2016 Annual Report - Anglo American plc

1 Anglo American PLC Annual Report 2016 Annual Report 2016 delivering change building RESILIENCEFOUNDATIONS FOR THE FUTUREINTRODUCTIONDELIVERING change building RESILIENCEFOUNDATIONS FOR THE FUTUREIn 2016, Anglo American articulated its objective of creating a more resilient business, by materially strengthening its balance sheet through sustainably improving cash flows and focusing its portfolio around its highest quality assets. delivering that objective through cost and productivity improvements, disciplined capital allocation and applying strict value thresholds to those assets that we chose to divest, and others that we considered divesting has significantly strengthened Anglo American s financial position. Upon the completion of other agreed asset sale transactions during 2017, in addition to continued material operational progress, Anglo American will be well advanced towards embedding the financial, operational and commercial resilience that will ensure the sustainable creation of value for all our stakeholders building the foundations for the the Strategic Report we use a range of financial and non-financial measures to assess our per formance.

2 A number of the financial measures, including underlying earnings, underlying EBIT, underlying EBITDA, underlying earnings per share, net debt, attributable return on capital employed (ROCE) and attributable free cash flow are not defined under IFRS, so they are termed Alternative Performance Measures (APMs). Management uses these measures to monitor the Group s financial performance alongside IFRS measures because they help illustrate the underlying financial per formance and position of the Group. We have defined and explained the purpose of each of these measures on pages 188 to 190, where we provide more detail, including reconciliations to the closest equivalent measure under APMs should be considered in addition to, and not as a substitute for, or as superior to, measures of financial per formance, financial position or cash flows repor ted in accordance with IFRS.

3 APMs are not uniformly defined by all companies, including those in the Group s industr y. Accordingly, APMs may not be comparable with similarly titled measures and disclosures by other companies. Tonnes are metric tons, Mt denotes million tonnes, kt denotes thousand tonnes and koz denotes thousand ounces; $ and dollars denote US dollars and cents denotes US images 1. In South Africa, control room operators Priscilla Tsheole (left) and Maggy Botsanara monitor the stability of operations at the North Concentrator at Mogalakwena, Anglo American s flagship platinum Process plant superintendent Terry Pinske walks up the ramp alongside the conveyor carrying diamond-bearing ore into the recently commissioned Gahcho Ku process plant, based in northern Canada. 3. Concentrate the Mine is an integrated mining systems approach pioneered by Anglo American .

4 It integrates three enabling technologies: mine-to-mill; coarse particle recovery; and the separation of ore from waste rock. Featured are maintenance foreman Pedro Andrade (left) and supplies senior administrator, Pilar M ndez at the particle recovery plant at Los Bronces copper mine in Debmarine Namibia s new diamond-sampling vessel, the SS Nujoma, is scheduled to commence operations off the Namibian coast during 2017. Featured is the vessel soon after its launch in January sources of informationYou can find this Report and additional information about Anglo American on our corporate website. Although we have chosen not to produce an integrated repor t , we have included a comprehensive overview of our non-financial performance in this Report . More detailed information on our sustainability performance is provided in our Sustainability Report .

5 This can be found on our corporate more information, visit Report 2016 delivering change building resilience WORKING IN PARTNERSHIPANNUAL Report 2016 delivering change building RESILIENCEFOUNDATIONS FOR THE FUTURE1234 CONTENTSPERFORMANCE HIGHLIGHTSGROUPPERFORMANCES trategic report02 At a glance04 Chairman s statement06 Marketplace review09 Our business model12 Chief Executive s statement16 Strategic imperative: Focus the portfolio20 Strategic imperative: Drive consistent delivery24 Strategic imperative: Develop core business processes30 Strategic imperative: Deliver a high performance culture 34 Key performance indicators36 Group financial review40 Managing risk effectively46 De Beers49 Platinum52 Copper54 Nickel, Niobium and Phosphates57 Iron Ore and Manganese61 Coal64 Corporate and otherGovernance65 Chairman s introduction66 Directors69 Executive management71 The Board in 201678 Sustainability Committee79 Nomination Committee80 Audit Committee82 Audit Committee report84 Directors remuneration report88 Remuneration Committee89 Directors remuneration policy98 Annual Report on remuneration110 Statement of directors responsibilities 110 Responsibility statementFinancial statements112 Independent auditor s report116 Primary statements120 Notes to the financial statements175 Financial statements of the parent company178 Summary by business operation179 Key financial data180 Exchange rates and commodity pricesOre Reserves and Mineral Resources182 Estimated Ore Reser ves184 Estimated Mineral

6 ResourcesOther information186 Glossary of terms188 Alternative Performance Measures191 Production statistics194 Quarterly production statistics195 Non-financial data196 The business an over view198 Directors report201 Shareholder information202 Other Anglo American publicationsATTRIBUTABLE FREE CASH FLOW $ bn2 0162 015$( ) bn$ bnNUMBER OF FATALITIES 112 0162 0155%11%GHG EMISSIONS 17. 8 Mt CO2 equivalent2 0162 MtTOTAL NEW WATER CONSUMED 191 Mm 2 0162 015222 Mm3191 Mm NET DEBT $ bn2 0162 015$ bn$ bnGROUP ATTRIBUTABLE ROCE 11% 2 0162 015611 UNDERLYING EARNINGS PER SHARE $ 0162 015$ $ (LOSS) ATTRIBUTABLE TO EQUITY SHAREHOLDERS$ bn2 0162 015$( ) bn$ bnEARNINGS PER SHARE$ 0162 015$( ) $ RECORDABLE CASE FREQUENCY RATE (TRCFR) 0162 CONSUMPTION 105 Million GJ 2 0162 015105 Million GJ106 Million GJUNDERLYING EBITDA $ 6.

7 1 bn2 0162 015$ bn$ bnOPERATING PROFIT/(LOSS)$ bn2 0162 015$( ) bn$ bn Alternative Performance Measures Words with this symbol are defined in the Alternative Performance Measures section of the Annual Report on pages DIVIDENDS PAID PER SHARE$02 0162 015$ $0 01 Strategic reportAnglo American plc Annual Report 2016 STRATEGIC Report AT A GLANCEOUR BUSINESS AT A GLANCEA nglo American is a globally diversified business. Our portfolio of world class competitive mining operations and undeveloped resources provides the raw materials to meet the growing consumer and other demands of the world s developed and maturing (1) Number of operating mining assets as at 31 December 2016. Reflects the niobium and phosphates business, Rustenburg, Foxleigh, and Callide disposals. De Beers mining assets include Orapa, Letlhakane and Damtshaa which are managed as one operation, the Orapa regime.

8 Damtshaa was placed onto temporar y care and maintenance in Januar y 2016. Namdeb includes Elizabeth Bay, Midwater, Mining Area 1 and Orange River operations.(2) With the exception of Gahcho Ku , which is on an attributable 51% BEERS$1,406 million Underlying EBITDA 23% Group EBITDA 11% ROCE 8 Mining assets(1) Mcts Production (100% basis)(2)Botswana South Africa Namibia Canada Asset locationsFor more information See page 46 PGMsPLATINUM$532 million Underlying EBITDA 9% Group EBITDA 4% ROCE 9 Mining assets(1)2,382 koz Production platinumSouth Africa Zimbabwe Asset locationsFor more information See page 49 NICKEL$57 million Underlying EBITDA 1% Group EBITDA (1)% ROCE 2 Mining assets(1) kt ProductionBrazil Asset locationsFor more information See page 54 NIOBIUM AND PHOSPHATES$118 million Underlying EBITDA 2% Group EBITDA 19% ROCE The sale of the niobium and phosphates business was completed on 30 September kt Production kt Production phosphates fertiliserBrazil Asset locationsFor more information See page 54 BULK COMMODITIES AND OTHER MINERALSCOPPERCOPPER$903 million Underlying EBITDA 15% Group EBITDA 6% ROCE 3 Mining assets(1) kt Production (attributable)Chile Asset locationsFinland (Sakatti) Peru (Quellaveco) ProjectsFor more information See page 52 Mining assets02 Anglo American plc Annual Report 2016 SOUTH AFRICAAUSTRALIASINGAPOREZIMBABWEBOTSWANA UNITED KINGDOMFINLAND12223 BRAZIL(1)Iron Ore and Manganese1 mineNickel2 minesEmployees(4)5,000 CHILE(1)

9 Copper 3 minesEmployees(4)4,000 OTHER SOUTH AMERICA(1)Coal 1 mineEmployees(4)200 CANADA(1)De Beers 2 minesEmployees(4)1,000 SOUTH AFRICA(1)De Beers2 minesPlatinum8 minesIron Ore and Manganese(3)3 minesCoal10 minesEmployees(4)61,000 OTHER AFRICA(1)De Beers 4 minesPlatinum1 mineEmployees(4)4,000 AUSTRALIA/ASIA(1)Coal 5 minesEmployees(4)3,000(3) The Group s 40% share in Samancor, classified as located in South Africa, is considered to be one asset within the por tfolio.(4) Average number of employees, excluding contractors and associates and joint ventures employees, and including a proportionate share of employees within joint ORE AND MANGANESE$1,536 million Underlying EBITDA 25% Group EBITDA 12% ROCE 4 Mining assets(1) (3) Mt Production iron Mt Production manganese kt Production manganese alloysSouth Africa Brazil Asset locationsFor more information See page 57 COAL$1,646 million Underlying EBITDA 27% Group EBITDA 29% ROCE 16 Mining assets(1) Mt Production metallurgical Mt Production thermal exportSouth Africa Colombia Australia Asset locationsFor more information See page 61 CORPORATE AND OTHER$(123) million Underlying EBITDA (2)% Group EBITDA United Kingdom (Headquarters and Marketing)

10 , Australia, Brazil, Chile, Singapore (Marketing hub), South AfricaCorporate office locationsFor more information See page 64 BULK COMMODITIES AND OTHER MINERALS 03 Strategic reportAnglo American plc Annual Report 2016 STRATEGIC Report CHAIRMAN S STATEMENTRESPONSIVE THROUGH THE DOWNTURN, AND IN SHAPE FOR THE FUTUREA lthough we maintained a high level of liquidity, with cash and undrawn facilities of around $16 billion, the imperative to restore the balance sheet meant, regrettably, that dividends remained suspended. With the company now in a much healthier state than a year ago, however, and prospects for prices a little more positive, the Board is targeting reinstatement of the dividend for the end of 2017 (payable in 2018). When the dividend resumes, we will move to a payout ratio-based policy, the details of which we will define at that FOCUS AND OPTIONALITYIn February 2016, when, as it turned out, prices for mining products were around their lowest point in the current commodities downturn, we announced that we would be concentrating our capital on our portfolio of diamond, platinum group metals (PGMs) and copper interests, and that we intended to explore the sale of many of our coal and iron ore assets.