Conference call transcript 8 December 2015 INVESTOR DAY - PDF document

Conference call transcript 8 December 2015 INVESTOR DAY PRESENTATION Mark Cutifani Welcome ladies and gentlemen. I would like to acknowledge my colleagues here sitting in the front row with us today who will be talking a little bit later. So it is good to have the team with us. Given the amount of change we are driving through it is important that they are here and hear the conversations we have. I think if I can reflect for just one minute, since taking over at Anglo American around 13 months ago I don’t think there has been one month that I’ve actually seen a consolidated rise in the commodity prices that we mine. And in particular we’ve seen pretty aggressive reductions over the last two or three months. I know I’m not telling this audience anything new. I guess the simple point that we wanted to make was that in this sort of environment nothing can be considered business as usual. Today we’ve announced as Anglo American a more radical and aggres sive portfolio restructure across the organisation. We have applied in simple terms a more aggressive set of criteria to the definition of our long-term assets. ‘ Priority One ’ assets, those assets that have the ability to generate cash and returns through the cycle will be the ones that characterise our business in the future. The implications for the existing business are clear. We will be materially downsizing the portfolio beyond our previously advised targets literally 60% from where we are today. That means a package in the range of 20 to 25 assets. From an organisation perspective it will also mean our downsizing is material from a previously advised reduction of 162,000 positions to less than 100,000 positions to an estimate of around 50,000 positions. Negative cash flow assets will either be closed, placed on care and maintenance or sold, but at the same time there will be no fire sales. We are announcing some closures or operations being put on care and maintenance today, and that process will continue as required across the portfolio. In looking at the future we are heading for a more streamlined, tighter portfolio with a lower overhead and support base cost structure. For us 2016 represents a year of significant and radical change from where we’ve been. Even though we have accelerated significantly, and you will see that in the numbers in the last 12 months, 2016 promises to be an even more significant and accelerated change year. To put the picture to you in terms of the assets, about 12 months ago this profile of assets generating operating free cash flow was substantially left- weighted. In today’s environment a lot tougher, more actions required both in terms of restructuring, closures and sale of assets in certain areas. In terms of our ‘ Priority One ’ asset criteria the key parameters that we use are the size of the resource and the potential endowment of the district in which we’re operating, we look at sustainability for the potential for margin growth. And certainly with long-life assets that is where a great source of value resides. We look at the absolute cost and margin curve position and where we believe they will be placed competitively, and also the asset operating risk profile. That includes geography and all those other elements that have to be considered in working out where an asset will be in terms of its competitive position and its reliability in terms of delivering value to the portfolio. In very simple terms 2016 will be about dealing with the tail. And we are taking a strategic view. We are looking to concentrate the portfolio on those assets that can deliver cash flows through the cycle. And 1

we think in that context our capital allocation will be much more focussed and more effective into the longer term. Compared to where we were 12 months ago where we talked about 70 assets, we are now down to 55 as you can see on the left. Our target restructuring was to get down to 36. In looking at the portfolio and thinking carefully about capital allocation in the environment that we see we believe that it is right to continue to focus on those priority assets, because from our point of view it creates the focus, it allows us to take overheads and cost that don’t add value across the business, and allows and supports our focus on those top-level assets that have got the best margins and certainly deliver the best returns through the cycle. As a consequence of that focus and that more aggressive restructuring we are today announcing a consolidation of our operating divisions into diamonds – no change – industrial metals, as we continue to restructure both the base metals and the platinum portfolios we will consolidate under one banner of industrial metals division. That consolidation will occur later in 2016, potentially early 2017 and will be a function of the restructuring of both portfolios and the progress we make. More immediately we will be going straight to a bulk commodities portfolio under Seamus French as of 1 st January. Minas Rio will start reporting to Seamus as of 1 st January. And during the course of 2016 as we restructure in Kumba we will then consolidate Kumba within the bulk commodities portfolio. I’m talking from a reporting relationship perspective. We will continue to reduce our overheads and focus on the establishment of regional commodity hubs where we share local infrastructure, skills and resources. And we will continue to consolidate our regional offices. We have closed almost a dozen during the course of the last 12 months. And consistent with that we confirm that as the London head office we will be moving in with De Beers in 2017 as part of the overhead rationalisation and our overhead cost reduction. In addition to that we will be looking to take out more duplication and cost by going to a functional organisation so that we make sure that the work we are doing in those functional areas is consistent, done at the highest level and providing the best support back to our operations with minimal cost and what we call friction or drag within the organisation. As a consequence of the portfolio restructuring, the organisational restructuring that goes with that, our reduction in roles and positions through the organisation will continue. In 2015 we are forecasting to be around 135,000 positions which is a reduction of 27,000 positions in the last couple of years. Next year we are forecasting a reduction of another 36,000 positions as we close, dispose and restructure the operations and the overheads across the organisation. Going beyond the original restructuring targets once we get to the target portfolio we will likely be around 50,000 roles across the organisation. One would expect to see that type of reduction for us to continue to improve our cost position and our competitive position across our chosen commodities. In the last 18 months in particular the restructuring has been significant and the acceleration in both our operating costs and capital costs as Tony and Rene will talk about a little later has also been significant and certainly accelerated from where we were in 2014 when we started the work. Most importantly I think the message is clear that how we operate won’t change. By that I mean safety and environment will remain front and centre in the organisation. Even with the changes that we’ve implemented to date we have made significantly improvements in safety and environment, and that won’t change. For us it is about transforming the whole organisation, and every one of these metrics that we use to determine whether we’re in the right ballpark, doing the right things is important to us. And safety and environment will be central and will remain central to who we are and how we do business. First I will hand over to Tony O’Neil who will focus on operations and the technical opportunities across the business. Philippe will give us some insight into the diamond market and try and answer all of those 2