| Tue 20 Mar 2012, 7:20 | | AGL - Anglo American plc - Annual Financial Report & Notice of Meeting 2012 |
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AGL
ANAAL
AGL - Anglo American plc - Annual Financial Report & Notice of Meeting 2012
Anglo American plc ("the Company")
Incorporated in the United Kingdom
(Registration number: 3564138)
Short name: Anglo
Share code: AGL
ISIN number: GB00B1XZS820
Annual Financial Report & Notice of Meeting 2012
Following release on 17 February 2012 of its preliminary results for the fourth
quarter and year to 31 December 2011 (the Preliminary Announcement), the Company
announced on Friday 16 March 2012, the availability of the Company`s Annual
Report 2011 and Notice of Annual General Meeting 2012.
In accordance with the FSA`s Disclosure and Transparency Rules, additional
information, including certain information in the Anglo American plc Annual
Financial Report for year ended 31 December 2011 (the Annual Report) is set out
in this announcement.
Additional Information
The Preliminary Announcement includes a condensed set of financial statements.
Audited financial statements for 2011 are contained in the Annual Report. The
Independent auditor`s report on the consolidated financial statements is set out
in full on page 125 of the Annual Report. The Independent auditor`s report was
unqualified and does not contain any statements under section 498(2) or section
498(3) of the Companies Act 2006
The following information is extracted from the Annual Report (page references
are to pages in the Annual Report):
1. Risk (pages 49 to 53)
"Commodity prices
Commodity prices for all products that Anglo American produces are subject to
wide fluctuation.
Impact: Commodity price volatility can result in material and adverse movement
in the Group`s operating results, asset values, revenues and cash flows. Falling
commodity prices could prevent the Group from completing certain transactions
that are important to its business and which may have an adverse affect on its
financial position - e.g. inability to sell assets at values or within timelines
expected. If commodity prices remain weak for a sustained period, the ability of
the Group to deliver growth in future years may be adversely affected as growth
projects may not be viable at lower prices.
Root cause: Commodity prices are determined primarily by international markets
and global supply and demand. The demand for commodities will largely be
determined by the strength of the global economic environment.
Mitigation: The diversified nature of the commodities that Anglo American
produces provides some protection to this risk, and the policy of the Group is
not to engage in commodity price hedging. The Group constantly monitors the
markets in which it operates and reviews capital expenditure programmes to
ensure supply of product reflects forecast market conditions.
Liquidity risk
The Group is exposed to liquidity risk in terms of being able to fund operations
and growth.
Impact: If the Group is unable to obtain sufficient credit due to capital market
conditions, it may not be able to raise sufficient funds to develop new
projects, fund acquisitions or meet its ongoing financing needs. As a result,
revenues, operating results, cash flows or financial position may be adversely
affected.
Root cause: Liquidity risk arises from uncertainty or volatility in the capital
or credit markets due to perceived weaknesses of the global economic environment
or possibly as a response to shock events. Liquidity risk also arises when
lenders are insecure about the long term cash generative capacity of the Group.
Mitigation: The Group has an experienced Treasury team who are responsible for
ensuring that there are sufficient committed loan facilities in place to meet
short term business requirements after taking into account cash flows from
operations and holdings of cash, as well as any Group distribution restrictions
which exist. The Group limits exposure on liquid funds through a policy of
minimum counterparty credit ratings, daily counterparty settlement limits and
exposure diversification.
Counterparty risk
The Group is exposed to counterparty risk from customers, certain suppliers and
holders of cash.
Impact: Financial losses may arise should those counterparties become unable to
meet their obligations to the Group.
Root cause: Severe economic conditions or shock events as experienced in recent
years can have a major impact on the ability of financial institutions and other
counterparties that the Group has relationships with to meet their obligations.
Mitigation: The Group Treasury team is responsible for managing counterparty
risk with banks where Anglo American places cash deposits. However, the Treasury
operations of joint ventures and associates are independently managed and may
expose the Group to financial risks.
For other counterparty risks the Group`s businesses have in place credit
management procedures.
Currency risk
The Group is exposed to currency risk where transactions are not conducted in US
dollars.
Impact: Fluctuations in the exchange rates of the most important currencies
influencing operating costs and asset valuations (the South African rand,
Chilean peso, Brazilian real, Australian dollar, and pound sterling) may
adversely affect financial results to a material extent.
Root cause: The global nature of the Group`s businesses exposes the Group to
currency risk.
Mitigation: Given the diversified nature of the Group, the Group`s policy is
generally not to hedge currency risk. Mitigation in the form of foreign exchange
hedging is limited to debt instruments and capital expenditure on major
projects.
Inflation
The Group is exposed to potentially higher rates of inflation in the countries
in which it operates.
Impact: Higher rates of inflation may increase future operational costs if there
is no concurrent depreciation of the local currency against the US dollar, or an
increase in the dollar price of the applicable commodity.
This may have a negative impact on profit margins and financial results.
Root cause: Cost inflation in the mining sector is more apparent during periods
of high commodity prices as demand for input goods and services can exceed
supply.
Mitigation: The Group manages costs very closely through its asset optimisation
and supply chain initiatives and, where necessary, through making efficiencies
in employee and contractor numbers.
Health and safety
Failure to maintain the high levels of safety management can result in harm to
the Group`s employees, contractors, communities near our operations and damage
to the environment.
Occupational health risks to employees and contractors include noise-induced
hearing loss, occupational lung diseases and tuberculosis.
HIV/AIDS in sub-Saharan Africa in particular is a threat to economic growth and
development.
Impact: In addition to injury, health and environmental damage, impacts could
include fines and penalties, liability to employees or third parties, impairment
of the Group`s reputation, industrial action or inability to attract and retain
skilled employees. Government authorities may force closure of mines on a
temporary or permanent basis or refuse mining right applications.
The recruitment and retention of skilled people required to meet growth
aspirations can be impacted by high rates of HIV/AIDS.
Root cause: Mining is a hazardous industry and working conditions such as
weather, altitude and temperature can add to the inherent dangers of mining,
whether underground or in open pit mines.
Mitigation: Anglo American sets a very high priority on safety and health
matters. A safety risk management process, global standards and a safety and
environment assurance programme form part of a consistently applied robust
approach to mitigating safety risk.
Anglo American provides anti-retroviral therapy to employees with HIV/AIDS and
undertakes education and awareness programmes to help prevent infection or
spread of infection.
Environment
Certain of the Group`s operations create environmental risk in the form of dust,
noise or leakage of polluting substances from site operations and uncontrolled
breaches of tailings dam facilities, generating harm to the Group`s employees,
contractors, the communities near the Group`s operations, air quality, water
purity and land contamination.
Impact: Potential impacts include fines and penalties, statutory liability for
environmental remediation and other financial consequences that may be
significant.
Governments may force closure of mines on a temporary or permanent basis or
refuse future mining right applications.
Root cause: The mining process, including blasting and processing orebodies, can
generate dust and noise and will require the storage of waste materials in
liquid form.
Mitigation: The Group implements a number of initiatives to monitor and limit
the impact of its operations on the environment.
Exploration
Exploration and development are costly activities, with no guarantee of success,
but are necessary for future growth.
Impact: Failure to discover new Mineral Resources of sufficient magnitude could
adversely affect future results and the Group`s financial condition.
Root cause: Exploration and development are speculative activities and often
take place in challenging or remote locations from a climate, altitude or
political perspective.
Mitigation: The Group invests considerable sums each year in focused exploration
programmes to enable resource discovery and development to reserves. This
investment includes the use of leading technology in exploration activity.
Political, legal and regulatory
The Group`s businesses may be affected by political or regulatory developments
in any of the countries and jurisdictions in which the Group operates, including
changes to fiscal regimes or other regulatory regimes.
Impact: Potential impacts include restrictions on the export of currency,
expropriation of assets, imposition of royalties or other taxes targeted at
mining companies, and requirements for local ownership or beneficiation.
Political instability can also result in civil unrest, nullification of existing
agreements, mining permits or leases.
Any of these may adversely affect the Group`s operations or results of those
operations.
Root cause: The Group has no control over local political acts or changes in
local tax rates. It recognises that its licence to operate through mining rights
is dependent on a number of factors, including compliance with regulations.
Mitigation: The Group actively monitors regulatory and political developments on
a continuous basis.
Climate change
The Group`s operations are exposed to changes in climate and the need to comply
with changes in the regulatory environment aimed at reducing the effects of
climate change.
Impact: Potential impacts from climate change are difficult to assess and will
depend on the circumstances at individual sites, but could include increased
rainfall, flooding, water shortages and higher average temperatures. These may
increase costs, reduce production levels or impact the results of operations.
Policy developments at an international, national and sub-national level,
including those related to the 1997 Kyoto Protocol and subsequent international
agreements and emissions trading schemes, could adversely affect the
profitability of the Group. Regulatory measures may affect energy prices, demand
or the margins achieved for carbon intensive products such as coal.
Root cause: The Group is a significant user of energy and one of the key
commodities it produces is coal.
Mitigation: In addition to the initiatives to monitor and limit the impact of
operations on the environment, the Group continuously seeks to reduce energy
input levels into its operations. The asset optimisation programme seeks to make
operations more energy efficient.
Supply risk
The inability to obtain key consumables, raw materials, mining and processing
equipment in a timely manner.
Impact: Any interruption to the Group`s supplies or increases in costs adversely
affects the Group`s financial position and future performance.
Root cause: During strong commodity cycles, increased demand can be experienced
for such supplies, resulting in periods when supplies are not always available
to meet demand.
Anglo American has limited influence over manufacturers and suppliers.
Mitigation: The Group takes a proactive approach to developing relationships
with critical suppliers and improving the effectiveness of the Group`s
purchasing leverage.
Ore Reserves and Mineral Resources
The Group`s Ore Reserves and Mineral Resources estimates are subject to a number
of assumptions which may be incorrect.
Impact: Deviations from the estimated price of commodities, production costs and
mining and processing recovery rates may have an impact on the financial
condition and prospects of the Group.
Root cause: All assumptions related to Ore Reserves and Mineral Resources are
long term in nature and are subject to volatility owing to economic, regulatory
or political influences.
Mitigation: The Group is experienced in managing Ore Reserves and Mineral
Resources and has robust procedures in place to reduce the likelihood of
significant variation. All factors are consistently monitored by management.
Operational performance and project delivery
Failure to meet production targets or project delivery timetables and budgets.
Impact: Increased unit costs may arise from failure to meet production targets
affecting the results of operations and financial performance. Failure to meet
project delivery timetables and budgets may affect operational performance,
delay cash inflows, increase capital costs and reduce profitability, as well as
have a negative impact on the Group`s reputation.
Root cause: Increasing regulatory, environmental, access and social approvals
can increase construction costs and introduce delays.
Operational performance can be affected by technical and engineering factors as
well as events or circumstances impacting other critical inputs to the mining
and processing of minerals.
Mitigation: Management oversight of operating performance and project delivery
through regular executive management briefings, a continuous focus on
improvement of operations through the asset optimisation programme, and
consistent application of the Group`s methodology for new projects are key to
managing this risk.
Event risk
Damage to physical assets from fire, explosion, natural catastrophe or breakdown
of critical machinery.
Impact: The direct costs of repair or replacement combined with business
interruption losses can result in financial losses.
Root cause: Some of the Group`s operations are located in areas exposed to
natural catastrophe such as earthquake/extreme weather conditions. The impact of
climate change may intensify the severity of weather events.
The nature of the Group`s operations exposes it to failure of mining pit slopes
and tailings dam walls, fire, explosion and breakdown of critical machinery,
with long lead times for replacement.
Mitigation: Specialist consultants are engaged to analyse such event risks on a
rotational basis and provide recommendations for management action to prevent or
limit the effects of such a loss.
Contingency plans are developed within the Group to respond to significant
events and recover normal levels of business activity.
The Group purchases insurance to protect itself against the financial
consequences of an event, subject to availability and cost.
Employees
The ability to recruit, develop and retain appropriate skills for the Group.
A risk of strike or other industrial relations disputes may occur.
Impact: Failure to retain skilled employees or to recruit new staff may lead to
increased costs, interruptions to existing operations and delay in new projects.
Industrial disputes may have an adverse effect on production levels, costs and
the results of operations.
Root cause: The Group is subject to global competition for skilled labour. The
location of the Group`s assets and development projects can be remote or in
countries where it is challenging to recruit suitably skilled employees.
Employees in the key countries where the Group operates are unionised.
Negotiations over wage levels or working conditions can sometimes fail to result
in agreement.
Mitigation: Anglo American`s objective is to be the Employer of Choice in the
mining sector. A comprehensive Human Resources strategy has been devised to
support that objective, focused on the attraction, retention and development of
talented employees and the effective deployment of talent across the Group. The
Group seeks constructive relationships and dialogue with trade unions and
employees in all its businesses.
Contractors
Inability to employ the services of contractors to meet business needs or at
expected cost levels.
Impact: Disruption of operations or increased costs may arise if key contractors
are not available to meet production needs. Delays in start-up of new projects
may also occur.
Root cause: Mining contractors are used at a number of the Group`s operations to
develop mining projects, mine and deliver ore to processing plants. In periods
of high commodity prices, demand for contractors may exceed supply.
Mitigation: Effective planning and establishment of effective working
relationships with key contractors are utilised to mitigate this risk.
Business integrity
Failure to prevent acts of fraud, bribery, corruption or anti-competitive
behaviour.
Impact: Potential impacts include prosecution, fines, penalties and reputation
damage.
The Group may suffer financial loss if it is the victim of a fraudulent act.
Root cause: In certain countries where the Group operates the risk of corruption
is high, as indicated by indices prepared by independent non-governmental
organisations (NGOs).
Mitigation: The Group has very clear principles on the manner in which it
conducts its business and expects all employees to act in accordance with its
values. Policies and awareness programmes are in place to ensure consistent
understanding of the Group`s expectations.
The Group`s internal control environment is designed to prevent fraud and is
regularly reviewed by an internal audit team to provide assurance that controls
are designed and operating effectively.
Joint ventures
Failure to achieve expected standards of health, safety and environment
performance in joint ventures.
Impact: If similar standards are not implemented in joint ventures, higher costs
or lower production may result and have a bearing on operational results, asset
values or the Group`s reputation.
Root cause: Some of the Group`s operations are controlled and managed by joint
venture partners, associates or by other companies. Management of non-controlled
assets may not comply with the Group`s standards.
Mitigation: The Group seeks to mitigate this risk by way of a thorough
evaluation process before commitment to any joint venture and implementation of
ongoing governance processes in existing joint ventures.
Acquisitions and divestments
Failure to achieve expected benefits from any acquisition or value from assets
or businesses sold.
Impact: Failing to deliver expected acquisitions can result in adverse financial
performance, lower production volumes or problems with product quality. The
Group could find itself liable for past acts or omissions of the acquired
business without any adequate right of redress.
Failure to achieve expected values from the sale of assets or delivery beyond
expected receipt of funds may result in higher debt levels, underperformance of
those businesses and possible loss of key personnel.
Root cause: Benefits may not be achieved as a result of changing or incorrect
assumptions or materially different market conditions or deficiencies in the due
diligence process.
Delays in the sale of assets or reductions in value may arise due to changing
market conditions.
Mitigation: Rigorous guidelines are applied to the evaluation and execution of
all acquisitions that require the approval of the Investment Committee and Group
Management Committee and, subject to size, the Board.
Infrastructure
Inability to obtain adequate supporting facilities, services and installations
(water, power, road, rail and port, etc.).
Impact: Failure to obtain supporting facilities may affect the sustainability
and growth of the business, leading to loss of competitiveness, market share and
reputation.
Failure of rail or port facilities may result in delays and increased costs as
well as lost revenue and reputation with customers. Failure to procure shipping
costs at competitive market rates may reduce profit margins.
Root cause: The potential disruption of ongoing generation and supply of power
is a risk faced by the Group in a number of countries in which it operates. The
Group`s operations and projects can be located in countries or regions where
power and water supplies are not certain and may be affected by population
growth, the effects of climate change or lack of investment by owners of
infrastructure.
The Group relies upon effective rail and port facilities for its products and
will be expected to provide shipment of product in some circumstances to
customers` premises. The Group relies on third parties to provide these
services.
Mitigation: The Group seeks to work closely with suppliers of infrastructure to
mitigate the risk of failure and has established contingency arrangements. Long
term agreements with suppliers are sought where appropriate.
Community relations
Disputes with communities may arise from time to time.
Impact: Failure to manage relationships with local communities, government and
NGOs may disrupt operations and adversely affect the Group`s reputation as well
as its ability to bring projects into production.
Root cause: The Group operates in several countries where ownership of rights in
respect of land and resources is uncertain and where disputes in relation to
ownership or other community matters may arise.
The Group`s operations can have an impact on local communities including the
need, from time to time, to relocate communities or infrastructure networks such
as railways and utility services.
Mitigation: The Group has developed comprehensive processes to enable its
business units to effectively manage relationships with communities and actively
seeks engagement with all communities impacted by the Group`s operations."
2. Statement of directors` responsibilities (page 122)
"The directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law the directors are required to prepare the Group
financial statements in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS
Regulation and have elected to prepare the parent company financial statements
in accordance with United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law). Under company law the
directors must not approve the accounts unless they are satisfied that they give
a true and fair view of the state of affairs of the company and of the profit or
loss of the company for that period. In preparing the parent company financial
statements, the directors are required to:
select suitable accounting policies and then apply them consistently
make judgements and accounting estimates that are reasonable and prudent
state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the financial
statements
prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
In preparing the Group financial statements, International Accounting Standard 1
requires that directors:
properly select and apply accounting policies
present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable
information
provide additional disclosures when compliance with the specific
requirements in IFRSs is insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the
entity`s financial position and financial performance
make an assessment of the Company`s ability to continue as a going concern.
The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company`s transactions and disclose with
reasonable accuracy at any time the financial position of the Company and enable
them to ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and other
irregularities. The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the company`s website.
Legislation in the United Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions."
3. Responsibility statement for the year ended 31 December 2011 (page 124)
"We confirm that to the best of our knowledge:
(a) the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit of Anglo American plc and the undertakings
included in the consolidation taken as a whole; and
(b) the Operating and financial review includes a fair review of the development
and performance of the business and the position of Anglo
American plc and the undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and uncertainties that
they face.
By order of the Board
Cynthia Carroll Chief Executive
Rene Medori Finance Director"
The report of the auditors on the statutory accounts for the year ended 31
December 2011 has been delivered and is unqualified.
Nicholas Jordan
Company Secretary
Anglo American plc
Tuesday 20 March 2012
Sponsor: UBS South Africa (Pty) Ltd
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