £1,217 RENÉ MÉDORI (2011: £736 – increase of 4% in 2012) £765 3.2 Annual BSP outcomes for 2012 Figures 8a and 8b outline the key annual fi nancial and strategic performance measures for the 2012 Bonus Share Plan for Cynthia Carroll and René Médori, the level of performance achieved and resulting award levels. Key aspects of their performance are also set out below Figures 8a and 8b. Figure 9: BSP outcomes for 2012 (cash bonus and Bonus Shares) (all amounts in ’000) CYNTHIA CARROLL (2011: £1,925 – decrease of 61% in 2012) £745 RENÉ MÉDORI (2011: £1,198 – decrease of 61% in 2012) £469 116 Anglo American plc Annual Report 2012 Figure 8a: BSP performance assessment for 2012 – Chief Executive Chief Executive BSP measures Below Threshold Target Above Cynthia Carroll Corporate Financial (50%) Earnings per Share Personal/Strategic (50%) Asset Optimisation Operating Performance Project Execution Corporate Strategy and Portfolio Management Organisation and De Beers Integration Corporate Citizenship Group safety performance (deductor) Overall performance Resulting BSP award 35% of maximum bonus (50% payable in cash, 50% as Bonus Shares) BSP KEY PERFORMANCE ASPECTS • The weaker prices for the Company’s main commodities impacted the executive directors’ ability to deliver the target earnings; EPS performance was below the required threshold level. • Cynthia Carroll oversaw strong group action to meet weak market conditions. • Two major projects – Kolomela and Los Bronces – are due to reach full production on or ahead of schedule; Minas-Rio experienced a timetable delay and an increase in budget. • Strong progress was achieved in the Asset Optimisation and Supply Chain programmes which encourage business improvements. • Cynthia Carroll led key strategic acquisitions (De Beers and Revuboè). • Implemented changes in senior management in the businesses in South Africa to continue improvements in performance and safety. • Continued progress achieved in the drive for safety improvement. Figure 8b: BSP performance assessment for 2012 – Finance Director Finance Director BSP measures Below Threshold Target Above René Médori Corporate Financial (50%) Earnings per Share Personal/Strategic (50%) Treasury and Tax Strategy and Portfolio Restructuring Procurement Information Management Finance Function operational targets Teamwork Project Support Group safety performance (deductor) Overall performance Resulting BSP award 35% of maximum bonus (50% payable in cash, 50% as Bonus Shares) BSP KEY PERFORMANCE ASPECTS • The weaker prices for the Company’s main commodities impacted the executive directors’ ability to deliver the target earnings; EPS performance was below the required threshold level. • René Médori oversaw the issuance of corporate bonds with a US$ equivalent value of $5.1 billion in the US, European and South African markets increasing debt headroom and extending maturity. In addition, 99% of the Group’s $1.7 billion convertible bonds were converted into equity, reducing net debt and interest. • Anglo American’s divestment programme, as set out in October 2009, was successfully completed raising $4.0 billion of cumulative proceeds on a debt and cash free basis. • Strong progress was achieved in the Supply Chain programme which drives sustained business improvement. • Two major projects – Kolomela and Los Bronces – are due to reach full production on or ahead of schedule. Minas-Rio experienced a timetable delay and an increase in budget. • Continued progress achieved in the drive for safety improvement. 3.3 BSP Enhancement Share outcomes for 2012 In 2010 Cynthia Carroll and René Médori were awarded Enhancement Shares under the BSP. Vesting was subject to the Company’s real EPS growth over the three-year period to 31 December 2012. The fall in commodity prices in 2012 – the fi nal year of the performance period – impacted the Company’s EPS growth and as a consequence no shares will vest. Figure 10: Enhancement Share vesting outcomes for 2012 (all amounts in ’000) G o v e r n a n c e CYNTHIA CARROLL (2011: £1,570 ) £0 RENÉ MÉDORI (2011: £1,023) £0 Anglo American plc Annual Report 2012 117 GOVERNANCE DIRECTORS’ REMUNERATION REPORT 3.4 Long term incentive plan outcomes for 2012 In 2010 Cynthia Carroll and René Médori received LTIP grants with vesting subject to (a) the Company’s TSR performance relative to (i) a weighted group of international mining companies and (ii) FTSE 100 companies over the three-year period to announcement of the 2012 results, and (b) the level of savings delivered by the Asset Optimisation and Supply Chain programmes to 31 December 2012. Figure 11 sets out further details of the measures, the Company’s performance against each and the assumed outcomes for each executive director. As the performance period for the TSR measures ends immediately after the date of this report on the announcement of the 2012 results, performance and vesting in respect of the TSR measures is based on the latest available information as at 31 December 2012. Figure 12: LTIP vesting outcomes for 2012 (all amounts in 000) CYNTHIA CARROLL (2011: £3,056 – decrease of 74% in 2012) £802 RENÉ MÉDORI (2011: £1,921 – decrease of 74% in 2012) £504 118 Anglo American plc Annual Report 2012 Figure 11: LTIP assessment for 2012 For more details on the measures go to section 4.3 SECTOR INDEX COMPARISON (25% OF TOTAL AWARD) • The Sector Index measure compares the Company’s three-year TSR performance with the weighted median of six international mining companies (94%) and four industrial mineral companies (6%). • Vesting required the Company’s TSR performance to be at least equal to the weighted median. • As at 31 December 2012 the Company’s TSR performance was below the weighted median (at -13%); it is therefore not expected that any shares will vest for this part of the award. 3-year TSR performance against weighted sector median % per annum 50% 25% 7.5% 0% ) d r a w a P T L I l a t o t f o % ( g n i t s e V Zero vesting assumed Threshold: 0% pa Max: 5% pa Vesting schedule and performance to 31 December 2012 Arrow represents expected vesting FTSE 100 COMPARISON (25% OF TOTAL AWARD) 3-year TSR ranking vs FTSE 100 index • The FTSE 100 measure compares the Company’s three-year TSR performance with the constituents of the FTSE 100. • Vesting required the Company’s TSR to be at least equal to the median TSR of the FTSE 100. • As at 31 December 2012 the Company’s TSR performance was ranked below the 50th percentile of the FTSE 100; it is therefore expected that no shares for this part of the award will vest. AOSC (50% OF TOTAL AWARD) • The AOSC measure rewards the delivery of additional operating profi t and capital expenditure savings delivered through the Company’s Asset Optimisation and Supply Chain programmes. • Minimum vesting required cumulative savings to 31 December 2012 of $5.13bn and maximum vesting required savings of $6.27bn. • Actual performance was above the maximum target, leading to full vesting of this part of the award. 50% 25% 7.5% 0% ) d r a w a P T L I l a t o t f o % ( g n i t s e V Zero vesting assumed Threshold: 50th Max: 80th Vesting schedule and performance to 31 December 2012 Arrow represents expected vesting Anglo American’s AOSC efficiency ($bn) Full vesting of 50% of awards 50% 0% ) d r a w a P T L I l a t o t f o % ( g n i t s e V Min: $5.13bn Max: $6.27bn Vesting schedule and actual performance Arrow represents expected vesting LTIP KEY PERFORMANCE ASPECTS • During 2012, the Company has continued to focus on infl uencing behaviours necessary for delivering AOSC benefi ts across businesses. Operation reviews were performed at sites across Copper, Platinum, De Beers and Phosphates businesses to build on work done since 2010 to identify and prioritise business improvement opportunities. Improved relationships with suppliers have resulted in minimised lead times for major equipment delivery and supply risk to our business. Framework agreements are now in place with 38 of our key suppliers representing a formal alignment in our commercial relationship. • As at 31 December 2012, the Company achieved a TSR over the 2010 LTIP performance period of -13% which would generate a nil vesting in terms of the Sector Index (against a median target of 7%) and a nil vesting against the FTSE 100 (being lower than the 50th percentile). The actual performance period for both TSR measures ends immediately after the date of this report. • If the 2010 LTIP awards vest at 50%, 43,791 shares are receivable by Cynthia Carroll and 27,520 by René Médori. At a share price of £18.32 (the average for the last quarter of 2012), this results in values of £802,251 and £504,166 respectively. 3.5 Total remuneration outcomes for 2012 Figure 13 sets out the total remuneration received or receivable by the directors in respect of 2012 (or the three-year performance period ending in 2012 for each of the BSP Enhancement Shares and LTIP awards from 2010). Figure 13: Total remuneration outcomes for 2012 Total basic Benefi ts salary(1) £’000 in kind(2) £’000 Pension(3) £’000 Annual performance bonus – cash & Bonus Shares £’000 2010 Enhancement Share Award(4) £’000 2010 LTIP Award(5) £’000 Total 2012(6) £’000 Total 2011(6) £’000 Executive Directors Section 3.1 Section 3.2 Section 3.3 Section 3.4 Cynthia Carroll 1,217 Cynthia Carroll (2011) René Médori René Médori (2011) 1,170 765 736 65 42 50 33 365 351 230 221 745 1,925 469 1,198 0 802 3,194 1,570 3,056 8,114 0 504 2,018 1,023 1,921 5,132 G o v e r n a n c e Total fees £’000 Benefi ts in kind £’000 Pension £’000 Annual performance bonus – cash & Bonus Shares £’000 2010 Enhancement Share Award £’000 Non-Executive Directors Sir John Parker(7) David Challen Sir CK Chow Sir Philip Hampton Phuthuma Nhleko Ray O’Rourke(7) Mamphela Ramphele Anne Stevens Jack Thompson 650 130 80 105 80 80 46 51 80 Peter Woicke 105 2 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Other(8) £’000 Total 2012 £’000 Total 2011 £’000 589 1,241 – – – – – – – – – 130 80 105 80 80 46 51 80 105 650 115 80 95 65 80 80 – 80 95 (1) In addition to the basic salaries above, Cynthia Carroll and René Médori each retained fees amounting to £98,000 and £92,000 respectively in respect of external directorships (see 2.2). (2) Each executive director receives a car allowance, a limited amount of personal taxation or fi nancial advice and one club subscription; they also receive death and disability benefi ts and medical insurance, access to a company car and driver as required and other ancillary benefi ts. 2012 benefi ts also include attendance at relevant public events. (3) The pension contribution amounts should be read in conjunction with the following information: (a) The amount stated for Cynthia Carroll for 2011 includes a cash allowance of £8,000. (b) The total amount of pension contributions treated as having been paid into the UURBS for 2012 was £315,000 for Cynthia Carroll (2011: £308,000) and £190,000 for René Médori (2011: £537,000). (c) Contributions treated as being paid into the UURBS earn a return equivalent to the Company’s pre-tax sterling nominal cost of debt. The total return earned in 2012 was £24,000 for Cynthia Carroll (2011: £4,000) and £33,000 for René Médori (2011: £8,000). (d) As at 31 December 2012, the total balances due to the executive directors in relation to the UURBS were £651,000 for Cynthia Carroll (2011: £312,000) and £768,000 for René Médori (2011: £545,000). (4) The performance condition attached to the 2010 Enhancement Share award was not met and no shares will vest. (5) As vesting of the LTIP awards granted in 2010 is due to take place after publication of this report, vesting levels are on an ‘expected’ basis and a share price of £18.32 has been used to calculate the values shown. (6) The total emoluments for 2012 (that is basic salary, cash bonuses and benefi ts (excluding pension)) were £1,655,000 for Cynthia Carroll (2011: £2,174,000) and £1,050,000 for René Médori (2011: £1,369,000). (7) Sir John Parker has waived his Nomination Committee Chairman fees. Ray O’Rourke has instructed the Company that his net fees be donated to charity. (8) Following his appointment as chairman of the Company on 1 August 2009, Sir John Parker was awarded 31,000 shares which were released (9) in full on 2 August 2012, three years after appointment, with a share price of £19.00. The award was matched by Sir John before the release date. No person who served as a director of the Company during or before 2012 has been paid or received retirement benefi ts in excess of the retirement benefi ts to which he/she was entitled on the date on which benefi ts fi rst became payable (or 31 March 1997, whichever is later). (10) 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 2012. Anglo American plc Annual Report 2012 119 GOVERNANCE DIRECTORS’ REMUNERATION REPORT 3.6 Distribution statement for 2012 Figure 14 sets out the total spend on employee reward over 2012 compared to profi t generated by the Company and the dividends received by investors. Figure 14: Distribution statement for 2012 Distribution statement Underlying Earnings (Total Group) Dividends payable for year (Total) Payroll costs for all employees Employee numbers 4. OUTSTANDING SHARE INTERESTS The information in this section has been subject to external audit. 4.1 Conditional share awards granted in 2012 Figure 15 summarises the longer-term, share-based awards granted to directors during 2012. Receipt of these awards is dependent on the Company’s performance over 2012–2014, as detailed below. 4.2 Details of BSP Enhancement Shares granted in 2012 • Vesting of the BSP Enhancement Shares granted in 2012 is subject to real EPS growth, ie growth in the Company’s earnings per share compared to growth in the UK Retail Price Index, over three years to 31 December 2014. • The performance targets and vesting outcomes are illustrated in Figure 16. • The performance targets were approved by the Committee after reviewing external expectations and performance over a number of years and have been set at a level that provides stretching performance levels for management. Figure 15: Summary of conditional share awards granted in 2012 $m % change $m % change $m % change ’000 % change 2012 2,839 (54)% 1,087 21% 5,387 9% 106 6% 2011 6,120 23% 898 13% 4,946 9% 100 0% Figure 16: 2012 BSP Enhancement Shares 100% ) s e r a h S t n e m e c n a h n E f o % ( g n i t s e V 44% 0% RPI+9% RPI+15% Anglo American’s 3-year EPS growth (%) Performance period end(2) Director Basis of award 31/12/2014 Cynthia Carroll René Médori 75% of 2011 Bonus Shares 75% of 2011 Bonus Shares Number of shares awarded Face value at grant(3) 26,573 £721,723 16,538 £449,172 31/12/2014 Cynthia Carroll 350% of salary 157,733 £4,258,791 René Médori 300% of salary 85,048 £2,296,296 Type of award BSP Enhancement Shares(1) Performance measure EPS growth Section 4.2 Vesting schedule 44% for RPI+9% 100% for RPI+15% LTIP share awards TSR vs. sector index (25%) Section 4.3.1 TSR vs. FTSE 100 index (25%) Section 4.3.2 AOSC (50%) Section 4.3.3 30% for TSR equal to median 100% for median +5% pa or above 30% for TSR equal to median 100% for 80th centile or above 0% for $4.6bn 100% for $5.6bn (1) The BSP Enhancement Shares were awarded in March 2012. The number of shares granted was 75% of the number of deferred Bonus Shares awarded to each executive director in respect of 2011 annual performance (Cynthia Carroll: 35,431 Bonus Shares; René Médori: 22,051 Bonus Shares). The value of each Bonus Share award was 50% of the total bonus earned for 2011. (2) The performance period for the LTIP TSR measures is three years ending on the day of the announcement of the 2014 fi nancial results in 2015. (3) The face value of each award has been calculated using the share price at time of grant (£27.16 for the Enhancement Share awards and £27.00 for the LTIP awards). As receipt of these awards is conditional on performance, the actual value of these awards may be £0. Vesting outcomes will be disclosed in the 2014 report. 120 Anglo American plc Annual Report 2012 4.3 Details of LTIP awards granted in 2012 4.3.1 TSR – Sector Index comparison • One quarter of the LTIP awards granted in 2012 vests according to the Company’s three-year TSR performance relative to a weighted basket of international mining companies (the Sector Index). • The constituent companies of the Sector Index for the 2012 awards are shown in Figure 17a. • 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 signifi cant changes in the composition of the Group). • The Sector Index performance targets and the vesting schedule for the 2012 LTIP awards are summarised in Figure 17b. • Target performance for the Company requires the Company’s three-year TSR to equal the weighted median TSR performance of the Sector Index. • Maximum vesting occurs when the Company’s TSR outperforms the weighted median TSR of the Sector Index by 5% pa. Figure 17a: 2012 TSR Sector Index Comparator companies Mining BHP Billiton plc Rio Tinto plc Teck Cominco Limited Vale Vedanta Resources plc Xstrata plc G o v e r n a n c e Figure 17b: 2012 LTIP Sector Index comparison (25% of total LTIP award) 100% ) x e d n I r o t c e S P T L f o % I ( g n i t s e V 30% 0% Figure 18: 2012 LTIP FTSE 100 comparison (25% of total LTIP award) 100% ) 0 0 1 E S T F P T L f o % I ( g n i t s e V 30% 0% Threshold: 0% pa Max: 5% pa Anglo American’s 3-year TSR out-performance of weighted sector median Threshold: 50th Max: 80th Anglo American’s 3-year TSR ranking vs FTSE 100 index Figure 19: 2012 LTIP AOSC measure (50% of total LTIP award) 100% ) e r u s a e m C S O A l a t o t f o % ( g n i t s e V 0% Min: $4.6bn Max: $5.6bn Anglo American’s 3-year AOSC savings ($bn) 4.3.2 TSR – FTSE 100 comparison • One quarter of the LTIP awards granted in 2012 vests according to the Company’s three-year TSR performance compared with the TSR performance of the constituents of the FTSE 100 Index. • The FTSE 100 performance targets and vesting schedule for the 2012 LTIP awards are outlined in Figure 18. The performance targets for both TSR measures were calculated so that 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 a Monte Carlo model. Total shareholder return for both the TSR measures is calculated based on average returns over the fi ve working days immediately following announcement of the Company’s annual results. It is assumed that all dividends are reinvested. Anglo American plc Annual Report 2012 121 GOVERNANCE DIRECTORS’ REMUNERATION REPORT 4.3.3 Asset Optimisation and Supply Chain • Vesting of one half of LTIP awards granted in 2012 depends on the performance of the Company’s strategic Asset Optimisation and Supply Chain (AOSC) programmes over the three-year period to 31 December 2014. • These 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 effi ciencies. • The AOSC performance targets represent the operating and capital expenditure savings that the programme is yielding, compared with the savings made if the programme had not been implemented. These savings are realised cumulatively over the three-year performance period. • For 2011 LTIP awards onwards, the effect of changes in both commodity prices and exchange rates have been stripped out of the AOSC targets and results so that only directly attributable management actions are recognised. • The AOSC targets and vesting schedule for the 2012 LTIP awards are shown in Figure 19. • The Committee reviews the AOSC targets prior to each LTIP award to ensure they remain appropriately stretching and the benefi ts delivered are signifi cant to the Company. • At the end of each performance period, the assessment of performance against targets is reviewed by internal audit and reported to shareholders. • Figure 20 shows an example of AOSC improvements at Metallurgical Coal. Figure 20: Asset Optimisation and Supply Chain Improvements are ‘locked in’ to the Operational Management System which defi nes the practices and processes by which our Metallurgical Coal sites operate, both from a mine planning perspective as well as an operational perspective. This approach was rolled out in Metallurgical Coal in 2008 and is delivering benefi ts. 1.1 17.5 At our Metallurgical Coal Business Unit, we set out to focus on improving equipment performance which is driven by rate, availability and utilisation of our fl eet at open cut mines. Effective work area setup was the key to rate improvements, whilst utilisation improvements increase the productive time that equipment operates through reducing non-value adding activities. Benchmarking best practice equipment performance has supported identifi cation of the gaps and valuing the improvement. Open cut saleable AO benefits Mt – Anglo share 0.3 0.5 15.6 2012 without AO (2010–2012) 2010 AO 2011AO 2012 AO 2012 with AO benefit (2010–2012) (Figures are not subject to external audit) By improving the rate, availability and utilisation of our equipment,more tonnes are moved for processing and ultimately available for sale to our customers. Our equipment performance benefi t is calculated on the improvement in controllable variables (which could be availability and/or utilisation and/or rate) against actual performance in the previous year, whilst all other variables are treated as uncontrollable and thus excluded from the benefi t calculation. The additional material moved is multiplied by the strip ratio to provide additional run of mine tonnes. The run of mine tonnes are multiplied by the yield achieved in the processing plant to deliver additional saleable production. Any incremental costs are deducted from the additional revenue generated. 122 Anglo American plc Annual Report 2012 4.4 Total interests in shares Figure 21 summarises the total interests of the directors in shares of Anglo American plc as 14 February 2013 (and at the end of the 2012 fi nancial year). These include benefi cial and conditional interests. As already disclosed, Cynthia Carroll is required to hold interests in shares to a value of two times basic salary and René Médori to a value of one and a half times salary. These requirements have been exceeded. Figure 21: Shares in Anglo American plc Directors Cynthia Carroll René Médori(1) Sir John Parker(2) David Challen Sir CK Chow Sir Philip Hampton Phuthuma Nhleko Ray O’Rourke(3) Jack Thompson(3) Anne Stevens(4) Peter Woicke(3) at 14 February 2013 (at 31 December 2012) at 14 February 2013 (at 31 December 2012) at 14 February 2013 (at 31 December 2012) at 14 February 2013 (at 31 December 2012) at 14 February 2013 (at 31 December 2012) at 14 February 2013 (at 31 December 2012) at 14 February 2013 (at 31 December 2012) at 14 February 2013 (at 31 December 2012) at 14 February 2013 (at 31 December 2012) at 14 February 2013 (at 31 December 2012) at 14 February 2013 (at 31 December 2012) G o v e r n a n c e Benefi cial 200,511 200,488 86,684 86,662 50,303 50,303 1,820 1,820 5,500 5,500 3,462 3,127 3,151 2,412 76,965 76,965 7,100 7,100 1,332 621 20,806 19,898 BSP Bonus Shares 101,524 101,524 63,094 63,094 BSP Enhancement Shares(5) 90,565 90,565 56,385 56,385 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Conditional LTIP(6) SAYE/SIP(7) Other 373,323 373,323 209,109 209,109 494 491 494 492 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 7,552 7,552 – – – – – – – – – – – – – – – – (1) René Médori’s benefi cial interests in 85,613 shares held at the date of this report arise as a result of his wife’s interests in shares. (2) As previously reported, Sir John Parker was awarded 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. The award will be matched by Sir John progressively over the three-year period. Included in the interests of Messrs O’Rourke, Thompson and Woicke are unsponsored ADR representing 0.5 ordinary shares of $0.54945 each. (3) (4) Anne Stevens was appointed to the Board on 14 May 2012. Footnotes continue overleaf Anglo American plc Annual Report 2012 123 GOVERNANCE DIRECTORS’ REMUNERATION REPORT (5) Figure 22 records in more detail the changes in conditional interests in BSP Bonus Shares and Enhancement Shares over 2012. The Enhancement Share awards that vested in 2012 related to the performance period 2009–2011. They were awarded on 18 March 2009 at a share price of £11.62. They vested on 6 March 2012 at a price of £25.42. Figure 22: Bonus Share Plan interests Number of Bonus Shares conditionally awarded in March 2012 Number of Enhancement Shares conditionally awarded in March 2012 Number of Bonus Shares vested in March 2012 Number of Enhancement Shares vested in March 2012 Number of Enhancement Shares lapsed in March 2012 Total interest at 31 December 2012 Market price at date of 2012 award £ Date of vesting of Bonus Shares awarded during 2012 End date of performance period for Enhancement Shares awarded during 2012 35,431 22,051 26,573 16,538 (48,580) (61,755) (31,667) (40,255) – – 192,089 119,479 27.16 01/01/2015 31/12/2014 27.16 01/01/2015 31/12/2014 Total interest at 1 January 2012 240,420 152,812 BSP interests Cynthia Carroll René Médori (6) Figure 23 records in more detail the changes in conditional interests in LTIP awards during 2012. The LTIP awards that vested in 2012 related to the performance period 2009–2011. They were awarded on 30 March 2009 at a share price of £12.61. They vested on 12 March 2012 at a price of £26.00. Figure 23: Long Term Incentive Plan interests LTIP interests Cynthia Carroll René Médori Total benefi cial interest in LTIP at 1 January 2012 337,992 200,999 Number of shares conditionally awarded in March 2012 Number of shares vested in March 2012 157,733 (117,505) 85,048 (73,860) Number of shares lapsed in March 2012 (4,897) (3,078) Total benefi cial interest in LTIP at 31 December 2012 Market price at date of 2012 award £ Date of vesting of LTIP awarded during 2012 373,323 209,109 27.00 27.00 31/12/2014 31/12/2014 (7) Figure 24 records in more detail the changes in conditional interests in Share Incentive Plan (SIP) interests during 2012. Figure 24: Share Incentive Plan interests SIP interests Cynthia Carroll René Médori Total interest at 1 January 2012 696 695 Number of Matching Shares conditionally awarded during 2012 Number of Free Shares conditionally awarded during 2012 70 71 116 116 Number of Matching Shares vested during 2012 (90) (89) Number of Free Shares vested during 2012 (301) (301) Total interest at 31 December 2012 491 492 During the year, Cynthia Carroll and René Médori purchased 70 and 71 shares under the SIP respectively, in addition to the shares held by them at 1 January 2012. If these shares are held for three years, they will be matched by the Company on a one-for-one basis, conditional upon the director’s continued employment. In addition, Cynthia Carroll and René Médori were each awarded 116 free shares under the SIP in March 2012. Participants in the SIP are entitled to receive dividends on their shares. Figure 25 records in more detail the changes in conditional interests in SAYE awards during 2012. Figure 25: Directors’ share options (SAYE) Anglo American options René Médori Benefi cial holding at 1 January 2012 1,587 Granted Exercised Lapsed Benefi cial holding at 31 December 2012 Weighted average option price £ Earliest date from which exercisable Latest expiry date – – – 1,587 20.98 01/09/2013 28/02/2019 124 Anglo American plc Annual Report 2012 In order to enhance alignment with the interests of Anglo American shareholders, the Committee has taken the decision to utilise Anglo American shares, rather than cash, as the medium for compensation. These restricted shares will vest over the next three years, in line with the vesting schedule of the incentives foregone. They will be subject to clawback in the event of Mr Cutifani’s leaving the Company (except as a Good Leaver) or in the circumstances in which the Company’s standard clawback provisions are triggered. • Shareholding requirements – Mr Cutifani will be required to accumulate a shareholding in Anglo American to the value of two times basic salary within fi ve years of his appointment. • Pension – Anglo American will make an annual contribution of 30% of basic salary in respect of Mr Cutifani’s pension provision which may be invested into the Company’s pension arrangements or taken as a cash allowance. • Notice Period – The notice period in Mr Cutifani’s service contract will be 12 months for either party save that, should the Company serve notice before the fi rst anniversary of his appointment, it will be 18 months. 5. CHIEF EXECUTIVE ARRANGEMENTS 5.1 Appointment of new chief executive Mark Cutifani’s remuneration package will comprise a basic salary and variable incentive arrangements which are entirely in line with Anglo American’s current remuneration policy and practice. The key elements of the package are as follows: • Basic salary – £1.2m per annum. • Bonus Share Plan (BSP) – Mr Cutifani will have the opportunity to participate in Anglo American’s annual incentive arrangements (the BSP) for 2013 in line with the policy set out on page 110. • Long Term Incentive Plan (LTIP) – Mr Cutifani will be eligible for an annual award under the LTIP in line with the policy set out on page 110. • Compensation for incentives forfeited – Mr Cutifani will receive an award of restricted shares to compensate him for the loss of incentives from his previous employer AngloGold Ashanti (AGA). The Committee has decided that, so far as possible, the compensatory awards should be on a comparable basis to the foregone awards. As such, the Company commissioned a third-party valuation to determine the extent to which the performance conditions were, at the date of assessment, likely to be achieved. Based on the AGA share price and exchange rates at the date of this report, the total value of the compensatory award is c. £2.29m; this fi gure will be updated at the time of Mr Cutifani’s joining Anglo American, once the value of the shares foregone under the 2013 AGA Bonus Share Plan award (based on performance during 2012) is known, using the average share price and exchange rates over the week prior to that event. G o v e r n a n c e 5.2 Termination arrangements for outgoing chief executive In terms of her leaving arrangements, Cynthia Carroll will receive phased monthly payments, comprising basic salary and benefi ts, for the outstanding nine months of her notice period, in line with her contractual provisions. These payments will be subject to mitigation. The Committee has determined that Cynthia Carroll will be eligible for consideration for a BSP award for 2013 in respect of the period she will have served. However, there will be no award of Enhancement Shares or any award under the LTIP in 2013. The Bonus Shares held by Cynthia Carroll will be released to her on termination. With respect to the Enhancement Share and LTIP awards made in 2011 and 2012, the Committee has determined that these awards will vest on the normal vesting dates, to the extent that the performance conditions have been satisfi ed, and will be pro-rated for the proportion of each performance period served. Full details of any amounts paid to Cynthia Carroll will be disclosed in the 2013 Directors’ Remuneration Report. Anglo American plc Annual Report 2012 125 GOVERNANCE DIRECTORS’ REMUNERATION REPORT COMMITTEE MEMBERS DURING 2012 Sir Philip Hampton David Challen Sir CK Chow Jack Thompson Peter Woicke 6. REMUNERATION COMMITTEE IN 2012 Membership The Committee comprised the non-executive directors shown on the left during the year ended 31 December 2012. Committee members during 2012 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 2012, the Committee was advised by the Company’s Human Resources and Finance functions and, specifi cally, by Mervyn Walker and Chris Corrin. It also took external advice as shown in the table below. Figure 25: External advisers and fees Advisers Pricewaterhouse Coopers LLP (PwC) Appointed by the Company, with the agreement of the Committee, to provide specialist valuation services and market remuneration data Linklaters LLP (Linklaters) Mercer Limited (Mercer) Towers Watson (TW) Deloitte LLP (Deloitte) 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 This review was carried out on the 2011 report although will not be done going forward The Human Resources function engaged Towers Watson to assist with the preparation of the 2012 remuneration report In their capacity as Group auditors, Deloitte undertake an audit of sections 3 and 4 of the remuneration report annually. However, they provide no advice to the Committee Other services provided to the Company Fees for Committee assistance £9,000 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 £5,000 Investment advisers and actuaries for various pension schemes £11,000 Human resources advisers on various reward and other matters £25,000 n/a Note: Certain overseas operations within the Group are also provided with audit related services from Deloitte’s and PwC’s worldwide member fi rms and non-audit related services from Mercer’s worldwide member fi rms and TW. 126 Anglo American plc Annual Report 2012 FIGURE 27: HISTORICAL COMPARATIVE TSR PERFORMANCE GRAPHS 140 120 100 80 60 40 20 2008 2007 Anglo American Source: Thomson Datastream 2009 140 120 100 80 60 40 20 2008 2007 Anglo American Source: Thomson Datastream 2009 G o v e r n a n c e 2011 2010 FTSE 100 Index 2012 2011 2010 LTIP sector comparator 2012 Figure 26: Response to 2012 AGM shareholder voting Vote Advisory vote on 2011 remuneration report For Against Abstain Any issues raised and Company response Number of votes 716,506,271 (87%) 110,627,621 (13%) 14,065,303 Comments from investors at the time of the 2012 AGM have led to enhanced disclosure relating to bonuses TSR is calculated in US dollars, and assumes all dividends are reinvested. The TSR level shown as at 31 December each year is the average of the closing daily TSR levels for the fi ve-day period up to and including that date. 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 14 February 2013 7. OTHER INFORMATION REQUIRED The information included in this section has been included to ensure compliance with the Company’s current disclosure obligations under the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008 (the Regulations). This information is not expected to be required under the revised version of the Regulations which will apply to the 2013 Directors’ Remuneration Report. 7.1 Five-year relative TSR graphs The top chart in Figure 27 shows the Company’s TSR performance against the performance of the FTSE 100 Index from 1 December 2008 to 31 December 2012. The FTSE 100 Index was chosen as being a broad equity market index which includes companies of a comparable size and complexity to Anglo American. The bottom chart in Figure 27 shows the Company’s performance against a weighted Sector Index comparator group over the same fi ve-year period. The Sector Index comparator group is the same as used to measure the Company’s performance for the purposes of the vesting of LTIP interests conditionally awarded in 2010. This graph gives an indication of how the Company is performing against the targets in place for LTIP interests already granted, although the specifi cs of the comparator companies for each year’s interests may vary to refl ect changes such as mergers and acquisitions among the Company’s competitors or changes to the Company’s business mix. Anglo American plc Annual Report 2012 127 DIVIDENDS An interim dividend of 32 US cents per ordinary share was paid on 13 September 2012. The directors are recommending that a fi nal dividend of 53 US cents per ordinary share be paid on 25 April 2013 to ordinary shareholders on the register on 22 March 2013, subject to shareholder approval at the AGM to be held on 19 April 2013. This would bring the total dividend in respect of 2012 to 85 US cents per ordinary share. In accordance with International Financial Reporting Standards (IFRS), the fi nal dividend will be accounted for in the fi nancial statements for the year ended 31 December 2013. GOVERNANCE DIRECTORS’ REPORT DIRECTORS’ REPORT The directors have pleasure in submitting the statutory fi nancial statements of the Group for the year ended 31 December 2012. GOING CONCERN The fi nancial position of the Group, its cash fl ows, liquidity position and borrowing facilities are set out in the Group Financial Performance Review on pages 42–47. 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 48–53, with details of our policy on capital risk management being set out in note 25 to the fi nancial statements. The Group’s net debt at 31 December 2012 was $8.6 billion (2011: $1.4 billion), representing a gearing level of 16.4% (2011: 3.1%). 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 fl ow forecasts for the period to the end of March 2014. The Board is satisfi ed 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 fi nancial statements. The Board considers that the Annual Report, taken as a whole, is fair, balanced and understandable and that it provides all information necessary for shareholders to assess the Company’s strategy and performance. PRINCIPAL ACTIVITIES 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 fi nancial performance is incorporated in this report by reference and can be found in the chairman’s and CEO’s statements on pages 2–3 and 10–11 respectively and the operating and fi nancial review on pages 12–89. The Corporate Governance statement is on pages 90–127 and is incorporated in this Directors’ report by reference. 128 Anglo American plc Annual Report 2012 SHARE CAPITAL DIRECTORS Directors’ biographical details are given on pages 92–93. Details of directors’ interests in shares and share options of the Company can be found in the remuneration report on pages 108–127. Anne Stevens joined the Board on 15 May 2012. Mamphela Ramphele resigned from the Board with effect from 25 July 2012. Cynthia Carroll has resigned as CEO of the Company with effect from 3 April 2013 and as a director with effect from the closing of the AGM to be held on 19 April 2013. Mark Cutifani has been appointed CEO and a director with effect from 3 April 2013. On 12 February 2013, the Board proposed the appointment of Dr Byron Grote as a non-executive director at the forthcoming AGM on 19 April 2013. It is intended that Dr Grote will join the Audit Committee of the Board on appointment and he will, after a period of induction, assume the role of Chairman of that committee from David Challen, who has held this position since 2003. In addition, Peter Woicke informed the Board of his intention to retire as a non-executive director, also with effect from the AGM. Mr Woicke will be succeeded as Chairman of the Safety and Sustainable Development Committee by Jack Thompson. In accordance with the Code, Anglo American will continue to propose the re-election of all directors on an annual basis. The Company’s issued share capital as at 31 December 2012, together with details of share allotments and issue of treasury shares during the year, is set out in note 29 on pages 177–180. The Company was authorised by shareholders at the AGM held on 19 April 2012 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 2012. This authority will expire at the 2013 AGM and, in accordance with usual practice, a resolution to renew it for another year will be proposed. MATERIAL SHAREHOLDINGS As at 31 December 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 voting rights Blackrock, Inc. 63,971,090 42,166,686 4.60 3.03 Epoch Two Investment Holdings Limited(1) Public Investment Corporation (PIC) Tarl Investment Holdings Limited(1) 81,235,375 5.84 47,275,613 3.39 (1) Epoch Two Investment Holdings Ltd (Epoch 2) and Tarl Investment Holdings Limited (Tarl) are two of the independent companies that 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. As at the date hereof the Company has been notifi ed of the following change to the above holdings of voting rights in the ordinary share capital of the Company: Blackrock, Inc. 64,138,546 (4.61%). G o v e r n a n c e SUSTAINABLE DEVELOPMENT The Sustainable Development Report 2012 will be available in April 2013. 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 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, refl ecting local and industry norms and Group purchasing arrangements that may have been made with a supplier. The Group values its suppliers and recognises the benefi ts to be derived from maintaining good relationships with them. Anglo American acknowledges the importance of paying invoices, especially those of small businesses, promptly. VALUE OF LAND Land is mainly carried in the fi nancial statements at cost. It is not practicable to estimate the market value of land and mineral rights, since these depend on product prices over the next 20 years or more, which will vary with market conditions. POST-BALANCE SHEET EVENTS Post-balance sheet events are set out in note 39 to the fi nancial statements on page 187. AUDIT INFORMATION The directors confi rm 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. Anglo American plc Annual Report 2012 129 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 $154 million (3% of operating profi t from subsidiaries and joint ventures before special items and remeasurements). Charitable donations of $1.8 million were made in the UK, of which the main categories were: education and training (5.7%) and health and welfare (22.6%). These fi gures were compiled with reference to the London Benchmarking Group model for defi ning and measuring social investment spending. A fuller analysis of the Group’s social investment activities can be found in the Sustainable Development Report 2012. POLITICAL DONATIONS No political donations were made during 2012. Anglo American has an established policy of not making donations to, or incurring expenses for the benefi t of, any political party in any part of the world, including any political party or political organisation as defi ned in the Political Parties, Elections and Referendums Act 2000. GOVERNANCE DIRECTORS’ REPORT 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 Good Citizenship Business Principles are supplemented by four Anglo American ‘Way’ documents, covering the safety, environmental, occupational health and social aspects of responsible operation and sustainable development. These set out specifi c standards for each of these subject areas, in line with international best practice. Copies of the Good Citizenship 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 Our World, which contain items of news, current affairs and information relevant to Group employees. EMPLOYMENT AND OTHER POLICIES The Group’s key operating businesses are empowered to manage within the context of the different legislative and social demands of the diverse countries in which those businesses operate, subject to the standards embodied in Anglo American’s Good Citizenship 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: • Adherence to national legal standards on employment and workplace rights at all times • In addition, adherence to the International Labour Organization’s core labour rights, including: prohibition of child labour; prohibition of inhumane treatment of employees and any form of forced labour, physical punishment or other abuse; recognition of the right of our employees to freedom of association and the promotion of workplace equality; and the elimination of all forms of unfair discrimination • Continual promotion of safe and healthy working practices • Provision of opportunities for employees to enhance their work related skills and capabilities • Adoption of fair and appropriate procedures for determining terms and conditions of employment. 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. 130 Anglo American plc Annual Report 2012 ANNUAL GENERAL MEETING The AGM will be held on 19 April 2013, 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 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. 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. 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 notifi cation 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 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. ADDITIONAL INFORMATION FOR SHAREHOLDERS Set out below is a summary of certain provisions of the Company’s current 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 fi nancial position of the Company, in the opinion of the Board, justifi es 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 defi ned 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 a special resolution passed by the shareholders. 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. Anglo American plc Annual Report 2012 131 GOVERNANCE DIRECTORS’ REPORT 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 uncertifi cated form Directors may determine that any class of shares may be held in uncertifi cated 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 uncertifi cated form in accordance with any system outside the UK that 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 that are in uncertifi cated form to the extent that the Articles are inconsistent with the holding of shares of that class in uncertifi cated form, the transfer of title to shares of that class by means of a relevant system or any provision of the CREST regulations. 132 Anglo American plc Annual Report 2012 The directors may decline to recognise any instrument of transfer relating to shares in certifi cated form unless it: (a) is in respect of only one class of share; and (b) is lodged at the transfer offi ce (duly stamped if required) accompanied by the relevant share certifi cate(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 certifi cated 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 Offi cial 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 the refusal to the allottee or the transferee within two months after the date on which the letter of allotment or transfer was lodged with the Company. 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. 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 that are in certifi cated 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 of shareholders. All transfers of shares that are in uncertifi cated form may be effected by means of the CREST system. Directors Directors shall not be less than ten nor more than 18 in number. A director is not required to hold any shares of the Company by way of qualifi cation. 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 offi ce 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 offi ce for three years or more since their election, or last re-election, shall retire from offi ce. In addition, a director may at any AGM retire from offi ce and stand for re-election. However, in accordance with the Code, all directors will be subject to annual re-election. Signifi cant agreements: Change of control At 31 December 2012, Anglo American had committed bilateral and syndicated borrowing facilities totalling $12.2 billion with a number of relationship banks that contain change of control clauses. $7.4 billion of the Group’s bond issues also contain change of control provisions. In aggregate, this fi nancing is considered signifi cant 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 19 April 2012, authority was given for the Company to purchase, in the market, up to 198.4 million Ordinary Shares of 5486⁄91 US cents each. The Company did not purchase any of its own shares during 2012. Indemnities To the extent permitted by law and the Articles, the Company has made qualifying third party indemnity provisions for the benefi t of its directors during the year, which remain in force at the date of this report. Copies of these indemnities are open for inspection at the Company’s registered offi ce. By order of the Board Nicholas Jordan Company Secretary 14 February 2013 G o v e r n a n c e Anglo American plc Annual Report 2012 133 GOVERNANCE STATEMENT OF DIRECTORS’ RESPONSIBILITIES STATEMENT OF DIRECTORS’ RESPONSIBILITIES The directors are responsible for preparing the Annual Report and the fi nancial statements in accordance with applicable law and regulations. Company law requires the directors to prepare fi nancial statements for each fi nancial year. The directors are required to prepare the Group fi nancial statements in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union and Article 4 of the IAS regulation, and have elected to prepare the parent company fi nancial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The directors must not approve the accounts unless they are satisfi ed that they give a true and fair view of the state of affairs of the Company and of the profi t or loss of the Company for that period. In preparing the parent company fi nancial statements, the directors are required to: • Select suitable accounting policies and then apply them consistently • Make judgements and accounting estimates that are reasonable and prudent • State whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the fi nancial statements • Prepare the fi nancial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. In preparing the Group fi nancial statements, International Accounting Standard 1 requires that directors: • Properly select and apply accounting policies • Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information • Provide additional disclosures when compliance with the specifi c requirements in IFRS is insuffi cient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s fi nancial position and fi nancial performance • 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 suffi cient to show and explain the Company’s transactions, disclose with reasonable accuracy at any time the fi nancial position of the Company and enable them to ensure that the fi nancial 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 fi nancial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of fi nancial statements may differ from legislation in other jurisdictions. 134 Anglo American plc Annual Report 2012 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 fl ow statement Consolidated statement of changes in equity Earnings per share Intangible assets Accounting policies Segmental information Operating (loss)/profi t from subsidiaries and joint ventures Operating profi t and underlying earnings by segment Special items and remeasurements Underlying EBITDA Exploration expenditure Employee numbers and costs Net fi nance (costs)/income Financial instrument gains and losses Income tax expense Notes to the fi nancial 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 benefi ts 29 Called-up share capital and share-based payments 30 Consolidated equity analysis 31 Consolidated cash fl ow analysis 32 Acquisitions 33 Disposals of subsidiaries and joint ventures 34 Assets and liabilities held for sale 35 Contingent liabilities 36 Commitments 37 Related party transactions 38 Group companies 39 Events occurring after end of year 40 Environmental rehabilitation trusts Investments in associates Joint ventures Financial asset investments Inventories Trade and other receivables Trade and other payables Financial assets Financial liabilities Financial risk management and derivatives Financial statements of the parent company 136 137 138 138 139 140 141 142 148 152 153 153 155 156 156 157 157 158 159 159 160 162 162 163 164 164 164 165 165 165 166 168 173 173 174 177 180 181 182 183 183 184 185 185 186 187 188 i F n a n c i a l s t a t e m e n t s Anglo American plc Annual Report 2012 135 FINANCIAL STATEMENTS RESPONSIBILITY STATEMENT for the year ended 31 December 2012 We confi rm that to the best of our knowledge: (a) the fi nancial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, fi nancial position and loss of Anglo American plc and the undertakings included in the consolidation taken as a whole; and (b) the Operating and fi nancial 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 136 Anglo American plc Annual Report 2012 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: • adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Company fi nancial statements and the part of the Remuneration report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specifi ed by law are not made; or • we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: • the directors’ statement contained within the Directors’ report in relation to going concern; • the part of the Corporate governance section relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code specifi ed for our review; and • 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 14 February 2013 i F n a n c i a l s t a t e m e n t s We have audited the fi nancial statements of Anglo American plc for the year ended 31 December 2012 which comprise the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated balance sheet, the Consolidated cash fl ow statement, the Consolidated statement of changes in equity, the accounting policies, the related notes 2 to 39 and the balance sheet of the Company and related information in note 40. The fi nancial reporting framework that has been applied in the preparation of the Group fi nancial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The fi nancial reporting framework that has been applied in the preparation of the Company fi nancial 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 fi nancial statements and for being satisfi ed that they give a true and fair view. Our responsibility is to audit and express an opinion on the fi nancial 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 fi nancial statements An audit involves obtaining evidence about the amounts and disclosures in the fi nancial statements suffi cient to give reasonable assurance that the fi nancial 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 signifi cant accounting estimates made by the directors; and the overall presentation of the fi nancial statements. In addition, we read all the fi nancial and non-fi nancial information in the annual report to identify material inconsistencies with the audited fi nancial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on fi nancial statements In our opinion: • the fi nancial statements give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2012 and of the Group’s loss and the Company’s profi t for the year then ended; • the Group fi nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the Company fi nancial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • the fi nancial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the Group fi nancial statements, Article 4 of the IAS Regulation. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • the part of the Remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and • the information given in the Directors’ report for the fi nancial year for which the fi nancial statements are prepared is consistent with the fi nancial statements. Anglo American plc Annual Report 2012 137 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 2011 7,922 115 (94) (4,060) (214) (32) 24 (4,261) (10) – 5 54 45 – (14) 80 3,741 1,142 2,599 (229) 183 (1) (47) – – 203 203 156 (119) 37 (12) 49 0.04 0.04 2012 (614) 173 – (747) 165 (6) (115) (530) (57) 84 4 5 24 (10) 29 79 (1,065) 842 (1,907) Before special items and remeasurements 28,761 (23,356) Special items and remeasurements (note 5) – (7,093) Before special items and remeasurements 30,580 (20,912) Special items and remeasurements (note 5) – (229) FINANCIAL STATEMENTS PRINCIPAL STATEMENTS CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2012 US$ million Group revenue Total operating costs Operating (loss)/profi t from subsidiaries and joint ventures Non-operating special items and remeasurements Share of net income from associates Total profi t from operations and associates Note 2 2, 3 5 2, 17 Investment income Interest expense Other fi nancing (losses)/gains Net fi nance (costs)/income (Loss)/profi t before tax Income tax expense (Loss)/profi t for the fi nancial year Attributable to: Non-controlling interests Equity shareholders of the Company (Loss)/earnings per share (US$) Basic Diluted 9 11a 13 13 5,405 – 493 5,898 597 (798) (87) (288) 5,610 (1,488) 4,122 1,283 2,839 2.26 2.24 2012 Total 28,761 (30,449) (1,688) 1,394 432 138 597 (798) (176) (377) (239) (375) (614) 879 (1,493) (7,093) 1,394 (61) (5,760) – – (89) (89) (5,849) 1,113 (4,736) (404) (4,332) (3.45) (3.43) (1.19) (1.19) 9,668 – 978 10,646 668 (695) 7 (20) 10,626 (2,741) 7,885 1,765 6,120 5.06 4.85 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2012 US$ million (Loss)/profi t for the fi nancial year Net gain on revaluation of available for sale investments Net loss on cash fl ow hedges Net exchange difference on translation of foreign operations (including associates) Actuarial net gain/(loss) on post employment benefi t schemes Share of associates’ expense recognised directly in equity, net of tax Tax on items recognised directly in equity Net expense recognised directly in equity Transferred to income statement: disposal of available for sale investments Transferred to income statement: impairment of available for sale investments Transferred to income statement: cash fl ow hedges Transferred to initial carrying amount of hedged items: cash fl ow hedges Transferred to income statement: net exchange difference on disposal of foreign operations Share of associate's net expense transferred from equity Tax on items transferred from equity Total transferred from equity Total comprehensive (expense)/income for the fi nancial year Attributable to: Non-controlling interests Equity shareholders of the Company Note 11c 11c 138 Anglo American plc Annual Report 2012 CONSOLIDATED BALANCE SHEET as at 31 December 2012 US$ million ASSETS Non-current assets Intangible assets Property, plant and equipment Environmental rehabilitation trusts Investments in associates Financial asset investments Trade and other receivables Deferred tax assets Derivative fi nancial assets Other non-current assets Total non-current assets Current assets Inventories Financial asset investments Trade and other receivables Current tax assets Derivative fi nancial assets Cash and cash equivalents Total current assets Assets classifi ed as held for sale Total assets LIABILITIES Current liabilities Trade and other payables Short term borrowings Provisions for liabilities and charges Current tax liabilities Derivative fi nancial liabilities Total current liabilities Non-current liabilities Trade and other payables Medium and long term borrowings Retirement benefi t obligations Deferred tax liabilities Derivative fi nancial liabilities Provisions for liabilities and charges Other non-current liabilities Total non-current liabilities Liabilities directly associated with assets classifi ed as held for sale Total liabilities Net assets EQUITY Called-up share capital Share premium account Own shares Other reserves Retained earnings Equity attributable to equity shareholders of the Company Non-controlling interests Total equity Note 2012 2011 14 15 16 17 19 21 27 25 20 19 21 25 31b 34 22 24, 31b 26 25 22 24, 31b 28 27 25 26 34 29 4,571 45,089 393 3,063 2,278 572 1,223 747 236 58,172 5,005 102 3,275 470 101 9,094 18,047 3,150 79,369 (4,536) (2,604) (564) (819) (280) (8,803) (18) (15,150) (1,409) (6,069) (801) (2,384) (29) (25,860) (919) (35,582) 43,787 772 4,357 (6,659) (1,201) 40,388 37,657 6,130 43,787 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 (6,985) 283 42,342 39,092 4,097 43,189 i F n a n c i a l s t a t e m e n t s The fi nancial statements of Anglo American plc, registered number 03564138, were approved by the Board of directors on 14 February 2013 and signed on its behalf by: Cynthia Carroll Chief Executive René Médori Finance Director Anglo American plc Annual Report 2012 139 FINANCIAL STATEMENTS PRINCIPAL STATEMENTS CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 December 2012 US$ million Cash fl ows from operations Dividends from associates Dividends from fi nancial asset investments Income tax paid Net cash infl ows from operating activities Cash fl ows from investing activities Acquisition of subsidiaries, net of cash and cash equivalents acquired Purchase of property, plant and equipment Cash fl ows from derivatives related to capital expenditure Investments in associates Purchase of fi nancial 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 Net proceeds from disposal of interests in available for sale investments Other investing activities Net cash used in investing activities Cash fl ows from fi nancing activities Interest paid Cash fl ows from derivatives related to fi nancing 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 Tax on sale of non-controlling interest in Anglo American Sur Sale of shares under employee share schemes Purchase of shares by subsidiaries for employee share schemes(1) Other fi nancing activities Net cash infl ows from fi nancing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at start of year Cash movements in the year Effects of changes in foreign exchange rates Cash and cash equivalents at end of year (1) Includes purchase of Kumba Iron Ore Limited and Anglo American Platinum Limited shares for their respective employee share schemes. Note 31a 32 2 2 33 33 31c 31c 2012 7,021 286 54 (1,799) 5,562 (4,816) (5,607) (71) (114) (16) 81 279 100 – 36 66 273 (32) (9,821) (775) 149 (970) (1,267) (747) 5,633 1,220 (1,015) 24 (253) (49) 1,950 (2,309) 11,732 (2,309) (111) 9,312 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) 11,732 140 Anglo American plc Annual Report 2012 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2012 Total share capital(1) 3,451 Own shares(2) (7,159) Retained earnings 34,305 Share-based payment reserve 476 Cumulative translation adjustment reserve 1,474 Fair value and other reserves (note 30) 1,692 Total equity attributable to equity shareholders of the Company 34,239 Non- controlling interests 3,732 Total equity 37,971 – – – – – – – – – – – 5,928 (834) – 3,027 – 174 (193) – 1 3,452 – – (6,985) – – – 1,677 – – – – – – – – – – 102 7 42,342 (1,349) (970) – 185 (231) – – – – – – – (18) – (5) 453 – – – – – – – (3,404) 75 2,599 1,142 3,741 – – – – – – – – – – (834) – (834) – (1,401) (1,401) 3,027 – 788 16 3,815 16 (37) (167) (204) – – (1,930) – (7) 1,760 102 (4) 39,092 29 (42) 4,097 131 (46) 43,189 (686) 128 (1,907) 842 (1,065) – – – – – – – (970) – (970) – (355) – 1,507 (1,259) – (1,259) 1,507 – – – (231) 982 751 – – 1,423 1,423 17 17 – – 5,129 326 – (6,659) (256) 667 40,388 96 – 549 – – (2,616) – (667) 866 166 – 37,657 28 – 6,130 194 – 43,787 US$ million Balance at 1 January 2011 Total comprehensive income/ (expense) 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 1 January 2012 Total comprehensive (expense)/ income Dividends payable to Company shareholders Dividends payable to non-controlling interests Conversion of convertible bond Changes in ownership interest in subsidiaries Acquired through business combinations Issue of shares to non-controlling interests Equity settled share-based payment schemes Other Balance at 31 December 2012 (1) Includes share capital and share premium. (2) Own shares comprise shares of Anglo American plc held by the Company (treasury shares), its subsidiaries and employee benefi t trusts. Own shares have previously been aggregated with retained earnings. Comparatives have been reclassifi ed to align with current presentation. 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 2012 53 676 78 970 2011 46 557 68 834 i F n a n c i a l s t a t e m e n t s Anglo American plc Annual Report 2012 141 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES Basis of preparation The fi nancial 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 fi nancial reporting. The fi nancial statements have been prepared under the historical cost convention as modifi ed by the revaluation of pension assets and liabilities and certain fi nancial instruments. A summary of the principal Group accounting policies is set out below. The preparation of fi nancial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the fi nancial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. Going concern The directors have, at the time of approving the fi nancial 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 fi nancial statements continues to be adopted. Further details are contained in the Directors’ report on page 128. Changes in accounting policies and disclosures A number of amendments to accounting standards issued by the International Accounting Standards Board (IASB) were applicable from 1 January 2012. They have not had a material impact on the accounting policies, methods of computation or presentation applied by the Group. Changes in estimates Due to the nature of Platinum in-process inventories being contained in weirs, pipes and other vessels, physical counts only take place annually, except in the Precious Metal Refi nery which take place once every three years (the latest being in 2010). Consequently, the Platinum business runs a theoretical metal inventory system based on inputs, the results of previous physical counts and outputs. Once the results of the physical count are fi nalised, the variance between the theoretical count and actual count is investigated and recorded as a change in estimate. During the year ended 31 December 2012, the change in estimate following the annual physical count has had the effect of increasing the value of inventory by $172 million (2011: $61 million), resulting in the recognition of a gain in the income statement. Basis of consolidation The fi nancial statements incorporate a consolidation of the fi nancial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the fi nancial and operating policies of an investee entity so as to obtain benefi ts from its activities. The results of subsidiaries acquired or disposed of during the year are included in the 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 profi t or loss for the fi nancial 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 signifi cant infl uence, but not control or joint control, through participation in the fi nancial and operating policy decisions of the investee. Typically the Group owns between 20% and 50% of the voting equity of its associates. Investments in associates are accounted for using the equity method of accounting except when classifi ed as held for sale. The Group’s share of associates’ net income is based on their most recent audited fi nancial statements or unaudited interim statements drawn up to the Group’s balance sheet date. The total carrying values of investments in associates represent the cost of each investment including the carrying value of goodwill, the share of post acquisition retained earnings, any other movements in reserves and any long term debt interests which in substance form part of the Group’s net investment. The carrying values of associates are reviewed on a regular basis and if an impairment in value has occurred, the carrying value is impaired in the period in which the relevant circumstances are identifi ed. The Group’s share of an associate’s losses in excess of its interest in that associate is not recognised unless the Group has an obligation to fund such losses. 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, fi nancial and operating decisions with one or more other venturers under a contractual arrangement. The Group’s share of the assets, liabilities, income, expenditure and cash fl ows of such jointly controlled entities are accounted for using proportionate consolidation. Proportionate consolidation combines the Group’s share of the results of the joint venture entity on a line by line basis with similar items in the Group’s fi nancial statements. 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 fi nancial statements. Revenue recognition Revenue is derived principally from the sale of goods and is measured at the fair value of consideration received or receivable, after deducting discounts, volume rebates, value added tax and other sales taxes. Sales of concentrate are stated at their invoiced amount which is net of treatment and refi ning charges. A sale is recognised when the signifi cant risks and rewards of ownership have passed. This is usually when title and insurance risk 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 signifi cant, revenue may be credited against the cost of sales. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established. Business combinations and goodwill arising thereon The identifi able assets, liabilities and contingent liabilities of a subsidiary, a 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 identifi able net assets on acquisition. Where a business combination is achieved in stages, the Group’s previously held interests in the acquired entity are remeasured to fair value at the acquisition date and the resulting gain or loss is recognised in the income statement. 142 Anglo American plc Annual Report 2012 1. ACCOUNTING POLICIES continued Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassifi ed to the income statement, where such treatment would be appropriate if that interest were disposed of. Transaction costs incurred in connection with the business combination are expensed. Provisional fair values are fi nalised within 12 months of the acquisition date. Goodwill in respect of subsidiaries and joint ventures is included within intangible assets. Goodwill relating to associates is included within the carrying value of the associate. Where the fair value of the identifi able 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. 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 confi dence that they will be extracted in an economic manner. For diamond operations, depreciation calculations are based on mineral reserves and resources included in the Life of Mine Plan. 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 refl ects the fact that waste removal is necessary to gain access to the orebody and therefore realise future economic benefi t. 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 refl ective of the average stripping ratio for the orebody as a whole applied to the actual stripping costs incurred. However, where the pit profi le is such that the actual stripping ratio is cumulatively below the average, no deferral takes place as this would result in the recognition of a liability for which there is no obligation. Instead, this position is monitored and when the cumulative calculation refl ects 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 fi nance 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. Intangible assets acquired as part of an acquisition of a business are capitalised separately from goodwill if the asset is separable or arises from contractual or legal rights and the fair value can be measured reliably on initial recognition. Intangible assets are amortised over their estimated useful lives, usually between 3 and 20 years, except goodwill and those intangible assets that are considered to have indefi nite lives. For intangible assets with a fi nite life, the amortisation period is determined as the period over which the Group expects to obtain benefi ts from the asset, taking account of all relevant facts and circumstances including contractual lives and expectations about the renewal of contractual arrangements without signifi cant incremental costs. An intangible asset is deemed to have an indefi nite life when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate cash fl ows for the Group. 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 fl ows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit (CGU) to which the asset belongs. An intangible asset with an indefi nite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value (less costs to sell) and value in use. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset for which estimates of future cash fl ows have not been adjusted. If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment 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 benefi t 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, or when events or changes in circumstances indicate that it may be impaired. Any impairment loss is recognised immediately in the income statement as a special item. 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. Anglo American plc Annual Report 2012 143 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 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: • Raw materials and consumables are measured at cost on a fi rst in, fi rst out (FIFO) basis or a weighted average cost basis. • Finished products are measured at raw material cost, labour cost and a proportion of manufacturing overhead expenses. • Metal and coal stocks are included within fi nished 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 benefi ts The Group operates both defi ned benefi t and defi ned contribution pension plans for its employees as well as post employment medical plans. For defi ned contribution plans the amount recognised in the income statement is the contributions paid or payable during the year. For defi ned benefi t 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 fi nancial year end. The average discount rate for the plans’ liabilities is based on AA rated corporate bonds of a suitable duration and currency or, where there is no deep market for such bonds, is based on government bonds. Pension plan assets are measured using year end market values. Actuarial gains and losses, which can arise from differences between expected and actual outcomes or changes in actuarial assumptions, are recognised immediately in the 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 profi t. 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 benefi ts are already vested and otherwise is amortised on a straight line basis over the average period until the benefi ts vest. The retirement benefi t obligation recognised in the balance sheet represents the present value of the defi ned benefi t obligation as adjusted for unrecognised past service costs and as reduced by the fair value of 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 profi t for the year. Taxable profi t differs from net profi t as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for fi nancial 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 profi ts will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differences arise from the initial recognition of goodwill or of an asset or liability in a transaction (other than in a business combination) that affects neither taxable profi t nor accounting profi t. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, joint ventures and associates except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. 144 Anglo American plc Annual Report 2012 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 suffi cient taxable profi t will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, 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 in that taxation authority. Leases In addition to lease contracts, other signifi cant contracts are assessed to determine whether, in substance, they are or contain a lease. This includes assessment of whether the arrangement is dependent on use of a specifi c asset and the 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. Non-current assets and disposal groups held for sale Non-current assets and disposal groups are classifi ed as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when a sale is highly probable within one year from the date of classifi cation, 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 classifi ed as held for sale from the date these conditions are met and are measured at the lower of carrying amount and fair value (less costs to sell). Any resulting impairment loss is recognised in the income statement as a special item. On classifi cation as held for sale the assets are no longer depreciated. Comparative amounts are not adjusted. 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 fl ow or a change in the discount rate), are added to or deducted from the cost of the related asset in the current period. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognised immediately in the income statement. If the asset value is increased and there is an indication that the revised carrying value is not recoverable, an impairment test is performed in accordance with the accounting policy 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. 1. ACCOUNTING POLICIES continued 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 the 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 classifi ed as either operating or fi nancing 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. 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 the transactions. Any exchange differences arising are classifi ed 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 foreign entities 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 fi nancing of qualifying capital projects under construction is added to the capitalised cost of those projects during the construction phase, until such time as the assets are substantially ready for their intended use or sale which, in the case of mining properties, is when they are capable of commercial production. Where funds have been borrowed specifi cally to fi nance a project, the amount capitalised represents the actual borrowing costs incurred. Where the funds used to fi nance a project form part of general borrowings, the amount capitalised is calculated using a weighted average of rates applicable to relevant general borrowings of the Group during the period. All other borrowing costs are recognised in the income statement in the period in which they are incurred. Share-based payments The Group has applied the requirements of IFRS 2 Share-based Payment. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that had not vested as at 1 January 2005. The Group makes equity settled share-based payments to certain employees, which are measured at fair value at the date of grant and expensed on a straight line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. For those share schemes with market related vesting conditions, the fair value is determined using the Monte Carlo method at the grant date. The fair value of share options issued with non-market vesting conditions has been calculated using the Black Scholes model. For all other share awards, the fair value is determined by reference to the market value of the shares at the grant date. For all share schemes with non-market vesting conditions, the likelihood of vesting has been taken into account when determining the relevant charge. Vesting assumptions are reviewed during each reporting period to ensure they refl ect current expectations. Black economic empowerment (BEE) transactions Where the Group disposes of a portion of a South African based subsidiary or operation to a BEE company at a discount to fair value, the transaction is considered to be a share-based payment (in line with the principle contained in South Africa interpretation AC 503 Accounting for Black Economic Empowerment (BEE) Transactions). The discount provided or value given is calculated in accordance with IFRS 2 and included in the determination of the profi t or loss on disposal. Employee benefi t trust Shares held by the employee benefi t trust are recorded as own shares, and the carrying value is shown as a reduction within shareholders’ equity. 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 insignifi cant 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 fl ow 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 principally 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 fi nancial asset investments and are initially recognised at fair value. At subsequent reporting dates, fi nancial assets that the Group has the expressed intention and ability to hold to maturity (held to maturity) as well as loans and receivables are measured at amortised cost, less any impairment 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 classifi ed as held to maturity or loans and receivables are classifi ed as either at fair value through profi t or loss (which includes investments held for trading) or available for sale fi nancial 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. Current fi nancial asset investments consist mainly of bank term deposits and fi xed and fl oating rate debt securities. Debt securities that are intended to be held to maturity are 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. Impairment of fi nancial assets (including receivables) A fi nancial asset not measured at fair value through profi t or loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A fi nancial 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 fi nancial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated cash fl ows 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 signifi cant 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. Anglo American plc Annual Report 2012 145 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 Financial liabilities and equity instruments Financial liabilities and equity instruments are classifi ed and accounted for as debt or equity according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. 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. Convertible debt Convertible bonds are classifi ed 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 fi nancial instruments and hedge accounting In order to hedge its exposure to foreign exchange, interest rate and commodity price risk, the Group enters into forward, option and swap contracts. The Group does not use derivative fi nancial instruments for speculative purposes. Commodity based (normal purchase or normal sale) contracts that meet the 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 ‘Derivative fi nancial assets’ or ‘Derivative fi nancial liabilities’ 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 signifi cant and the probabilities of various estimates cannot be reasonably assessed. Changes in the fair value of derivative fi nancial instruments that are designated and effective as hedges of future cash fl ows (cash fl ow 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 fl ow hedge of a fi rm commitment or forecast transaction results in the recognition of a non-fi nancial 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-fi nancial asset or liability, amounts deferred in equity are recognised in the income statement in the same period in which the hedged item affects profi t or loss. For an effective hedge of an exposure to changes in fair value, the hedged item is adjusted for changes in fair value attributable to the risk being hedged. 146 Anglo American plc Annual Report 2012 The corresponding entry, along with gains or losses from remeasuring the associated derivative, are recognised in the income statement. The gain or loss on hedging instruments relating to the effective portion of a net investment hedge is recognised in equity (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. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised, revoked, or no longer qualifi es for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained 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 classifi ed within other gains and losses or net fi nance costs depending on the type of risk to which the derivative relates. Derivatives embedded in other fi nancial instruments or non-fi nancial host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of their host contracts and the host contracts themselves are not carried at fair value with unrealised gains or losses reported in the income statement. Derecognition of fi nancial assets and fi nancial liabilities Financial assets are derecognised when the right to receive cash fl ows from the asset has expired, the right to receive cash fl ows has been retained but an obligation to on-pay them in full without material delay has been assumed or the right to receive cash fl ows has been transferred together with substantially all the risks and rewards of ownership. Financial liabilities are derecognised when the associated obligation has been discharged, cancelled or has expired. New IFRS accounting standards and interpretations not yet adopted The following new or amended IFRS accounting standards and interpretations not yet adopted are expected to have a signifi cant impact on the Group: IFRS 9 Financial Instruments – Classifi cation and Measurement refl ects the fi rst phase of the IASB’s three stage project to replace IAS 39. The fi rst phase deals with the classifi cation and measurement of fi nancial assets and fi nancial liabilities. The standard applies to annual periods beginning on or after 1 January 2015. 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 classifi ed 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 is effective for annual periods beginning on or after 1 January 2014 although early adoption is permitted. IFRS 12 Disclosures of Interests in Other Entities will accompany IFRS 10 Consolidated Financial Statements and IFRS 11. This standard combines the disclosure requirements previously covered by IAS 27 Consolidated and Separate Financial Statements, related to consolidated fi nancial statements, IAS 31 and IAS 28 Investments in Associates, as well as including additional disclosure requirements. This standard is effective for annual periods beginning on or after 1 January 2014 although early adoption is permitted. 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 benefi t and how capitalised costs are depreciated. This interpretation applies to annual periods beginning on or after 1 January 2013. As explained above, the Group currently defers costs associated with the removal of overburden or waste material such that the cost of stripping in any period is refl ective of the average stripping ratio for the orebody as a whole applied to the actual stripping costs incurred. Amounts deferred on this basis will only be carried forward under IFRIC 20 where they relate to existing components of the orebody. 1. ACCOUNTING POLICIES continued Amounts deferred to date which do not relate to existing components of the orebody will be written off to reserves. • adverse changes in capital, operating, mining, processing and reclamation costs, discount rates and foreign exchange rates used to determine mineral reserves The following new or amended IFRS accounting standards not yet adopted are not expected to have a signifi cant impact on the Group: IFRS 10 replaces the portion of IAS 27 that addresses accounting for consolidated fi nancial statements and SIC-12 Consolidation – Special Purpose Entities. IFRS 10 provides a single basis for consolidation with a new defi nition of control. The standard is effective for annual periods beginning on or after 1 January 2014 although early adoption is permitted. 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 reclassifi ed to profi t or loss. The amendment is to be applied for annual periods beginning on or after 1 July 2012. The amendment to IAS 19 Employee Benefi ts is to be applied retrospectively for annual periods beginning on or after 1 January 2013. Amendments have been made to IAS 27 Consolidated and Separate Financial Statements 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 fi nancial statements. The accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates in consolidated fi nancial 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 2014 although early adoption is permitted. Amendments have been made to IAS 28 Investments in Associates 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 2014 although early adoption is permitted. Amendments to IFRS 1 Government loans and to IFRS 7 Disclosures – Offsetting Financial Assets and Financial Liabilities are effective for annual periods beginning on or after 1 January 2013. The amendment to IAS 32 Financial Instruments – Presentation is effective for annual periods beginning on or after 1 January 2014. Critical accounting judgements and key sources of estimation and uncertainty In the course of preparing fi nancial statements, management necessarily makes judgements and estimates that can have a signifi cant impact on the fi nancial statements. The most critical of these relate to estimation of the ore reserves and useful economic lives of assets, impairment of assets, fair valuation of net assets on acquisition, restoration, rehabilitation and environmental costs, retirement benefi ts, fi nancial assets and liabilities at fair value through profi t 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 signifi cant impact on fi nancial 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: • changes to Proved and Probable Reserves • the grade of Ore Reserves varying signifi cantly from time to time • differences between actual commodity prices and commodity price assumptions used in the estimation of mineral reserves • renewal of mining licences • unforeseen operational issues at mine sites 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 fl ows to appropriate CGUs, and also in estimating the timing and value of underlying cash fl ows within the calculation of recoverable amount. Factors which could impact underlying cash fl ows include: • commodity prices and exchange rates • timelines of granting of licences and permits • capital and operating expenditure • available reserves and resources and future production profi le Subsequent changes to the CGU allocation or to the timing of or assumptions used to determine cash fl ows could impact the carrying value of the respective assets, see note 14. Fair valuation of net assets on acquisition The Group applies the acquisition method of accounting for acquisitions. This requires all identifi able assets, liabilities and contingent liabilities of a subsidiary, joint venture entity or an associate acquired on the date control is obtained, which can be measured reliably, to be recognised at their provisional fair values at the date of acquisition. The fair value of identifi able assets and liabilities is determined using discounted cash fl ows or other valuation techniques using assumptions considered to be reasonable and consistent with those that would be applied by a market participant. The assessment of assumptions used in determining the fair value of identifi able assets and liabilities is inherently subjective and the use of inaccurate valuation assumptions could result in a signifi cant impact on fi nancial results. 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 benefi ts The expected costs of providing pensions and post employment benefi ts under defi ned benefi t arrangements relating to employee service during the period are determined based on fi nancial and actuarial assumptions. Assumptions in respect of the expected costs are set after consultation with qualifi ed actuaries. While management believes the assumptions used are appropriate, a change in the assumptions used would impact the Group’s other comprehensive income going forward. Financial assets and liabilities at fair value through profi t and loss The fair value of the Group’s fi nancial assets and liabilities held at fair value though profi t and loss represents the market value of quoted investments and other traded instruments where available. For fi nancial assets and liabilities held at fair value through profi t and loss for which market prices are not readily available, fair value is determined using discounted cash fl ows 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 signifi cant impact on fi nancial 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 outfl ow of resources will be required to settle a present obligation that can be measured reliably. Disclosure of other contingent liabilities is made in note 35 unless the possibility of a loss arising is considered remote. Anglo American plc Annual Report 2012 147 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 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). Phosphates and Niobium (previously Copebrás and Catalão) are reported in the Other Mining and Industrial segment. Following a strategic review during the fi rst half of the year, Amapá was transferred to the Other Mining and Industrial business unit, and accordingly is presented as part of the Other Mining and Industrial segment. It was previously reported as part of the Iron Ore and Manganese segment. Comparatives have been reclassifi ed to align with current year presentation. Tarmac is not considered to be individually signifi cant to the Group and is therefore also presented in the Other Mining and Industrial segment. Until November 2012 this reporting segment also included Scaw South Africa. On 16 August 2012 the Group acquired a controlling interest in De Beers (Diamonds segment). Until this date De Beers was accounted for as an associate of the Group. From 16 August 2012 De Beers ceased to be an associate and has been accounted for as a subsidiary of the Group. For details of this acquisition, see note 32. The Group’s Executive Committee evaluates the fi nancial performance of the Group and its segments principally with reference to underlying operating profi t. Underlying operating profi t is presented before special items and remeasurements and includes the Group’s attributable share of associates’ operating profi t before special items and remeasurements. Segment revenue includes the Group’s attributable share of associates’ revenue. 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, iron ore, and, until November 2012, steel products. The Exploration segment includes the cost of the Group’s exploration activities across all segments. The segment results are stated after elimination of inter-segment transactions and include an allocation of corporate costs. Analysis by segment Revenue and operating (loss)/profi t 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) Underlying operating (loss)/profi t(2) 2012 6,403 3,889 3,447 5,122 336 5,489 4,028 4,066 – 5 32,785 2011 7,643 4,347 3,722 5,144 488 7,359 3,320 4,520 – 5 36,548 (4,024) – 28,761 (5,968) – 30,580 2012 2,949 405 793 1,687 26 (120) 496 337 (206) (203) 6,164 (759) (7,093) (1,688) 2011 4,400 1,189 1,230 2,461 57 890 659 315 (121) 15 11,095 (1,427) (229) 9,439 (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 underlying operating (loss)/profi t is revenue less operating costs before special items and remeasurements, and includes the Group’s attributable share of associates’ operating profi t before special items and remeasurements. This is reconciled to operating (loss)/profi t from subsidiaries and joint ventures after special items and remeasurements as presented in the Consolidated income statement. Associates’ revenue and underlying operating profi t US$ million Iron Ore and Manganese Metallurgical Coal Thermal Coal Platinum Diamonds Other Mining and Industrial Reconciliation: Associates’ net fi nance 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 Associates’ underlying operating profi t/(loss)(1) 2012 831 315 970 231 1,675 2 4,024 2011 926 372 1,080 269 3,320 1 5,968 2012 104 111 355 (63) 252 – 759 (58) (202) (6) 493 (57) (3) (1) 432 2011 165 207 482 (86) 659 – 1,427 (48) (385) (16) 978 (5) 1 3 977 (1) Associates’ underlying operating profi t/(loss) is the Group’s attributable share of associates’ revenue less operating costs before special items and remeasurements. 148 Anglo American plc Annual Report 2012 2. SEGMENTAL INFORMATION continued Non-cash items Signifi cant non-cash items included within underlying operating profi t are as follows: US$ million Iron Ore and Manganese Metallurgical Coal Thermal Coal Copper Nickel Platinum Diamonds Other Mining and Industrial Exploration Corporate Activities and Unallocated Costs Depreciation and amortisation(1) Other non-cash expenses(2) 2012 199 458 125 492 24 658 142 148 – 43 2,289 (3) 2011 153 375 128 289 27 729 – 225 – 41 1,967 (3) 2012 31 140 30 98 25 81 52 (59) 3 70 471 2011 95 104 30 124 10 76 – 83 3 54 579 (1) In addition the Group’s attributable share of associates’ depreciation and amortisation is $233 million (2011: $286 million). This is split by segment as follows: Iron Ore and Manganese $50 million (2011: $33 million), Metallurgical Coal $14 million (2011: $13 million), Thermal Coal $54 million (2011: $52 million), Platinum $42 million (2011: $53 million) and Diamonds $73 million (2011: $135 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 $70 million (2011: $84 million) of accelerated depreciation and $41 million (2011: nil) of depreciation and amortisation charges arising due to the fair value uplift of the pre-existing 45% shareholding of De Beers have been recorded within operating special items and remeasurements (see note 5), and $81 million (2011: $39 million) of pre-commercial production depreciation has been capitalised. Capital expenditure and net debt US$ million Iron Ore and Manganese Metallurgical Coal Thermal Coal Copper Nickel Platinum Diamonds Other Mining and Industrial Exploration Corporate Activities and Unallocated Costs Net (cash) in disposal groups(3) Reconciliation: Remove: cash fl ows from derivatives relating to capital expenditure Purchase of property, plant and equipment Interest capitalised Non-cash movements(4) Property, plant and equipment additions in disposal groups Property, plant and equipment additions(5) Capital expenditure(1) Net debt(2) 2012 1,112 (510) 32 (775) 477 98 839 (45) (8) 7,608 8,828 (213) 8,615 2011 1,277 (211) 81 (781) 603 20 – 272 (6) 119 1,374 – 1,374 i F n a n c i a l s t a t e m e n t s 2012 2,077 1,028 266 996 100 822 94 260 6 29 5,678 (71) 5,607 280 120 (50) 5,957 2011 1,659 695 190 1,570 398 970 – 225 1 56 5,764 439 6,203 321 27 (2) 6,549 (1) Capital expenditure is segmented on a cash basis and is reconciled to balance sheet additions. Cash capital expenditure includes cash fl ows 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) Previously reported within the Other Mining and Industrial segment, see note 34. (4) Includes movements on capital expenditure accruals, movements relating to deferred stripping and the impact of realised cash fl ow hedges. (5) Property, plant and equipment additions are split by segment as follows: Iron Ore and Manganese $2,143 million (2011: $2,052 million), Metallurgical Coal $980 million (2011: $681 million), Thermal Coal $277 million (2011: $231 million), Copper $1,069 million (2011: $1,877 million), Nickel $207 million (2011: $405 million), Platinum $865 million (2011: $1,014 million), Diamonds $172 million (2011: nil), Other Mining and Industrial $207 million (2011: $232 million), Exploration $6 million (2011: $1 million) and Corporate Activities and Unallocated Costs $31 million (2011: $56 million). Anglo American plc Annual Report 2012 149 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 2. SEGMENTAL INFORMATION continued Segment assets and liabilities The following balance sheet segment measures are provided for information: US$ million Iron Ore and Manganese Metallurgical Coal Thermal Coal Copper Nickel Platinum Diamonds 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) Derivative fi nancial assets/(liabilities) Cash and cash equivalents Other non-operating assets/(liabilities) Borrowings Other provisions for liabilities and charges Assets/(liabilities) classifi ed as held for sale(4) Net assets Segment assets(1) Segment liabilities(2) Net segment assets/(liabilities) 2012 9,837 6,078 2,726 9,662 2,613 11,490 14,412 960 8 424 58,210 3,063 2,380 1,223 848 9,094 1,401 – – 3,150 79,369 2011 12,909 5,660 2,650 8,767 2,655 12,288 – 4,660 2 375 49,966 5,240 2,896 530 840 11,732 1,238 – – – 72,442 2012 (481) (859) (761) (1,126) (104) (1,071) (1,468) (174) (4) (709) (6,757) – – (6,069) (1,081) – (1,660) (17,754) (1,342) (919) (35,582) 2011 (482) (968) (764) (1,124) (120) (1,097) – (817) (3) (584) (5,959) – – (5,730) (1,112) – (2,715) (12,873) (864) – (29,253) 2012 9,356 5,219 1,965 8,536 2,509 10,419 12,944 786 4 (285) 51,453 3,063 2,380 (4,846) (233) 9,094 (259) (17,754) (1,342) 2,231 43,787 2011 12,427 4,692 1,886 7,643 2,535 11,191 – 3,843 (1) (209) 44,007 5,240 2,896 (5,200) (272) 11,732 (1,477) (12,873) (864) – 43,189 (1) Segment assets are operating assets and consist of intangible assets of $4,571 million (2011: $2,322 million), property, plant and equipment of $45,089 million (2011: $40,549 million), environmental rehabilitation trusts of $393 million (2011: $360 million), biological assets of $19 million (2011: $17 million), retirement benefi t assets of $176 million (2011: $70 million), inventories of $5,005 million (2011: $3,517 million) and operating receivables of $2,957 million (2011: $3,131 million). (2) Segment liabilities are operating liabilities and consist of non-interest bearing current liabilities of $3,742 million (2011: $3,982 million), environmental restoration and decommissioning provisions of $1,606 million (2011: $1,338 million) and retirement benefi t obligations of $1,409 million (2011: $639 million). (3) See note 17 for a split of investments in associates by segment. (4) Previously reported in the Other Mining and Industrial segment, see note 34. Revenue by product The Group’s analysis of segment revenue by product is as follows: US$ million Iron ore Manganese ore and alloys Metallurgical coal Thermal coal Copper Nickel Platinum Palladium Rhodium Diamonds Phosphates Heavy building materials Steel products Other 2012 5,508 831 3,048 4,287 5,038 678 3,441 906 389 4,027 597 2,171 798 1,066 32,785 2011 6,830 926 3,444 4,621 5,023 948 4,578 1,076 703 3,320 571 2,347 931 1,230 36,548 150 Anglo American plc Annual Report 2012 2. SEGMENTAL INFORMATION continued Geographical analysis Revenue by destination and non-current segment assets by location The Group’s geographical analysis of segment revenue 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. Revenue and underlying operating profi t by origin Segment revenue and underlying operating profi t by origin are provided for information: US$ million South Africa Other Africa Brazil Chile Other South America North America Australia and Asia Europe Revenue Non-current segment assets(1) 2012 3,115 715 1,093 1,241 46 1,274 340 5,927 2,544 4,049 3,595 3,781 5,065 32,785 2012 14,592 3,256 1,274 5,122 1,131 559 4,616 2,235 32,785 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 Revenue 2011 17,855 2,763 1,404 5,170 1,364 615 5,058 2,319 36,548 2012 16,452 8,029 8,700 7,470 623 2,205 4,673 – – – 31 1,325 152 49,660 2011 15,215 357 12,622 7,001 655 685 4,170 – – – 47 2,117 2 42,871 Underlying operating profi t/(loss) 2012 3,335 437 200 1,863 304 (138) 465 (302) 6,164 2011 6,059 501 152 2,581 512 256 1,318 (284) 11,095 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, are 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 2012 20,155 8,313 9,124 8,695 717 2,500 5,900 2,806 58,210 2011 18,364 385 13,188 7,950 808 782 5,450 3,039 49,966 2012 (2,922) (202) (244) (1,094) (55) (298) (838) (1,104) (6,757) 2011 (2,620) (20) (303) (1,101) (48) (107) (953) (807) (5,959) 2012 17,233 8,111 8,880 7,601 662 2,202 5,062 1,702 51,453 2011 15,744 365 12,885 6,849 760 675 4,497 2,232 44,007 (1) Investments in associates of $3,063 million (2011: $5,240 million) are not included in segment assets. The geographical distribution of these investments, based on the location of the underlying assets, is disclosed in note 17. i F n a n c i a l s t a t e m e n t s Anglo American plc Annual Report 2012 151 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 3. OPERATING (LOSS)/PROFIT FROM SUBSIDIARIES AND JOINT VENTURES US$ million Group revenue Cost of sales(1) Gross profi t Selling and distribution costs Administrative expenses Other gains and losses (see below) Exploration expenditure (see note 7) Operating (loss)/profi t from subsidiaries and joint ventures 2012 28,761 (25,993) 2,768 (2,031) (2,127) (92) (206) (1,688) 2011 30,580 (17,343) 13,237 (1,788) (2,034) 145 (121) 9,439 (1) Includes operating special item charges of $6,977 million (2011: $164 million), see note 5. Operating remeasurements are included in ‘Other gains and losses’, see below. US$ million Operating (loss)/profi t is stated after charging/(crediting): Depreciation of property, plant and equipment (see note 15)(1) Amortisation of intangible assets (see note 14)(2) Rentals under operating leases Project evaluation expenditure Research and development expenditure Operating special items (see note 5) Employee costs (see note 8) Adjustment due to provisional pricing(3) Royalties(4) Other gains and losses comprise: Operating remeasurements (see note 5) Other fair value gains/(losses) on derivatives – realised Foreign exchange gains on other monetary items Fair value gains on biological assets Total other gains and losses 2012 2011 2,258 31 182 525 80 6,977 5,033 (14) 554 (116) 9 12 3 (92) 1,947 20 128 418 38 164 4,707 286 742 (65) (57) 256 11 145 (1) (2) In addition $70 million (2011: $84 million) of accelerated depreciation and $35 million (2011: nil) of depreciation arising due to the fair value uplift of the Group’s pre-existing 45% shareholding in De Beers have been recorded within operating special items and remeasurements (see note 5) and $81 million (2011: $39 million) of pre-commercial production depreciation has been capitalised. In addition $6 million of amortisation arising due to the fair value uplift of the Group’s pre-existing 45% shareholding in De Beers has been included within operating remeasurements. (3) Provisionally priced contracts resulted in a total (realised and unrealised) gain in revenue of $37 million (2011: loss of $283 million) and total (realised and unrealised) loss in operating costs of $23 million (2011: $3 million). (4) Excludes those royalties which meet the defi nition of income tax on profi t and accordingly have been accounted for as taxes. Auditor remuneration US$ million Paid to the Company’s auditor for audit of the Anglo American plc Annual Report Paid to the Company’s auditor for other services to the Group Audit of the Company’s subsidiaries Total audit fees Audit related assurance services(1) Taxation compliance services Taxation advisory services Other assurance services(2) Total non-audit fees Paid/payable to Deloitte 2012 Paid/payable to auditor (if not Deloitte) Paid/payable to Deloitte 2011 Paid/payable to auditor (if not Deloitte) United Kingdom Overseas Total Overseas United Kingdom Overseas Total Overseas 2.2 4.8 7.0 0.1 1.1 3.3 0.8 – 0.2 0.4 1.4 4.8 9.6 1.0 0.2 0.2 1.3 2.7 5.9 12.9 1.8 0.2 0.4 1.7 4.1 1.1 1.2 – 0.3 0.1 0.6 1.0 1.7 0.7 2.4 0.5 – 0.4 0.2 1.1 4.3 6.0 3.2 7.5 0.8 0.1 0.3 1.4 2.6 3.9 9.9 1.3 0.1 0.7 1.6 3.7 0.1 0.6 0.7 0.1 0.1 0.2 0.5 0.9 (1) (2) Includes $1.3 million (2011: $1.3 million) for the interim review. Includes $0.1 million (2011: $0.1 million) for the audit of Group pension plans. 152 Anglo American plc Annual Report 2012 4. OPERATING PROFIT AND UNDERLYING EARNINGS BY SEGMENT The following table analyses operating profi t (including attributable share of associates’ operating profi t) by segment and reconciles it to underlying earnings by segment. In 2012 Amapá has been reclassifi ed from the Iron Ore and Manganese segment to the Other Mining and Industrial segment to align with internal management reporting. Comparatives have been reclassifi ed to align with current 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 profi t for the fi nancial year attributable to equity shareholders of the Company before special items and remeasurements and is therefore presented after net fi nance costs, income tax expense and non-controlling interests. For a reconciliation from ‘(Loss)/profi t for the fi nancial year attributable to equity shareholders of the Company’ to ‘Underlying earnings for the fi nancial year’, see note 13. Operating profi t/(loss) before special items and remeasure- ments(1) Operating special items and remeasure- ments (note 5) Operating profi t/(loss) after special items and remeasure- ments Net fi nance costs, income tax expense and non- controlling interests 2,949 405 793 1,687 26 (120) 496 337 (206) (203) 6,164 5,139 365 (1) (9) 184 921 456 28 – 68 7,151 (2,190) 40 794 1,696 (158) (1,041) 40 309 (206) (271) (987) (1,912) (130) (270) (779) (15) (105) (184) (108) 11 167 (3,325) 2012 Underlying earnings 1,037 275 523 908 11 (225) 312 229 (195) (36) 2,839 Operating profi t/(loss) before special items and remeasure- ments(1) Operating special items and remeasure- ments (note 5) Operating profi t/(loss) after special items and remeasure- ments Net fi nance costs, income tax expense and non- controlling interests 4,321 1,189 1,231 2,460 (15) 884 641 245 (121) 13 10,848 (2,943) (345) (328) (851) (34) (480) (216) (140) 3 359 (4,975) 4,400 1,189 1,230 2,461 57 890 659 315 (121) 15 11,095 79 – (1) 1 72 6 18 70 – 2 247 177 70 2011 Underlying earnings 1,457 844 902 1,610 23 410 443 175 (118) 374 6,120 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) 5,996 7,127 (1,131) (3,278) 2,718 10,964 168 24 144 (47) 121 131 10,787 (4,910) 6,054 61 (65) 66 (1) Operating profi t/(loss) before special items and remeasurements includes attributable share of associates’ operating profi t before special items and remeasurements which is reconciled to ‘Share of net income from associates’ in note 2. (2) Non-core operations relate to Amapá, Tarmac and, until November 2012, Scaw South Africa. Underlying earnings by origin US$ million South Africa Other Africa South America North America Australia and Asia Europe i F n a n c i a l s t a t e m e n t s 2012 1,449 357 1,359 (198) 336 (464) 2,839 2011 2,726 326 2,080 218 967 (197) 6,120 5. SPECIAL ITEMS AND REMEASUREMENTS Special items are those items of fi nancial performance that the Group believes should be separately disclosed on the face of the income statement to assist in the understanding of the underlying fi nancial performance achieved by the Group. 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 classifi ed as operating special items and principally include impairment charges. Non-operating special items include profi ts 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 fi nancial performance of the Group. This category includes: • 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, for example, capital expenditure, the realised amount remains in remeasurements on settlement of the derivative. Such amounts are classifi ed in the income statement as operating when the underlying exposure is in respect of the operating performance of the Group and otherwise as fi nancing. • Foreign exchange impacts arising in US dollar functional currency entities where tax calculations are generated based on local currency fi nancial information and hence deferred tax is susceptible to currency fl uctuations. Such amounts are included within income tax expense. • The remeasurement and subsequent depreciation of a previously held equity interest as a result of a business combination. Anglo American plc Annual Report 2012 153 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 5. SPECIAL ITEMS AND REMEASUREMENTS continued US$ million Impairment of Minas-Rio Platinum operations Cessation of Loma de Níquel Other impairments and related charges Onerous contract provisions Reversal of De Beers inventory uplift Restructuring costs Operating special items Operating remeasurements Operating special items and remeasurements Loss on transfer of Tarmac Quarry Materials to assets held for sale Loss on transfer of Amapá to assets held for sale Disposal of Scaw South Africa Disposal of Mondi Disposal of Lisheen and Black Mountain Disposal of Tarmac businesses Kumba Envision Trust Platinum BEE transactions and related charges Other Non-operating special items Non-operating remeasurement – net gain on acquisition of De Beers Non-operating special items and remeasurements 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 Subsidiaries and joint ventures (4,960) (860) (159) (168) (386) (421) (23) (6,977) (116) (7,093) (135) (404) (21) 27 – – (77) – 16 (594) 1,988 1,394 – (89) (5,788) 1,113 404 Associates(1) – – – (62) – – – (62) 4 (58) – – – – – – – – – – – – – 1 (57) (3) (1) 2012 Total (4,960) (860) (159) (230) (386) (421) (23) (7,039) (112) (7,151) (135) (404) (21) 27 – – (77) – 16 (594) 1,988 1,394 – (88) (5,845) 1,110 403 (4,271) (61) (4,332) Subsidiaries and joint ventures – – (84) (70) – – (10) (164) (65) (229) – – – – 397 (75) – (141) 2 183 – 183 – 203 157 (119) 12 50 Associates(1) – – – – – – (9) (9) (9) (18) – – – – – – – – 20 20 – 20 (9) 2 (5) 1 3 (1) 2011 Total – – (84) (70) – – (19) (173) (74) (247) – – – – 397 (75) – (141) 22 203 – 203 (9) 205 152 (118) 15 49 (1) Relates to the Iron Ore and Manganese, Platinum and, until 16 August, Diamonds segment in 2012 (2011: Diamonds only). Operating special items Minas-Rio An impairment charge of $4,960 million has been recorded in relation to the Minas-Rio iron ore project (Iron Ore Brazil). Of this charge, $1,105 million has been recorded against goodwill and $3,855 million has been recorded against mining properties, with an associated deferred tax credit of $960 million. The post-tax impairment charge is $4,000 million. Platinum operations The impairment charge of $860 million relates to certain Platinum projects and other assets, not in use, that are not considered economically viable in the current market environment. The charge includes a write-off of fair value uplifts associated with these assets held at a Group level of $89 million. Cessation of Loma de Níquel A charge of $159 million has arisen at Loma de Níquel due to the cancellation of its mining concessions in November 2012. The charge comprises $70 million of accelerated depreciation (2011: $84 million) and $89 million of related closure and retrenchment costs, including inventory write-offs of $61 million. Other impairments and related charges Other impairments and related charges of $230 million (2011: $70 million) relate to various impairments across the Group, including an impairment of $42 million of fi xed assets relating to onerous contracts at Callide (Metallurgical Coal); an impairment of $44 million relating to Wesizwe, an available for sale asset held in Platinum where the fair value has had a signifi cant and prolonged decline; and $50 million of asset impairments recognised in Samancor, an associate investment. In 2011 the $70 million charge related to the impairment of Tarmac Building Products. Onerous contract provisions The charge of $386 million in relation to onerous contracts principally refl ects a provision increase of $292 million for coal supply agreements inherited on acquisition of Callide in 2000. The pricing in the agreements, which extend to 2031, is signifi cantly below market rates resulting in the unavoidable costs of meeting the obligations exceeding the economic benefi t expected to be received from the contract. The settlement of an unused inherited transhipment contract at Amapá resulted in a charge of $43 million and the settlement of unutilised energy contracts at Minas-Rio resulted in a charge of $38 million. Reversal of De Beers inventory uplift Inventory held by De Beers at the date of acquisition is required to be recognised at fair value under IFRS. This results in negligible margins being realised upon the subsequent sale of inventory held at the acquisition date. The reversal of fair value uplifts on inventory sold in 2012 of $421 million has been excluded from the Group’s underlying earnings so as not to distort the operating margins of De Beers and to provide more useful information about the performance of the Group. Operating remeasurements Operating remeasurements refl ect a net loss of $112 million (2011: net loss of $74 million) principally in respect of non-hedge derivatives related to capital expenditure in Iron Ore Brazil. Derivatives which have been realised during the period had a cumulative net loss since their inception of $71 million (2011: net gain of $383 million). The depreciation and amortisation charge arising due to the fair value uplift on the pre-existing 45% shareholding of De Beers, which was required on acquisition of a controlling stake, is $41 million in 2012. 154 Anglo American plc Annual Report 2012 5. SPECIAL ITEMS AND REMEASUREMENTS continued Non-operating special items In May 2012 the Competition Commission approved the formation of a 50:50 joint venture between the Group and Lafarge combining their cement, aggregates, ready-mix concrete, asphalt and asphalt surfacing, maintenance services, and waste services businesses in the UK subject to a number of conditions being met. In July 2012 the Group accepted the conditions of the Competition Commission and consequently the associated Tarmac Quarry Materials assets were classifi ed as held for sale and recognised at fair value less costs to sell. This resulted in a loss being recognised of $135 million. In December 2012 the Group agreed the sale of its 70% interest in the Amapá iron ore system. The net assets have been reclassifi ed to held for sale and recognised at fair value less costs to sell. This resulted in a loss being recognised of $404 million. The Group completed the sale of Scaw South Africa (Pty) Ltd (Scaw South Africa), an integrated steel maker, in November 2012. This resulted in a net cash infl ow of $100 million, generating a loss on disposal of $21 million. The Group sold its 5.28% shareholding in Mondi in November 2012 for net proceeds of $273 million, realising a net fair value gain recycled from reserves of $27 million. The Kumba Envision Trust charge of $77 million relates to Kumba’s broad based employee share scheme provided solely for the benefi t of non-managerial Historically Disadvantaged South African employees who do not participate in other Kumba share schemes. Non-operating remeasurement The non-operating remeasurement of $1,988 million (2011: nil) refl ects the net gain of $2,017 million, after transaction costs, resulting from the remeasurement to fair value of the Group’s existing 45% shareholding held in De Beers at the date a controlling stake was acquired. This includes a $2.7 billion uplift on depreciable assets which will unwind through operating remeasurements in the current and future years. Financing remeasurements Financing remeasurements refl ect a net loss of $88 million (2011: net gain of $205 million) and relates to an embedded interest rate derivative, non-hedge derivatives relating to debt and other fi nancing remeasurements. Special items and remeasurements tax Special items and remeasurements tax amounted to a credit of $1,110 million (2011: charge of $118 million). This relates to a credit for one-off tax items of $922 million (2011: credit of $137 million), a tax remeasurement charge of $189 million (2011: charge of $230 million) and a tax credit on special items and remeasurements of $377 million (2011: charge of $25 million). The total tax credit relating to subsidiaries and joint ventures of $1,113 million (2011: charge of $119 million) comprises a current tax charge of $8 million (2011: charge of $12 million) and a deferred tax credit of $1,121 million (2011: charge of $107 million). The credit relating to one-off tax items of $922 million (2011: credit of $137 million) relates principally to the net deferred tax credit of $960 million relating to Minas-Rio and a net deferred tax credit of $70 million relating to the reassessment of deferred tax assets as a result of changes in tax regimes within operating segments, partially offset by the write-off of the deferred tax asset in Amapá of $108 million following the decision to sell the system. The tax credit of $377 million on special items and remeasurements primarily arises on the impairments at Platinum and the reversal of the De Beers inventory uplift. 6. UNDERLYING EBITDA Earnings before interest, tax, depreciation and amortisation (underlying EBITDA) is operating profi t before special items and remeasurements, depreciation and amortisation in subsidiaries and joint ventures and includes attributable share of underlying EBITDA of associates. i F n a n c i a l s t a t e m e n t s US$ million Iron Ore and Manganese(1) Metallurgical Coal Thermal Coal Copper Nickel Platinum Diamonds Other Mining and Industrial(1) Exploration Corporate Activities and Unallocated Costs Underlying EBITDA 2012 3,198 877 972 2,179 50 580 711 485 (206) (160) 8,686 2011 4,586 1,577 1,410 2,750 84 1,672 794 540 (121) 56 13,348 (1) In 2012 Amapá has been reclassifi ed from Iron Ore and Manganese to Other Mining and Industrial to align with internal management reporting. Comparatives have been reclassifi ed to align with current year presentation. Underlying EBITDA is reconciled to operating profi t, including attributable share of associates, before special items and remeasurements and to ‘Total profi t from operations and associates’ as follows: US$ million Underlying EBITDA Depreciation and amortisation: subsidiaries and joint ventures Depreciation and amortisation: associates Operating profi t, including associates, before special items and remeasurements Operating special items and remeasurements Non-operating special items and remeasurements Associates’ net special items and remeasurements Share of associates’ net fi nance costs, tax and non-controlling interests Total profi t from operations and associates 2012 8,686 (2,289) (233) 6,164 (7,093) 1,394 (61) (266) 138 2011 13,348 (1,967) (286) 11,095 (229) 183 (1) (449) 10,599 Anglo American plc Annual Report 2012 155 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 7. EXPLORATION EXPENDITURE US$ million By commodity Iron ore Metallurgical coal Thermal coal Copper Nickel Platinum group metals Diamonds Phosphates and niobium Central exploration activities 2012 2011 23 18 14 39 32 4 23 2 51 206 5 5 9 27 26 5 – – 44 121 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(1) Metallurgical Coal Thermal Coal Copper Nickel Platinum Diamonds(2) Other Mining and Industrial(1) Corporate Activities and Unallocated Costs 2012 2011 8 4 9 5 2 57 3 16 2 106 7 3 9 5 2 55 – 17 2 100 (1) In 2012 Amapá has been reclassifi ed from Iron Ore and Manganese to Other Mining and Industrial to align with internal management reporting. Comparatives have been reclassifi ed to align with current year presentation. (2) The average number of employees in Diamonds refl ects the acquisition of De Beers from 16 August 2012. The average number of employees by principal location of employment was: Thousand South Africa Other Africa South America North America Australia and Asia Europe Payroll costs in respect of the employees included in the tables above were: US$ million Wages and salaries Social security costs Post employment benefi ts(1) Share-based payments (see note 29) Total payroll costs Reconciliation: Less: employee costs capitalised Less: employee costs included within special items Employee costs included in operating costs 2012 82 2 11 1 4 6 106 2012 4,522 166 378 321 5,387 (247) (107) 5,033 2011 79 1 10 – 4 6 100 2011 4,201 142 343 260 4,946 (229) (10) 4,707 (1) Includes contributions to defi ned contribution pension and medical plans, and current service costs related to defi ned benefi t pension and medical schemes, and other benefi ts provided to certain employees during retirement, see note 28. 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 benefi ts Social security costs Termination benefi ts Post employment benefi ts Share-based payments 2012 24 3 2 3 25 57 2011 23 2 – 8 22 55 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 specifi ed 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. 156 Anglo American plc Annual Report 2012 9. NET FINANCE (COSTS)/INCOME Finance costs and exchange (losses)/gains are presented net of hedges for respective interest bearing and foreign currency borrowings. The weighted average capitalisation rate applied to qualifying capital expenditure was 4.2% (2011: 5.0%). US$ million Investment income Interest income from cash and cash equivalents Other interest income Expected return on defi ned benefi t arrangements Dividend income from fi nancial asset investments Less: interest income capitalised Total investment income Interest expense Interest and other fi nance expense Interest payable on convertible bond Unwinding of discount on convertible bond Interest cost on defi ned benefi t arrangements Unwinding of discount relating to provisions and other liabilities Less: interest expense capitalised Total interest expense Other fi nancing (losses)/gains Net foreign exchange losses Net fair value (losses)/gains on fair value hedges Other net fair value gains Total other fi nancing (losses)/gains Net fi nance costs before remeasurements Remeasurements (see note 5) Net fi nance (costs)/income after remeasurements 10. FINANCIAL INSTRUMENT GAINS AND LOSSES The net gains and losses recorded in the Consolidated income statement in respect of fi nancial instruments were as follows: US$ million At fair value through profi t and loss Cash fl ow hedge derivatives transferred from equity(1) Fair value hedge derivatives Fair value hedge underlying instruments Foreign exchange gains/(losses) Other fair value movements(2) Loans and receivables Foreign exchange gains Interest income at amortised cost(3) Available for sale Net gain transferred on sale from equity Dividend income Impairment of available for sale investments Foreign exchange losses Other fi nancial liabilities Foreign exchange (losses)/gains Interest expense at amortised cost(3) 2012 2011 155 195 200 54 604 (7) 597 (691) (25) (25) (230) (114) (1,085) 287 (798) (90) (24) 27 (87) (288) (89) (377) 239 194 199 59 691 (23) 668 (615) (68) (71) (205) (80) (1,039) 344 (695) (16) 16 7 7 (20) 203 183 2012 2011 (4) (193) 169 12 (144) 17 307 67 54 (84) (30) (106) (404) (5) (263) 279 (9) (205) 9 368 10 59 – – 240 (345) i F n a n c i a l s t a t e m e n t s (1) These amounts are included in Group revenue. (2) Includes the impact of provisional pricing, see note 3, and certain operating and fi nancing remeasurements, see note 5. Interest income and expense at amortised cost are shown net of amounts capitalised. (3) Anglo American plc Annual Report 2012 157 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 11. INCOME TAX EXPENSE a) Analysis of charge for the year US$ million United Kingdom corporation tax (credit)/charge 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 2012 (12) 802 605 61 1,456 32 1,488 (1,113) 375 2011 16 1,307 1,067 (92) 2,298 443 2,741 119 2,860 (1) Includes royalties which meet the defi nition of income tax and are in addition to royalties recorded in operating costs. b) Factors affecting tax charge for the year The effective tax rate for the year of (156.9)% (2011: 26.5%) is lower than (2011: same as) the applicable weighted average statutory rate of corporation tax in the United Kingdom of 24.5% (2011: 26.5%). The reconciling items, excluding the impact of associates, are: US$ million (Loss)/profi t before tax Less: share of net income from associates (Loss)/profi t before tax (excluding associates) Tax on (loss)/profi t (excluding associates) calculated at United Kingdom corporation tax rate of 24.5% (2011: 26.5%) 2012 (239) (432) (671) (164) 2011 10,782 (977) 9,805 2,598 Tax effects of: Items not taxable/deductible for tax purposes Exploration expenditure Non-taxable/deductible net foreign exchange loss Non-taxable net interest income Other non-deductible expenses Other non-taxable income Temporary difference adjustments Current year losses not recognised Recognition of losses not previously recognised 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 43 7 (25) 51 (63) 86 (69) (40) 305 26 68 61 89 375 27 24 (20) 60 (57) 38 (103) (57) 77 407 (61) (92) 19 2,860 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 2012 is $205 million (2011: $384 million). Excluding special items and remeasurements this becomes $202 million (2011: $385 million). The effective rate of tax before special items and remeasurements including attributable share of associates’ tax for the year ended 31 December 2012 was 29.0%. The increase compared to the equivalent effective tax rate of 28.3% for the year ended 31 December 2011 is due to the reduced impact of certain non-recurring factors. The non-recurring factors in 2012 include further recognition of previously unrecognised tax losses and the reassessment of certain withholding tax provisions across the Group. In future periods it is expected that the effective tax rate, including associates’ tax, will remain above the United Kingdom statutory tax rate. c) Tax amounts included in total comprehensive income An analysis of tax by individual item presented in the Consolidated statement of comprehensive income is presented below: US$ million Tax on items recognised directly in equity Net gain on revaluation of available for sale investments Net (gain)/loss on cash fl ow hedges Net exchange difference on translation of foreign operations Actuarial net (gain)/loss on post employment benefi t plans Tax on items transferred from equity Transferred to income statement: disposal of available for sale investments Transferred to initial carrying amount of hedged items: cash fl ow hedges Transferred to income statement: cash fl ow hedges 2012 2011 (79) (1) (16) (19) (115) 30 (1) – 29 (26) 20 11 19 24 – (12) (2) (14) d) Tax amounts recognised directly in equity Capital gains tax of $290 million relating to the profi t on sale of a 25.4% share in Anglo American Sur SA (AA Sur) in August 2012 has been charged directly to equity (2011: $1,017 million relating to the profi t on sale of a 24.5% share in AA Sur in November 2011). There were no other material current tax amounts charged directly to equity in 2012 or 2011. Deferred tax of $110 million has been charged directly to equity (2011: charge of $127 million), see note 27. 158 Anglo American plc Annual Report 2012 12. DIVIDENDS Dividends payable during the year are as follows: US$ million Final ordinary dividend for 2011 – 46 US cents per ordinary share (2010: 40 US cents per ordinary share) Interim ordinary dividend for 2012 – 32 US cents per ordinary share (2011: 28 US cents per ordinary share) (1) Of this, $599 million (2011: $561 million) was recognised in the parent Company. 2012 559 411 970 (1) 2011 495 339 834 (1) Total dividends paid during the year were $970 million (2011: $818 million). In 2011 the difference to dividends payable arose due to movements in exchange rates between the date of recognition and the date of payment. The directors are proposing a fi nal dividend in respect of the fi nancial year ended 31 December 2012 of 53 US cents per share. Based on shares eligible for dividends at 31 December 2012, this will result in an estimated distribution of $676 million of shareholders’ funds, of which $395 million will be distributed by the parent Company. These fi nancial statements do not refl ect this dividend payable as it is still subject to shareholder approval. As stated in note 29, the employee benefi t trust has waived the right to receive dividends on the shares it holds. 13. EARNINGS PER SHARE US$ (Loss)/profi t for the fi nancial year attributable to equity shareholders of the Company Basic (loss)/earnings per share Diluted (loss)/earnings per share Headline earnings for the fi nancial year (1) Basic earnings per share Diluted earnings per share Underlying earnings for the fi nancial year (1) Basic earnings per share Diluted earnings per share 2012 (1.19) (1.19) 0.95 0.95 2.26 2.24 2011 5.10 4.89 4.89 4.69 5.06 4.85 (1) Basic and diluted earnings per share are also shown based on headline earnings, a Johannesburg Stock Exchange (JSE Limited) defi ned 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: Earnings (US$ million) Basic (loss)/earnings Effect of dilutive potential ordinary shares Interest payable on convertible bond (net of tax)(1) Unwinding of discount on convertible bond (net of tax)(1) Diluted earnings Number of shares (million) Basic number of ordinary shares outstanding Effect of dilutive potential ordinary shares Share options and awards Convertible bond Diluted number of ordinary shares outstanding (1) All outstanding convertible bonds were converted or redeemed during the year, see note 24. (Loss)/profi t attributable to equity shareholders of the Company Headline earnings Underlying earnings 2012 2011 2012 2011 2012 2011 (1,493) 6,169 – – (1,493) 1,254 – – 1,254 50 52 6,271 1,210 10 62 1,282 1,197 – – 1,197 1,254 5 – 1,259 5,913 50 52 6,015 1,210 10 62 1,282 2,839 19 19 2,877 1,254 5 23 1,282 6,120 50 52 6,222 1,210 10 62 1,282 i F n a n c i a l s t a t e m e n t s 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. Potential ordinary shares shall be treated as dilutive when, and only when, their conversion to ordinary shares would decrease earnings per share or increase loss per share from continuing operations. Consequently, in 2012 basic loss per share equals diluted loss per share and 16,325,905 (2011: 270,095) shares have been excluded from the calculation of diluted earnings per share as they are anti-dilutive as at 31 December 2012. As at 31 December 2012, 10,339,454 (2011: 270,095) shares have been excluded from the calculation of diluted headline earnings per share and diluted underlying earnings per share as they are anti-dilutive. 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 benefi t trusts and Anglo American plc shares held by Group companies. Anglo American plc Annual Report 2012 159 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 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 defi ned performance measure. The calculation of basic and diluted earnings per share, based on headline and underlying earnings, uses the following earnings data: US$ million (Loss)/profi t for the fi nancial year attributable to equity shareholders of the Company Operating special items Operating special items – tax Operating special items – non-controlling interests Non-operating special items and remeasurements Non-operating special items – tax Non-operating special items – non-controlling interests Financing special items Tax special items Headline earnings for the fi nancial year Operating special items(1) Operating remeasurements Non-operating special items and remeasurements(2) Financing remeasurements Special items and remeasurements tax Non-controlling interests on special items and remeasurements Underlying earnings for the fi nancial year 2012 (1,493) 6,050 (1,600) (123) (1,492) 35 (180) – – 1,197 989 112 98 88 455 (100) 2,839 2011 6,169 70 – – (347) 36 – 9 (24) 5,913 103 74 144 (205) 106 (15) 6,120 (1) Includes onerous contract provisions, accelerated depreciation and the reversal of the inventory uplift on De Beers. (2) Principally includes Kumba Envision Trust charge and transaction costs relating to the De Beers acquisition (2011: Platinum BEE transactions and related charges). 14. INTANGIBLE ASSETS US$ million Net book value At 1 January Acquired through business combinations Additions Amortisation charge for the year(3) Impairments and losses on assets transferred to held for sale Disposals and transfer to assets held for sale Adjustments relating to deferred and contingent consideration Currency movements At 31 December Cost Accumulated amortisation 2012 2011 Brands, contracts and other intangibles(1) 83 1,588 34 (37) (30) (7) – (14) 1,617 1,724 (107) Goodwill(2) Total 2,239 2,355 – – (1,169) (441) – (30) 2,954 2,954 – 2,322 3,943 34 (37) (1,199) (448) – (44) 4,571 4,678 (107) Brands, contracts and other intangibles(1) Goodwill(2) Total 85 – 26 (20) – – – (8) 83 182 (99) 2,231 – – – (15) (25) 81 (33) 2,239 2,239 – 2,316 – 26 (20) (15) (25) 81 (41) 2,322 2,421 (99) (1) Includes $517 million (2011: nil) of assets with indefi nite lives acquired through the acquisition of De Beers. Brands, contracts and other intangible assets are provided net of cumulative impairment charges of $29 million (2011: $37 million). (2) The goodwill balances provided are net of cumulative impairment charges of $1,120 million (2011: $337 million). (3) Includes $6 million (2011: nil) of amortisation arising due to the fair value uplift of the Group’s pre-existing 45% shareholding in De Beers. This has been included within operating remeasurements. Impairment tests for goodwill Goodwill is allocated for impairment testing purposes to cash generating units (CGUs) or groups of CGUs which refl ect how it is monitored for internal management purposes. This allocation largely represents the Group’s segments. Any goodwill associated with CGUs subsumed within these segments is not signifi cant when compared to the goodwill of the Group (2011: material components of goodwill within Iron Ore and Manganese and Other Mining and Industrial). The allocation of goodwill to CGUs or groups of CGUs is as follows: US$ million Iron Ore and Manganese Iron Ore Brazil Thermal Coal Copper Nickel Platinum Diamonds Other Mining and Industrial Tarmac(1) Other 2012 2011 – 88 124 10 230 2,324 – 178 2,954 1,123 88 124 10 230 – 456 208 2,239 (1) The goodwill balance in Tarmac as at 31 December 2012 relates to Tarmac Quarry Materials and has been transferred to assets held for sale, see note 34. 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 Minas-Rio which is determined on a value in use basis. 160 Anglo American plc Annual Report 2012 14. INTANGIBLE ASSETS continued Value in use is based on the present value of future cash fl ows 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 fl ow models taking account of assumptions that would be made by market participants. Expected future cash fl ows are inherently uncertain and could materially change over time. They are signifi cantly affected by a number of factors including ore reserves and resources, 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 fl ow projections are based on fi nancial 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 fl ows, based on ore reserves and mineral resource statements and exploration and evaluation work undertaken by appropriately qualifi ed persons. Mineral resources are included where management has a high degree of confi dence in their economic extraction, despite additional evaluation still being required prior to meeting the requirements of reserve classifi cation. 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 fl ows. Operating costs and capital expenditure Operating costs and capital expenditure are based on fi nancial budgets covering a three year period. Cash fl ow 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. Underlying input cost assumptions are consistent with related output price assumptions. Non-commodity based businesses For non-commodity based businesses, margin and revenue are based on fi nancial budgets covering a three year period. Beyond the fi nancial budget, revenue is forecast using a steady growth rate consistent with the markets in which those businesses operate, and for those periods fi ve 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 fl ows. Discount rates Cash fl ow projections used in fair value less costs to sell impairment models are discounted based on a real post-tax discount rate of 6.5% (2011: 6.0%). The discount rate for Minas-Rio is a real pre-tax rate of 8.5% (2011: 8.0%). Adjustments to the rate are made for any risks that are not refl ected in the underlying cash fl ows. 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. Foreign exchange rates are kept constant from 2017 onwards. Minas-Rio The Minas-Rio iron ore project (Minas-Rio) in Brazil was acquired in two separate transactions in 2007 and 2008. Minas-Rio is expected to produce 26.5 Mtpa of high quality pellet feed in its fi rst phase of development, with the potential to increase to 29.8 Mtpa following asset optimisation. Pre-feasibility studies for the subsequent expansion phases of Minas-Rio commenced during 2011, supported by an estimated resource base at that time of 5.77 billion tonnes, as detailed in the 2011 Ore Reserves and Mineral Resources statement. We have subsequently converted 1.45 billion tonnes to Ore Reserves. While progress is being made, construction activities at the benefi ciation plant and land access along the 525 km pipeline route have been impeded by a series of challenges, including three legal injunctions. All three injunctions were resolved during the second half of 2012 and construction activity in the affected areas has resumed. Additional capital expenditure has been incurred as a result of, inter alia, the delays arising from the injunctions, scope changes and higher than expected infl ation of operational costs. Management has completed a detailed review to assess the impact of these additional costs and the forecast capital expenditure for the fi rst phase of Minas-Rio has increased from $5.8 billion to $8.8 billion, including a $0.6 billion contingency, on an attributable basis. The delivery of the project on the revised schedule is dependent upon a number of development milestones: suppression of caves at the mine site; completion of the tailings dam before the rainy season; land release for the transmission line to the benefi ciation plant and pipeline; and fulfi lment of installation licences’ conditions such that operating licences can be issued in due course. Subject to no further unexpected interventions and the successful completion of these key milestones in the next 12 months, fi rst ore on ship is anticipated at the end of 2014. The valuation of Minas-Rio at 31 December 2012 has been assessed by reference to its value in use, determined on a discounted cash fl ow basis (real pre-tax discount rate of 8.5%). The valuation considers the risk of further escalation in capital expenditure and of further delay to fi rst ore on ship. It also considers the impact of further unanticipated impediments to progress. These risks refl ect the history of unforeseen challenges that have affected the project to date. The valuation model employs long term iron ore prices based on detailed analysis of market fundamentals and adjusted for iron ore quality. The long term iron ore price which is used in the valuation from 2022 onwards is within the range of published analyst forecasts and is slightly above the median of $80 per tonne. Based on this valuation, the Group has recorded an impairment charge of $4,960 million (before tax) against the carrying value of the asset. Of this charge, $1,105 million has been recorded against goodwill and $3,855 million has been recorded against mining properties, with an associated deferred tax credit of $960 million. The post-tax impairment charge is $4,000 million. i F n a n c i a l s t a t e m e n t s Anglo American plc Annual Report 2012 161 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 15. PROPERTY, PLANT AND EQUIPMENT US$ million Net book value At 1 January Acquired through business combinations Additions Depreciation charge for the year(3) Impairments and losses on transfer to assets held for sale Disposal of assets Disposal and transfer to assets held for sale Reclassifi cations(4) Currency movements At 31 December Cost Accumulated depreciation Mining properties and leases(1) Land and buildings Plant and equipment Other(2) Total Mining properties and leases(1) Land and buildings Plant and equipment Other(2) Total 2012 2011 14,643 2,620 14,822 8,464 40,549 15,376 2,004 10,839 11,591 39,810 7,307 338 420 44 395 181 790 5,394 8,912 5,957 – 352 – 76 – 287 – 5,834 – 6,549 (559) (200) (1,641) (44) (2,444) (414) (113) (1,501) (42) (2,070) (4,009) (5) (644) 558 (264) 17,365 25,057 (35) (4) (148) 346 (47) 2,996 4,001 (352) (45) (1,007) 2,149 (217) 14,285 23,358 (794) (12) (155) (3,053) (147) 10,443 10,628 (5,190) (66) (1,954) – (675) 45,089 63,044 – (2) (39) 532 (1,162) 14,643 19,532 – (7) (4) 826 (162) 2,620 3,450 (61) (39) (13) 6,408 (1,098) 14,822 24,116 – (28) (1) (7,929) (961) 8,464 8,648 (61) (76) (57) (163) (3,383) 40,549 55,746 (7,692) (1,005) (9,073) (185) (17,955) (4,889) (830) (9,294) (184) (15,197) (1) (2) (3) Includes amounts in relation to deferred stripping. Includes $10,193 million (2011: $8,088 million) of assets in the course of construction, which are not depreciated. Includes $2,258 million (2011: $1,947 million) of depreciation within operating profi t, $70 million (2011: $84 million) of accelerated depreciation, a $35 million (2011: nil) depreciation charge arising due to the fair value uplift on the pre-existing 45% shareholding of De Beers (see note 5) and $81 million (2011: $39 million) 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. In 2011 the net amount of $163 million relates to federal tax credits on qualifying capital projects in Brazil. These credits have been reclassifi ed, as appropriate, to refl ect the expected realisation. Included in the additions above is $280 million (2011: $321 million) of net interest expense incurred on borrowings funding the construction of qualifying assets which has been capitalised during the year. Assets held under fi nance leases relate to plant and equipment with a net book value of $27 million (2011: $25 million). Depreciation charges in the year amounted to $7 million (2011: $9 million). The net book value of land and buildings comprises: US$ million Freehold Leasehold – long Leasehold – short (less than 50 years) 2012 2,952 41 3 2,996 2011 2,604 8 8 2,620 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 2012 150 151 92 393 2011 146 130 84 360 These assets are primarily rand denominated. Cash is held in short term fi xed deposits or earns interest at fl oating inter-bank rates. Bonds earn interest at a weighted average fi xed rate of 8% (2011: 6%) for an average period of fi ve years (2011: four years). Equity investments are recorded at fair value through profi t and loss while 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 specifi c environmental obligations. These obligations are included in provisions, see note 26. 162 Anglo American plc Annual Report 2012 17. INVESTMENTS IN ASSOCIATES US$ million At 1 January Net income from associates Dividends received Share of expense recognised directly in equity, net of tax Other equity movements Investment in equity and capitalised loans Interest on capitalised loans Acquired through business combinations Repayment of capitalised loans Transfer to available for sale investments Disposals(1) Other movements Currency movements At 31 December(2) 2012 5,240 432 (286) (6) (4) 114 9 12 (36) – (2,372) 1 (41) 3,063 2011 4,900 977 (344) (32) – 47 23 – (4) (66) – (1) (260) 5,240 (1) Represents the carrying value of the Group’s pre-existing 45% shareholding in De Beers prior to the acquisition of a controlling interest on 16 August 2012, see note 32. (2) The fair value of the Group’s investment in Atlatsa Resources Corporation (previously known as Anooraq Resources Corporation) at 31 December 2012 was $18 million (2011: $51 million). The Group’s total investments in associates comprise: US$ million Equity Loans(1) 2012 2,359 704 3,063 2011 4,593 647 5,240 (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 Segmental information is provided as follows: US$ million By segment Iron Ore and Manganese Metallurgical Coal Thermal Coal Platinum Diamonds US$ million By geography South Africa Other Africa South America North America Australia and Asia Europe 2012 2,521 1,494 (379) (573) 3,063 2011 6,111 2,188 (742) (2,317) 5,240 Share of net income Aggregate investment 2012 2011 2012 2011 i F n a n c i a l s t a t e m e n t s 31 79 248 (94) 168 432 142 141 317 (65) 442 977 902 277 1,085 786 13 3,063 936 294 932 848 2,230 5,240 Aggregate investment 2012 2011 1,165 – 1,075 – 807 16 3,063 1,950 996 917 343 794 240 5,240 The Group’s share of associates’ contingent liabilities incurred jointly by investors is $33 million (2011: $112 million). Details of principal associates are set out in note 38. Anglo American plc Annual Report 2012 163 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 18. JOINT VENTURES The Group’s share of the summarised financial information of joint venture entities that are proportionately consolidated in the financial statements is as follows: US$ million Non-current assets Current assets Current liabilities Non-current liabilities Group’s share of joint venture entities’ net assets Revenue Operating costs Net fi nance costs Income tax expense Group’s share of joint venture entities’ profi t for the fi nancial year 2012 10,407 1,000 (651) (1,299) 9,457 2,394 (1,915) (39) (110) 330 2011 2,546 572 (434) (703) 1,981 1,932 (944) (44) (230) 714 The Group’s share of joint venture entities’ contingent liabilities incurred jointly with other venturers is $25 million (2011: $32 million) and its share of capital commitments is $569 million (2011: $74 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 $1,802 million (2011: $1,538 million) and its share of profi t for the fi nancial year is $224 million (2011: $615 million). The Group’s share of these operations’ contingent liabilities incurred jointly with other venturers is $32 million (2011: $19 million) and its share of capital commitments is $85 million (2011: $80 million). Details of principal joint ventures are set out in note 38. 19. FINANCIAL ASSET INVESTMENTS US$ million At 1 January Additions Acquired through business combinations Interest receivable Net repayments Transfer to assets held for sale Disposals Movements in fair value Currency movements At 31 December Loans and receivables 1,690 8 41 14 (79) (16) (314) 26 (54) 1,316 Available for sale investments 1,206 8 19 – – – (273) 173 (69) 1,064 2012 Total 2,896 16 60 14 (79) (16) (587) 199 (123) 2,380 Loans and receivables 1,920 4 – 76 (22) – – (10) (278) 1,690 Available for sale investments 1,300 84 – – – – (14) 115 (279) 1,206 No provision for impairment is recorded against fi nancial assets classifi ed as ‘Loans and receivables’ (2011: nil). Maturity analysis of fi nancial asset investments: US$ million Current Non-current 20. INVENTORIES US$ million Raw materials and consumables Work in progress Finished products 2012 102 2,278 2,380 2012 936 1,500 2,569 5,005 2011 Total 3,220 88 – 76 (22) – (14) 105 (557) 2,896 2011 – 2,896 2,896 2011 837 1,488 1,192 3,517 The cost of inventories recognised as an expense and included in cost of sales amounted to $15,776 million (2011: $16,146 million). An additional $421 million was recognised as an expense within operating special items (2011: nil) relating to the reversal of fair value uplifts on De Beers inventory, see note 5. Inventories held at net realisable value amounted to $352 million (2011: $285 million). Write-down of inventories (net of revaluation of provisionally priced purchases) amounted to $145 million, including write-offs of $61 million relating to inventory at Loma de Níquel recorded in operating special items (2011: $16 million). There were nil inventory write-downs reversed and recognised as a reduction in the inventory expense for the year (2011: nil). 164 Anglo American plc Annual Report 2012 21. TRADE AND OTHER RECEIVABLES US$ million Trade receivables Other receivables Prepayments and accrued income Due within one year 2,520 570 185 3,275 Due after one year 204 318 50 572 2012 Total 2,724 888 235 3,847 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 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 2012 29 7 2 4 42 2011 137 16 7 19 179 The overdue debtor ageing profi le 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 fi nancial 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 Unused amounts reversed Disposals and transfer to assets held for sale Currency movements At 31 December 22. TRADE AND OTHER PAYABLES US$ million Trade payables Tax and social security Other payables Accruals and deferred income(1) (1) Includes $18 million (2011: nil) of deferred income recorded within non-current liabilities. 23. FINANCIAL ASSETS The carrying amounts and fair values of fi nancial assets are as follows: US$ million At fair value through profi t and loss Trade and other receivables(1) Derivative fi nancial assets(2) Loans and receivables Cash and cash equivalents Trade and other receivables(1) Financial asset investments Available for sale investments Financial asset investments Total fi nancial assets 2012 54 – (6) (25) – 23 2011 53 6 – (3) (2) 54 2012 2,701 105 707 1,041 4,554 2011 3,001 177 939 981 5,098 i F n a n c i a l s t a t e m e n t s Estimated fair value 581 848 9,094 3,031 1,286 2012 Carrying value 581 848 9,094 3,031 1,316 1,064 15,904 1,064 15,934 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 (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 fi nancial assets which are traded on an active market, such as listed investments, fair value is determined by reference to market value. For non-traded fi nancial assets, fair value is calculated using discounted cash fl ows, 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. Anglo American plc Annual Report 2012 165 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 23. FINANCIAL ASSETS continued Fair value hierarchy An analysis of fi nancial assets carried at fair value is set out below: US$ million At fair value through profi t and loss Trade and other receivables Derivative fi nancial assets Available for sale investments Financial asset investments Level 1(1) Level 2(2) Level 3(3) – 1 980 981 581 813 11 1,405 – 34 73 107 2012 Total 581 848 1,064 2,493 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 (1) Valued using unadjusted quoted prices in active markets for identical fi nancial instruments. This category includes listed equity shares. (2) Valued using techniques based signifi cantly on observable market data. Instruments in this category are valued using valuation techniques where all of the inputs that have a signifi cant 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 signifi cant 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, fi nancial asset investments and certain cross currency swaps of Brazilian real denominated borrowings, whose valuation depends upon unobservable inputs. The movements in the fair value of the level 3 fi nancial assets are shown in the following table: US$ million At 1 January Net (loss)/gain recorded in remeasurements Net gain recorded in the statement of comprehensive income Cash fl ow Additions Disposals and transfer to assets held for sale Reclassifi cation from/to level 3 fi nancial liabilities Currency movements At 31 December 2012 217 (141) 19 – – – 14 (2) 107 2011 96 37 9 (29) 9 (12) 123 (16) 217 For the level 3 fi nancial assets, changing certain inputs to reasonably possible alternative assumptions may change the fair value signifi cantly. Where signifi cant, 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 fi nancial assets at 31 December for a change in each individual assumption, as outlined below, while keeping all other assumptions consistent with those used to calculate the fair value recognised in the fi nancial statements. US$ million Derivative fi nancial assets 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 2012 2011 Increase/(decrease) in fair value of assets 5 (5) n/a 9 (9) Increase/(decrease) in fair value of assets 10 (10) n/a 11 (11) (1) TJLP is a Brazilian domestic interest rate. The sensitivities are provided on the net liability position of such level 3 fi nancial instruments and are disclosed in note 24. Financial asset risk exposures are set out in note 25. 24. FINANCIAL LIABILITIES The carrying amounts and fair values of fi nancial liabilities are as follows: US$ million At fair value through profi t and loss Trade and other payables(1) Derivative fi nancial liabilities(2) Designated into fair value hedge Borrowings Financial liabilities at amortised cost Trade and other payables(1) Borrowings Other non-current liabilities Total fi nancial liabilities Estimated fair value 296 1,081 2012 Carrying value 296 1,081 13,735 13,425 4,102 4,181 29 23,424 4,102 4,329 29 23,262 Estimated fair value 262 1,112 8,867 (3) 4,637 5,526 55 20,459 2011 Carrying value 262 1,112 8,074 4,637 4,799 55 18,939 (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 at 31 December 2011 represented the quoted price of the debt and therefore included the portion accounted for in equity. 166 Anglo American plc Annual Report 2012 24. FINANCIAL LIABILITIES continued For fi nancial 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 fi nancial liabilities, fair value is calculated using discounted cash fl ows, 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 fi nancial liabilities carried at fair value is set out below: US$ million At fair value through profi t and loss Trade and other payables Derivative fi nancial liabilities Level 1(1) Level 2(2) Level 3(3) – – – 296 865 1,161 – 216 216 2012 Total 296 1,081 1,377 Level 1(1) Level 2(2) Level 3(3) – – – 262 924 1,186 – 188 188 2011 Total 262 1,112 1,374 (1) Valued using unadjusted quoted prices in active markets for identical fi nancial instruments. (2) Valued using techniques based signifi cantly on observable market data. Instruments in this category are valued using valuation techniques where all of the inputs that have a signifi cant 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 signifi cant 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. The movements in the fair value of the level 3 fi nancial liabilities are shown in the following table: US$ million At 1 January Net gain/(loss) recorded in remeasurements Cash fl ow Reclassifi cation to/from level 3 fi nancial assets Currency movements At 31 December 2012 188 14 – 14 – 216 2011 60 (5) 15 123 (5) 188 For the level 3 fi nancial liabilities, changing certain inputs to reasonably possible alternative assumptions may change the fair value signifi cantly. Where signifi cant, 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 fi nancial liabilities at 31 December for a change in each individual assumption, as outlined below, while keeping all other assumptions consistent with those used to calculate the fair value recognised in the fi nancial statements. US$ million Derivative fi nancial liabilities Change in assumption Shift of TJLP curve(1) (1) TJLP is a Brazilian domestic interest rate. The sensitivities are provided on the net liability position of such level 3 fi nancial instruments. Financial liability risk exposures are set out in note 25. Analysis of borrowings An analysis of borrowings, as presented on the Consolidated balance sheet, is set out below: 2012 2011 Increase in fair value of liabilities 17 Increase in fair value of liabilities 21 i F n a n c i a l s t a t e m e n t s US$ million Secured Bank loans and overdrafts(1) Obligations under fi nance 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 5 3 8 251 994 767 – 584 2,596 2,604 21 19 40 2,871 6,382 4,628 – 1,229 15,110 15,150 2012 Total 26 22 48 3,122 7,376 5,395 – 1,813 17,706 17,754 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 (1) Assets with a book value of $49 million (2011: $408 million) have been pledged as security, of which $35 million (2011: $170 million) are property, plant and equipment, $10 million (2011: $113 million) are fi nancial assets and $4 million (2011: $125 million) are inventories. Related to these assets are borrowings of $26 million (2011: $331 million). (2) Details of assets held under fi nance leases are provided in note 15. The minimum lease payments under fi nance leases fall due as follows: US$ million Within one year Greater than one year, less than fi ve years Greater than fi ve years Future fi nance charges on fi nance leases Present value of fi nance lease liabilities (3) All outstanding convertible bonds were converted or redeemed during the year, see below. 2012 5 14 12 31 (9) 22 2011 4 12 13 29 (8) 21 Anglo American plc Annual Report 2012 167 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 24. FINANCIAL LIABILITIES continued Net additional medium and long term borrowings were $5,633 million (2011: $964 million) and net repayments of short term borrowings were $747 million (2011: $1,261 million) as disclosed in the Consolidated cash fl ow statement. Corporate bonds During 2012 the Group issued corporate bonds with a US$ equivalent value of $5.1 billion in the US, European and South African markets. These included $600 million 2.625% senior notes due 2017, $750 million 2.625% senior notes due 2017, $600 million 4.125% senior notes due 2022, €750 million 3.50% guaranteed notes due 2022, €750 million 2.75% guaranteed notes due 2019 and €750 million 2.50% guaranteed notes due 2018 issued under the Euro Medium Term Note (EMTN) programme, and R600 million fl oating rate notes at 3M JIBAR + 1.38% due 2017 and R1.4 billion 9.27% fi xed rate notes due 2019 issued under the South African Domestic Medium Term Note programme. Convertible bond On 23 March 2012 Anglo American plc gave notice that it had exercised its right to redeem its $1.7 billion of convertible bonds (the Bonds) on 22 May 2012 (the optional redemption date). The Bonds were due to mature on 7 May 2014. On 13 April 2012 following the announcement of the recommended 2011 full year dividend, and in accordance with the terms and conditions of the Bonds, the conversion price was adjusted from £18.36 to £18.02. Of the $1,700 million Bonds issued, $1,678 million were converted to equity prior to the optional redemption date, including $1 million converted in 2011, and the remaining $22 million were redeemed by the Group. As a result, 62.5 million ordinary shares were issued and the fi nancial liability of $1,529 million, representing the notional value of the outstanding Bonds of $1,699 million less unamortised discount of $170 million, was derecognised. The balance in the convertible debt reserve of $355 million, which related to the Bonds, was transferred to share premium ($170 million) and retained earnings ($185 million). 25. FINANCIAL RISK MANAGEMENT AND DERIVATIVES The Group is exposed in varying degrees to a variety of fi nancial instrument related risks. The Board approves and monitors the risk management processes, including documented treasury policies, counterparty limits, controlling and reporting structures. The risk management processes of the Group’s independently listed subsidiaries are in line with the Group’s own policy. The types of risk exposure, the way in which such exposure is managed and quantifi cation of the level of exposure in the Consolidated balance sheet at year end is provided as follows (subcategorised into credit risk, liquidity risk and market risk). Credit risk The Group’s principal fi nancial assets, including amounts in assets held for sale, are cash, trade and other receivables, investments and derivative fi nancial instruments. The Group’s maximum exposure to credit risk primarily arises from these fi nancial assets and is as follows: US$ million Cash and cash equivalents Trade and other receivables(1) Financial asset investments(2) Derivative fi nancial assets Financial guarantees(3) 2012 9,312 4,003 1,331 848 33 15,527 2011 11,732 3,852 1,690 840 51 18,165 (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 fi nancial assets. The Group limits credit risk on liquid funds and derivative fi nancial instruments through diversifi cation of exposures with a range of approved fi nancial institutions. Counterparty limits are set for each fi nancial institution with reference to credit ratings assigned by S&P, Moody’s and Fitch Ratings. 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 fi nancial institutions), it does not have signifi cant concentration of credit risk in respect of trade receivables, with exposure spread over a large number of customers. An allowance for impairment of trade receivables is made where there is an identifi ed loss event, which based on previous experience, is evidence of a reduction in the recoverability of the cash fl ows. 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 suffi cient committed loan facilities (including refi nancing, where necessary) in order to meet short term business requirements, after taking into account cash fl ows from operations and its holding of cash and cash equivalents, as well as any Group distribution restrictions that exist. In addition, certain projects are fi nanced by means of limited recourse project fi nance, if appropriate. 168 Anglo American plc Annual Report 2012 25. FINANCIAL RISK MANAGEMENT AND DERIVATIVES continued The expected undiscounted cash fl ows of the Group’s fi nancial 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 2012 One to two years Within one year 2011 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 (647) 619 (28) (202) (389) (591) (1) (6,981) (127) (7,108) (493) 485 (8) (163) (253) (416) (2,336) (27) (2,363) (549) 470 (79) (181) (246) (427) (5,962)(1) 2 (5,960) (549) 470 (79) (127) (250) (377) (2,433) (140) (2,573) Two to fi ve years Greater than fi ve years Two to fi ve years Greater than fi ve 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 2012 2011 (1,064) 1,058 (6) (218) (551) (769) (5,746) (464) (6,210) (619) 616 (3) (67) (308) (375) (7,695) (126) (7,821) (798) 761 (37) (254) (305) (559) (6,551) (468) (7,019) (354) 350 (4) (104) (127) (231) (3,952) (219) (4,171) (1) Assumes maximum cash outfl ow in respect of third party guarantees issued by the Group and repayment of all short term borrowings with no refi nancing. (2) The expected maturities are not materially different from the contracted maturities. The Group had the following undrawn committed borrowing facilities at 31 December: US$ million Expiry date Within one year(1) Greater than one year, less than two years Greater than two years, less than fi ve years Greater than fi ve years 2012 2011 2,923 569 5,765 – 9,257 1,781 1,268 5,294 76 8,419 (1) Includes undrawn rand facilities equivalent to $1.5 billion (2011: $1.6 billion) in respect of a series of facilities with 364 day maturities which roll automatically on a daily basis, unless notice is served. Market risk Market risk is the risk that fi nancial instrument fair values will fl uctuate due to changes in market prices. The signifi cant market risks to which the Group is exposed are foreign exchange risk, interest rate risk and commodity price risk. Foreign exchange risk As a global business, the Group is exposed to many currencies principally as a result of non-US dollar operating costs and to a lesser extent, from non-US dollar revenues. The Group’s policy is generally not to hedge such exposures as hedging is not deemed appropriate given the diversifi ed nature of the Group, though exceptions can be approved by the Group Management Committee. In addition, currency exposures exist in respect of non-US dollar approved capital expenditure projects and non-US dollar borrowings in US dollar functional currency entities. The Group’s policy is that such exposures should be hedged subject to a review of the specifi c circumstances of the exposure. The exposure of the Group’s fi nancial assets and liabilities (excluding intra-group loan balances) to currency risk is as follows: i F n a n c i a l s t a t e m e n t s US$ million US dollar Rand Brazilian real Sterling Australian dollar Euro Other currencies Total fi nancial assets US$ million US dollar Rand Brazilian real Sterling Australian dollar Euro Other currencies Total fi nancial liabilities Financial assets (excluding derivatives) 9,241 3,894 728 123 494 45 561 15,086 Financial liabilities (excluding derivatives) (8,269) (3,287) (1,597) (913) (422) (6,601) (1,092) (22,181) Impact of currency derivatives(1) (64) 64 – – – – – – Impact of currency derivatives(1) (8,492) (5) 1,119 785 – 6,593 – – 2012 Total fi nancial assets – exposure to currency risk 9,985 3,995 728 124 494 46 562 15,934 2012 Total fi nancial liabilities – exposure to currency risk (17,807) (3,327) (478) (128) (422) (8) (1,092) (23,262) Derivative assets 808 37 – 1 – 1 1 848 Derivative liabilities (1,046) (35) – – – – – (1,081) 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 fi nancial assets – exposure to currency risk 11,195 6,045 839 467 383 9 382 19,320 2011 Total fi nancial 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) (1) Where currency derivatives are held to manage fi nancial instrument exposures, the notional principal amount is reallocated to refl ect the remaining exposure to the Group. Anglo American plc Annual Report 2012 169 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 25. FINANCIAL RISK MANAGEMENT AND DERIVATIVES continued Interest rate risk Interest rate risk arises due to fl uctuations in interest rates which impact on the value of short term investments and fi nancing activities. The Group’s exposure to interest rate risk is particularly with reference to changes in US and South African interest rates. The Group’s policy is to borrow funds at fl oating 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 fl uctuation. 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 fi xed rate debt may also be undertaken from time to time if approved by the Group Management Committee. In respect of fi nancial assets, the Group’s policy is to invest cash at fl oating rates of interest and to maintain cash reserves in short term investments (less than one year) in order to maintain liquidity, while achieving a satisfactory return for shareholders. The exposure of the Group’s fi nancial assets (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 2012 2011 Interest bearing fi nancial assets Non-interest bearing fi nancial assets Interest bearing fi nancial assets Non-interest bearing fi nancial assets Floating rate 9,651 748 Fixed rate(1) 508 – Equity investments 1,062 – Other Total 3,865 15,086 848 100 Floating rate 12,623 638 Fixed rate(1) 689 – Equity investments 1,206 – Total Other 3,962 18,480 840 202 10,399 508 1,062 3,965 15,934 13,261 689 1,206 4,164 19,320 (1) Includes $397 million (2011: $534 million) of preference shares in BEE entities. (2) At 31 December 2012 and 31 December 2011 no interest rate swaps were held in respect of fi nancial asset exposures. Floating rate fi nancial assets consist mainly of cash and bank term deposits. Interest on fl oating rate fi nancial assets is based on the relevant national inter-bank rates. Fixed rate fi nancial assets consist principally of fi nancial asset investments and cash, and have a weighted average interest rate of 11.6% (2011: 12.7%) for an average period of one year (2011: three years). Equity investments have no maturity period and the majority are fully liquid. The exposure of the Group’s fi nancial liabilities (excluding intra-group loan balances) to interest rate risk is as follows: US$ million Financial liabilities (excluding derivatives) Impact of interest rate swaps(1) Derivative liabilities Financial liability exposure to interest rate risk Interest bearing fi nancial liabilities Floating rate (4,296) (13,135) (165) (17,596) Fixed rate (13,444) 13,135 – (309) Non-interest bearing fi nancial liabilities (4,441) – (916) (5,357) 2012 Total (22,181) – (1,081) (23,262) Interest bearing fi nancial liabilities Floating rate (3,254) (8,074) (158) (11,486) Fixed rate (9,610) 8,074 – (1,536) Non-interest bearing fi nancial liabilities (4,963) – (954) (5,917) 2011 Total (17,827) – (1,112) (18,939) (1) Where interest rate swaps are held to manage fi nancial liability exposures the notional principal amount is reallocated to refl ect the remaining exposure to the Group. Interest on fl oating rate fi nancial liabilities is based on the relevant national inter-bank rates. Remaining fi xed rate borrowings accrue interest at a weighted average interest rate of 6.2% (2011: 9.3%) for an average period of three years (2011: two years). Average maturity on non-interest bearing instruments is 17 months (2011: 12 months). Commodity price risk The Group’s earnings are principally exposed to movements in the prices of the commodities it produces. The Group policy is generally not to hedge commodity price risk, although some hedging may be undertaken for strategic reasons. In such cases, the Group generally 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 fi nancial assets and liabilities to commodity price risk is as follows: US$ million Total net fi nancial instruments (excluding derivatives) Commodity derivatives (net) Non-commodity derivatives (net) Total fi nancial instrument exposure to commodity risk Subject to price movements 304 (1) – 303 Commodity price linked Not linked to commodity price (8,486) – (232) 2012 Total (7,095) (1) (232) Fixed price(1) 1,087 – – 1,087 (8,718) (7,328) 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 (1) Includes receivables and payables for commodity sales and purchases not subject to price adjustment at the balance sheet date. 170 Anglo American plc Annual Report 2012 25. FINANCIAL RISK MANAGEMENT AND DERIVATIVES continued 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 ‘Derivative fi nancial assets’ and ‘Derivative fi nancial liabilities’. Derivatives are classifi ed as current or non-current depending on the maturity of the derivative. The Group utilises derivative instruments to manage certain market risk exposures as explained above. The Group does not use derivative fi nancial instruments for speculative purposes, however it may choose not to designate certain derivatives as hedges for accounting purposes. Such derivatives are classifi ed 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 fi nancial 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 fl ow hedges In certain cases the Group classifi es its forward foreign currency and commodity price contracts, which hedge highly probable forecast transactions, as cash fl ow 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 fi xed rate borrowings to fl oating 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 refl ect 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 classifi ed within net fi nance 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 classifi ed as fi nancing or operating depending on the nature of the associated hedged risk. The fair value of the Group’s open derivative position at 31 December (excluding normal purchase and sale contracts held off balance sheet), recorded within ‘Derivative fi nancial assets’ and ‘Derivative fi nancial liabilities’ is as follows: US$ million Cash fl ow 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 3 31 1 35 31 – 101 2012 Liability – – (2) (124) (124) (30) (280) Current 2011 Liability (1) – (5) (121) – (35) (162) Asset 6 – – 117 49 – 172 Asset – 687 – – 60 – 747 2012 Liability – (6) – (1) (781) (13) (801) Non-current 2011 Liability – – – (33) (908) (9) (950) Asset – 538 – 11 55 64 668 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 classifi ed 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 benefi ts 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. i F n a n c i a l s t a t e m e n t s Anglo American plc Annual Report 2012 171 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 25. FINANCIAL RISK MANAGEMENT AND DERIVATIVES continued 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 2012 43,787 8,615 52,402 16.4% 2011 43,189 1,374 44,563 3.1% 2010 37,971 7,384 45,355 16.3% The increase in gearing since 31 December 2011 refl ects the $7.2 billion increase in net debt in the year. Net assets at 31 December 2012 were $0.6 billion higher than at 31 December 2011 due to net movements in equity, including the conversion of the convertible bond, offsetting the retained loss for the year. Gearing levels remain at a sustainable level given the Group’s strong level of operating cash fl ows. Financial instrument sensitivities Financial instruments affected by market risk include borrowings, deposits, derivative fi nancial instruments, trade receivables and trade payables. The following analysis, required by IFRS 7, is intended to illustrate the sensitivity of the Group’s fi nancial 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 fi xed to fl oating interest rates of the debt and derivatives portfolio and the proportion of fi nancial 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: • All income statement sensitivities also impact equity. • For debt and other deposits carried at amortised cost, carrying value does not change as interest rates move. • No sensitivity is provided for interest accruals as these are based on pre-agreed interest rates and therefore are not susceptible to further rate changes. • Changes in the carrying value of derivatives (from movements in commodity prices and interest rates) designated as cash fl ow hedges are assumed to be recorded fully within equity on the grounds of materiality. • No sensitivity has been calculated on derivatives and related underlying instruments designated into fair value hedge relationships as these are assumed materially to offset one another. • All hedge relationships are assumed to be fully effective on the grounds of materiality. • Debt with a maturity of less than one year is fl oating rate, unless it is a long term fi xed rate debt in its fi nal year. • Translation of foreign subsidiaries and operations into the Group’s presentation currency has been excluded from the sensitivity. Using the above assumptions, the following 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 2012 and 31 December 2011, based on the above assumptions, there is no signifi cant sensitivity to changes in market interest rates. 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 (74) 74 190 (194) 41 (41) 29 (36) 63 (63) (17) 17 2012 Equity (73) 73 190 (194) 41 (41) 29 (36) 63 (63) (17) 17 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 (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: • fl uctuating trade receivable and trade payable balances • derivative instruments and borrowings settled throughout the year • fl uctuating cash balances • changes in currency mix As the sensitivities are limited to year end fi nancial 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. 172 Anglo American plc Annual Report 2012 26. PROVISIONS FOR LIABILITIES AND CHARGES US$ million At 1 January Acquired through business combinations Charged to the income statement Capitalised Unwinding of discount Amounts applied Unused amounts reversed Transfer to liabilities directly associated with assets classifi ed as held for sale Currency movements At 31 December Environmental restoration(1) Decommissioning(1) 989 83 90 37 60 (37) (34) (83) (16) 1,089 349 129 – 42 29 (2) (1) (22) (7) 517 Employee benefi ts 257 118 218 – 1 (129) – (10) (16) 439 Other 607 217 424 (9) 12 (109) (143) (108) 12 903 2012 Total 2,202 547 732 70 102 (277) (178) (223) (27) 2,948 (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 2012 564 2,384 2,948 2011 372 1,830 2,202 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 benefi ts 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 benefi ts. Other Other provisions primarily relate to indemnities, warranties and legal claims. It is anticipated that these costs will be incurred over a fi ve year period. Other provisions also includes obligations for certain long term contracts where the unavoidable costs of meeting the Group’s obligations is expected to exceed the benefi ts to be received, see note 5. It is anticipated these costs will be incurred over a period in excess of 15 years. i F n a n c i a l s t a t e m e n t s 27. DEFERRED TAX The movement in net deferred tax liabilities during the year is as follows: US$ million At 1 January Credited/(charged) to the income statement (Charged)/credited to the statement of comprehensive income Charged directly to equity Acquired through business combinations Transfer to assets held for sale Disposal of businesses Currency movements At 31 December Comprising: Deferred tax assets Deferred tax liabilities The amount of deferred tax recognised in the balance sheet is as follows: US$ million Deferred tax assets Tax losses Post employment benefi ts Share-based payments Enhanced tax depreciation Other temporary differences Deferred tax liabilities Capital allowances in excess of depreciation Fair value adjustments Tax losses Derivatives Provisions Chilean withholding tax Other temporary differences 2012 (5,200) 1,090 (86) (110) (850) 118 – 192 (4,846) 1,223 (6,069) 2012 374 118 9 560 162 1,223 (3,311) (2,582) 29 15 416 (570) (66) (6,069) 2011 (5,252) (550) 10 (127) – – 5 714 (5,200) 530 (5,730) 2011 273 35 15 – 207 530 (3,334) (1,806) 103 (167) 393 (656) (263) (5,730) Anglo American plc Annual Report 2012 173 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 27. DEFERRED TAX continued The amount of deferred tax credited/(charged) to the income statement is as follows: US$ million Capital allowances in excess of depreciation Fair value adjustments Tax losses Derivatives Provisions Chilean withholding taxes Other temporary differences 2012 (22) (133) 11 99 41 86 1,008 1,090 (1) 2011 (615) (118) 167 36 82 (137) 35 (550) (1) In 2012 this principally relates to Minas-Rio ($960 million credit). This is made up of a deferred tax credit of $1,360 million in relation to the impairment of Minas-Rio and a deferred tax charge of $400 million in relation to the partial derecognition of a deferred tax asset for enhanced tax depreciation in Minas-Rio. The current expectation regarding the maturity of deferred tax balances is as follows: US$ million Deferred tax assets Recoverable within one year Recoverable after one year Deferred tax liabilities Payable within one year Payable after one year 2012 131 1,092 1,223 (368) (5,701) (6,069) 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 fi ve years Greater than fi ve years No expiry date Tax losses – revenue Tax losses – capital Other temporary differences 17 286 3 4,467 4,773 – – – 1,097 1,097 – – 2,997 1,953 4,950 2012 Total 17 286 3,000 7,517 10,820 Tax losses – revenue Tax losses – capital Other temporary differences – – 111 3,082 3,193 – – – 1,067 1,067 – – – 403 403 2011 52 478 530 (505) (5,225) (5,730) 2011 Total – – 111 4,552 4,663 The Group also has unused tax credits of $16 million (2011: $18 million) for which no deferred tax asset is recognised in the balance sheet. All of these credits expire within fi ve 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 $22,442 million (2011: $25,876 million). 28. RETIREMENT BENEFITS The Group operates a number of defined contribution and defined benefit pension plans. It also operates post employment medical arrangements, principally in southern Africa. Defi ned contribution plans The defi ned contribution pension and medical cost represents the actual contributions payable by the Group to the various plans. At 31 December 2012 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 defi ned contribution plans are held separately in independently administered funds. The charge in respect of these plans is calculated on the basis of the contribution payable by the Group in the fi nancial year. The charge for the year for defi ned contribution pension plans (net of amounts capitalised) was $262 million (2011: $254 million) and for defi ned contribution medical plans (net of amounts capitalised) was $69 million (2011: $57 million). Defi ned benefi t pension plans and post employment medical plans Following the Group’s acquisition of De Beers on 16 August 2012, the Group has consolidated the defined benefit pension and post employment healthcare plans of De Beers. 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 liabilities are principally in relation to termination indemnity plans in South America. The post employment medical arrangements provide health benefi ts to retired employees and certain dependants. Eligibility for cover is dependent upon certain criteria. The majority of these plans are unfunded, and are principally in southern Africa. The Group’s provision of anti-retroviral therapy to HIV positive staff has not signifi cantly impacted the post employment medical plan liability. Independent qualifi ed actuaries carry out full valuations every three years using the projected unit credit method. The actuaries have updated the valuations to 31 December 2012. 174 Anglo American plc Annual Report 2012 28. RETIREMENT BENEFITS continued Actuarial assumptions The principal assumptions used to determine the actuarial present value of benefi t obligations and pension charges and credits under IAS 19 Employee Benefi ts are detailed below (shown as weighted averages): % Defi ned benefi t pension plans Average discount rate for plan liabilities Average rate of infl ation Average rate of increase in salaries Average rate of increase of pensions in payment Average long term rate of return on plan assets(3) Post employment medical plans Average discount rate for plan liabilities Average rate of infl ation Expected average increase in healthcare costs Southern Africa The Americas 8.1 6.3 8.3 6.3 8.4 (1) 8.0 6.3 7.7 6.9 3.5 6.2 3.2 10.2 n/a n/a n/a 2012 Europe (2) 4.3 2.8 2.9 3.1 4.2 3.7 2.3 7.0 Southern Africa The Americas (1) 8.5 6.5 7.8 6.5 9.2 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 (1) With the exception of De Beers, plans in southern Africa have ceased future accrual of benefi ts but some benefi ts remain linked to salary increases. (2) With the exception of De Beers, European plans have ceased future accrual of benefi ts. (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. Mortality assumptions are determined based on standard mortality tables with adjustments, as appropriate, to refl ect experience of conditions locally. In southern Africa, the PA90 tables (2011: PA90 tables) are used. The main plans in Europe use the SAPS tables with plan specifi c adjustments based on mortality investigations (2011: SAPS tables). The main plans in the Americas use the RV2009 and AT2000 tables (2011: RV2009 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 2012 20.1 23.3 28.5 Male 2011 20.9 23.2 27.4 2012 24.9 27.4 30.1 Female 2011 25.8 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: Southern Africa The Americas Europe 176 – – 2012 Total 176 Southern Africa The Americas Europe 70 – – – (573) (573) (225) – (225) (603) (8) (611) (828) (581) (1,409) – (287) (287) (181) – (181) (171) – (171) i F n a n c i a l s t a t e m e n t s 2011 Total 70 (352) (287) (639) US$ million Assets(1) Defi ned benefi t pension plans in surplus Liabilities Defi ned benefi t pension plans in defi cit Post employment medical plans in defi cit (1) Amounts are included in ‘Other non-current assets’. Five year summary of plan assets and liabilities US$ million Defi ned benefi t pension plans Fair value of plan assets Present value of plan liabilities Net defi cit Surplus restriction Net defi cit after surplus restriction Actuarial gain/(loss) on plan assets(1) Actuarial gain/(loss) on plan liabilities(2) Post employment medical plans Fair value of plan assets Present value of plan liabilities Net defi cit Actuarial gain on plan assets(3) Actuarial (loss)/gain on plan liabilities(4) 2012 2011 2010 2009 2008 5,327 (5,862) (535) (117) (652) 151 66 21 (602) (581) – (35) 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 (1) Net experience gains on pension plan assets were $151 million (2011: losses of $32 million; 2010: gains of $76 million; 2009: gains of $184 million; 2008: losses of $392 million). (2) Net experience losses on pension plan liabilities were $123 million (2011: losses of $10 million; 2010: gains of $38 million; 2009: losses of $17 million; 2008: losses of $29 million). (3) Net experience gains on medical plan assets were nil (2011: gains of $1 million; 2010: gains of $2 million; 2009: nil; 2008: gains of $1 million). (4) Net experience losses on medical plan liabilities were $32 million (2011: losses of $1 million; 2010: gains of $5 million; 2009: losses of $3 million; 2008: losses of $7 million). Anglo American plc Annual Report 2012 175 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 28. RETIREMENT BENEFITS continued The actuarial gain recognised in the Consolidated statement of comprehensive income of $165 million (2011: loss of $214 million) includes a charge for the increase in the surplus restriction of $17 million (2011: charge for the increase of $26 million). The movement in the surplus restriction in the Consolidated statement of comprehensive income differs from that in the table above due to the exclusion of a surplus restriction on De Beers’ pension plans of $30 million arising from the acquisition, and exchange differences. Cumulative net actuarial losses recognised in the Consolidated statement of comprehensive income are $427 million (2011: $592 million; 2010: $378 million; 2009: $509 million; 2008: $292 million). Income statement The amounts recognised in the income statement are as follows: US$ million Analysis of the amount charged to operating profi t Current service costs Effects of settlements Total within operating costs Analysis of the amount charged to net fi nance costs Expected return on plan assets(1) Interest costs on plan liabilities(2) Net charge to net fi nance costs Total charge to the income statement (1) (2) Included in ‘Investment income’, see note 9. Included in ‘Interest expense’, see note 9. Post employment medical plans Pension plans 18 9 27 (199) 196 (3) 24 4 – 4 (1) 34 33 37 2012 Total 22 9 31 (200) 230 30 61 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 Pension plan assets and liabilities by geography The split of the present value of funded and unfunded obligations in defi ned benefi t 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/(defi cit) 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 % 9.5 7.8 7.7 Fair value US$ million 652 1,077 116 1,845 (1,589) – (1,589) 256 (80) 176 176 – 176 Rate of return % 7.0 10.5 10.7 Fair value US$ million 11 133 3 Rate of return % 5.5 3.8 2.6 147 (163) (209) (372) (225) – (225) – (225) (225) Europe Fair value US$ million 1,150 1,605 580 2012 Total Fair value US$ million 1,813 2,815 699 3,335 5,327 (3,895) (5,647) (6) (215) (3,901) (5,862) (566) (535) (37) (117) (603) (652) – (603) (603) 176 (828) (652) Southern Africa The Americas Rate of return % 11.5 8.1 6.5 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 5 142 (150) (173) (323) (181) – (181) – (181) (181) Europe Fair value US$ million 726 715 163 Rate of return % 7.0 3.7 1.4 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) (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 94% (2011: 99%) 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. 176 Anglo American plc Annual Report 2012 28. RETIREMENT BENEFITS continued Movement analysis The changes in the fair value of plan assets are as follows: US$ million At 1 January Acquired through business combinations Effects of settlements Expected return Actuarial gains/(losses) Contributions paid by employer(2) Benefi ts paid Contributions paid by plan participants Currency movements At 31 December Post employment medical plans 22 – – 1 – – (1) – (1) 21 Pension plans 2,583 2,417 (50) (1) 199 151 90 (151) 1 87 5,327 (1) 2012 Total 2,605 2,417 (50) 200 151 90 (152) 1 86 5,348 Post employment medical plans 25 – – 2 1 – (1) – (5) 22 Pension plans 2,732 – (31) (1) 197 (32) 81 (136) 1 (229) 2,583 (1) (1) The actual return on assets in respect of pension plans was $350 million (2011: $165 million). (2) The Group expects to contribute approximately $162 million to its pension plans and $32 million to its post employment medical plans in 2013. The changes in the present value of defi ned benefi t obligations are as follows: US$ million At 1 January Acquired through business combinations Current service costs Effects of settlements Interest costs Actuarial gains/(losses) Benefi ts paid Contributions paid by plan participants Transfer to liabilities directly associated with assets held for sale Currency movements At 31 December Pension plans (2,792) (2,974) (18) 41 (196) 66 151 (1) – (139) (5,862) Post employment medical plans (309) (302) (3) – (30) (36) (1) 24 – 39 15 (602) (1) (1) (1) 2012 Total (3,101) (3,276) (21) 41 (226) 30 175 (1) 39 (124) (6,464) 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 2,757 – (31) 199 (31) 81 (137) 1 (234) 2,605 2011 Total (3,177) – (21) 31 (205) (157) 152 (1) – 277 (3,101) (1) Movements in post employment medical plans exclude movements within the obligations transferred to held for sale. Healthcare sensitivity analysis Amounts recognised in the Consolidated 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 defi ned benefi t obligations 1% increase 1% decrease 2012 8 78 2011 4 35 2012 (5) (63) 2011 (3) (28) 29. CALLED-UP SHARE 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 2012 2011 50,000 – 50,000 – 1,342,967,458 62,492,295 1,405,459,753 738 34 772 1,342,932,714 34,744 1,342,967,458 738 – 738 During 2012, 8,354 ordinary shares of 5486/91 US cents each were allotted to certain non-executive directors by subscription of their post-tax directors’ fees (2011: 5,487 ordinary shares). In addition, 62,483,941 ordinary shares of 5486/91 US cents each were allotted upon the conversion of Anglo American plc convertible bonds due 2014 (2011: 29,257), 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 benefi t trust sections below) the number and carrying value of called-up, allotted and fully paid ordinary shares as at 31 December 2012 was 1,390,954,633 and $764 million (2011: 1,323,428,547; $727 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. Anglo American plc Annual Report 2012 177 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 29. CALLED-UP SHARE CAPITAL AND SHARE-BASED PAYMENTS continued 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 (2011: nil). Own shares Number of ordinary shares of 5486/91 US cents Own shares Treasury shares Own shares held by subsidiaries and employee benefi t trusts Total own shares The movement in treasury shares during the year is as follows: Number of ordinary shares of 5486/91 US cents Treasury shares At 1 January Transferred to employees in settlement of share awards At 31 December 2012 2011 14,505,120 115,970,790 130,475,910 19,538,911 115,226,079 134,764,990 2012 2011 19,538,911 (5,033,791) 14,505,120 22,880,468 (3,341,557) 19,538,911 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 $6.41 per share to Epoch, $9.96 per share to Epoch Two and $8.27 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 Consolidated 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 profi t after tax of Epoch and 5% of the profi t after tax of Epoch Two and Tarl. The preference shares issued to Tenon will carry a fi xed coupon of 3% plus a participating right of up to 80% of the profi t after tax of Epoch and 85% of the profi t after tax of 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 2012 the Investment Companies together held 112,300,129 (2011: 112,300,129) Anglo American plc shares, which represented 8.1% (2011: 8.5%) of the ordinary shares in issue (excluding treasury shares) with a market value of $3,455 million (2011: $4,125 million). 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 defi nition of a subsidiary in accordance with IAS 27. As a result, the Investment Companies are consolidated in accordance with the defi nitions of IAS 27 and the principles set out in SIC-12. Employee benefi t trust The provision of shares to certain of the Company’s share option and share incentive schemes may be facilitated by an employee benefi t trust or settled by the issue of treasury shares. During 2012 no shares (2011: nil) from the trust were transferred to employees in settlement of share awards. The employee benefi t trust has waived the right to receive dividends on these shares. The market value of the 985 shares (2011: 985 shares) held by the trust at 31 December 2012 was $30,000 (2011: $36,000). The costs of operating the trust are borne by the Group but are not material. Share-based payments During the year ended 31 December 2012 the Group had share-based payment arrangements with employees relating to shares of the Company, the details of which are described in the Remuneration report. All of these Company schemes are equity settled, either by award of ordinary shares (BSP, LTIP and SIP) or award of options to acquire ordinary shares (ESOS, DOP and SAYE). The ESOS is now closed to new participants, having been replaced with the BSP. The DOP has since replaced the ESOS for use in special circumstances, relating to the recruitment or retention of key executives. No options have been granted under the DOP. 178 Anglo American plc Annual Report 2012 29. CALLED-UP SHARE CAPITAL AND SHARE-BASED PAYMENTS continued The total share-based payment charge relating to Anglo American plc shares for the year is split as follows: US$ million BSP LTIP Other schemes Share-based payment charge relating to Anglo American plc shares(1) 2012 103 46 8 157 2011 92 36 15 143 (1) In addition, there are equity settled employee share-based payment charges of $89 million (2011: $47 million) relating to Kumba Iron Ore Limited shares and $72 million (2011: $72 million) relating to Anglo American Platinum Limited shares. Certain business units also operate cash settled employee share-based payment schemes. These schemes had a net charge of $3 million (2011: credit of $2 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 02/03/12 4,579,741 26.41 3 (2) LTIP LTIP – AOSC 02/03/12 329,665 26.41 3 (4) 02/03/12 1,044,808 26.41 3 (3) 40% 0.5% 5% pa 40% 0.5% 5% pa 40% 0.5% 5% pa 2012 LTIP – TSR 02/03/12 329,665 26.41 3 (5) 40% 0.5% 5% pa BSP 04/03/11 3,364,610 32.08 3 (2) 40% 1.9% 5% pa LTIP 04/03/11 879,630 31.99 3 (3) LTIP – AOSC 04/03/11 267,407 31.99 3 (4) 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 100% 100% 100% n/a 100% 100% 100% n/a 25.78 26.41 26.41 15.24 33.25 33.25 33.25 21.80 (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 signifi cant. (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 fi ve 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. The movements in the number of shares for the more signifi cant 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. i F n a n c i a l s t a t e m e n t s Outstanding at 1 January Conditionally awarded in year Vested in year Forfeited in year Outstanding at 31 December 2012 2011 10,106,373 9,020,260 4,579,239 3,366,076 (4,264,598) (1,052,193) (764,181) (1,227,770) 9,656,833 10,106,373 (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 2012 3,720,535 1,704,138 (1,060,822) (378,080) 3,985,771 2011 4,012,568 1,414,444 (730,807) (975,670) 3,720,535 (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 2012 1,115,426 Awards outstanding at 31 December 2011 1,016,074 Latest release date 7 December 2015 Anglo American plc Annual Report 2012 179 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 29. CALLED-UP SHARE CAPITAL AND SHARE-BASED PAYMENTS continued 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. 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) (£) 2012 SAYE 20/04/12 245,790 19.68 24.60 3.5-7.5 3-7 40% 3.5-7.5 0.9% 5% pa 6.14 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 (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 signifi cant. (2) Number of years of continuous employment. The expected volatility is based on historic volatility over the last fi ve years. The expected life is the average expected period to exercise. The risk free 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 signifi cant share-based payment arrangements over the year to 31 December 2012 and the prior year is shown below. All options outstanding at 31 December 2012 with an exercise date on or prior to 31 December 2012 are deemed exercisable. Options were exercised regularly during the year and the weighted average share price for the year ended 31 December 2012 was £21.43 (2011: £27.96). 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 2,500,107 (809,259) (56,051) 1,634,797 (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 1,520,677 245,790 (589,299) (128,664) 1,048,504 (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. 2012 Weighted average exercise price £ 11.42 10.83 13.42 11.64 2012 Weighted average exercise price £ 12.91 24.60 10.11 20.86 16.26 Number 3,488,329 (949,341) (38,881) 2,500,107 Number 1,669,812 115,026 (125,333) (138,828) 1,520,677 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 30. CONSOLIDATED EQUITY ANALYSIS Fair value and other reserves comprise: US$ million Balance at 1 January 2011 Total comprehensive income/(expense) Other Balance at 1 January 2012 Total comprehensive income Conversion of convertible bond Other Balance at 31 December 2012 Convertible debt reserve 355 – – 355 – (355) – – Available for sale reserve 468 108 – 576 118 – – 694 Cash fl ow hedge reserve 38 (33) – 5 10 – – 15 Total fair value and other reserves 1,692 75 (7) 1,760 128 (355) (667) 866 Other reserves(1) 831 – (7) 824 – – (667) 157 (1) Following a capital reduction in the Corporate segment, $667 million has been transferred from the legal reserve to retained earnings, reducing the legal reserve from $675 million to $8 million. Other reserves also comprise a revaluation reserve of $34 million (2011: $34 million) and a capital redemption reserve of $115 million (2011: $115 million). 180 Anglo American plc Annual Report 2012 31. CONSOLIDATED CASH FLOW ANALYSIS a) Reconciliation of (loss)/profi t before tax to cash fl ows from operations US$ million (Loss)/profi t before tax Depreciation and amortisation Share-based payment charges Non-operating special items and remeasurements Operating and fi nancing remeasurements Non-cash element of operating special items Net fi nance costs before remeasurements Share of net income from associates Provisions Increase in inventories Increase in operating receivables (Decrease)/increase in operating payables Deferred stripping Other adjustments Cash fl ows from operations b) Reconciliation to the balance sheet US$ million Balance sheet Balance sheet – disposal groups(1) Bank overdrafts Net debt classifi cations 2012 (239) 2,289 233 (1,394) 205 6,913 288 (432) (127) (330) (31) (166) (148) (40) 7,021 2011 10,782 1,967 254 (183) (138) 105 20 (977) 6 (352) (264) 457 (171) (8) 11,498 Cash and cash equivalents Short term borrowings 2012 9,094 227 (9) 9,312 2011 11,732 – – 11,732 2012 (2,604) (14) 9 (2,609) 2011 (1,018) – – (1,018) Medium and long term borrowings 2012 (15,150) – – (15,150) 2011 (11,855) – – (11,855) (1) Disposal group balances are shown within ‘Assets classifi ed as held for sale’ and ‘Liabilities directly associated with assets classifi ed as held for sale’ on the balance sheet. c) Movement in net debt US$ million Balance at 1 January 2011 Cash fl ow Unwinding of discount on convertible bond Disposal of businesses Reclassifi cations Movement in fair value Other non-cash movements Currency movements Balance at 1 January 2012 Cash fl ow Unwinding of discount on convertible bond Conversion of convertible bond Acquired through business combinations Disposal of businesses Reclassifi cations Movement in fair value Other non-cash movements Currency movements Balance at 31 December 2012 Cash and cash equivalents(1) 6,460 5,983 – – – – – (711) 11,732 (2,309) – – – – – – – (111) 9,312 Debt due within one year (1,535) 1,261 – 5 (777) – (18) 46 (1,018) 747 – – (3) 53 (2,396) 2 (14) 20 (2,609) Debt due after one year (11,904) (964) (71) – 777 (264) (38) 609 (11,855) (5,633) (25) 1,507 (1,578) 228 2,396 (198) (21) 29 (15,150) Net debt excluding hedges (6,979) 6,280 (71) 5 – (264) (56) (56) (1,141) (7,195) (25) 1,507 (1,581) 281 – (196) (35) (62) (8,447) Net debt including hedges (7,384) 6,054 (71) 5 – 140 (56) (62) (1,374) (7,344) (25) 1,507 (1,596) 281 – 33 (35) (62) (8,615) Hedges(2) (405) (226) – – – 404 – (6) (233) (149) – – (15) – – 229 – – (168) i F n a n c i a l s t a t e m e n t s (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 refl ect the true net debt position of the Group at the year end. These consist of net current derivative liabilities of $116 million (2011: assets of $82 million) and net non-current derivative liabilities of $52 million (2011: $315 million) which are classifi ed within ‘Derivative fi nancial assets’ and ‘Derivative fi nancial liabilities’ on the balance sheet. Anglo American plc Annual Report 2012 181 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 32. ACQUISITIONS De Beers On 16 August 2012 Anglo American plc acquired an additional 40% of the share capital of De Beers Société Anonyme (De Beers) to bring its total shareholding to 85%. De Beers is a leading diamond company with expertise in the exploration, mining and marketing of diamonds. The Group funded the acquisition by way of cash consideration of $5.2 billion, less cash acquired of $0.4 billion. The acquisition has been accounted for as a business combination using the acquisition method of accounting with an effective date of 16 August 2012, being the date the Group gained control of De Beers. The provisional fair values of identifi able assets and liabilities of De Beers as at the date of acquisition were: US$ million Assets Intangible assets Property, plant and equipment (including mineral properties and projects) Investments in associates Deferred tax assets Inventory Other assets(1) Total assets Liabilities Provisions for liabilities and charges (including contingent liabilities(2) and retirement benefi t obligations) Deferred tax liabilities Loans and borrowings Other liabilities Total liabilities Net assets acquired Non-controlling interests(3) Net attributable assets acquired Goodwill Net attributable assets including goodwill Consideration Cash Net cash acquired with the subsidiary Book value of existing shareholding Fair value gain on existing 45% shareholding(4) Total consideration 2012 1,588 8,912 12 247 2,133 328 13,220 (1,487) (1,097) (1,581) (468) (4,633) 8,587 (1,423) 7,164 2,355 9,519 5,223 (407) 2,686 2,017 9,519 (1) The fair value of other assets includes receivables of $202 million. (2) Contingent liabilities of $185 million relating to legal claims in various jurisdictions. (3) Non-controlling interests have been measured at their proportionate share of De Beers’ identifi able net assets. (4) Recognised as a non-operating remeasurement, see note 5. Goodwill recognised arises principally from the signifi cant synergies associated with the Group having control of De Beers, the value associated with the De Beers’ workforce and the requirement to recognise a deferred tax liability calculated as the difference between the tax effect of the fair value of the assets acquired and their tax bases. No goodwill is expected to be deductible for tax purposes. Intangible assets acquired relate to brand names, customer relationships and contracts. From the acquisition date, De Beers has contributed $2,353 million of revenue and $159 million of underlying earnings to the Group. If the acquisition had completed on 1 January 2012, De Beers would have contributed revenue of $6,074 million for 2012 (an increase of $3,721 million) and underlying earnings of $399 million (an increase of $87 million). The Group’s attributable share of De Beers’ earnings from the acquisition date after special items and remeasurements (including special items and remeasurements charges of $319 million (after tax) relating to the reversal of fair value uplifts of inventory and depreciation and amortisation on fair value uplifts of the Group’s pre-existing 45% shareholding) amounted to a $160 million loss. If the acquisition of De Beers had been completed on 1 January 2012, the Group’s attributable share of De Beers’ earnings (including special items and remeasurements charges of $485 million (after tax) relating to the reversal of fair value uplifts of inventory and depreciation and amortisation on fair value uplifts of the Group’s pre-existing 45% shareholding) would have amounted to a $80 million loss (increasing the Group’s loss attributable to equity shareholders by $76 million to $1,569 million). Other On 20 July 2012 Anglo American plc increased its shareholding in Kumba Iron Ore Limited by 4.5% through the exercise of options acquired in 2011 and 2012. This increased the Group’s shareholding from 65.2% to 69.7%, for a total cost of $948 million. The Group made no material acquisitions in 2011. 182 Anglo American plc Annual Report 2012 33. DISPOSALS OF SUBSIDIARIES AND JOINT VENTURES US$ million Net assets disposed Property, plant and equipment Other non-current assets Current assets Current liabilities Non-current liabilities Net assets Non-controlling interests Net assets disposed Cumulative translation (gain)/loss recycled from reserves Other charges Net (loss)/gain on disposals(1) Net sales proceeds Net cash and cash equivalents disposed Accrued transaction costs and similar items Net cash infl ow from disposals(2) (1) Included in non-operating special items, see note 5. 2012 2011 208 65 347 (187) (273) 160 (5) 155 (6) 2 (21) 130 (38) 8 100 167 79 461 (55) (108) 544 (42) 502 45 – 337 884 (358) 3 529 (2) Net cash infl ow in the year ended 31 December 2012 was nil in respect of disposals in 2011 (2011: $4 million in respect of disposals in 2010). Total net cash infl ow from disposals in 2012 was $100 million (2011: $533 million). Of this, a net cash infl ow of $100 million (2011: $514 million) related to disposals of subsidiaries and nil (2011: $19 million) related to the sale of interests in joint ventures. Disposal in 2012 On 24 April 2012 the Group announced the sale of Scaw South Africa and related companies to an investment consortium led by the Industrial Development Corporation of South Africa (IDC) and Anglo American’s partners in Scaw South Africa, being Izingwe Holdings (Pty) Limited, Shanduka Resources (Pty) Limited and the Southern Palace Group of Companies (Pty) Limited, for a total consideration of $440 million on a cash and debt free basis. Following this announcement, Scaw South Africa was transferred to assets held for sale. The completion of the sale took place on 23 November 2012 for a combined net cash infl ow of $100 million. Disposals in 2011 Disposals of subsidiaries during 2011 mainly related to the disposal of Lisheen and a 74% interest in Black Mountain (the Group’s remaining zinc operations) and disposals of Tarmac businesses (China, Turkey and Romania) in the Other Mining and Industrial segment. 34. ASSETS AND LIABILITIES HELD FOR SALE The following assets and liabilities were classifi ed as held for sale at 31 December 2012. The Group expects to complete the sale of these businesses within 12 months of the reporting date. There were no assets or liabilities classifi ed as held for sale at 31 December 2011. US$ million Intangible assets Property, plant and equipment Other non-current assets(2) Total non-current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets classifi ed as held for sale Trade and other payables Short term borrowings Provisions for liabilities and charges Total current liabilities Deferred tax liabilities Provisions for liabilities and charges Other non-current liabilities(2) Total non-current liabilities Total liabilities associated with assets classifi ed as held for sale Net assets Tarmac Quarry Materials 418 1,655 11 2,084 111 292 201 604 2,688 (406) (3) (24) (433) (150) (97) (17) (264) (697) 1,991 Amapá 1 171 4 176 103 157 26 286 462 (149) (11) (3) (163) – (59) – (59) (222) 240 2012 Total(1) 419 1,826 15 2,260 214 449 227 890 3,150 (555) (14) (27) (596) (150) (156) (17) (323) (919) 2,231 (1) The Group’s investments in Amapá and Tarmac Quarry Materials are included in the Other Mining and Industrial segment. (2) Other non-current assets relate to loans and receivables and investments in associates. Other non-current liabilities relate to government grants received. A loss on transfer to assets held for sale of $404 million for Amapá and $135 million for Tarmac Quarry Materials have been recognised in non-operating special items, see note 5. i F n a n c i a l s t a t e m e n t s Anglo American plc Annual Report 2012 183 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 35. 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. The Group is required to provide guarantees in several jurisdictions in respect of environmental restoration and decommissioning obligations. The Group has provided for the estimated cost of these activities. No contingent liabilities were secured on the assets of the Group at 31 December 2012 or 31 December 2011. Other Kumba Iron Ore (Kumba) Sishen Supply Agreement Arbitration A dispute arose between Sishen Iron Ore Company Proprietary Limited (SIOC) and ArcelorMittal South Africa Limited (AMSA) in February 2010, in relation to SIOC’s contention that the contract mining agreement concluded between them in 2001 had become inoperative as a result of the fact that AMSA had failed to convert its old order mining rights. This dispute has been referred to arbitration. On 9 December 2011 SIOC and AMSA agreed to delay the arbitration proceedings in relation to the Sishen Supply Agreement until the fi nal resolution of the mining rights dispute. This arbitration is only expected to commence in the fourth quarter of 2013, with possible resolution only expected in the third quarter of 2014 at the earliest. An Interim Pricing Agreement (IPA 2) between SIOC and AMSA was in place until 31 July 2012 and was extended to 31 December 2012. In December 2012 a further interim agreement was concluded, after negotiations which were facilitated by the Department of Trade and Industry (DTI). The further interim agreement will govern the sale of iron ore from the Sishen mine to AMSA for the period 1 January 2013 to 31 December 2013, or until the conclusion of the legal processes in relation to the 2001 Sishen Supply Agreement (whichever is the sooner), at a weighted average price of $65 per tonne. Of the total 4.8 Mt, about 1.5 Mt is anticipated to be railed to Saldanha Steel and the rest to AMSA’s inland operations. 21.4% undivided share of the Sishen mine mineral rights On 3 February 2012 both the Department of Mineral Resources (DMR) and Imperial Crown Trading 289 Proprietary Limited (ICT) submitted applications for leave to appeal against the High Court judgment. SIOC applied for leave to present a conditional cross-appeal, in order to protect its rights. The Supreme Court of Appeal (SCA) hearing will be held on 19 February 2013, and the SCA judgment is expected to be received early in the second half of 2013. The High Court order did not affect the interim supply agreement between AMSA and SIOC. 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 on behalf of a former mineworker (or his dependents or survivors) who allegedly contracted silicosis working for gold mining companies in which AASA was a shareholder and to which AASA provided various technical and administrative services. In addition, AASA is a defendant in one lawsuit fi led in the High Court in London, England on behalf of 19 former mineworkers or their dependents, a second lawsuit fi led there on behalf of 1,106 named former mineworkers or their dependents and also as a “representative claim” on behalf of all black underground miners in “Anglo gold mines” who have been certifi ed as suffering from silicosis and related diseases, a third lawsuit fi led there on behalf of 630 named former mineworkers or their dependents and a fourth lawsuit fi led there on behalf of 1,232 former mineworkers or their dependents. AASA is also named as one of 30 defendants in a class certifi cation application fi led in South Africa purportedly on behalf of 17,000 claimants. The aggregate amount of claims in the 24 South African lawsuits is less than $5 million. No specifi c amount of damages has been specifi ed in the claims fi led in England or the class certifi cation application fi led in South Africa. If the individual claims are determined adversely to AASA there are a substantial number of additional former mineworkers (or their dependents or survivors) who may seek to bring similar claims or whose claims could become part of the representative claim fi led in England or the class action claim in South Africa. The arbitration hearing for 11 of the individual South African claims is expected to begin in October 2013. AASA is contesting the jurisdiction of the English courts to hear the claims fi led against it in that jurisdiction and will oppose the application for class certifi cation in South Africa. Platinum At 31 December 2012 Platinum has certain unresolved tax matters that are currently under dispute with the South African Revenue Service (SARS). Platinum management has consulted with external tax and legal advisers, who support the positions taken. Nonetheless, Platinum management are actively discussing the issue with SARS with a view to seeking resolution and believe that the accounting for these matters is appropriate in the results for the year ended 31 December 2012. 184 Anglo American plc Annual Report 2012 36. COMMITMENTS At 31 December the Group had the following outstanding capital commitments: US$ million Contracted but not provided 2012 2,792 2011 2,131 In addition, Anglo American Marketing Limited had outstanding commitments under contracts relating to shipping services of $1,033 million. In 2011 these commitments of $1,186 million were met by Kumba Iron Ore Limited. At 31 December the Group had the following commitments under non-cancellable operating leases: US$ million Expiry date Within one year Greater than one year, less than two years Greater than two years, less than fi ve years Greater than fi ve years Operating leases relate principally to land and buildings, vehicles and shipping vessels. 2012 154 122 200 277 753 2011 161 112 185 347 805 37. RELATED PARTY TRANSACTIONS The Group has a related party relationship with its subsidiaries, joint ventures and associates, see note 38. 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 signifi cant, other than purchases from De Beers’ joint ventures which amounted to $1,049 million in the period from 16 August 2012 (the date the Group obtained control of De Beers, see note 32) to 31 December 2012. The Group had the following amounts receivable from joint ventures and associates: US$ million Loans receivable(1) Dividends received (1) These loans are included in ‘Financial asset investments’. Joint ventures Associates 2012 261 – 2011 263 – 2012 305 286 2011 572 344 At 31 December 2012 the directors of the Company and their immediate relatives controlled 0.1% (2011: 0.1%) of the voting shares of the Company. Remuneration and benefi ts received by directors are disclosed in the Remuneration report. Remuneration and benefi ts of key management personnel including directors are disclosed in note 8. Information relating to pension fund arrangements is disclosed in note 28. Other related party transactions in relation to 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’s 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 continued to be relevant in the year ended 31 December 2012 are detailed below. 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’). In view of the fact that the CHL Sellers were ultimately controlled through intermediary companies by trusts (the ‘Seller Trusts’) of which Mr N. F. Oppenheimer is a potential discretionary benefi ciary and Mr N. F. Oppenheimer had been a director of Anglo American within the 12 months preceding agreement of the Transaction, the Transaction was categorised as a related party transaction requiring the approval of Anglo American shareholders (other than Mr N. F. Oppenheimer and his associates). This approval was obtained at a general meeting of the Company held on 6 January 2012. Further information in relation to the Transaction was set out in the circular posted to the Company’s shareholders in December 2011. The Government of the Republic of Botswana elected not to exercise its pre-emption rights to participate in the Transaction on a proportionate basis and accordingly Anglo American’s interest in De Beers increased to 85% on completion of the Transaction on 16 August 2012, following the obtaining of certain specifi ed regulatory and government approvals to which the Transaction was subject. Anglo American paid a total cash consideration of $5.2 billion, comprising the adjusted purchase price under the Transaction. At 31 December 2012 the amount of outstanding loans owed to the Group by De Beers was $599 million (2011: $301 million), which includes loans acquired from the CHL Sellers at the closing of the Transaction of $277 million. i F n a n c i a l s t a t e m e n t s Anglo American plc Annual Report 2012 185 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 38. GROUP COMPANIES The principal subsidiaries, joint ventures, associates and proportionately consolidated joint arrangements of the Group and the Group percentage of equity capital, joint arrangements and joint venture interests are set out below. All these interests are held indirectly by the parent company and are consolidated within these fi nancial statements. 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 (see note 32) Anglo Ferrous Brazil SA Anglo American Minério de Ferro Brasil SA(2) Metallurgical Coal Anglo American Metallurgical Coal Holdings Limited Peace River Coal Inc. Thermal Coal Anglo Coal(3) Copper Anglo American Sur SA Anglo American Norte SA(4) 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 Diamonds De Beers Société Anonyme Other Mining and Industrial Anglo American Fosfatos Brasil Limitada(5) Anglo American Nióbio Brasil Limitada(6) Anglo Ferrous Amapá Mineração Limitada(7) Tarmac Group Limited Tarmac Building Products Limited Scaw South Africa Proprietary Limited(8) See page 187 for footnotes. Country of incorporation Business South Africa Brazil Brazil Australia Canada South Africa Chile Chile Peru Brazil Brazil Venezuela Iron ore Iron ore Iron ore project Coal Coal Coal Copper Copper Copper project Nickel project Nickel Nickel Percentage of equity owned(1) 2012 2011 69.7% 100% 100% 65.2% 100% 100% 100% 100% 100% 100% 100% 100% 50.1% 100% 81.9% 100% 100% 91.4% 75.5% 100% 81.9% 100% 100% 91.4% South Africa Platinum 79.9% 79.8% Luxembourg Diamonds 85% 45% Brazil Brazil Brazil UK UK South Africa Fertilisers and acid Niobium Iron ore system Construction materials Construction materials Steel, engineering works and grinding media 100% 100% 70% 100% 100% 100% 100% 70% 100% 100% – 74% 186 Anglo American plc Annual Report 2012 38. GROUP COMPANIES continued Joint ventures LLX Minas-Rio Logística Comercial Exportadora SA Compañía Minera Doña Inés de Collahuasi SCM Debswana(10) Namdeb Holdings AI Futtain Tarmac Quarry Products Limited Midland Quarry Products Limited Tarmac Oman Limited Midmac Tarmac Qatar LLC Country of incorporation Brazil Chile Botswana Namibia Dubai UK Hong Kong Qatar Business Port Copper Diamonds Diamonds Construction materials Construction materials Construction materials Construction materials Associates Samancor Holdings Proprietary Limited(11) Groote Eylandt Mining Company Pty Limited (GEMCO)(11) Tasmanian Electro Metallurgical Company Pty Limited (TEMCO)(11) Jellinbah Group Pty Limited(12) Cerrejón Zona Norte SA Carbones del Cerrejón LLC Country of incorporation South Africa Australia Australia Australia Colombia Anguilla Business Manganese Manganese Manganese Coal Coal Coal Proportionately consolidated jointly controlled operations(13) Drayton Moranbah North German Creek(14) Foxleigh Dawson Location Australia Australia Australia Australia Australia Business Coal Coal Coal Coal Coal Percentage of equity owned(9) 2012 49% 44% 50% 50% 49% 50% 50% 50% 2011 49% 44% – – 49% 50% 50% 50% Percentage of equity owned(9) 2012 40% 40% 40% 33.3% 33.3% 33.3% 2011 40% 40% 40% 33.3% 33.3% 33.3% Percentage owned 2012 88.2% 88% 70% 70% 51% 2011 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) Anglo Ferrous Minas-Rio Mineração SA changed its name to Anglo American Minério de Ferro Brasil SA in 2012. (3) A division of Anglo Operations Limited, a wholly owned subsidiary. (4) Non-controlling interest of 0.018%. (5) Copebrás Limitada changed its name to Anglo American Fosfatos Brasil Limitada in 2012. (6) Mineração Catalão de Goiás Limitada changed its name to Anglo American Nióbio Brasil Limitada in 2012. (7) Anglo Ferrous Amapá Mineração Limitada has been reclassifi ed from Iron Ore and Manganese to Other Mining and Industrial to align with internal management reporting. (8) On 23 November 2012 the Group disposed of Scaw South Africa and related companies, see note 33. (9) All equity interests shown are ordinary shares. (10) Consolidated on a 19.2% proportionate basis, refl ecting economic interest. (11) These entities have a 30 June year end. (12) The Group’s effective interest in the Jellinbah operation is 23.3%. (13) The wholly owned subsidiary Anglo American Metallurgical Coal Holdings Limited holds the proportionately consolidated jointly controlled operations. (14) 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 July 2012 the Group increased its shareholding in Kumba Iron Ore Limited by 4.5% through the exercise of options acquired in 2011 and 2012, thereby increasing its shareholding from 65.2% to 69.7%. In August 2012 the Group sold a 25.4% interest in Anglo American Sur to a Corporación Nacional del Cobre de Chile (Codelco) and Mitsui & Co., Ltd. joint venture company controlled by Codelco, for proceeds of $1.9 billion. As disclosed in note 11d, capital gains tax of $290 million relating to the profi t on sale has been charged directly to equity. In August 2012 the Group acquired an additional 40% of the share capital of De Beers Société Anonyme, see note 32. 39. EVENTS OCCURRING AFTER END OF YEAR Platinum On 15 January 2013 the Group announced the outcome of its review of the Anglo American Platinum business to create a sustainable, competitive and profi table platinum business for the long term benefi t of all stakeholders. The key proposals from the review were to place the Khuseleka and Khomanani mines on care and maintenance, reconfi gure the Rustenburg operations into three operating mines, close the Union Mine North declines and place other processing assets on long term care and maintenance. Anglo American Platinum is engaging with the South African government, organised labour and other stakeholders and would pursue the consultation process in terms of the requirements of South African law prior to implementing these proposals. As a result, if the Group is not expected to receive future economic benefi ts from these mines, property, plant and equipment, a post-tax impairment of up to $0.6 billion could be recognised as an operating special item in the income statement in 2013. The gross cash costs associated with the implementation of the Portfolio Review and overhead review, which is expected to be approximately $0.3 billion (after tax: $0.2 billion), would be expensed as incurred as an operating special item in the income statement during the course of 2013. Other On 7 January 2013 the Group announced the completion of the 50:50 joint venture with Lafarge, which combined their cement, aggregates, ready-mix concrete, asphalt and asphalt surfacing, maintenance services, and waste services businesses in the United Kingdom. The joint venture will be known as Lafarge Tarmac. On 4 January 2013 the Group announced the sale of its 70% interest in the Amapá iron ore system in Brazil to Zamin Ferrous Ltd. The transaction is subject to state regulatory approval. With the exception of the above and the proposed fi nal dividend for 2012, see note 12, there have been no material reportable events since 31 December 2012. Anglo American plc Annual Report 2012 187 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 40. FINANCIAL STATEMENTS OF THE PARENT COMPANY a) Balance sheet of the Company, Anglo American plc, as at 31 December 2012 US$ 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 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 Profi t and loss account Total shareholders’ funds (equity) Note 40c 2012 2011 12,361 13,046 14,950 4 41 14,995 (448) (4) (452) 14,543 26,904 – 26,904 772 4,357 115 1,955 1 – 19,704 26,904 13,496 4 23 13,523 (395) (12) (407) 13,116 26,162 (1,504) 24,658 738 2,714 115 1,955 1 355 18,780 24,658 40d 40b 40b 40b 40b 40b 40b 40b The fi nancial statements of Anglo American plc, registered number 03564138, were approved by the Board of directors on 14 February 2013 and signed on its behalf by: Cynthia Carroll Chief Executive René Médori Finance Director 188 Anglo American plc Annual Report 2012 40. FINANCIAL STATEMENTS OF THE PARENT COMPANY continued b) Reconciliation of movements in equity shareholders’ funds US$ million Balance at 1 January 2011 Profi t for the fi nancial 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 profi t and loss account Balance at 1 January 2012 Profi t for the fi nancial 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 profi t and loss account Balance at 31 December 2012 Called-up share capital 738 – – Share premium account 2,713 – – Capital redemption reserve 115 – – Other reserves(1) 1,955 – – Share-based payment reserve 6 – – Convertible debt reserve 355 – – – – – – – 738 – – – – – 34 – 772 – – – 1 – 2,714 – – – – – 1,643 – 4,357 – – – – – 115 – – – – – – – – – – – 1,955 – – – – – – – 115 – 1,955 – 1 – – (6) 1 – – – 1 – – (1) 1 Profi t and loss account(2) 12,650 6,520 (561) 18 – 147 – 6 18,780 1,152 (599) 24 – 161 185 Total 18,532 6,520 (561) 18 1 147 1 – 24,658 1,152 (599) 24 1 161 1,507 – – – – – 355 – – – – – (355) – – 1 19,704 – 26,904 (1) At 31 December 2012 other reserves of $1,955 million (2011: $1,955 million) were not distributable under the Companies Act 2006. (2) At 31 December 2012 $2,685 million (2011: $2,685 million) of the Company profi t and loss account of $19,704 million (2011: $18,780 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 Butterfi eld Trust (Guernsey) Limited, the trustee for the Anglo American employee share scheme. Dividends paid to shareholders on the Johannesburg branch register are distributed by a South African subsidiary in accordance with the terms of the Dividend Access Share Provisions of Anglo American plc’s Articles of Association. The directors are proposing a fi nal dividend in respect of the year ended 31 December 2012 of 53 US cents per share, see note 12. The audit fee in respect of the parent company was $7,792 (2011: $7,156). Fees payable to Deloitte for non-audit services to the Company are not required to be disclosed because they are included within the consolidated disclosure in note 3. c) Fixed asset investments US$ million Cost At 1 January Capital contributions(1) Additions Capital reduction Transfer to subsidiary At 31 December Provisions for impairment At 1 January Impairment charge Transfer to subsidiary 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 2012 2011 13,374 147 2,776 (823) (3,096) 12,378 (328) (9) 320 (17) 12,361 13,232 140 2 – – 13,374 (328) – – (328) 13,046 (1) This amount is net of $14 million (2011: $7 million) of intra-group recharges. During 2012 Anglo Coal Holdings Limited undertook a capital reduction and repayment of share premium to Anglo American plc to the value of $823 million. This resulted in a $9 million impairment of the remaining investment in Anglo Coal Holdings Limited. During 2012 the Company transferred its holding in Anglo American Finance (UK) Limited to another subsidiary, Anglo American Services (UK) Limited, in exchange for shares in Anglo American Services (UK) Limited. This additional investment in Anglo American Services (UK) Limited was recognised at the net carrying value of the Company’s previous investment in Anglo American Finance (UK) Limited. d) Convertible bond On 23 March 2012 Anglo American plc gave notice that it had exercised its right to redeem its $1.7 billion of 4% senior convertible bonds (the Bonds) on 22 May 2012 (the optional redemption date). The Bonds were due to mature on 7 May 2014. On 13 April 2012 following the announcement of the recommended 2011 full year dividend, and in accordance with the terms and conditions of the Bonds, the conversion price was adjusted from £18.36 to £18.02. Of the $1,700 million Bonds issued, $1,678 million were converted to equity prior to the optional redemption date, including $1 million converted in 2011, and the remaining $22 million were redeemed by the Group. As a result, 62.5 million ordinary shares were issued and the fi nancial liability of $1,529 million, representing the notional value of the outstanding Bonds of $1,699 million less unamortised discount of $170 million, was derecognised. The balance in the convertible debt reserve of $355 million, which related to the Bonds, was transferred to share premium ($170 million) and retained earnings ($185 million). Anglo American plc Annual Report 2012 189 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 40. FINANCIAL STATEMENTS OF THE PARENT COMPANY continued e) Accounting policies: Anglo American plc, the Company The Anglo American plc (the Company) balance sheet and related notes have been prepared in accordance with United Kingdom Generally Accepted Accounting Principles (UK GAAP) and in accordance with UK company law. The fi nancial information has been prepared on a historical cost basis as modifi ed by the revaluation of certain fi nancial instruments. A summary of the principal accounting policies is set out below. The preparation of fi nancial statements in accordance with UK GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the fi nancial statements and the reported amounts of revenues and expenses during the period. Actual results may differ from those estimated. As permitted by section 408 of the Companies Act 2006, the profi t and loss account of the Company is not presented as part of these fi nancial statements. The profi t after tax for the year of the Company amounted to $1,152 million (2011: $6,520 million). Signifi cant accounting policies Deferred tax Deferred tax is provided in full on all timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, subject to the recoverability of deferred tax assets. Deferred tax assets and liabilities are not discounted. Share-based payments The Company has applied the requirements of FRS 20 Share-based Payment. In accordance with the transitional provisions, FRS 20 has been applied to all grants of equity instruments after 7 November 2002 that had not vested 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 grant date. For all share schemes with non-market vesting conditions, the likelihood of vesting has been taken into account when determining the associated charge. Vesting assumptions are reviewed during each reporting period to ensure they refl ect current expectations. 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 fi nancial statements are set out in note 29 to the consolidated fi nancial statements of the Group for the year ended 31 December 2012. Investments Investments represent equity holdings in subsidiaries and are held at cost less provision for impairment. Convertible debt Convertible bonds are classifi ed 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. 190 Anglo American plc Annual Report 2012 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 defi nitions in both the JORC (2004) and SAMREC (2007 Edition as amended July 2009) Codes. The information on Ore Reserves and Mineral Resources was prepared by or under the supervision of Competent Persons as defi ned in the JORC or SAMREC Codes. All Competent Persons have suffi cient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking. All the Competent Persons consent to the inclusion in this report of the 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 qualifi ed 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 fl uctuations in the prices of commodities, uncertainties in production costs, processing costs and other mining, legal, environmental, social and governmental factors which may impact the fi nancial condition and prospects of the Group. Mineral Resource estimates also change and tend to be infl uenced mostly by new information pertaining to the understanding of the deposit and secondly by the conversion to Ore Reserves. To accommodate the various factors that are important in the development of a classifi ed Mineral Resource estimate, a scorecard approach can be used. Mineral Resource classifi cation defi nes the confi dence associated with different parts of the Mineral Resource. The confi dence that is assigned refers collectively to the reliability of the Grade and Tonnage estimates. This reliability includes consideration for the fi delity 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 infl uence the confi dence that can be placed on the Mineral Resource. Platinum, Nickel and Kumba Iron Ore have developed and applied their own scorecard approaches to the classifi cation of Mineral Resources. The estimates of Ore Reserves and Mineral Resources are stated as at 31 December 2012. Unless otherwise stated, Mineral Resources are additional to those resources which have been modifi ed to produce the Ore Reserves and are reported on a dry tonnes basis. The fi gures in the tables have been rounded and, if used to derive totals and averages, minor differences with stated results could occur. Ore Reserves in the context of this Annual Report have the same meaning as ‘Mineral Reserves’ as defi ned by the SAMREC Code and the CIM (Canadian Institute of Mining and Metallurgy) Defi nition Standards on Mineral Resources and Mineral Reserves. 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 (LOM Plan) are described as ‘Inferred (in LOM Plan)’ separately from the remaining Inferred Mineral Resources described as ‘Inferred (ex. LOM Plan)’, 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. Operations and projects which were disposed of or for which mining concessions expired during 2012 and hence not reported in 2012 are: Loma de Níquel. In South Africa, the Minerals and Petroleum Resources Development Act, Number 28 of 2002 (MPRDA) was implemented on 1 May 2004, and effectively transferred custodianship of the previously privately held mineral rights to the State. Mining companies were given up to two years to apply for prospecting permit conversions and fi ve years to apply for mining licence conversions for existing operations. A Prospecting Right is a new order right issued in terms of the MPRDA that is valid for up to fi ve years, with the possibility of a further extension of three years, that can be obtained either by the conversion of existing Old Order Prospecting Rights or through new applications. An Exploration Right is identical to a Prospecting Right, but is commodity specifi c in respect of petroleum and gas and is valid for up to three years which can be renewed for a maximum of 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 specifi c in respect of petroleum and gas. In preparing the Ore Reserve and Mineral Resource statement for South African assets, Anglo American plc has adopted the following reporting principles in respect of Prospecting Rights and Mining Rights: • Where applications for new order Mining Rights and Prospecting Rights have been submitted and these are still being processed by the relevant regulatory authorities, the relevant Ore Reserves and Mineral Resources have been included in the statement. • Where applications for new order Prospecting Rights have been initially refused by the regulatory authorities, but are the subject of ongoing legal process and discussions with the relevant authorities and where Anglo American plc has reasonable expectations that the Prospecting Rights will be granted in due course, the relevant 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 2012 191 ORE RESERVES AND MINERAL RESOURCES ESTIMATED ORE RESERVES(1) (PROVED + PROBABLE) as at 31 December 2012 Detailed Proved and Probable fi gures appear on the referenced pages KUMBA IRON ORE (See page 196 for details) Kolomela Sishen Thabazimbi IRON ORE BRAZIL (See page 197 for details) Serra do Sapo Friable Itabirite and Hematite SAMANCOR MANGANESE (See page 199 for details) GEMCO(3) Mamatwan(4) Wessels METALLURGICAL COAL (See page 200 for details) Callide Thermal – Domestic Capcoal (OC) Metallurgical – Coking Metallurgical – Other Thermal – Export Capcoal (UG) Metallurgical – Coking Dawson Metallurgical – Coking Drayton Foxleigh Thermal – Export Thermal – Export Metallurgical – Other Moranbah North Metallurgical – Coking Trend Metallurgical – Coking Thermal – Export THERMAL COAL (See page 204 for details) Cerrejón Thermal – Export Goedehoop Thermal – Export Greenside Isibonelo Kleinkopje Kriel Landau Thermal – Export Synfuel Thermal – Export Thermal – Domestic Thermal – Domestic Thermal – Export Thermal – Domestic Mafube Thermal – Export Thermal – Domestic New Denmark Thermal – Domestic New Vaal Zibulo Thermal – Domestic Thermal – Export Thermal – Domestic Attributable % 51.5 51.5 51.5 Attributable % 100 Attributable % 40.0 29.6 29.6 Attributable % 100 76.8 70.0 51.0 88.2 70.0 88.0 100 Attributable % 33.3 100 100 100 100 73.0 100 50.0 100 100 73.0 COPPER (See page 208 for details) Collahuasi Heap Leach Attributable % 44.0 Flotation – direct feed Flotation – stockpile El Soldado Flotation Heap Leach Los Bronces Flotation Dump Leach Mantos Blancos Flotation Mantoverde Vat and Heap Leach Dump Leach Heap Leach Dump Leach 50.1 50.1 100 100 192 Anglo American plc Annual Report 2012 Mine Life 24 17 6 Mine Life 27 Mine Life 14 20 45 Mine Life 24 23 11 35 2 3 17 10 Mine Life 19 8 11 15 11 13 6 14 26 19 18 Mine Life 70 23 36 8 5 Mining Method OP OP OP Mining Method OP Mining Method OP OP UG Mining Method OC OC UG OC OC OC UG OC Mining Method OC UG & OC UG OC OC UG & OC OC OC UG OC UG & OC Mining Method OP OP OP OP OP Total Saleable Tonnes 209 Mt 686 Mt 7 Mt Total Saleable Tonnes(2) 685 Mt Total ROM Tonnes 97.4 Mt 72.8 Mt 68.8 Mt Total Saleable Tonnes(5) 239.2 Mt 26.7 Mt 68.7 Mt 3.7 Mt 39.7 Mt 93.8 Mt 221.1 Mt 9.2 Mt 12.1 Mt 97.2 Mt 14.0 Mt 0.2 Mt Total Saleable Tonnes(5) 743.1 Mt 38.3 Mt 27.5 Mt 70.5 Mt 17.4 Mt 19.6 Mt 104.1 Mt 20.2 Mt 5.9 Mt 30.0 Mt 23.6 Mt 112.0 Mt 323.8 Mt 56.0 Mt 32.4 Mt Total Contained Copper 274 kt 20,402 kt 5,219 kt 1,371 kt 14 kt 9,240 kt 1,891 kt 286 kt 62 kt 84 kt 229 kt 112 kt Grade 64.4 %Fe 65.2 %Fe 62.9 %Fe Grade 67.5 %Fe Grade 45.0 %Mn 37.1 %Mn 43.0 %Mn Saleable Quality 4,350 kcal/kg 7.0 CSN 6,980 kcal/kg 7,050 kcal/kg 9.0 CSN 7.5 CSN 5,380 kcal/kg 6,630 kcal/kg 6,810 kcal/kg 8.0 CSN 7.0 CSN 5,070 kcal/kg Saleable Quality 6,170 kcal/kg 6,200 kcal/kg 6,190 kcal/kg 4,520 kcal/kg 6,190 kcal/kg 4,580 kcal/kg 4,580 kcal/kg 6,210 kcal/kg 4,170 kcal/kg 6,260 kcal/kg 5,010 kcal/kg 5,000 kcal/kg 3,560 kcal/kg 6,100 kcal/kg 4,900 kcal/kg Grade 0.62 %TCu 0.98 %TCu 0.49 %TCu 0.80 %TCu 0.45 %TCu 0.61 %TCu 0.31 %TCu 0.80 %ICu Tonnes 44.1 Mt 2,074.2 Mt 1,069.2 Mt 170.3 Mt 3.0 Mt 1,509.3 Mt 607.6 Mt 35.6 Mt 15.4 Mt 0.41 %ASCu 36.8 Mt 42.3 Mt 44.2 Mt 0.23 %ASCu 0.54 %ASCu 0.25 %ASCu ORE RESERVES AND MINERAL RESOURCES NICKEL (See page 213 for details) Barro Alto Niquelândia PLATINUM(6) (See page 214 for details) Main Sulphide Zone Merensky Reef Platreef UG2 Reef DIAMONDS(7) (See pages 217–221 for details) DBCi – Snap Lake DBCi – Victor DBCM – Venetia (OP) DBCM – Venetia (UG) Debswana – Damtshaa Debswana – Jwaneng Debswana – Letlhakane Debswana – Orapa Namdeb – Elizabeth Bay Namdeb – Mining Area 1 Namdeb – Orange River Namdeb – Atlantic 1 PHOSPHATE PRODUCTS (See page 222 for details) Ouvidor NIOBIUM (See page 223 for details) Boa Vista Oxide Phosphate Tailings Attributable % 100 100 Attributable % 79.9 Attributable % 85.0 85.0 62.9 62.9 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5 Attributable % 100 Attributable % 100 Mine Life 17 22 Mine Life n/a LOM(8) 18 6 9 27 17 20 4 21 7 7 7 15 Mine Life 40 Mine Life 4 Mining Method OP OP Mining Method UG UG OP UG Mining Method UG OP OP UG OP OP OP OP OC OC OC MM Mining Method OP Mining Method OP Total Contained Nickel 754 kt 66 kt Total Contained PGE 6.5 Moz (4E) 12.5 Moz (4E) Tonnes 46.8 Mt 4.9 Mt Tonnes 53.7 Mt 82.3 Mt 89.1 Moz (4E) 1,008.9 Mt 69.2 Moz (4E) 518.4 Mt Grade 1.61 %Ni 1.34 %Ni Grade (4E) 3.76 g/t 4.71 g/t 2.75 g/t 4.15 g/t Saleable Carats 2.0 M¢ 2.3 M¢ 32.8 M¢ 70.0 M¢ 4.1 M¢ 88.3 M¢ 0.8 M¢ 85.7 M¢ 231 k¢ 74 k¢ 359 k¢ 4,935 k¢ Total ROM Tonnes 234.0 Mt Grade 13.4 %P2O5 Total Contained Product 40 kt 14 kt Tonnes 3.9 Mt 2.0 Mt Grade 1.03 %Nb2O5 0.73 %Nb2O5 Mine Life = The extraction period in years for scheduled Ore Reserves comprising Proved and Probable Reserves only. LOM = Life of Mine (years) is based on scheduled Probable Reserves including Indicated and some Inferred Resources considered for life of mine planning. Mining method: OP = Open Pit, UG = Underground, OC = Open Cut, MM = Marine Mining. (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 Edition as amended July 2009). The fi gures reported represent 100% of the Ore Reserves, the percentage attributable to Anglo American plc is stated separately. Rounding of fi gures may cause computational discrepancies. (2) Tonnes are reported on a wet basis. Assays are on a dry basis. (3) GEMCO Manganese grades are given as per washed ore samples and should be read together with their respective yields. (4) Mamatwan tonnages stated as wet metric tonnes. (5) 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 Calorifi c 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 specifi cations 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 specifi cations 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 calorifi c value (CV). Thermal – Domestic: Low- to high-volatile thermal coal primarily for domestic consumption for power generation. Synfuel: Coal specifi cally for the domestic production of synthetic fuel and chemicals. (6) Details of the individual operations appear in the Anglo American Platinum Annual Report. The fi gures 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 in grammes per tonne (g/t). (7) DBCi = De Beers Canada, DBCM = De Beers Consolidates Mines, Debswana = Debswana Diamond Company, Namdeb = Namdeb Holdings k¢ = thousand carats. M¢ = million carats. Reported Diamond Reserves are based on a Bottom Cut Off (BCO) which refers to the bottom screen size aperture and varies between 1.00mm and 3.00mm (nominal square mesh). (8) LOM is quoted as Diamonds are reported on an inclusive basis. 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 2012 193 ORE RESERVES AND MINERAL RESOURCES ESTIMATED MINERAL RESOURCES(1) (MEASURED + INDICATED) as at 31 December 2012 Detailed Measured, Indicated and Inferred fi gures appear on the referenced pages KUMBA IRON ORE (See page 196 for details) Kolomela Sishen Thabazimbi IRON ORE BRAZIL (See page 197 for details) Itapanhoacanga Friable Itabirite and Hematite Compact Itabirite Attributable % 51.5 51.5 51.5 Attributable % 100 Serra do Sapo Friable Itabirite and Hematite 100 Compact Itabirite Serro Friable Itabirite and Hematite 100 OMI (Non-core) (See page 198 for details) Amapá Canga Colluvium Friable Itabirite and Hematite SAMANCOR MANGANESE (See page 199 for details) GEMCO(3) Mamatwan(4) Wessels METALLURGICAL COAL (See page 201 for details) Callide Capcoal (OC) Capcoal (UG) Dawson Drayton Foxleigh Moranbah North Trend THERMAL COAL (See page 206 for details) Cerrejón Goedehoop Greenside Isibonelo Kleinkopje Kriel Landau Mafube Zibulo Attributable % 70.0 Attributable % 40.0 29.6 29.6 Attributable % 100 76.8 70.0 51.0 88.2 70.0 88.0 100 Attributable % 33.3 100 100 100 100 73.0 100 50.0 73.0 Mining Method OP OP OP Mining Method – – OP – – Mining Method OP OP OP Mining Method OP OP UG Mining Method OC OC UG OC OC OC UG OC Mining Method OC UG&OC UG OC OC UG&OC OC OC In-situ Tonnes 60.3 Mt 452.4 Mt 10.7 Mt In-situ Tonnes(2) 154.5 Mt 96.8 Mt 385.4 Mt 2,811.2 Mt 9.5 Mt In-situ Tonnes(2) 8.0 Mt 61.6 Mt 137.7 Mt In-situ Tonnes 107.1 Mt 116.7 Mt 137.8 Mt In-situ Tonnes(5) 525.7 Mt 41.7 Mt 144.3 Mt 311.1 Mt 11.8 Mt 33.3 Mt 76.9 Mt 21.2 Mt In-situ Tonnes(5) 1,063.6 Mt 158.8 Mt 19.6 Mt 16.3 Mt 30.4 Mt 18.8 Mt 94.8 Mt 69.7 Mt UG&OC 349.0 Mt COPPER (See pages 210–211 for details) Collahuasi Heap Leach Attributable % 44.0 Mining Method OP Flotation – direct feed Flotation – stockpile El Soldado Flotation Heap Leach Los Bronces Flotation Mantos Blancos Flotation Vat and Heap Leach Dump Leach Mantoverde Heap Leach 50.1 50.1 100 100 OP OP OP OP Contained Copper 3 kt 10,856 kt 1,263 kt 248 kt 0 kt 3,972 kt 734 kt 67 kt 15 kt 57 kt Tonnes 0.5 Mt 1,153.6 Mt 272.1 Mt 32.4 Mt 0.0 Mt 982.4 Mt 95.0 Mt 14.6 Mt 8.8 Mt 11.8 Mt 194 Anglo American plc Annual Report 2012 Grade 65.0 %Fe 60.2 %Fe 62.5 %Fe Grade 41.1 %Fe 34.3 %Fe 32.9 %Fe 31.1 %Fe 63.6 %Fe Grade 48.7 %Fe 38.8 %Fe 41.1 %Fe Grade 46.7 %Mn 35.0 %Mn 43.8 %Mn Coal Quality 4,870 kcal/kg 7,080 kcal/kg 6,680 kcal/kg 6,660 kcal/kg 6,550 kcal/kg 7,110 kcal/kg 6,640 kcal/kg 6,500 kcal/kg Coal Quality 6,440 kcal/kg 5,490 kcal/kg 5,590 kcal/kg 5,250 kcal/kg 5,040 kcal/kg 5,060 kcal/kg 4,960 kcal/kg 5,150 kcal/kg 4,920 kcal/kg Grade 0.70 %TCu 0.94 %TCu 0.46 %TCu 0.77 %TCu 0.66 %TCu 0.40 %TCu 0.77 %ICu 0.46 %ASCu 0.17 %ASCu 0.48 %ASCu ORE RESERVES AND MINERAL RESOURCES NICKEL (See page 213 for details) Barro Alto Niquelândia Direct Feed Stockpile PLATINUM(6) (See page 215 for details) Main Sulphide Zone Merensky Reef Platreef UG2 Reef DIAMONDS(7) (See pages 217–221 for details) DBCi – Snap Lake DBCi – Victor DBCM – Namaqualand DBCM – Venetia (OP) DBCM – Venetia (UG) Debswana – Damtshaa Debswana – Jwaneng Debswana – Letlhakane Debswana – Orapa Namdeb – Douglas Bay Namdeb – Elizabeth Bay Namdeb – Mining Area 1 Namdeb – Orange River Namdeb – Atlantic 1 Namdeb – Midwater PHOSPHATE PRODUCTS (See page 222 for details) Ouvidor NIOBIUM (See page 223 for details) Boa Vista Oxide Attributable % 100 100 Attributable % 79.9 Attributable % 85.0 85.0 62.9 62.9 62.9 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5 Attributable % 100 Attributable % 100 Mining Method OP OP Mining Method UG UG OP UG Mining Method UG OP OC OP UG OP OP OP OP OC OC OC OC MM MM Mining Method OP Mining Method OP Contained Nickel 193 kt 85 kt 70 kt Contained PGE 15.4 Moz (4E) 85.7 Moz (4E) 62.8 Moz (4E) 186.8 Moz (4E) Carats 4.7 M¢ 2.5 M¢ 2.1 M¢ 35.4 M¢ 95.5 M¢ 6.3 M¢ 84.3 M¢ 7.8 M¢ 119.1 M¢ 111 k¢ 548 k¢ 178 k¢ 544 k¢ 10,773 k¢ 330 k¢ Tonnes 64.1 Mt Contained Product 42 kt Tonnes 14.0 Mt 7.1 Mt 5.7 Mt Tonnes 113.6 Mt 479.9 Mt 891.8 Mt 1,131.6 Mt Tonnes/Area 2.5 Mt 12.9 Mt 19.3 Mt 34.2 Mt 109.9 Mt 29.3 Mt 70.1 Mt 27.4 Mt 167.3 Mt 1,502 kt 4,718 kt 17,597 kt 109,725 kt 114,190 k m2 1,339 k m2 Grade 1.38 %Ni 1.19 %Ni 1.24 %Ni Grade (4E) 4.21 g/t 5.55 g/t 2.19 g/t 5.13 g/t Grade 189.27 cpht 19.34 cpht 10.87 cpht 103.46 cpht 86.93 cpht 21.46 cpht 120.35 cpht 28.62 cpht 71.20 cpht 7.39 cpht 11.62 cpht 1.01 cpht 0.50 cpht 0.09 cpm2 0.25 cpm2 Grade 11.9 %P2O5 Tonnes 3.4 Mt Grade 1.22 %Nb2O5 Mining method: OP = Open Pit, UG = Underground, OC = Open Cut, MM = Marine Mining. (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 Edition as amended July 2009). The fi gures reported represent 100% of the Mineral Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of fi gures may cause computational discrepancies. (2) Tonnes are reported on a wet basis. Assays are on a dry basis. (3) GEMCO Manganese grades are given as per washed ore samples and should be read together with their respective yields. (4) Mamatwan tonnages stated as wet metric tonnes. (5) Coal Resources are quoted on a Mineable Tonnes In-Situ (MTIS) basis in million tonnes which are in addition to those resources which have been modifi ed 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 Calorifi c 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. (6) 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 110cm. The ‘Resource Cut’ width takes cognisance of the mining method and geotechnical aspects in the hanging wall or footwall of the reef. The fi gures 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 in grammes per tonne (g/t). (7) DBCi = De Beers Canada, DBCM = De Beers Consolidates Mines, Debswana = Debswana Diamond Company, Namdeb = Namdeb Holdings k¢ = thousand carats. M¢ = million carats. k m² = thousand square metres. Grade is quoted as carats per hundred metric tonnes (cpht) or as carats per square meter (cpm²). Reported Diamond Resources are based on a Bottom Cut Off (BCO) which refers to the bottom screen size aperture and varies between 1.00mm and 3.00mm (nominal square mesh). Diamond Resources are quoted as inclusive of those used to calculate Diamond Reserves and must not be added to the Diamond Reserves. 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 2012 195 ORE RESERVES AND MINERAL RESOURCES IRON ORE estimates as at 31 December 2012 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 Edition as amended July 2009). The fi gures reported represent 100% of the Ore Reserves and Mineral Resources, the percentage attributable to Anglo American plc is stated separately. Anglo American plc’s interest in Kumba Iron Ore Limited is 69.7%. Rounding of fi gures may cause computational discrepancies. Kumba Iron Ore – Operations ORE RESERVES Kolomela (OP)(1) Attributable % 51.5 Mine Life 24 Hematite Sishen (OP)(2) Hematite Thabazimbi (OP)(3) Hematite 51.5 17 51.5 6 Kumba Iron Ore – Operations MINERAL RESOURCES Kolomela (OP)(4) Attributable % 51.5 Hematite Sishen (OP)(5) Hematite Thabazimbi (OP)(6) Hematite 51.5 51.5 Classifi cation Proved Probable Total Proved Probable Total Proved Probable Total Classifi cation Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred MINERAL RESOURCES ARE REPORTED AS ADDITIONAL TO ORE RESERVES. Kumba Iron Ore – Projects MINERAL RESOURCES Zandrivierspoort(7) Magnetite and Hematite Attributable % 25.8 Classifi cation Measured Indicated Measured and Indicated Inferred Saleable Product 2012 2011 Mt %Fe Mt %Fe 110 65.0 107 64.8 102 64.0 94 64.4 209 64.4 203 64.7 393 65.0 485 65.3 201 65.0 351 65.1 686 65.2 744 65.0 0 62.9 7 62.9 7 62.9 2 63.2 6 63.0 8 63.1 2012 Mt 107.6 102.0 209.5 642.9 276.0 918.9 0.4 9.0 9.5 2012 Mt 43.3 17.0 60.3 50.5 55.7 106.2 315.1 137.3 452.4 24.7 67.7 92.5 0.2 10.4 10.7 2.8 8.2 11.1 2012 Mt 132.9 177.9 310.8 64.5 Tonnes 2011 Mt 109.7 93.7 203.4 525.8 458.1 983.9 2.7 7.7 10.4 Tonnes 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 Tonnes 2011 Mt 128.5 182.3 310.8 64.5 2012 %Fe 64.8 64.0 64.4 %Fe 59.4 58.8 59.2 %Fe 61.1 60.6 60.6 2012 %Fe 64.9 65.2 65.0 64.2 62.8 63.5 %Fe 61.0 58.4 60.2 56.0 55.0 55.3 %Fe 62.5 62.5 62.5 60.7 62.8 62.3 2012 %Fe 35.0 34.5 34.7 34.2 Grade 2011 %Fe 64.9 64.3 64.6 %Fe 58.9 59.3 59.1 %Fe 61.4 60.4 60.7 Grade 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 Grade 2011 %Fe 34.9 34.5 34.7 34.2 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 defi nes 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 Phoenix Project is not reported in 2012; the previously declared Mineral Resource are being re-evaluated to consider different benefi ciation options and will have to be re-submitted for project approval. (1) (2) (3) (4) (5) (6) Kolomela – Ore Reserves: Ore Reserves are reported above a cut-off of 42.0 %Fe including dilution. The effect of production is offset by the increase resulting from a life-of-mine plan update, which included a pit optimisation with updated economic assumptions. Sishen – Ore Reserves: Ore Reserves are reported above a cut-off of 40.0 %Fe including dilution. The decrease is primarily due to production and a lower conversion rate of Mineral Resources to Ore Reserves. Thabazimbi – Ore Reserves: Ore Reserves are reported above a cut-off of 54.6 %Fe including dilution. The decrease is primarily due to production and some Ore Reserves being re-allocated to Inferred Mineral Resources. Kolomela – Mineral Resources: Mineral Resources are reported above a cut-off of 50.0 %Fe. The increase is due to changes in the resource shell as a result of pit a optimisation conducted based on updated economic assumptions. Sishen – Mineral Resources: Mineral Resources are reported above a cut-off of 40.0 %Fe. The overall decrease is a result of a geological model update, revised estimation methods combined with new borehole information which resulted in a decrease of primarily BIF material. Stockpile Resource estimates (Measured: 52.2 Mt at 58.1 %Fe; Indicated: 11.9 Mt at 57.7 %Fe; Inferred: 3.2 Mt at 56.7 %Fe) are excluded from the table. Thabazimbi – Mineral Resources: Mineral Resources are reported above a cut-off of 55.0 %Fe. The increase is due to changes in the resource shell as a result of updated economic assumptions. (7) Zandrivierspoort: The Zandrivierspoort Project Mineral Resources are reported above a cut-off of 23.0 %Fe. A minor update to the resource classifi cation was undertaken in 2012. Audits related to the generation of the Ore Reserve and Mineral Resource estimates were carried out by independent consultants during 2012 at Kolomela Mine. Assumption with respect to Mineral Tenure Sishen: In December 2011 judgment was delivered by 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 Department: Mineral Resources (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 DMR to grant a prospecting right to ICT relating to iron ore as to a 21.4% share in respect of the Sishen mine properties. Both the DMR and Imperial Crown Trading have lodged an appeal against the ruling by the High Court, which appeal is enrolled for hearing by the Supreme Court of Appeal on 19 February 2013 . 196 Anglo American plc Annual Report 2012 ORE RESERVES AND MINERAL RESOURCES IRON ORE estimates as at 31 December 2012 IRON ORE BRAZIL The Ore Reserves 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 fi gures reported represent 100% of the Ore Reserves and Mineral Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of fi gures may cause computational discrepancies. The Minas-Rio project is located in the state of Minas Gerais, Brazil and will include open pit mines and a benefi ciation 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 identifi ed 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). Iron Ore Brazil – Projects ORE RESERVES Serra do Sapo (OP)(1) Attributable % 100 Mine Life 27 Friable Itabirite and Hematite Iron Ore Brazil – Projects MINERAL RESOURCES Itapanhoacanga(1)(2) Attributable % 100 Friable Itabirite and Hematite Compact Itabirite Serra do Sapo (OP)(1)(3) 100 Friable Itabirite and Hematite Compact Itabirite Serro(4) 100 Friable Itabirite and Hematite Compact Itabirite Classifi cation Proved Probable Total Classifi cation Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Saleable Product 2012 Mt %Fe – – 685 67.5 685 67.5 2011 Mt %Fe – – – – – – 2012 Mt – 1,452.8 1,452.8 2012 Mt 32.3 122.3 154.5 119.1 23.2 73.6 96.8 57.2 148.7 236.7 385.4 108.5 58.7 167.1 559.9 2,251.3 2,811.2 476.8 – 9.5 9.5 74.2 – – – 308.2 Tonnes 2011 Mt – – – Tonnes 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 – 165.1 165.1 565.0 2,253.9 2,818.9 477.3 – 9.5 9.5 74.2 – – – 308.2 2012 %Fe – 38.8 38.8 2012 %Fe 40.6 41.3 41.1 40.9 33.6 34.5 34.3 34.5 %Fe 31.6 33.7 32.9 38.3 32.9 36.4 31.0 31.1 31.1 31.1 %Fe – 63.6 63.6 35.3 – – – 31.6 Grade 2011 %Fe – – – Grade 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 36.3 31.0 31.1 31.1 31.1 %Fe – 63.6 63.6 35.3 – – – 31.6 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) (4) Minas-Rio Project: 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 Friable Itabirite, Soft Hematite and Canga. The Minas-Rio Project comprises the following sub-areas: Itapanhoacanga and Serra do Sapo. Execution of this project remains subject to the normal regulatory processes of the Brazilian authorities. Itapanhoacanga: Friable Itabirite and Hematite includes Friable Itabirite, Semi-Compact Itabirite, Soft Hematite and Hard Hematite. The decrease is as a result of the exclusion of the Quartz-X mineral area (Licence No. 832.666\2001) which is partially off-set by an increase due to new information obtained during the year. Serra do Sapo: Friable Itabirite and Hematite includes Friable Itabirite, Semi-Compact Itabirite, High Alumina Friable Itabirite, Soft Hematite and Canga. The Mineral Resources decrease is primarily due to conversion of Mineral Resources to Ore Reserves. Serro: The cut-off grade used is 25% Fe. Friable Itabirite and Hematite includes Friable Itabirite, Semi-Compact Itabirite and Hard Hematite (9.5 Mt @ 63.6% Fe). Tonnages are reported on a wet basis with an average moisture content of 4.7 wt%. Audits related to the generation of the Ore Reserve and Mineral Resource estimates were carried out by independent consultants during 2012 at Serra do Sapo. 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 2012 197 ORE RESERVES AND MINERAL RESOURCES IRON ORE estimates as at 31 December 2012 OTHER MINING AND INDUSTRIAL 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 fi gures reported represent 100% of the Mineral Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of fi gures may cause computational discrepancies. OMI (Non-core) – Operations MINERAL RESOURCES Amapá (OP)(1)(2) Attributable % 70.0 Canga Colluvium Friable Itabirite and Hematite Classifi cation Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred 2012 Mt – 8.0 8.0 6.3 10.0 51.6 61.6 14.2 34.0 103.8 137.7 16.1 Tonnes 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 2012 %Fe – 48.7 48.7 46.1 39.2 38.7 38.8 35.1 39.8 41.5 41.1 43.7 Grade 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 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) 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 wt% for Canga, 10 wt% for Colluvium and 9 wt% for Friable Itabirite and Hematite ore. The decrease is as a result of depletion and new information along with a revised geological modelling methodology. 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. 198 Anglo American plc Annual Report 2012 ORE RESERVES AND MINERAL RESOURCES MANGANESE estimates as at 31 December 2012 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 Edition as amended July 2009) as applicable. The fi gures reported represent 100% of the Ore Reserves and Mineral Resources (source: BHP Billiton), the percentage attributable to Anglo American plc is stated separately. Rounding of fi gures may cause computational discrepancies. Samancor Manganese – Operations ORE RESERVES GEMCO (OP)(1) Attributable % 40.0 Mine Life 14 Hotazel Manganese Mines 29.6 Mamatwan (OP)(2) Wessels (UG)(3) 20 45 Samancor Manganese – Operations MINERAL RESOURCES GEMCO (OP)(4) Attributable % 40.0 Hotazel Manganese Mines 29.6 Mamatwan (OP)(5) Wessels (UG)(6) 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 Classifi cation Proved Probable Total Proved Probable Total Proved Probable Total Classifi cation Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Classifi cation Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred 2012 Mt 72.5 24.9 97.4 41.4 31.4 72.8 3.9 64.9 68.8 2012 Mt 78.9 28.2 107.1 49.4 62.0 54.7 116.7 4.3 11.4 126.4 137.8 – 2012 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 2011 Mt 79.4 25.9 105.3 43.9 30.5 74.4 4.1 67.7 71.8 Tonnes 2011 Mt 87.0 28.7 115.8 49.4 64.8 54.7 119.5 4.2 13.8 129.5 143.3 – Tonnes 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 2012 %Mn 45.0 45.0 45.0 %Mn 37.2 37.1 37.1 44.8 42.9 43.0 2012 %Mn 46.9 46.0 46.7 43.9 %Mn 35.5 34.5 35.0 34.5 45.7 43.6 43.8 – 2012 %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 2011 %Mn 46.5 45.6 46.3 %Mn 37.3 37.1 37.2 44.0 43.0 43.1 Grade 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 – Grade 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 2012 % 55.1 55.1 55.1 2012 % 47.5 47.4 47.5 47.8 2012 % 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 2011 % 54.8 54.2 54.7 Yield 2011 % 47.4 47.6 47.4 47.8 Yield 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 Mining method: OP = Open Pit, UG = Underground. Mine Life = The extraction period in years for scheduled Ore Reserves comprising Proved and Probable Reserves only. Mamatwan tonnages stated as wet metric tonnes. Wessels and GEMCO tonnages stated as dry metric tonnes. Due to the uncertainty that may be attached to some Inferred Mineral Resources, it cannot be assumed that all or part of an Inferred Mineral Resource will necessarily be upgraded to an Indicated or Measured Resource after continued exploration. (1) GEMCO – Ore Reserves: Manganese grades are given as per washed ore samples and should be read together with their respective yields. The change is due to depletion from mining. (2) Mamatwan – Ore Reserves: The change is due to depletion from mining. (3) (4) (5) (6) (7) Wessels – Ore Reserves: The decrease is mainly due to the re-delineation of the suboutcrop positions of the orebodies, based on new borehole information GEMCO – Mineral Resources: The change is due to depletion from mining. 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 43.1 Mt are declared above a cut-off of 28% Mn. The change is due to depletion from mining and re-running the geological model. Wessels – Mineral Resources: The decrease is mainly due to the re-delineation of the suboutcrop positions of the orebodies, based on new borehole information. Beniomi and Bordeaux: Mn grades are for +0.15mm screen size fraction and should be read together with their respective tonnage yields. The Gabon Mining Concession and Mining Convention remain subject to ongoing negotiation. No Ore Reserves are yet reportable. Anglo American plc Annual Report 2012 199 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 2012 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 fi gures reported represent 100% of the Coal Reserves and Coal Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of fi gures 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) Attributable % Callide (OC) 100 (2) Mine Life Classifi cation 24 Thermal – Domestic Capcoal (OC) Metallurgical – Coking 76.8 23 Metallurgical – Other Thermal – Export Capcoal (UG) Metallurgical – Coking 70.0 11 Dawson (OC) Metallurgical – Coking 51.0 35 Thermal – Export Drayton (OC) Thermal – Export Foxleigh (OC) Metallurgical – Other 88.2 70.0 2 3 Moranbah North (UG) Metallurgical – Coking 88.0 17 Australia Metallurgical – Coking 70.6 Australia Metallurgical – Other 75.8 Australia Thermal – Export 52.9 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) 2012 Mt 192.2 52.0 244.2 69.9 72.5 142.4 2011 Mt 199.9 52.0 251.9 77.1 72.5 149.5 36.0 14.7 50.7 180.7 227.2 407.9 7.9 4.2 12.0 1.9 12.6 14.5 109.5 11.3 120.8 Mt 598.0 394.4 992.5 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 2012 ROM % 97.9 98.0 97.9 2011 ROM % 98.0 98.0 98.0 2012 Mt 188.2 51.0 239.2 2011 Mt 195.8 51.0 246.8 19.8 16.4 18.0 46.3 46.5 46.4 2.7 2.3 2.5 75.1 72.0 74.2 24.0 21.0 22.4 51.6 53.6 52.7 76.0 76.0 76.0 83.0 77.7 78.4 76.6 72.7 76.2 Plant % 58.4 32.9 50.3 48.1 53.7 51.2 52.0 53.5 52.9 97.9 98.0 97.9 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 14.4 12.3 26.7 33.6 35.0 68.7 2.0 1.7 3.7 28.5 11.2 39.7 44.7 49.1 93.8 95.8 125.3 221.1 6.0 3.2 9.2 1.7 10.4 12.1 88.5 8.7 97.2 Mt 176.0 81.3 257.3 35.3 45.5 80.8 103.8 130.2 233.9 188.2 51.0 239.2 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 2012 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 7,070 7,030 7,050 CSN 9.0 9.0 9.0 CSN 7.5 7.5 7.5 kcal/kg 5,440 5,340 5,380 kcal/kg 6,650 6,600 6,630 kcal/kg 6,870 6,800 6,810 CSN 8.0 8.0 8.0 CSN 8.0 7.5 8.0 kcal/kg 6,970 6,940 6,950 kcal/kg 5,540 5,390 5,460 kcal/kg 4,380 4,250 4,350 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 Metallurgical Coal – Canada Operations COAL RESERVES(1) Attributable % Trend (OC) 100 (2) Mine Life Classifi cation 10 Metallurgical – Coking Thermal – Export Proved Probable Total Proved Probable Total ROM Tonnes(3) Yield(4) Saleable Tonnes(3) Saleable Quality (5) 2012 Mt 17.9 2.3 20.2 2011 Mt 20.3 2.3 22.6 2012 ROM % 66.3 61.7 65.8 0.7 0.8 0.7 2011 ROM % 65.0 61.7 64.7 0.7 1.1 0.7 2012 Mt 12.4 1.5 14.0 0.1 0.0 0.2 2011 Mt 13.9 1.5 15.4 0.1 0.0 0.2 2012 CSN 7.0 7.0 7.0 kcal/kg 5,070 5,070 5,070 2011 CSN 7.0 7.0 7.0 kcal/kg 5,070 5,070 5,070 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 tonnes apply to each product. The Saleable tonnes cannot be calculated directly from the ROM reserve tonnes 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 tonnes. 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 calorifi c value (CV). Thermal – Export refers to low- to high-volatile thermal coal primarily for export in the use of power generation; quality measured by calorifi c value (CV). Thermal – Domestic refers to low- to high-volatile thermal coal primarily for domestic consumption for power generation; quality measured by calorifi c value (CV). 200 Anglo American plc Annual Report 2012 ORE RESERVES AND MINERAL RESOURCES COAL estimates as at 31 December 2012 Metallurgical Coal – Operations TOTAL COAL RESERVES(1) Attributable % Metallurgical – Coking 72.1 (2) Metallurgical – Other 75.8 Thermal – Export 52.9 Thermal – Domestic 100 Metallurgical Coal – Australia Operations COAL RESOURCES(6) Attributable % Callide (OC) 100 (2) Classifi cation Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Capcoal (OC) Capcoal (UG) Dawson (OC) Drayton (OC) Foxleigh (OC) 76.8 70.0 51.0 88.2 70.0 Moranbah North (UG) 88.0 Australia – Mine Leases 80.3 COAL RESOURCES ARE REPORTED AS ADDITIONAL TO COAL RESERVES. Metallurgical Coal – Canada Operations COAL RESOURCES(6) Attributable % Trend (OC) 100 (2) COAL RESOURCES ARE REPORTED AS ADDITIONAL TO COAL RESERVES. Metallurgical Coal – Operations COAL RESOURCES(6) TOTAL Attributable % 80.6 (2) ROM Tonnes(3) Yield(4) Saleable Tonnes(3) Saleable Quality (5) 2012 Mt 615.9 396.8 1,012.7 2011 Mt 474.9 335.1 810.0 2012 Plant % 58.9 33.4 51.1 48.1 53.7 51.2 52.0 53.5 52.8 97.9 98.0 97.9 2011 Plant % 68.0 36.5 59.5 49.1 54.0 51.7 56.7 60.7 60.2 98.0 98.0 98.0 2012 Mt 188.5 82.8 271.3 35.3 45.5 80.8 103.9 130.2 234.1 188.2 51.0 239.2 2011 Mt 157.4 58.1 215.5 40.5 46.3 86.8 14.8 107.6 122.4 195.8 51.0 246.8 2012 CSN 8.0 7.5 8.0 kcal/kg 6,970 6,940 6,950 kcal/kg 5,540 5,390 5,460 kcal/kg 4,380 4,250 4,350 2011 CSN 8.0 7.5 8.0 kcal/kg 6,970 6,950 6,960 kcal/kg 6,530 6,470 6,480 kcal/kg 4,380 4,250 4,350 Classifi cation 2012 Tonnes 2011 Coal Quality 2012 2011 Measured Indicated Measured and Indicated Inferred (in LOM Plan) Measured Indicated Measured and Indicated Inferred (in LOM Plan) Measured Indicated Measured and Indicated Inferred (in LOM Plan) Measured Indicated Measured and Indicated Inferred (in LOM Plan) Measured Indicated Measured and Indicated Inferred (in LOM Plan) Measured Indicated Measured and Indicated Inferred (in LOM Plan) Measured Indicated Measured and Indicated Inferred (in LOM Plan) Measured Indicated Measured and Indicated Inferred (in LOM Plan) (8) (8) (8) (8) (8) (8) (8) (8) (6) MTIS 260.7 265.1 525.7 15.3 13.8 27.9 41.7 36.6 76.3 68.0 144.3 0.3 134.2 177.0 311.1 97.1 3.7 8.0 11.8 0.0 17.3 16.1 33.3 7.0 55.7 21.3 76.9 0.1 561.6 583.3 1,144.9 156.4 Classifi cation Measured Indicated Measured and Indicated Inferred (in LOM Plan) (8) 2012 (6) MTIS 15.9 5.3 21.2 1.4 Classifi cation Measured Indicated Measured and Indicated Inferred (in LOM Plan) (8) 2012 (6) MTIS 577.5 588.6 1,166.1 157.8 (6) 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 Tonnes 2011 (6) MTIS 15.9 5.3 21.2 1.4 Tonnes 2011 (6) MTIS 605.1 694.5 1,299.6 164.7 (7) 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 6,630 6,680 6,660 6,750 6,490 6,580 6,550 5,820 7,130 7,090 7,110 6,830 6,670 6,570 6,640 6,980 5,890 5,850 5,870 6,500 (7) 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 2012 2011 (7) kcal/kg 6,500 6,500 6,500 6,500 (7) kcal/kg 6,500 6,500 6,500 6,500 Coal Quality 2012 2011 (7) kcal/kg 5,910 5,850 5,880 6,500 (7) kcal/kg 5,950 5,980 5,960 6,580 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 COAL RESOURCES ARE REPORTED AS ADDITIONAL TO COAL RESERVES. Footnotes appear at the end of the section. Anglo American plc Annual Report 2012 201 Metallurgical Coal – Australia Projects COAL RESOURCES(6)(8) Dartbrook Attributable % 83.3 (2) Classifi cation 2012 Mt 76.1 62.6 138.7 2011 Mt 76.1 62.6 138.7 2012 ROM % 66.2 65.2 65.7 2011 ROM % 66.2 65.2 65.7 ROM Tonnes (3) Yield (4) Saleable Tonnes (3) Saleable Quality (5) 2012 Mt 53.2 43.1 96.3 (6) 2011 Mt 53.2 43.1 96.3 2012 CSN 8.5 8.0 8.5 2011 CSN 8.5 8.0 8.5 Tonnes 2011 Coal Quality 2012 2011 (6) MTIS 386.1 24.8 410.9 405.7 173.4 579.2 145.1 72.5 217.6 9.5 191.5 307.1 498.6 – 258.5 258.5 1,128.4 836.3 1,964.7 9.5 Tonnes 2011 (6) MTIS 166.7 4.3 171.0 20.0 6.8 26.7 186.7 11.0 197.7 (7) kcal/kg 5,720 5,460 5,700 6,240 6,260 6,250 6,420 6,550 6,460 6,330 6,180 6,410 6,290 – 6,260 6,260 6,100 6,310 6,180 6,330 (7) kcal/kg 5,720 5,460 5,700 6,580 6,540 6,570 6,420 6,550 6,460 6,330 6,050 6,350 6,230 – 6,260 6,260 6,180 6,350 6,250 6,330 Coal Quality 2012 2011 (7) kcal/kg 6,500 6,500 6,500 6,290 6,300 6,290 6,470 6,380 6,460 (7) kcal/kg 6,500 6,500 6,500 6,640 6,660 6,650 6,510 6,600 6,520 Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Inferred (in LOM Plan) Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Inferred (in LOM Plan) (8) (8) 2012 MTIS 386.1 24.8 410.9 492.1 189.0 681.1 145.1 72.5 217.6 9.5 349.6 302.3 651.8 – 258.5 258.5 1,372.9 847.0 2,219.9 9.5 Classifi cation 2012 Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated Measured Indicated Measured and Indicated (6) MTIS 166.7 4.3 171.0 30.6 6.4 37.0 197.3 10.7 208.0 ORE RESERVES AND MINERAL RESOURCES COAL estimates as at 31 December 2012 Metallurgical Coal – Australia Projects COAL RESERVES(1) Attributable % Grosvenor 100 (2) Mine Life Classifi cation 21 Metallurgical – Coking Proved Probable Total Drayton South Grosvenor Moranbah South Theodore Australia – Projects 88.2 100 50.0 51.0 72.9 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 58.9 Footnotes appear at the end of the section. 202 Anglo American plc Annual Report 2012 ORE RESERVES AND MINERAL RESOURCES COAL estimates as at 31 December 2012 (1) Coal Reserves are quoted on a Run Of Mine (ROM) reserve tonnes basis, which represents the tonnes delivered to the plant. Saleable reserve tonnes represents the product tonnes produced. Coal Reserves (ROM and Saleable) are on the applicable moisture basis. (2) Attributable (%) refers to 2012 only. For the 2011 Reported and Attributable fi gures, please refer to the 2011 Annual Report. (3) ROM tonnes quoted on an As Delivered moisture basis, and Saleable tonnes 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 classifi cation. The coal quality for the Coal Reserves is quoted as either Calorifi c 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 specifi cations 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 specifi cations 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 Tonnes In-Situ (MTIS) basis in million tonnes, which are in addition to those resources that have been modifi ed 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 Calorifi c 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 LOM Plan) 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. Estimates for the following operations were updated by depletion and new geological models and revised Life of Mine Plans are scheduled for 2013: Callide, Capcoal OC, Capcoal UG, Foxleigh, Moranbah North and Trend. Summary of material changes (±10%) in estimates at reporting level Dawson: Coal Reserves – The increase is primarily due to the conversion of resources to reserves as a result of additional exploration drilling, a revised mine plan with an extended geographical area and extraction schedule as well as revised economic parameters . Coal Resources – The decrease is a result of the exploration programme and the subsequent resource model update. The increased resource confi dence enabled additional resources to be converted to reserves. The extended geographical area resulted in replacement of Inferred due to the additional drilling. Coal Reserves – Estimates from fi rst principles using a revised mine plan results in a material decrease in reserves due to revised economic assumptions and additional exploration data. Coal Resources – The material decrease is due to conversion of Coal Reserves and revised economic assumptions. Coal Resources – The increase is primarily due to model refi nement (combination of plies into working sections for underground and open cut seams) as well as additional exploration drilling and changes in geotechnical, environmental and resource utilisation considerations. Drayton: Drayton South: Moranbah South: Coal Resources – The increase is due to additional exploration drilling and changed resource classifi cation methodology to be consistent with Moranbah North and Grosvenor Roman Mountain: Coal Resources – The increase is due to reinterpretation of the geological model and model refi nement. areas . Assumption with respect to Mineral Tenure Callide: Foxleigh: A Mining Lease Application has been lodged for the southern and eastern part of the Boundary Hill area and Metallurgical Coal has reasonable expectation that it will be granted. Mining Lease Applications have been submitted for part of the Plains and Eagles Nest areas, and Metallurgical Coal has reasonable expectation that they will be granted. Audits related to the generation of the Coal Resource estimates were carried out by independent consultants during 2012 at the following operations and projects: Capcoal OC, Capcoal UG, Dawson and Foxleigh. 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 2012 203 ORE RESERVES AND MINERAL RESOURCES COAL estimates as at 31 December 2012 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 Edition as amended July 2009) and the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code, 2004) as applicable. The fi gures reported represent 100% of the Coal Reserves and Coal Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of fi gures may cause computational discrepancies. Anglo American Thermal Coal comprises the dominantly export and domestic thermal coal operations, located in Colombia and South Africa. Thermal Coal – Colombia Operations COAL RESERVES(1) Cerrejón (OC) Attributable % 33.3 (2) Mine Life 19 Thermal – Export Thermal Coal – South Africa Operations Mine COAL RESERVES(1) Life Goedehoop (UG&OC) 8 Thermal – Export Attributable % 100 (2) Greenside (UG) Thermal – Export 100 11 Isibonelo (OC) Synfuel 100 15 Kleinkopje (OC) Thermal – Export 100 11 Thermal – Domestic Kriel (UG&OC) Thermal – Domestic 73.0 13 Landau (OC) Thermal – Export 100 6 Thermal – Domestic Mafube (OC) Thermal – Export 50.0 14 Thermal – Domestic New Denmark (UG) Thermal – Domestic 100 26 New Vaal (OC) Thermal – Domestic 100 19 Zibulo (UG&OC) Thermal – Export 73.0 18 Thermal – Domestic Footnotes appear at the end of the section. Classifi cation Proved Probable Total Classifi cation 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) 2012 Mt 675.0 93.2 768.2 2011 Mt 718.8 86.0 804.8 2012 ROM % 96.7 97.0 96.7 2011 ROM % 96.8 96.8 96.8 2012 Mt 652.7 90.4 743.1 2011 Mt 695.5 83.2 778.7 2012 kcal/kg 6,180 6,110 6,170 2011 kcal/kg 6,300 6,240 6,290 ROM Tonnes (3) Yield (4) Saleable Tonnes (3) Saleable Quality (5) 2012 Mt 30.0 40.9 70.9 21.3 26.4 47.7 70.5 – 70.5 50.8 – 50.8 2011 Mt 37.4 48.6 86.0 25.8 21.9 47.8 69.9 – 69.9 64.5 12.0 76.4 40.3 63.8 104.1 29.6 12.1 41.7 46.0 67.5 113.5 36.4 24.4 60.7 12.1 70.7 82.8 24.8 66.6 91.3 30.8 81.2 112.0 348.1 – 348.1 91.3 23.5 114.9 30.2 80.9 111.1 371.8 – 371.8 86.1 28.6 114.7 2012 ROM % 54.9 51.6 53.0 2011 ROM % 53.0 51.7 52.3 57.4 54.0 55.5 100 – 100 33.2 – 33.2 38.5 – 38.5 100 100 100 48.4 46.0 47.7 12.3 18.5 14.1 47.5 33.9 35.9 19.7 29.1 27.7 100 100 100 89.6 – 89.6 49.4 43.9 48.3 26.6 30.4 27.4 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 93.4 – 93.4 49.4 46.1 48.6 29.8 30.4 29.9 2012 Mt 16.8 21.5 38.3 12.7 14.8 27.5 70.5 – 70.5 17.4 – 17.4 19.6 – 19.6 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 40.3 63.8 104.1 46.0 67.5 113.5 14.5 5.7 20.2 3.7 2.3 5.9 5.8 24.2 30.0 2.4 21.2 23.6 30.8 81.2 112.0 323.8 – 323.8 45.6 10.4 56.0 25.1 7.3 32.4 17.8 11.9 29.8 3.2 1.8 5.0 11.6 22.2 33.8 6.8 25.0 31.8 30.2 80.9 111.1 359.8 – 359.8 43.0 13.3 56.3 26.4 8.9 35.4 2012 kcal/kg 6,190 6,200 6,200 kcal/kg 6,200 6,190 6,190 kcal/kg 4,520 – 4,520 kcal/kg 6,190 – 6,190 kcal/kg 4,580 – 4,580 kcal/kg 4,830 4,430 4,580 kcal/kg 6,210 6,210 6,210 kcal/kg 4,040 4,370 4,170 kcal/kg 6,270 6,260 6,260 kcal/kg 5,360 4,970 5,010 kcal/kg 4,950 5,020 5,000 kcal/kg 3,560 – 3,560 kcal/kg 6,100 6,110 6,100 kcal/kg 4,930 4,780 4,900 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 kcal/kg 3,490 – 3,490 kcal/kg 6,090 6,070 6,090 kcal/kg 4,820 4,640 4,770 204 Anglo American plc Annual Report 2012 ORE RESERVES AND MINERAL RESOURCES COAL estimates as at 31 December 2012 Thermal Coal – South Africa Operations continued COAL RESERVES(1) South Africa Thermal – Export Attributable % 84.1 (2) South Africa Thermal – Domestic 92.2 South Africa Synfuel 100 Thermal Coal – Operations TOTAL COAL RESERVES(1) Attributable % Thermal – Export 43.6 (2) Thermal – Domestic 92.2 Synfuel 100 Mine Life Classifi cation Proved Probable Total Proved Probable Total Proved Probable Total Classifi cation Proved Probable Total Proved Probable Total Proved Probable Total ROM Tonnes (3) Yield (4) Saleable Tonnes (3) Saleable Quality (5) 2012 Mt 724.9 318.7 1,043.6 2011 Mt 792.9 350.5 1,143.3 2012 Plant % 52.9 45.6 49.9 87.7 88.2 87.8 100 – 100 2011 Plant % 48.2 45.9 47.0 86.9 87.2 86.8 100 – 100 2012 Mt 112.8 76.5 189.3 445.7 175.7 621.4 70.5 – 70.5 2011 Mt 131.8 90.9 222.7 494.2 184.1 678.4 69.9 – 69.9 2012 kcal/kg 6,160 6,210 6,180 kcal/kg 3,910 4,780 4,150 kcal/kg 4,520 – 4,520 2011 kcal/kg 6,170 6,190 6,180 kcal/kg 3,850 4,820 4,110 kcal/kg 4,590 – 4,590 ROM Tonnes (3) Yield (4) Saleable Tonnes (3) Saleable Quality (5) 2012 Mt 1,399.9 411.9 1,811.8 2011 Mt 1,511.7 436.5 1,948.2 2012 Plant % 90.2 73.4 87.2 87.7 88.2 87.8 100 – 100 2011 Plant % 89.1 70.2 85.7 86.9 87.2 86.8 100 – 100 2012 Mt 765.5 166.9 932.4 445.7 175.7 621.4 70.5 – 70.5 2011 Mt 827.3 174.2 1,001.4 494.2 184.1 678.4 69.9 – 69.9 2012 kcal/kg 6,180 6,160 6,170 kcal/kg 3,910 4,780 4,150 kcal/kg 4,520 – 4,520 2011 kcal/kg 6,280 6,210 6,270 kcal/kg 3,850 4,820 4,110 kcal/kg 4,590 – 4,590 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 fi gures apply to each product. The Saleable tonnes cannot be calculated directly from the ROM reserve tonnes 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 tonnes. 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 calorifi c value (CV). Thermal – Domestic refers to low- to high-volatile thermal coal primarily for domestic consumption for power generation; quality measured by calorifi c value (CV). Synfuel refers to a coal specifi cally for the domestic production of synthetic fuel and chemicals; quality measured by calorifi c 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 2012 205 ORE RESERVES AND MINERAL RESOURCES COAL estimates as at 31 December 2012 Thermal Coal – Colombia Operations COAL RESOURCES(6) Cerrejón (OC) Attributable % 33.3 (2) COAL RESOURCES ARE REPORTED AS ADDITIONAL TO COAL RESERVES. Thermal Coal – South Africa Operations COAL RESOURCES(6) Goedehoop (UG&OC) Attributable % 100 (2) Greenside (UG) Isibonelo (OC) Kleinkopje (OC) Kriel (UG&OC) Landau (OC) Mafube (OC) New Denmark (UG) New Vaal (OC) Zibulo (UG&OC) 100 100 100 73.0 100 50.0 100 100 73.0 South Africa – Mine Leases 82.3 COAL RESOURCES ARE REPORTED AS ADDITIONAL TO COAL RESERVES. Thermal Coal – Operations COAL RESOURCES(6) Total Attributable % 53.7 (2) COAL RESOURCES ARE REPORTED AS ADDITIONAL TO COAL RESERVES. Footnotes appear at the end of the section. 206 Anglo American plc Annual Report 2012 Classifi cation Measured Indicated Measured and Indicated Inferred (in LOM Plan) (8) (6) 2012 MTIS 903.6 160.0 1,063.6 73.8 Tonnes 2011 (6) MTIS 907.2 173.9 1,081.1 69.2 Coal Quality 2011 (7) kcal/kg 6,460 6,370 6,450 6,750 2012 (7) kcal/kg 6,450 6,360 6,440 6,720 Classifi cation 2012 Tonnes 2011 Coal Quality 2012 2011 Measured Indicated Measured and Indicated Inferred (in LOM Plan) Measured Indicated Measured and Indicated Inferred (in LOM Plan) Measured Indicated Measured and Indicated Inferred (in LOM Plan) Measured Indicated Measured and Indicated Inferred (in LOM Plan) Measured Indicated Measured and Indicated Inferred (in LOM Plan) Measured Indicated Measured and Indicated Inferred (in LOM Plan) Measured Indicated Measured and Indicated Inferred (in LOM Plan) Measured Indicated Measured and Indicated Inferred (in LOM Plan) Measured Indicated Measured and Indicated Inferred (in LOM Plan) Measured Indicated Measured and Indicated Inferred (in LOM Plan) Measured Indicated Measured and Indicated Inferred (in LOM Plan) (8) (8) (8) (8) (8) (8) (8) (8) (8) (8) (8) (6) MTIS 83.1 75.7 158.8 1.6 18.2 1.4 19.6 8.3 – 16.3 16.3 – 30.4 – 30.4 – 8.7 10.2 18.8 – 52.0 42.8 94.8 – 56.5 13.2 69.7 7.3 – – – 16.2 – – – – 147.3 201.7 349.0 20.4 396.2 361.2 757.4 53.9 (6) 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 – – – – 136.3 184.2 320.6 29.3 294.0 335.4 629.4 63.3 (7) kcal/kg 5,510 5,470 5,490 5,740 5,590 5,610 5,590 5,790 – 5,250 5,250 – 5,040 – 5,040 – 5,290 4,860 5,060 – 5,190 4,680 4,960 – 5,300 4,530 5,150 5,150 – – – 5,270 – – – – 4,960 4,900 4,920 5,460 5,200 5,000 5,100 5,420 (7) 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 – – – – 4,950 4,880 4,910 5,470 5,120 5,080 5,100 5,350 Classifi cation Measured Indicated Measured and Indicated Inferred (in LOM Plan) (8) 2012 (6) MTIS 1,299.7 521.2 1,821.0 127.7 Tonnes 2011 (6) MTIS 1,201.2 509.3 1,710.6 132.4 2012 (7) kcal/kg 6,070 5,410 5,880 6,170 Coal Quality 2011 (7) kcal/kg 6,130 5,520 5,950 6,080 ORE RESERVES AND MINERAL RESOURCES COAL estimates as at 31 December 2012 Thermal Coal – South Africa Projects COAL RESOURCES(6)(8) Elders Attributable % 73.0 (2) Kriel Block F Kriel East New Largo Nooitgedacht South Rand Vaal Basin South Africa – Projects 100 73.0 73.0 100 73.0 100 82.4 Classifi cation 2012 Tonnes 2011 Coal Quality 2012 2011 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 (6) MTIS 224.3 107.6 331.8 36.1 27.3 63.4 100.1 31.4 131.5 429.5 178.5 608.0 36.4 10.6 46.9 78.6 168.1 246.7 375.2 220.4 595.6 1,280.2 743.8 2,024.0 (6) MTIS 218.1 107.9 326.0 – 62.8 62.8 81.5 36.0 117.5 484.9 159.3 644.3 35.8 10.6 46.4 78.6 168.1 246.7 208.2 362.5 570.7 1,107.1 907.2 2,014.3 (7) kcal/kg 5,140 5,410 5,230 5,270 5,410 5,330 4,940 4,890 4,930 4,290 3,970 4,190 5,360 5,450 5,380 4,850 4,770 4,800 4,330 4,210 4,290 4,590 4,540 4,570 (7) 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 Attributable percentages for country totals are weighted by Measured and Indicated MTIS. (1) Coal Reserves are quoted on a Run Of Mine (ROM) reserve tonnes basis, which represents the tonnes delivered to the plant. Saleable reserve tonnes represents the product tonnes produced. Coal Reserves (ROM and Saleable) are on the applicable moisture basis. (2) Attributable (%) refers to 2012 only. For the 2011 Reported and Attributable fi gures, please refer to the 2011 Annual Report. (3) ROM tonnes quoted on an As Delivered moisture basis, and Saleable tonnes 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 classifi cation. The coal quality for the Coal Reserves is quoted as either Calorifi c 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 specifi cations 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 specifi cations of the individual supply contracts in the short-term and studies are underway to ensure long term compliance. CV is rounded to the nearest 10 kcal/kg. Coal Resources are quoted on a Mineable Tonnes In-Situ (MTIS) basis in million tonnes, which are in addition to those resources that have been modifi ed 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 Calorifi c 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 LOM Plan) 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. Summary of material changes (±10%) in estimates at reporting level Greenside: Coal Resources – Increase due to the inclusion of boreholes from Landau in the geological model resulted in seam thickness changes. The AATC standard software package was also implemented. Increase in Inferred in Mine Plan resulting from the conversion of the Clydesdale Pan from Inferred in Mine Lease to Mine Plan after the environmental approval was granted. Coal Resources – Decrease due to the transfer and conversion of underground resources to opencast reserves. Coal Reserves – Decrease due to the transfer between Kleinkopje and Greenside following a mining boundary rationalisation exercise. Coal Resources – Increase due to seam thickness adjustments resulting from additional drilling and interpretation, adjustments to 5 seam remnants, and reclassifi cation in Pit 2A layout following the reconfi guration exercise. Coal Reserves – Decrease due to the downgrade of Schoonie West S2S to resource as the Pre-Feasibility study is not yet approved. Coal Resources – Increase due to transfer of Greenside Resources into the Landau Lifex Project as well as an increase to the resource footprint as a result of Pre-Feasibility option analyses. Coal Resources – Increase results from additional drilling, the upgrade of S4 due to the viability of a lower quality product, re-classifi cation of the Pan 2 area in Springboklaagte pending the granting of the environmental approvals and removal of the Rooipan area. Coal Resources – Increase due to planned shaft closure and the re-allocation of the reserves to resources. Coal Resources for 2 + 4 Seam and 5 Seam have been combined and reported under South Africa Coal Projects. Coal Resources – Increase resulting from additional drilling information. Coal Resources – Increase resulting from additional drilling information offset by a decrease resulting from downgrade of all resources within the Wetland area. Assumption with respect to Mineral Tenure Cerrejón: Reserves are estimated for the area defi ned 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 November 2011; in addition the environmental permitting applications have been 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 regards to the Colliery’s potential impacts on wetlands. There is a reasonable expectation that such conversion will not be withheld. Isibonelo: Kleinkopje: Landau: Mafube: Nooitgedacht: Kriel East: Vaal Basin: Mafube: New Largo: Royalty Payment South Africa: 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. Audits related to the generation of the Coal Reserve and Coal Resource estimates were carried out by independent consultants during 2012 at the following operations and projects: Goedehoop, Greenside, Isibonelo, Kleinkopje, Mafube, Elders and Vaal Basin. Anglo American plc Annual Report 2012 207 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 2012 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 fi gures reported represent 100% of the Ore Reserves and Mineral Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of fi gures may cause computational discrepancies. Copper – Operations ORE RESERVES(1) Collahuasi (OP)(2) Oxide and Mixed Heap Leach Mine Life 70 Attributable % 44.0 Copper Sulphide Flotation – direct feed Copper Molybdenum Low Grade Sulphide Flotation – stockpile Copper Molybdenum 50.1 23 El Soldado (OP) Sulphide Flotation(3) Oxide Heap Leach Los Bronces (OP) 50.1 36 Sulphide Flotation Sulphide Dump Leach(4) Copper Molybdenum Copper Molybdenum Mantos Blancos (OP) 100 8 Sulphide Flotation(5) Oxide Vat and Heap Leach(6) Oxide Dump Leach(7) Mantoverde (OP) Oxide Heap Leach(8) Oxide Dump Leach(9) 100 5 Classifi cation 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 Proved Probable Total Proved Probable Total 2012 Mt 31.0 13.0 44.1 Tonnes 2011 Mt 0.0 35.4 35.4 419.1 1,655.1 2,074.2 285.0 1,640.3 1,925.3 – 1,069.2 1,069.2 – 935.2 935.2 125.7 44.6 170.3 – 3.0 3.0 95.4 67.3 162.7 – 3.5 3.5 729.9 779.4 1,509.3 899.6 598.8 1,498.4 428.6 179.0 607.6 486.6 197.1 683.7 14.1 21.6 35.6 2.7 12.7 15.4 – 36.8 36.8 22.2 20.2 42.3 18.4 25.7 44.2 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 2012 %TCu 0.58 0.71 0.62 %TCu 1.00 0.98 0.98 %Mo 0.024 0.024 0.024 %TCu – 0.49 0.49 %Mo – 0.010 0.010 %TCu 0.81 0.79 0.80 – 0.45 0.45 %TCu 0.70 0.53 0.61 %Mo 0.016 0.013 0.014 %TCu 0.32 0.29 0.31 %Mo 0.007 0.006 0.007 %ICu 0.82 0.79 0.80 %ASCu 0.55 0.38 0.41 %ASCu – 0.23 0.23 %ASCu 0.56 0.52 0.54 %ASCu 0.23 0.27 0.25 Grade 2011 %TCu 0.60 0.63 0.63 %TCu 1.07 0.93 0.95 %Mo – – – %TCu – 0.49 0.49 %Mo – – – %TCu 0.96 0.79 0.89 – 0.46 0.46 %TCu 0.69 0.51 0.62 %Mo – – – %TCu 0.35 0.27 0.33 %Mo – – – %ICu 0.83 0.80 0.82 %ASCu 0.54 0.33 0.40 %ASCu 0.18 0.23 0.23 %ASCu 0.59 0.55 0.58 %ASCu 0.24 0.28 0.26 Contained Metal 2012 kt 181 93 274 2011 kt 0 224 224 4,200 16,202 20,402 3,042 15,177 18,219 98 398 496 – 5,219 5,219 – 105 105 1,018 352 1,371 – 14 14 5,109 4,131 9,240 117 101 218 1,371 519 1,891 30 11 41 115 170 286 15 47 62 – 84 84 124 105 229 42 70 112 – – – – 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 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. 208 Anglo American plc Annual Report 2012 ORE RESERVES AND MINERAL RESOURCES COPPER estimates as at 31 December 2012 (1) Copper Reserves: A variable cut-off from 0.20% up to 0.50% (CuT, ICu or ASCu) is applied as cut-offs to determine Ore Reserves on operations. (2) Collahuasi: The increases in Ore Reserves is due to the completion of a drilling campaign at Rosario Oeste enabling conversion of additional Mineral Resources to Ore Reserves. Ujina also has additional Ore Reserves due to a change in economic assumptions (increase in long term metal price) and an updated geological model. (3) El Soldado – Sulphide (Flotation): The decrease in Ore Reserves is due to production and a change in the block modelling methodology to take into account a change in the mine design (bench (4) height) offset by increases due to a change in economic assumptions (increase in long term metal price) and new drilling information. Los Bronces – Sulphide (Dump Leach): The decrease in Ore Reserves is due to a combination of production, changes to the mine plan, a new classifi cation methodology (which resulted in re-allocation of probable reserves to inferred resources) offset by an increase due to a change in economic assumptions (increase in long term metal price). (5) Mantos Blancos – Sulphide (Flotation): The decrease in Ore Reserves is primarily due to an updated mine planning schedule offset by a small increase due to new information from within the pit. (6) Mantos Blancos – Oxide (Vat and Heap Leach): The decrease in Ore Reserves is primarily due to transfer of material to the Dump Leaching process along with production. (7) Mantos Blancos – Oxide (Dump Leach): The decrease in Ore Reserves is primarily due to production along with transfer of material to the Vat Leach Process which is offset by Vat Leach Tailings (8) (9) which will now be put through the Dump Leach Process. Mantoverde – Oxide (Heap Leach): The decrease in Ore Reserves is due to production offset by conversion of Mineral Resources to Ore Reserves enabled by new drilling information. Mantoverde – Oxide (Dump Leach): The decrease in Ore Reserves is due to production offset by an increase of Dump Material within the Montecristo, Quisco and Pto 62 areas as a result of continued drilling. Audits related to the generation of the Ore Reserve and Mineral Resource estimates were carried out by independent consultants during 2012 at the following operations: El Soldado, Los Bronces, Mantos Blanco and Mantoverde. 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 2012 209 ORE RESERVES AND MINERAL RESOURCES COPPER estimates as at 31 December 2012 Copper – Operations MINERAL RESOURCES (1) Collahuasi (OP) Oxide and Mixed Heap Leach Attributable % 44.0 Copper Sulphide(2) Flotation – direct feed Copper Molybdenum Low Grade Sulphide(2) Flotation – stockpile Copper Molybdenum 50.1 El Soldado (OP) Sulphide Flotation(3) Oxide Heap Leach Los Bronces (OP) Sulphide Flotation(4) 50.1 Copper Sulphide Dump Leach(5) Molybdenum Copper Molybdenum Classifi cation Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred 210 Anglo American plc Annual Report 2012 2012 Mt – 0.5 0.5 2.8 8.5 11.3 4.6 1,148.9 1,153.6 486.1 2,654.9 3,141.0 Tonnes 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 6.2 265.9 272.1 361.6 945.4 1,307.0 1.2 152.5 153.7 579.0 736.8 1,315.8 24.7 7.7 32.4 7.7 6.4 14.1 0.0 0.0 0.0 – 0.0 0.0 21.9 18.8 40.7 20.9 12.7 33.6 0.1 0.1 0.2 – 0.1 0.1 84.8 897.6 982.4 212.0 3,311.1 3,523.1 211.1 922.9 1,133.9 83.7 3,115.6 3,199.3 – – – 173.2 – 173.2 – – – 114.4 – 114.4 2012 %TCu – 0.70 0.70 0.37 0.62 0.56 %TCu 0.75 0.94 0.94 1.03 0.92 0.94 %Mo 0.005 0.047 0.047 0.016 0.022 0.021 %TCu 0.48 0.46 0.46 0.45 0.47 0.46 %Mo 0.012 0.021 0.021 0.004 0.005 0.005 %TCu 0.78 0.72 0.77 0.58 0.53 0.56 0.68 0.62 0.66 – 0.57 0.57 %TCu 0.45 0.40 0.40 0.48 0.36 0.37 %Mo 0.005 0.009 0.009 0.013 0.008 0.008 %TCu – – – 0.28 – 0.28 %Mo – – – 0.006 – 0.006 Grade Contained Metal 2011 %TCu – 0.60 0.60 0.62 0.61 0.62 %TCu 0.78 0.91 0.91 0.99 0.91 0.93 %Mo – – – – – – %TCu 0.44 0.46 0.46 0.44 0.46 0.45 %Mo – – – – – – %TCu 0.82 0.72 0.77 0.81 0.71 0.77 0.75 0.69 0.71 – 0.69 0.69 %TCu 0.45 0.43 0.43 0.58 0.39 0.39 %Mo – – – – – – %TCu – – – 0.26 – 0.26 %Mo – – – – – – 2012 2011 kt – 3 3 11 53 63 35 10,821 10,856 5,017 24,441 29,458 0 368 368 76 584 660 30 1,233 1,263 1,616 4,419 6,036 1 25 26 14 44 58 193 55 248 45 34 79 0 0 0 – 0 0 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 0 382 3,590 3,972 1,018 11,920 12,938 950 3,968 4,918 485 12,151 12,636 4 81 85 28 265 293 – – – 485 – 485 – – – 10 – 10 – – – – – – – – – 298 – 298 – – – – – – ORE RESERVES AND MINERAL RESOURCES COPPER estimates as at 31 December 2012 Copper – Operations continued MINERAL RESOURCES (1) Mantos Blancos (OP) Attributable % 100 Sulphide Flotation(6) Oxide Vat and Heap Leach(7) Oxide Dump Leach(8) Mantoverde (OP) Oxide Heap Leach(9) 100 Oxide Dump Leach Classifi cation Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred 2012 Mt 30.2 64.8 95.0 9.4 23.8 33.2 3.5 11.1 14.6 17.6 7.4 25.0 0.4 8.4 8.8 91.4 4.3 95.7 5.1 6.7 11.8 3.3 0.1 3.4 – – – 0.6 – 0.6 Tonnes 2011 Mt 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 2012 %ICu 0.95 0.69 0.77 0.46 0.66 0.60 %ASCu 0.50 0.45 0.46 0.26 0.46 0.32 %ASCu 0.18 0.17 0.17 0.23 0.17 0.23 %ASCu 0.42 0.53 0.48 0.69 0.30 0.68 %ASCu – – – 0.24 – 0.24 Grade 2011 %ICu 0.75 0.56 0.64 0.57 0.55 0.55 %ASCu 0.47 0.43 0.45 0.53 0.47 0.49 %ASCu – 0.20 0.20 0.23 – 0.23 %ASCu 0.36 0.42 0.38 0.53 0.29 0.38 %ASCu – – – 0.22 – 0.22 Contained Metal 2012 kt 286 447 734 43 157 201 17 50 67 46 34 80 1 14 15 210 7 218 22 35 57 23 0 23 – – – 1 – 1 2011 kt 359 379 738 16 153 168 66 45 111 10 16 26 – 17 17 154 – 154 76 55 131 3 3 6 – – – 2 – 2 MINERAL RESOURCES ARE REPORTED AS ADDITIONAL TO ORE RESERVES. (1) 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 not included in the Mineral Resource statement. Mineral Resources are quoted above a 0.2% TCu cut-off. (2) Collahuasi – Sulphide and Low Grade Sulphide (Flotation): The increase in Mineral Resources is primarily due to Economic Assumptions (increase in long term metal price) and new drilling information which identifi ed and delineated new resources. (3) El Soldado – Sulphide (Flotation): The decrease in Mineral Resources is primarily due to conversion of Mineral Resources to Ore Reserves (increase in long term metal price) and greater dilution (4) (5) effect as a result of a change in bench height and ore/waste contact modelling methodology. Los Bronces – Sulphide (Flotation): The decrease in Measured and Indicated Mineral Resources is due to a change in the estimation methodology and new classifi cation. The overall increase in Mineral Resources is due to a change in economic assumptions (increase in long term metal price). Los Bronces – Sulphide (Dump Leach): The Mineral Resources increase due to the re-allocation of Probable Reserves to Inferred Resources, which is offset by a decrease due to changes in the cut-off grade strategy applied to material sent to the fl otation plant. (6) Mantos Blancos – Sulphide (Flotation): The increase in Mineral Resources is due to new drilling information which identifi ed and delineated new resources offset by a refi nement in the estimation methodology. (7) Mantos Blancos – Oxide (Vat and Heap Leach): The increase in Mineral Resources is due to increased feed from the Mercedes Dump offset by a change in the estimation methodology. (8) Mantos Blancos – Oxide (Dump Leach): The Mineral Resources increase due to additional material from Phase II of Mercedes Dump and Botadero B zones. (9) Mantoverde – Oxide (Heap Leach): The decrease in Mineral Resources is due to conversion to Ore Reserves enabled by new drilling information. 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 2012 211 ORE RESERVES AND MINERAL RESOURCES COPPER estimates as at 31 December 2012 Copper – Projects ORE RESERVES Quellaveco (OP)(1) Sulphide Flotation Mine Life 28 Attributable % 81.9 Copper Molybdenum Copper – Projects MINERAL RESOURCES Quellaveco (OP)(1) Attributable % 81.9 Sulphide Flotation Copper Molybdenum Mantoverde Sulphide Project(2) 100 Sulphide Flotation Pebble (OP/UG)(3)(4)(5) 50.0 Sulphide Los Sulfatos(6) Sulphide San Enrique Monolito(7) Sulphide West Wall(8) Sulphide 50.1 50.1 50.0 Classifi cation Proved Probable Total Proved Probable Total Classifi cation Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred Measured(4) Indicated(5) Measured and Indicated Inferred(6) 2012 Mt 701.8 214.6 916.4 2012 Mt 284.2 807.9 1,092.0 6.9 877.9 884.8 Tonnes 2011 Mt 701.8 214.6 916.4 Tonnes 2011 Mt 196.8 627.0 823.8 8.1 174.9 183.0 106.6 41.5 148.1 78.0 507.9 4,761.0 5,268.8 2,709.5 109.8 34.2 144.0 44.3 507.9 4,761.0 5,268.8 2,709.5 Inferred 1,200 1,200 Inferred Inferred 900 750 900 750 2012 %TCu 0.65 0.63 0.65 %Mo 0.019 0.021 0.019 2012 %TCu 0.35 0.41 0.39 0.79 0.33 0.33 %Mo 0.015 0.015 0.015 – 0.015 0.015 %TCu 0.68 0.66 0.67 0.68 %TCu 0.34 0.46 0.45 0.32 %TCu 1.46 %TCu 0.81 %TCu 0.54 Grade 2011 %TCu 0.65 0.63 0.65 %Mo – – – Grade 2011 %TCu 0.40 0.45 0.44 0.72 0.44 0.45 %Mo – – – – – – %TCu 0.67 0.63 0.66 0.65 %TCu 0.34 0.46 0.45 0.32 %TCu 1.46 %TCu 0.81 %TCu 0.54 Contained Metal 2012 kt 4,562 1,352 5,914 133 45 178 2011 kt 4,562 1,352 5,914 – – – Contained Metal 2012 kt 990 3,290 4,280 54 2,893 2,947 43 121 164 – 132 132 725 274 999 530 2011 kt 787 2,822 3,609 58 770 828 – – – – – – 736 216 951 288 1,715 21,739 23,454 8,587 1,715 21,739 23,454 8,587 17,520 17,520 7,290 4,050 7,290 4,050 MINERAL RESOURCES ARE REPORTED AS ADDITIONAL TO ORE RESERVES. 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: Mineral Resources are quoted above a 0.2 %TCu cut-off. The increase in the Mineral Resources is due to a change in economic assumptions (increase in long term metal price), a change in the cut-off grade strategy and the addition of low-grade stockpile material. Mantoverde Sulphide Project: Mineral Resources are quoted above a 0.35 %TCu cut-off. The increase in Mineral Resources is primarily due to new drilling information. There is a possibility to consider Oxides together with the Sulphides. Oxide Mineral Resource estimates are as follows: Measured 53.2 Mt at 0.40 %ASCu; Indicated 4.0 Mt at 0.39 %ASCu; Inferred 10.1 Mt at 0.40 %ASCu. Pebble: The Mineral Resources are based on drilling to May 2009 and a block model fi nalised in December 2009. Reported Mineral Resources fall within a volume defi ned 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: Measured – Gold 0.36g/t, Molybdenum 0.018%, CuEq average grade 0.66% Indicated – Gold 0.37g/t, Molybdenum 0.027%, CuEq average grade 0.85%. Inferred – Gold 0.31g/t, Molybdenum 0.026%, CuEq average grade 0.67%. 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 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. 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. (5) (6) (7) (8) Audits related to the generation of the Ore Reserve and Mineral Resource estimates were carried out by independent consultants during 2012 at the following projects: Quellaveco and Mantoverde Sulphide Project. 212 Anglo American plc Annual Report 2012 ORE RESERVES AND MINERAL RESOURCES NICKEL estimates as at 31 December 2012 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 fi gures reported represent 100% of the Ore Reserves and Mineral Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of fi gures may cause computational discrepancies. Nickel – Operations ORE RESERVES Barro Alto (OP)(1) Saprolite Niquelândia (OP)(2) Saprolite Attributable % 100 Mine Life 17 100 22 Nickel – Operations MINERAL RESOURCES Barro Alto (OP) Saprolite Direct Feed(3) Attributable % 100 Ferruginous Laterite Stockpile(4) Niquelândia (OP)(5) Saprolite 100 Classifi cation Proved Probable Total Proved Probable Total Classifi cation Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred MINERAL RESOURCES ARE REPORTED AS ADDITIONAL TO ORE RESERVES. Nickel – Projects MINERAL RESOURCES Jacaré(6) Ferruginous Laterite Attributable % 100 Saprolite Classifi cation Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred 2012 Mt 23.4 23.4 46.8 3.9 1.0 4.9 2012 Mt 9.0 5.0 14.0 36.6 13.1 49.7 3.3 3.8 7.1 1.5 0.0 1.6 2.8 2.9 5.7 – – – 2012 Mt 6.3 53.8 60.1 125.0 – 39.6 39.6 81.9 Tonnes 2011 Mt 21.2 31.0 52.2 3.7 0.9 4.6 Tonnes 2011 Mt 5.5 1.7 7.2 45.4 14.8 60.2 2.4 3.6 6.0 – 1.5 1.5 2.9 3.1 6.0 – – – Tonnes 2011 Mt 6.3 53.8 60.1 125.0 – 39.6 39.6 81.9 2012 %Ni 1.71 1.51 1.61 %Ni 1.35 1.32 1.34 2012 %Ni 1.43 1.30 1.38 1.52 1.18 1.43 1.28 1.10 1.19 1.07 1.00 1.07 %Ni 1.25 1.23 1.24 – – – 2012 %Ni 1.15 1.21 1.21 1.17 – 1.49 1.49 1.39 Grade 2011 %Ni 1.66 1.55 1.60 %Ni 1.35 1.33 1.35 Grade 2011 %Ni 1.47 1.17 1.40 1.51 1.21 1.44 1.31 1.09 1.18 – 1.05 1.05 %Ni 1.26 1.24 1.25 – – – Grade 2011 %Ni 1.15 1.21 1.21 1.17 – 1.49 1.49 1.39 Contained Metal 2012 kt 401 353 754 52 14 66 2011 kt 352 481 833 50 12 63 Contained Metal 2012 kt 129 65 193 556 155 710 42 42 85 16 0 17 35 35 70 – – – 2011 kt 80 20 100 686 179 865 31 40 71 – 16 16 37 39 75 – – – Contained Metal 2012 kt 72 653 726 1,468 – 589 589 1,138 2011 kt 72 653 726 1,468 – 589 589 1,138 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. Loma de Níquel is not reported as the mining concessions expired in November 2012 and have not been renewed. (1) Barro Alto – Ore Reserves: The decrease is due to a change in evaluation methodology resulting in re-allocation to Mineral Resources. The decrease is partially offset by increases due to updated economic assumptions and new information enabling conversion of Mineral Resources to Ore Reserves. In 2011 the reported Mine Life considered reserves plus Inferred (in LOM Plan), however, in 2012 correctly considers only the scheduled Ore Reserves. Niquelândia – Ore Reserves: The increase is due to revised economic assumptions which are partially offset by a change in evaluation methodology resulting in re-allocation to Mineral Resources. (2) Niquelândia Mine is adjacent to the Codemin Ferro-Nickel smelter which is fed with ore from Barro Alto which is blended with Niquelândia ore to achieve an appropriate smelter feed chemistry. (3) Barro Alto – Direct Feed: Mineral Resources are quoted above a 0.9 %Ni cut-off, below an iron content of 30 %Fe and between a SiO2/(MgO+CaO) ratio of 1.72 to 1.8. The decrease is due to downgrading of Mineral Resources to Mineralised Inventory due to a change in resource classifi cation which is partially offset by the change in evaluation methodology resulting in re-allocation to Mineral Resource. A surface stockpile of 5.2 Mt at 1.48 %Ni is included in the Saprolite Mineral Resources. Barro Alto – Stockpile: Material that is scheduled for stockpiling or has already been mined and stockpiled. A surface stockpile of 0.6 Mt at 1.19 %Ni is included in the Ferruginous Laterite Mineral Resources. Niquelândia – Mineral Resources: Mineral Resources are quoted above a 0.9 %Ni cut-off, below an Iron content of 30% Fe and between a SiO2/(MgO+CaO) ratio of 1.72 to 1.8. A change in the economic assumptions enabled conversion of Mineral Resources to Ore Reserves which was partially offset by a change in evaluation methodology resulting in re-allocation to Mineral Resources. Jacaré: The Mineral Resources are reported within a pit shell developed for the Concept Study with 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 Saprolite Resources 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. The Plano de Aproveitamento Economico (PAE) is under consideration by Brazil’s Departamento Nacional de Produção Mineral (DNPM). (4) (5) (6) Audits related to the generation of the Ore Reserve and Mineral Resource estimates were carried out by independent consultants during 2012 at the following operations: Barro Alto and Niquelândia. Anglo American plc Annual Report 2012 213 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 2012 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 Edition as amended July 2009). 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 specifi c reef. The fi gures reported represent 100% of the Mineral Resources and Ore Reserves attributable to Anglo American Platinum Limited unless otherwise noted. Rounding of fi gures may cause computational discrepancies. The Mineral Resource and Ore Reserve tables refl ect estimates prior to the strategic announcement in January 2013. Changes associated with the strategic review will most probably result in a reallocation of reported Ore Reserves to Mineral Resources in the Rustenburg and Union areas and the impact thereof will only be refl ected in the 2013 Annual Report. Anglo American plc’s interest in Anglo American Platinum Limited is 79.9%. Platinum – South Africa Operations ORE RESERVES Merensky Reef(4)(5) Classifi cation 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) (12) (13) Probable Total Proved Probable Total(9) Proved Probable Total Classifi cation Proved Probable Total Tonnes (1) Grade(2) Contained Metal(3) Contained Metal (3) 2012 Mt 59.8 22.5 82.3 389.8 128.6 518.4 587.5 26.7 394.6 1,008.9 1,063.9 545.7 1,609.6 – 15.9 15.9 2012 Mt 13.9 39.8 53.7 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 Tonnes (1) 2011 Mt 15.0 23.7 38.7 2012 4E PGE 4.79 4.49 4.71 4.05 4.46 4.15 2.75 1.72 2.81 2.75 3.32 3.27 3.30 – 1.02 1.02 2012 4E PGE 3.85 3.73 3.76 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 2012 4E tonnes 286.5 100.9 387.4 1,578.7 573.6 2,152.3 1,617.3 46.0 1,108.2 2,771.5 3,528.5 1,782.7 5,311.2 – 16.1 16.1 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 2012 4E Moz 9.2 3.2 12.5 50.8 18.4 69.2 52.0 1.5 35.6 89.1 113.4 57.3 170.8 – 0.5 0.5 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 Grade(2) Contained Metal(3) Contained Metal (3) 2011 4E PGE 3.68 3.85 3.79 2012 4E tonnes 53.4 148.5 201.9 2011 4E tonnes 55.2 91.2 146.5 2012 4E Moz 1.7 4.8 6.5 2011 4E Moz 1.8 2.9 4.7 (1) Tonnes: 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. Concentrator recoveries for Merensky Reef range from 84% to 89%, UG2 Reef from 82% to 87%, Platreef from 64% to 74% and Main Sulphide Zone from 70% to 78%. (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 2013 Business plan prior to the strategic review announcement made in January 2013. 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 2.0g/t and 5.6g/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 tonnage and 4E ounce content decreased, mainly in response to economic assumptions resulting in reallocation of Ore Reserves to Mineral Resources at Tumela Mine and Siphumelele 1 Mine. These decreases were partially offset by the increase in Ore Reserves mainly from Khuseleka Mine and Union South Mine where additional Mineral Resources have been converted to Ore Reserves. The global Ore Reserve grade decreased following the increase of the minimum resource cut from 90cm to 110cm due to improved rock support measures. UG2 Reef: The global Ore Reserve tonnage and 4E ounce content decreased largely due to economic assumptions and the resulting reallocation of Ore Reserves to Mineral Resources at Tumela Mine, Twickenham Mine and Siphumelele 2 Mine. These decreases were partially offset by the increase in Ore Reserves from Union South Mine, Siphumelele 1 Mine, Kroondal Mine, Marikana Mine and Modikwa Mine where Mineral Resources have been converted to Ore Reserves. The global Ore Reserve grade decreased following the increase of the minimum resource cut from 90cm to 110cm due to an improved rock support measures. Platreef: The Ore Reserves tonnage and 4E ounce content increased as a result of a revised pit design. Geotechnical study will commence in 2013 to validate the optimum pit design and increased mining depth. For Mogalakwena North, Central and South the 4E pay limit is 1.0 g/t. For Sandsloot and Zwartfontein South the pay limit is 1.7 g/t. (5) (6) (7) (8) Platreef stockpiles: Mined ore retained for 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 2012 is: Total – 1,774.3 Mton (2011: 1,630.4 Mton) Total – 0.096 oz/ton (2011: 0.108 oz/ton) (10) Tailings: Operating tailings dams are not evaluated and therefore not reported as part of the Ore Reserves. At Rustenburg mines and at Union mines dormant tailings dams have been evaluated and are separately reported as tailings Ore Reserves. (11) Main Sulphide Zone: The Ore Reserve tonnage and 4E ounce content increased after the conversion of Mineral Resources to Ore Reserves, which followed an increase in resource confi dence based on new drilling information. (12) Main Sulphide Zone: Anglo American Platinum currently has an effective 100% interest in Unki Mine, subject to the fi nalisation of the indigenisation agreement. (13) Alternative units – Main Sulphide Zone: Tonnage in million short tons (Mton) and associated grade in troy ounces per short ton (oz/ton) for 2012 is: Total – 59.2 Mton (2011: 42.6 Mton) Total – 0.110 oz/ton (2011: 0.110 oz/ton) 214 Anglo American plc Annual Report 2012 ORE RESERVES AND MINERAL RESOURCES PLATINUM GROUP METALS estimates as at 31 December 2012 Platinum – South Africa Operations MINERAL RESOURCES Merensky Reef(4)(5) Classifi cation UG2 Reef(4)(6) Platreef(7) All Reefs Tailings(9) Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated(8) Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Tonnes (1) Grade(2) Contained Metal(3) Contained Metal (3) 2012 Mt 189.3 290.6 479.9 9.8 563.8 573.6 475.2 656.4 1,131.6 7.3 604.8 612.1 151.2 740.7 891.8 25.8 1,560.5 1,586.3 815.7 1,687.7 2,503.4 43.0 2,729.1 2,772.1 87.6 15.1 102.7 – – – 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 – – – 2012 4E PGE 5.63 5.51 5.55 6.33 5.11 5.13 5.14 5.13 5.13 5.23 5.36 5.35 2.59 2.11 2.19 4.05 2.10 2.14 4.78 3.87 4.16 4.77 3.45 3.47 1.08 1.13 1.08 – – – 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 – – – 2012 2011 4E tonnes 1,065.1 1,600.1 2,665.2 62.1 2,879.5 2,941.6 2,441.0 3,367.8 5,808.8 38.3 3,239.5 3,277.8 391.3 1,560.9 1,952.2 104.5 3,284.1 3,388.6 3,897.4 6,528.8 10,426.2 204.9 9,403.1 9,608.0 94.3 17.0 111.3 – – – 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 – – – 2012 4E Moz 34.2 51.4 85.7 2.0 92.6 94.6 78.5 108.3 186.8 1.2 104.2 105.4 12.6 50.2 62.8 3.4 105.6 108.9 125.3 209.9 335.2 6.6 302.3 308.9 3.0 0.5 3.6 – – – 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 – – – MINERAL RESOURCES ARE REPORTED AS ADDITIONAL TO ORE RESERVES. Platinum – Zimbabwe Operations MINERAL RESOURCES Main Sulphide Zone(10) (11) (12) Classifi cation Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Tonnes (1) Grade(2) Contained Metal(3) Contained Metal (3) 2012 Mt 9.5 104.1 113.6 0.3 72.3 72.6 2011 Mt 8.7 21.2 29.8 14.2 35.5 49.6 2012 4E PGE 4.04 4.23 4.21 3.32 4.58 4.57 2011 4E PGE 4.15 4.13 4.14 4.19 4.09 4.12 2012 4E tonnes 38.5 439.7 478.2 1.0 330.8 331.8 2011 4E tonnes 36.0 87.5 123.5 59.5 144.9 204.4 2012 4E Moz 1.2 14.1 15.4 0.0 10.6 10.7 2011 4E Moz 1.2 2.8 4.0 1.9 4.7 6.6 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) Tonnes: Quoted as dry metric tonnes. (2) Grade: 4E PGE is the sum of Platinum, Palladium, Rhodium and Gold grades in grammes per tonne (g/t). (3) Contained Metal: Contained Metal is presented in metric tonnes and million troy ounces (Moz). (4) Merensky Reef and UG2 Reef: The Mineral Resources are estimated over a practical minimum mining width suitable for the deposit known as the ‘Resource Cut’. The minimum resource cut increased from 90cm to 110cm due to the introduction of an improved support system. As a result of the increased minimum resource cut the overall Merensky Reef and UG2 Reef tonnage increased and the overall grade decreased. The ‘Resource Cut’ width takes cognisance of the mining method and geotechnical aspects in the hanging wall or footwall of the reef. Merensky Reef: The Mineral Resource tonnage and 4E ounce content increased in response to the re-allocation of Ore Reserve back to Mineral Resources following economic assumptions at Tumela and Siphumelele mines. The increase in the minimum mining cut (change in mine layout) and new information contribute to the increase. UG2 Reef: The Mineral Resource tonnage and 4E ounce content increased due to re-allocation of Ore Reserve to Mineral Resources after application of revised economic assumptions at Tumela, Twickenham and Siphumelele mines. New information at Pandora Mine decreased the geological loss resulting in increased Mineral Resources. A decrease of Mineral Resource occurred at Union South mine where additional Mineral Resources were converted to Ore Reserves. Platreef: A 1.0g/t (4E PGE) cut-off has been used to defi ne Mineral Resources. During 2012 pit design test work confi rmed that Mineral Resources reported in 2011 can be mined via open pit. Additional Mineral Resources were converted to Ore Reserves, decreasing the Platreef Resources. 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 (5.5 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 2012 is: Measured and Indicated – 2759.5 Mton (2011: 2,838.1 Mton) Measured and Indicated – 0.121 oz/ton (2011: 0.114 oz/ton) Tailings: Operating tailings dams are not evaluated and therefore not reported as part of the Mineral Resources. At Rustenburg and Union mines dormant dams have been evaluated and the tailing forms part of the Mineral Resource statement. (9) (10) Main Sulphide Zone: A new resource evaluation was completed covering Unki South, Helvetia, Paarl, KV and SR projects (contained within the special mining lease held by Southridge Limited). All projects are now incorporated in the Mineral Resources. As a consequence the Mineral Resources tonnage and 4E ounce content increased signifi cantly. The bulk of the resources have been evaluated using a 120cm resource cut. Unki East and West have been evaluated on a 180cm resource cut to support trackless mining. The increase in tonnage and content is offset by the decrease of Mineral Resource due to additional conversion of Mineral Resources to Ore Reserves at the Unki East Mine. Oxidised material is not considered. (11) Main Sulphide Zone: Anglo American Platinum currently has an effective 100% interest in Southridge Limited, subject to the fi nalisation of the indigenisation agreement. (12) Alternative units – Main Sulphide Zone Measured and Indicated: Tonnage in million short tons (Mton) and associated grade in troy ounces per short ton (oz/ton) for 2012 is: Total – 205.3 Mton (2011: 87.6 Mton) Total – 0.127 oz/ton (2011: 0.120 oz/ton) Anglo American plc Annual Report 2012 215 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 2012 Platinum – Other Projects MINERAL RESOURCES South Africa Classifi cation 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) 2012 Mt – 37.0 37.0 1.8 28.0 34.0 62.0 149.9 6.6 2011 Mt – 37.0 37.0 1.8 28.0 34.0 62.0 149.9 6.6 2012 3E PGE – 1.30 1.30 1.14 3E PGE 0.88 0.85 0.87 0.96 3E PGE 2.27 2011 3E PGE – 1.30 1.30 1.14 3E PGE 0.88 0.85 0.87 0.96 3E PGE 2.27 2012 3E tonnes – 47.9 47.9 2.1 24.6 29.1 53.6 144.5 15.0 2011 3E tonnes – 47.9 47.9 2.1 24.6 29.1 53.6 144.5 15.0 2012 3E Moz – 1.5 1.5 0.1 0.8 0.9 1.7 4.6 0.5 2011 3E Moz – 1.5 1.5 0.1 0.8 0.9 1.7 4.6 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) Tonnes: Quoted as dry metric tonnes. (2) Grade: 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) Boikgantsho: Anglo American Platinum holds an attributable interest of 49% of the Joint Venture between Anglo American Platinum and Atlatsa Resources. A cut-off grade of 1g/t (3E PGE) is applied for resource defi nition. 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). A cut-off grade of 0.5g/t (3E PGE) is applied for resource defi nition. (5) (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) is applied for resource defi nition. The following operations and projects contributed to the combined 2012 Ore Reserve and Mineral Resource estimates stated per reef (excluding Other Projects): Operations: Bafokeng Rasimone Platinum Mine (BRPM) Bathopele Mine Bokoni Platinum Mine Dishaba Mine Khomanani Mine Khuseleka Mine Kroondal Platinum Mine Marikana Platinum Mine Modikwa Platinum Mine Mogalakwena Mine Mototolo Platinum Mine Pandora Siphumelele 1 Mine Siphumelele 2 Mine (School of Mines) Thembelani Mine Tumela Mine Twickenham Platinum Mine Union North Mine Union South Mine Unki Mine Resource Types MR/UG2 UG2 MR/UG2 MR/UG2 MR/UG2 MR/UG2 UG2 UG2 MR/UG2 PR UG2 UG2 MR/UG2 MR/UG2 MR/UG2 MR/UG2 MR/UG2 MR/UG2 MR/UG2 MSZ Projects: Der Brochen Project Ga-Phasha PGM Project Magazynskraal Project Other Exploration Projects (portions of Driekop/Rustenburg) Rustenburg – Non-Mine Projects MR/UG2 MR/UG2 MR/UG2 MR/UG2 MR/UG2 Mine Life 24 14 30 30 15 24 6 6 29 30 5* 26 18 3 25 22 30 18 22 30 % 33% 100% 49% 100% 100% 100% 50% 50% 50% 100% 50% 42.5% 100% 100% 100% 100% 100% 85% 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) 3E Projects – Pedra Branca, Sheba’s Ridge 4E Projects – Ga-Phasha, Magazynskraal Audits related to the generation of the Ore Reserve and Mineral Resource estimates were carried out by independent consultants during 2012 at the following operations: Dishaba, Mogalakwena, Tumela, Union North, Union South and Unki. 216 Anglo American plc Annual Report 2012 ORE RESERVES AND MINERAL RESOURCES DIAMONDS estimates as at 31 December 2012 DE BEERS CANADA The Diamond Reserve and Diamond Resource estimates were compiled in accordance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (NI 43-101). The fi gures reported represent 100% of the Diamond Reserves and Diamond Resources. Diamond Resources are quoted as inclusive of those used to calculate Diamond Reserves and must not be added to the Diamond Reserves. Rounding of fi gures may cause computational discrepancies. De Beers Canada – Operations DIAMOND RESERVES Snap Lake (UG)(1) Attributable % 85.0 LOM 18 BCO (mm) 1.14 Classifi cation Kimberlite Victor (OP) Kimberlite 85.0 6 1.50 De Beers Canada Inc. 85.0 multiple TOTAL Proved Probable Total Proved Probable Total Proved Probable Total De Beers Canada – Operations DIAMOND RESOURCES Snap Lake (UG)(1) Attributable % 85.0 Kimberlite BCO (mm) 1.14 Classifi cation Measured Indicated Measured and Indicated Inferred Victor (OP) Kimberlite 85.0 1.50 Measured Indicated Measured and Indicated Inferred De Beers Canada Inc. 85.0 multiple TOTAL Measured Indicated Measured and Indicated Inferred DIAMOND RESOURCES INCLUDE DIAMOND RESERVES De Beers Canada – Projects DIAMOND RESERVES Gahcho Kué (OP)(2) Kimberlite Attributable % 43.4 LOM 11 BCO (mm) 1.00 BCO (mm) 1.00 Classifi cation Proved Probable Total Classifi cation Measured Indicated Measured and Indicated Inferred De Beers Canada – Projects DIAMOND RESOURCES Gahcho Kué (OP)(2) Attributable % 43.4 Kimberlite DIAMOND RESOURCES INCLUDE DIAMOND RESERVES 2012 Mt – 1.6 1.6 – 12.1 12.1 – 13.7 13.7 2012 Mt – 2.5 2.5 23.1 – 12.9 12.9 17.9 – 15.4 15.4 41.1 2012 Mt – 31.0 31.0 2012 Mt – 30.2 30.2 6.0 Tonnes 2011 Mt – – – – – – – – – Tonnes 2011 Mt – – – – – – – – – – – – Tonnes 2011 Mt – – – Tonnes 2011 Mt – – – – 2012 cpht – 123.07 123.07 cpht – 19.42 19.42 cpht – 31.68 31.68 2012 cpht – 189.27 189.27 176.54 cpht – 19.34 19.34 22.17 cpht – 46.87 46.87 109.16 2012 cpht – 153.71 153.71 2012 cpht – 163.87 163.87 168.86 Grade 2011 Saleable Carats 2012 2011 cpht – – – cpht – – – cpht – – – Grade 2011 cpht – – – – cpht – – – – cpht – – – – Grade 2011 cpht – – – Grade 2011 cpht – – – – M¢ – 2.0 2.0 – 2.3 2.3 – 4.3 4.3 2012 M¢ – 4.7 4.7 40.9 – 2.5 2.5 4.0 – 7.2 7.2 44.8 2012 M¢ – 47.6 47.6 2012 M¢ – 49.6 49.6 10.1 M¢ – – – – – – – – – Carats 2011 M¢ – – – – – – – – – – – – Saleable Carats 2011 M¢ – – – Carats 2011 M¢ – – – – Mining method: OP = Open Pit, UG = Underground. LOM = Life of Mine (years) is based on scheduled Probable Reserves including Indicated and some Inferred Resources considered for Life of Mine planning. Unless stated otherwise tonnage is quoted as dry metric tonnes. Estimates of Diamond Reserve tonnes refl ect the tonnage to be treated. Reported Diamond Reserves/Resources are based on a Bottom Cut Off (BCO) which refers to the bottom screen size aperture and varies between 1.00mm and 3.00mm (nominal square mesh). Grade is quoted as carats per hundred metric tonnes (cpht). 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) Snap Lake: Due to the high costs associated with resource development, Indicated Resources are continuously developed from underground infrastructure ahead of the mining face, resulting in an 18 month rolling reserve. (2) Gahcho Kué: The project approval is subject to the successful conclusion of permitting and regulatory approvals. Gahcho Kué is a Joint Venture between De Beers Canada Inc. and Mountain Province Diamonds Inc. Audits related to the generation of the Ore Reserve and Mineral Resource estimates were carried out by independent consultants during 2012 at the following operations: Snap Lake and Victor. Anglo American plc Annual Report 2012 217 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 DIAMONDS estimates as at 31 December 2012 DE BEERS CONSOLIDATED MINES The Diamond Reserve and Diamond 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 Edition as amended July 2009). The fi gures reported represent 100% of the Diamond Reserves and Diamond Resources. Diamond Resources are quoted as inclusive of those used to calculate Diamond Reserves and must not be added to the Diamond Reserves. Rounding of fi gures may cause computational discrepancies. De Beers Consolidated Mines is a Joint Venture with Ponahalo Investments (Pty) Ltd. De Beers Consolidated Mines – Operations DIAMOND RESERVES Attributable % Venetia (OP) 62.9 Kimberlite LOM 9 BCO (mm) 1.00 Classifi cation Venetia (UG)(1) Kimberlite 62.9 27 1.00 De Beers Consolidated Mines 62.9 1.00 TOTAL Proved Probable Total Proved Probable Total Proved Probable Total De Beers Consolidated Mines – Operations DIAMOND RESOURCES Attributable % Kimberley (OC)(2) 62.9 Tailings BCO (mm) 1.15 Classifi cation Measured Indicated Measured and Indicated Inferred Namaqualand (OC)( 3) Beach and Fluvial Placers Venetia (OP)(4) Kimberlite Venetia (UG) Kimberlite Voorspoed (OP)(5) Kimberlite 62.9 multiple( 3) Measured Indicated Measured and Indicated Inferred 62.9 1.00 Measured Indicated Measured and Indicated Inferred 62.9 1.00 Measured Indicated Measured and Indicated Inferred 62.9 1.47 Measured Indicated Measured and Indicated Inferred De Beers Consolidated Mines 62.9 multiple TOTAL Measured Indicated Measured and Indicated Inferred DIAMOND RESOURCES INCLUDE DIAMOND RESERVES 2012 Mt – 33.6 33.6 – 91.4 91.4 – 125.0 125.0 2012 Mt – – – 38.2 – 19.3 19.3 70.8 – 34.2 34.2 29.6 – 109.9 109.9 70.1 – – – 37.9 – 163.3 163.3 246.7 Tonnes 2011 Mt – – – – – – – – – Tonnes 2011 Mt – – – – – – – – – – – – – – – – – – – – – – – – 2012 cpht – 97.50 97.50 cpht – 76.53 76.53 cpht – 82.17 82.17 2012 cpht – – – 12.16 cpht – 10.87 10.87 4.79 cpht – 103.46 103.46 18.12 cpht – 86.93 86.93 88.10 cpht – – – 21.58 cpht – 81.40 81.40 33.79 Grade 2011 cpht – – – cpht – – – cpht – – – Grade 2011 cpht – – – – cpht – – – – cpht – – – – cpht – – – – cpht – – – – cpht – – – – Saleable Carats 2011 M¢ – – – – – – – – – Carats 2011 M¢ – – – – – – – – – – – – – – – – – – – – – – – – 2012 M¢ – 32.8 32.8 – 70.0 70.0 – 102.7 102.7 2012 M¢ – – – 4.7 – 2.1 2.1 3.4 – 35.4 35.4 5.4 – 95.5 95.5 61.8 – – – 8.2 – 133.0 133.0 83.4 Mining method: OP = Open Pit, UG = Underground. LOM = Life of Mine (years) is based on scheduled Probable Reserves including Indicated and some Inferred Resources considered for Life of Mine planning. Unless stated otherwise tonnage is quoted as dry metric tonnes. Estimates of Diamond Reserve tonnes refl ect the tonnage to be treated. Reported Diamond Reserves/Resources are based on a Bottom Cut Off (BCO) which refers to the bottom screen size aperture and varies between 1.00mm and 3.00mm (nominal square mesh). Grade is quoted as carats per hundred metric tonnes (cpht). 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. Venetia (UG): The LOM is stated as 27 years which refl ects the extent of the current Mining Right at Venetia. (1) (2) Kimberley: Kimberley Mines Central Treatment Plant (CTP) was initially established to treat ore from both tailings resources and underground mines. Subsequent to the conclusion of the sale (3) of the underground operations to Petra Diamonds in May 2010, only tailings resources from various locations are being treated. Namaqualand: Bottom screen cut off details for Indicated and Inferred Resource estimates are as follows: 1.00 mm BCO: Indicated: 5.3 Mt, 20.86 cpht, 1.1 M¢; Inferred: 28.7 Mt, 7.56 cpht, 2.2 M¢; 1.15 mm BCO: Indicated: 13.9 Mt, 7.04 cpht, 1.0 M¢; Inferred: 41.6 Mt, 2.26 cpht, 0.9 M¢ 1.47 mm BCO: Indicated: 0.2 Mt, 13.03 cpht, 20 k¢. Inferred: 0.5 Mt, 60.22 cpht, 0.3 M¢. The sale of the Namaqualand Mines to the Trans Hex Group is in progress and expected to conclude in 2013. (4) Venetia (OP): The Old Recovery Tailings Inferred Resource estimate at 1.00mm BCO, consisting of 0.1 Mt, 3844.62 cpht, 2.5 M¢ is excluded from the table. (5) Voorspoed: The Mining License was approved on 10 October 2006 and construction commenced in the same month after the mine being dormant for 9 decades. Mining is entirely based on Inferred Resources due to the uncertainty associated with current geoscientifi c knowledge. Studies are in progress to improve resource confi dence and upgrade some Inferred Resources to Indicated Resources. Audits related to the generation of the Ore Reserve and Mineral Resource estimates were carried out by independent consultants during 2012 at the following operations: Venetia (OP) and Voorspoed. 218 Anglo American plc Annual Report 2012 ORE RESERVES AND MINERAL RESOURCES DIAMONDS estimates as at 31 December 2012 DEBSWANA DIAMOND COMPANY The Diamond Reserve and Diamond 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 Edition as amended July 2009). The fi gures reported represent 100% of the Diamond Reserves and Diamond Resources. Diamond Resources are quoted as inclusive of those used to calculate Diamond Reserves and must not be added to the Diamond Reserves. Rounding of fi gures may cause computational discrepancies. Debswana Diamond Company is a Joint Venture with the government of the Republic of Botswana. Debswana – Operations DIAMOND RESERVES Damtshaa (OP)(1) Kimberlite Jwaneng (OP) Kimberlite Letlhakane (OP) Kimberlite Orapa (OP) Kimberlite Attributable % 42.5 LOM 17 BCO (mm) 1.65 Classifi cation 42.5 20 1.47 42.5 4 1.65 42.5 21 1.65 Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Debswana Diamond Company 42.5 multiple TOTAL Debswana – Operations DIAMOND RESOURCES Damtshaa (OP)(1) Kimberlite Attributable % 42.5 BCO (mm) 1.65 Classifi cation Measured Indicated Measured and Indicated Inferred Jwaneng (OP)(2) Kimberlite Letlhakane (OP)(3) Kimberlite Orapa (OP)(4) Kimberlite 42.5 1.47 Measured Indicated Measured and Indicated Inferred 42.5 1.65 Measured Indicated Measured and Indicated Inferred 42.5 1.65 Measured Indicated Measured and Indicated Inferred Debswana Diamond Company 42.5 multiple TOTAL Measured Indicated Measured and Indicated Inferred DIAMOND RESOURCES INCLUDE DIAMOND RESERVES 2012 Mt – 25.0 25.0 – 70.1 70.1 – 4.7 4.7 – 146.1 146.1 – 245.8 245.8 2012 Mt – 29.3 29.3 20.5 – 70.1 70.1 259.9 – 27.4 27.4 8.3 – 167.3 167.3 349.8 – 294.1 294.1 638.5 Tonnes 2011 Mt – – – – – – – – – – – – – – – Tonnes 2011 Mt – – – – – – – – – – – – – – – – – – – – 2012 cpht – 16.60 16.60 cpht – 126.05 126.05 cpht – 16.93 16.93 cpht – 58.69 58.69 cpht – 72.81 72.81 2012 cpht – 21.46 21.46 23.60 cpht – 120.35 120.35 103.55 cpht – 28.62 28.62 27.17 cpht – 71.20 71.20 72.48 cpht – 74.00 74.00 82.97 Grade 2011 cpht – – – cpht – – – cpht – – – cpht – – – cpht – – – Grade 2011 cpht – – – – cpht – – – – cpht – – – – cpht – – – – cpht – – – – Saleable Carats 2011 M¢ – – – – – – – – – – – – – – – Carats 2011 M¢ – – – – – – – – – – – – – – – – – – – – 2012 M¢ – 4.1 4.1 – 88.3 88.3 – 0.8 0.8 – 85.7 85.7 – 179.0 179.0 2012 M¢ – 6.3 6.3 4.8 – 84.3 84.3 269.1 – 7.8 7.8 2.2 – 119.1 119.1 253.5 – 217.6 217.6 529.7 Mining method: OP = Open Pit, UG = Underground. LOM = Life of Mine (years) is based on scheduled Probable Reserves including Indicated and some Inferred Resources considered for Life of Mine planning. Unless stated otherwise tonnage is quoted as dry metric tonnes. Estimates of Diamond Reserve tonnes refl ect the tonnage to be treated. Reported Diamond Reserves/Resources are based on a Bottom Cut Off (BCO) which refers to the bottom screen size aperture and varies between 1.00mm and 3.00mm (nominal square mesh). Grade is quoted as carats per hundred metric tonnes (cpht). 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) Damtshaa: Higher grade Inferred Resources from the B/K 12 Kimberlite is mined for the fi rst fi ve years before including Probable Reserves from BK/9. The B/K 9 and B/K 12 Stockpile Inferred Resource estimates at 1.65mm BCO consisting of 2.0 Mt, 13.10 cpht, 0.3 M¢, are excluded from the table. Jwaneng: The Jwaneng Resource Extension Project scheduled to conclude in 2014 is expected to increase the resource confi dence at depth and upgrade a signifi cant portion of Inferred Resources to Indicated. The D/K2 Stockpile Inferred Mineral Resource estimates at 1.47mm BCO, consisting of 8.5 Mt, 46.74 cpht, 4.0 M¢ as well as the Tailings Inferred Mineral Resource estimates at 1.47mm BCO, consisting of 36.9 Mt, 45.90 cpht, 17.0 M¢, are excluded from the table. (3) Letlhakane: Mining studies are underway to investigate the conversion of resources to reserves at depth. D/K1 and DK/2 Stockpile Inferred Resource estimates at 1.65mm BCO, consisting of 4.2 Mt, 18.34 cpht, 0.8 M¢ as well as the Tailings Inferred Mineral Resource estimates at 1.72mm BCO, consisting of 77.7 Mt, 16.00 cpht, 12.4 M¢, are excluded from the table. (4) Orapa: The A/K1 Stockpile Inferred Resource estimates at 1.65mm BCO, consisting of 12.4 Mt, 45.39 cpht, 5.6 M¢ as well as the Tailings Inferred Mineral Resource estimates at 1.47mm BCO, consisting of 155.4 Mt, 52.83 cpht, 82.1 M¢, are excluded from the table. Audits related to the generation of the Ore Reserve and Mineral Resource estimates were carried out by independent consultants during 2012 at the following operations: Jwaneng and Orapa. Anglo American plc Annual Report 2012 219 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 DIAMONDS estimates as at 31 December 2012 NAMDEB HOLDINGS The Diamond Reserve and Diamond 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 Edition as amended July 2009). The fi gures reported represent 100% of the Diamond Reserves and Diamond Resources. Diamond Resources are quoted as inclusive of those used to calculate Diamond Reserves and must not be added to the Diamond Reserves. Rounding of fi gures may cause computational discrepancies. Namdeb Holdings is a Joint Venture with the government of the Republic of Namibia. Namdeb Holdings – Operations (Terrestrial) DIAMOND RESERVES Attributable % Elizabeth Bay (OC) 42.5 LOM 7 BCO (mm) 1.40 Classifi cation Aeolian and Marine Mining Area 1 (OC) Beaches Orange River (OC)(1) Fluvial Placers 42.5 7 2.00 42.5 7 3.00 Namdeb Holdings (Terrestrial) 42.5 multiple TOTAL Namdeb Holdings – Operations (Offshore) DIAMOND RESERVES Attributable % Atlantic 1 (MM)(2) 42.5 Marine Placer LOM 15 BCO (mm) 1.47 Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Classifi cation Proved Probable Total Namdeb Holdings – Operations (Terrestrial) DIAMOND RESOURCES Bogenfels (OC)(3) Attributable % 42.5 Pocket Beach and Defl ation BCO (mm) multiple( 2) Classifi cation Measured Indicated Measured and Indicated Inferred Douglas Bay (OC) Aeolian and Defl ation 42.5 1.40 Measured Indicated Measured and Indicated Inferred Elizabeth Bay (OC) 42.5 1.40 Aeolian, Marine and Defl ation Measured Indicated Measured and Indicated Inferred Mining Area 1 (OC)( 4) 42.5 2.00 Beaches Orange River (OC) Fluvial Placers Measured Indicated Measured and Indicated Inferred 42.5 3.00 Measured Indicated Measured and Indicated Inferred Namdeb Holdings (Terrestrial) 42.5 multiple TOTAL Measured Indicated Measured and Indicated Inferred DIAMOND RESOURCES INCLUDE DIAMOND RESERVES Footnotes appear at the end of the section. 2012 kt – 1,808 1,808 – 1,023 1,023 – 34,994 34,994 – 37,825 37,825 2012 k m² – 57,033 57,033 2012 kt – – – 10,955 – 1,502 1,502 1,959 – 4,718 4,718 54,034 – 17,597 17,597 281,564 – 109,725 109,725 44,997 – 133,542 133,542 393,509 Tonnes 2011 kt – – – – – – – – – – – – Area 2011 k m² – – – Tonnes 2011 kt – – – – – – – – – – – – – – – – – – – – – – – – 2012 cpht – 12.78 12.78 cpht – 7.26 7.26 cpht – 1.03 1.03 cpht – 1.76 1.76 2012 cpm² – 0.09 0.09 2012 cpht – – – 6.75 cpht – 7.39 7.39 2.40 cpht – 11.62 11.62 4.12 cpht – 1.01 1.01 1.09 cpht – 0.50 0.50 0.35 cpht – 1.03 1.03 1.59 Grade 2011 cpht – – – cpht – – – cpht – – – cpht – – – Grade 2011 cpm² – – – Grade 2011 cpht – – – – cpht – – – – cpht – – – – cpht – – – – cpht – – – – cpht – – – – Saleable Carats 2011 k¢ – – – – – – – – – – – – Saleable Carats 2011 k¢ – – – Carats 2011 k¢ – – – – – – – – – – – – – – – – – – – – – – – – 2012 k¢ – 231 231 – 74 74 – 359 359 – 664 664 2012 k¢ – 4,935 4,935 2012 k¢ – – – 740 – 111 111 47 – 548 548 2,224 – 178 178 3,082 – 544 544 157 – 1,381 1,381 6,250 220 Anglo American plc Annual Report 2012 ORE RESERVES AND MINERAL RESOURCES Namdeb Holdings – Operations (Offshore) DIAMOND RESOURCES Attributable % Atlantic 1 (MM)(2) 42.5 Marine BCO (mm) 1.47 Classifi cation 2012 Measured Indicated Measured and Indicated Inferred k m² – 114,190 114,190 1,028,119 – 1,339 1,339 11,336 Midwater (MM)(5) Aeolian, Fluvial and Marine 42.5 2.00 Measured Indicated Measured and Indicated Inferred Namdeb Holdings (Offshore) 42.5 multiple TOTAL Measured Indicated Measured and Indicated Inferred – 115,529 115,529 1,039,455 DIAMOND RESOURCES INCLUDE DIAMOND RESERVES Area 2011 k m² – – – – – – – – – – – – 2012 cpm² – 0.09 0.09 0.09 cpm² – 0.25 0.25 0.09 cpm² – 0.10 0.10 0.09 Grade 2011 cpm² – – – – cpm² – – – – cpm² – – – – 2012 k¢ – 10,773 10,773 89,637 – 330 330 1,031 – 11,103 11,103 90,668 Carats 2011 k¢ – – – – – – – – – – – – Mining method: OC = Open Cast, MM = Marine Mining. LOM = Life of Mine (years) is based on scheduled Probable Reserves including Indicated and some Inferred Resources considered for Life of Mine planning. Unless stated otherwise tonnage is quoted as dry metric tonnes. Estimates of Diamond Reserve tonnes refl ect the tonnage to be treated. Reported Diamond Reserves/Resources are based on a Bottom Cut Off (BCO) which refers to the bottom screen size aperture and varies between 1.00mm and 3.00mm (nominal square mesh). Grade is quoted as carats per hundred metric tonnes (cpht) or as carats per square meter (cpm²). k m² = thousand square metres. 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. Orange River: The mining transition from Daberas to Sendelingsdrif will be completed within the next 3 years. (1) (2) Atlantic 1: Due to the high costs associated with resource development, Indicated Resources are developed on an annual basis, resulting in a 24 month rolling reserve. (3) Bogenfels: Bottom screen cut off details for Inferred Resource estimates are as follows: 1.40 mm BCO: Inferred: 7,910 kt, 6.47 cpht, 510 k¢; 2.00 mm BCO: Inferred: 3,040 kt, 7.50 cpht, 230 k¢. (4) Mining Area 1: Incremental Inferred Resource development is dependent on operations and dredging creating beach accretion for drilling and sampling. Beach accretion is a process through which an existing beach is built seaward to extend into areas previously submerged by sea water. The accretion is accomplished by sand buildup derived from current mining activities. The Overburden Stockpile Inferred Resource estimates at 2.00mm BCO, consisting of 24,750 kt, 0.41 cpht, 100 k¢ and the DMS Tailings Inferred Resource estimates at 2.00mm BCO, consisting of 6,6830 kt, 1.10 cpht, 740 k¢, as well as the Recovery Tailings Inferred Resource estimates at 1.40mm BCO, consisting of 340 kt, 13.26 cpht, 50 k¢, are excluded from the table. (5) Midwater: That part of the offshore component of the Diamond Area No. 1 (DA1) mining license covered by water depths of 30m and more below mean sea-level. Audits related to the generation of the Ore Reserve and Mineral Resource estimates were carried out by independent consultants during 2012 at the following operations: Elizabeth Bay and Atlantic 1. 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 2012 221 ORE RESERVES AND MINERAL RESOURCES PHOSPHATE PRODUCTS estimates as at 31 December 2012 ANGLO AMERICAN FOSFATOS BRASIL LIMITADA 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 fi gures reported represent 100% of the Ore Reserves and Mineral Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of fi gures may cause computational discrepancies. Phosphates – Operations ORE RESERVES Ouvidor (OP)(1) Carbonatite Complex Oxide Attributable % 100 Mine Life 40 Phosphates – Operations MINERAL RESOURCES Ouvidor (OP)(2) Carbonatite Complex Oxide Attributable % 100 Attributable % 100 Phosphates – Projects MINERAL RESOURCES Coqueiros (OP)(3) Carbonatite Complex Oxide Carbonatite Complex Fresh Rock Classifi cation Proved Probable Total Classifi cation Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Classifi cation Measured Indicated Measured and Indicated Inferred Measured Indicated Measured and Indicated Inferred 2012 Mt 83.1 151.0 234.0 2012 Mt 3.9 60.2 64.1 7.5 50.4 57.9 2012 Mt 1.8 16.5 18.3 26.2 1.2 34.0 35.2 16.2 Tonnes 2011 Mt 87.9 151.3 239.2 Tonnes 2011 Mt 3.9 60.2 64.2 7.6 50.7 58.2 Tonnes 2011 Mt 1.8 16.5 18.3 26.2 1.2 34.0 35.2 16.2 2012 %P2O5 14.1 13.0 13.4 2012 %P2O5 13.4 11.8 11.9 13.2 10.9 11.2 2012 %P2O5 10.5 12.9 12.6 11.2 7.3 8.5 8.5 7.6 Grade 2011 %P2O5 14.0 13.0 13.4 Grade 2011 %P2O5 13.4 11.8 11.9 13.2 10.9 11.2 Grade 2011 %P2O5 10.5 12.9 12.6 11.2 7.3 8.5 8.5 7.6 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) Ouvidor – Oxide Ore Reserves: The decrease is due to production. Reported as Copebrás in 2011. (2) Ouvidor – Oxide Mineral Resources: Mineral Resources are quoted above a 7% P2O5 cut-off and a CaO/P2O5 ratio between 1 and 1.4. Inferred (ex. LOM Plan) material includes 29.8Mt at 11.64% P2O5 Oxide in the MCG01 tenement. Currently Anglo American owns the mineral rights but not the surface rights for the area within MCG01 overlying the Inferred (ex. LOM Plan) material. Reported as Copebrás in 2011. Coqueiros: The Oxide mineralisation is defi ned by a cut-off grade of 7% P2O5 and a CaO/ P2O5 ratio between 1 and 1.4. The Fresh Rock resources are defi ned by a cut-off grade of 5% P2O5. An updated exploration drilling report has been submitted to Brazil’s Departamento Nacional de Produção Mineral (DNPM) and is awaiting approval. (3) 222 Anglo American plc Annual Report 2012 ORE RESERVES AND MINERAL RESOURCES NIOBIUM estimates as at 31 December 2012 ANGLO AMERICAN NIÓBIO BRASIL LIMITADA 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 fi gures reported represent 100% of the Ore Reserves and Mineral Resources, the percentage attributable to Anglo American plc is stated separately. Rounding of fi gures may cause computational discrepancies. Attributable % 100 Mine Life 4 Niobium – Operations ORE RESERVES Boa Vista (OP) Carbonatite Complex Oxide(1) Carbonatite Complex Phosphate Tailings(2) Niobium – Operations MINERAL RESOURCES Boa Vista (OP) Carbonatite Complex Oxide(3) Attributable % 100 Niobium – Projects MINERAL RESOURCES Catalão I & II Complex (OP) Attributable % 100 Carbonatite Complex Fresh Rock(4) Classifi cation 2012 Proved Probable Total Proved Probable Total Mt 2.9 1.0 3.9 – 2.0 2.0 Classifi cation 2012 Measured Indicated Measured and Indicated Inferred (in LOM Plan) Inferred (ex. LOM Plan) Total Inferred Classifi cation Measured Indicated Measured and Indicated Inferred Mt 2.6 0.8 3.4 0.2 0.7 0.8 2012 Mt 14.3 36.8 51.1 20.2 Tonnes 2011 Mt 3.4 1.0 4.3 – – – Tonnes 2011 Mt 2.0 0.8 2.8 0.3 0.8 1.1 Tonnes 2011 Mt 13.7 19.5 33.2 18.1 2012 %Nb2O5 0.98 1.18 1.03 – 0.73 0.73 2012 %Nb2O5 1.29 1.02 1.22 0.90 0.82 0.83 2012 %Nb2O5 1.23 1.01 1.07 1.27 Grade 2011 %Nb2O5 1.03 1.04 1.03 – – – Grade 2011 %Nb2O5 1.30 1.04 1.22 0.95 0.87 0.89 Grade 2011 %Nb2O5 1.24 1.24 1.24 1.37 Contained Product 2012 2011 kt 29 11 40 – 14 14 kt 35 10 45 – – – Contained Product 2012 2011 kt 34 8 42 2 5 7 kt 26 8 35 3 7 9 Contained Product 2012 kt 175 373 548 255 2011 kt 170 243 413 248 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) Boa Vista – Oxide Ore Reserves: The decrease is primarily due to production. Reported as Catalão in 2011. (2) Boa Vista – Phosphate Tailings Ore Reserves: The fi nes portion of the Phosphate tailings from Ouvidor are processed in the Niobium Tailings Plant to recover Niobium. (3) Boa Vista – 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. The increase is due to improved grade control and new drilling information. Reported as Catalão in 2011. (4) Catalão I & II Complex – Fresh Rock Mineral Resources: The Fresh Rock Resources are reported above a 0.5 %Nb2O5 cut-off for Boa Vista Mine. For Area Leste, Mina II and Morro do Padre the cut-off grade is 0.7 %Nb2O5. The increase is a result of the completion of a drilling campaign enabling the geological model to be updated along with a lowering in the cut-off grade. Studies are in progress to convert resources to reserves. The Fresh Rock Resources are a combination of 4 project areas: Area Leste: Measured 8.2 Mt at 1.24 %Nb2O5 ; Indicated 4.7 Mt at 1.20 %Nb2O5 ; Inferred 1.3 Mt at 1.12 %Nb2O5 Boa Vista: Measured 0.6 Mt at 0.97 %Nb2O5 ; Indicated 28.6 Mt at 0.95 %Nb2O5 ; Inferred 9.2 Mt at 1.03 %Nb2O5 Mina II: Measured 5.5 Mt at 1.24 %Nb2O5 ; Indicated 0.9 Mt at 1.17 %Nb2O5 ; Inferred 0.8 Mt at 1.19 %Nb2O5 Morro do Padre: Indicated 2.6 Mt at 1.27 %Nb2O5 ; Inferred 8.9 Mt at 1.54 %Nb2O5 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 2012 223 ORE RESERVES AND MINERAL RESOURCES RESERVE AND RESOURCE RECONCILIATION OVERVIEW(1)(2) 2011–2012 Detailed 2011 and 2012 information appears pages 196–223 2011–2012 Kumba Iron Ore Ore Reserves reconciliation Saleable Product (Mt) – Operations (100% basis) 2011–2012 Kumba Iron Ore Mineral Resources reconciliation Tonnes (Mt) – Operations (100% basis) 1,000 950 900 850 800 750 700 650 . 1 8 9 - : e v i t a g e N . 1 5 4 : e v i t i s o P Total (Mt) Production Conversion Economic assumptions New information Other Acquisitions/ Disposals . 4 5 5 9 : 1 1 0 2 5 . 2 0 9 : 2 1 0 2 2012 2011 902.5 955.4 + 0 0 25.0 – 43.3 1.0 0 53.8 0 0 0 20.1 0 1,000 950 900 850 800 750 700 650 . 8 1 4 2 - : e v i t a g e N . 9 3 5 9 : 1 1 0 2 . 2 1 2 : e v i t i s o P 2 . 3 3 7 : 2 1 0 2 2012 2011 733.2 953.9 + 0 2.8 18.4 – 2.0 0 0 Total (Mt) Depletion Conversion Economic assumptions New information 175.3 64.5 Other Acquisitions/ 0 Disposals 0 0 0 2011–2012 Minas-Rio Ore Reserves reconciliation Tonnes (Mt) – Project (100% basis) 2011–2012 Minas-Rio Mineral Resources reconciliation Tonnes (Mt) – Project (100% basis) 1,550 1,450 1,350 1,250 1,150 1,050 950 850 750 650 . 8 2 5 4 1 , 0 : 1 1 0 2 : e v i t i s o P . 8 2 5 4 1 , : 2 1 0 2 6,000 5,800 5,600 5,400 5,200 5,000 4,800 4,600 4,400 4,200 4,000 . 8 6 4 5 1 - , : e v i t a g e N . 2 4 4 : e v i t i s o P . 7 0 7 7 5 , . 1 8 6 2 4 , : 1 1 0 2 : 2 1 0 2 2012 Total (Mt) 2011 4,268.1 5,770.7 – + 0 Depletion 0 0 Conversion 1,452.8 Economic 0 0 assumptions New information Other Acquisitions/ Disposals 0 94.0 0 44.2 0 0 Total (Mt) Production Conversion Economic assumptions New information Other Acquisitions/ Disposals 2012 2011 0 1,452.8 + – 0 0 0 1,452.8 0 0 0 0 0 0 0 0 2011–2012 Metallurgical Coal Reserves reconciliation ROM Tonnes (Mt) – Operations (100% basis) 2011–2012 Metallurgical Coal Resources reconciliation Tonnes (MTIS) – Operations (100% basis) 1,200 1,000 800 600 400 200 0 . 0 0 1 8 : 1 1 0 2 . 3 6 3 - : e v i t a g e N . 0 9 3 2 : e v i t i s o P Total (Mt) 2012 2011 1,012.7 810.0 + – 0 36.3 1.1 0 139.7 0 0 0 0 98.2 0 0 Production Conversion Economic assumptions New information Other Acquisitions/ Disposals . 7 2 1 0 1 , : 2 1 0 2 224 Anglo American plc Annual Report 2012 1,500 1,440 1,380 1,320 1,260 . 3 4 6 4 1 , . 9 8 4 1 - : e v i t a g e N 5 8 . : e v i t i s o P Total (MTIS) 2012 2011 1,323.9 1,464.3 – + 0 0 0 1.1 0 147.8 0 0 0 8.5 0 0 Depletion Conversion Economic assumptions New information Other Acquisitions/ Disposals . 9 3 2 3 1 , : 1 1 0 2 1,200 : 2 1 0 2 ORE RESERVES AND MINERAL RESOURCES 2011–2012 Thermal Coal Reserves reconciliation ROM Tonnes (Mt) – Operations (100% basis) 2011–2012 Thermal Coal Resources reconciliation Tonnes (MTIS) – Operations (100% basis) 2,000 1,950 1,900 1,850 1,800 . 2 7 3 1 - : e v i t a g e N 8 0 . : e v i t i s o P . 2 8 4 9 1 , . 8 1 1 8 1 , : 1 1 0 2 1,750 : 2 1 0 2 2,000 1,950 1,900 1,850 1,800 . 3 0 - : e v i t a g e N . 9 5 0 1 : e v i t i s o P Total (MTIS) 2012 2011 1,811.8 1,948.2 – + 0 109.5 0 2.5 0 6.8 Total (Mt) Production Conversion Economic assumptions New information Other Acquisitions/ Disposals 0 18.4 0 0.8 0 0 . 0 3 4 8 1 , : 1 1 0 2 1,750 . 6 8 4 9 1 : 2 1 0 2 2012 2011 1,948.6 1,843.0 – + 0 0.3 11.1 0 9.0 0 0 0 0 75.8 10.0 0 Depletion Conversion Economic assumptions New information Other Acquisitions/ Disposals 2011–2012 Copper Ore Reserves reconciliation Contained Copper (kt) – Operations (100% basis) 2011–2012 Copper Mineral Resources reconciliation Contained Copper (kt) – Operations (100% basis) 40,000 39,000 38,000 37,000 36,000 35,000 . 9 6 2 1 2 - , : e v i t a g e N . 5 8 5 9 6 3 , . 2 0 5 3 4 , : e v i t i s o P . 9 1 8 1 9 3 , : 1 1 0 2 34,000 : 2 1 0 2 2012 Total (kt) 2011 39,181.9 36,958.5 + – 0 Production 1,151.5 0 3,370.2 Conversion Economic 900.1 0 assumptions New information Other Acquisitions/ Disposals 0 975.4 0 79.9 0 0 70,000 65,000 60,000 55,000 . 6 6 7 3 4 - , : e v i t a g e N . 9 9 8 4 6 5 , . 6 3 8 6 4 1 , : e v i t i s o P . 9 6 9 7 6 6 , : 1 1 0 2 50,000 : 2 1 0 2 2012 Total (kt) 2011 66,796.9 56,489.9 + – 0 Depletion 6.9 0 Conversion 3,702.9 Economic 0 9,650.2 assumptions New information Other Acquisitions/ Disposals 0 5,033.4 0 0 666.8 0 2011–2012 Nickel Ore Reserves reconciliation Contained Nickel (kt) – Operations (100% basis) 2011–2012 Nickel Mineral Resources reconciliation Contained Nickel (kt) – Operations (100% basis) 1,000 950 900 850 800 750 700 . 0 4 0 2 - : e v i t a g e N . 0 0 6 : e v i t i s o P . 9 3 6 9 : 1 1 0 2 . 9 9 1 8 : 2 1 0 2 2012 2011 819.9 963.9 + 0 0 30.1 – 18.3 9.8 0 Total (kt) Production Conversion Economic assumptions New 0 information 107.9 Other Acquisitions/ 68.0 Disposals 29.9 0 0 1,300 1,250 1,200 1,150 1,100 1,050 1,000 950 900 850 800 . 9 0 7 2 - : e v i t a g e N . 7 1 2 1 : e v i t i s o P . 3 5 7 0 1 , . 9 4 2 2 1 , : 1 1 0 2 : 2 1 0 2 2012 Total (kt) 2011 1,075.3 1,224.9 – + 0 11.2 Depletion 0 Conversion 103.5 Economic 0 32.3 assumptions New 25.9 information 0 Other Acquisitions/ 98.1 Disposals 0 121.7 0 Anglo American plc Annual Report 2012 225 O O r r e e R R e e s s e e r r v v e e s s a a n n d d M M n n e e r r a a i i l l R R e e s s o o u u r r c c e e s s ORE RESERVES AND MINERAL RESOURCES RESERVE AND RESOURCE RECONCILIATION OVERVIEW(1)(2) 2011–2012 Detailed 2011 and 2012 information appears on pages 196–223 2011–2012 Platinum Ore Reserves reconciliation Contained PGE (Moz) – All Reefs (South Africa) 2011–2012 Platinum Mineral Resources reconciliation Contained PGE (Moz) – All Reefs (South Africa) 190 180 170 160 150 140 130 . 5 9 2 - : e v i t a g e N . 2 4 2 : e v i t i s o P . 1 6 7 1 : 1 1 0 2 . 8 0 7 1 : 2 1 0 2 Total (Moz) Production Conversion Economic assumptions New information Other Acquisitions/ Disposals 2011 2012 170.8 176.1 + 0 24.2 0 – 4.1 0 25.4 0 0 0 0 0 0 650 640 630 620 610 600 . 6 6 2 - : e v i t a g e N . 2 9 3 6 : 1 1 0 2 . 5 1 3 : e v i t i s o P . 1 4 4 6 : 2 1 0 2 Total (Moz) Depletion Conversion Economic assumptions New information Other Acquisitions/ Disposals 2011 2012 644.1 639.2 + 0 0 31.2 – 0 25.4 0 0 1.2 0 0 0 0.3 2011–2012 Phosphate Products Ore Reserves reconciliation Tonnes (Mt) – Operations (100% basis) 2011–2012 Phosphate Products Mineral Resources reconciliation Tonnes (Mt) – Operations (100% basis) 245 240 235 230 225 220 . 6 5 - : e v i t a g e N 5 0 . : e v i t i s o P . 2 9 3 2 : 1 1 0 2 . 0 4 3 2 : 2 1 0 2 Total (Mt) Production Conversion Economic assumptions New information Other Acquisitions/ Disposals 2012 2011 234.0 239.2 + 0 0 0 – 5.6 0 0 0 0 0 0 0.5 0 125 124 123 122 121 120 . 5 0 - : e v i t a g e N 0 : e v i t i s o P . 4 2 2 1 : 1 1 0 2 . 0 2 2 1 : 2 1 0 2 Total (Mt) Depletion Conversion Economic assumptions New information Other Acquisitions/ Disposals 2011 2012 122.0 122.4 + 0 0 0 – 0.4 0 0 0 0.1 0 0 0 0 2011–2012 Niobium Ore Reserves reconciliation Contained Product (kt) – Operations (100% basis) 2011–2012 Niobium Mineral Resources reconciliation Contained Product (kt) – Operations (100% basis) 60 50 40 30 20 . 1 0 1 - : e v i t a g e N . 0 0 2 : e v i t i s o P . 7 4 4 : 1 1 0 2 . 7 4 5 : 2 1 0 2 Total (kt) Production Conversion Economic assumptions New information Other Acquisitions/ Disposals 2012 54.7 – 9.9 0.2 0 0 0 0 2011 44.7 + 0 0 0 16.4 3.6 0 226 Anglo American plc Annual Report 2012 50 49 48 47 46 45 44 43 42 41 . 2 0 - : e v i t a g e N 9 4 . : e v i t i s o P . 1 4 4 : 1 1 0 2 . 8 8 4 : 2 1 0 2 Total (kt) Depletion Conversion Economic assumptions New information Other Acquisitions/ Disposals 2012 48.8 – 0.2 0 0 0 0 0 2011 44.1 + 0 0 0 4.9 0 0 ORE RESERVES AND MINERAL RESOURCES (1) Ore Reserve and Mineral Resource reconciliation categories Tonnage and content change categories Defi nition and explanation Opening Balance as at 31 December – previous reporting year Production* (from Reserve Model) Depletion* (from Resource Model) Conversion Economic Assumptions New Information The amount of material (expressed in terms of tonnage or content as applicable) removed by planned mining from the scheduled Ore Reserves i.e. the areas actually mined during the reporting period which are removed from the reserve model/s. The amount of material (expressed in terms of tonnage or content as applicable) removed by mining from the Mineral Resources i.e. the areas actually mined during the reporting period which are removed from the resource model/s. Material removed from the ‘Inferred in Mine Plan’ category should be reported as Depletion. The effect of applying updated ‘Modifying Factors’ to Ore Reserves and Mineral Resources which include geo-technical, mining, metallurgical, marketing, legal, environmental, social and governmental considerations including infrastructure. Includes changes to the mining method, mine plan and/or layout changes e.g. changes in pit slope angles or mineable cut due to geo-technical reasons. The change can be positive or negative year-on-year. Sub-Categories: • Conversion is the process of up-grading Mineral Resources to Ore Reserves based on a change in confi dence levels and/or modifying factors. • Re-allocation is the process of down-grading of Ore Reserves to Mineral Resources or Mineral Resources to Mineralised Inventory based on a change in confi dence levels and/or modifying factors. • Sterilisation is the process of removing material from Ore Reserves and/or Mineral Resources that no longer has reasonable and realistic prospects for eventual economic extraction. The effect of assumptions based on the current or future price of a commodity and exchange rate estimates as determined by the corporate centre (Global Assumptions) which has a direct impact on the Mineral Resources or Ore Reserves particularly the cut-off grade (which can be affected by changes in costs). The effect of additional resource defi nition information (with QA/QC information) which initiates an update to the geological models (facies, structural, grade, geo-technical) and results in an updated (re-classifi ed) resource model and subsequent determination of new Ore Reserve estimates. Includes ore bodies (or portions of current orebodies) within the same project/operation not previously reported. Other Model Refi nement Methodology Transfer Stockpiles New Technology No additional resource defi nition drilling has been undertaken but the interpretation (geometry) of the orebody has been refi ned or internal mine/lease boundaries changed e.g. based on mapping information obtained during mining or a different structural model being applied. Changes to in-situ tonnages as a result of new geological losses being applied or a change to the defi nition of the boundary of the Mineral Resources due to an updated ‘economically mineable cut’ being applied. Only valid for changes in the estimation or classifi cation methodologies applied to the resource model evaluation i.e. no new information available or model refi nement taken place. Movement of Mineral Resources and/or Ore Reserves from one type of product/ore type to another or from one mining/project area to another. Changes to stockpiles. Changes to Mineral Resources or Ore Reserves in response to the application of new or improved mining and/or processing methods. Reconciliation Adjustment Changes which cannot be allocated to a defi ned category or an adjustment necessary to mitigate inaccurate production/depletion estimates of the previous year.* Acquisitions Disposals Additional Mineral Resources and Ore Reserves due to acquisitions of assets or increased attributable interests in JV agreements/associate companies. Reduction in Mineral Resources and Ore Reserves due to disposals of assets or reduced attributable interests in JV agreements/associate companies, refusal/withdrawal of Mining/Prospecting Rights or related permits e.g. due to environmental issues, changes in policy. Closing Balance as at 31 December – current reporting year * The Production/Depletion fi gures may be estimated for these last three months of the reporting period based on the monthly average of the previous nine months. (2) Ore Reserves: Includes Proved and Probable Mineral Resources: Includes Measured, Indicated and Inferred [for Coal only Inferred (in LOM Plan) is considered] 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. Rounding of fi gures may cause computational discrepancies. 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 2012 227 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 modifi cation by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justifi ed. Ore Reserves are sub-divided in order of increasing confi dence into Probable Ore Reserves and Proved Ore Reserves. A ‘Proved Ore Reserve’ is the economically mineable part of a Measured Mineral Resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments and studies have been carried out, and include consideration of and modifi cation by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justifi ed. A ‘Probable Ore Reserve’ is the economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments and studies have been carried out, and include consideration of and modifi cation by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justifi ed. 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 specifi c geological evidence and knowledge. Mineral Resources are sub-divided, in order of increasing geological confi dence, 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 confi dence. It is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are spaced closely enough to confi rm geological and grade continuity. An ‘Indicated Mineral Resource’ is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confi dence. It is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are too widely or inappropriately spaced to confi rm geological and/or grade continuity but are spaced closely enough for continuity to be assumed. An ‘Inferred Mineral Resource’ is that part of a Mineral Resource for which tonnage, grade and mineral content can be estimated with a low level of confi dence. It is inferred from geological evidence and assumed but not verifi ed geological and/or grade continuity. It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes which may be limited or of uncertain quality and reliability. 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 suffi cient confi dence to be classifi ed 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. Grade The relative quantity, percentage or quality, of a metal or mineral/diamond content estimated to be contained within a deposit. Cut-off (grade) A grade (see grade units) above which the Mineral Resource or Ore Reserve is reported as being potentially economic. Run of Mine (ROM) The mined material delivered from the mine to the processing plant is called run-of-mine, or ROM. This is the raw unprocessed mineralised material and includes mineralised rock and varying amounts of internal and external contamination (either unmineralised rock or mineralised material below the cut-off grade). Contamination is usually introduced by the mining process to ensure all the mineralised material is mined or to provide a minimum mining height. ROM material can have highly variable moisture content and maximum particle size. Inferred (in LOM Plan)/Inferred (ex. LOM Plan) Inferred (in LOM Plan): Inferred Resources within the scheduled Life of Mine Plan (LOM Plan). Inferred (ex. LOM Plan): The portion of Inferred Resources with reasonable prospects for eventual economic extraction not considered in the Life of Mine Plan (LOM Plan). 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 average annual planned production rate. Life of Mine Plan A design and costing study of an existing operation in which appropriate assessments have been made of realistically assumed geological, mining, metallurgical, economic, marketing, legal, environmental, social, governmental, engineering, operational and all other modifying factors, which are considered in suffi cient detail to demonstrate at the time of reporting that extraction is reasonably justifi ed. 228 Anglo American plc Annual Report 2012 ORE RESERVES AND MINERAL RESOURCES GLOSSARY MASS UNITS carat: kt: Moz: Mt: MTIS: mtpa: Tonnes: carat is a unit of mass equal to 0.2g 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 metric system unit of mass equal to 1,000 kilograms GRADE UNITS (expressed on a moisture-free basis) ASCu: Au: cpht: cpm²: CSN: CuEq: CV: ICu: kcal/kg: g/t: k¢: M¢: TCu: 4E PGE: 3E PGE: % Cu: % Fe: % Mn: % Mo: % Ni: % Nb2O5 : % P2O5 : Acid soluble copper (%) Gold (g/t) carats per hundred metric tonnes carats per square metre Crucible Swell Number (CSN is rounded to the nearest 0.5 index) Copper equivalent based on long term metal prices taking into consideration the recovery of Copper, Gold and Molybdenum (%) Calorifi c Value (CV is rounded to the nearest 10 kcal/kg) Insoluble copper, total copper less acid soluble copper (%) kilocalories per kilogram grams per tonne Thousand carats Million carats Total Copper (%) The sum of Platinum, Palladium, Rhodium and Gold grades in grammes per tonne (g/t) The sum of Platinum, Palladium and Gold grades in grammes per tonne (g/t) weight percent Copper weight percent Iron weight percent Manganese weight percent Molybdenum weight percent Nickel weight percent Niobium pentoxide weight percent Phosphorus pentoxide MINING TERMINOLOGY MM: OC: OP: UG: Marine Mining – Mining diamonds deposited on the continental shelf using mining vessels equipped with specialised underwater mining tools such as suction drills and crawlers. Open Cut – A surface mining method performed on orebodies with shallow-dipping tabular geometries. Open Pit – A surface mining method in which both ore and waste are removed during the excavation of a pit. The pit geometry is related to the orebody shape, but tends to have a conical form, closing with depth. Underground – A class of subsurface mining methods, where the ore is accessed either through a vertical shaft or decline. Ore and waste are moved within subsurface excavations, which may be located on several different elevations. The nature of the underground excavations is dependent on the geometry and size of the mineralisation. PROCESSING TERMINOLOGY 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 Flotation: 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 specifi c 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 fl otation cell, from where it is mechanically removed. Heap Leach: 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 Vat Leach: 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 fi lled 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. 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 2012 229 ORE RESERVES AND MINERAL RESOURCES GLOSSARY RESOURCE TYPES Aeolian: Banded Iron Formation: Beaches: Canga: Carbonatite Complex: Colluvium: Defl ation: Ferruginous Laterite: Fluvial Placer: Diamond deposits created and enriched during transport of sediment through wind action (aeolian processes) resulting in the formation of wind blown dunes, ripples and sand sheets within which localised enrichment of diamonds may occur. A chemical sedimentary rock consisting of silica and iron oxide. The rock texture is characteristically laminated or banded. Diamond deposits enriched through marine processes and preserved along the marine shoreline within a series of fossil terraces. 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. Diamond deposits enriched through wind driven removal of light particles resulting in concentration of diamonds. An especially iron-rich laterite. Diamond deposits formed and preserved within fossil sand and gravel terraces located adjacent to contemporary fl uvial (river) systems. Mineable material that has not been signifi cantly modifi ed by surface weathering processes. An iron oxide mineral with the chemical formula Fe2O3. Fresh Rock: Hematite: Itabirite (Friable/Compact): Itabirite is a banded quartz hematite schist, very similar to banded iron formation in appearance and composition. Kimberlite: Laterite: Magnetite: 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 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 potassic ultrabasic volcanic rock, emplaced as either pipes, dykes or sills, which sometimes contain diamonds. A claylike soil horizon rich in iron and aluminium oxides that formed by weathering of igneous rocks under tropical conditions. An iron oxide mineral with the chemical formula Fe3O4. Marine: Merensky Reef (MR): Oxide: Platreef (PR): Pocket Beach: Porphyry (Copper): Saprolite: Stockpile: Sulphide: Tailings: UG2 Reef (UG2): COAL PRODUCTS Metallurgical – Coking: Metallurgical – Other: Thermal – Export: Thermal – Domestic: Synfuel: Zone is a tabular zone of sulphide-bearing rock within the uppermost P1 Pyroxenite. Submerged diamond deposits enriched through fl uvial (river), beach and marine reworking processes. 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. Diamond deposits formed due to interactions of ocean (longshore) currents with specifi c shoreline topographic features that facilitate the concentration of diamonds. Large copper deposits hosted by intermediate felsic rocks. These deposits form close to large-scale subduction zones. Clay-rich rock formed by decomposition of pre-existing rocks within a surface weathering environment. Stockpiles resources comprise material that is mined together with the principal ore, but for economic or technical reasons is not processed. This material is stockpiled in preparation for processing when economic or technical conditions are more favourable. Sulphide ores contain sulphide minerals that have not been subjected to surface oxidation. Material left over after the process of separating the valuable fraction of the mineralised material from the uneconomic fraction (gangue) of the run-of-mine. In some cases tailings can be re-treated to extract by-products. 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. 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). 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 calorifi c value (CV). Low- to high-volatile thermal coal primarily for export in the use of power generation; quality measured by calorifi c value (CV). Low- to high-volatile thermal coal primarily for domestic consumption for power generation; quality measured by calorifi c value (CV). Coal specifi cally for the domestic production of synthetic fuel and chemicals; quality measured by calorifi c value (CV). 230 Anglo American plc Annual Report 2012 OTHER INFORMATION PRODUCTION STATISTICS The fi gures 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)(2) Lump Fines Total iron ore production Samancor(3) Manganese ore Manganese alloys(4) Coal (tonnes) Metallurgical Coal segment Australia Metallurgical – Coking Metallurgical – Other (PCI) Thermal Canada Metallurgical – Coking Total Metallurgical Coal segment coal production Thermal Coal segment South Africa Thermal – Export Thermal – Domestic (Eskom) Thermal – Domestic (non-Eskom) Metallurgical – Domestic Colombia Thermal – Export Total Thermal Coal segment coal production Total coal production Coal (tonnes) Metallurgical Coal segment Australia Callide Capcoal Dawson Drayton Foxleigh Jellinbah Moranbah North Canada Peace River Coal Total Metallurgical Coal segment coal production Thermal Coal segment South Africa Greenside Goedehoop Isibonelo Kriel Kleinkopje Landau New Denmark New Vaal Mafube Zibulo(5) 2012 2011 26,580,500 16,484,600 43,065,100 25,445,100 15,822,500 41,267,600 3,347,800 198,400 2,786,800 300,500 10,484,700 5,802,700 12,970,500 29,257,900 9,290,400 3,963,000 13,426,500 26,679,900 1,376,900 30,634,800 936,300 27,616,200 17,132,100 33,706,400 6,219,100 74,100 57,131,700 16,328,400 35,296,000 5,059,700 323,400 57,007,500 11,548,800 68,680,500 99,315,300 10,751,700 67,759,200 95,375,400 7,464,000 6,022,400 4,593,500 3,663,300 1,896,000 2,073,200 3,545,500 29,257,900 8,038,700 5,047,900 3,904,600 3,991,900 1,417,100 1,829,600 2,450,100 26,679,900 1,376,900 30,634,800 936,300 27,616,200 2,883,200 4,859,900 5,399,200 8,096,900 3,765,500 4,272,300 3,401,200 17,623,300 1,804,100 5,026,100 57,131,700 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 (1) Kolomela commenced commercial production on 1 December 2011. Revenue and related costs associated with 984,700 tonnes of production were capitalised for the year ended (2) 31 December 2011. In 2012 Amapá has been reclassifi ed from Iron Ore and Manganese to Other Mining and Industrial to align with internal management reporting. Comparatives have been reclassifi ed to align with current presentation. (3) Saleable production. (4) Production includes Medium Carbon Ferro Manganese. (5) Zibulo commenced commercial production on 1 October 2011. Revenue and related costs associated with 2,155,200 tonnes of production were capitalised before commercial production was reached in 2011. This included Eskom coal production of 633,400 tonnes and export thermal coal production of 1,521,800 tonnes. O t h e r i n f o r m a t i o n Anglo American plc Annual Report 2012 231 OTHER INFORMATION PRODUCTION STATISTICS Coal (tonnes) (continued) Thermal Coal segment (continued) Colombia Carbones del Cerrejón Total Thermal Coal segment coal production 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 Marginal 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 Confl uencia concentrator Production El Soldado mine Ore mined Ore processed Ore grade processed Production Chagres smelter Production Total copper production for Anglo American Sur(1) 2012 2011 11,548,800 68,680,500 99,315,300 10,751,700 67,759,200 95,375,400 74,100 16,287,400 1,376,900 17,738,400 23,351,200 33,706,400 12,970,500 11,548,800 81,576,900 99,315,300 323,400 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 2,733,600 17,293,800 54,370,100 8,081,400 43,618,600 0.88 0.76 934,800 36,800 245,300 282,100 124,100 49,766,500 17,854,200 17,970,600 0.83 84.0 27,884,300 0.84 84.0 1,195,500 40,800 2,500 322,000 365,300 8,544,500 1,091,900 7,782,300 0.46 0.83 190,400 2,000 51,800 53,800 142,900 138,700 461,400 419,100 906,800 32,535,900 11,797,300 8,075,800 47,747,400 0.72 1.02 1,535,800 36,000 417,300 453,300 199,500 26,587,500 30,515,600 20,595,700 0.90 85.8 3,329,400 0.74 84.3 658,300 38,400 4,600 178,800 221,800 10,197,700 1,887,000 7,209,100 0.68 0.82 171,900 5,000 41,900 46,900 143,000 138,200 487,500 268,700 Oxide Sulphide 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 Oxide Sulphide Oxide Sulphide Copper concentrate Copper cathode Copper in concentrate Total tonnes tonnes 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 % Cu % Cu dry metric tonnes tonnes tonnes tonnes Copper concentrate smelted Copper blister/anode Acid tonnes tonnes tonnes tonnes (1) Includes copper cathode, copper in sulphate and copper in concentrate production. 232 Anglo American plc Annual Report 2012 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 mined Ore processed Ore grade processed Production Mantoverde mine Ore mined 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 refi ned platinum 4E Built-up head grade Diamonds segment (De Beers) (diamonds recovered – carats)(6) 100% basis Debswana Namdeb De Beers Consolidated Mines De Beers Canada Total diamonds production for De Beers tonnes tonnes tonnes tonnes % Cu (soluble) % Cu (insoluble) % Cu (soluble) dry metric tonnes tonnes tonnes tonnes tonnes tonnes tonnes % Cu (soluble) % Cu (soluble) tonnes tonnes tonnes tonnes tonnes tonnes 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 g/tonne milled 2012 2011 6,527,100 4,512,100 4,393,200 5,900,200 0.40 0.64 0.23 83,000 29,200 25,000 54,200 10,642,500 10,460,400 8,671,700 0.63 0.25 62,300 116,500 659,700 11,400 – 671,100 612,600 581,100 1.81 9,600 432,900 767,400 1.40 8,100 1,231,700 1,422,100 1.94 21,600 39,300 17,700 57,000 2,378,600 1,395,900 310,700 11,400 17,700 105,200 2,219,100 3.20 7,624,300 4,563,400 4,186,600 5,109,400 0.59 0.95 0.23 119,000 36,000 36,100 72,100 10,060,100 10,012,200 8,025,300 0.62 0.27 58,700 130,800 599,000 12,800 300 612,100 549,900 562,900 1.89 9,500 1,302,600 1,014,200 1.45 13,400 978,000 456,500 1.96 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 3.24 20,216,000 1,667,000 4,432,000 1,560,000 27,875,000 22,890,000 1,335,000 5,443,000 1,660,000 31,328,000 (1) Includes copper 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 21,600 tonnes (2011: 6,200 tonnes) 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. (6) On 16 August 2012 Anglo American completed its acquisition of an additional 40% interest in De Beers increasing Anglo American’s total shareholding to 85%. Production data is disclosed on a 100% basis. Post completion of the acquisition, De Beers Consolidated Mines and De Beers Canada are fully consolidated subsidiaries and Debswana and Namdeb are joint ventures proportionately consolidated at 19.2% and 50% respectively. Global Sightholder Sales sells a signifi cant portion of total production on behalf of operations based on contractual agreements in place. O t h e r i n f o r m a t i o n Anglo American plc Annual Report 2012 233 OTHER INFORMATION PRODUCTION STATISTICS Other Mining and Industrial segment(1) Phosphates Fertilisers produced 2012 2011 tonnes 1,113,000 1,060,900 Niobium Ore mined Ore processed Ore grade processed Production Amapá Sinter feed Pellet feed Spiral concentrates Tarmac Aggregates Lime products Concrete Scaw Metals(2) South Africa Steel Products Zinc and lead Lisheen(3) Ore mined Ore processed Ore grade processed Production Black Mountain(3) Ore mined Ore processed Ore grade processed Production Total attributable zinc production Total attributable lead production tonnes tonnes Kg Nb/tonne tonnes tonnes tonnes tonnes tonnes tonnes m3 tonnes tonnes tonnes % Zn % Pb tonnes tonnes tonnes tonnes % Zn % Pb % Cu tonnes tonnes tonnes tonnes tonnes 933,200 973,500 8.5 4,400 866,600 902,600 8.1 3,900 2,100,000 2,223,200 1,749,100 6,072,300 1,401,000 1,948,300 1,472,200 4,821,500 37,570,800 1,316,900 3,119,300 42,878,400 1,264,000 3,285,700 611,600 677,400 – – – – – – – – – – – – – – – – 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 Zinc Lead Zinc in concentrate Lead in concentrate Zinc Lead Copper Zinc in concentrate Lead in concentrate Copper in concentrate (1) In 2012 Amapá has been reclassifi ed from Iron Ore and Manganese to Other Mining and Industrial to align with internal management reporting. Comparatives have been reclassifi ed to align with current presentation. (2) The Group sold its interest in Scaw Metals in November 2012. (3) The Group sold its interest in Lisheen and Black Mountain in February 2011. 234 Anglo American plc Annual Report 2012 OTHER INFORMATION QUARTERLY PRODUCTION STATISTICS 31 December 2012 30 September 2012 30 June 2012 31 March 2012 31 December 2011 31 December 2012 v 30 September 2012 31 December 2012 v 31 December 2011 Quarter ended % Change (Quarter ended) Iron Ore and Manganese segment (tonnes) Iron ore(1)(2) Manganese ore(3) Manganese alloys(3)(4) Metallurgical Coal segment (tonnes) Metallurgical – Export Thermal Thermal Coal segment (tonnes)(5) Thermal – Export (RSA) Thermal – Domestic (Eskom) Thermal – Domestic (non-Eskom) Metallurgical – Domestic Thermal – Export (Colombia) 9,012,500 846,800 61,200 12,496,900 858,400 52,000 11,449,200 826,400 30,200 10,106,500 816,200 55,000 11,160,200 722,500 78,000 4,580,000 3,714,700 4,495,700 3,398,900 4,845,600 3,286,300 3,743,000 2,570,600 4,060,600 3,358,700 4,659,100 8,560,600 1,594,500 – 2,661,700 4,555,300 9,056,900 1,530,500 – 2,829,400 4,223,500 8,326,200 1,560,900 15,700 3,104,700 3,694,200 7,762,700 1,533,200 58,400 2,953,000 4,455,900 9,487,000 1,390,100 84,500 2,752,700 Copper segment (tonnes)(6) 172,900 157,300 161,100 168,400 170,000 (28)% (1)% 18% 2% 9% 2% (5)% 4% – (6)% 10% Nickel segment (tonnes)(7)(8) 7,400 9,000 10,900 12,000 9,900 (18)% Platinum segment Platinum (troy ounces) Palladium (troy ounces) Rhodium (troy ounces) Copper (tonnes) Nickel (tonnes) Gold (troy ounces) Equivalent refi ned platinum (troy ounces) Diamonds segment (De Beers) (diamonds recovered – carats) 100% basis Diamonds(9) Other Mining and Industrial segment (tonnes)(10) Phosphates Niobium Iron ore(2) Coal production by commodity (tonnes) Metallurgical Thermal (excluding RSA domestic) RSA domestic thermal 703,800 413,300 91,200 2,500 3,900 18,600 416,000 649,000 392,100 90,500 2,700 3,700 38,500 626,300 623,000 355,500 75,100 3,300 5,400 24,100 583,600 402,800 235,000 53,900 2,900 4,700 24,000 593,200 710,000 392,700 96,800 2,900 5,100 28,000 583,200 8% 5% 1% (7)% 5% (52)% (34)% 8,051,000 6,375,000 7,241,000 6,208,000 6,491,000 26% 24% 302,300 1,000 1,498,000 292,300 1,100 1,534,300 271,500 1,200 1,468,000 246,900 1,100 1,572,000 274,900 1,000 1,267,100 4,580,000 11,035,500 10,155,100 4,495,700 10,783,600 10,587,400 4,861,300 10,614,500 9,887,100 3,801,400 9,217,800 9,295,900 4,145,100 10,567,300 10,877,100 3% (9)% (2)% 2% 2% (4)% 10% – 18% 10% 4% (7)% (19)% 17% (22)% 13% 11% 5% (10)% 15% (100)% (3)% 2% (25)% (1)% 5% (6)% (14)% (24)% (34)% (29)% (1) Kolomela commenced commercial production on 1 December 2011. Revenue and related costs associated with 984,700 tonnes of production were capitalised for the year ended (2) 31 December 2011. In 2012 Amapá has been reclassifi ed from Iron Ore and Manganese to Other Mining and Industrial to align with internal management reporting. Comparatives have been reclassifi ed to align with current presentation. (3) Saleable production. (4) Production includes Medium Carbon Ferro Manganese. (5) Zibulo commenced commercial production on 1 October 2011. Revenue and related costs associated with 2,155,200 tonnes of production were capitalised before commercial production was reached in 2011. This included Eskom coal production of 633,400 tonnes and export thermal coal production of 1,521,800 tonnes. (6) Excludes Platinum 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 21,600 tonnes (2011: 6,200 tonnes) of production have been capitalised. (9) On 16 August 2012 Anglo American completed its acquisition of an additional 40% interest in De Beers increasing Anglo American’s total shareholding to 85%. Production data is disclosed on a 100% basis. Post completion of the acquisition, De Beers Consolidated Mines and De Beers Canada are fully consolidated subsidiaries and Debswana and Namdeb are joint ventures proportionately consolidated at 19.2% and 50% respectively. Global Sightholder Sales sells a signifi cant portion of total production on behalf of operations based on contractual agreements in place. (10) Excludes Tarmac and Scaw Metals. O t h e r i n f o r m a t i o n Anglo American plc Annual Report 2012 235 2012 8.47 2.05 0.62 0.96 0.76 479 7.79 8.21 1.95 0.63 0.97 0.78 486 7.61 2012 138 89 91 170 359 771 1,533 705 1,080 122 93 94 210 361 794 1,555 647 1,275 2011 8.11 1.87 0.65 0.98 0.77 520 7.49 7.26 1.67 0.62 0.97 0.72 484 6.82 2011 127 105 112 285 343 829 1,388 636 1,400 160 116 121 289 400 1,035 1,725 736 2,022 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$/oz OTHER INFORMATION EXCHANGE RATES AND COMMODITY PRICES US$ exchange rates Year end spot prices Rand Brazilian real Sterling Australian dollar Euro Chilean peso Botswana pula Average prices for the year Rand Brazilian real Sterling Australian dollar Euro Chilean peso Botswana pula 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) (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. 236 Anglo American plc Annual Report 2012 OTHER INFORMATION SUMMARY BY BUSINESS OPERATION Revenue(1) Underlying EBITDA(2) Underlying operating profi t/(loss)(3) Underlying earnings US$ million Iron Ore and Manganese Kumba Iron Ore Iron Ore Brazil(5) Samancor Projects and corporate Metallurgical Coal 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 Barro Alto Projects and corporate Platinum Operations Projects and corporate Diamonds(7) Other Mining and Industrial Core Phosphates Niobium Projects and corporate Non-core Amapá(5) Tarmac(8) Scaw Metals(9) Lisheen(10) Black Mountain(10) Projects and corporate 2012 6,403 5,572 – 831 – 3,889 3,657 232 – 3,447 2,477 970 – 5,122 3,186 934 1,002 – 336 176 160 – – 5,489 5,489 – 4,028 4,066 770 597 173 – 3,296 327 2,171 798 – – – 2011 7,643 6,717 – 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 7,359 – 3,320 4,520 720 571 149 – 3,800 481 2,347 931 36 5 – 2012 3,198 3,175 (1) 153 (129) 877 940 13 (76) 972 607 412 (47) 2,179 1,686 336 451 (294) 50 53 46 (7) (42) 580 656 (76) 711 485 196 114 85 (3) 289 89 148 60 – – (8) 2011(4) 4,586 4,640 (137) 198 (115) 1,577 1,553 85 (61) 1,410 906 535 (31) 2,750 1,283 665 1,071 (269) 84 46 86 (12) (36) 1,672 1,734 (62) 794 540 211 158 55 (2) 329 147 103 67 17 3 (8) 2012 2,949 2,980 (5) 103 (129) 405 519 (38) (76) 793 482 358 (47) 1,687 1,369 288 324 (294) 26 47 29 (8) (42) (120) (44) (76) 496 337 169 91 81 (3) 168 54 73 49 – – (8) 2011(4) 4,400 4,491 (141) 165 (115) 1,189 1,188 62 (61) 1,230 779 482 (31) 2,461 1,126 629 975 (269) 57 40 66 (13) (36) 890 952 (62) 659 315 184 134 52 (2) 131 120 (38) 37 17 3 (8) (6) 2012 1,037 1,085 (30) 83 (101) (6) 2011(4) (6) 1,457 1,534 (130) 144 (91) (6) 275 365 (27) (63) 523 312 251 (40) 908 675 237 230 (234) 11 31 18 (5) (33) (225) (155) (70) 312 229 108 64 47 (3) 121 27 65 37 – – (8) 844 850 46 (52) 902 613 318 (29) 1,610 784 470 601 (245) 23 35 29 (8) (33) 410 469 (59) 443 175 109 78 33 (2) 66 68 (34) 25 14 1 (8) Exploration – – (206) (121) (206) (121) (195) (118) Corporate Activities and Unallocated Costs 5 32,785 5 36,548 (160) 8,686 56 13,348 (203) 6,164 15 11,095 (36) 2,839 374 6,120 (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 refi ning charges (TC/RCs). (2) Earnings before interest, tax, depreciation and amortisation (underlying EBITDA) is operating profi t/(loss) before special items, remeasurements, depreciation and amortisation in subsidiaries and joint ventures and includes attributable share of underlying EBITDA of associates. (3) Underlying operating profi t/(loss) is revenue less operating costs before special items and remeasurements, and includes the Group’s attributable share of associates’ operating profi t before special items and remeasurements. (4) Projects and corporate has been revised to align with internal management reporting. Comparatives have been reclassifi ed to align with current presentation. (5) In 2012 Amapá has been reclassifi ed from Iron Ore and Manganese to Other Mining and Industrial to align with internal management reporting. Comparatives have been reclassifi ed to align with current presentation. (6) Of the projects and corporate expense, $67 million (2011: $72 million) relates to Kumba Iron Ore. The total contribution from Kumba Iron Ore to the Group’s underlying earnings is $1,018 million (2011: $1,462 million) as reported in the external earnings reconciliation, see page 240. (7) On 16 August 2012 the Group acquired a controlling interest in De Beers (Diamonds segment). Until this date De Beers was accounted for as an associate of the Group. From 16 August 2012 De Beers ceased to be an associate and has been accounted for as a subsidiary of the Group. In 2011 the Group sold Tarmac’s businesses in China, Turkey and Romania. In November 2012, the Group sold its interest in Scaw Metals. (8) (9) (10) In 2011 the Group sold its interests in Lisheen and Black Mountain, which comprised the remainder of the Group’s portfolio of zinc operations. O t h e r i n f o r m a t i o n Anglo American plc Annual Report 2012 237 OTHER INFORMATION KEY FINANCIAL DATA US$ million (unless otherwise stated) Group revenue including associates Less: Share of associates’ revenue Group revenue Underlying operating profi t including associates before special items and remeasurements Special items and remeasurements (excluding fi nancing and tax special items and remeasurements) Net fi nance costs (including fi nancing special items and remeasurements), tax and non-controlling interests of associates Total profi t from operations and associates Net fi nance (costs)/income (including fi nancing special items and remeasurements) (Loss)/profi t before tax Income tax expense (including special items and remeasurements) (Loss)/profi t for the fi nancial year – continuing operations Profi t for the fi nancial year – discontinued operations (Loss)/profi t for the fi nancial year – total Group Non-controlling interests (Loss)/profi t attributable to equity shareholders of the Company Underlying earnings(2) – continuing operations Underlying earnings(2) – discontinued operations Underlying earnings(2) – total Group (Loss)/earnings per share (US$) – continuing operations Earnings per share (US$) – discontinued operations (Loss)/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) Underlying EBITDA(3) – continuing operations Underlying EBITDA(3) – discontinued operations Underlying EBITDA(3) – total Group Underlying 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 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 classifi ed as held for sale Net assets Non-controlling interests Equity attributable to equity shareholders of the Company Total capital(7) Cash fl ows from operations – continuing operations Cash fl ows from operations – discontinued operations Cash fl ows from operations – total Group Dividends received from associates and fi nancial asset investments – continuing operations Dividends received from associates and fi nancial asset investments – discontinued operations Dividends received from associates and fi nancial 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) 2012 32,785 (4,024) 28,761 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 6,164 11,095 9,763 4,957 10,085 9,590 8,888 5,549 3,832 (5,757) (44) 1,727 (208) (330) (227) 24 16 556 (269) 138 (452) 10,599 (423) 11,067 (313) 4,436 (783) 8,972 (434) 8,929 (398) 8,514 (315) 5,250 (377) (239) (375) (614) – (614) (879) 183 10,782 (2,860) 7,922 – 7,922 (1,753) (139) 10,928 (2,809) 8,119 – 8,119 (1,575) (407) 4,029 (1,117) 2,912 – 2,912 (487) (401) 8,571 (2,451) 6,120 – 6,120 (905) (108) 8,821 (2,693) 6,128 2,044 8,172 (868) (71) 8,443 (2,518) 5,925 997 6,922 (736) (220) 5,030 (1,208) 3,822 111 3,933 (412) (1,493) 2,839 – 2,839 (1.19) – (1.19) 2.26 – 2.26 85.0 – 1,254 8,686 – 8,686 61.2 6,169 6,120 – 6,120 5.10 – 5.10 5.06 – 5.06 74.0 – 1,210 13,348 – 13,348 n/a 6,544 4,976 – 4,976 5.43 – 5.43 4.13 – 4.13 65.0 – 1,206 11,983 – 11,983 42.0 2,425 2,569 – 2,569 2.02 – 2.02 2.14 – 2.14 – – 1,202 6,930 – 6,930 27.4 5,215 5,237 – 5,237 4.34 – 4.34 4.36 – 4.36 44.0 – 1,202 11,847 – 11,847 28.3 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 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 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 18.8% 30.4% 29.6% 20.1% 30.6% 28.4% 25.4% 18.5% 14.7% 2.7 6.8 6.4 – 9.9 3.5 3.5 2.9 2.7 49,660 8,512 3,744 (990) (10,710) (8,660) 2,231 43,787 (6,130) 37,657 52,402 7,021 – 7,021 42,871 10,269 2,093 (1,683) (9,220) (1,141) – 43,189 (4,097) 39,092 44,563 11,498 – 11,498 42,126 9,852 2,385 (785) (8,757) (7,038) 188 37,971 (3,732) 34,239 45,355 9,924 – 9,924 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 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 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 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 35,816 5,547 3,543 (611) (8,339) (8,243) – 27,713 (4,588) 23,125 35,806 3,857 1,434 5,291 340 403 285 639 659 – – – – – 311 52 251 37 468 2 380 16 340 285 403 396 13.3% 26.5% 24.8% 14.4% 36.9% 38.0% 32.6% 18.8% 16.9% 17.9% 29.7% 28.3% 19.1% 38.0% 40.8% 38.8% 26.2% 21.3% 16.4% 3.1% 16.3% 28.7% 34.3% 16.6% 10.3% 15.3% 22.6% 470 363 639 659 288 (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 profi t attributable to equity shareholders of the Company before special items and remeasurements and is therefore presented after net fi nance costs, income tax and non-controlling interests. (3) Underlying EBITDA is operating profi t before special items and remeasurements, depreciation and amortisation in subsidiaries and joint ventures and includes attributable share of EBITDA of associates. (4) Underlying EBITDA interest cover is underlying EBITDA divided by net fi nance costs, excluding other net fi nancial income, exchange gains and losses on monetary assets and liabilities, unwinding of discount relating to provisions and other liabilities, fi nancing special items and remeasurements, and including attributable share of associates’ net interest expense, which in 2011 resulted in a net fi nance 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 (2012: $213 million; 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 (2012: net liabilities of $168 million; 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 $193 million; 2005: nil; 2004: nil). See note 31 to the fi nancial statements. (7) Total capital is net assets excluding net debt. (8) Return on capital employed is calculated as total operating profi t before impairments for the year divided by the average of total capital less other investments and adjusted for impairments. (9) Net debt to total capital is calculated as net debt (including related hedges) divided by total capital. Comparatives are presented on a consistent basis. 238 Anglo American plc Annual Report 2012 OTHER INFORMATION NON-FINANCIAL DATA Safety(1) Work-related fatalities Fatal-injury frequency rate (FIFR)(2) Total recordable case frequency rate (TRCFR)(3) Lost time injury frequency rate (LTIFR)(4) Lost time injury severity rate (LTISR)(5) Occupational health(1) New cases of occupational disease (NCOD)(6) Occupational disease incidence rate (per 200,000 hours) (ODIR) Environment(1) Total CO2 emissions (Mt CO2e) Total energy consumed (million GJ)(7) Water used for primary activities (million m3)(8) Human Resources(1)(9) Women in management (%)(10) Historically Disadvantaged South Africans in management (%)(11) Resignations (%)(12) Redundancies (%)(13) Dismissals (%)(14) Other reasons for leaving (%)(15) Social(1) CSI spend (total in US$ million)(16) CSI spend (% of pre-tax profi t) Procurement: BEE spend (rand billion) Businesses supported through enterprise development initiatives Jobs created/maintained through enterprise development programmes 2012 2011 2010 2009 2008 13 0.008 1.29 0.60 223 170 0.189 18 108 122 23 62 2.4 0.6 1.4 2.4 17 0.009 2.01 0.64 220 197 0.205 19 102 115 22 51 2.7 1.4 1.1 0.3 15 0.008 1.44 0.64 229 268 0.284 20 100 115 21 46 2.4 2.1 1.3 2.8 20 0.010 1.81 0.76 226 489 0.483 19 106 125 19 46 2.4 3.8 2.0 4.9 28 0.015 2.27 1.04 240 132 0.126 19 102 124 17 45 3.8 0.6 2.6 2.0 154 3 25.8 17,598 64,927 129 1 23.3 38,681 47,070 112 1 20.9 9,392 17,200 83 2 23.5 3,720 12,982 76 1 24.6 3,012 13,431 (1) With the exception of Social, which includes the results of De Beers from the date of acquisition, the data includes wholly owned subsidiaries and joint ventures over which Anglo American has management control, and does not include De Beers or other non-managed operations such as Collahuasi, Carbones del Cerrejón and Samancor. (2) FIFR is calculated as the number of fatal injuries to employees or contractors per 200,000 hours worked. (3) TRCFR is the number of fatal injuries, lost time injuries and medical treatment cases for employees or contractors per 200,000 hours. (4) LTIFR is 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. (5) LTISR is the number of lost days and restricted workdays per 200,000 hours worked. (6) NCOD is the sum of occupational diseases due to asbestosis, NIHL, silicosis, coal-workers’ pneumoconiosis, pneumoconiosis due to other fi brogenic diseases, chronic obstructive airways disease, occupational tuberculosis, occupational asthma, HAVs, musculoskeletal disorders, dermatitis, occupational cancers and other occupational diseases. (7) Total amount of energy consumed is the sum of total energy from electricity purchased, total energy from fossil fuels and total energy from renewable fuels. (8) Total amount of water used for primary activities is the total new or make-up water entering the operation and used for the operation’s primary operational activities. (9) Excludes Other Mining and Industrial Non-core operations. (10) Women in management is the percentage of female managers as a percentage of all females in the workforce excluding contractors. (11) Historically Disadvantaged South Africans in management is the percentage of managers at Anglo American in South Africa who are ‘Historically Disadvantaged South Africans’. (12) The number of people who resigned as a percentage of the total workforce excluding contractors. (13) The number of people who have been retrenched as a percentage of total workforce excluding contractors. (14) The number of people who have been dismissed or have resigned to avoid dismissal, as a percentage of total workforce excluding contractors. (15) The number of people who left for reasons other than those shown above, for example retirement, ill health and death, as a percentage of total workforce excluding contractors. (16) CSI spend is the sum of donations for charitable purposes and community investment (which includes cash and in-kind donations and staff time) as well as investments in commercial initiatives with public benefi t (such as enterprise development). O t h e r i n f o r m a t i o n Anglo American plc Annual Report 2012 239 OTHER INFORMATION RECONCILIATION OF SUBSIDIARIES’ REPORTED EARNINGS TO THE UNDERLYING EARNINGS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2012 Note only key reported lines are reconciled. Kumba Iron Ore Limited US$ million IFRS headline earnings Exploration Kumba Envision Trust(1) Other adjustments Non-controlling interests(2) Elimination of intercompany interest Depreciation on assets fair valued on acquisition (net of tax) Corporate cost allocation Contribution to Anglo American underlying earnings 2012 1,499 16 53 3 1,571 (500) 4 (8) (49) 1,018 2011 2,366 4 – 3 2,373 (826) (27) (9) (49) 1,462 (1) The Kumba Envision Trust charge is included in IFRS headline earnings but is an operating special item so is excluded from underlying earnings. (2) On 20 July 2012 Anglo American increased its shareholding in Kumba Iron Ore Limited by 4.5% through the exercise of options acquired in 2011 and 2012, thereby increasing its shareholding from 65.2% to 69.7% for a total cost of $948 million. Anglo American Platinum Limited US$ million IFRS headline (loss)/earnings Exploration Operating and fi nancing remeasurements (net of tax) Restructuring costs included in headline earnings (net of tax) BEE transactions and related charges Non-controlling interests Elimination of intercompany interest Depreciation on assets fair valued on acquisition (net of tax) Corporate cost allocation Contribution to Anglo American underlying earnings 2012 (170) 4 2 – – (164) 33 10 (41) (63) (225) 2011 527 5 (27) 6 141 652 (132) (1) (55) (54) 410 240 Anglo American plc Annual Report 2012 OTHER INFORMATION RECONCILIATION OF DE BEERS’ REPORTED EARNINGS TO THE AMOUNTS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2012 On 16 August 2012 the Group acquired an additional 40% interest in De Beers, increasing its shareholding to 85%, and has consolidated 100% of the assets and liabilities of De Beers from this date. In accordance with IFRS the Group is required to fair value 100% of the assets and liabilities acquired based on the purchase consideration for the 40% acquired. As a result the Group has: • Recognised a fair value uplift of $2,017 million relating to its existing 45% shareholding, with a corresponding special item (remeasurement) gain in the income statement. The additional depreciation arising as a result of the fair value uplifts on the Group’s existing 45% shareholding has also been recognised as a special item (remeasurement) and amounted to $41 million in 2012 and is estimated to be $125 million in 2013. • Recognised fair value uplifts associated with the additional 55% to be consolidated, including the Government of Botswana’s 15% non-controlling interest. The additional depreciation and amortisation charge reduced operating profi t by $50 million in 2012 and is estimated to be $150 million in 2013. The additional depreciation and amortisation charge reduced underlying earnings by $32 million in 2012 and is estimated to reduce underlying earnings by $100 million in 2013. The following tables reconcile the earnings and capital expenditure of De Beers to the amounts included in the Group’s Consolidated fi nancial statements and illustrate the earnings impact of the requirement to fair value assets and liabilities acquired. US$ million Underlying EBITDA (including associates) Underlying operating profi t Underlying earnings(2) Capital expenditure 2012 Anglo American share(1) 711 496 312 94 De Beers (100%) 1,075 815 506 249 2011 Anglo American share(1) 794 659 443 – De Beers (100%) 1,763 1,491 993 260 (1) Amounts based on the Group’s 45% shareholding to 16 August 2012 and a 100% basis thereafter. Underlying earnings from 16 August 2012 excludes the 15% non-controlling interest. (2) See reconciliation below. US$ million Underlying earnings(1) De Beers underlying earnings Anglo American share (45% prior to 16 August 2012) Anglo American share (100% from 16 August 2012) Fair value adjustments on acquisition(2) Depreciation on assets fair valued on acquisition(3) Exploration Non-controlling interest Intercompany interest Corporate cost allocation Other Contribution to Anglo American underlying earnings Operating special items Depreciation of fair value uplifts on existing assets(4) Reversal of uplift on inventory(5) 2012 506 153 166 18 (44) 23 163 (18) 14 (7) 7 159 312 41 421 2011 993 447 – – – – – – – – (4) (4) 443 – – (1) Debswana is a joint venture between De Beers and the Government of Botswana in which each shareholder has a 50% equity share. The joint venture arrangements provide De Beers with an economic interest in Debswana that is based on 19.2% of profi ts before deducting taxes and royalties paid by the joint venture. Consistent with these arrangements, De Beers proportionately consolidates 19.2% of Debswana’s earnings (before taxes and royalties) in line with the Group’s policy on accounting for joint ventures. As De Beers’ share of earnings is based on profi ts before taxes and royalties, an effective tax rate of nil arises on the earnings of the joint venture in the Group’s Consolidated fi nancial statements. (2) Relates to assets fair valued on acquisition where the treatment in De Beers’ underlying fi nancial statements post-acquisition is already refl ected in the Group’s fi nancial statements. (3) Excludes the depreciation of fair value uplifts on the Group’s previously held 45% equity interest. (4) Relates to the depreciation of fair value uplifts on the Group’s previously held 45% equity interest upon obtaining a controlling interest. (5) Inventory held by De Beers at the date of the acquisition is required to be recognised at fair value under IFRS. This results in negligible margins upon the subsequent sale of inventory held at the date of the acquisition. The impact of fair value uplifts on inventory has been excluded from the Group’s underlying earnings so as not to distort the operating margins of De Beers and to provide more useful information about the performance of the Group. O t h e r i n f o r m a t i o n Anglo American plc Annual Report 2012 241 OTHER INFORMATION THE BUSINESS – AN OVERVIEW as at 31 December 2012 Iron Ore and Manganese Kumba Iron Ore (South Africa) Minas-Rio (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 Peru Michiquillay Chile Mantos Blancos(4) Mantoverde(4) Nickel 100% owned Brazil Codemin Barro Alto 69.7% 100% 49% 40% Overall ownership: 100% 88.2% 88% 83.3% 70% 70% 51% 23.3% 25.4% 17.6% 19.2% Overall ownership: 100% 50% 50% 73% 73% 24.2% 33.3% Overall ownership: 100% 50.1% 50.1% 50.1% 44% 16.8% 81.9% 50% Overall ownership: 100% 91.4% Other interests Australia Drayton Moranbah North Dartbrook German Creek(2) Foxleigh Dawson Jellinbah Australia – other Dalrymple Bay Coal Terminal Pty Ltd Newcastle Coal Shippers Pty Ltd MBD Energy 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 Chile Chagres El Soldado Los Bronces Collahuasi South Africa Palabora Peru Quellaveco US Pebble Other interests Venezuela Loma de Níquel (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%. (4) Non-controlling interest of 0.018%. 242 Anglo American plc Annual Report 2012 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 Refi nery Precious Metals Refi nery Twickenham Mine Zimbabwe Unki Mine De Beers 100% owned South Africa De Beers Group Services (Exploration and Services) De Beers Marine Canada De Beers Canada Snap Lake Victor Synthetic Diamond Supermaterials Element Six Technologies Sales Global Sightholder Sales Auction Sales Brands Forevermark Other Mining and Industrial 100% owned Phosphates Anglo American Fosfatos Brasil Limitada Niobium Anglo American Nióbio Brasil Limitada Aggregates and Building Materials Tarmac Quarry Materials Tarmac Building Products Other(5) 100% owned Vergelegen (South Africa) 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 Atlatsa Resources Corporation(1) Johnson Matthey Fuel Cells South Africa – other Wesizwe Platinum Limited Royal Bafokeng Platinum Limited Overall ownership: 79.9% 85% 74% 50% 50% 50% 50% 49% 42.5% 33% 27% 17.5% 13% 12.6% Other interests South Africa De Beers Consolidated Mines Venetia Voorspoed Namaqualand Mines(3) Kimberley Mines Botswana Debswana Damtshaa Jwaneng Orapa Letlhakane Overall ownership: 85% Namibia Namdeb Holdings(4) 50% 74%(2) Namdeb Diamond Corporation Mining Area 1 Orange River Elizabeth Bay Alluvial Contractors Debmarine Namibia Atlantic 1 50% Sales DTC Botswana Namibia DTC 50% 50% Synthetic Diamond Supermaterials 60% Element Six Abrasives Brands De Beers Diamond Jewellers 50% Other interests Iron ore Amapá (Brazil) Aggregates and Building Materials Tarmac Middle East 70% 50% Other interests Exxaro Resources (southern Africa and Australia) 9.8% (1) Anooraq Resources Corporation changed its name to Atlatsa Resources Corporation in 2012. (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 fi nancial 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 Corporation (Pty) Limited and De Beers Marine Namibia (Pty) Limited (now trading as Debmarine Namibia). All mining licences were transferred to the newly formed company. Included within Corporate Activities and Unallocated Costs segment. (3) (4) (5) Anglo American plc Annual Report 2012 243 O t h e r i n f o r m a t i o n OTHER INFORMATION SHAREHOLDER INFORMATION Annual General Meeting Will be held at 2:00pm on Friday 19 April 2013, at The Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE. Shareholders’ diary 2013/14 Interim results announcement Annual results announcement Annual Report Annual General Meeting July 2013 February 2014 March 2014 April 2014 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 Offi ce Anglo American plc 20 Carlton House Terrace London SW1Y 5AN England Telephone: +44 (0) 20 7968 8888 Fax: +44 (0) 20 7968 8500 Registered number: 3564138 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 plus network extras. Lines are open 8:30am to 5:30pm Monday to Friday. 244 Anglo American plc Annual Report 2012 OTHER INFORMATION OTHER ANGLO AMERICAN PUBLICATIONS • 2012/13 Fact Book • Notice of 2013 AGM and Shareholder Information Booklet • Sustainable Development Report 2012 • Business Unit Sustainable Development Reports (2012) • Optima – Anglo American’s current affairs journal • Good Citizenship: Business Principles • The Environment Way • The Occupational Health Way • The Projects Way • The Safety Way • The Social Way • The People Development Way • www.facebook.com/angloamerican • https://twitter.com/angloamerican • www.youtube.com/angloamerican • www.fl ickr.com/angloamerican • www.slideshare.com/angloamerican The Company implemented electronic communications in 2008 in order to reduce the fi nancial 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 and sustainable development reports may be found at: www.angloamerican.com/reportingcentre However, the 2012 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, Anglo American Chairman’s Fund and the Anglo American Group Foundation have worked with in 2012: Designed and produced by Salterbaxter. This document is printed on Amadeus 50 Silk and Amadeus 50 Offset which has been independently certifi ed according to the rules of the Forest Stewardship Council® (FSC). All the paper in this report contains 50% recycled and 50% virgin fi bre.The recycled fi bre is bleached in a Process Chlorine Free (PCF) process and the virgin fi bre is Elemental Chlorine Free (ECF) bleached. Printed in the UK by Pureprint using its alcofree® and pureprint® environmental printing technology, and vegetable inks were used throughout. Pureprint is a CarbonNeutral® company. Both manufacturing paper mill and the printer are registered to the Environmental Management System ISO 14001 and are Forest Stewardship Council® (FSC) chain-of-custody certifi ed. 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