2011 AGM Address

RNS Number : 3746F

Anglo American PLC

21 April 2011

 



21 April 2011
Anglo American plc Annual General Meeting - Address to shareholders

Anglo American plc held its Annual General Meeting for shareholders in London today. Sir John Parker, Chairman, and Cynthia Carroll, Chief Executive, made the following remarks:

Sir John Parker, Chairman, Anglo American plc:

First, I want to welcome you all to our 2011 AGM, and especially to those shareholders who may have travelled some distance to be with us.

Before I mention some of the many achievements of your company over the last year, I would like to say just a few words about what I believe a board of directors should do in terms of leading and guiding companies. Speaking from my own experience of a large number of boardrooms - with Anglo American being my 5th FTSE 100 chairmanship - I cannot lay too much emphasis on how important it is to have a team of directors with a blend of skill sets and experience that can provide quality leadership in the boardroom.

As your Chairman, I take considerable care in leading the process to build the highest quality Board here at Anglo American, and one where we create the professional openness and culture of transparency and respect that encourages lively internal debate. It is in that vein that we endeavour to seek constant improvement in all our Board management and administrative processes, with the aim of keeping at the forefront of best boardroom practice.

We are also aiming to increase the proportion of women on the Board from today's 20 per cent to around 30 per cent (excluding the Chairman) by the end of 2012 - well ahead of the 2015 25 per cent target date recommended in the recently issued Davies Report, on which committee I served.

At this juncture, I should like to take the opportunity to acknowledge and thank all the members of the Board team, who collectively are making a significant contribution to our Board debates, while also serving individually on the Board's vitally important underlying committees.

You will notice a new face here today. I am pleased to welcome Phuthuma Nhleko, who was appointed a non-executive director last month. Under Phuthuma's leadership over the past nine years, MTN has been transformed from a highly successful South African mobile operator into a very considerable international force in mobile telecommunications services in emerging markets. His broad international business experience and his civil engineering background will lend further strength to our Board.

It is to our longest-standing member, however, that I especially want to pay tribute today. Nicky Oppenheimer notified the Board some months ago of his wish to retire from his position as a non-executive director, at the end of today's AGM, after 43 years with the Anglo American Group.

On behalf of the Board, I would like to express our thanks to Nicky for his significant contribution to the Group over such a long period. Anglo American's origins in South Africa more than 90 years ago lay in the hands of Nicky's grandfather, and that legacy lives on. Sir Ernest Oppenheimer's commitment that Anglo American should make a positive and sustainable difference to the communities around its mining operations, and to wider society, is deeply embedded in the way we do business today. Personally, I have greatly valued Nicky's advice and wise counsel since I became chairman 21 months ago and we will all miss these qualities, as well as his sound business sense and integrity. We wish him well and look forward to a continued strong and productive relationship through our respective interests in De Beers.

I would also like to pay tribute to the management team under Cynthia Carroll's leadership as our chief executive. Cynthia has worked tirelessly, with a great focus on executing the Board's strategy. We not only have a top-class team, with an impressive record of innovation and leadership in exploration, in engineering and in our mining operations, but highly skilled employees across the world who are making a real difference every day.

I have now had the privilege of visiting all our global business units and major projects and I am not only deeply impressed by the commitment of our people, wherever they work, but by their dedication and professionalism in living out Anglo American's values.

This was brought home to me on a recent visit to the disastrous flood areas in Queensland in Australia. Our people at Metallurgical Coal carried out heroic acts just after Christmas in evacuating an entire community threatened with exceptional flood levels. They took over the local airfield to co-ordinate more than 90 helicopter flight movements and used trucks from the mine to evacuate 328 residents, put them into Anglo American's temporary accommodation, and fed and clothed them for the following two weeks.

We witnessed similar involvement of our Chilean management and employees in the 2010 Chilean earthquake, where not only was all possible assistance offered in the rescue operations, but where our management took responsibility to rebuild the local schools that had been devastated in the earthquake.

I speak for the entire Board in saying we are really proud that the management teams there cared enough and felt empowered to help the community because they worked with the right Anglo American values.

Turning to Anglo American's performance last year.

Let me start with Safety. 2010 was marked by yet another major improvement in our safety performance. Over the past four years, under Cynthia Carroll's leadership, the number of deaths recorded across our Group has been reduced by two-thirds. However, our ultimate aim of zero harm is not just attainable, but is now being seen to be possible. All of us in this industry need to remain very committed to this goal.

Now, to touch on a subject that is very dear to us all,.. the dividend. As you know, last year we restored dividend payments. The Board believes that it is prudent to provide shareholders with a dividend they can rely on through the cycles. Against this background, the Board has proposed a final dividend to this meeting of 40 cents per share, thereby establishing a new base annual dividend of 65 cents per share.

From a financial standpoint, we experienced a strong resurgence, with steadily rising demand and higher prices for all of the commodities in our mining portfolio, though the strength of local currencies, and particularly the South African rand, somewhat dampened our overall performance.

In 2010, Group operating profit almost doubled to $9.8 billion, while cash flow generation from our operations improved from $4.1 billion to $7.7 billion. In addition, our balance sheet position improved significantly on the back of the excellent progress we made in our orderly disposal programme.

Looking ahead, we have one of the strongest near-term project pipelines in the mining industry, which is set to grow our production by around 50 per cent by 2015.

I am delighted to report that one of our four largest current investment projects - the Barro Alto nickel operation in Brazil - produced its first metal at the end of last month. Furthermore, our biggest current project, the Minas-Rio iron ore project in Brazil, has been significantly de-risked by the receipt of the key mining permit and primary installation licence, as well as the securing of a long-term port tariff agreement.

At Anglo American, we have now implemented a single, integrated Group project-management system, including a risk-based method of capital approval for new projects; this is bringing greater rigour to the project delivery process.

Operating our businesses in a socially and environmentally responsible way, and earning trust, are fundamental to our licence to operate and to delivering long term value to our investors. Thus, a key focus area in 2010 was the launching of a major Group-wide project to facilitate greater local procurement by our operations. Aside from the significant numbers we employ, we firmly believe that our procurement budget of around $13 billion this year represents one of our most important opportunities to help further develop local communities.

During the year we also brought a much greater focus to measuring our social performance. We have therefore developed a standardised suite of output key performance indicators for our social investment programmes that will be used across all our operations.

We are also re-doubling our efforts on environmental issues, focusing on new technologies to address the twin challenges around the world of water scarcity and climate change - global priorities in relation to which South Africa will be the centre of world attention as we prepare for the COP 17 conference in Durban later this year.  

As a major coal producer and consumer of energy, we also continue to play a proactive role in the ongoing international debate around carbon alleviation, as well as developing our own technological response. We remain committed to reducing our own carbon emissions - focusing not only on carbon capture and storage, but also on new technologies, such as algae, that can be used to produce sustainable fuels. We are also closely involved in research to study the role of platinum group metals in a cleaner energy mix, especially in fuel-cell technologies.

More broadly, we continue to support leading international initiatives to promote responsible corporate activity. We remain committed to the UN Global Compact as well as the Extractives Industry Transparency Initiative, and continue to support the Investment Climate Facility for Africa. We are also actively engaged in discussions around the review of the OECD Guidelines for Multinational Enterprises, and we play an active role in support of the Voluntary Principles on Security and Human Rights - while earlier this year we entered a new partnership with peacekeeping organisation International Alert, one of the world's leading conflict-prevention and -resolution organisations.

We are also gaining increasing recognition for our social and sustainable development performance. In 2010, we received the prestigious CommunityMark award from Business in the Community for excellence in community engagement and development, and became the only mining company to have a commitment to meeting the MDGs accepted by the UN Development Programme's Business Call to Action. We also achieved Platinum status in the Business in the Community Corporate Responsibility Index. In March this year, our commitment to sustainability was further recognised in the announcement that Anglo American was to be included in the FTSE4Good Index, the index of companies that meet a series of stringent corporate responsibility standards. This has since been followed by our inclusion as one of the three mining company sustainability leaders in the top-tier Gold Class section of the just-published Dow Jones Sustainability Yearbook.

Now, to our visitors from Alaska… I appreciate that we may have here today both critics and supporters of the Pebble project, as well as those who have not yet made up their minds but support the project's right to be allowed to go through the permitting process. We look forward to any questions you may wish to pose on Pebble. Although I have not had the opportunity of seeing the project for myself, I would like to say that I am looking forward to visiting your state as soon as my diary permits, and to meeting with many of you and listening to a wide cross-section of opinion. Indeed, I was very privileged that Cynthia Carroll and myself were able to meet with a delegation from Alaska yesterday in our offices at Anglo American in London.

Of course, I think all of you know by now the keen interest that our American CEO has in the project. In fact, Cynthia was there only last month. And I am delighted that we have with us today the Pebble Partnership's CEO John Shively. I think that all of us, whatever our opinions on the project, will acknowledge John's exemplary record and commitment to Alaska and Alaskans.

Those of you who attended last year's AGM may recall that, speaking from the floor through a representative, Alpheos Blom, a former gold mine worker, shared his story of ill health - he said he was suffering from silicosis and that he had also contracted tuberculosis. This week we also received a letter from an organisation called AIDS & Rights Alliance for Southern Africa in support of former gold mineworkers.

I would also like to express on behalf of the Board of Anglo American our sympathy for Mr Blom's difficulties, as I did last year. I have personally been following this matter closely for some time and we want to try to do something about this.

The background to this is that, in 2004, Mr Blom, along with seven other former gold mine workers, instituted individual legal actions in South Africa against our wholly owned subsidiary Anglo American South Africa, and further individual actions have followed.

Anglo American believes that the claims against it are ill-founded, and that this will be demonstrated in the course of the proceedings.

I understood Mr Blom to be concerned about the length of time that it is taking for his claim to be decided by the Courts in South Africa, and he has asked for our help. In an effort to expedite the claims, Anglo American had already taken the unusual step some time ago of agreeing with Mr Blom and the other initial claimants upon a way to streamline the progress of their claims ahead of any trial date, while also attempting to find an alternative method of resolving the disputes outside of the formal court process.

Practically, it appears that Mr Blom's claim, brought in 2004, may only be heard with other claims brought in 2009.  In addition, this month we were notified that Mr Blom's claim is to be amended by his lawyers for the ninth time.  As a result, I am advised that these claims are still not likely to come to trial for a considerable period of time. 

In the circumstances, Anglo American - despite denying all liability - will respond positively to Mr Blom's request for help. Cynthia will provide some further information on what Anglo American is doing in terms of our humanitarian response in her address in a few moments.

Finally, turning to the economic outlook. The major emerging economies continue to grow strongly, with China posting close to double-digit GDP growth rates and India beating expectations in recent quarters. The US economy has also strengthened over the past six months, with signs of a distinct improvement in consumer spending and business investment.

Several shocks, however, have buffeted the world economy recently. Political turmoil in North Africa and the Middle East has pushed oil prices to near-record levels, adding to inflation worries in many economies. Japan is not only counting a devastating human cost; it appears the economic costs could also be considerable. There is also the continuing crisis in Europe, which has the potential to unsettle financial markets.

While these events could be a drag anchor on the world economy this year, the medium- to longer-term outlook looks robust. Japan's reconstruction and the US's drive to upgrade its infrastructure will be important trends in the next five to 10 years for this company. In addition, China and other emerging economies still have considerable growth potential as their living standards converge on those of the major advanced economies. China and India's continuing development with the emergence of their huge consumer market is likely to be a defining economic trend in the next 20 years.

Against that background, we believe your company is well positioned to benefit in 2011, and well beyond, from the ambitious growth programmes of the world's major economies.

I will now with pleasure hand the floor to Cynthia, who will provide you with further insight.

Cynthia Carroll, Chief Executive, Anglo American plc:

Thank you, John.

Good morning, everyone. It's good to see you here today. Thank you all for coming to our annual meeting, particularly those who have travelled so far to be with us.

Let me begin with just a brief word on the global economy… During 2010, we saw commodity prices continue to increase, with near-record highs recorded for several commodities by year end. China and India led a strong economic recovery in emerging economies, following timely policy stimulus; but in the second half of the year, the advanced economies also gained traction. The US has strengthened significantly, with positive trends in domestic consumption and investment spending. Germany and Japan have also rebounded, helped by surging exports to China.

2010 was a very good year for Anglo American and our financial performance certainly reflected delivery on all fronts. Our goal of becoming the leading global mining company is within our reach as we continue to deliver our world class projects, greater efficiencies, and pursue new growth opportunities.

But let me first start by talking about Safety. Right across the business, we continue to focus on our safety performance - day in, day out. This determination is bringing results. We are starting to make a real difference to our people within Anglo American and across the mining industry, particularly in South Africa, by setting new benchmark standards for safety practices.

Over the past four years, we have achieved a 66 per cent reduction in the number of people who have died while on company business, as well as a 51 per cent reduction in lost-time injury rates. This represents a significant improvement; however, sadly and regrettably, 15 people lost their lives in 2010.

This is a stark reminder that we still have a lot further to go to achieve our goal of zero harm; so we have stepped up our efforts to achieve this by auditing what we do well and what we don't do so well, as well as spreading best practice across the group.

By way of example, 3,000 employees at our Australian operations stopped work on the 28^th of February this year to discuss and share ideas on how to improve safety performance.  A month on from that meeting, encouraging signs have emerged with statistics showing improved safety for March.

Turning to our financial performance; EBITDA climbed to $12 billion; we almost doubled our operating profit, to $9.8 billion and our underlying earnings per share, which reached 4 dollars and 13 cents. And, of course, we reinstated the dividend, with a proposed total of 65 cents for the year - our new base annual dividend level; and you will recall that we have achieved this while maintaining investment in our major growth projects without recourse to you, our shareholders, during the economic downturn.

We are continuing to deliver on our clear strategic objectives… We have a unique and well diversified portfolio, in our chosen, structurally attractive, commodities. Our seven focused commodity businesses are driving superior operating performances.

Let me just speak for a minute on asset optimisation and supply chain, because we are really seeing the benefits of leveraging our scale. In reaching $2.5 billion in 2010, we comfortably exceeded our target of delivering $2 billion in benefits by the end of 2011 - and this is from our core businesses alone.

We are also seeing the benefits from the re-organisation of our business as we realise strong productivity improvements and drive our operations to the lower quartiles of their cost curves. For example, we've transformed our Platinum business, moving it down the cost curve with a 23 per cent increase in productivity since 2008, containing cash operating costs below inflation, while exceeding our platinum production target for the year of 2.5 million ounces.

Elsewhere in the Group, our Kumba Iron Ore, Metallurgical Coal, and Nickel businesses also delivered productivity gains. Notably, our associate De Beers is clearly reaping the rewards following its own comprehensive restructuring, as well as the much-improved trading environment for diamonds.

Importantly, we have significantly strengthened our balance sheet through the planned disposal of businesses considered non-core to our future; we have announced $3.3 billion of proceeds from divestments, contributing to the reduction of our net-debt position to $7.4 billion at year end.

I would like to highlight the success of our divestment programme. This is already well advanced, with our zinc portfolio, Moly-Cop and AltaSteel, five undeveloped coal assets in Australia and a number of Tarmac's European businesses all being sold. Then, in February this year, we announced our agreement to combine the UK businesses of Tarmac and Lafarge. The 50:50 joint venture will create a leading UK construction-materials company, with a portfolio of high-quality assets and strong brands in the marketplace.

Now, turning to our growth… Anglo American has an exceptionally strong near and medium term growth position - we expect to increase our organic production by 50 per cent by 2015. Our four major growth projects - in which we continued to invest through the downturn - are making excellent progress, enabling us to start up a new mining operation every six to nine months over the next few years.  We are proud of having one of the largest organic growth pipelines in the mining industry, with $17 billion of projects already approved.

And in the next three years, we expect to approve a further $16 billion of projects… starting later this year with the Quellaveco copper project in Peru - once we obtain the necessary water permits.

Moreover, as the chairman has mentioned, we are bringing much more rigour and discipline to the process of project delivery - an area which traditionally has been a challenging one for the mining industry.

Looking at our four major current projects - in the order they will come on stream:

First, Barro Alto in Brazil has already come on stream, as we produced the first nickel at the end of last month in line with our commitment to shareholders. Barro Alto uses proven - and therefore low risk - laterite-processing technology and is well positioned in the lower half of the cost curve, with an extremely attractive margin.

We expect Barro Alto's cash-cost position to be a little over $4 per pound, while today nickel is trading at around $12 per pound.  Barro Alto will double our total nickel output of around 40,000 tonnes a year when it reaches full capacity next year and we are assessing two other nickel prospects in Brazil which have the potential to add a further 66,000 tonnes of production, with upside even beyond that.

Also this year - in the fourth quarter - we expect to commission our Los Bronces expansion project in Chile. This will produce an additional 270,000 tonnes of copper per year over the first five years and 200,000 tonnes per year over the life of mine, at highly attractive cash operating costs, and will make Los Bronces one of the world's top five copper producers.  Los Bronces' reserves and resources support a mine life of over 30 years and there are also further expansion opportunities there.

In the middle of next year, the 9 million tonne per year Kolomela iron ore project in South Africa will begin production - again, with a very competitive cost position. This will take Kumba comfortably past the 50 million tonne production level per year.

And lastly, we have made substantial progress with our 26.5 million tonne per year Minas-Rio iron ore project in Brazil. We have secured a number of key approvals, including the mining permit and the second part of the installation licence for the mine, beneficiation plant and tailings dam. With these approvals in hand, we have begun the civil works for the beneficiation plant and tailings dam construction.

It should now take between 27 and 30 months to construct and commission the mine and plant, complete the project, and deliver the first ore on ship. During 2010 we continued to study the expansion potential of Minas-Rio and our latest resource estimate provides a total resource of at least 5.3 billion tonnes; this is almost four times the resource when we first acquired an interest the project.

We have also secured an extremely competitive cost position for the project by reaching agreement with our partners at the Açu port on a fixed, 25-year, iron ore port tariff. This gives us a clear, first-quartile cost position for Minas-Rio. The optionality we have for port expansion and our priority rights for iron ore shipments, make this port facility a key strategic asset for us in Brazil.

Looking beyond these near-term projects, we have significant further growth options from our $50 billion unapproved and world class project pipeline that has the potential to support a doubling of Group production over the next decade.

Mining, of course, is a long term business. That necessitates taking a long term view… with a company like Anglo American often considering investing in mining operations and projects not just for the next 10 or 20 years, but for many generations to come. Our ability to positively impact those communities around our operations, therefore, is an area of major focus, in order to ensure a long-term legacy built on respect, responsibility and integrity.

These characteristics were particularly evident in our response to two unforeseen natural events that our chairman has mentioned. Our Copper business was able to build six fully equipped replacement schools within six weeks of the earthquake in Chile last year, enabling 4,500 children to complete their school year. A similar response was seen by our Metallurgical Coal business in Queensland, Australia, following the devastating flooding over the New Year period, providing accommodation, meals and amenities to hundreds of evacuees. We are proud of our people and the difference they continue to make.

At this juncture, I want to extend a warm welcome to any fellow Americans who have travelled from Alaska to be with us at this year's AGM. I'm glad that we had a chance to meet some of you and discuss your views yesterday and that I had an opportunity to listen to the spectrum of opinion when I was up in Anchorage, Iliamna and New Halen again just last month. We held a town hall meeting with around 70 people in Iliamna and we met with others in Anchorage, including government officials, local business people, the Bristol Bay Native Corporation and others.

Then, just two weeks ago, I was in Australia and visited Moranbah and the site of our proposed Grosvenor met coal project. We met with local government and other local stakeholders to discuss our shared vision for growth in the region and announced plans for a $20 million investment in services and infrastructure for the local community.

And last Fall I visited southern Peru where we are progressing our Quellaveco copper project; again, we met with the regional President and a number of local business people who are benefiting from our entrepreneurial development programme.

Anglo American fundamentally believes in partnerships and committing to the right foundation work with communities and other stakeholders, recognising that we are working together for the long term.

Sir John also talked about our concern for the difficulties of Mr Blom and his fellow claimants. I would like to add my own voice to that of the chairman and express my personal sympathy and concern. 

This is one of those situations where, even though Anglo American firmly believes it is not liable, it has decided, as a responsible corporate citizen, to respond to the request for assistance.

I am pleased to report that Anglo American will make proposals to the claimants' attorneys to provide appropriate medical treatment for the claimants insofar as they do suffer from silicosis or silico-tuberculosis.  The cost of this treatment will be borne entirely by Anglo American. 

This proposal will be made on humanitarian grounds, without any admission of liability. If accepted, it will mean the claimants will very soon benefit from proper medical treatment, which will continue for as long as it takes their claims to be finally resolved by the Courts.

So, finally, looking ahead for the mining industry, the economic outlook is positive. Sustained industrialisation and urbanisation in China and India continue to underpin growth in commodity demand. Their economic potential is massive, given the likely convergence of their living standards on those in the major advanced economies. Increased consumer confidence, particularly in China and India, is creating support for strong demand and pricing, and is especially evident in our diamond business.  We are seeing steel industry demand growth both in parts of Europe and, strongly, in China.

There are clearly challenges in the coming months, with austerity packages in many European countries and with the recent oil price jump.  And the effects of the devastating earthquake and tsunami in Japan have not yet flowed through to the global economy. 

But we are confident about the medium to long term supply and demand drivers. These are grounded in the emerging economies' ongoing heavy investment in infrastructure and their strongly growing middle class, which will continue to underpin demand growth. Mining is the lifeblood of global economic growth in the 21st century and Anglo American has the long-life resources of many of the metals and minerals to help sustain that growth.

As an executive team, we continue to drive together.  Never before has Anglo American had such a collaborative and supportive team of executives, working across the business units and across the geographies to drive performance and value delivery.  We have a clear, focused strategy.  We have an outstanding project pipeline, with a new mine coming on stream every six to nine months over the next few years.   There are exciting prospects in all of our business units.  We had a very good year last year.  And while the first quarter of this year has seen some bumps in the road due to unprecedented weather conditions across the southern hemisphere,  the outlook is favourable for our chosen commodities, and we are well placed to capitalise on that.

We have the people, we have the balance sheet and we have the resources to become the leading global mining company, and to continue to deliver exceptional value to you, our shareholders.

Thank you.

 

 

 

Notes to editors:

Anglo American plc is one of the world's largest mining companies, is headquartered in the UK and listed on the London and Johannesburg stock exchanges. Anglo American's portfolio of mining businesses spans precious metals and minerals - in which it is a global leader in both platinum and diamonds; base metals - copper and nickel; and bulk commodities - iron ore, metallurgical coal and thermal coal. 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 and extensive pipeline of growth projects are located in southern Africa, South America, Australia, North America and Asia. www.angloamerican.com

 

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