Anglo American Thermal Coal Investor Presentation. April 2010

Transcription

1 Anglo American Thermal Coal Investor Presentation April

2 Agenda 1. Overview of Anglo American Thermal Coal (AATC) 2. Market Overview 3. Strategy & Growth Pipeline 1

3 Agenda 1. Overview of Anglo American Thermal Coal (AATC) 2. Market Overview 3. Strategy & Growth Pipeline 2

4 Historical Timeline 1897 Vereeniging Estates Limited (VEL) incorporated into a newly listed company Production reaches 5Mt Production reaches 12Mt 1975 Anglo American merges its various coal ventures into VEL which changes its name to Anglo American Coal Corporation Ltd (Amcoal) 1998 Amcoal absorbed into Anglo American Corporation of SA 1998 Production reaches 53Mt 1998 Acquisition of Cerrejon 2009 Anglo American splits its coal operations into focused Thermal & Metallurgical product divisions VEL combines its coal interests with those of A&E to form Amalgamated Collieries, then the largest coal group in Africa 1945 Anglo American buys a controlling interest in VEL Richards Bay Coal Terminal opens Acquisition of Shell Coal 1964 Production reaches 17Mt 1999 Anglo American lists in London Production reaches 98Mt Source: Anglo American Thermal Coal 3

5 Overview of Anglo American Thermal Coal Colombia (2009) South Africa (2009) 1 Puerto Bolìvar (33%) Richards Bay (27%) Mine Holding Total Attributable production 2009 Export Mt Domestic Mt LOM Years Mine Holding Total Attributable production 2009 Export Mt Domestic Mt LOM Years 11. Cerrejòn 33% 10.2Mt EBIT (2009) Export Eskom Other domestic US$305m 11. Goedehoop 100% 6.9Mt Greenside 100% 3.8Mt Kleinkopje 100% 4.4Mt Landau 100% 4.2Mt Kriel 73% 11.2Mt New Denmark 100% 3.7Mt New Vaal 100% 17.6Mt Isibonelo 100% 5.1Mt Mafube 50% 2.2Mt Zibulo 1 73% 0.1Mt Total production 59.2Mt Employees 14,446 EBIT (2009) US$439m Notes: 1. Zibulo was previously known as Zondagsfontein Project. Steady state production will be 6.6Mtpa 2. Production of AIC assets reported at 100% Source: Anglo American Thermal Coal 4

6 A Stable Cash & Earnings Contributor to AA Plc Coal % Contribution to AA EBIT 25% 20% Total Coal Anglo Thermal Coal Anglo Met Coal 15% 10% For Thermal Coal on average accounted for 9% of Anglo American EBIT 5% 0% AATC has been a consistent contributor to Anglo American profitability Source: Anglo American annual financial statements * For 2004 to 2007 Australia segment previously reported used for Met Coal. Balance of previous Anglo Coal EBIT allocated to Thermal Coal Division 5

7 AATC South Africa Safety Performance AATC South Africa Lost Time Injury Frequency Rate & Fatalities LTIFR Fatalities LTIFR Fatalities Fatalities in 2009 vs. 4 in Zero for 2010 YTD LTIFR improvement of 9.4% AATC 2009 fatal injury frequency rate was compared to 0.05 for the RSA coal industry AATC 2009 LTIFR was 0.29 compared to 0.31 for the RSA coal industry Isibonelo more than two years LTI free Rapid Loading Terminal Zero harm in 2009 HPI reporting fully implemented Safety is our No. 1 Priority Source: Anglo American Thermal Coal 6

8 South African Operations Location Source: Anglo American Thermal Coal 7

9 South African Logistics South Africa coalfields rail & port infrastructure Coal railed to Richard Bay Coal Terminal (RBCT) for export Coal is railed by Transnet Freight Rail (TFR) - with nominal railing capacity of 72Mtpa In 2009 TFR railed only 61Mt railing volumes are bottleneck to coal exports AATC has 27% shareholding in RBCT RBCT capacity is 72Mt going to 91Mtpa from post Phase V expansion Source: Transnet, Anglo American Thermal Coal 8

10 Mining Methods A. B. Surface/Opencast Mining Underground Mining 1. Doze Over 2. Shovel & Truck Dragline Strip Mining 1. Bord & Pillar Mining 2. Longwall Mining 3. Mini Pit Mining 3. Pillar Extraction Mafube Waterberg Landau Kleinkopje New Vaal Isibonelo New Largo Goedehoop Greenside Kriel Zibulo Elders Limpopo Mining method choice critical to reserve extraction optimisation New Denmark Heidelberg Source: Anglo American Thermal Coal 9

11 AATC South Africa Market Position Anglo Coal SA is a major player in all market segments Total South Africa production for 2009 of approximately 260 Mt 14% 22% 9% 5% 14% 20% Anglo Exxaro Sasol BHP Xstrata Optimum Others 16% AATC is the leading coal producer in South Africa & holds around a quarter of market share Source: Wood Mackenzie, Company Financial Statements 10

12 A 1 st Cost Quartile Thermal Coal Producer Port Loading 80 Freight 80 Royalties Mining & Processing 60 Labour Cumulative Forecast Production, Mt All AATC South African export operations within the 1 st cost quartile of the AME 2010 global cost curve Opportunity exists to further reduce costs. Project underway to review cost structures and asset portfolio Source: AME FOB Cost Curve

13 RSA Domestic Market: Eskom & Other Domestic production share of total AATC RSA tonnage Share of total Eskom tonnage Production, Mt % Export AATC supplies c.30% of Eskom total % Eskom c. 36Mt to Eskom for power generation Eskom average CV (air dried) 4,550kc/kg ( 19.1MJ/kg) Pricing strategy a combination of long term cost-plus arrangements and some at fixed price + escalation 10 c. 7Mt of other domestic tonnage including: 0 11% Other Domestic 5Mt from Isibonelo supplying to Sasol 2Mt to a range of other industrial customers AATC a major supplier of coal to Eskom and expected to grow Opportunity exists to further reduce costs. Project underway to review cost structures and asset portfolio Source: Anglo American Thermal Coal 12

14 RSA Export Market Export ACSA production operations share of are currently well positioned on the exports AME Cost by destination Curve total AATC RSA tonnage 2009 exports by customer type country/region Production, Mt Export Sales, Mt Export Sales, Mt % Export Mt Utility Traders Steel Mt Other Europe % Other Domestic Mt Power Utility Mt 1.0 Mt 1.4 Mt Other Asia Israel Italy 20 62% Eskom 4 3.4Mt Physical Trader Mt ARA Mt 1.0Mt 1.0Mt Industry Supplier Importer to India Bank Mt India 30% of AATC SA s thermal exports to India in 2009 Note: 1. ARA = Amsterdam, Rotterdam, Antwerp Source: Anglo American Thermal Coal 13

15 Cost Breakdown ACSA AATC operations South are Africa currently cost breakdown well positioned on the 2008 AME Cost Curve 2009 Actual 7% 0% 3% 8% 43% Labour & contractors Maintenance & stores Rail, wharfage & other selling costs Consumables Power Royalties will be applicable from 2010 expected to account for ~1% of costs Electricity a relatively small share of total costs: Eskom power price increases will add 1% to overall costs in but will continue to rise 15% Royalties Other 24% Labour the major cost component showing cost increases of over 9% per annum over the past 3 years Opportunity exists to further reduce costs. Project underway to review cost structures and asset portfolio Source: Anglo American Thermal Coal 14

16 AATC South Africa Margins & ROCE AATC South Africa EBIT margin Historic adjusted ROCE Price & exchange rate sensitivity US$m EBIT Margin ROCE % 100% EBIT EBIT Margin 40% % 80% 30% % 60% 20% % 15% % 20% 5% 0 0% 0% Stable margins despite turbulent times Change in EBIT US$m US$1/t change in price ZAR0.10 change against the US$ Source: Anglo American Thermal Coal 15

17 Leadership in BEE Transactions: Eyesizwe and AIC Anglo Inyosi Coal empowerment transaction WDB Lithemba Consortium Pamodzi Coal Investment Holdings Communities 33% 33% 19% 15% Anglo Coal 73% Inyosi 27 % Anglo Inyosi Coal formed in November 2007 for R7bn 27% BEE participation from inception Anglo Inyosi Coal Kriel Operations Zibulo New Largo Elders Projects Heidelberg Resources of 4.1 billion tonnes Optimal asset mix (existing operations & projects) Stable cashflow stream through Kriel Colliery ESOP commitment All AATC s SA mineral rights converted Dynamic consortium partner grouping with strong women & community participation Source: Anglo American Thermal Coal 16

18 Social Responsibility Progress against Mining Charter - BEE procurement spend 2009: R5.6Bn (56%) - HDSA in Management: 45% (target 40%) - Women in Mining: 16.5% (target 10%) - Women in Management: 17% - Women in Technical Occupations: 11% - Learnerships in AATC SA: 545 (88% HDSA) Winter school classes at Empucukweni Secondary School Focus Areas of Social and Labour Plans (SLP s) - Infrastructure - Education and Skills Development - SMME development - Agriculture - Environment - Sports, Arts and Culture Educator Development Programme Strengthening partnerships with government and NGO s Guided by the Anglo Social Way Vegetable garden at Edward Matjeka Primary School Robust implementation of SLP commitments Source: Anglo American Thermal Coal 17

19 Sustainable Development: Water Treatment SA s first large-scale mine water treatment plant Navigation ZAR390m Capex, 25 Ml/day potable + 8 Ml/day process water Kleinkopje Greenside South Witbank Addresses environmental impact of mine water whilst alleviating water shortage in local community of Emalahleni Source: Anglo American Thermal Coal 18

20 AATC Asset Optimisation Initiatives CMIG Project: Benchmarking against 109 continuous miners in SA Mt G/Side Vuma G/Side Thandeka Kriel Ngwenya GH Sim Iskonjane Vlak Mangwapa 5/Top 10 = Anglo Kriel Fezela G/Side George GH Sim Imvubu GH South Khomanani Kriel Ishlosi Kriel Bhubezi Kriel Bhejane G/Side Thusanang GH South Sizimisele Hope 5/6 ROM Tons Jan Dec Million ton projected target Asset optimisation is clearly focused on key mining equipment and supporting activities Opencast mines Draglines ( DIG Initiative) Position Section Miner Hauler Prod Shifts 1 G/Side Vumagara 12HM31 20 ton S/C 8 x 8 x M 2 Other ABM30 Cont Haulage 10 x 10 x M 3 Other ABM30 Cont Haulage 10 x 10 x M 4 G/Side Thandeka 12HM31 20 ton S/C 8 x 8 x M 5 Other ABM30 Cont Haulage 10 x 10 x M 6 Kriel Ngw enya 12HM21 16/20 ton S/C 8 x 8 x 8 7 G/Hoop Isikhonyane 12HM31 20 ton S/C 8 x 8 x 8 8 G/Hoop Mangw apa 12HM31 20 ton S/C 8 x 8 x 8 9 Other 12HM31 16 ton S/C 10 x 10 x M 10 Other 12HM31 20 ton S/C 8 x 8 x 8 AATC s mines operate 5 out of the top 10 performing Continuous Miners in South Africa Underground mines Continuous miners ( CMIG initiative) Source: Mining Consultancy Services

21 Agenda 1. Overview of Anglo American Thermal Coal (AATC) 2. Market Overview 3. Strategy & Growth Pipeline 20

22 Fuel Demand Outlook GDP growth is the principal driver of growth in demand for energy GDP CAGR 10% Coal is forecast to increase its share of primary energy, due to higher share of power generation Mtoe % 6% % % % China India Brazil Russia Africa Middle East OECD Continued urbanisation & industrialisation in developing countries especially in Asia 0 Coal Oil Gas Nuclear Hydro Biomass and waste Other renew. 1. Million tonnes of oil equivalent Source: IEA World Energy Outlook 2009 (Reference scenario) 21

23 Thermal Coal-Fired Energy Demand Thermal coal-fired energy demand expected to almost double over the next 20 years, mainly driven by Asian markets CAGR Twh Total 2.7% 16,000 14,000 13,500 15,300 Africa Middle East South America 1.8% 4.6% 6.9% 12,000 10,000 8,000 8,200 10,500 11,750 Asia China India 4.0% 4.0% 5.7% 6,000 4,000 2,000 North America 0.5% Europe 0.5% Majority of thermal coal market is domestic, with only ~10%-15% of volume entering the seaborne export market Source: IEA World Energy Outlook 2009 (Reference scenario) 22

24 Seaborne Export Supply & Demand India the key driver of export demand due to high forecast GDP growth & a shortfall in domestic supply Indonesia, Australia and Colombia with the highest expected supply growth Demand, Mt 1,250 Total CAGR 2.5% Supply, Mt 1,250 Total CAGR 2.5% 1, ,018 Africa, ME, S Am North America Europe India 4.1% 2.6% 0.7% 9.6% 1, Other USA China Colombia South Africa Russia Australia 1.0% 0.5% 1.8% 3.0% 1.5% 0.5% 3.1% 250 Other Asia 1.9% 250 Indonesia 3.1% Seaborne export market trends highlight key supply and demand markets across the globe Source: Wood Mackenzie 23

25 Growth focused on the Indo-Pacific basin Russia 69Mt exports Europe 160Mt imports Minor trade flows Major trade flows Importer Exporter Others 74Mt exports Others 117Mt imports USA/Can. 22Mt imports 35% of world thermal demand in the Atlantic basin Colombia 65Mt exports 36 Mt South Africa 62Mt exports India 50Mt imports 26 Mt to Asia China 50Mt imports 65% of world thermal demand in the Indo- Pacific basin Indonesia 215Mt exports N. East Asia 221Mt imports Australia 135Mt exports Source: Anglo internal, IEA, McCloskey, Wood Mackenzie Note: Only major trade flows shown; rounded figures, 2009 basis 24

26 AATC maintains its position as swing supplier to Atlantic and Indo-Pacific markets 71 8% 2% 8% 80% 68 8% 2% 10% 79% South African exports Volume in Mt 1 (% of total sales) 75 12% 5% 7% 75% 68 12% 4% 7% 76% 68 10% 7% 13% 6% 63% 70 14% 6% 8 (12%) 7% 42 (60%) % Others +1% 12% Other Asia +28% 19 India +55% (28%) 8% CAGR '03 '09 ME -2% 29 Europe -11% (44%) Declining volumes to Europe Overall stagnating market demand due to economic and environmental factors Competition from Colombian coal suppliers and softer gas prices Increasing volumes to India Strong growth of Indian seaborne demand South Africa geographically favorably positioned to supply India Complementary product properties to lower CV, high moisture Indonesian coal Premium achieved on exports to India compared to Europe % 30% of AATC s SA exports supplied to India in 2009 Note: 1. Minor volume of Met Coal included in export figures 2. Including 3 Mt metallurgical coal Source: McCloskey; AATC analysis 25

27 Thermal Coal Pricing Outlook Export thermal coal prices follow indices which are expected to remain high going forward USD/t API4 (FOB RBCT) API4 forward curve Source: McCloskey 26

28 Key market trends and implications for Thermal Coal Market trend Thermal Coal implications Pace of growth in China and India Export market growth will be driven by two key markets Moderate slow-down in Chinese GDP growth and delays to Indian expansion not expected to change structural market shift Rail and port constraints Restricted rail and port facilities in key geographies, particularly Australia and Southern Africa, limit growth Supply constraints could result in pricing upside Environmental Regulation and Taxation Understand impact in each market and develop appropriate mitigation strategies Alternative Fuels Coal is expected to maintain its share of growing world primary energy to 2030 Impact of cheaper gas expected to be limited on main growth markets for coal Important to keep track of impact of - and potential opportunities in - related fields Source: Anglo American Thermal Coal 27

29 Agenda 1. Overview of Anglo American Thermal Coal (AATC) 2. Market Overview 3. Strategy & Growth Pipeline 28

30 Anglo American Thermal Coal Future Production Current production levels are sustainable for a number of years. Production, Mt Limpopo Elders OC Cerrejon P500 Waterberg Elders UG Heidelberg UG New Largo Cerrejon P40 Existing and Approved Projects under review could increase production levels significantly Source: Anglo American Thermal Coal 29

31 Approved project: Zibulo General information Products Export Eskom Financials Topic Approved in Dec Project includes colliery and Phola coal wash plant Mining started Q (0.1Mt) Full capacity 6.6Mt reached in mtpa 3.3mtpa Description Capital expenditure = US$505m People full production Ownership 73% Anglo American 27% Inyosi Production & reserves 20 year 8mtpa ROM 8 CM production units supported by battery haulers & shuttle cars Source: Anglo American Thermal Coal 30

32 Project: New Largo Topic Description Timeline Products Eskom Feasibility study: First coal: 2013 Full capacity: mtpa to Kusile Power Station Financials Estimated capital expenditure = US$1.7Bn People full production Ownership 73% Anglo American 27% Inyosi Production & reserves 50 year 14mtpa ROM Two 100m 3 draglines Source: Anglo American Thermal Coal 31

33 South Africa Infrastructure Constraints TFR expected railings vs RBCT capacity South Africa forecast power supply & demand Capacity, Mt TWh RBCT Capacity Anglo TFR Allocation Others TFR Allocation Demand Demand with energy savings Supply SA infrastructure capacity expected to expand but both rail and power supply expected to be limited in medium-term Source: Anglo American Thermal Coal, Eskom, TFR 32

34 Southern Africa Infrastructure Emergent coal export corridors possible medium term scenario Hwange Tete Beira Botswana Limpopo Waterberg (to connect to RBCT line) Maputo Witbank-Highveld Richards Bay Existing export corridors Emergent export corridors Undeveloped basins will require significant transport infrastructure investment Source: Anglo American Thermal Coal 33

35 Coal Bed Methane Gas CBM exploration and pilot projects Waterberg CBM Pilot Project Waterberg GROOTEGELUK COLLIERY LEPHALALE Waterberg CBM exploration proceeding Small-scale production tests ongoing Conceptual study in progress Botswana Significant leaseholds in Botswana Reconnaissance exploration in progress Cleaner energy from coal leading the exploration of CBM in Southern Africa Source: Anglo American Thermal Coal 34

36 Discard Coal-Fired Power Project Witbank project to utilise waste coal Project under evaluation: fluidised bed boiler technology, ~300MW Third party ownership est. capex ~US$600m Power for use of Anglo American - could enable growth projects and hedge against future costs of power Technical advisers appointed Reducing environmental impact of waste dumps and improving SA power supply Source: Anglo American Thermal Coal 35

37 Conclusion Stable cash generating business and consistent contributor to AA plc profitability Positive market outlook for RSA thermal coal in the medium term driven by export demand in the Indo-Pacific region & domestic South African power demand Thermal export prices expected to remain at historically high levels in the medium term AATC South African operations in the 1 st quartile of the global cost curve Strong growth pipeline but infrastructure constraints will need to be resolved Strong resource & reserve position with reserves of 1.2 billion saleable tons (proved & probable) & further resources of 1.9 billion MTIS 1 (measured & indicated) Global growth opportunities under evaluation Notes: 1. MTIS = minable tonnage in situ. Reserves & resources include South Africa and Colombia 36

38 Appendix

39 Global Coal Production Total world coal production of 6.8Bt in 2008 concentrated in relatively few countries & principally in domestic markets Major coal producers & exporters (2008) Production*, Bt % 3% 4% 5% 6% 8% 16% Other Indonesia South Africa Russia Australia India USA 13% 87% Export Domestic Mtoe Major Domestic Markets Net Exporters Coal Produced Coal Consumed % China Production by Country Production by Market China USA India Australia Indonesia South Africa Russia Colombia Poland Canada Small imbalances in large domestic markets like China & India have a significant impact on the export market Source: BP Statistical Review of World Energy 2009, Wood Mackenzie *Note: Includes all coal types 38

40 Management Team CEO Thermal Coal N. Mbazima Head of Thermal Operations Head of Commercial & Performance Head of Human Resources Head of Marketing & Sales Manager Comm. & Public Affairs Head of Safety Head of Strategy & BD Joint Venture Manager Cerrejón Head of Mining Services D. Haselau M. Samad P. Williamson Z. Docrat* Y. Mfolo P. Fourie L. Horne* C. Wiggill A. Johnson * Acting AATC building up an integrated management team Source: Anglo American Thermal Coal 39