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Anglo American increases 2012 annual dividend by 15%

Investment Tools Ltd.
Anglo American increases 2012 annual dividend by 15%

Financial results driven lower by commodity prices in weak global economic conditions

Group underlying operating profit of $6.2 billion, decreased by 44%

Underlying earnings of $2.8 billion and underlying EPS of $2.26

Following one-off impairments, loss attributable to equity shareholders of $1.5 billion

Net debt of $8.6 billion at 31 December 2012 (pro forma net debt of $9.3 billion)

Safety

It is regrettable that 13 employees lost their lives in work related incidents - safety programmes continuing to drive for zero harm with 70% reduction in fatalities since 2006

48% improvement in lost time injury frequency rate since 2006

Disciplined capital allocation

Aiming to maintain a strong investment grade rating, with the Board's commitment to sustain the rebased dividend and return surplus cash to shareholders

Final dividend increased by 15% to 53 US cents per share, bringing rebased total dividends for 2012 to 85 US cents per share, a 15% increase

Impairments recorded and Platinum review proposals announced

Minas-Rio project cost and schedule review confirms FOOS end of 2014 and $8.8 billion expected capital expenditure (including $0.6 billion contingency) - $4.0 billion post-tax impairment

Platinum industry currently facing challenging economic conditions- $0.6 billion post tax impairment in 2012 on projects. Platinum proposed restructuring to create a sustainable, competitive and profitable business

Solid production performance offsetting grade decline and illegal industrial action

Production growth and record set at Kumba Iron Ore, export metallurgical coal, export thermal coal, Nickel and Phosphates as new operations ramp-up and productivity measures take effect

Kumba Iron Ore - record production of 43.1 Mt, up 4% despite the unprotected strike at Sishen due to the ramp-up of Kolomela

Metallurgical Coal - record production of export metallurgical coal of 17.7 Mt, up 24%

Copper - 10% increase due to the ramp-up of the Los Bronces expansion despite disappointing performance at Collahuasi and in the Los Bronces mine

Platinum - 8% decrease in equivalent refined production mainly due to illegal industrial action

New mining operations and expansions ramping-up - delivered $1.2 billion of underlying operating profit

Kolomela iron ore - 8.5 Mt produced, ahead of its ramp-up schedule; on target for 9 Mt in 2013

Los Bronces copper expansion - contributed 196 kt; full ramp-up achieved in August 2012

Barro Alto nickel - production of 22 kt; progressing to full run rate

Zibulo thermal coal - production of 5.0 Mt

Investment prioritised to most value accretive and lowest risk projects

Cerrejón P40 8.0 Mtpa (100% basis) export thermal coal expansion (Colombia) - first coal in 2013

Minas-Rio 26.5 Mtpa iron ore (Brazil) - injunctions lifted and FOOS end of 2014

Grosvenor 5.0 Mtpa metallurgical coal (Australia) - longwall production in 2016

Cynthia Carroll, Chief Executive, said: "As a result of markedly weaker commodity prices, ongoing cost pressures and an operating loss in our platinum business, Anglo American reported an underlying operating profit of $6.2 billion, a 44% decrease. Underlying EBITDA decreased by 35% to $8.7 billion and underlying earnings decreased by 54% to $2.8 billion.

Our safety performance has always been my first priority and our efforts continue to build on the progress we have made since 2006, both in terms of lives lost and lost time injuries sustained. I am deeply saddened that 13 of our colleagues lost their lives in 2012 - a constant reminder that we must persevere to achieve zero harm.

Anglo American continued its drive for strong operational performance throughout 2012 in an environment of tough macroeconomic headwinds and a number of industry-wide and company specific challenges. Record volumes of metallurgical coal, achieving benchmark equipment performance levels, and of iron ore and increased volumes of export thermal coal and copper helped to offset the impact of illegal industrial action, declining grades and higher waste stripping.

The new mining operations and expansions delivered and commissioned during 2011 contributed to production growth and generated $1.2 billion of underlying operating profit. The Los Bronces expansion contributed 196kt of copper in 2012 and has achieved full ramp-up since August 2012, while Kumba's Kolomela mine exceeded expectations by producing 8.5 Mt for the year - both considerable achievements - while we have been slowly ramping up Barro Alto.

Beyond organic growth, we have completed our acquisition of the Oppenheimer family's 40% interest in De Beers, taking our holding to 85%. In Chile, our joint ownership of Anglo American Sur (AA Sur) with Codelco, Mitsubishi and Mitsui, while we retain control of the business, firmly aligns our interests in one of the most exciting producing and prospective copper ore bodies in the world - the Los Bronces district. During the year, we also increased our shareholding in Kumba Iron Ore, lifting our ownership by 4.5% to 69.7%, reflecting our view on the quality of the business and its highly attractive performance and growth profile. Our divestment programme has generated proceeds as announced of $4.0 billion on a debt and cash free basis, which excludes $7.4 billion cash generated from the sale of 49.9% of AA Sur. In line with our divestment programme of non-core businesses as set out in October 2009, I am delighted that Tarmac's UK joint venture with Lafarge was completed in January 2013, creating a leading UK construction materials company with significant synergies expected.

We are focused on delivering shareholder value and returns through the cycle by maintaining a prudent and disciplined approach to managing our businesses and capital allocation. Despite the macroeconomic headwinds and likely sustained higher capital and operating cost environment for the industry, we are committed to returning cash to shareholders and have recommended an increase to our final dividend of 15% to US 53 cents per share, bringing total dividends for the year to US 85 cents per share, a 15% increase. This reflects our confidence in the underlying business and completes the reinstatement journey to rebase our dividends to be competitive with our diversified peers.

We recorded impairments totalling $4.6 billion (post-tax) in relation to Minas-Rio and a number of platinum projects that are uneconomical, which is disappointing. In Platinum, we completed our review in January 2013 and have put forward proposals to create a sustainable, competitive and profitable platinum business. We, of course, regret the potential impact on jobs and communities and have designed an extensive social plan to more than offset any such impact. In Brazil, Minas-Rio is a world class iron ore project of rare magnitude and quality, representing one of the world's largest undeveloped resources. The published resource has increased more than fourfold since acquisition, of which we have subsequently converted 1.45 billion tonnes to Ore Reserves; we anticipate increases in the resource confidence and further conversion of resources to reserves through our on-going infill drilling program. Despite the difficulties we have faced that have caused a significant increase in capital expenditure, we continue to be confident of the medium and long term attractiveness and strategic positioning of Minas-Rio and we remain committed to the project. The first phase of the project will begin its ramp-up at the end of 2014, with operating costs expected to be highly competitive in the first quartile of the FOB cash cost curve, generating significant free cashflow for many decades to come.

We continue to sequence investment by prioritising capital to commodities with the most attractive market dynamics and projects with the lowest execution risks. The 5 Mtpa Grosvenor metallurgical coal project in Australia is under way and on schedule while, in Peru, successful completion of our community dialogue process at the Quellaveco copper project will allow us to target submission to the Board for approval in 2013.

Looking ahead, recent months have brought a degree of renewed optimism to the economic prospects. While European and Japanese economic activity remains weak, recent policy changes ought to stimulate growth in 2013. Alongside a continuing recovery in the US, we expect robust growth in the major emerging economies - especially China and India - as they benefit from continuing urbanisation. Rising living standards and an expanding middle class should support demand for our products across our diversified mix."

Dividends

Anglo American's dividend policy will provide a base dividend that will be maintained or increased through the cycle. Consistent with the policy, the Board has recommended a final dividend of 53 US cents per share, giving a total rebased dividend of 85 US cents per share for the year, subject to shareholder approval at the Annual General Meeting to be held on 19 April 2013. This reflects confidence in the underlying business and completes the reinstatement journey to rebase the dividend to be competitive with diversified peers. This recommendation is consistent with the commitment to have a disciplined balance between the maintenance of a strong investment grade rating, returns to shareholders and sequencing of future investment in line with resulting funding capacity. From time to time any cash surplus to requirements will be returned to shareholders.

 

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