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Positioning Anglo American through the cycle

Chief executive's statement

Positioning Anglo American through the cycle

The breadth and severity of the global economic downturn and its impact on growth rates in key sectors and economies are difficult to overstate. From global automotive production to construction activity in emerging markets, there was a marked contrast between the first and second halves of 2008, when commodity prices fell sharply.

As we begin 2009, the economic outlook remains weak with limited visibility, and we are continuing to experience volatility and downward pressure on commodity prices. Against this backdrop, we have acted decisively to position the Group through the downturn, including pulling back planned production growth, reducing the size of our workforce by 19,000 by the end of 2009 in line with our revised production and growth plans and further cost cutting throughout the Group. These actions are necessary to ensure that Anglo American is well positioned through the cycle, both operationally and financially, to continue to deliver long term value to our shareholders.

In December, we announced that capital expenditure plans for 2009 would be scaled back by more than 50% to $4.5 billion in response to the changed economic outlook. We will achieve this substantial reduction principally by rescheduling capital spend on many of the Group’s major development projects. The $3.2 billion of capex that we will spend on the Group’s projects in 2009 will enable their continuing development without incurring undue delays or penalties that may impact their investment cases. These measures balance necessary short term action in the context of the long term nature of the mining industry. We remain committed to our long term strategy and will continue to allocate capital towards our existing businesses and the advancement of our portfolio of high quality development projects. These projects are a key driver of future value creation for our shareholders, with several projects well timed to enter production from 2011 onwards.

The Group’s pipeline of projects is focused on the most attractive commodity segments of iron ore, metallurgical coal and copper, in addition to further expansion options in platinum and diamonds. While much reduced capital investment is planned for our projects during 2009, their realisation will form an important part of Anglo American’s strong growth in the medium to long term. We are retaining a high degree of flexibility of project timing in order to enable appropriate reactions to changing market conditions, thereby ensuring that Anglo American is positioned optimally for the next period of upward momentum in the cycle.

The three key cost saving and efficiency initiatives that we have put in place over the past 18 months are well advanced and are already beginning to make an important contribution to our financial and operating performance. Such disciplines are particularly valuable during these times. The Asset Optimisation programme has been rolled out across the Group and is expected to contribute a significant uplift to operating profit of some $1 billion over the next three years. This is in addition to the $1 billion in savings by 2011 we have announced from our procurement and shared services initiatives, which have already delivered value of over $200 million in savings in 2008.

While the global economy continues to face unprecedented challenges and, with severely constrained financing markets, it is critical for us to safeguard balance sheet flexibility as far as possible. Notwithstanding the other measures we have taken, the Board has decided to suspend dividend payments in order to preserve the Group’s strategic growth options. The Board will continue to review the Group’s financial position and is committed to the resumption of dividend payments as soon as market conditions allow.

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