Sir John Parker, Chairman

Mining commodities vital
for the 21st century

Our commodities help to both fuel growth in developing
countries and to enable the continuing technological
revolution in the developed economies

The way in which the mining industry conducts its business, and its attendant footprint on the environment and on host communities, offers a wealth of opportunities to make a positive impact on society. In this report you will find many examples of how Anglo American, as a global leader in the industry, is endeavouring to ensure that we uplift and help sustain our neighbouring communities, while protecting the environment - and how we intend to maintain a competitive edge in respect of our peers and deliver value to our shareholders.

Performance and dividend

Against a background of difficult operational conditions, including exceptional flooding in early 2011 at many of our operations in Australia, Chile and South Africa, significant cost inflation and, in the second half, a more uncertain macro-economic landscape, Anglo American recorded a sound set of financial and operational results. Operating profit rose by 14% to a record level of $11.1 billion from $9.8 billion in 2010. The Board proposes a final dividend of 46 cents per share, giving a total dividend for the year of 74 cents, a 14% increase.

Delivering our growth projects

In an industry that is frequently criticised for its shortcomings in the field of project delivery, Anglo American in 2011 commissioned three major mining operations, all of them on or ahead of schedule and in the lower half of the cost curve. Barro Alto in Brazil, which employs proven processing technology, came on stream in March and is ramping up to full production. In Chile, our expansion at Los Bronces, which we commissioned in October, will create one of the world's biggest copper mines. In the final weeks of the year, we commissioned - five months ahead of time - the Kolomela mine in South Africa, thereby further enhancing our profile in the high margin seaborne iron ore business.

At our biggest project of all, Minas-Rio, despite a series of local challenges, we continue to make good progress towards our targeted first iron ore on ship delivery date in 2013. In December, we also announced the go-ahead for a greenfield coal mine in Queensland, Australia. The $1.7 billion Grosvenor project is expected to produce 5 Mt of metallurgical coal a year over a projected life of 26 years.

Beyond these developments, we have continued to augment our strong resource base through several exploration successes, and we are focused on prioritising the most attractive of our $84 billion pipeline of unapproved projects towards development approval.

Delivering value

We also continue to examine M&A opportunities as one of our strategic priorities in driving value in core commodities. In November, we announced a key acquisition and a major value enhancing divestment. First, we agreed to acquire the Oppenheimer family's 40% interest in De Beers. This presented a unique opportunity for us to raise our profile in diamonds, and in early January 2012 our shareholders voted overwhelmingly to approve the transaction.

Also in November, in accordance with our rights, we announced the completion of the sale of a 24.5% stake in Anglo American Sur (AA Sur), comprising a number of the Group's copper assets in Chile, to Mitsubishi Corporation for $5.39 billion in cash. This transaction highlighted the inherent value of AA Sur as a world class, tier one copper business with extensive reserves and resources and significant further growth options from its exploration discoveries, valuing AA Sur at $22 billion on a 100% basis.

On the matter of Codelco's option to acquire an interest in AA Sur, I should like to emphasise that Anglo American is a responsible company that always acts with care, after considering all of the evidence. We always act within the law wherever we operate, and we always seek to protect shareholder value. This approach has been applied by our Board with regard to the Codelco option. I also wish to reaffirm that Anglo American is an approachable company that is open to finding solutions to any problems it encounters anywhere around the world - and this includes the Codelco issue.

We are fully aware of the headwinds that our Platinum business is facing; be they cost pressures, safety stoppages or lingering concerns over the euro zone. Platinum is building upon the improvements achieved over the past five years and it has performed well relative to the wider industry in light of the challenges. We recognise, however, that the current level of returns is not acceptable to our investors. With the full support of the Board, our chief executive Cynthia Carroll and her team will therefore assess the optimal configuration of our Platinum business. Our aim at Anglo American is to establish a commodities portfolio that can withstand the headwinds and maximise shareholder value and returns, through the cycle.

Safety

Most regrettably, the significant improvement in our performance over the previous four years in the field of safety was not maintained in 2011. The number of people who lost their lives while on company business increased to 17 from 15 in 2010, while there was also a rise in the number of serious injuries. In light of this, Cynthia Carroll, with the full backing of the Board, has instituted a Group-wide operational risk management initiative across all of our operations. It incorporates a comprehensive programme of independent safety reviews to find solutions at site level, in the realisation that until substantial improvements are achieved in this area our ambition of zero harm will simply not be attainable.

A changing landscape

Countries today are far more aware, and protective, of the value of their minerals patrimony. Developing nations and developed economies alike are seeking to increase their share of the mining cake through a range of means, from establishing joint ventures with mining companies, to windfall taxes and increased royalties, and even in some cases threatening to push matters to the point of nationalisation of mining assets.

At the same time, the growing demand for metals and minerals means that mining companies are exploring in regions beyond their traditional mining jurisdictions, with all their attendant climatic, infrastructural, logistical and other challenges. This inevitably presents a heightened degree of risk and may be accompanied by political instability in some countries where good governance is still developing. Our present and long held commitment, irrespective of where we operate, is to always conduct ourselves to the highest standards of corporate conduct.

Sustainable development

Our approach to sustainable development is one that embodies our desire to be pro-active, and to take the lead in the key sustainability issues facing our industry. It is also one that is cognisant of the pressure from society for ethical and transparent behaviour by the extractives industry, with downstream consumers demanding greater responsibility from mining companies and ethical accreditation in respect of the origin of minerals and metals.

At our Quellaveco copper project in Peru, for example, we have slowed down progress while we participate in a multi-stakeholder dialogue and work with the local communities to seek to fully understand their concerns and aspirations. In this way, we hope to reach a fair solution for all stakeholders and a high degree of buy-in for this important mining development.

Climate change is becoming a major issue for the mining industry, and Anglo American seeks to play its part in helping address its causes, and mitigating its effects. We are an active and vocal participant in the debate that is taking place on a global, national and local level, and we are engaging with governments and other key stakeholders to develop equitable and effective climate change policies, and to enable our communities to access clean energy. At a grassroots level, we are investing in clean coal research and development projects in Australia, South Africa and the USA.

As a company, we support government actions to put in place policies that lead to a long term price on carbon - but we want to see this done in full consultation with stakeholders, from a solid fact base and over a realistic timeframe, so that it does not jeopardise jobs, industry competitiveness, or social and economic development.

Governance

I have now been your chairman for over 2½ years and have sought over that period to ensure that your Board is strong and influential, and that we have a Board with the appropriate set of skills and talent to challenge and stress-test our strategy.

As part of that process, we appointed Phuthuma Nhleko, group president and former CEO of the MTN Group, to the Board in March 2011. Phuthuma brings impressive leadership and vision in transforming MTN from a highly successful South African mobile operator into a significant force in mobile telecommunications services in emerging markets. You will recall, too, that I paid tribute to Nicky Oppenheimer last year, and I was delighted to host our November Board dinner in South Africa to recognise his long and important contribution to the Group.

In terms of enhancing the Board's contribution to our affairs, during the year the Board participated in an internal strategy forum, along with our most senior executives. I also oversaw an internally facilitated Board-effectiveness review in 2010, and in 2011 reported back to the Board our performance against the objectives set. In addition, I commissioned an external effectiveness review of the Board and its various committees; the results of that review will be detailed in the 2012 annual report.

At the 2011 AGM, the Board also became an 'early mover' in adopting annual re-election of directors as part of our commitment to setting the tone of the company's governance from the very top. Notably, too, we are committed to increasing the representation of women on the Board (excluding the chairman) to about 30% by 2013.

Outlook

In 2011, there was a distinct slowdown in the major emerging economies, alongside continuing fragility in the US and Europe. Concerns about global economic growth could linger early in 2012, though we expect stronger activity later in the year and into 2013. As inflationary pressures subside, there is scope for policymakers to stimulate their economies. In the medium to longer term, we remain optimistic about global economic prospects. China and India will continue to benefit from technological and productivity catch-up, driving sustained strong growth. Rising living standards and a growing middle class should drive more demand for industrial commodities. In addition, the US should overcome its recent difficulties, with a resumption of healthier long term growth rates as positive trends in demographics and productivity reassert themselves.

Signature, Sir John Parker

Sir John Parker

Chairman