| Wed 15 Apr 2009, 15:45 | | AGL - Anglo American plc - Annual General Meeting: Address to |
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AGL
ANAAL
AGL - Anglo American plc - Annual General Meeting: 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")
Annual General Meeting: Address to shareholders by the Chairman and
Chief Executive
At Anglo American plc`s Annual General Meeting for shareholders in
London today, Sir Mark Moody-Stuart, Chairman, and Cynthia Carroll,
Chief Executive, made the following remarks:
Sir Mark Moody-Stuart, Chairman, Anglo American plc:
Good morning ladies and gentlemen and welcome to the Anglo American
Annual General Meeting. Notice of the meeting was dispatched to
shareholders on 11 March and there is a quorum present. I therefore
declare the meeting to be duly constituted. May I present an
apology from David Challen who is unable to join us today through
illness.
We meet to provide you with reports on the management and
performance of your company during 2008 - a year of unprecedented
economic dislocation and instability. Overall, during the year,
the company produced a very strong financial performance with
operating profit from core operations climbing 10% to $9.8 billion.
Underlying earnings stood at $5.2 billion and earnings per share
were down by only four cents to $4.36.
These figures mask, however, the extraordinary pattern of events
which unfolded during the year so that, after a strong performance
in the first seven months, most commodity prices fell
precipitously. From their high points in the first half of the
year, the price of platinum had fallen by 59% by the end of the
year; copper by 65% and nickel by 69% - as the banking system came
close to collapse, confidence and credit drained from the system
and global financial markets went into free fall.
We have continued to see that, although some emerging market
economies are doing less badly than others, the spread of
globalisation over the last two decades, means that the world is
far more inter-connected than ever before. Thus, the recession is
being felt even in those countries that have pursued orthodox macro-
economic policies and whose regulatory systems have not failed.
Sadly, from the point of view of the industry, the hypothesis that
there would be a decoupling as between the new and old world
economies` has proven to be largely wrong.
Against a background of great uncertainty about the length and
depth of the recession, your Board took the difficult decision to
recommend that no dividend should be paid. This was done with the
greatest reluctance and with a full understanding of the
difficulties which our decision may cause for many individual and
institutional investors. We entered the recession with a strong
balance sheet and with what had been thought of by many, at the
height of the boom, as a relatively conservative level of
borrowing. However, in the current context, $11 billion of
borrowing represents a significant sum. We believe it to be
sustainable, against a background of halving our capital
expenditure this year and aggressive targets for savings from
procurement and asset optimisation programmes. Recently, we have
further underpinned our position through the sale of the last
tranche of our stake in AngloGold Ashanti and a new bond issue.
However, the Board took the view that, in current conditions, cash
preservation was paramount in order to maintain the maximum degree
of flexibility. We have a strong, long-term business and we have
taken difficult decisions intended to position the business for the
upturn when it arrives. The Chief Executive will give a fuller
account of these issues in her report.
I should, at this juncture, however, note that a number of actions
and programmes put in train by the executive, under Cynthia`s
leadership, have proven to be far-sighted. Although the company
became more acquisitive during 2007 and in the first half of 2008
than hitherto, the largest acquisition we made was that of Minas-
Rio for US$7 billion which forms the latest step in a long-term
strategy to build a significant iron ore business. Moreover,
Cynthia brought to the company a new determination to get Anglo
working as a team - as One Anglo - to realise synergies and to
share services together with a new, Value Based Management
analytical framework. Thus when the downturn arrived we had value
creating programmes on procurement, shared services and asset
optimisation already gaining momentum.
Let me place on record the thanks of myself and the Board to our
employees for their hard work. During the year, the priorities for
most of our businesses altered radically; moving from wrestling
with the need to expand production to the current focus on asset
optimisation and cash conservation. I recognise the very
considerable strain that this has imposed upon our people. It was,
therefore, with considerable regret that, in February, we announced
the need to reduce our workforce - of employees and contractors -
by some 19,000 people.
During 2008, we saw encouraging progress on safety with a reduction
of almost one third in our fatalities from 40 in 2007 to 27 last
year. This is, of course, still far too high a figure and we will
continue to focus on the goal of zero harm. I believe, however,
that great credit is due to Cynthia for the leadership, courage and
commitment she has shown in challenging entrenched attitudes
towards safety - not only in Anglo but in the mining industry in
general. We had over many years been strengthening our safety
systems and technical fixes like reducing fatalities from falls of
ground, but Cynthia has reinforced the importance of visible felt
leadership and this is now very evident at our mines. I also
believe that excellent work has emerged from the tripartite process
set in train in South Africa between ourselves, the government and
the trade unions.
Over the last 15 months, I have visited Anglo American activities
in the Philippines, Peru, Brazil, South Africa, China and Alaska.
In each case I have been impressed by the work that I have seen and
by the commitment of our local teams to `do the right thing`. In
Peru, for example, at our Michiquillay project, our team obtained
their social licence to explore from the two local communities, in
a context in which State representatives had been unable to make
such progress over many years. Through their commitment to
engagement, trust-building activities and small-scale economic
development projects, our team secured the strong endorsement of
both communities. We will seek to ensure that we deserve their
trust.
Last month I spent some time in Alaska meeting the team responsible
for the potential development of the Pebble mine - one of our joint
venture partnerships - and local stakeholders. The project has
been controversial and I wanted to understand why. The project is
in an area long zoned by the State government for mining
development. It is, however, close to three streams located in the
headwaters of the extensive Bristol Bay watershed, which is well
known for its rich salmon fisher. I understand the fears and
passions which have been stirred and recognise the cultural and
commercial importance of the salmon. But I believe that many of
these fears are based on the false assumption that this is a choice
between mining and fishing. I am confident that the two can co-
exist. We have made it clear that the project will work on the
basis of world-class scientific and engineering skills and that we
will use inclusive and innovative stakeholder engagement. Our
bottom line is that, if the project cannot be built in a way that
avoids damage to Alaska`s fisheries and wildlife or to the
livelihoods of Alaskan communities, it should not be built. It is
on that basis that we will continue to evaluate the project in
compliance with the prescribed regulatory processes in Alaska.
But, we will do so with a mindset that goes well beyond compliance.
This leads to a more general point about your company and the
industry in which we work. The focus that we have created in
recent years on sustainable development is not a discretionary
activity. We have to be selective about what we do in every aspect
of our business. However, just because there is a recession we
will not find that climate change reverses itself, that there is
more water available in water stressed areas, that the level of
HIV/AIDS infection goes down or that poverty becomes less of an
issue for some of the countries where we work. All these issues
ultimately impact upon our business and upon our role in society.
That is why the Board is quite clear that these issues are core to
our business and must be managed as such.
Gaining and maintaining the support of the communities where we
work is essential. One of the ways in which we do this is through
our enterprise development activities. Especially in South Africa
and Chile, these are now generating over 13,000 jobs in independent
and sustainable small and medium size businesses. Our activities
increased substantially during 2008 through the creation of eleven
new small business hubs in mining communities in South Africa. In
2009 we will be adding three new hubs in communities which, over
many years, have provided labour for the mining industry. We are
also creating a new small business initiative in Brazil, to be
delivered in partnership with our NGO development partner, CARE
International.
Finally, I thank my Board colleagues for their work. We are making
some changes today to our Committees. Sir C.K. Chow and Peter
Woicke will join the Remuneration Committee and Chris Fay will step
down from it. Peter Woicke will leave the Audit Committee. In
relation to the Nominations Committee, Nicky Oppenheimer and Sir
Rob Margetts will step down; Sir C.K. Chow will join it and I will
take over as Chairman.
I had originally intended to step down as Chairman of the Board
during 2008 but I was asked to stay on whilst the global economy
stabilised. We do, however, intend to identify my successor over
the next 12 months. As part of the process of refreshing the
Board`s membership, although two long-serving members, Sir Rob
Margetts and Dr Chris Fay, are standing for re-election today; they
will be standing down in due course as and when we add new members
to the Board. I would like to pay tribute to them both. Rob has
served as our senior independent director and has contributed
greatly to the evolution of our remuneration policies. Chris has
chaired our safety and sustainable development Board Committee
since its inception and has brought great experience and commitment
to bear in holding executives to account on safety issues.
I will now ask the Chief Executive to address us.
Cynthia Carroll, Chief Executive, Anglo American plc:
Thank you, Sir Mark - I too would like to welcome all of you here
today.
You will all by now have seen our results which we announced in
February and our annual report, so I do not intend to dwell on our
2008 performance. 2008 saw a year of solid results for the Group,
with particularly strong performances from coal, especially in
Australia, iron ore and manganese. This year, in contrast, will be
very different, against the background of the downturn in commodity
prices and demand that began during the second half of last year.
I would first like to focus on the series of measures we have taken
both to weather the current market conditions and to position Anglo
American optimally for the upturn in the cycle.
I will also talk about the progress we are making with the
development of our pipeline of world class strategic growth
projects as we invest through the cycle in readiness for economic
recovery and long term value creation. I will then look at the
tremendous progress we are making with our safety practices and
some of the awards we have received for our leadership in the field
of sustainable development, before concluding with the outlook.
We have taken decisive action to position Anglo both financially
and operationally on the basis of our outlook for the economic
conditions that we will face, while preserving our significant
growth options.
- Capital expenditure - we have reduced capital expenditure by
more than 50% to $4.5 billion. But I want to emphasise that we have
preserved our major strategic projects. We have reduced capex to a
level which ensures their continued development, without
jeopardising their investment cases. I will say more about these
projects in a few moments.
- Production cutbacks - we have scaled back production growth in
line with anticipated reduced demand, particularly for platinum,
metallurgical coal and diamonds.
- Headcount - we are in the process of reducing our headcount
worldwide by some 19,000 people. This is a big number - it is a
global figure, encompassing all our businesses, as well as the
corporate offices. The bulk of it is accounted for by a downsizing
in contractor numbers in line with our revised production and
project plans, supplemented by natural attrition.
- Further disposals of non-core assets - we have continued with
our programme of disposing of assets that are not core to the
future of Anglo. Just last month marked our exit from our
investment in AngloGold Ashanti as we maximised the value of that
holding by selling at a strong price. Since the start of this year
we have realised proceeds in excess of $1.7 billion from the sale
of that residual shareholding, thereby reducing the Group`s net
debt position. During 2008, we disposed of the Group`s investment
in China Shenhua Energy, Tarmac Iberia, Namakwa Sands and a 26%
interest in both Black Mountain and Gamsberg, generating total
proceeds in excess of $1.2 billion.
- Suspension of dividend - our decision to suspend dividend
payments was a difficult one. Notwithstanding the measures we had
taken to safeguard the flexibility of our balance sheet in order to
preserve the Group`s growth options, the Board felt that the
dividend should be suspended. I am fully aware of the pain this can
cause to our shareholders, but I firmly believe that it is in the
long term interests of the company that we preserve cash at this
time and ensure that we are well positioned to emerge from this
downturn.
- Liquidity - finally, in terms of liquidity, you will also have
seen that just two weeks ago we launched a highly successful $2
billion bond, for which there was extremely strong demand from
investors in both North America and Europe. Also since we reported
our full year results, we have secured a $1 billion loan from the
Brazilian development bank, BNDES, for the Minas-Rio iron ore
project in Brazil.
This series of measures taken over the last few months provides us
with enhanced financial flexibility and we are therefore strongly
positioned for the long term to deliver significant shareholder
value through our existing operations and our well funded growth
pipeline.
Anglo American`s world-class strategic growth prospects
I have talked about the importance of continuing the development of
our key strategic growth projects, albeit on revised schedules.
Anglo American has one of the strongest and highest quality project
pipelines in world mining, focused on the most attractive commodity
segments of seaborne iron ore, copper and nickel, with projects
approved or already under way totalling some $16 billion. These
projects are a key driver of future value creation for you, our
shareholders.
- All of our projects - including the `Big 3` of Minas-Rio in
iron ore, the Los Bronces expansion in copper and Barro Alto in
nickel - are extremely well placed on their industry cost curves.
- Our projects have the great benefits of large scale and long
life: an average life of more than 40 years, against an industry
average of well under half that.
- Finally, many of our projects are structured in such a way as
to provide us with a high degree of optionality in terms of
development and payment timing, giving the Group the breadth and
flexibility to adjust quickly to changes in demand.
As I have said, we are continuing to invest in and develop our
strategic growth projects through the cycle and I will now spend a
few moments on each of our three largest projects.
Minas-Rio - firstly, Minas-Rio, our world class iron ore project in
Brazil. The project is a large scale, low cost asset in the highly
attractive seaborne iron ore segment and it benefits from an
integrated logistics system, namely a pipeline to transport the
iron ore in slurry form from the mine to a port that we are
building with our partners at Acu. This was a unique opportunity to
acquire a tier 1 iron ore asset in terms of scale, cost and quality
in an industry that is highly consolidated, with formidable
barriers to entry. When the first phase begins production in the
first half of 2012, it is expected to be in the first quartile of
the iron ore cost curve and will be highly competitive in terms of
product quality. As an example of how we have expanded the
potential of this asset, the resource base was originally estimated
at around 300 million tonnes. Anglo`s technical teams have now
revised that to more than 1 billion tonnes, with potential of up to
7 billion tonnes. This is simply an enormous, high quality asset
and it will play a significant role in the future growth of your
company.
Barro Alto - secondly, Barro Alto, our 36,000 tonnes per annum
nickel project, also in Brazil. Again, this is a large scale, low
cost, long life project that is expected to have cash costs in the
lower half of the nickel industry cost curve. When Barro Alto
reaches full production in 2012, it will more than double Anglo
American`s current nickel production.
Los Bronces - thirdly, we have Los Bronces, our existing 236,000
tonnes per annum copper mine in Chile, which we are in the process
of expanding. Production from Los Bronces in the first 10 years of
operation of the project will increase by more than by 170,000
tonnes per annum, a 70% increase over current production levels,
making it the world`s 6th largest copper mine. The Los Bronces mine
is already in the first quartile in terms of its costs relative to
the copper industry and, when the production from the expansion
comes on stream at the end of 2011, the increase in cost-advantaged
production will further enhance Anglo American`s overall position
on the cost curve.
These three projects are perfect examples of the quality of
operations and projects in our portfolio; low cost, long life, in
the right commodities and in countries we know well - and which
will enable us to leverage our highly valuable relationships with
host governments and other local stakeholders.
Delivering operational excellence
Turning for a moment to the excellent progress we have made to
uplift our performance across the existing operations: our three
cost saving and efficiency initiatives that we started to put in
place almost two years ago - before the onset of the current
downturn - are already making an important contribution to our
financial and operating performance.
The asset optimisation programme has been rolled out across the
Group and is expected to contribute $1 billion to operating profit
by 2011. This global programme is driving greater operational
efficiencies to achieve best in class performance as we continue to
drive down costs at our operations, placing Anglo in an ever more
robust position to withstand periods of low commodity prices.
In addition, our global procurement and shared-services initiatives
have already delivered an initial $200 million of savings in 2008
and are on track to achieve savings of $1 billion, also by 2011.
Safety
In terms of safety, 2008 was a much-improved year for Anglo
American: the number of fatal incidents in the workplace reduced
from 40 the previous year to 27, while our lost-time injury, or
LTI, frequency rate declined by 17 per cent.
This level of fatal injuries - even in an industry with all the
hazards of deep-level mining - remains unacceptable, but the
figures continue to trend downwards in our ultimate pursuit of
`zero harm`.
Just to take three examples: during 2008, Kumba Iron Ore roughly
halved its LTI frequency rate, our Australian coal operations
lowered their LTI frequency rate by 40%, while Anglo Platinum`s
Union Mine achieved 6 million fatality-free shifts. I am pleased to
say that our overall LTI performance in the first three months of
this year has also continued to trend in the right direction.
In 2008, Anglo American was the key driver behind the Tripartite
Safety Summit in South Africa, which brought together
representatives from government, the trades unions and the mining
industry to seek ways to bring about a sustained improvement in
safety performance in the country`s mining industry.
While it would be simplistic to attribute the safety progress that
is being made to the summit, it is most encouraging to see that the
number of people who lost their lives in the South African mining
industry declined by almost a quarter in 2008 in comparison with
2007.
Sustainable development
In the wider developmental context, a key message I wish to convey
is that Anglo American continues to progress its sustainable
development agenda. Sustainable development is embedded into our
culture and is integral to the way we do business.
In this respect, I should like to refer to a number of awards we
have received recently that signal our intention to continue to
exert leadership in our sector:
- At the inaugural Commonwealth Business Council-Africa Business
Awards, held in London in July, we were judged the leader in 3
categories: best international business in Africa; biggest
contribution to the Millennium Development Goals; and gender
sensitivity;
- In Chile, our Emerge small business initiative achieved
recognition once again for its contribution to community
development when it was awarded the Chilean-North American Chamber
of Commerce`s Good Corporate Citizenship prize in October -
following the achievement of the Presidential Bicentennial Award
the previous year;
- Anglo Platinum received two top honours at the annual Ernst &
Young Excellence in Sustainability Reporting Awards for 2008.
- In Brazil, Base Metals won top prize in the country`s
environmental benchmark awards in 2008 for its socio-environmental
projects within various communities surrounding its operations;
- Here in the UK, Tarmac was awarded the Wildlife Trust`s
Biodiversity Benchmark for the work undertaken at all seven of its
active Northumberland quarries - the largest number of sites ever
recognised for combined excellence; and
- In South Africa, Our Chairman`s Fund was voted the best
corporate grantmaker in the Trialogue CSI Handbook survey for the
eighth consecutive year. That is some achievement.
Outlook
In summary, commodity markets have experienced a turbulent six
months, though prices for most commodities appear to have
stabilised more recently. Indeed, there are even signs of some
improvement, most notably in the copper price that has increased by
more than 50% from its low point reached in December. The platinum
price has also improved, moving up above $1,200 per ounce from its
lows of below $800 in October 2008, following strengthening
investment demand from exchange traded funds and supportive
incentive schemes for the purchase of new cars in Germany and
France.
Looking forward, we are confident that the medium- to long-term
fundamentals are firmly in place for strong commodity demand
growth.
We see significant value to be created by the Group`s long-life,
low-cost growth projects, several of which are well timed to enter
production in 2011, and our continued success at driving down our
operating costs will further strengthen our competitive position
through the cycle.
On the demand side, the economic recovery of the OECD member
countries and the ongoing industrialisation of the major developing
markets are expected to drive long-term demand for commodities,
stimulated by government spending programmes in many major
economies, including the US and China.
Furthermore, let us not forget the effect of the downturn on many
of the mining industry`s junior players and the resulting impact on
exploration activity, in addition to the abandonment or delays to
many major greenfield projects across some of the more established
players.
When the cycle turns, supply of many commodities is likely to be
severely constrained. By preserving our key growth projects,
uplifting the performance of our existing operations and continuing
to drive down costs, Anglo is well placed to reap the rewards of
that upswing.
Thank you.
Notes to Editors:
Anglo American plc is one of the world`s largest mining groups.
With its subsidiaries, joint ventures and associates, it is a
global leader in platinum group metals and diamonds, with
significant interests in coal, base and ferrous metals, as well as
an industrial minerals business. The Group is geographically
diverse, with operations in Africa, Europe, South and North
America, Australia and Asia. (www.angloamerican.co.uk)
15 April 2009
Sponsor: UBS South Africa (Pty) Ltd
Date: 15/04/2009 15:45:01 Produced by the JSE SENS Department.
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