Strategy in action: Investing

"2011 was a very good year from a project delivery perspective, with three key projects being commissioned on or ahead of time."

David Weston
Group Director of Business
Performance and Projects

In brief

  • Nine major projects completed or in commissioning during 2011.
  • Grosvenor - a 5 Mtpa hard coking coal project approved.
  • Cerrejón P500 Phase 1 – to increase export thermal coal production by 8 Mtpa (100% basis) – approved.

What it takes:

Drive and a focus on objectives

A determined team setting new standards

The $1.9 billion Barro Alto nickel project in Brazil delivered its first metal on schedule in March 2011. The project is the first of our four major strategic growth projects to be commissioned and will be a key contributor to Anglo American's 35% volume growth by 2014.

Barro Alto will average 41 ktpa of nickel over its first five years of full production and has a highly competitive cost position in the lower half of the cost curve. It will more than double production from our Nickel business, and increase Anglo American's total nickel volumes by 180%.

Barro Alto will have a long life from its extensive resource base, while Anglo American has the potential to increase nickel production by an additional 66 ktpa, with further upside potential from its unapproved projects at Jacaré and Morro Sem Boné, also in Brazil, leveraging the Group's considerable nickel laterite technical expertise.

The safety performance at Barro Alto has been particularly impressive and it was recognised in 2010 as being the safest mine in Brazil.

Three major new mining operations delivered on
or ahead of schedule

bar graph - CAPEX: 4 strategic growth projects bar graph - CAPEX: Other projects bar graph - CAPEX: Stay in business

Anglo American commissioned three major new mining operations during 2011 – the Kolomela iron ore mine in South Africa, the Los Bronces copper expansion in Chile and the Barro Alto nickel mine in Brazil. The Group's world class pipeline of projects spans its core commodities and is expected to deliver organic production growth of 35% by 2014 from those projects that have been commissioned during 2011 and those that are approved and currently in development.

During 2011, the Board approved a number of growth projects, including the 5 Mtpa Grosvenor metallurgical coal project in Queensland, Australia and the Collahuasi Phase 2 expansion in Chile. Beyond the near term, Anglo American is progressing towards approval decisions in relation to the development of further high quality growth projects, including the 225,000 tpa Quellaveco copper project in Peru. Submission to the Board for approval is expected for the Quellaveco project once the necessary permits are obtained. Together with a number of other medium and longer term projects, Anglo American has the potential to double production through its $98 billion pipeline of more than 85 approved and unapproved projects.

The Barro Alto nickel project in Brazil delivered its first metal in March 2011. Barro Alto is ramping up towards full production capacity, which it is expected to reach at the beginning of 2013. This project makes use of proven technology and will produce an average of 36,000 tpa of nickel in full production (41,000 tpa over the first five years), more than doubling production from our Nickel business, with a competitive cost position in the lower half of the cost curve.

The Los Bronces copper expansion project in Chile delivered its first production on schedule in October 2011. Production at Los Bronces is expected to more than double, increasing by an average of 278 ktpa over the first three years of full production and an average of 200 ktpa over the first 10 years. At peak production levels, Los Bronces is expected to be the fifth largest producing copper mine in the world, with highly attractive cash operating costs, reserves and resources that support a mine life of over 30 years, and with further expansion potential.

Kumba's Kolomela project in South Africa shipped its first lump iron ore from the port of Saldanha to China in December 2011, five months ahead of schedule. Kolomela is situated 80 km to the south of Kumba's world class Sishen mine and, when full production is achieved in 2013, will produce 9 Mtpa of high quality seaborne iron ore, with further potential for expansion.

The Minas-Rio iron ore project in Brazil is expected to produce 26.5 Mtpa of iron ore in its first phase and has made good progress during the year. Minas-Rio secured a number of major licences and permits during the year; the offshore and onshore works at the port are on schedule; more than 90% of land access has been secured along the 525 km pipeline route and more than 200 km of pipe has been installed; and the civil works at the beneficiation plant are well under way. As with other complex greenfield mining projects, a number of irregular issues, such as the discovery of caves at the beneficiation plant site which require specialised assessment, continue to cause delays to the work scheduling, in addition to outstanding land access and an evolving permitting environment. Minas-Rio is implementing various measures to manage these challenges in a high inflationary Brazilian mining environment, including acceleration activities within the previously announced 15% capital increase, to target first ore on ship in the second half of 2013.

Pre-feasibility studies for the second phase of the Minas-Rio iron ore project commenced during 2011 and, although still under way, the studies, together with the current resource statement (total resource volume (Measured, Indicated and Inferred)) of 5.8 billion tonnes, support the expansion of the project.

The greenfield Grosvenor project is situated immediately to the south of Anglo American's Moranbah North metallurgical coal mine in the Bowen Basin of Queensland, Australia. The mine is expected to produce 5 Mtpa of metallurgical coal from its underground longwall operation over a projected life of 26 years and to benefit from operating costs in the lower half of the cost curve. A pre-feasibility study for expansion by adding a second longwall at Grosvenor is under way.

The 6.6 Mtpa Zibulo mine in South Africa reached commercial operating levels in the fourth quarter of 2011, ahead of schedule.

In Colombia, Phase 1 of the Cerrejón P500 expansion project, to increase production by 8 Mtpa (100% basis), was approved by Cerrejón's three shareholders in the third quarter of 2011. First coal is targeted during the fourth quarter of 2013, with the project expected to achieve full production at the end of 2015.

The Unki project in Zimbabwe was handed over to operations in January 2011 and reached steady state production of 120,000 tonnes milled per month during the fourth quarter of 2011, a year ahead of schedule.

In Botswana, Debswana's Jwaneng mine Cut-8 extension project is progressing satisfactorily, largely on schedule and on budget.

Selected major projects

Completed/In commissioning in 2011

Sector Project Country Commissioning
date
Capex $m(1) Production volume(2)
Iron Ore
and Manganese
Kolomela South Africa Q4 2011 1,062 9.0 Mtpa iron ore
Thermal Coal Zibulo South Africa Q4 2011 517 6.6 Mtpa thermal
Copper Los Bronces expansion
Chile
Q4 2011
2,800
200 ktpa copper(3)
  Collahuasi Phase 1 Chile Q4 2011 148 19 ktpa copper
Nickel Barro Alto Brazil Q1 2011 1,900 36 ktpa nickel (4)
Platinum Unki
Zimbabwe Q4 2011
459
70 kozpa refined platinum
  Mogalakwena North South Africa H2 2011 822 350–400 kozpa refined platinum
  Base metals refinery expansion South Africa Q3 2011 360 11 ktpa nickel
  Dishaba East Upper UG2 South Africa H2 2011 219 100 kozpa refined platinum

Approved

Sector Project Country First
production date
Full
production date
Capex $m(1) Production volume(2)
Iron Ore
and Manganese
Minas-Rio Phase 1
Brazil
2013
2014
5,034
26.5 Mtpa iron ore pellet feed (wet basis)(5)
  Groote Eylandt Expansion Project
(GEEP 2)(6)
Australia 2013 2013 280 0.6 Mtpa manganese ore
Metallurgical Coal Grosvenor Phase 1 Australia 2013 2016 1,700 5.0 Mtpa metallurgical
Thermal Coal Cerrejón P500 Phase 1 Colombia 2013 2015 1,311 8.0 Mtpa thermal
Copper Collahuasi expansion Phase 2 Chile 2013 2014 212 20 ktpa copper(7)
Platinum Twickenham
South Africa
2015
2019
1,248
180 kozpa refined platinum
  Khuseleka Ore Replacement South Africa 2007 2015 187 Replace 101 kozpa refined platinum
  Bathopele Phase 4 South Africa 2009 2012 67 65 kozpa refined platinum
  Bathopele Phase 5 South Africa 2013 2018 230 139 kozpa
Diamonds Jwaneng – Cut 8 Botswana 2017 2021(8) 3,000(9) 100 million carats
Other Mining
and Industrial
Boa Vista Fresh Rock Brazil 2013 2014 173 (10) 2.7 ktpa additional niobium in product

Future unapproved

Sector Project Country First
production date
Full
production date
Production volume(2)
Iron Ore
and Manganese
Sishen Expansion Project phase 1B
South Africa 2013 2014
0.75 Mtpa iron ore
  Sishen B Grade South Africa 2016 2017 6.0 Mtpa iron ore
  Sishen Concentrates South Africa 2017 2019 1.1 Mtpa iron ore
  Kolomela Expansion South Africa 2017 2019 6.0 Mtpa iron ore
  Minas-Rio expansion Brazil TBD TBD TBD
Metallurgical Coal Grosvenor Phase 2
Australia 2015
2017
6.0 Mtpa metallurgical
  Drayton South Australia 2015 2015 4.0 Mtpa thermal
  Moranbah South Australia 2016 2019 12.0 Mtpa metallurgical
Thermal Coal Elders Multi-product Project
South Africa
2017
2019
3.0 Mtpa thermal
  New Largo South Africa 2015 2017 13.0 Mtpa thermal
  Cerrejón P500 P2 Colombia TBD TBD 10–20 Mtpa thermal
Copper Quellaveco
Peru
2016
2017 225 ktpa copper
  Michiquillay Peru 2019 2020 187 ktpa copper(11)
  Collahuasi expansion Phase 3 Chile TBD TBD 469 ktpa
  Pebble US TBD TBD 175 ktpa(12)
Nickel Jacaré
Brazil TBD TBD TBD
Platinum Tumela Conglomerate South Africa 2020 2026 271 kozpa refined platinum
Diamonds Gahcho Kué
Canada
TBD
TBD
TBD
  Venetia UG(13) South Africa TBD TBD TBD
  • (1) Capital expenditure shown on 100% basis in nominal terms.
  • (2) Represents 100% of average incremental or replacement production, at full production, unless otherwise stated.
  • (3) Production represents average over the first 10 years of the project. Production over the first three years of the project will average 278 ktpa.
  • (4) Average production of 36 ktpa over the full production years; a new mine plan will extend the life of Barro Alto with lower production in the additional years.
  • (5) Capital expenditure, post-acquisition of Anglo American's shareholding in Minas-Rio, includes 100% of the mine and pipeline, and an attributable share of the port, as modified by the agreement with LLX SA and LLX Minas-Rio. Capital expenditure is under review to contain the capital increase to approximately 15% of the guidance.
  • (6) Subject to conditions precedent being fulfilled.
  • (7) Further phased expansions have the potential to increase production to 1 Mtpa.
  • (8) Waste stripping at Cut-8, an extension to Jwaneng mine, began in 2010. Carat recovery will commence in 2017, with Cut-8 reaching full production when Cut-7 ore is exhausted in 2021.
  • (9) Debswana is investing $500 million in capital expenditure. Project investment, including capital expenditure, is likely to total $3 billion over the next 15 years. Total carats exposed are over the life of the extension.
  • (10) Capital estimate subject to review.
  • (11) Expansion potential to 300 ktpa.
  • (12) Pebble will produce molybdenum and gold by-products and other projects will produce molybdenum and silver by-products.
  • (13) A feasibility study is scheduled for consideration by De Beers Consolidated Mines (DBCM) board in 2012.
Strategy in action: Organising

"The partnerships we are forging with companies that are world leaders in their fields are taking us to another level in unlocking value."

Seamus French CEO, Metallurgical Coal

$2.0bn

sustainable asset optimisation benefits from core operations
(2010: $1.6 bn)

$1.2bn

supply chain benefit from core operations
(2010: $739 m)

$1.13bn

Spend on suppliers based in host communities close to our operations

What it takes:

Unlocking value through partnership

Collaboration achieving operational excellence

Metallurgical Coal's strategy is to triple its hard coking coal production by 2020. As part of enabling this strategy, it has developed a pipeline of underground longwall projects in the Moranbah region in Australia.

To achieve this growth, we will need to increase cutting hours and productivity of existing longwalls to world best practice and beyond, and establish new longwalls at this enhanced level.

Metallurgical Coal and Joy Mining Machinery, the world leader in the development and manufacture of underground mining machinery, have formed a collaborative partnership to improve the performance of the existing longwall at Moranbah and to develop and implement the 'Longwall of the future', with a focus on zero harm and reducing costs per tonne. This new longwall design and implementation will become the standard for all Metallurgical Coal's longwall developments in the future.

In the initial phase of the work, Joy has played a key role in the Longwall100 project to improve longwall cutting hours and is bringing into operation its first Smart Services Centre in Australia in Metallurgical Coal's Brisbane Office.

As we move forward, we will leverage the know how of both organisations and, by taking a complete mining system approach, the next level of technology, automation, design for reliability, and remote equipment performance prognostics (Smart Services) will be delivered.

Asset Optimisation

Our asset optimisation (AO) programme has been in place since 2009, and has surpassed the $1 billion target set in terms of the value delivered for sustainable AO benefits from our core businesses. Our portfolio of AO projects continues to develop and deliver.

In 2011, $2,042 million of sustainable benefits were delivered from our core businesses, with an additional $253 million delivered from one-off projects. These benefits were derived mainly from revenue enhancing projects in the mining and processing steps of the value chain. In total, $1,978 million of benefits were delivered against the $1 billion target from our businesses, excluding Other Mining and Industrial.

Sustainable asset optimisation benefits

Business unit $ m*
Kumba Iron Ore 257
Metallurgical Coal 361
Thermal Coal 254
Copper 480
Nickel 19
Platinum 607
Other Mining and Industrial 233
Total 2,211
   
Analysed as:
Core operations

2,042
Non-core operations 169
  • * In 2011 terms.

The AO programme remains focused on identifying and unlocking business value from our existing assets, across the value chain. One of the key features of the programme is the operation review (OR) process initiated in 2010. This structured eight-step review process enables our business units to drive towards operational excellence through the identification and prioritisation of business improvement opportunities, in accordance with our technical standards and our commitment to safety and sustainable development.

The ORs are a collaborative effort that combines our central technical capability with our operational expertise across the Group, thereby creating teams that are able to identify value improvement opportunities and leverage our global best practice across the Group's complete mining value chain. During 2011, ORs were conducted at Sishen (Kumba Iron Ore), Landau (Thermal Coal), Dishaba (Platinum), Venetia (De Beers), Capcoal (Metallurgical Coal) and Collahuasi (Copper).

We have positioned ourselves to create unified systems and frameworks that facilitate the integration of operational excellence into all our processes. This will move us towards a uniform 'Operating Way' that ensures the consistent application of all our standards and policies, and better alignment of our people and processes.

A prominent element of the AO programme to date has been to embed AO knowledge and principles within the business. This is being achieved through a comprehensive change management programme that encompasses both skills development and internal communication. We have seen a marked increase in the number of employees that have been exposed to our AO Academy training, which is aimed at equipping our people with the right skills and business improvement mindset required to deliver AO results for the business. In the next phase of AO skills development we will incorporate the use of advanced technology and more interactive learning environments, thus making AO a more tangible reality for our people and the organisation.

Supply chain

Transformation

A significant milestone was achieved in 2011 with Supply Chain delivering $1,274 million in value for the Group. In total, $1,185 million of benefits were delivered against the three year $1 billion target from our core businesses, excluding Other Mining and Industrial.

These targets were achieved through more effective management of purchased materials and services, enabled through a new centre-led organisation model that, based on a recent benchmarking study, is now operating in the top quartile. The foundations are now in place to create strategic ongoing value and remain a source of competitive advantage for the Group.

The significant progress made towards achieving Supply Chain's vision of becoming the industry leader and global benchmark for supply chain value creation has been the result of effective collaboration throughout the Group and with key suppliers.

Supply chain benefits

Business unit $ m*
Kumba Iron Ore 361
Iron Ore Brazil 89
Metallurgical Coal 159
Thermal Coal 152
Copper 137
Nickel 36
Platinum 215
De Beers 13
Other Mining and Industrial 89
Corporate 23
Total 1,274
   
Analysed as:
Core operations

1,210
Non-core operations 64
* In 2011 terms.  

Sustainable and responsible supply chain

Local procurement is an effective way of creating sustainable development and delivering broader wealth creation for our host countries. Our vision is sustainable, responsible local procurement that positively contributes to a resilient supply chain and the economic and social development of the communities in which we operate.

Anglo American spends more than $13 billion a year on procuring goods and services, representing a significant development opportunity. Around three-quarters of this spend is in developing countries. In 2011, expenditure on suppliers based in the host communities close to our operations was $1.13 billion. During the same period our total black economic empowerment (BEE) procurement spend by managed and independently managed businesses and enterprise development was R23.3 billion ($3.2 billion). Of this total, Anglo American managed businesses spent a total of R21.5 billion ($3.0 billion) with 'historically disadvantaged South African (HDSA) businesses (not including goods and services procured from parastatal companies and municipalities). All three South African business units exceeded the Mining Charter targets for the year. Local suppliers strengthen our social licence to operate and can lead to significant efficiencies such as reduced delivery and logistics costs.

Partnerships

Significant value exists in managing partnerships with our suppliers to develop new technology, improve operational performance and deliver mutually beneficial commercial outcomes. In 2011, more than 50 key suppliers were engaged as part of the supplier relationship management (SRM) programme. Through the SRM, value is created from actively managing collaborative and performance based relationships with our key suppliers. Global framework agreements (GFAs) with over half of these key suppliers, have either finalised or are near completion and represent a formal alignment in the commercial relationship. These GFAs are critical in the turbulent and high demand markets we are currently experiencing, as they provide enhanced security of supply and improved commercial terms.

SAG Mill 2 Feed End Discharge Optimisation Project

Work in progress on the feed end discharge optimisation project at SAG mill 2.

Just because two pieces of machinery do the same job, it does not always mean we get the same result.

This was the case for two SAG mills at our Los Bronces copper operation in Chile.

Following analysis of historical operational data, our engineers discovered that SAG mill 2 had a lower operational efficiency than SAG mill 1. Further investigation indicated the root cause to be a difference in design of the discharge of the two mills, which had resulted in a discharge restriction on SAG mill 2. In addition, SAG mill 2 showed irregular wear patterns on its lifters and liners, and its discharge was 'spraying'. The mill also had slurry carry-over and a flowback of material.

In order to eliminate the restriction on SAG mill 2's discharge end, the discharge boxes were redesigned and modified in order to balance evacuation with channelling.

The SAG mill 2 feed end discharge optimisation project has proved a great success. The new discharge boxes were implemented in March 2011 and Los Bronces is now seeing normal wear patterns on the lifters and liners. Throughput on the mill has improved by 3%, resulting in a benefit of $25.9 million.

Strategy in action: Operating

"Our desalination plant at Mantoverde will make a real difference by meeting the mine's total water needs, thereby eliminating our need to compete for water resources in this driest of all the world's deserts."

John MacKenzie CEO, Copper

0.64

Lost time injury frequency rate
(2010: 0.64)

80%

Water
More than 80% of our operations and planned projects are in water stressed basins

6,548

Safety leadership
Number of employees who have completed our industry leading SHE risk management programme

What it takes:

Innovation and dialogue

Solutions rooted in creating shared value

Securing a safe and reliable water source in one of the driest regions in the world presents some obvious challenges. At our Mantoverde copper operation in Chile's Atacama Desert, we're doing our best to overcome these by reducing the strain on an already stretched watershed.

Our plans to develop a desalination plant that will meet 100% of Mantoverde's water needs represents an opportunity to make a real difference in the Atacama region. By eliminating our own requirements from the current watershed, we will reduce the demand on this most vital of resources significantly, while also presenting community investment opportunities through the development of the desalination plant.

Located in Corral de los Chanchos Bay, in the Chañaral district, the $96 million plant will have a water production rate of 120 litres per second. Start-up is scheduled for 2013 and the 20 month planned construction project will provide an estimated 150 jobs.

Environmental protection measures have also been comprehensively addressed and constant dialogue with social organisations, neighbours' associations, fishermen's trade unions, public bodies and the Municipality of Chañaral has ensured the concerns of the communities have been considered at every stage of development. We can now look forward to an environmentally sound plant that will greatly improve water availability across the region.

Our aim is to maximise the value of water resources while seeking to achieve no long term net harm to the environment or communities where we operate. This desalination plant will help us maintain that position and further develop our ambition to become a champion in responsible water stewardship.

Sustainable development: a strategic commitment

One of Anglo American's four strategic pillars is to operate safely, sustainably and responsibly. As a company that exploits a finite resource, we are fully committed to operating our mines in a way that brings positive changes to host communities and leaves behind a healthy environment. We do not accept that injuries or deaths are an unavoidable part of our business. Safety remains our number one priority, and we expect everyone at work to take responsibility for their personal safety and that of their colleagues.

Sustainable development (SD) touches on every aspect of our business. Our approach is based on a belief that exceptional operational value can be realised by embedding SD in everything that we do – from our systems, risk processes and procedures, to the way in which we consult and work with our stakeholders.

Strong governance and risk management processes ensure that we deliver on our commitments. A dedicated global Safety and Sustainable Development (S&SD) Risk and Assurance team provides the Executive Committee and S&SD Committee of the Board with expert opinion on the adequacy of risk control measures to ensure that current and emerging risks are effectively controlled.

This second-party perspective, coupled with subject matter expertise (internal and external) enables us to identify critical safety, health and environmental improvement opportunities, thereby focusing and accelerating improvement efforts. Following the internal restructuring process that was completed in early 2010, our S&SD and Government and Social Affairs functions have been fully integrated within the project management and asset optimisation processes, ensuring that broader sustainability and licence to operate issues are provided for within our operational and decision-making processes.

Safety

While we acknowledge that mining is inherently a high-risk industry, we do not accept that anyone should be injured while working for us.

Performance

We deeply regret that in 2011, 13 employees and four contractors lost their lives while working for Anglo American (2010: 15(1)). This tragic loss of life is unacceptable, particularly in light of the significant and consistent safety improvement that Group operations have achieved since 2007. The majority of these deaths (12) took place at our Platinum business, while other Group businesses such as Kumba Iron Ore, Metallurgical Coal and Nickel remained fatality-free for 2011. Notably, too, our exploration sites have operated without a fatal incident for over three years.

The Group's lost time injury frequency rate (LTIFR) was 0.64 in 2011, equal to our performance in 2010. While the LTIFRs of almost all business units improved, an increase in injuries at Platinum countered the improvements achieved elsewhere. In 2011, Platinum launched 'Zero Harm in Action', a five-year change management programme to deliver a comprehensive safety intervention throughout the business. The programme will last for five years and be implemented at every location and involve every employee in Platinum.

Managing safety

Our approach to safety is outlined in the Safety Way, a comprehensive framework of roles and responsibilities supported by a set of safety principles and mandatory safety standards. This underpins the delivery of our safety strategy which outlines our risk based approach to safety. All of our operations have developed safety improvement plans that define how they drive continuous improvement in line with the Group strategy.

While the significant improvement in safety performance achieved over the previous four years has given us confidence that we have adopted the right strategy, it is clear from the regression experienced in 2011, that the speed and the consistency with which its elements are being implemented are insufficient. To understand the reasons why, and to identify the actions needed to accelerate the drive to zero harm, in February 2011, our chief executive, Cynthia Carroll, launched a strategic safety review and action plan. There are three main components to the plan: the development of leading safety performance indicators, of Group-wide site safety reviews, and corporate centre action plans.

Developing leading safety performance indicators

To date, Anglo American has been measuring safety performance almost exclusively on the basis of lagging indicators, such as the numbers of people hurt and injury frequency rates. While useful, these are not always effective as a predictor of future performance. We therefore introduced a programme aimed at developing a new set of metrics that more accurately describe the efforts sites are making to improve safety, and that improve our ability to anticipate and pre-empt potential incidents. Seven key measures relating to leadership, risk management training, safety competence, the delivery of maintenance programmes, improvements to risk management, learning from high potential incidents, and the closing review of safety actions were agreed. These measures, which make use of data that is already regularly collected by each site, provide a clearer view as to what our safety priorities should be, and will assist us in identifying those operations that need priority attention.

Safety assurance

In total, 46 safety reviews were conducted by the Group Safety and Sustainable Development Risk and Assurance team in 2011. The audit teams have been augmented by experienced senior mining managers, technical specialists and industrial psychologists. They are tasked with providing immediate guidance to the site and business unit concerned so that more focused solutions for site-level responses can be developed. This deeper analysis is assisting us in identifying organisational or cultural factors external to the site that may be impeding on-site safety.

Promoting corporate leadership on safety

In April, 60 leaders, representing each of the business units and functions, took part in a Safety Leadership Summit to identify how the Group Management Committee and Group functions can support the operations in the goal of achieving zero harm more effectively. The participants prioritised a range of issues across the different functional areas, and agreed to establish six teams to develop these into formal action plans. Each team is led by an Executive Committee champion with the support of a cross-functional team. The identified actions aim to provide a coherent response to the safety issues experienced in 2011, while limiting additional work required by the business units.

Water

More than 80% of our operations and planned projects are located in water stressed basins where we expect increasing competition for water resources. Growing demand for water resources, along with the effects of climate change, is already leading to supply shortages, increased costs, stricter legislation and heightened social pressures.

The Anglo American water strategy and policy reflects our aim to demonstrate leadership within our water catchment areas. The strategy is a three stage journey phased over 10 years. Implementation of this strategy is being realised through our initiatives in three key areas: improving operational excellence, investing in technology, and engaging and partnering with our stakeholders.

Operational excellence

In 2011, a new Group technical standard for water management was issued. This new mandatory standard includes detailed requirements on target setting, water monitoring, site management and Water Action Plans (WAPs). Our site-level WAPs aim to provide our operations with a clear picture of their internal requirements in the context of legal and catchment management developments, and are intended to help operations implement integrated water management.

An important focus during the year was on the implementation of our Water Efficiency Target Tool (WETT) across all our managed operations. The tool, which was piloted at seven sites across the Group, forecasts the projected business-as-usual water demand of individual operations and establishes a register of water saving projects linking the two to deliver future performance targets. Through a robust bottom-up process of identifying and assessing water saving opportunities, and understanding local water risks, we have for the first time set quantitative savings targets for each managed operation within the Group.

Technology

As part of our technology development activities, we are working to identify appropriate technology solutions and to agree the timeframes within which to achieve our proposed strategic objective of 'zero net water consumption' by 2030.

Engagement and partnerships

Wherever we operate we engage with host governments, local authorities, communities, NGOs, businesses and other stakeholders on a range of water-related issues, and participate in global policy debates on water. We are pleased with the significant progress made in finalising outstanding water licence agreements for our operations in South Africa during 2011. This represented an important engagement with our regulatory partners to secure our business in the future.

Performance

During 2011, Group operations consumed a total of 131.6 million m3 of water. This comprised 115.3 million m3 of water for primary process and production activities, as well as a further 16.3 million m3 of water for secondary activities such as employee villages, sportsgrounds and office facilities. This represents a 0.7% year-on-year increase in our consumption of water used for primary activities, largely from the Barro Alto nickel plant in Brazil commencing production, as well as increased water requirements related to construction of the Minas-Rio project in Brazil and dust suppression arising from operational changes at El Soldado copper mine in Chile. The overall impact of these increases was mitigated by the sale of assets during 2010 that would have contributed a further 5.4 million m3 of water to the total in 2011, as well as the disposal of a number of businesses throughout 2011.

Climate change and energy

bar graph - energy consumption bar graph - greenhouse gas emissions

Our response to climate change is guided by our climate change strategy and policy. Our strategy seeks to minimise our exposure to emerging climate change regulation, maximise opportunities in our product markets, and build adaptation measures against the impacts of regional climate change. The strategy will be implemented in three phases over the next 10 years. Within each phase, implementation is being undertaken through our initiatives in three key areas: improving operational excellence, investing in technology, and engaging and partnering with our stakeholders.

Operational excellence

In 2011, we issued a new Group technical standard to manage carbon and energy performance at all our operations, and we developed and implemented our energy and carbon management programme, ECO2MAN. This programme helps us identify and prioritise energy efficiency and carbon savings project opportunities at the business unit and mine level, and is tied to our internal and external verification and assurance processes. It has been used to guide the development of new site-based bottom-up energy and greenhouse gas (GHG) emissions savings targets.

Technology

As energy use accounts for roughly 85% of our GHG emissions, we are primarily focusing existing activities on identifying and implementing innovative technologies aimed at using energy more efficiently. These include technological solutions to optimise processes and machinery at our operations, such as air compressors, ventilation fans, pumps, draglines, conveyors and electric motors. In addition to focusing on energy efficiency technologies, we are investing in developing and deploying technologies that may enable us to run cost efficient, carbon neutral mines by 2030.

Engagement and partnerships

We continue to work with governments and our business peers to inform the development and implementation of efficient, effective and equitable climate change policies, including carbon taxes and other pricing mechanisms. In 2011, we were particularly active in engaging with the South African and Australian governments, in relation to the UNFCCC COP-17 negotiations in Durban as well as commenting on proposed carbon pricing schemes. In addition, our flagship Zimele enterprise development programme announced the formation of a new Green Fund which will help entrepreneurs drive the green economy in South Africa.

Performance

Reducing our GHG emissions

In 2011, the Group's Scope 1 and Scope 2 GHG emissions amounted to 18.8 Mt of carbon dioxide equivalents (CO2e) (2010: 20.0 Mt). This 6% reduction on our 2010 emissions was due largely to the sale of a number of businesses throughout 2011, as well as a revision of process emission calculation methodologies at Metallurgical Coal. The overall impact of these reductions was reduced by a significant increase in GHG emissions at our Nickel business in Brazil following commissioning of the new Barro Alto plant.

Energy consumption

During 2011, we consumed 102.9 million gigajoules (GJ) of energy (2010: 100.9 million GJ). This 2% rise was largely as a consequence of new energy consumption due to the Barro Alto plant construction and start-up and additional diesel consumption at Metallurgical Coal as a result of increased production. These increases were mitigated by the sale of businesses in 2010 that would have contributed about 6 million GJ to the 2011 total, as well as the divestment of a number of businesses over the course of 2011.

Adaptation

Our new climate change strategy requires that all operations and projects undertake climate change vulnerability assessments, after which all high risk sites will undergo detailed climate change impact assessments.

This follows detailed assessments conducted by Imperial College, London and the UK Met Office in 2010 and 2011, on the potential impact of climate change in a number of potentially high risk operational regions. These included the Minas-Rio iron ore project in Brazil and in South Africa, coal and platinum operations situated in the Olifants River catchment as well as the area surrounding the Sishen iron ore mine in the country's Northern Cape. The results of these have been shared with government and research institutions and have helped contribute to our internal climate risk model.

social and community

Integrating the Social Way

Launched in 2009, our Social Way contains a mandatory set of standards that prescribe rigorous minimum requirements for social performance within the Group. By the end of 2011, each operation had completed its third annual assessment of its level of compliance against the 24 requirements of the Social Way. Informed by this assessment, operations with any non-compliances develop social and community improvement plans that provide roadmaps to full compliance with the Social Way.

In 2011, there was a strong focus on integrating the requirements of the Social Way into Anglo American's project stage gate reviews and our due diligence processes for mergers and acquisitions. Through this process, functional experts work with project teams at key stages in the new mine development process in order to ascertain whether the teams are compliant with technical, financial, environmental and social requirements before they may proceed to the next project stage. We believe that the inclusion of our social standards in this process, which was started in 2010, is already showing results in terms of more thorough preparation for permitting processes and a better understanding of community concerns and expectations at an early stage in new projects. This has facilitated the earlier identification and management of potential risks, and also contributes to developing and maintaining positive relationships with our host communities.

Monitoring and evaluation of our social performance continued to receive priority attention during 2011. In addition to assessing our performance through our Group-wide complaints and grievance mechanism, we have made important progress in using our comprehensive set of 32 output key performance indicators (KPIs) for social investments that were piloted and reported on for the first time in 2010. A review of our progress against some of these indicators is provided on page 31. Ensuring and maintaining consistency in reporting against these indicators, and in the use of our complaints and grievance mechanism, remains an important focus area.

To complement our KPI initiatives, in 2011 we also piloted a new community development peer review process. The reviews draw on internal expertise as well as resources from partners such as CARE International to ensure that our investments in community development are as effective as possible. Following the success of the pilots the process will be rolled out in 2012.

Social investment

Anglo American's social investment spend in local communities totalled $122 million in 2011, up from $111 million in 2010 and $82.5 million in 2009, and on our expenditure of $28 million back in 2000. To help manage this growth, we have developed a standardised reporting process for all our social investments. The aim is to facilitate consistent reporting of outputs, and to identify the most effective projects, delivery methods and partners with a view to maximising the value that Anglo American and its host communities realise from these investments.

Enterprise development

We believe that enterprise development is one of the most effective means for ensuring sustainable benefits for our host communities. We have been pioneering approaches to developing small businesses in South Africa since the 1980s and more recently have extended these activities into Chile, Brazil and Peru.

Zimele – South Africa

Anglo American's pioneering Zimele enterprise development programme was established in South Africa more than 20 years ago, with the aim of empowering black entrepreneurs through the creation of small and medium sized enterprises (SMEs). Through our commitment to the UNDP Business Call to Action in support of the Millennium Development Goals, we are committed to creating and sustaining 15,000 additional jobs in up to 1,500 new businesses by 2015.

Zimele consists of five separate funds – the Supply Chain Fund, the Anglo American Khula Mining Fund, the Community Fund, the Olwazini Fund and, most recently, the Zimele Green Fund. While these funds operate on a commercial basis, they are guided by the social purpose of creating economically viable enterprises through the provision of equity/loans, mentoring and access to value enhancing opportunities. In 2011, these funds supported 1,085 businesses and provided R567 million ($78.1 million) in funding for businesses that employed 19,575 people, with a combined turnover of R574 million ($79.1 million).

Emerge – Chile

Launched in 2006, our Emerge programme has achieved its ambitious goal of supporting thousands of SMEs in Chile. On one hand, our alliance with Fondo Esperanza, an institution that grants micro-credit, has helped more than 25,000 small businesses through business skills training and community bank micro-loans. The community bank model – in which members run their own businesses and act as co-guarantors by committing to pay back all the loans – has delivered exceptionally high loan repayment rates. On the other hand, the medium sized business programme has helped more than 200 entrepreneurs through the provision of training, financial assistance, mentoring and follow up. In 2011, Emerge was strengthened through a new partnership with international enterprise development NGO Technoserve to carry out support to medium sized businesses.

CARE – Brazil

Anglo American's Barro Alto project in Brazil has concluded the first three year period of partnership with local NGO, CARE Brazil. Enterprise development forms a strong focus of the partnership, which also includes activities to improve public education and social development in the communities surrounding our operation. Through this initiative, local residents have the opportunity to participate in a free training course on entrepreneurial management aimed at developing business opportunities in the region. The third group of small business owners has now completed the course.

Social investment output indicators

Total number of community development projects delivering benefits to communities in 2011 1,380
Total number of businesses supported 38,681
Jobs created/maintained through enterprise development initiatives 47,070
Beneficiaries of education projects 556,033
Beneficiaries of sports, arts, culture and heritage projects 248,093
Beneficiaries of community development projects 2,132,624
Beneficiaries of disaster and emergency relief projects 11,100
Beneficiaries with improved livelihood 2,481,467
Strategy in action: Employing

"We are determined to be an employer of choice. That means acting quickly and decisively to ensure that we have the talent our business needs for its future growth."

Mervyn Walker Group Director of HR and Corporate Affairs

15%

proportion of women employed throughout the group
(2010: 14%)

27%

Reduction in number of new cases of occupational disease reported

$11m

Investment in community health in 2011

What it takes:

Foresight and initiative to create change

Bridging the skills gap in Australia

A thriving industry depends on a steady intake of new talent. For that reason, the Australian government's Resourcing the Future report was cause for concern. The 2010 report predicted a major and growing shortfall of qualified tradespeople across the Australian construction, gas and mining industries unless employers acted quickly to bridge the skills gap.

The findings of the report came as no surprise to Debbie Butler, principal of operations training at Metallurgical Coal's HR division, who had already been working on her own study of Anglo American's trades' workforce, which showed stagnation in the intake of apprentices. But Debbie also saw an opportunity. As the government's needs dovetailed with our own, the timing proved perfect to join forces to develop an innovative new pathway for bringing fresh talent into the business.

Working with the National Apprenticeships Steering Committee, Debbie helped design a Metallurgical Coal-specific Advanced Entry (Adult) Trades Programme. The programme recognises workers' existing experience and equips them with the additional skills they need to attain full trade qualifications in just 18 months – providing the potential to save Anglo American A$6.3 million per programme (18 months) or per intake (21 participants).

But the programme's value is not only financial. Opportunities to upskill our people, develop career paths and increase the talent pool are all vital components as we aim to become the employer of choice.

With Debbie driving it forward, Anglo American became the first employer in the mining sector to implement the new initiative and, in 2011, 21 participants enrolled in the programme. It now represents an important element of Metallurgical Coal's workforce planning strategy to ensure the business has sufficient experienced and qualified employees to meet its growth needs.

This programme will help us in our commitment to identify, develop and retain the very best people in our industry – people like Debbie Butler.

Our people

The success of our business ultimately depends on the skills and motivation of our people, and on the extent to which they uphold our values and deliver our strategy. Being the employer of choice in the sector is integral to our aim to be the leading global mining company, and takes on added significance during expansionary times for the industry, when there is growing competition for scarce talent. Delivering on our ambition requires that we have systems in place to attract and retain the best talent, provide opportunities for personal development, recognise and reward excellence, drive for diversity and protect employee rights.

Our strategy and management approach

Following the completion of the Group's major restructuring in early 2010, the Group human resources department now operates as part of a lean corporate centre that focuses on providing essential governance activities and on identifying and realising synergies across the Group through collaborative working and the sharing of best practice. To achieve our objective of being the employer of choice, we have identified the following strategic priorities:

  • Increasing the supply of scarce skills
  • Preparing for growth
  • Embedding our organisational model
  • Improving productivity and efficiency
  • Advancing workforce diversity
  • Driving high performance and the right employee behaviours
  • Improving succession planning and supporting development
  • Removing barriers to employee mobility
  • Developing consistent and aligned communication.

Our human resource standards, management systems and processes provide the foundation that allows us to deliver on these strategic priorities. We have identified opportunities for further improvements in all of these areas and are making significant progress in the implementation of a wide-ranging three year plan of work, to be implemented by the end of 2013.

Attracting and retaining the best people

At Anglo American we know that creating the right culture is critical to making people want to join and stay with the company, particularly within the context of a very competitive job market. We recognise that many people expect more from their jobs than financial benefit alone, and are increasingly looking for employment opportunities that are meaningful and that make a beneficial contribution to society. Our values, business principles and brand together create the overall employee proposition to attract and retain the best talent.

We are working to improve the systems in place to identify our current and future skills requirements, and to proactively source the skills needed globally to respond to our anticipated growth over the next five years, and this is further supported by the key focus areas outlined below.

Developing our people

In 2010, we launched the People Development Way, a global capability framework detailing the behaviours, knowledge, skills and experience we need to achieve our strategic objectives. Our focus during 2011 has been on embedding the framework and driving high performance and the right behaviours. This framework is being applied consistently across the Group to guide development and is supported by comprehensive training for managers and their teams to ensure they understand its importance and application.

We have also been rolling out a new performance management system across the Group. This places strong emphasis on aligning individual objectives with the company's strategy and plans, reinforcing the Anglo American values, and focusing on personal development. All managerial and professional employees (representing nearly 30% of all permanent employees) undergo formal performance management reviews on an annual basis. The remaining 70% of employees have access to a range of opportunities aimed at developing a workforce with the right skills, experience and training. Performance management among this segment is largely team based.

Recognising and rewarding excellence It is important to our success that the structure and level of our remuneration and rewards are consistent across the Group and competitive in each of the markets in which we operate. We benchmark our remuneration schemes against our peers and we implement comprehensive performance-based reward systems with the aim of attracting and retaining the best people. In 2011, a project was undertaken to implement a standardised approach to the base-pay elements that form the basis of our performance incentive awards for our South African operations. The principal objectives of this work have been to improve employee understanding of the total reward package, simplify global employee mobility, and further enhance employee retention. A project is now being undertaken to drive this same alignment across our business units in Brazil.

Promoting workforce diversity

By year end, the overall proportion of women throughout the Group had increased to 15% (2010: 14%). At management level, women accounted for 22% (2010: 21%). To drive further improvement in the representation of women in management and the workforce as a whole, each of our businesses has drafted an action plan. These plans include clear internal stretch targets to be achieved by December 2012 and December 2014 (for the percentage representation of women in the workforce as a whole and women in management), as well as a description of the measures that will be taken to achieve these targets.

In our South African operations we continued to make good progress in promoting transformation in the workforce. At year end, 51% of our managers were 'historically disadvantaged South Africans' (HDSAs). We believe we are now well placed to achieve the enhanced targets for 2014 set out in the country's revised Mining Charter and are putting in place appropriate systems for compliance and reporting to achieve this objective.

Health

Effective management of occupational health protects our people, enhances productivity, and helps maintain our licence to operate and our global reputation. Promoting a healthy community and a safe and healthy workforce is beneficial for everyone.

Occupational health

Our approach to occupational health is governed by the Occupational Health Way, which sets out a series of standards, guidelines and assurance processes aimed at preventing harm to our employees by proactively identifying and managing the source of potential health risks and eliminating exposure to hazards. In 2011, we rolled out new mandatory technical standards that address our principal health risks relating to noise, dust (inhaled hazards or airborne pollutants), fatigue, alcohol and substance abuse. In addition, we have a Group standard for emergency medical responses, while a technical standard relating to ergonomic issues is currently being developed.

The number of new cases of occupational disease reported for 2011 was 196, a 27% reduction on the previous year's total of 268. The total occupational disease incidence rate in 2011 declined to 0.205 from 0.284. The drop was mainly accounted for by a 27% reduction in the number of cases of noise-induced hearing loss reported by Scaw Metals.

Combating HIV/AIDS and Tuberculosis (TB)

An important element of promoting employee wellness is our focus on addressing HIV/AIDS, particularly at our operations in southern Africa where the epidemic is especially prevalent. Regular HIV counselling and testing (HCT) ensures that we achieve early diagnosis of HIV infection and timely access to care. We have now reached a position where more than 90% of employees in southern Africa check their HIV status every year. The high uptake of HCT allows us to quantify the prevalence of HIV infection in our workforce. This is currently 17% in southern African operations, which means that around 12,900 of our employees are HIV-positive.

Despite our considerable efforts in promoting workplace prevention programmes – through education and awareness, condom distribution, and the early diagnosis and treatment of sexually transmitted infections – we experienced a disappointingly high number of new HIV infections within our workforce in 2011. For the year as a whole we documented 902 new HIV infections, giving an approximate new infection incidence rate of 1.2%. Although consistent with the national rate, this is unacceptably high. All employees who test HIV-positive are invited to enrol in our HIV disease management programme. Currently, 61% of employees who are estimated to be HIV-positive are enrolled. By the end of 2011, we had 4,730 employees on anti-retroviral therapy (ART).

We also have an active programme, linked to our HIV/AIDS response, aimed at addressing the escalating TB epidemic. This is a source of great concern in South Africa, which has the third highest burden of the disease in the world as well as the highest rate of TB/HIV co-infection. In 2011, the TB incidence rate at our South African operations was 1,166 per 100,000 employees (2010: 1,070 per 100,000). There were 906 new TB cases recorded among our workforce and, sadly, we recorded 65 deaths from TB. While this is significantly less than in 2010 (86), we continue to drive a concerted effort to further reduce deaths from TB through earlier HIV and TB diagnosis and treatment.

Promoting healthcare in the broader community

Our activities to promote healthcare in the broader community include investments in health systems strengthening in our neighbouring communities, as well as activities aimed at supporting healthcare in developing countries more broadly.

With regards to supporting healthcare in developing countries, Anglo American has supported the Global Fund to Fight AIDS, Tuberculosis and Malaria since its inception in 2002 and, in 2010, our chief executive, Cynthia Carroll, pledged $3 million of funding on Anglo American's behalf over the following three years to support the Global Fund. This pledge came with a challenge for other big businesses to do the same. In July 2011, we pledged $3 million over three years to the UK Government led matching initiative for the Global Alliance for Vaccines and Immunisations (GAVI), a public/private partnership that is increasing access to immunisation in the world's poorest countries. These contributions were part of an investment of over $11 million in community health in 2011.

We are using the knowledge and experience that we have gained through our workplace health programmes to strengthen community health systems. An important initiative during the year has been our work with the Eastern Cape Department of Health in South Africa, where we sponsored the writing of a business plan to revitalise the funding and delivery of primary healthcare in four provincial subdistricts. In Bushbuckridge, a labour sending area for Thermal Coal's South African mines, the Bhubezi Community health centre opened in 2007 by Anglo American, Virgin Unite and the US government and sees an average of 250 patients a day. Around 3,500 people are now receiving life saving ART as a result of this initiative.

In Brazil, a project has been established with the highly regarded Brazilian NGO, Reprolatina, to improve access to quality health services, particularly with regard to reproductive health for women and girls. A similar project has also been established in the communities surrounding the new Barro Alto nickel plant.