Delivering on our commitments
For the long term

Sir John Parker
Chairman

Sir John Parker

Performance and Strategy

In 2010, your company experienced a strong revival on the back of steadily rising demand and higher prices for all of the commodities in our diversified mining portfolio, though the strength of local currencies somewhat dampened our overall financial performance.

Our clear strategy of focusing on seven key commodities, driving cost reductions, safe operations and pursuing leading industry performance is being implemented successfully, with all our businesses moving down their respective industry cost curves. This was borne out by a strong set of operating results. Group operating profit increased sharply to $9.8 billion, against $5 billion in 2009, while cash flow generation from operations improved from $4.1 billion to $7.7 billion.

At the same time, rigorous cost control was applied across the business, with the benefits delivered by our asset optimisation and procurement initiatives exceeding target. This strong performance, together with excellent progress in our orderly disposal programme, contributed to a significant improvement in our balance sheet position, with net debt reduced to $7.4 billion.

Dividend

It is pleasing to report that we were able to restore the dividend at the half year stage. The Board believes it is prudent to provide shareholders with a dividend that they can rely on through the cycles. Against this background, the Board has proposed a final dividend of 40 cents per share, thereby establishing our new base annual dividend per share at 65 cents.

Taking into account the Group’s substantial investment programme for future growth, its future earnings potential and the continuing need for a robust balance sheet, any surplus cash will be returned to shareholders.

Growth Prospects

The Group’s pipeline of projects spans its core commodities and is expected to grow our production by some 50% by 2015. In total, we have $70 billion of projects, which have the potential to double the production of the Group over the next decade or so.

Our largest, the world-class Minas-Rio iron ore project in Brazil, has been largely de-risked by the receipt of the mining permit and approval of the primary installation licence, as well as the securing of a long term port tariff agreement. We now have the key licences and permits in place to enable us to start next month on the construction of the mine, beneficiation plant and tailings dam, with an expected start-up date for the operation during the second half of 2013.

Traditionally, across the mining industry, project delivery has often proved to be challenging both in regard to timing and meeting cost targets. At Anglo American, we have adopted a single, integrated Group project management system, including a risk-based method of capital approval for new projects. It has now been fully implemented as part of the successful corporate re-organisation and is bringing much more rigour to the process.

Our People

I have now visited all our business units and major projects, and I am not only deeply impressed by the commitment of our people, wherever they happen to work, but by their dedication and professionalism in living out Anglo American’s values.

This was brought home to me on a recent visit to the disastrous flood areas in Queensland. Management and employees at Metallurgical Coal carried out heroic acts in transferring an entire township threatened with exceptional flooding to our own temporary housing facilities. It was evident, too, in the outstanding response of our Copper business to the Chilean earthquake in February 2010. Not only did we provide $10 million towards reconstruction, but our teams also got involved in a very hands-on way by clearing debris and constructing six new schools within weeks. The Board is immensely proud of these efforts.

With regard to our people’s career aspirations, the Board is taking a keen interest in the modern approach that management has devised to progress the development of our employees at all levels throughout the Group. In this respect, I would particularly like to mention our new generation of managers heading our business units, who, importantly, are today based in the regions of their core operations rather than at our London headquarters. Their being able to work that much more closely with our exploration, mining and engineering people is making a considerable difference to running a truly efficient mining business.

Safety

The year was marked by yet another major improvement in our safety performance, with a significant reduction in both the number of people who died and were injured on company business. Over the past four years, under Cynthia Carroll’s leadership, the number of people who have died in accidents at our operations has reduced by more than two-thirds. With such improvements, year on year, our ultimate aim of zero harm is not just attainable, but is now being seen to be so. All of us need to remain very committed to this goal.

Sustainable Development

We continue to focus on enhancing the positive impacts of Anglo American’s operations on our host communities, and on preventing or reducing negative effects in line with our commitment to being the partner of choice for host governments and communities.

In 2010 we continued the implementation of our new, more demanding social-performance and environmental standards through the Anglo American Social Way and the Anglo American Environment Way. I am pleased to report that compliance with the new standards improved when compared with 2009. During 2011 our objective is to eliminate all non-compliances.

Focus areas in 2010 included launching a major Group-wide project which aims to facilitate greater local procurement by our operations. We firmly believe that our procurement budget of over $10 billion represents our most important opportunity to further develop local communities.

During the year we also brought a much greater focus to measuring our social performance in a more rigorous manner. We have developed a standardised suite of output key performance indicators (KPIs) for our social investment programmes that will be used across all of our operations and company-sponsored foundations. The first report produced by the new KPIs will be presented in our 2010 Sustainable Development Report.

We are also re-doubling our efforts on environmental issues, focusing on new technologies to address the twin challenges of water scarcity and climate change – global priorities in relation to which South Africa will be the centre of world attention as we prepare for the COP 17 conference in Durban later this year.

As a major coal producer and consumer of energy, we remain committed to reducing our carbon emissions – focusing not only on carbon capture and storage, but also on new technologies such as algae which can be used to produce sustainable fuels. We are also closely involved in research to study the role of PGMs in a cleaner energy mix, especially in fuel-cell technologies. In addition, Anglo American continues to play a leading role in policy development around biodiversity and reducing deforestation.

Outlook

Looking ahead, the global economic outlook remains positive. Continuing industrialisation and urbanisation in China, India and other emerging economies underpins growth in commodity demand with good prospects of a sustainable expansion in the medium and longer term. In the advanced economies, however, the recovery faces some stiff headwinds. In Europe, many governments have announced austerity packages, which may weaken economic growth in 2011. But in the US, additional monetary and fiscal stimulus should have the effect of supporting greater economic activity.

The Board

Quality leadership is critical to the success of any organisation – and it is critically important in the boardroom. This is the place where we take ownership of the company’s strategy, and where that strategy is debated and stress-tested. It is also the forum that creates the drumbeat for our values, and empowers management to execute the strategy, and be accountable for its delivery.

We aim to have a quality Board with a culture of transparency that encourages internal debate. In this vein we have defined the skills and experience for the non-executive directors we plan to recruit over the next few years. We also aim to increase our percentage of women on the Board (excluding the chairman) from today’s 20% to c.30% by end 2012.

I wish, therefore, to acknowledge and thank the Board team and its newer members, who collectively are making a significant contribution to our Board debates, while also serving on the Board’s vitally important committees.

But it is to our longest-standing member that I especially want to pay tribute. Nicky Oppenheimer has notified the Board of his wish to retire as a non-executive director, at the forthcoming AGM, after 43 years with the Anglo American Group.

Anglo American’s origins in South Africa more than 90 years ago lay in the hands of Nicky’s grandfather and that legacy lives on. Sir Ernest’s commitment that Anglo American should make a positive and sustainable difference to the communities around its mining operations remains deeply embedded in the way we do business.

On behalf of the Board, I would like to express our thanks to Nicky for his significant contribution to Anglo American over so many years. We will miss Nicky’s wise counsel, sound business sense and integrity. We wish him well and look forward to a continued strong relationship through our respective interests in De Beers.

Finally, I wish to pay tribute to the management team we have in place at Anglo American, and to all of our employees, who have responded so willingly and ably to the challenges of a demanding and successful year.

Sir John Parker

Sir John Parker
Chairman