AGM speeches

RNS Number : 6070Q

Anglo American PLC

15 April 2009

 



News Release

15 April 2009

Anglo American plc Annual General Meeting Address to shareholders by the Chairman and Chief Executive

At Anglo American plc's Annual General Meeting for shareholders in London today, Sir Mark Moody-Stuart, Chairman, and Cynthia Carroll, Chief Executive, made the following remarks: 

Sir Mark Moody-Stuart, Chairman, Anglo American plc:

Good morning ladies and gentlemen and welcome to the Anglo American Annual General Meeting. Notice of the meeting was dispatched to shareholders on 11 March and there is a quorum present. I therefore declare the meeting to be duly constituted. May I present an apology from David Challen who is unable to join us today through illness.  

We meet to provide you with reports on the management and performance of your company during 2008 - a year of unprecedented economic dislocation and instability. Overall, during the year, the company produced a very strong financial performance with operating profit from core operations climbing 10% to $9.8 billion. Underlying earnings stood at $5.2 billion and earnings per share were down by only four cents to $4.36. 

These figures mask, however, the extraordinary pattern of events which unfolded during the year so that, after a strong performance in the first seven months, most commodity prices fell precipitously. From their high points in the first half of the year, the price of platinum had fallen by 59% by the end of the year; copper by 65% and nickel by 69% - as the banking system came close to collapse, confidence and credit drained from the system and global financial markets went into free fall.  

We have continued to see that, although some emerging market economies are doing less badly than others, the spread of globalisation over the last two decades, means that the world is far more inter-connected than ever before. Thus, the recession is being felt even in those countries that have pursued orthodox macro-economic policies and whose regulatory systems have not failed. Sadly, from the point of view of the industry, the hypothesis that there would be a decoupling as between the new and old world economies' has proven to be largely wrong.

Against a background of great uncertainty about the length and depth of the recession, your Board took the difficult decision to recommend that no dividend should be paid. This was done with the greatest reluctance and with a full understanding of the difficulties which our decision may cause for many individual and institutional investors. We entered the recession with a strong balance sheet and with what had been thought of by many, at the height of the boom, as a relatively conservative level of borrowing. However, in the current context, $11 billion of borrowing represents a significant sum. We believe it to be sustainable, against a background of halving our capital expenditure this year and aggressive targets for savings from procurement and asset optimisation programmes. Recently, we have further underpinned our position through the sale of the last tranche of our stake in AngloGold Ashanti and a new bond issue. However, the Board took the view that, in current conditions, cash preservation was paramount in order to maintain the maximum degree of flexibility. We have a strong, long-term business and we have taken difficult decisions intended to position the business for the upturn when it arrives. The Chief Executive will give a fuller account of these issues in her report.

I should, at this juncture, however, note that a number of actions and programmes put in train by the executive, under Cynthia's leadership, have proven to be far-sighted. Although the company became more acquisitive during 2007 and in the first half of 2008 than hitherto, the largest acquisition we made was that of Minas-Rio for US$7 billion which forms the latest step in a long-term strategy to build a significant iron ore business. Moreover, Cynthia brought to the company a new determination to get Anglo working as a team - as One Anglo - to realise synergies and to share services together with a new, Value Based Management analytical framework. Thus when the downturn arrived we had value creating programmes on procurement, shared services and asset optimisation already gaining momentum.  

Let me place on record the thanks of myself and the Board to our employees for their hard work. During the year, the priorities for most of our businesses altered radically; moving from wrestling with the need to expand production to the current focus on asset optimisation and cash conservation. I recognise the very considerable strain that this has imposed upon our people. It was, therefore, with considerable regret that, in February, we announced the need to reduce our workforce - of employees and contractors - by some 19,000 people.

During 2008, we saw encouraging progress on safety with a reduction of almost one third in our fatalities from 40 in 2007 to 27 last year. This is, of course, still far too high a figure and we will continue to focus on the goal of zero harm. I believe, however, that great credit is due to Cynthia for the leadership, courage and commitment she has shown in challenging entrenched attitudes towards safety - not only in Anglo but in the mining industry in general. We had over many years been strengthening our safety systems and technical fixes like reducing fatalities from falls of ground, but Cynthia has reinforced the importance of visible felt leadership and this is now very evident at our mines. I also believe that excellent work has emerged from the tripartite process set in train in South Africa between ourselves, the government and the trade unions.  

Over the last 15 months, I have visited Anglo American activities in the Philippines, Peru, Brazil, South Africa, China and Alaska. In each case I have been impressed by the work that I have seen and by the commitment of our local teams to 'do the right thing'. In Peru, for example, at our Michiquillay project, our team obtained their social licence to explore from the two local communities, in a context in which State representatives had been unable to make such progress over many years. Through their commitment to engagement, trust-building activities and small-scale economic development projects, our team secured the strong endorsement of both communities. We will seek to ensure that we deserve their trust.

Last month I spent some time in Alaska meeting the team responsible for the potential development of the Pebble mine - one of our joint venture partnerships - and local stakeholders. The project has been controversial and I wanted to understand why. The project is in an area long zoned by the State government for mining development. It is, however, close to three streams located in the headwaters of the extensive Bristol Bay watershed, which is well known for its rich salmon fisher. I understand the fears and passions which have been stirred and recognise the cultural and commercial importance of the salmon. But I believe that many of these fears are based on the false assumption that this is a choice between mining and fishing. I am confident that the two can co-exist. We have made it clear that the project will work on the basis of world-class scientific and engineering skills and that we will use inclusive and innovative stakeholder engagement. Our bottom line is that, if the project cannot be built in a way that avoids damage to Alaska's fisheries and wildlife or to the livelihoods of Alaskan communities, it should not be built. It is on that basis that we will continue to evaluate the project in compliance with the prescribed regulatory processes in Alaska. But, we will do so with a mindset that goes well beyond compliance.

This leads to a more general point about your company and the industry in which we work. The focus that we have created in recent years on sustainable development is not a discretionary activity. We have to be selective about what we do in every aspect of our business. However, just because there is a recession we will not find that climate change reverses itself, that there is more water available in water stressed areas, that the level of HIV/AIDS infection goes down or that poverty becomes less of an issue for some of the countries where we work. All these issues ultimately impact upon our business and upon our role in society. That is why the Board is quite clear that these issues are core to our business and must be managed as such.

Gaining and maintaining the support of the communities where we work is essential. One of the ways in which we do this is through our enterprise development activities. Especially in South Africa and Chile, these are now generating over 13,000 jobs in independent and sustainable small and medium size businesses. Our activities increased substantially during 2008 through the creation of eleven new small business hubs in mining communities in South Africa. In 2009 we will be adding three new hubs in communities which, over many years, have provided labour for the mining industry. We are also creating a new small business initiative in Brazil, to be delivered in partnership with our NGO development partner, CARE International.

Finally, I thank my Board colleagues for their work. We are making some changes today to our Committees. Sir C.K. Chow and Peter Woicke will join the Remuneration Committee and Chris Fay will step down from it.  Peter Woicke will leave the Audit Committee. In relation to the Nominations Committee, Nicky Oppenheimer and Sir Rob Margetts will step down; Sir C.K. Chow will join it and I will take over as Chairman. 

I had originally intended to step down as Chairman of the Board during 2008 but I was asked to stay on whilst the global economy stabilised. We do, however, intend to identify my successor over the next 12 months. As part of the process of refreshing the Board's membership, although two long-serving members, Sir Rob Margetts and Dr Chris Fay, are standing for re-election today; they will be standing down in due course as and when we add new members to the Board. I would like to pay tribute to them both. Rob has served as our senior independent director and has contributed greatly to the evolution of our remuneration policies. Chris has chaired our safety and sustainable development Board Committee since its inception and has brought great experience and commitment to bear in holding executives to account on safety issues. 

I will now ask the Chief Executive to address us.

Cynthia Carroll, Chief Executive, Anglo American plc:

Thank you, Sir Mark - I too would like to welcome all of you here today.

You will all by now have seen our results which we announced in February and our annual report, so I do not intend to dwell on our 2008 performance. 2008 saw a year of solid results for the Group, with particularly strong performances from coal, especially in Australia, iron ore and manganese. This year, in contrast, will be very different, against the background of the downturn in commodity prices and demand that began during the second half of last year.

I would first like to focus on the series of measures we have taken both to weather the current market conditions and to position Anglo American optimally for the upturn in the cycle.

I will also talk about the progress we are making with the development of our pipeline of world class strategic growth projects as we invest through the cycle in readiness for economic recovery and long term value creation. I will then look at the tremendous progress we are making with our safety practices and some of the awards we have received for our leadership in the field of sustainable development, before concluding with the outlook.

We have taken decisive action to position Anglo both financially and operationally on the basis of our outlook for the economic conditions that we will face, while preserving our significant growth options.

• Capital expenditure - we have reduced capital expenditure by more than 50% to $4.5 billion. But I want to emphasise that we have preserved our major strategic projects. We have reduced capex to a level which ensures their continued development, without jeopardising their investment cases. I will say more about these projects in a few moments.

• Production cutbacks - we have scaled back production growth in line with anticipated reduced demand, particularly for platinum, metallurgical coal and diamonds.

• Headcount - we are in the process of reducing our headcount worldwide by some 19,000 people. This is a big number - it is a global figure, encompassing all our businesses, as well as the corporate offices. The bulk of it is accounted for by a downsizing in contractor numbers in line with our revised production and project plans, supplemented by natural attrition.

• Further disposals of non-core assets - we have continued with our programme of disposing of assets that are not core to the future of Anglo. Just last month marked our exit from our investment in AngloGold Ashanti as we maximised the value of that holding by selling at a strong price. Since the start of this year we have realised proceeds in excess of $1.7 billion from the sale of that residual shareholding, thereby reducing the Group's net debt position. During 2008, we disposed of the Group's investment in China Shenhua Energy, Tarmac Iberia, Namakwa Sands and a 26% interest in both Black Mountain and Gamsberg, generating total proceeds in excess of $1.2 billion.

• Suspension of dividend - our decision to suspend dividend payments was a difficult one. Notwithstanding the measures we had taken to safeguard the flexibility of our balance sheet in order to preserve the Group's growth options, the Board felt that the dividend should be suspended. I am fully aware of the pain this can cause to our shareholders, but I firmly believe that it is in the long term interests of the company that we preserve cash at this time and ensure that we are well positioned to emerge from this downturn.

• Liquidity - finally, in terms of liquidity, you will also have seen that just two weeks ago we launched a highly successful $2 billion bond, for which there was extremely strong demand from investors in both North America and Europe. Also since we reported our full year results, we have secured a $1 billion loan from the Brazilian development bank, BNDES, for the Minas-Rio iron ore project in Brazil.

This series of measures taken over the last few months provides us with enhanced financial flexibility and we are therefore strongly positioned for the long term to deliver significant shareholder value through our existing operations and our well funded growth pipeline.

Anglo American's world-class strategic growth prospects

I have talked about the importance of continuing the development of our key strategic growth projects, albeit on revised schedules. Anglo American has one of the strongest and highest quality project pipelines in world mining, focused on the most attractive commodity segments of seaborne iron ore, copper and nickel, with projects approved or already under way totalling some $16 billion. These projects are a key driver of future value creation for you, our shareholders.

• All of our projects - including the 'Big 3' of Minas-Rio in iron ore, the Los Bronces expansion in copper and Barro Alto in nickel - are extremely well placed on their industry cost curves. 

• Our projects have the great benefits of large scale and long life: an average life of more than 40 years, against an industry average of well under half that.

• Finally, many of our projects are structured in such a way as to provide us with a high degree of optionality in terms of development and payment timing, giving the Group the breadth and flexibility to adjust quickly to changes in demand.

As I have said, we are continuing to invest in and develop our strategic growth projects through the cycle and I will now spend a few moments on each of our three largest projects.

Minas-Rio - firstly, Minas-Rio, our world class iron ore project in Brazil. The project is a large scale, low cost asset in the highly attractive seaborne iron ore segment and it benefits from an integrated logistics system, namely a pipeline to transport the iron ore in slurry form from the mine to a port that we are building with our partners at Açu. This was a unique opportunity to acquire a tier 1 iron ore asset in terms of scale, cost and quality in an industry that is highly consolidated, with formidable barriers to entry. When the first phase begins production in the first half of 2012, it is expected to be in the first quartile of the iron ore cost curve and will be highly competitive in terms of product quality. As an example of how we have expanded the potential of this asset, the resource base was originally estimated at around 300 million tonnes. Anglo's technical teams have now revised that to more than 1 billion tonnes, with potential of up to 7 billion tonnes. This is simply an enormous, high quality asset and it will play a significant role in the future growth of your company.

Barro Alto - secondly, Barro Alto, our 36,000 tonnes per annum nickel project, also in Brazil. Again, this is a large scale, low cost, long life project that is expected to have cash costs in the lower half of the nickel industry cost curve. When Barro Alto reaches full production in 2012, it will more than double Anglo American's current nickel production.

Los Bronces - thirdly, we have Los Bronces, our existing 236,000 tonnes per annum copper mine in Chile, which we are in the process of expanding. Production from Los Bronces in the first 10 years of operation of the project will increase by more than by 170,000 tonnes per annum, a 70% increase over current production levels, making it the world's 6th largest copper mine. The Los Bronces mine is already in the first quartile in terms of its costs relative to the copper industry and, when the production from the expansion comes on stream at the end of 2011, the increase in cost-advantaged production will further enhance Anglo American's overall position on the cost curve.

These three projects are perfect examples of the quality of operations and projects in our portfolio; low cost, long life, in the right commodities and in countries we know well - and which will enable us to leverage our highly valuable relationships with host governments and other local stakeholders.

Delivering operational excellence

Turning for a moment to the excellent progress we have made to uplift our performance across the existing operations: our three cost saving and efficiency initiatives that we started to put in place almost two years ago - before the onset of the current downturn - are already making an important contribution to our financial and operating performance.

The asset optimisation programme has been rolled out across the Group and is expected to contribute $1 billion to operating profit by 2011. This global programme is driving greater operational efficiencies to achieve best in class performance as we continue to drive down costs at our operations, placing Anglo in an ever more robust position to withstand periods of low commodity prices.

In addition, our global procurement and shared-services initiatives have already delivered an initial $200 million of savings in 2008 and are on track to achieve savings of $1 billion, also by 2011. 

Safety

In terms of safety, 2008 was a much-improved year for Anglo American: the number of fatal incidents in the workplace reduced from 40 the previous year to 27, while our lost-time injury, or LTI, frequency rate declined by 17 per cent. 

This level of fatal injuries - even in an industry with all the hazards of deep-level mining - remains unacceptable, but the figures continue to trend downwards in our ultimate pursuit of 'zero harm'. 

Just to take three examples: during 2008, Kumba Iron Ore roughly halved its LTI frequency rate, our Australian coal operations lowered their LTI frequency rate by 40%, while Anglo Platinum's Union Mine achieved 6 million fatality-free shifts. I am pleased to say that our overall LTI performance in the first three months of this year has also continued to trend in the right direction.

In 2008, Anglo American was the key driver behind the Tripartite Safety Summit in South Africa, which brought together representatives from government, the trades unions and the mining industry to seek ways to bring about a sustained improvement in safety performance in the country's mining industry. 

While it would be simplistic to attribute the safety progress that is being made to the summit, it is most encouraging to see that the number of people who lost their lives in the South African mining industry declined by almost a quarter in 2008 in comparison with 2007. 

Sustainable development

In the wider developmental context, a key message I wish to convey is that Anglo American continues to progress its sustainable development agenda. Sustainable development is embedded into our culture and is integral to the way we do business.

In this respect, I should like to refer to a number of awards we have received recently that signal our intention to continue to exert leadership in our sector:

• At the inaugural Commonwealth Business Council-Africa Business Awards, held in London in July, we were judged the leader in 3 categories: best international business in Africa; biggest contribution to the Millennium Development Goals; and gender sensitivity;

• In Chile, our Emerge small business initiative achieved recognition once again for its contribution to community development when it was awarded the Chilean-North American Chamber of Commerce's Good Corporate Citizenship prize in October - following the achievement of the Presidential Bicentennial Award the previous year;

• Anglo Platinum received two top honours at the annual Ernst & Young Excellence in Sustainability Reporting Awards for 2008. 

• In Brazil, Base Metals won top prize in the country's environmental benchmark awards in 2008 for its socio-environmental projects within various communities surrounding its operations;

• Here in the UK, Tarmac was awarded the Wildlife Trust's Biodiversity Benchmark for the work undertaken at all seven of its active Northumberland quarries - the largest number of sites ever recognised for combined excellence; and

• In South Africa, Our Chairman's Fund was voted the best corporate grantmaker in the Trialogue CSI Handbook survey for the eighth consecutive year. That is some achievement.

Outlook

In summary, commodity markets have experienced a turbulent six months, though prices for most commodities appear to have stabilised more recently. Indeed, there are even signs of some improvement, most notably in the copper price that has increased by more than 50% from its low point reached in December. The platinum price has also improved, moving up above $1,200 per ounce from its lows of below $800 in October 2008, following strengthening investment demand from exchange traded funds and supportive incentive schemes for the purchase of new cars in Germany and France.

Looking forward, we are confident that the medium- to long-term fundamentals are firmly in place for strong commodity demand growth. 

We see significant value to be created by the Group's long-life, low-cost growth projects, several of which are well timed to enter production in 2011, and our continued success at driving down our operating costs will further strengthen our competitive position through the cycle.  

On the demand side, the economic recovery of the OECD member countries and the ongoing industrialisation of the major developing markets are expected to drive long-term demand for commodities, stimulated by government spending programmes in many major economies, including the US and China.

Furthermore, let us not forget the effect of the downturn on many of the mining industry's junior players and the resulting impact on exploration activity, in addition to the abandonment or delays to many major greenfield projects across some of the more established players.

When the cycle turns, supply of many commodities is likely to be severely constrained. By preserving our key growth projects, uplifting the performance of our existing operations and continuing to drive down costs, Anglo is well placed to reap the rewards of that upswing.

Thank you.

Notes to Editors:

Anglo American plc is one of the world's largest mining groups. With its subsidiaries, joint ventures and associates, it is a global leader in platinum group metals and diamonds, with significant interests in coal, base and ferrous metals, as well as an industrial minerals business. The Group is geographically diverse, with operations in Africa, Europe, South and North America, Australia and Asia. (www.angloamerican.co.uk)

 

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