Final Results

Anglo American PLC 22 February 2006 PART 1 News Release 22 February 2006 Anglo American announces record earnings of $3.7 billion, up 39%, $1.5 billion capital return and update on Strategic Review â€¢ Record underlying earnings(1) of $3.7 billion, a 39% increase over 2004. â€¢ Operating profit(2) increased to $6.4 billion, up 36%, with record production levels for nickel, zinc, coal, iron ore, vanadium, platinum group metals and diamonds; highest ever contributions from Base Metals, Ferrous Metals and Coal. â€¢ Cost pressures continue: offset by cost savings and efficiencies of $730 million. â€¢ Cash generation at a record level: EBITDA(3) of $9 billion, up $1.9 billion. Net debt down 39% to $5 billion. â€¢ $6.7 billion project pipeline: New projects totalling $3.8 billion approved:- â€¢ Coal ($919 million): Dawson, Lake Lindsay, Mafube â€¢ Platinum ($1 billion): Mototolo JV, Marikana JV, Potgietersrust â€¢ Diamonds ($718 million): Snap Lake, Victor, Voorspoed, South African Sea Areas â€¢ Ferrous Metals ($559 million): Sishen Expansion â€¢ Gold ($432 million): Boddington â€¢ Normal dividends up 29% to 90 cents. Special dividend of 33 cents per share. Strategic Review - update â€¢ Mondi to be listed on the London Stock Exchange in 2006/7. â€¢ Holding in AngloGold Ashanti to be reduced - separate announcement issued today. â€¢ Tarmac strategic review underway - first phase completed with businesses in Germany, Hong Kong and UK concrete paving identified for disposal. â€¢ Highveld Steel sale process progressing; Tongaat-Hulett to unbundle and list Hulett Aluminium. â€¢ $1 billion capital return increased to $1.5 billion - $1 billion buyback in 2006 and $0.5 billion special dividend. HIGHLIGHTS FOR THE YEAR TO 31 DECEMBER 2005 Year ended Year ended % 31.12.05 31.12.04 change US$ million, except per share amounts Group revenue including associates(4) 34,472 31,938 7.9% Operating profit including associates before special 6,376 4,697 35.7% items and remeasurements(2) Profit for the year attributable to equity shareholders 3,521 3,501 0.6% Underlying earnings for the year(1) 3,736 2,684 39.2% EBITDA(3) 8,959 7,031 27.4% Net cash inflows from operating activities 6,781 5,187 30.7% Earnings per share (US$): Basic earnings per share 2.43 2.44 (0.4)% Underlying earnings per share 2.58 1.87 38.0% Interim dividend (US cents per share) 28 19 47.4% Recommended final dividend 62 51 21.6% Recommended special dividend 33 - - Total dividends 123 70 75.7% (1) See note 7 to the financial information for basis of calculation of underlying earnings. (2) Operating profit includes share of associates' operating profit (before share of associates' tax and finance charges) and is before special items and remeasurements, unless otherwise stated. See note 1 to the financial information. For definition of special items and remeasurements see note 4 to the financial information. (3) EBITDA is operating profit before special items and remeasurements plus depreciation and amortisation of subsidiaries and joint ventures and share of EBITDA of associates. EBITDA is reconciled to cash inflows from operations and to total profit from operations and associates in note 11 to the financial information. (4) Includes the Group's share of associates' turnover of $5,038 million (2004: $5,670 million). See note 1 to the financial information. Tony Trahar, Chief Executive, said: "The Group achieved record results for 2005, with a 39% increase in underlying earnings to $3.7 billion. Many of our businesses achieved record levels of production as buoyant market conditions continued throughout the year. Coal, copper, zinc, platinum, iron ore and vanadium prices hit new levels as China once again proved to be the chief driver of global growth, with the US economy showing its resilience and signs of a long-awaited recovery emerging in Japan. It is particularly pleasing to note that, in what was a very challenging cost environment, we achieved record cost savings and efficiency improvements of $730 million, a 32% increase on 2004. Our continued strong cash generation, with EBITDA at $9 billion, enables us to fund internally one of the strongest organic growth pipelines in the industry, as well as giving us the capacity to return excess cash to shareholders. $1.5 billion in the form of a $1 billion buyback and a $500 million special dividend will be returned in 2006. The capital structure will be reviewed regularly in light of market conditions, operating cash flows and progress on strategic delivery and capital projects. Across our mining portfolio we have a $6.7 billion approved project pipeline underway, and other projects that are being considered, as well as significant exploration prospects. Some $3.8 billion worth of new projects, including major expansions in our coal, iron ore, platinum and diamond businesses have been approved. The $516 million Lake Lindsay project in Australia will contribute substantially to increasing Anglo Coal's metallurgical coal capacity by around 50% over the next three years. The $559 million Sishen iron ore expansion in South Africa was also approved during the year and will raise annual production from 31 to 41 million tonnes by 2009, whilst De Beers is spending $1.6 billion on expanding diamond production. Having previously approved the $230 million Potgietersrust replacement project, Anglo Platinum is in the final stages of approving the $692 million Potgietersrust expansion project. In addition, the Group is considering further major projects with an estimated potential cost of around $15 billion. In terms of our strategic review, we have embarked on a series of initiatives with the aim of further focusing the business on our core mining portfolio and, in the process, simplifying the structure and enhancing returns and shareholder value. In regard to the main elements of the strategic review, we have made further progress since our announcement in October last year. In summary, we have decided to list Mondi on the London Stock Exchange in 2006/7. The first phase of Tarmac's strategic review has been completed with businesses in Germany, Hong Kong and UK concrete paving identified for disposal. As previously announced, we intend to reduce our shareholding in AngloGold Ashanti and we are progressing the sale of Highveld. Tongaat-Hulett has recently announced that it intends to unbundle and list its aluminium business, Hulett Aluminium. The outlook for the global economy is encouraging, with leading indicators showing signs of continuing global growth and strong underlying demand for our products. If prices and demand continue at or near current levels, the Group should have another strong year. Every effort will be made to contain cost increases and improve efficiencies against a background of exceptional inflationary pressures in the mining sector. The Group has real momentum, as evidenced by its performance in 2005. We expect to make significant progress on delivering our recently announced strategy while at the same time pursuing our strong organic project pipeline and looking for further growth and acquisition opportunities." Review of 2005 Underlying earnings per share for the year increased to $2.58 per share, an increase of 38% compared with 2004. Underlying earnings totalled $3.7 billion, with record contributions from Base Metals, Ferrous Metals and Industries and Coal, as well as a significant increase in contributions from Platinum and De Beers. Paper and Packaging and Industrial Minerals recorded lower contributions owing to tough market conditions. AngloGold Ashanti recorded a lower contribution mainly due to an increase in net interest costs as well as the impact of stronger operating cost currencies, inflation and lower grades during 2005. Profit for the year attributable to equity shareholders after special items and remeasurements, increased by 0.6% to $3.5 billion. This increase was despite a reduction in net profit on disposals which, including associates was $840 million higher in 2004, with the $464 million profit on the sale of the Group's interest in Gold Fields and the $415 million gain on the deemed disposal of AngloGold at the time of the merger with Ashanti. Anglo American's results are influenced by a variety of currencies owing to the geographic diversity of the Group. The South African rand on average strengthened against the US dollar compared with the prior year, with an average exchange rate of R6.37 compared with R6.44 in 2004. Currency movements negatively impacted underlying earnings by $88 million. Operating results were impacted by stronger average rates for the rand, Chilean peso, Australian dollar and European currencies, although this was partially offset by the positive impact on monetary assets and liabilities of the weaker closing rand rate. There was a positive impact of increased prices amounting to $2.2 billion. Base Metals reported record operating profit(1) of $1.68 billion (26% of Anglo American's total operating profit), an increase of 32% over the prior year, due to record production of nickel, zinc, niobium and zircon and significantly higher prices. Ferrous Metals and Industries operating profit reached a record level of $1.46 billion (23% of Anglo American's total), up 64% as a result of higher iron ore and vanadium prices and generally higher volumes. Coal recorded its highest ever operating profit contribution of $1 billion, an increase of 105% on 2004 (16% of Anglo American's total) due to improved export coal prices and increased production. Platinum reported operating profit of $854 million, a 59% increase over 2004 (13% of Anglo American's total), mainly as a result of higher US dollar prices realised on metals sold and increased sales volumes. Diamonds recorded attributable operating profit of $583 million (9% of Anglo American's total), 2% higher than 2004, despite the lower effective shareholding in 2005. Paper and Packaging reported a 13% decline in operating profit to $495 million (8% of Anglo American's total), reflecting difficult trading conditions in key markets. Performance was underpinned by $223 million in cost savings and profit improvement initiatives. Industrial Minerals reported operating profit of $370 million (6% of Anglo American's total), 12% lower than 2004, due to challenging UK market conditions, higher energy costs and currency exchange impact at Copebras. Gold achieved operating profit of $332 million (5% of Anglo American's total), 12% higher than 2004, mainly due to the higher average gold price received for the year - cash costs were well controlled. Challenging cost environment 2005 was a particularly challenging year for the mining industry with regard to cost containment. Price escalations in excess of inflation over a range of inputs from tyres to fuel, to steel and contractors, exerted material pressure on running costs and capital expenditure. Despite this, the Group managed to contain overall cost increases with cost and efficiency savings of $730 million, up 32% on the prior year. (1) All references to operating profit in this section refer to operating profit including associates' operating profit and is before special items and remeasurements. Disposals with enterprise value of $1.1 billion As part of the ongoing strategy of optimising the Group's asset base, a number of disposals were made during 2005. The sales of Boart Longyear's subsidiary, Wendt, and the remaining Boart Longyear Group were concluded in March and July respectively for a combined enterprise value of $635 million. Highveld Steel sold its stainless steel investments, Acerinox and Columbus, for an attributable enterprise value of $136 million. Anglo American and BHP Billiton sold their respective 40% and 60% shareholdings in Samancor Chrome in June for a combined enterprise value of $469 million. In July, Kumba's local partner in the Hope Downs iron ore project in Australia exercised an option to acquire Kumba's interest in the project, resulting in a $176 million pre-tax settlement. Dividends and Capital Returns to Shareholders The strong financial position of the Group affords it the opportunity to return $1.5 billion of cash in 2006 in the form of a $1 billion buyback and a $500 million special dividend, equivalent to 33 cents per share. This is before taking into account capital proceeds that will arise as a result of the Group's decision to dispose of a number of interests, as outlined in its Strategic Review announcement in October 2005. In line with the Group's progressive dividend policy, the final dividend has been raised 22% to 62 cents per share, plus a special dividend of 33 cents per share, to be paid together on 3 May 2006. Total dividends for the year, including the special dividend, amount to 123 cents per share. The capital structure will be reviewed regularly in light of market conditions, operating cash flows and progress on strategic delivery and capital projects. Growth and projects Anglo American has one of the strongest growth profiles in the mining industry. Across our mining portfolio we have a broad suite of projects in progress, with others under consideration, as well as significant exploration prospects. Recent projects completed In Chile, the $47 million Collahuasi molybdenum plant was commissioned ahead of schedule and under budget and entered production in November. The $21 million Chagres de-bottlenecking project, which increases production capacity from 162,000 to 184,000 tonnes per annum, was successfully completed in the fourth quarter of 2005. The Black Mountain Deeps project in South Africa was substantially completed during 2005 and production ramp-up is well advanced. Skorpion Zinc in Namibia has consistently achieved design capacity since May. The $65 million Isibonelo coal mine commenced production on time and on budget and is expected to produce five million tonnes per annum of thermal coal when it reaches full production during 2006. The Kleinkopje expansion project was also completed during 2005. Ramp up of production at the Buxton cement plant exceeded expectations, averaging 97.5% of design capacity during the year. The $174 million upgrade at Mondi Business Paper's Merebank paper mill in South Africa was successfully commissioned during October with annual production of uncoated woodfree paper set to increase by approximately 277,000 tonnes to 536,000 tonnes by 2007. Projects approved / under review The group has approved $3.8 billion of new projects during 2005 and the beginning of 2006, bringing its total approved project pipeline, net of completions during the year, to $6.7 billion. Anglo Coal has a substantial near-term approved project portfolio spread across Australia, South Africa and South America. In Australia, the $516 million Lake Lindsay metallurgical coal project was approved during the year and construction commenced on the $835 million Dawson project. Anglo Coal's metallurgical coal capacity will be increased by around 50% over the next three years. Subject to regulatory clearances, the $132 million Mafube coal project in South Africa will increase thermal coal production by 2.5 million tonnes from 2008. At Cerrejon in Colombia, a $280 million two-phase expansion has been approved to increase production to 32 million tonnes per annum. A pre feasibility study is currently underway to investigate additional expansion beyond this. In China, the Group has a 60% interest in the Xiwan open-cut coal mine, where the feasibility of a large coal-to-chemicals project is being investigated with a number of partners. In 2005, Anglo American invested $153 million in the Initial Public Offering of China Shenhua Energy Company Limited, the largest coal producer in China and the fifth largest in the world, and looks forward to a mutually beneficial strategic alliance with the company. In February 2006, it was announced that Anglo Coal had entered into a joint venture to develop coking coal properties in British Columbia, Canada. Work continues on the feasibility study for Monash, a fuel from brown coal project, in Australia. In Base Metals, the Group has the potential to significantly increase copper production over the next few years. The $80 million El Soldado pit extension project remains on schedule and within budget. The Los Bronces feasibility study, to examine a possible doubling of production, will be completed early in 2007, while a significant de-bottlenecking opportunity, that has the potential to increase production at a relatively low capital cost, is currently under evaluation at Collahuasi. The feasibility study for the $1 billion Barro Alto nickel project (33,000 tonnes per annum) in Brazil is well advanced and board approval is likely to be sought later this year. Namakwa Sands' $43 million project to increase output of rutile by 26% and high margin zircon by approximately 20%, commencing from 2008, is under way. As demand for platinum group metals rises, Anglo Platinum expects to increase production from 2.45 million ounces in 2005 to between 2.7 and 2.8 million ounces in 2006. Beyond 2006, the company plans to increase platinum output by around 5% a year. During 2005, Anglo Platinum announced the $18 million Marikana joint venture and the $100 million Mototolo joint venture. Anglo Platinum approved mining replacement projects totalling $770 million including the $230 million Potgietersrust replacement project, and is in the final stages of approving the $692 million Potgietersrust expansion which will bring on 230,000 ounces of additional platinum production in 2009. The $559 million Sishen iron ore expansion in South Africa was approved in March and will raise annual production from 31 million tonnes to 41 million tonnes by 2009. Construction started in mid 2005, with production ramp-up to commence by mid 2007. The Group has further iron ore expansion opportunities through projects at Sishen South, where an investment decision is likely in the first half of 2006, and at Faleme in Senegal. This could see annual iron ore production more than double from the current level. De Beers gave the go-ahead for the $513 million Snap Lake project and in November approval was given to develop the $791 million Victor diamond deposit, both located in Canada. In South Africa, approval has been given for the re-opening of the $177 million Voorspoed mine, while $115 million has been allocated to the South African Sea Areas marine mining project. Mondi is considering a one million tonne softwood pulp expansion at Syktyvkar in north west Russia at a capital cost of around $1.5 billion, to meet growing worldwide pulp demand, driven mainly by China. Tarmac has several growth and expansion programmes under way to enhance market penetration in key regional markets, mainly in central and eastern Europe. Strategic Review Update In October 2005, the Group announced the outcome of its strategic review which represents a further chapter in Anglo American's ongoing strategic development over the past six years. The Group's aim is to focus further on its core mining portfolio and in the process simplify its structure and enhance returns and shareholder value. â€¢ Anglo American has successfully grown Mondi to create one of Europe's largest and most successful paper and packaging groups. Anglo American recognises that there are only limited synergies with its mining portfolio and therefore, a decision has been taken to list Mondi on the London Stock Exchange in 2006/7. In the meantime, Anglo American will continue to support Mondi's growth opportunities as they arise. â€¢ The decision to reduce the Group's shareholding in AngloGold Ashanti relates to the higher relative valuations investors attribute to pure-play gold mining stocks, rather than as part of the make-up of a diversified mining group. Anglo American is considering a number of options to effect the reduction. Attention is drawn to the separate announcement issued today. â€¢ In the case of Tarmac, the considerably strengthened management team is in the process of undertaking a review of its business with the aim of improving returns on capital invested by turning around, restructuring or divesting underperforming parts of the portfolio while continuing to grow its core businesses. Since the year end, the first phase of the review has been completed with businesses in Germany, Hong Kong and UK concrete paving identified for disposal. Tarmac has also made three acquisitions in its aggregates business in the UK, Poland and, in early 2006, Romania. â€¢ The Group is also progressing well with the remainder of its industries portfolio. Boart Longyear and Samancor Chrome were sold during 2005 and the disposal of the Group's 79% shareholding in Highveld Steel is progressing. Tongaat-Hulett has recently announced that it intends to unbundle and list its aluminium business, Hulett Aluminium and simultaneously introduce Black Economic Empowerment equity participation in both Tongaat-Hulett and Hulett Aluminium. â€¢ The Group has approved significant platinum expansion projects and negotiations for a further platinum empowerment transaction have commenced. Outlook The outlook for the global economy is encouraging, with leading indicators showing signs of continuing global growth and strong underlying demand for the Group's products. If prices and demand continue at or near current levels, the Group should have another strong year. Every effort will be made to contain cost increases and improve efficiencies against a background of exceptional inflationary pressures in the mining sector. The Group has real momentum, as evidenced by its performance in 2005. Anglo American expects to make significant progress on delivering its recently announced strategy while at the same time pursuing its strong organic project pipeline and looking for further growth and acquisition opportunities. For further information: Investor Relations Media Relations Nick von Schirnding Kate Aindow Tel: +44 207 968 8540 Tel: +44 207 968 8619 Charles Gordon Daniel Ngwepe Tel: +44 207 968 8933 Tel: +27 11 638 2267 Anne Dunn Tel: +27 11 638 4730 Webcast of presentation: A live webcast of the annual results presentation starting at 10.00am UK time on 22nd February can be accessed through the Anglo American website at www.angloamerican.co.uk. View interview with CEO: An interview with Tony Trahar in video and text is available on: www.angloamerican.co.uk and on www.cantos.com Pictures: High resolution images can be downloaded by the media at www.vismedia.co.uk Notes to Editors: Anglo American plc is one of the world's largest mining and natural resource groups. With its subsidiaries, joint ventures and associates, it is a global leader in platinum, gold and diamonds, with significant interests in coal, base and ferrous metals, industrial minerals and paper and packaging. The group is geographically diverse, with operations in Africa, Europe, South and North America, Australia and Asia. Note: Throughout this press release '$' denotes United States dollars and ' cents' refers to United States cents; operating profit includes associates' operating profit and is before special items and remeasurements unless otherwise stated; special items and remeasurements are defined in note 4 and underlying earnings are calculated as set out in note 7 to the financial information. EBITDA is operating profit before special items and remeasurements plus depreciation and amortisation of subsidiaries and joint ventures and share of EBITDA of associates. EBITDA is reconciled to cash inflows from operations and to total profit from operations and associates in note 11 to the financial information. Financial review of Group results Underlying earnings per share for the year increased to $2.58 per share, an increase of 38% compared with 2004. Underlying earnings totalled $3,736 million, with strong contributions from Base Metals, Ferrous Metals and Industries and Coal as well as a significant increase in contributions from Platinum and De Beers. Paper and Packaging and Industrial Minerals recorded lower contributions owing to tough market conditions. AngloGold Ashanti recorded a lower contribution mainly due to increased net interest costs as well as higher inflation, stronger operating cost currencies and lower grades. Underlying earnings Year ended Year ended $ million 31 Dec 2005 31 Dec 2004 Profit for the financial year attributable to equity shareholders 3,521 3,501 Operating special items including associates 323 92 Operating remeasurements including associates 317 - Net profit on disposals including associates (185) (1,025) Finance remeasurements: Fair value loss on convertible option 32 - Exchange (gain)/loss on De Beers preference shares (72) 112 Unrealised gains on non-hedge derivatives including (2) - associates Tax on special items and remeasurements including associates (15) 2 Related minority interests on special items and remeasurements (183) 2 Underlying earnings 3,736 2,684 Underlying earnings per share ($) 2.58 1.87 Profit for the year after special items and remeasurements increased by 0.6% to $3,521 million compared with $3,501 million in the prior year. This increase was despite a reduction in net profit on disposals which, including associates, was $840 million higher in 2004, with the $464 million profit on the sale of the Group's interest in Gold Fields and the $415 million gain on the deemed disposal of AngloGold at the time of the merger with Ashanti. Summary income statement Year ended Year ended $ million 31 Dec 2005 31 Dec 2004 Operating profit before special items and remeasurements 5,344 3,641 Special items (186) 25 Operating remeasurements (301) - Group operating profit before associates 4,857 3,666 Net profit on disposals 87 1,015 Net income from associates (1) 657 550 Profit before finance costs 5,601 5,231 Net finance costs before remeasurements (428) (255) Remeasurement finance income/(cost) 35 (112) Profit before tax 5,208 4,864 Tax (1,275) (923) Profit after tax 3,933 3,941 Minority interests (412) (440) Profit for the financial period attributable to equity 3,521 3,501 shareholders Earnings per share ($) 2.43 2.44 Group operating profit including associates before special 6,376 4,697 items and remeasurements (1) Operating profit from associates 1,032 1,056 Operating special items and remeasurements(2) (153) (117) Net profit on disposals(2) 98 10 Other special items and remeasurements(2) 7 - Net finance costs (before remeasurements) (51) (100) Income tax expense (after special items and remeasurements) (274) (280) Underlying minority interest (after special items and remeasurements) (2) (19) Net income from associates 657 550 (2) See note 4 to the financial information The Group's results are influenced by a variety of currencies owing to the geographic diversity of the Group. The South African rand on average strengthened against the US dollar compared with the prior year, with an average exchange rate of R6.37 compared with R6.44 in 2004. Currency movements negatively impacted underlying earnings by $88 million. Operating results were impacted by stronger average rates for the rand, the Chilean peso, Australian dollar and European currencies although this was partially offset by the positive impact on monetary assets and liabilities of the weaker closing rand rate. There was a significant positive impact of increased prices amounting to $2.2 billion. Special items and remeasurement charges Operating special items and remeasurements, including associates, amounted to $640 million with operating special charges of $323 million and operating remeasurements of $317 million. Operating special charges in respect of impairments, restructurings and mine and operation closures amounted to $210 million, including a $31 million loss on the closure of Ergo and a $38 million impairment of Bibiani in AngloGold Ashanti and impairment and restructuring of Corrugated assets and goodwill of $77 million in Paper and Packaging. Operating special charges also included $113 million for the Group's share of a legal provision in respect of its associate De Beers. Operating remeasurements, including associates, of $317 million includes $286 million of unrealised losses on non-hedge commodity derivatives at AngloGold Ashanti (2004: nil as IAS 39 did not apply). The loss in the current year relates to the revaluation of non-hedge derivatives resulting from changes in the prevailing spot gold price, exchange rates and interest rates and impacts AngloGold Ashanti's current year earnings due to the full adoption of IAS 32 and 39 in 2005. Net profit on sale of operations, including associates, amounted to $185 million. This included a $52 million profit on sale of Samancor Chrome, $25 million profit on sale of Acerinox, $21 million profit on disposal of Boart Longyear and $21m profit on disposal of Wendt. There was also a $27 million profit on formation of the Marikana joint venture by Anglo Platinum. These were partially offset by a $57 million loss on disposal of Hope Downs. Financing remeasurements, including associates, include a $32 million fair value loss on the AngloGold Ashanti convertible bond option, unrealised gains of $2 million on non-hedge derivatives and a $72 million foreign exchange gain on De Beers dollar preference shares held by a rand denominated entity. The option component of the AngloGold Ashanti convertible bond is fair valued at each reporting period and held as a liability. Changes in fair value of the liability are taken to the income statement. As a result of the adoption of IAS 21 and 28, the US dollar preference shares held by De Beers (a Rand functional currency entity) have been reclassified as " financial asset investments" and are retranslated at each period end. The resulting Rand:US dollar foreign exchange gains and losses are reported through the income statement as a remeasurement charge. A currency gain of $72 million has been recorded for the year ended 31 December 2005 (2004: loss of $112 million). Net finance costs Net finance costs excluding finance remeasurement income of $35 million (2004: loss of $112 million) increased from $255 million in 2004 to $428 million. The increase reflects lower investment income due to the sale of certain investments over the last two years. Taxation The effective rate of taxation including share of associates' tax before special items was 26.5 %. This was a decrease from the effective rate including share of associates' tax of 27.7% in 2004. The reduction in the effective tax rate was principally due to a reduction in the South African statutory rate from 30% to 29% and a reduction in the Ghanaian tax rate, which resulted in a $187 million reduction in deferred tax, most of the benefit of which was taken in the first half of 2005. Without this one-off benefit the effective tax rate for the period would have been 29.7%. In future periods it is expected that the effective tax rate, adjusted for associates' tax, will remain at or above the current levels. Balance sheet Total shareholders' equity was $23,621 million compared with $23,125 million as at 31 December 2004. Net debt was $4,993 million, a decrease of $3,250 million from 31 December 2004. The reduction was principally due to reduction of debt using cash flows from operations and disposals. Net debt at 31 December 2005 comprised $8,439 million of debt, offset by $3,446 million of cash, cash equivalents and current financial asset investments. Net debt to total capital(1) as at 31 December 2005 was 17.0%, compared with 25.4% at 31 December 2004. Cash flow Net cash inflows from operating activities were $6,781 million compared with $5,187 million in 2004. EBITDA was $8,959 million, a substantial increase of 27% from $7,031 million in 2004. Depreciation increased by $334 million to $2,441 million. Acquisitions expenditure accounted for an outflow of $530 million compared with $1,243 million in 2004. This included $153 million in respect of the Group's investment in the Initial Public Offering of China Shenhua Energy Company Limited. Income from disposals totalled $677 million, with proceeds on the sale of Acerinox and Columbus of $173 million (with a further $21 million remitted by associates) and $445 million on the disposal of Boart and Wendt. Proceeds remitted by associates in respect of disposals included $83 million for the sale of Samancor Chrome. Repayment of loans and capital from associates amounted to $370 million. Purchases of tangible fixed assets amounted to $3,306 million, an increase of $140 million. Increased capital expenditure by AngloGold Ashanti, Coal and Ferrous Metals and Industries was partially offset by a reduction in capital expenditure at Platinum, Base Metals, Industrial Minerals and Paper and Packaging. (1) Total capital is the sum of net assets and net debt less investment in associates Operations Review In the operations review on the following pages, operating profit includes associates' operating profit and is before special items and remeasurements unless otherwise stated. Capital expenditure relates to cash expenditure on fixed assets. BASE METALS $ million Year Year ended ended 31.12.05 31.12.04 Operating profit 1,678 1,276 Copper 1,381 1,048 Nickel, Niobium, Mineral Sands 249 224 Zinc 102 38 Other (54) (34) EBITDA 1,990 1,625 Net operating assets 4,785 4,952 Capital expenditure 271 367 Share of Group operating profit (%) 26% 27% Share of Group net operating assets (%) 13% 13% Base Metals generated its highest ever operating profit of $1,678 million (2004: $1,276 million) on the back of record production of nickel, zinc, niobium, zircon and rutile from ongoing operations, with significantly higher metal prices. Controllable costs were well contained. However, margins at all operations came under pressure from significant rises in the costs of energy and most key consumables, as well as higher freight rates, treatment and refining charges in the copper market and increased zinc smelter price participation. The strength of the Chilean, South African and Brazilian currencies against the US dollar also adversely impacted operating profit. Markets Average Prices (c/lb) 2005 2004 Copper 167 130 Nickel 668 628 Zinc 63 48 Lead 44 40 Average base metal prices in 2005 exceeded the most optimistic of expectations. Notwithstanding reasonable GDP growth, notably in China and the US, slower industrial production and manufacturing growth precipitated destocking which, when combined with price-induced substitution and increased scrap usage, resulted in only a modest increase in metal demand. Offsetting this was a muted mine supply-side response to higher prices, especially in the case of copper where unexpected supply disruptions led to output being some 1 million tonnes lower than forecast. Substantial speculative investment inflows were a significant feature of the market in 2005. Operating performance Copper Division 2005 2004 Operating Profit ($'m) 1,381 1,048 Attributable Production ('000 tonnes) 635 766 Attributable copper production decreased by 74,300 tonnes due to the disposal of Hudson Bay. Mantoverde increased output by 3% to 62,000 tonnes, reflecting higher treatment rates. Production at Mantos Blancos declined by 8% to 87,700 tonnes, as a result of a planned reduction in dump leach treatment rates and grades. Los Bronces (227,300 tonnes) and El Soldado (66,500 tonnes) also experienced small reductions in production owing to lower grades. Attributable production from Collahuasi was 187,900 tonnes (2004: 211,600 tonnes). This was mainly due to lower sulphide mill throughput following outages of the ore conveyor and SAG mill No. 3, and lower sulphide ore grades after an earthquake and pit wall failures necessitated a rescheduling of the mine plan. The $80 million El Soldado pit extension project remains on schedule and within budget. The $21 million Chagres de-bottlenecking project, which increases production capacity from 162,000 to 184,000 tonnes per annum (tpa) of anode/ blister from 2006, was successfully completed. The $47 million Collahuasi molybdenum plant was completed under budget and ahead of time and will produce between 5,000 and 8,000 tpa of molybdenum, dependent on grade. It entered production in November 2005 and is expected to pay back its initial investment within the first six months. Los Bronces is scheduled to complete a feasibility study into a possible doubling of production, due for completion in 2007, while a significant de-bottlenecking opportunity is currently under evaluation at Collahuasi. In May 2005 the final tranche of the Disputada purchase was paid, bringing the total acquisition cost to $1,395 million. In the period from 2003 to 2005 Disputada generated an EBITDA of $1,648 million. Nickel, Niobium & Mineral Sands Division 2005 2004 Operating Profit ($'m) 249 224 Attributable Nickel Production ('000 tonnes) 27 24 Production at Loma de Niquel was marginally down for the year, although output at Codemin rose to 9,600 tonnes (2004: 6,500 tonnes) following the successful completion, within budget and on time, of the Codemin 2 project. After successful commissioning of the scalping project, niobium production rose 14% to 4,000 tonnes. Improved mineral recoveries resulted in a 23% increase in rutile and an 8% rise in zircon production at Namakwa Sands. The feasibility study for the 33,000 tpa Barro Alto nickel project is well advanced and board approval is likely to be sought later this year. Namakwa Sands' $43 million project to increase output of rutile by 26% and high margin zircon by approximately 20% commencing from 2008 is underway. Zinc Division 2005 2004 Operating Profit ($'m) 102 38 Attributable Zinc Production ('000 tonnes) 324 411 Attributable Lead Production ('000 tonnes) 63 55 Attributable zinc production decreased by 107,000 tonnes due to the disposal of Hudson Bay. Skorpion has consistently achieved design capacity since May, following a fire in the tankhouse in February that interrupted ramp-up. Production for the year increased 11% to 132,800 tonnes. Improved performance of the new backfill plant at Lisheen allowed secondary mining to commence, resulting in higher head grades and production of zinc (159,300 tonnes) and lead (20,800 tonnes) (2004: 156,300 tonnes and 17,200 tonnes respectively). The Black Mountain Deeps project was substantially completed, with finalisation of the development of the Deeps mine and the ramping up of production now well advanced. With increased access to the Deeps orebody, mining flexibility began to improve and zinc and lead grades rose materially, yielding 32,100 tonnes of zinc and 42,200 tonnes of lead representing increases of 14% and 13% respectively. Outlook The outlook for 2006 is good, with strong demand and constrained production increases across the industry. Cost pressures are expected to remain intense as the entire supply chain to the industry operates at, or close to, capacity. However, the current consensus is one of relatively strong global growth and a weaker US dollar, as structural issues resurface and US interest rates approach their peak. Metal inventories are low (in the case of copper and nickel) or tightening (in respect of zinc). With the possible exception of zinc, however, and in the absence of further supply-side disruptions, base metal markets seem likely to move into a small surplus during 2006 on the back of increased primary production, substitution and scrap usage. Fluctuating levels of fund interest in the sector may, however, influence short-term price movements to a greater extent than fundamentals. FERROUS METALS AND INDUSTRIES $ million Year Year ended ended 31.12.05 31.12.04 Operating profit 1,456 887 Kumba 568 203 Highveld Steel 436 169 Scaw Metals 121 85 Samancor Group 144 241 Tongaat-Hulett 131 69 Boart Longyear 67 72 Terra - 55 Other (11) (7) EBITDA 1,779 1,231 Net operating assets 4,439 5,302 Capital expenditure 373 284 Share of Group operating profit (%) 23% 19% Share of Group net operating assets (%) 12% 14% Ferrous Metals and Industries' operating profit reached a record $1,456 million, up 64% on 2004. This was as a result of substantially higher prices for iron ore and vanadium, generally higher volumes and increased cost savings, partially offset by the strong rand and lower manganese alloy prices. Markets Global crude steel production for 2005 was 1,129 million tonnes (Mt), an increase of 5.9% over 2004. China's share of world output increased from 26.3% in 2004 to 30.9% in 2005, making it the largest global producer. The global iron ore market continues its very strong trend, with prices forecast to rise further in 2006. Demand for vanadium weakened in the second half of 2005. Ferrovanadium prices, although off their mid-2005 record highs, are still averaging over $38/ kgV. Manganese ore prices softened in the second half in response to weakening demand as manganese alloy margins came under pressure. Strategic review Significant progress in restructuring the division was made during 2005, with further asset disposals for a total attributable enterprise value for Anglo American of $1,029 million. In January and May, Highveld sold its stainless steel investments in Acerinox and Columbus for an attributable enterprise value of $136 million. The sales of Boart Longyear's subsidiary, Wendt, and the remaining Boart Longyear group were concluded in March and July respectively for a combined enterprise value of $635 million. Anglo American and BHP Billiton sold their respective 40% and 60% shareholdings in Samancor Chrome in June for a combined enterprise value of $469 million. Samancor also disposed of half its shareholding in Acerinox, as well as other interests, for a combined enterprise value of $149 million. The sale of ferrochrome producer Zimbabwe Alloys for an enterprise value of $10 million was completed in September. In October, Anglo American announced its decision to seek to dispose of its shareholding in Highveld. Tongaat-Hulett recently announced that it intends to unbundle and separately list its aluminium business, Hulett Aluminium and simultaneously introduce Black Economic Empowerment participation in both Tongaat-Hulett and Hulett Aluminium. Operating performance Kumba achieved an operating profit of $568 million (2004: $203 million). The impact of stronger commodity prices and higher sales volumes, together with solid operational performances and the benefits of its business improvement programme were partially offset by the strong rand. With effect from the second quarter, Kumba benefited from the international annual dollar-denominated benchmark price increase of 71.5%. Production of iron ore was 31 Mt, of which 71% was exported. In March, Kumba announced the approval of a major expansion project at its Sishen iron ore mine in South Africa. This will increase production by 10 million tonnes per annum (Mtpa) to 41 Mtpa by 2009. Construction started in mid-2005, with production ramp-up to commence by mid-2007. In July, Kumba's local partner in the Hope Downs iron ore project in Australia exercised an option to acquire Kumba's interest in the project, resulting in a $176 million pre-tax settlement. Kumba announced a major restructuring of its operations in October. As part of this black economic empowerment transaction, Kumba's iron ore assets are to be partially unbundled to Kumba shareholders and two separate listed entities - Kumba Iron Ore and Newco - will be established. Following the transaction, Anglo American will own 66% of Kumba Iron Ore and 17% of Newco, of which 10% will be a long-term holding. Highveld Steel had a record year, with an operating profit of $436 million (2004: $169 million). This was largely due to significantly higher vanadium prices, relatively strong sales into the South African steel market and cost-saving initiatives. Ferrovanadium prices averaged $66/kgV in 2005, up threefold on 2004. Scaw also produced record results, with operating profit rising to $121 million (2004: $85 million). Strong demand for cast and forged products, particularly in the second half, offset a weaker performance from rolled products. Cost savings also contributed to the higher earnings. The attributable share of Samancor's operating profit amounted to $144 million (2004: $241 million). Samancor's manganese operations were affected by reduced sales volumes and substantially lower alloy prices, while Samancor Chrome only contributed for the first six months. Boart Longyear's operating profit was $67 million (2004: $72 million), representing a seven-month contribution until its effective sale date at the end of July. Tongaat-Hulett's operating profit increased to $131 million (2004: $69 million). Hulett Aluminium grew its rolled products volumes by 20% to 173,000 tonnes and reduced unit conversion costs. Earnings from Tongaat-Hulett Sugar increased as a result of higher South African and export sales volumes and a better world sugar price. African Products continued its profit recovery, with an increase in sales volumes and lower maize costs. Moreland Properties continued to accelerate its development pace, with strong contributions across its portfolios. Outlook Global iron ore demand should be maintained in the coming year. Market consensus is that iron ore prices should rise by 10% to 20% in 2006. The outlook for vanadium remains positive but the price levels seen in 2005 are not expected to be repeated in 2006. Manganese alloy markets are expected to strengthen. Prospects for continued real growth in global steel demand remain positive in 2006, with the strongest growth again expected to come from China. Increasing raw material and energy costs will, however, present major challenges to steel producers. COAL $ million Year Year ended ended 31.12.05 31.12.04 Operating profit 1,019 497 South Africa 463 252 Australia 316 78 South America 240 167 EBITDA 1,243 687 Net operating assets 2,244 2,303 Capital expenditure 331 218 Share of Group operating profit (%) 16% 11% Share of Group net operating assets (%) 6% 6% Anglo Coal lifted operating profit by 105% to a record $1,019 million. The increase was attributable to improved export prices realised during the year and a 4% rise in production to 93 million tonnes. South Africa, Australia and South America contributed 45%, 31% and 24%, respectively, to operating profit. Markets During the year, global demand and supply fundamentals for coal were reasonably well balanced, driven by generally strong world economic activity and continued robust commodity demand from the steel and power sectors, led by China. Domestic demand in China for thermal coal remained firm and so capped that country's export volumes. Indonesian supplies grew sufficiently to make it the largest thermal coal exporter in the world. However, the impact of supply growth was moderated to some extent by infrastructure constraints or operating problems in several other regions of the world. Metallurgical prices remained firm, particularly for hard coking coals, but there was a softening of prices towards year end for semi-soft coking and pulverised coal injection (PCI) coals. Thermal coal prices moved down from 2004 peak levels as the year progressed, but were significantly ahead, on average, of the previous year's prices. Thermal coal markets remain volatile, moving quickly - particularly in Europe - in response to fluctuations in the price of competing fuels. The introduction of the European Union Emissions Trading Scheme (EU ETS) had a tangible effect on the thermal coal market during 2005, as the cost of CO2 emissions now features in the determination of power-generating margins when using all fossil fuels. Nevertheless, the EU ETS allowance provisions in individual countries, coupled with high alternative fuel prices, have permitted coal to maintain a competitive position as a critical power generation fuel. Operating performance Operating profit for South African sourced coal, at $463 million, was 84% higher than for the previous year. Export prices were 35% up on those for 2004. Production rose by 4% to 56.9 million tonnes following the start-up of the Isibonelo mine in July and a general improvement in production at the other mines. Most notable was the excellent performance of Goedehoop mine, despite its having to recover from an underground fire. Total sales of 56.8 million tonnes were also 4% higher, due to the rise in production, supported by improved performance by the rail utility, Spoornet, and continued growth in local electricity demand. Operating profit for the Australian operations climbed by 305% to $316 million. Higher prices for all types of coal, particularly metallurgical coal, contributed strongly to the result, as did an overall production volume increase of 0.5 million tonnes to 26.1 million tonnes. This increase in production was mainly a result of improved performance at Moranbah North, where a solid operational perfomance resulted in a 205% increase in production. Production at Dartbrook was restricted by difficult geological conditions. Strong demand across the industry for key resouces created contractor and equipment availability shortfalls that limited production at some sites, and resulted in increased costs for both directly price linked costs, such as royalties and fuel, and other key inputs including labour and consumables at all operations. In South America, operating profit was up by 44% to $240 million, on the back of coal price increases and a 5% increase in production volume to 10.1 million tonnes. These gains were counteracted in part by increases in operating costs caused by rising fuel prices, royalties, and the strengthening of the Colombian peso and Venezuelan bolivar against the US dollar. Operations were also affected by higher than expected rainfall during the year. In Australia, capital expenditure for the year was 36% higher at $185 million, mainly as a result of the ramp-up of the $835 million Dawson expansion project and the $151 million Grasstree project, which is planned to start production during the second half of 2006. The feasibility study for the $516 million Lake Lindsay project was completed and the project started in early 2006. In South Africa, the Isibonelo and Kleinkopje expansion projects, both of which were completed during the year, represented the main items of capital expenditure. Feasibility studies are in progress on a number of other expansion projects in response to the increased domestic demand for coal. In South America, Cerrejon is continuing with the expansion to 28 million tonnes per annum (Mtpa), which should be completed by the end of 2006. Further expansion of the operation to 32 Mtpa was approved during the year and has commenced. A pre-feasibility study is currently under way to investigate additional expansion beyond 32 Mtpa. Outlook Firm hard coking coal prices are anticipated in the coming year, but prices for semi-soft coking and PCI coals will reflect the downward trend that commenced in 2005. That trend will have an impact on thermal coal prices, particularly in the Indo-Pacific region. Although thermal coal demand for 2006 appears to be generally firm, improved supply infrastructure performance, combined with incremental supply increases, will have a moderating influence. Consequently, average thermal coal prices in 2006 are expected to be slightly lower than in 2005. Substantial capital expenditure will continue to be incurred in all regions, with the resulting increases in production, especially in Australia, coming through over the next two years. In February 2006, Anglo Coal announced it had entered into a joint coking coal venture in British Columbia, Canada. In China, the Group has a 60% interest in the Xiwan open cut coal mine, where the feasibility of a large coal-to-chemicals project is being investigated with a number of partners. Work continues on the feasibility study for Monash, a fuel from brown coal project, in Australia. PLATINUM $ million Year Year ended ended 31.12.05 31.12.04 Operating profit 854 536 EBITDA 1,282 853 Net operating assets 7,018 7,560 Capital expenditure 616 633 Share of Group operating profit (%) 13% 11% Share of Group net operating assets (%) 20% 20% Anglo Platinum's operating profit rose by 59% to $854 million, mainly as a result of higher US dollar prices for metals sold and increased sales volumes. The cash operating cost per equivalent refined platinum ounce (equivalent ounces are mine ounces converted to expected refined ounces) increased by 9.4% in rand terms. Cost initiatives, including supply-chain savings, yielded additional savings of $36 million compared with 2004. Markets The average dollar price realised for the basket of metals sold was $1,388 per platinum ounce sold, 16% higher than in 2004. Firmer platinum, rhodium and nickel prices made the largest contribution to the increase. The average realised price for platinum, of $894 per ounce, was $52 higher, while rhodium averaged $1,966 per ounce compared with $933. The average realised price for nickel was $6.77 per pound, against $5.92 in 2004. Operating performance Whilst refined platinum group metal (PGM) production increased by 5% when compared to 2004, refined platinum production of 2.5 million ounces was similar to 2004. This was the result of a shutdown at the Polokwane Smelter from September through to December, which will see 123,600 ounces of platinum being refined in 2006 instead of 2005. Equivalent refined platinum production from the operations managed by Anglo Platinum and its joint venture partners increased by 50,000 ounces, or 2%, primarily as a consequence of the expansion of the Kroondal Platinum Mine with Aquarius Platinum, and higher output at Modikwa Platinum Mine, as the mine ramps up further towards steady-state production. Lower production was recorded at the Rustenburg and Amandelbult mines. At Rustenburg, the ore-source mix continued to change as the currently available Merensky reserves diminish, and Merensky ore is replaced with UG2 ore. Operating performance in the second half of the year improved over the first six months, as the considerable efforts made to restore production and improve safety and efficiencies started to take hold. The Amandelbult mine continued with efforts to reverse the impact of complex geological and ground conditions at the No. 1 and 2 shafts. Again, performance improved in the second half, indicative of progress made with the planned turnaround. Changes in the rhodium refining circuit at the Precious Metals Refinery resulted in a substantial release of metal previously held in the pipeline. Consequently, refined rhodium production increased by 74,800 ounces. The overall process recovery of platinum improved by 3% as a result of new technology introduced in the concentrating and smelting operations. Projects During the year Anglo Platinum announced the following ventures: â€¢ The Marikana Pooling and Sharing agreement with Aquarius Platinum, to jointly mine contiguous properties. Anglo Platinum will share in profits from January 2006 and will treat additional concentrate that arises from the expansion of the Marikana operation. In addition to sales of concentrate in terms of off-take agreements, the venture is expected to produce an additional 90,000 ounces of platinum and 43,000 ounces of palladium in concentrate per annum when it reaches steady state production in 2007. â€¢ The Mototolo joint venture with Xstrata Alloys, to develop a platinum mine and concentrator. The mine is expected to reach steady state production in the third quarter of 2007. The mine will produce approximately 132,000 ounces of platinum and 82,000 ounces of palladium in concentrate per annum. Anglo Platinum will purchase Xstrata's 50% share of PGM concentrate for further smelting, refining and marketing of finished products. During 2005, mining replacement projects totalling some $770 million were approved. These projects are planned to reach steady state between 2008 and 2012, replacing some 586,000 ounces of platinum production per annum. Included in these projects is the $230 million Potgietersrust replacement project which will produce 200,000 replacement platinum ounces per annum. The Potgietersrust mine will be further expanded to produce an additional 230,000 platinum ounces per annum. Outlook Increased mined production and a reduction in the level of pipeline inventories are expected to result in refined platinum production of between 2.7 and 2.8 million ounces in 2006. Management at Anglo Platinum continues to vigorously address unit costs in conditions of relatively high inflation in the mining environment. The emphasis on increasing volumes at improved operating efficiencies remains. Demand for platinum continues to be strong and remains supportive of firm platinum prices. The resilience of jewellery demand - particularly in the Chinese market - at prices over $900 per ounce adds confidence to this view. The growth in platinum demand in Europe for diesel autocatalyst systems, both oxidation and now heavily loaded particulate traps, is strong. Tightening diesel emission legislation and its early adoption supports this, as well as the growing popularity of diesel engine powered vehicles. Industrial demand remains firm, particularly in the glass and petroleum sectors. Industrial palladium demand continues to grow, encouraged by the relatively low price. However, as adequate supplies are available, the relative high ruling prices are the result of investment interest in the metal. It is notable that palladium demand from Chinese jewellery manufacturers doubled in 2005 and, should sustainable consumer interest be established, this could beneficially alter the nature of palladium supply and demand. While production and sales volumes will increase in 2006, the most significant variable affecting earnings will be metal prices in rand terms. If the rand basket price remains at current levels, then earnings for 2006 are likely to be higher than those in 2005. DIAMONDS $ million Year Year ended ended 31.12.05 31.12.04 Share of associates' operating profit 583 573 EBITDA 655 655 Group's share of De Beers' net assets (1) 2,056 2,208 Share of Group operating profit (%) 9% 12% The Group's share of total operating profit from De Beers increased by $10 million over the 2004 figure to $583 million. Markets Overall, 2005 proved to be quite a good year for the diamond industry. Preliminary reports point to global retail sales of diamond jewellery for the year rising by 6-7%. The diamond trade experienced growth in all major regions, with the exception of Europe, where sales were generally flat. The US, which accounts for around 50% of world jewellery sales by value had a satisfactory Christmas season and mirrored the upward world trend. In the Asia-Pacific region, there was a low single digit increase, with Japan's steady economic revival being reflected in a modest increase in growth for the third year running; China, meanwhile, had a much better second six months. In the Middle East, the Gulf region experienced growth well in excess of targets. For most of the year, demand for rough diamonds from the cutting centres was strong. Sales by The Diamond Trading Company (the DTC), the marketing arm of De Beers, were a record $6,539 million, 15% higher than in 2004. During the year the DTC raised its rough diamond prices on two occasions, the cumulative effect being that sales were at prices 9.5% higher on average than in 2004. The first sight of 2006 was slightly down on that of a year earlier, while in February this year the DTC raised its rough diamond prices by an average of 2% on the evidence of the continuing underlying demand growth. Operating performance De Beers group production, which includes the joint ventures in Botswana and Namibia, increased by 4% to 49 million carats. The South African operations lifted output by 10% to 15.2 million carats. However, in future years there will be no contribution from the Kimberley underground mines or from Koffiefontein as these loss making operations have been closed. Debswana raised production by 2% to a record 31.9 million carats, while the combined land and offshore operations at Namdeb totalled 1.86 million carats, down 5%. During the year, De Beers announced the approval of the $513 million Snap Lake underground project in Canada's Northwest Territories, which will be the company's first mine outside Africa and the first fully underground diamond mine in Canada. This was followed by the go ahead being given for a second Canadian project, the $791 million Victor project in Ontario. Snap Lake is due to enter production in late 2007, with start up at Victor, which received environmental approval in October, scheduled to commence in the third quarter of 2008. In South Africa, approval has been given for the re-opening of the $177 million Voorspoed mine, while $115 million has been allocated to the South African Sea Areas marine mining project. Agreement has been reached, and a preliminary order issued, to settle the majority of civil class action suits filed against De Beers in the United States. This settlement does not involve any admissibility on the part of De Beers and, if finally approved, will bring an end to a number of outstanding disputes. $250 million has been paid in escrow pending conclusion of the settlement process. In 2005, De Beers and Ponahalo Investment Holdings signed a Memorandum of Understanding relating to the proposed sale of a 26% equity interest in De Beers Consolidated Mines Limited to Ponahalo, a broad based South African black economic empowerment company, for approximately $597 million. The sale is likely to be completed in April 2006. Outlook Demand for rough diamonds continues to be steady, though stocks of both rough and polished diamonds in the cutting centres are at relatively high levels, as are aggregate debt levels. Consequently, the price of outside diamonds has dropped significantly, with a concomitant effect on the DTC's rough stones. In spite of the current strain, however, the outlook for diamonds in 2006 is a positive one, in line with macro-economic forecasts of another good year of growth for the global economy. PAPER AND PACKAGING $ million Year Year ended ended 31.12.05 31.12.04 Operating profit 495 569 Packaging 293 297 Business Paper 163 180 Other 39 92 EBITDA 916 978 Net operating assets 6,365 6,596 Capital expenditure (including bio assets) 746 822 Share of Group operating profit (%) 8% 12% Share of Group net operating assets (%) 18% 17% Total operating profit declined 13% from $569 million to $495 million, reflecting the continued difficult trading conditions across Mondi's key markets. In response to the tough business environment, the company has delivered $223 million in cost savings and profit improvement initiatives, underpinning the goal of profitability and competitive advantage in all trading conditions. Markets and Operating performance Mondi Packaging's total operating profit was $293 million, slightly below that of the previous year. The marginal impact of acquisitions made in early 2004, along with benefits of $103 million from significant cost saving and profit improvement initiatives, was offset by continued weak trading conditions. These were brought about mainly by a combination of over capacity and lacklustre manufacturing growth in western European markets. The most difficult market was sackpaper, which saw substantial price declines. Notably, a number of paper machines achieved all time production records. Productivity, measured in output per employee, improved by 8% across the business. In the latter part of the year there were signs of improvements in the markets, as a weakening euro, a pick up in European manufacturing activity and restructuring among key producers in the corrugated packaging sector led to improved trading conditions. Management has responded to the structural over capacity in the corrugated sector by undertaking a significant restructuring. This involved the closure of four plants in the UK and France, the disposal of a further nine plants in the UK, and further rationalisation measures across the remaining operations. One off cash costs associated with these restructurings amounted to $15 million, with a further $62 million in asset and goodwill write downs and provisions. These costs are defined as operating special items and so are excluded from operating profit. The restructuring programme is expected to yield annual cash flow benefits in excess of $22 million, of which $12 million has been realised in 2005. This is in addition to steps taken over the past 18 months to rationalise the upstream paper business, including the closure of two high cost recycled containerboard mills with a combined capacity of 100,000 tonnes per annum, representing around 14% of Mondi Packaging's total capacity in these grades. The acquisition of release liner manufacturer Akrosil, completed in early January 2006, will result in further expansion into the United States, while consolidating Mondi Packaging as one of the major players in the global merchant release liner sector. The acquisition of Paper Factory Stambolijski in Bulgaria strengthens Mondi Packaging's position as one of the leading global suppliers of sack kraftpaper. Completion of the transaction remains subject to competition clearance. A recently approved project to rebuild the PM1 machine at Swiecie in Poland, at a cost of â‚¬39 million, will increase the company's exposure to the fast growing lightweight kraftliner market. Mondi Business Paper's total adjusted operating profit declined by 9% to $163 million. Although demand remained reasonable, pricing was under pressure during the year owing to a combination of the strong euro, which attracts dollar denominated imports, as well as over capacity in core European markets. Uncoated woodfree sales volumes increased by 3.3%. This was mainly as a result of additional volumes from the successful rebuild of Ruzomberok's PM18 paper machine, offset in part by reduced volumes from Merebank during the rebuild of PM31. A major focus on cost saving and profit improvement initiatives has yielded benefits of $104 million. The Richards Bay RB720 expansion project and the Merebank PM31 rebuild have been commissioned successfully and full production is expected to be achieved during 2006. Incremental uncoated woodfree paper volumes coming on to the market as a result of the PM31 rebuild will be offset by a reduction of around 100,000 tonnes from Hungary. This follows the sale of the Dunaujvaros paper mill, which will be converted by the new owners to the production of paper for release liner during 2006. The remaining businesses in the Mondi portfolio underperformed when compared with 2004. Rand strength has had a negative impact on local market pricing and export revenues in the South African based packaging and newsprint businesses, while difficult trading conditions in key markets are putting pressure on the European paper merchant, Europapier. Outlook The company will continue to focus on attaining operational excellence across its operations, integrating and optimising the significant new investments in Richards Bay, Merebank, Akrosil and Stambolijski, and achieving further cost reductions and profit improvements at existing facilities. Together with the specific restructuring initiatives undertaken in the corrugated operations in 2005, this will position the business to benefit from any upturn in the markets. Mondi is considering a one million tonnes per year softwood pulp expansion at a capital cost of $1.5 billion at its Syktyvkar plant in north west Russia in order to meet growing worldwide pulp demand, driven mainly by China. While it is still to early too call a sustained turnaround in trading conditions, there are signs of improvement. The recently implemented price increases in containerboard and uncoated woodfree reflect the benefits of industry rationalisation and improved demand, although sustained dollar weakness may undermine any recovery. INDUSTRIAL MINERALS $ million Year Year ended ended 31.12.05 31.12.04 Operating profit 370 421 Tarmac 340 354 Copebras 30 67 EBITDA 618 638 Net operating assets 3,982 4,480 Capital expenditure 274 304 Share of Group operating profit (%) 6% 9% Share of Group net operating assets (%) 11% 12% Industrial Minerals generated an operating profit of $370 million. Tarmac's profit before special items was 4% lower at $340 million. Trading conditions in the UK were challenging, particularly in the second half of 2005, as the effects of higher energy costs and flat volumes impacted performance. Tarmac's contribution from its international businesses was in line with last year, reflecting strong second half business performance in France, Spain and the Middle East, offset by weaker demand in Germany. Tarmac's European portfolio grew during the year with a number of small bolt on acquisitions in Poland, France and the UK. The acquisition of a developing business in Romania in early 2006 further strengthened Tarmac's position in central Europe, identified as a key focus of the company's growth strategy. The appreciation of the Brazilian currency, the real, was almost entirely responsible for profits at Copebras being $37 million down on 2004. Markets and operating performance In the UK, Tarmac realised price increases of between 3% and 7% across various product groups, though margins were impacted by increased operating and energy related costs. Volumes were generally flat and leading market positions were maintained. However, margins in the coated stone and concrete markets were particularly challenging, reflecting high fuel costs and competitive pressures in an over supplied marketplace. The Buxton cement plant, which started up in March 2004, exceeded project appraisal production by 43%. The weak housing market affected demand for concrete products, particularly Aircrete blocks, where the market declined by some 11%. This sharp fall in demand contributed to a significant erosion of margins, exacerbated by fuel costs and ongoing operational issues. Operating profits in France were considerably better than in 2004, reflecting the contribution of new acquisitions, improved prices and good cost control. In Germany, operating profits were affected by delays and reductions in infrastructure projects in a significantly over supplied marketplace, which depressed prices. In the Middle East, Tarmac's operations continue to benefit from strong local demand. Trading in Spain, Poland and the Czech Republic was in line with the previous year. Copebras' underlying business performed well, although the stronger Brazilian currency resulted in a substantial increase in local costs, in dollar terms. Selling prices and raw material costs are essentially dollar denominated and rose in tandem. Copebras' fertiliser sales held up well despite a 13% drop in the overall fertiliser market in Brazil resulting from the effects of the 17% appreciation of the real on the Brazilian agricultural sector, compounded by low rainfall. Adapting to changing market dynamics, Tarmac significantly restructured and strengthened its management and organisational structure in 2005. The UK business is now divided into Aggregates Products, with enhanced local presence, and Building Products, which reflects the more national focus of its customer base. The structure further facilitates continuous improvement in production and logistics, and also in sales and back office activities. During 2005, the division achieved $86 million of cost savings and efficiency improvements. The business development resource has been strengthened, with a Frankfurt base, to better position Tarmac to grow its European business. The company recently made three acquisitions in its aggregates business in the UK, Poland, and in early 2006, Romania. Tarmac has also embarked on a strategic portfolio review designed to increase focus and improve performance and is currently planning to exit certain non-core businesses in Germany and Hong Kong as well as concrete paving in the UK. Outlook Market conditions in the UK are expected to remain difficult with sluggish demand and high cost pressures, particularly energy costs. Tarmac announced price increases across its product range in January 2006, but in a highly competitive marketplace, margins will be influenced by the degree to which these hold. GOLD $ million Year Year ended ended 31.12.05 31.12.04 Operating profit 332 296 EBITDA 871 694 Net operating assets 6,982 7,124 Capital expenditure 722 585 Share of Group operating profit (%) 5% 6% Share of Group net operating assets (%) 20% 19% In 2005, operating profit of $332 million was 12% higher compared with the previous year (2004: $296 million). At the end of 2005, the gold price was more than 11% higher than at the beginning of 2005, while the average local price received for the year was 9% higher than for 2004. Total cash costs were $13 per ounce higher, at $281 per ounce, mainly resulting from stronger operating currencies, inflation and lower grades. Markets The return of investor interest in gold continued throughout 2005, with a sustained rise in the gold price. The average gold price received increased by $45 per ounce to $439. In the final quarter of the year, the spot gold price broke through $500 per ounce on a number of occasions. This momentum has continued into 2006, with the spot gold price currently well above the $500 per ounce mark. Operating performance AngloGold Ashanti's production in 2005 from ongoing operations was 6.2 million ounces, 6% higher than the previous year, and was largely attributable to the inclusion of a full year's production of the Ashanti assets, in addition to record performances from Sunrise Dam in the first two quarters of the year and production improvements at Morila and Mponeng of 28% and 27% respectively. These increases were offset by a reduction in output from key South African assets, including Great Noligwa and TauTona. The optimisation of the Ashanti assets is ongoing, and management has implemented programmes to ensure that these operations, starved of working capital for an extended period, realise their ore reserve, profit margin and growth potential. Current growth projects will maintain AngloGold Ashanti's production in excess of 6 million ounces through to 2013. In addition to that, management is focused on growing the reserve and resource base, both through exploration and through a disciplined, value adding mergers and acquisitions programme. In respect of both of these activities, the company is now looking outside of the world's mature gold regions and has announced exploration projects in Africa in the Democratic Republic of Congo and in South America in Colombia. In Russia, AngloGold Ashanti has acquired productive capacity with its 30% share in London based Trans-Siberian Gold as an entry point to this region. In China, strategic alliances are being pursued to allow the company to successfully extract value from a region undergoing significant economic and regulatory change. Exploration partnerships in the Philippines, Laos and in Mongolia have resulted in land positions being acquired in several prospective areas. Outlook The gold price has now risen for five years in succession, a phenomenon not seen since the deregulation of the gold market in the developed markets in 1971. Ongoing strong demand from growing economies in China and India as well as continued investor speculation and official sector activities are seen as supportive of the gold price. EXPLORATION As the prelude to any new mining project, exploration is fundamental to the Group's success. And as the world becomes increasingly well prospected, Anglo American, in addition to a focus on near-mine resources, is searching for new deposits in more remote regions, such as the Arctic Circle and central Africa. In 2005, it spent $150 million on exploration, across 31 different countries. Anglo Base Metals (which spent $50 million) has found significant new resources close to the Chilean copper mines of Los Bronces and El Soldado, and near Catalao niobium mine in Brazil. Elsewhere work continues on extending the copper resource discovered by Anglo American at Boyongan in the Philippines, while greenfields exploration is in progress in Chile, Brazil, Indonesia, Mexico and Peru. Nickel sulphide mineralisation has been discovered at West Raglan, Canada and drilling continues for nickel resources at the Mosku project in Finland and the MAN project in Alaska. Delineation of the nickel laterite discovery at Jacare, Brazil, is underway. Anglo Coal ($13 million) is assessing the viability of methane production in South Africa's Waterberg coalfield. It completed scoping studies on China's Xiwan Project and began drilling on the Guxian prospect. Coal exploration is being carried out in Canada. Anglo Ferrous Metals and Industries ($21 million) is exploring for iron ore in South Africa on both greenfield and brownfield sites, and continues to evaluate opportunities in West Africa. AngloGold Ashanti ($45 million) is exploring around many of its existing operations, as well as in China, Colombia, the Democratic Republic of Congo, Laos, Mongolia, the Philippines, and Russia. Anglo Platinum ($21 million) is exploring near existing operations and in South Africa's Bushveld Complex. Early-stage drilling at China's Danba project has been encouraging, and programmes continued in Brazil, Canada, Russia and Zimbabwe. Exchange rates against the US dollar Average 2005 2004 South African rand 6.37 6.44 Pound sterling 0.55 0.55 Euro 0.80 0.80 Australian dollar 1.31 1.36 Chilean peso 559 609 Year end South African rand 6.35 5.65 Pound sterling 0.58 0.52 Euro 0.85 0.74 Australian dollar 1.36 1.28 Chilean peso 512 556 Commodity prices Average market prices for the period 2005 2004 Gold - US$/oz 445 409 Platinum - US$/oz 897 847 Palladium - US$/oz 201 231 Rhodium - US$/oz 2,056 991 Copper - US cents/lb 167 130 Nickel - US cents/lb 668 628 Zinc - US cents/lb 63 48 Lead - US cents/lb 44 40 European eucalyptus pulp price US$/tonne 582 520 Consolidated income statement for the year ended 31 December 2005 Before Special Before Special special items and special items and items and remeasurements items and remeasurements remeasurements (note 4) remeasurements (note 4) US$ million Note 2005 2005 2005 2004 2004 2004 Group revenue 1 29,434 - 29,434 26,268 - 26,268 Total operating costs (24,090) (487) (24,577) (22,627) 25 (22,602) Operating profit from subsidiaries and joint ventures 1 5,344 (487) 4,857 3,641 25 3,666 Net profit on 4 - 87 87 - 1,015 1,015 disposals Net income from 1 696 (39) 657 621 (71) 550 associates Total profit from operations and associates 6,040 (439) 5,601 4,262 969 5,231 Investment income 498 72 570 719 - 719 Interest expense (926) (37) (963) (974) (112) 1,086 Net finance costs 5 (428) 35 (393) (255) (112) (367) Profit before tax 5,612 (404) 5,208 4,007 857 4,864 Income tax (expense)/ 6 (1,283) 8 (1,275) (885) (38) (923) income Profit for the 4,329 (396) 3,933 3,122 819 3,941 financial year Attributable to: Minority interests 593 (181) 412 438 2 440 Equity shareholders 7 3,736 (215) 3,521 2,684 817 3,501 of the Company Earnings per share (US$) Basic 7 2.43 2.44 Diluted 7 2.36 2.35 Dividends Proposed ordinary dividend per share (US 62.0 70.0 cents) Proposed ordinary dividend (US$ millions) 903 1,007 Proposed special dividend per share (US 33.0 - cents) Proposed special dividend (US$ millions) 480 - Dividends paid during the period per 79.0 58.0 share (US cents) Dividends paid during the period (US$ 1,137 827 millions) The impact of acquired and discontinued operations on the results for the year is not material. Underlying earnings and underlying earnings per share are set out in note 7. Consolidated balance sheet as at 31 December 2005 US$ million Note 2005 2004 Intangible assets 2,572 2,644 Tangible assets 30,796 33,172 Biological assets 350 374 Environmental rehabilitation trusts 288 237 Investments in associates 3,165 3,486 Fixed asset investments - 1,084 Financial asset investments 899 - Deferred tax assets 337 128 Other financial assets (derivatives) 183 - Other non-current assets 153 66 Total non-current assets 38,743 41,191 Inventories 3,569 3,549 Trade and other receivables 5,174 5,534 Current tax assets 211 220 Current asset investments - 2 Current financial asset investments 16 - Cash and cash equivalents 10 3,430 2,955 Other current financial assets (derivatives) 747 - Total current assets 13,147 12,260 Total assets 51,890 53,451 Short term borrowings 10 (2,076) (3,383) Trade and other payables (5,024) (5,368) Current tax liabilities (1,145) (831) Other current financial liabilities (derivatives) (1,286) - Total current liabilities (9,531) (9,582) Medium and long term borrowings 10 (6,363) (7,817) Retirement benefit obligations (1,258) (1,201) Other financial liabilities (derivatives) (508) - Deferred tax liabilities (5,201) (5,810) Provisions (1,451) (1,328) Total non-current liabilities (14,781) (16,156) Total liabilities (24,312) (25,738) Net assets 27,578 27,713 Equity Called-up share capital 9 747 747 Share premium account 9 1,637 1,633 Other reserves 9 1,330 3,074 Retained earnings 9 19,907 17,671 Equity attributable to equity shareholders of the Company 23,621 23,125 Minority interests 9 3,957 4,588 Total equity 27,578 27,713 Consolidated cash flow statement for the year ended 31 December 2005 US$ million Note 2005 2004 Cash inflows from operations 10 7,265 5,291 Dividends from associates 461 368 Dividends from financial/fixed asset investments 9 28 Income tax paid (954) (500) Net cash inflows from operating activities 6,781 5,187 Cash flows from investing activities Acquisition of subsidiaries, net of cash and cash (298) (1,135) equivalents Disposal of subsidiaries, net of cash and cash equivalents 419 274 Investment in associates (29) - Sale of interests in associates 11 1,424 Sale of interests in joint ventures 2 37 Purchases of tangible fixed assets (3,306) (3,166) Proceeds from disposal of tangible assets 327 151 Investment in biological assets (55) (67) Purchases of financial asset investments (203) (108) Proceeds from sale of financial asset investments 245 263 Loans granted to related parties - 6 Repayment of loans and capital from associates 370 299 Loan repayments from related parties 1 - Utilised in hedge restructure (69) - Other investing activities (18) (4) Net cash used in investing activities (2,603) (2,026) Cash flows from financing activities Issue of shares by subsidiaries to minority interests 73 146 Sale of treasury shares to employees 240 46 Repayment of short term borrowings (1,356) (1,830) Repayment of medium and long term borrowings (632) (598) Issue of convertible bonds - 990 Decrease in minority loans - (2) Increase in current financial/fixed asset investments 13 23 Interest received 210 195 Interest paid (547) (601) Dividends paid to minority interests (421) (178) Dividends paid to Company shareholders (1,137) (827) Other financing activity (19) (39) Net cash used in financing activities (3,576) (2,675) Net increase in cash and cash equivalents 602 486 Cash and cash equivalents at start of year 2,781 2,186 Cash movements in the year 602 486 Effects of changes in foreign exchange rate (64) 109 Cash and cash equivalents at end of year 10 3,319 2,781 Consolidated statement of recognised income and expense for the year ended 31 December 2005 US$ million 2005 2004 Gain on revaluation of available for sale investments 31 - Loss on cash flow hedges (316) - Exchange (losses)/gains on translation of foreign operations (2,182) 2,617 Actuarial loss on post-retirement benefit schemes (171) (57) Actuarial (loss)/gain on post-retirement benefit schemes - associates (24) 31 Deferred tax 140 6 Other movements 5 (32) Net (expense)/income recognised directly in equity (2,517) 2,565 Transfers Transferred to profit or loss: sale of available for sale investments (32) - Transferred to profit or loss: cash flow hedges (8) - Transferred to profit or loss: exchange differences on disposal of foreign operations - (30) Total transferred from equity (40) (30) Profit for the year 3,933 3,941 Total recognised income and expense 1,376 6,476 Adoption of IAS 32 and IAS 39 (see note 13) (127) - Total recognised income and expense for the year 1,249 6,476 Attributable to: Minority interests (40) 755 Equity shareholders of the Company 1,289 5,721 This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOW FR UAVARNBRUUUR

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