Anglo American Plc · LSE:AAL
Anglo American — Investor Presentation (October 2002)
55 slides from Anglo American's investor presentation, Oct 9, 2002
Slide 1: Base Metals Strategy
Base Metals Strategy 9 October 2002 Simon R Thompson Chief Executive, Base Metals Division
Slide 2: AngloBase: Getting Back on the Right Track
AngloBase: Getting Back on the Right Track “The market expects one great performance (coal), one solid performance (forest products), one hoped for recovery (industrial minerals) and one train smash (base metals).” Business Day: 7 March 2002 AngloBase Strategy: 9 October 2002 2
Slide 3: Agenda
Agenda n AngloBase strategy n Copper n Nickel n Zinc n Mineral sands and niobium n 2002 H1 results n Summary AngloBase Strategy: 9 October 2002 3
Slide 4: AngloBase Strategy
AngloBase Strategy
Slide 5: AngloBase Position in Industry
AngloBase Position in Industry n Anglo American was a major player in 1960s, mainly in the Zambian copperbelt n Largely withdrew from base metals in 1970s n New base metals portfolio assembled during 1990s, through Minorco, AMSA and AACSA n Following merger of AACSA and Minorco, AngloBase formed in
Slide 6: Potential Sources of Competitive Advantage
Potential Sources of Competitive Advantage n Patrimony: World class assets n Capital allocation n Capital and operating efficiency n Technology n People AngloBase Strategy: 9 October 2002 6
Slide 7: Key Initiatives
Key Initiatives n Focus on ownership of fewer, larger, low cost assets n Dispose of non core assets and re-deploy resources n Improve capital allocation to acquisitions and new projects n Adopt a venture capital approach to exploration n Continuous improvement of capital and operating efficiency n S
Slide 8: Sale or Closure of Non Core Assets
Sale or Closure of Non Core Assets n Announced n Konkola Copper Mines n Kolwezi n Salobo n Tati n BCL n Ruttan (Hudson Bay) n Under review n Anaconda n Nkomati AngloBase Strategy: 9 October 2002 8
Slide 9: Capital Allocation: Acquisitions and Projects
Capital Allocation: Acquisitions and Projects n Significant area of weakness in the past (Anaconda, KCM) n Management processes improved n Metal price forecasting methodology revised AngloBase Strategy: 9 October 2002 9
Slide 10: Capital Allocation: Exploration
Capital Allocation: Exploration n Number of active countries reduced from 22 to 13 n Non-geological risk analysis improved and commercial skills upgraded n Venture capital approach to resource allocation n Budget allocated approximately 55% to copper, 25% to nickel and 20% to zinc n Budget cut from
Slide 11: Capital and Operating Efficiency
Capital and Operating Efficiency n Value driven management culture with clear targets and objectives n Standardisation of life-of-mine planning n Continuous improvement management tool introduced n Knowledge management and benchmarking n Strategic procurement n Operational efficiency aided by locati
Slide 12: Research & Development
Research & Development n Energy reduction in comminution n Hydrometallurgical processing of copper sulphides, nickel laterites, zinc oxides and zinc sulphides n Mineral sands processing technology n Magnesium production technology AngloBase Strategy: 9 October 2002 12
Slide 13: People
People n Performance contracts for all managers, with clear targets for SHE, financial performance, operational performance, risk management and people management n Significantly improved talent management n Ensuring that we have the right people in the right place to maximise value AngloBase Strate
Slide 14: Copper
Copper
Slide 15: Copper Price
Copper Price PHM - MSU - 4.4.02 500 450 Copper Prices 1900 - 2001 'Real' 2002 and Nominal c/lb 400 350 300 'Real' 250 'Best Fit' 1971-2000 200 minus 3.1%/yr 150 c/lb 100 50 Nominal 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Slide 16: Copper Market Overview
Copper Market Overview n Demand recovery expected in 2003: n market deficit to develop in 2003 n price recovery held back by inventory overhang n Downside risks: n price sensitive idled capacity n reduced Chinese purchases n Good longer term outlook underpinned by a lack of quality new projects Angl
Slide 17: Development of Copper Portfolio
Development of Copper Portfolio n Acquisition of Disputada in progress n Rosario project at Collahuasi on track n Exciting exploration discovery at Boyangan n Exit from KCM finalised AngloBase Strategy: 9 October 2002 17
Slide 18: Summary of Copper Portfolio
Summary of Copper Portfolio Asset Country Life C1 Holding Strategy Boyongan Philippines 80% Advanced exploration project Collahuasi Chile 40+ 45 44% Expand Disputada Chile 25+ <50 100% Integrate, expand KCM Zambia 33% Exited Kolwezi DRC 30% Exited Mantos Blancos Chile 16 58 100% Cash cow Palabora So
Slide 19: Copper Assets
Copper Assets 100.0 1. Escondida 2. Grasberg Ruttan KCM 3. Chuquicamata 80.0 Mantos Blancos C1 cost (2002 US c/lb) 60.0 Disputada Collahuasi Palabora 1 40.0 3 20.0 2 0.0 0 200 400 600 800 1000 Annual copper mined production (kt, paid)
Slide 20: Acquisitions: Disputada
Acquisitions: Disputada Los Bronces open pit •US$1.3bn copper acquisition in Chile consisting of 2 mines (Los Bronces and El Soldado) and a smelter (Chagres) •Output of 250 kt/a increasing to 300 kt/a with further expansion opportunities •World class asset with C1 cost < 50 US c/lb •Los Bronces open
Slide 21: Projects in Construction: Collahuasi Rosario
Projects in Construction: Collahuasi Rosario •US$654m Rosario project approved •Transition from Ujina to Rosario compensates for Concentrate export at Punte Patache falling copper grade •Maintain ±400 kt/a copper for 40+ years •Potential for further expansion •Estimated incentive price 54 US c/lb Cu
Slide 22: Project Pipeline: Quellaveco
Project Pipeline: Quellaveco •Open pit copper mining project in Peru •Potential production of 200,000 t/a Cu over a 26 year life •Estimated C1 costs 53 US c/lb Cu for first 8 years •On hold pending improvement in market conditions View of the site
Slide 23: Advanced Exploration Project: Boyongan
Advanced Exploration Project: Boyongan Drilling at Boyongan •Copper-gold deposit in Philippines – oxide porphyry to 400m and sulphides below •Resource definition drilling to be completed by Q4 2002 •Initial metallurgical testwork encouraging •Two additional deposits in immediate vicinity being drill
Slide 24: Nickel
Nickel
Slide 25: Nickel Price
Nickel Price 12 PHM - MSU - 4.4.02 10 Nickel Prices 1900 - 2001 'Real' 2002 and Nominal c/lb 8 'Real' 1930-2001 minus 0.5 %/yr 'Best Fit' 1966-2000 minus 1.75 %/yr 6 4 $/lb 2 Nominal 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Slide 26: Nickel Market Overview
Nickel Market Overview n Price strength a function of rebound in stainless steel cycle, tight scrap market and Russian stock manoeuvres n Metal market expected to be in deficit in 2003 n Downside risks: n price induced scrap availability n stainless steel growth rates n “hidden stocks” n Lack of nea
Slide 27: Development of Nickel Portfolio
Development of Nickel Portfolio n Ramp up of Loma de Niquel underway n Brownfield expansion potential at Codemin/Barro Alto n Exit from numerous non core, smaller assets n Renegotiate with bondholders or exit Anaconda AngloBase Strategy: 9 October 2002 27
Slide 28: Summary of Nickel Portfolio
Summary of Nickel Portfolio Asset Country Life C1 Holding Strategy Anaconda Australia 15+ >200 24% Renegotiate with bondholders or exit Barro Alto Brazil 25+ ~180 100% Synergies with Codemin BCL Botswana 26% Exited Bindura Zimbabwe 6 225 53% Run for cash Codemin Brazil 6+ 190 90% Cash cow Loma de Ni
Slide 29: Nickel Assets
Nickel Assets 4.00 1. Inco - Sudbury 2. PT Inco 3.50 3. SLN Murrin Murrin 3.00 2.50 C1 cost (2002 US $/lb) Tati 3 2.00 Bindura Codemin/ Loma de Niquel 1.50 Barro Alto 2 1 1.00 0.50 Nkomati Anglo Platinum 0.00 0 20 40 60 80 100 120 140 Annual nickel mined production (kt, paid)
Slide 30: Project Pipeline: Barro Alto
Project Pipeline: Barro Alto •Feasibility study completed on greenfield project to produce 40kt/a nickel in ferronickel from laterite resource in Brazil. Concept rejected. •New project calls for processing of higher grade Barro Drilling at Barro Alto Alto ore at existing Codemin facility •Ore to be
Slide 31: Zinc
Zinc
Slide 32: Zinc Price
Zinc Price PHM - MSU - 4.4.02 200 Zinc Prices 1900 - 2001 180 'Real' 2002 and Nominal c/lb 160 140 120 'Real' 'Best Fit' 1977-2001 100 minus 1.3%/yr 80 60 c/lb 40 20 Nominal 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Slide 33: Zinc Market Overview
Zinc Market Overview n Price recovery held back by weak producer response to critically low prices and low demand n Weak short to medium term outlook: n metal market surpluses expected n shadow of Chinese metal exports hanging over market n Upside risks: n strength of demand rebound n smelter output
Slide 34: Development of Zinc Portfolio
Development of Zinc Portfolio n Good projects – bad industry n Skorpion, Black Mountain and Hudson Bay 777 projects on time and under budget n Lisheen ramp up complete n Gamsberg project on hold n Exploration budget cut AngloBase Strategy: 9 October 2002 34
Slide 35: Summary of Zinc Portfolio
Summary of Zinc Portfolio Asset Country Life C1 Holding Strategy Black Mountain South Africa 12 <37 100% Combine with Gamsberg Gamsberg South Africa 33 ~25 100% Project pipeline Hudson Bay Canada 15 <37 100% Run for cash Lisheen Ireland 12 <37 60% Run for cash Skorpion Namibia 15 <27 100% Under cons
Slide 36: Zinc Assets
Zinc Assets 80.0 1. Red Dog 2. Century 3. Brunswick 60.0 C1 cost (2002 US c/lb) Hudson Bay 40.0 3 Black Mountain Lisheen 1 2 20.0 Skorpion Gamsberg/ Black Mountain 0.0 0 100 200 300 400 500 600 Annual zinc mined production (kt, paid)
Slide 37: Projects in Construction: Skorpion
Projects in Construction: Skorpion Construction of cellhouse •Integegrated zinc mine/refinery in Namibia from oxide ore • World’s first industrial scale zinc SX/EW plant •US$454m capex, 1st quartile C1 cost (<27 US c/lb) •Project on schedule, within budget •Commissioning in Q1 2003, ramp up to 150,0
Slide 38: Projects in Construction: Black Mountain Deeps
Projects in Construction: Black Mountain Deeps •US$110m shaft sinking extends life to 2013 Deeps shaft head gear •Significant synergies with Gamsberg •Potential to increase life beyond 2013 •Project on schedule, within budget •Estimated incentive price 41 US c/lb Zn Man winder
Slide 39: Projects in Construction: Hudson Bay 777
Projects in Construction: Hudson Bay 777 •US$275m project includes new 777 shaft, Chisel Shaft sinking at 777 mine North mine, zinc cellhouse and surface infrastructure •Significant cost reduction and life extension (2016) •Project on schedule, within budget •High leverage to copper and zinc price •
Slide 40: Project Pipeline: Gamsberg
Project Pipeline: Gamsberg Drilling at Gamsberg •Integrated zinc mine/refinery project in South Africa •Mine capacity of 300kt/a with 33 year life and refinery capacity of 360kt/a to accommodate Black Mountain concentrates •Project on hold pending an improvement in market conditions •Project has 1st
Slide 41: Mineral Sands and Niobium
Mineral Sands and Niobium
Slide 42: Mineral Sands and Niobium
Mineral Sands and Niobium Namakwa n Namakwa ramp up complete – strong cash generation n Strong position in zircon market n Significant expansion potential Catalao n Strong position in niche market for niobium n Underground mine life extension under review AngloBase Strategy: 9 October 2002 42
Slide 43: Summary of Mineral Sands & Niobium Portfolio
Summary of Mineral Sands & Niobium Portfolio Asset Country Life Holding Strategy Namakwa Sands South Africa 35+ 100% Expand Catalao Brazil 20+ 100% Cash cow AngloBase Strategy: 9 October 2002 43
Slide 44: TiO2 Assets
TiO2 Assets 400 350 1. RBM 2. QIT 300 Net cash cost (US$/t) 250 2 200 150 100 1 50 Namakwa Sands - 0 200 400 600 800 1000 1200 TiO2 feedstock production (kt/a)
Slide 45: Project Pipeline: Namakwa Sands Expansion
Project Pipeline: Namakwa Sands Expansion Mining operations •Mineral resource available to expand operation from two to four furnaces whilst maintaining a +20 year life •A four furnace operation would produce ±400 kt/a slag and ±200 kt/a zircon •Appraisal study being completed by Q4 2002 •Expansion
Slide 46: 2002 H1 Results
2002 H1 Results
Slide 47: Summary Financials H1 2002
Summary Financials H1 2002 US$m 2001 2001 H1 2002 H1 Revenue 1,530 792 663 Operating profit before exceptionals (22) (12) 80 Headline profit (18) (30) 37 ROCE 0% 0% 8% Note: per AA plc UK GAAP AngloBase Strategy: 9 October 2002 47
Slide 48: Variance: 2002 H1 vs 2001 H1
Variance: 2002 H1 vs 2001 H1 Operating Profit 140 120 100 80 60 40 20 - (20) (40) (12) (21) 30 17 30 (12) 94 127 Prior Year Price Exch Vol Cost Inflation Structural & Actual Other
Slide 49: AngloBase Portfolio (after Disposals)
AngloBase Portfolio (after Disposals)
Slide 50: 2002 H1 Revenue by Region (after Disposals)
2002 H1 Revenue by Region (after Disposals) Europe 5% North America 20% South America 59% Africa 16%
Slide 51: 2002 H1 Operating Profit by Region (after Disposals)
2002 H1 Operating Profit by Region (after Disposals) Africa 24% South America 76%
Slide 52: 2002 H1 Operating Profit by Asset (after Disposals)
2002 H1 Operating Profit by Asset (after Disposals) Other Loma de Niquel 5% 6% Palabora 6% Collahuasi 41% Catalao 11% Mantos Blancos 15% Namakwa Sands 16%
Slide 53: Summary
Summary
Slide 54: Summary
Summary n Major rationalisation of portfolio n Management processes improved n Strong focus on improving capital and operating efficiency n Attractive expansion opportunities n Well positioned to benefit from upturn in base metal prices n But weak outlook for metal prices over the next 6-12 months A
Slide 55: Base Metals Strategy
Base Metals Strategy 9 October 2002 Simon R Thompson Chief Executive, Base Metals Division
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