| Tue 15 Apr 2008, 14:15 | | AGL - Anglo American Plc - Address To Shareholders |
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AGL
ANAAL
AGL - Anglo American Plc - Address To Shareholders By The Chairman
And Chief Executive
Anglo American plc
Incorporated in the United Kingdom
(Registration number: 3564138)
Short name: Anglo
Share code: AGL
ISIN number: GB00B1XZS820
("Anglo American plc" or "the company")
Anglo American plc AGM 2008
Address to shareholders by the Chairman and Chief Executive
At Anglo American plc`s Annual General Meeting for shareholders in London today
(15 April 2007), Sir Mark Moody-Stuart, chairman, and Cynthia Carroll, chief
executive, made the following remarks:
Sir Mark Moody-Stuart, Chairman, Anglo American plc:
Ladies and Gentlemen, welcome to the Anglo American Annual General Meeting. We
meet to review a further highly successful year in which operating profit from
core operations rose by 12% to $8.9 billion - allowing us to continue with our
progressive dividend policy through the Board`s recommendation of a 15% increase
in our dividend to 86 cents which, if accepted, will take our dividends for the
year to 124 cents per share. I commend the Board`s proposal to you.
I am also pleased to note the significant progress made by the company under the
leadership of Cynthia Carroll and her executive team. There is a new vigour and
vitality in the company. A raft of important initiatives has been launched to:
improve operational performance; to realise synergies between our businesses and
to improve the consistency of application of policies and standards across our
operations. In addition, the level and quality of engagement with key
stakeholders has been significantly increased.
This refreshed approach has been most evident in the handling of safety issues,
which has been a consistent area of concern for the Board. Cynthia Carroll has
exerted impressive leadership in this area, challenging ingrained assumptions
about the inherent dangers involved in mining and creating real belief in the
concept of `zero harm`. Managers are aware that they will not progress in the
organisation if they have a poor safety record. Furthermore, through the
temporary closure of Rustenburg platinum mine for comprehensive retraining of
the workforce in the aftermath of a series of fatal incidents, Cynthia gave a
palpable demonstration of commitment to our long-standing dictum that safety
must come before production. In so doing she has begun to change the nature of
the debate about safety across the South African mining industry with the
involvement of Government and the unions. There is still a long way to go but
there are some encouraging signs that we are achieving a step change in
performance. The challenge will be to ensure that the current intense focus on
safety continues and that the current improvement becomes sustainable through a
change in culture.
The Board also believes that an intelligent balance is being struck between an
awareness, on one hand, that in the current climate assets are relatively
expensive and, on the other, of the importance of increased corporate activity
for the long-term growth potential of the Group. We have been bolder than in
previous years and made several acquisitions to complement the organic growth of
the portfolio. These have strengthened our portfolio of copper and coal assets
and we have taken major strides in delivering against our objective of
establishing the Group as a significant player in the iron ore business through
the MMX acquisition in Brazil. The disposal of non-core assets over the last two
years was intended to provide a platform for the growth of our core businesses.
That growth will come from a combination of an impressive project pipeline,
targeted acquisitions and the hard, and unglamorous, grind of improving the
efficiency of our existing assets.
In another year of strong financial results I wish to thank each and every one
of our employees for their contribution. Over the last year the Board and Board
Committees have met in South Africa twice and in Chile. In addition, I have
personally visited Anglo activities in Australia, China and the Philippines. In
each of these countries I have been impressed by the professionalism of the
Anglo people whom I have met. We have some of the best people in the industry
and there is a widespread commitment to excellence and to `doing the right
thing`. There is also a good awareness of our Business Principles and key
policies. We are currently updating and reviewing our `Good Citizenship`
business principles based on internal and external stakeholder input. Copies of
the current document are available at the meeting. The process is almost
complete but if any investor would like to contribute to this work, your
feedback would be welcome.
Commodity prices remained high over the last year reflecting both the strength
of the global economy for most of this period and, in particular, the
unprecedented rate of urbanisation in both China and India. But another factor
at work has been the industry`s relatively muted ability to expand the supply of
key commodities at the anticipated rate. The factors that have constrained
supply growth include: lengthier permitting processes; the increased importance
of gaining community consent; bottlenecks in the supply chain, skills shortages
and constraints in the supply of water and energy. These underline the extent to
which the mining sector cannot afford to be insular in how it relates to the
outside world and how sustainable development considerations are increasingly
central to our ability to do business. Moreover, society increasingly expects us
to contribute to finding solutions to global challenges such as poverty,
delivering against the Millennium Development Goals and climate change.
Some of you may be aware of a pamphlet recently produced by `Action Aid` in
South Africa. This alleged that in communities in the Limpopo Province of South
Africa our subsidiary, Anglo Platinum, has been forcing people off their
traditional land, has failed adequately to compensate families who are
resettled, has not provided them with sufficient alternative agricultural land
and has polluted water at schools close to the Potgietersrust platinum mine. I
will not go into these issues in detail now - although some of them will, no
doubt, be raised in questions - but there is another side to this story.
The resettlement of three communities has been planned or under discussion with
the affected communities for almost a decade. In the case of the village of Ga
Pila out of over 700 households, only 27 have failed to move; and in the cases
of the two Mothotlo villages, which is still underway, over 820 households out
of 956 have already moved. Moreover, they have moved to better houses, to
villages with improved schools; they now have a clinic and have received more
and better agricultural land.
South African law - as in this country - provides for communities to be moved in
order to facilitate projects of national importance. But we have instead worked
on the basis of obtaining the freely given consent of the community and
traditional authorities through negotiation. The fact that all 956 households
have signed agreements, together with the support given by the traditional and
political leaders in the region, are an indication that the resettlement is
based on a fair compensation model.
This is not to deny that in an area that has great social challenges that there
are enduring problems of poverty and lack of development - but it is our
objective that in the coming years the resettled communities will receive a
significant net benefit from the mine and the opportunities which it generates.
We take the allegations from Action Aid about water pollution at local schools
extremely seriously. On a precautionary basis Anglo Platinum is, with the
agreement of the municipality, providing alternative drinking water for the
community. We believe that there is, indeed, a problem of elevated nitrates in
water from shallow wells in many villages in the wider area - and I welcome that
Action Aid brought this to attention. Contrary to what is stated by Action Aid,
the data available to Anglo Platinum indicates that this arises from pit
latrines or geological factors and not from the mine. Further work is under way
to identify the source of the problem and to devise solutions.
In many rural communities in Limpopo Province and elsewhere, often remote from
any mining, there is a problem with water quality in shallow wells which can
arise from sewage, cattle kraals or indeed underlying geology. It is a major
challenge for frequently under-resourced municipalities to fulfil their
responsibilities of providing clean water to communities. There are clear limits
to what Anglo American or Anglo Platinum can do, but I know that we are happy to
work with development NGOs and development agencies to see whether workable
solutions can be found to this wider problem. Together with the public
authorities we have sought to work with Action Aid - but I understand that last
week the municipality felt obliged to adjourn a meeting to compare scientific
data when Action Aid tried to turn it into a media circus.
Copies of a detailed rebuttal of the points made by Action Aid are available
here today and they are also available on the Anglo Platinum and Anglo American
websites.
I have worked in the resources sector throughout my career and believe
passionately in its ability, when responsibly done, to contribute to wider
development. The sector has some distinctive features compared with other
industries, of which I would highlight five.
Firstly, we typically exploit resources which are not owned by ourselves but by
host governments on behalf of their people - which underlines the conditional
nature of our licence to operate. There is, in each country, a legitimate
argument to be made about the extent to which a proportion of royalties and tax
revenues are recycled to the areas where mining takes place.
Secondly, in adding value to natural resources, the sustainability challenge is
to ensure that, during the lifetime of a mine, we contribute to building the
social and human capital of the communities where we work so that their
capacities and access to opportunity are increased.
Thirdly, our assets are immobile, involve significant up-front capital
expenditure and are long-term investments - meaning that we have to live with
the judgements we make about our ability to operate ethically in particular
locations. This means that we have a very active interest in good governance
and a clear preference for working in jurisdictions where the rule of law
operates and where there is effective and predictable enforcement of
environmental and other legislation which governs our business.
Fourthly, our social and environmental footprint is often significant, bringing
with it commensurate responsibilities to local communities - including the need
to improve our ability to understand our indirect and cumulative impacts.
And, fifthly, mineral resources are often found in areas where there has
previously been limited development and where the sector may offer the only
route for progress. This often means working with national and local
governments with limited capacities or in weak governance zones and where we may
find ourselves thrust into roles more properly filled by the State. It
underlines the importance of our seeking to contribute to improving governance
through initiatives like the Extractive Industries Transparency Initiative and
the Investment Climate Facility for Africa and of the central role of
partnerships with governments, international institutions, NGOs, community based
organisations and other businesses in producing better development outcomes.
These factors provide a backdrop of almost unique complexity for a business.
They suggest that we will not always get our interactions right across some 40
countries. But it would be disingenuous of our critics to ignore the efforts
that we invest in maximising the likelihood of our getting things right. Hence
our leading edge Socio-Economic Assessment Toolbox - or SEAT - process that is
now implemented at every one of our established operations; our well established
programmes for enterprise development; our leadership in HIV/AIDS; and our new
toolbox for long term mine closure planning. I welcome too our growing network
of partnerships with NGOs including CARE International on development issues and
Fauna and Flora International on biodiversity.
Furthermore, it is important that we look at our contribution to society in the
round. Our return to shareholders is a fundamental part of our role as a company
but I draw your attention too to the developmental opportunities that we deliver
to society including through innovation and building the skills of those who
work for or with us. Moreover, it is instructive to note that in 2007 whilst we
generated $5.9 billion for investors, we also paid $11 billion to our suppliers,
including almost $5 billion to suppliers in Africa; we paid $3.6 billion in
wages and employee benefits; and paid or generated some $3.8 billion in taxes
and royalties for our host governments to reinvest in services like health and
education. The business which we generate for suppliers, in turn, generates
further tax revenues.
Finally, ladies and gentlemen, I should thank members of the Board for their
work over the last year. In this period, we have seen the departure of David
Hathorn as an Executive Director following the demerger of Mondi; of Ralph
Alexander and of Bobby Godsell. Let me thank all of them for their
contributions. David Hathorn has the important job of leading an independent
company in which many of you may, like me, also be shareholders. Ralph Alexander
has become chief executive of an energy company with interests in alternative
energy sources. I wish them both every success. Bobby Godsell has retired from
AngloGold Ashanti and I would like to thank him in particular for his work over
many years in both Executive and Non-Executive roles as well as for the
significant role he played in the peaceful transition to democracy in South
Africa.
I am also pleased to welcome Sir C.K. Chow to the Board. He brings a formidable
track record in international business to the Board as well as specific insights
into the Asia Pacific region - from where we have not previously had strong
representation.
I will now ask our Chief Executive, Cynthia Carroll, to address the meeting.
Cynthia Carroll, Chief Executive, Anglo American plc:
Thank you, Sir Mark, and I too would like to welcome you all here today.
We announced our full year results for 2007 on 20th February and you will now
have also seen our Annual Report. I will therefore give you just a brief
overview of our considerable achievements of 2007 and the outlook for the year
ahead.
Financial headlines
As you have heard, Anglo American had a record financial performance in 2007.
The Group reported a total operating profit of $10.1 billion and a record $5.8
billion of total Group underlying earnings.
Several factors contributed to this; among them:
- Robust pricing in our core commodity segments, especially copper, platinum
and iron ore;
- Higher production levels; and
- Continued progress in driving cost savings, totalling $380 million for the
year.
In addition to the increased level of the final dividend recommended by the
Board, we are continuing with our announced $4 billion share-buyback programme,
which will amount to a $14.5 billion capital return to shareholders since the
beginning of 2006. We are also working to optimise our capital structure and
seek to achieve our target gearing of 40% in the near term. This represents
about $14 billion in net debt, which will support our substantial near- and
medium-term growth plans.
Safety
I too would like to comment on the changes we have made in our approach to
safety in the past year.
2007 marked a turning point in our approach to safety, in response to an
unacceptable fatality performance across the Group. It had become clear that a
gradual approach was not delivering the dramatic lowering of injury, and
particularly fatality, rates that we were seeking. A step-change was needed. We
therefore launched a series of initiatives to drive consistent safety messages
and practices across our businesses. We held two safety summits in the year and
have shown we are prepared to do what is necessary to meet this challenge head-
on, by shutting down mine shafts where safety performance has not been up to our
standards.
Although these are early days, we do appear to be making progress. A dreadful
first half saw 29 people lose their lives at our operations, but during the
second six months the fatality figure reduced to 11. In September, we achieved a
fatality-free month - so we know it can be done.
It is very encouraging to be able to report that in 2008 our fatality frequency
rate has continued on its downward path, while there are also indications that
the lost-time injury frequency rate, which had reached something of a plateau,
is also turning down. We expect to build upon this progress this year and
beyond, and I continue to believe strongly that optimally run businesses have
good safety records.
Sustainable development
In the area of sustainable development, we are looking at how we can stretch our
contribution to the fullest through partnership with others. For example, our
SEAT community-engagement toolbox, now in its more demanding second phase, is
being accorded ever-wider international recognition.
In 2008, we have also introduced new policy frameworks for safety, health and
the environment, and are making headway with strategic work on water and energy
efficiency. We will be reviewing our performance and setting new targets as a
result. Increased transparency, higher performance standards and attracting and
retaining skills are essential to achieving against these ever more challenging
targets.
The global climate is changing and, with it, an increased likelihood of impact
on our operations and increased tensions around water. It is now urgent and
evident that it must be a consideration in everything we do. We operate in some
of the world`s most arid areas - in Chile, in Australia, in the western regions
of southern Africa. Increasingly we must compete for water resources and account
for the full social and environmental costs. To do so successfully means we must
be technically innovative and contribute to wider environmental and social
solutions. Examples include a water-treatment plant at eMalahleni and a wetlands
conservation area near Isibonelo, both coal mines in South Africa and mist traps
to harvest water for the community surrounding our Mantos Blancos copper mine in
Chile. At Emalahleni, the plant, which processes water from underground
collieries, will generate a water recovery exceeding 99%, while the Los Bronces
expansion will reduce the use of fresh water by 40% per tonne of copper
produced.
Everyone is well aware that our industry is enjoying a prolonged period of
strong growth and sustained demand for our products. One of the challenges of
this environment is a shortage of skilled labour, something we are addressing by
highlighting the importance of diversity within our Group. Most notably, this
includes the emphasis we are placing on attracting, retaining and rewarding
women, who are still represented in only modest numbers. In 2007, women
represented 15.3 per cent of our management numbers and we are aiming to
continue to increase the proportion of women across the businesses and
throughout the ranks. Achieving such diversity is key to our success.
Progress on strategic objectives
In relation to our strategy, we made good progress in 2007 in becoming a leading
focused mining company. To achieve this goal of focusing on our three core
commodity groupings - precious, base metals and bulk - further steps in the
Group`s restructuring were completed successfully during the year.
The Company disposed of its remaining 29% holding in Highveld Steel in May and
Hulamin was unbundled from Tongaat-Hulett in June. Mondi, the paper and
packaging business, was demerged in July and, in line with the intention to
ultimately exit AngloGold Ashanti, we reduced our holding from 41.6% to 16.6% by
the year end, realising in excess of $2.9 billion.
The decision was also taken to sell Tarmac, the construction materials business.
Tarmac had a very strong operational performance in 2007, with a number of its
business improvement initiatives starting to make a significant impact.
However, we have decided not to launch the marketing phase of the sale process
until credit market conditions improve. Tarmac continues to be managed to
maximise shareholder value and this includes active reviews of its portfolio.
We are bringing greater rigour to Anglo American`s operating platform by
introducing a value based management (VBM) methodology in all business units. A
pilot project has been completed in Anglo Coal and VBM is now being rolled out
into all of the businesses. In addition, an asset optimisation initiative will
maximise operational efficiencies at site level and allow benchmarking of
performance and the spread of best practices.
We have recently completed a comprehensive review to determine the best approach
for delivering key business-support functions. This has led to the establishment
of three shared-services centres, providing common accounting and employee
services, located in existing offices in Asia-Pacific, South America and South
Africa.
During the year, we also launched a centralised procurement programme to
leverage the benefits of operating on a worldwide scale. Initial projections
point to the Group achieving around a billion dollars of procurement and shared-
services savings in the next three years.
Improved government relations
2007 marked a shift in our relations with governments. For example, in South
Africa, we took bold steps to try to dramatically raise our overall safety
performance, at a significant sacrifice to production. We also showed our
willingness to work with government agencies in addressing the HIV/AIDS
epidemic, while in 2008 we have provided management expertise in helping tackle
the country`s power-supply problems. The company also made significant progress
during 2007 in meeting the transformation requirements in respect of employment
equity and black economic empowerment in terms of the South African Mining
Charter - culminating in groundbreaking equity participation arrangements in
Anglo Platinum`s assets.
These are just some of the moves that are yielding benefits for our Group. I
would also like to think that it was not just coincidental that in February we
were able to announce that we were to be awarded new order mining rights for all
of Anglo American`s mining operations in South Africa. We have made substantial
progress in recent weeks and expect to be able to finalise the conversions
shortly. This provides greater certainty for our businesses and will enable the
Group to continue to make a strong contribution to the country`s prosperity and
economic growth.
Furthermore, in Chile, our enterprise-development programme, based on our highly
successful Anglo Zimele small-business development model in South Africa, was
recognised through the award of one of only seven medals issued by the Chilean
government to commemorate the country`s bicentenary.
Project expertise driving profitable growth
In terms of projects, Anglo American has one of the strongest and highest
quality pipelines in the entire mining sector. Over the past year, this doubled
to more than $40 billion. Our Base Metals, Iron Ore, Coal and Platinum
businesses each have project pipelines of $5 billion or higher. In the near
term, we have $12 billion in approved projects and have around $30 billion in
projects under consideration, with nearly half in the attractive base metals
market and a quarter in seaborne iron ore.
We are making excellent progress with the development of our projects - just to
give you a few examples, in November we announced the $1.7bn expansion of Los
Bronces copper project in Chile which, on completion in 2011, will increase
production by an average of 170,000 tpa, making Los Bronces one of the 10
largest copper mines in the world. The $1.5 billion Barro Alto nickel project
in Brazil is also making good progress and is also due to come fully on stream
in 2011, taking our total attributable nickel production to 100,000 tonnes a
year. And in platinum, the $692 million PPRust North expansion project is
expected to reach full capacity in 2009, when it will mill an additional 600,000
tonnes of ore per month.
Over the next 5 to 10 years, our project pipeline has the potential to increase
Anglo`s share in all of our core market segments. Moreover, we are now
exploring for minerals in 25 countries around the globe, and we will continue to
drive our exploration efforts to further enrich our organic growth pipeline.
Acquisitions to fuel further growth
During 2007, Anglo American was active in identifying and successfully acquiring
major new projects in countries where we have an existing presence and in new
geographies, as well as opening new offices in India and the Democratic Republic
of Congo, further expanding our geographic footprint. The acquisition of a 49%
stake in the Minas-Rio iron ore project in Brazil is helping to build critical
mass for our Group in an extremely consolidated industry, with high barriers to
entry and where we are a relatively new entrant. This shareholding and the
recent announcement that we have acquired control of Minas-Rio and the Amap?
iron ore mine, together with the expansions at Kumba in South Africa, could
result in the Group`s attributable iron ore production rising to 150 million
tonnes a year and securing around 10% of the high-margin seaborne iron ore trade
by 2017. Similarly in copper, the acquisition of Michiquillay in Peru and the
purchase of a 50% stake in the Pebble copper project in Alaska, combined with
expansions in Chile at Los Bronces and Collahuasi, could see the Group`s
attributable copper production rising to around 1.6 million tonnes a year by
2016.
We also formed an exciting strategic partnership with China Development Bank to
jointly identify and develop mining projects in China, Africa and elsewhere.
This marks a positive and differentiating feature of Anglo`s engagement with
China.
As for the M&A activity in the sector, I have been asked many times in the last
several months about how Anglo sees itself in an environment of industry
consolidation. Well, I can tell you that we are not sitting idle. We are being
fleet-footed and are expediting our project pipeline in order to capitalise on
the attractive near- and longer-term pricing environment. And we continue to
make targeted, value-enhancing acquisitions that are complementary to our
existing portfolio and in line with our growth strategy as a focused mining
company.
We will pursue all acquisitive growth opportunities that we believe make sense
for Anglo, and we are working to ensure that we are maximising Anglo`s value to
our shareholders.
Outlook
Turning to the outlook, we remain very positive on copper, bulk commodities,
especially iron ore and metallurgical coal, and for platinum group metals. Over
the next 10 years, we anticipate strong demand growth of 4 to 5% compounded
annually for most key commodities - driven mainly by China, as well as by India
and other developing countries. This is likely to be bolstered by higher than
historical real prices, tight supply and robust demand growth.
Tempering that, however, is the continuation of high cost inputs in the form of
energy, fuel and consumables, combined with rising capital costs and critical
staff shortages. Added to these, there are problems relating to assurance of
electricity supply - most critically in South Africa, where we are working with
Eskom and the government to implement solutions - but also potentially in Chile
and Brazil.
Conclusion
In conclusion, we are looking beyond the recent significant restructuring with a
focus on driving value through both performance optimisation and growth. In
addition, we are continuing to strengthen and refocus the management team, with
the recent appointments of Ian Cockerill from Gold Fields to become CEO of Anglo
Coal, Kuseni Dlamini as Head of Anglo South Africa and Russell King as Chief
Strategy Officer.
Anglo American is strongly positioned with our unique portfolio of assets. We
have the best resources in the world in platinum, while De Beers remains the
paramount name in diamonds. We are building strong positions in base metals,
iron ore and coal - with all businesses poised to deliver significant value
creation from existing operations and expansion projects, complemented by M&A.
Our mines have among the longest lives in the industry, and our overall cost
position continues to improve.
And, not to be biased...I think we have amongst the best people in the world
with diverse backgrounds and deep expertise. Their ability to deal at times
with unforeseen developments is second to none.
By bringing the Group together under one umbrella and creating a `One Anglo`
culture, we are extracting the maximum value from each and every part of the
business.
These are truly exciting times for Anglo American and for our sector and I look
forward to another successful year.
Thank you.
Date: 15/04/2008 14:15:01 Produced by the JSE SENS Department.
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