Anglo American plc

Good morning everyone. I'm Stuart Chambers, Chair of Anglo American and it's my pleasure as usual to welcome you all to our results presentation for 2023. Now before handing over to Duncan and John, I'd just like to do two things. I'd like to update you on last year's board changes and then also give you a very short board perspective on today and tomorrow. Firstly, on board changes, I'm delighted that Magalie Anderson joined us in April last year, a senior industrialist in the world of cement, but actually much more importantly for us at any rate, a passionate expert in sustainability. And as you all know, sustainability is at the heart of all we do and actually how we do it at Anglo American. And then in December... perhaps very well known to you, is Stephen Pearce, stepped down and retired in December after seven years as our finance director. And we welcomed John Heasley, who we see here, who joined on the 1st of December, a little more than a couple of months ago. I must say, John, it feels like it's a lot longer than that. But I'm very pleased to say, at risk of embarrassing John, that he's already made and he's already having a big impact. So moving now to a brief perspective on today and on the future. And I'd like to start with a short few words on our long-term future at Anglo-American. We are in a very, very strong position indeed. We have extraordinary set of resources in copper, in high-quality iron ore, and now in polyhalite. And collectively, these are all supported by three global megatrends. We've got multiple decades of resource in all three of these, and in several cases, we actually have endowments potentially exceeding a century of mine life. So, great potential for organic long-term sustainable growth. However, to exploit these assets and to invest in them We need the right balance sheet and we need sustainable financial performance. So what do we mean by that? Well, last year's financial performance was poor. Now, sure, we had some very serious headwinds, very seriously in PGM prices, but also in diamond, both prices and volumes. But Duncan and his team, of course, have not been and are not sitting around, waiting around and hoping for those cycles to bounce back. We have to instead be pulling every lever available to significantly improve our cash conversion, which, as you'll have seen last year, was at an unsustainable level. So what are those levers? Well, I'll mention a few. re-establishing operational excellence as a way of life for us, continuing the significant cost reduction started last year and continuing through into operations this year. And you'll have seen, I'm sure, the announcements from South Africa, for example, in PGMs and in iron ore there, examples of important cost reductions. And I'm sure you will appreciate that those announcements follow a significant amount, a number of months of both planning and engagement. These are not knee-jerk reactions to a second half set of results. So Duncan is also very clear about the need to simplify our portfolio. in order to be able to allocate any extra cash we have to the most deserving long-term growth prospects that we have. And of course, finally, he has already communicated that we will pursue the syndication of Woodsmith in order for that to be a more manageable and major live project, just as we did with Keoveco. So Duncan and John will now talk about this and war, as well as presenting the numbers. But the reason I was keen to make this short introduction was to leave you in no doubt about the fact that the board is fully behind all these short and medium-term imperatives which are required so that we will be able to secure a strong long-term future, which we all know is achievable at Anglo-American. So thank you very much. I will now hand over. Duncan, over to you.

Thank you, Stuart, and good morning to you all. Welcome, as always, and thanks a lot for joining us today. There's quite a lot that we'd like to cover this morning, and I'd like to also highlight that there's a more extensive amount of detail in the appendix this time around, and obviously encourage you to work through that as well in your own time. So I'm going to unpack our 2023 results, but before I do that in any detail, I'd like to set the scene in terms of where we stand today and our strategic priorities moving forward. In short, 2023 was not the performance that I wanted. Much of that downturn was indeed driven by factors beyond our control, but that we can substantially step up our performance without relying on price recovery is an imperative, and we are now well progressed in that action to achieve that plan. The fundamental driver of performance is the mind planning process for us. Without a mind plan that works, it's very difficult to get the economic performance out of a business. And we have now set or reset the vast majority of those mine plans across the businesses to position them for pricing, operating and geotechnical realities that we face. This is an ongoing and a dynamic process. And there is often a settling in period of around 12 to 18 months when you transition from one plan to another. But I am confident that we now have that operating base. in which we will be much more fit for the circumstances that are likely to face the business in the near term. We've also made some material changes to the organization with a very much bottom-up focus to refresh that cut in the costs of our senior roles by 25%, but more importantly, set up a more effective governance program with less duplication and more focused accountability across the whole of the business. Now, this process has already involved some really tough decisions, such as those that were announced earlier this week in South Africa to reset both Kumba and Anglo-American platinum. I am very mindful that these impacts or the impact of these decisions come across as very difficult for our teams, but they are absolutely essential for us to create a business that is more competitive and can thrive over time to support all of our stakeholders. There's no point in a business that can only perform at the top of a cycle, but always struggles at the bottom of a cycle. So underlying these changes is a portfolio, I think, with some world-class assets and leading market positions. And that is all very, very well aligned with those three megatrends that you've heard me speak about so often. The issues associated with the energy transition, the improving living standards of a growing population, and food security for a growing global population. Now, although the near-term environment, I think, will remain relatively challenging for us in parts, the long-term demand is really very bright, as far as I can see, based on those three trends. Therefore, I do remain very excited about the future of this industry, and particularly about the future of this company. And I am confident that we have the strategy and the capabilities to make that happen. Now, in terms of our strategy, we have three very, very clear priorities. Firstly, and most importantly, is operational excellence, as you heard Stuart speaking about. So irrespective of what asset you have in the portfolio, what business you have in the portfolio at any one time, while it is in the portfolio, the obligation of it is to, in the first instance, play its role in the portfolio and be operated in a way that it is deemed to be inside out and outside in operationally excellent. I have already said that the mine plans, which are at the very core of these businesses, is what we need to deliver on and improve the competitiveness of our assets through the efficiency of the management of those assets as well as the cost management within those assets. This is the foundation of absolutely everything else. And if we don't get that right, it's very difficult to get onto priority two and priority three within the strategy. So secondly, we will work to improve our portfolio. Practically speaking, we will work towards having a simpler or a less complex portfolio where every asset has a role to play and that asset needs to be in the portfolio on its merit. Thirdly, and it is third in this context, over the longer term, we are focused on delivering the attractive and highly value accretive growth options that exist and are embedded already within the portfolio. We do have a clear pathway with well-sequenced plans from a capital allocation perspective to be able to do that. But I do want to assure you that we will not compromise our balance sheet, nor our shareholder returns for growth investment. The execution of our strategy is underpinned by the application of our differential capabilities built over many, many, many decades of establishing operating businesses in both developing and developed markets. I'm going to go into each of these three key strategic priorities in the next few slides, and then later I'll come back and give a little bit more detail on operational matters and growth. Now, by far and away, our biggest focus is on our operations. Operational stability and effective cost management do represent our biggest margin levers and this is supported by sustainable production plans that prioritize value and thereby enhance margins and returns. We are intensely focused on the operating model to achieve a safer, repeatable and more consistent outcomes. The operating model itself absolutely leans into a competent mining plan, and that's very important. We're also starting to see the benefits come through from the work that we have done during 2023 to reset our organizational design. So in removing the duplication, it has moved much of the decision making closer to the operations. And not only now is there better accountability, but it is also easier to make the right decisions more quickly throughout the business. We expect that these actions are going to come together and deliver a $1 billion saving in annual OPEX through the business, and they are now well progressed. So much of that is already in track. Some of it has already been delivered, but we expect to hit that full $1 billion OPEX saving at a run rate of $1 billion by the end of 2024. We are also taking $1.6 billion of capital out of the business over the next three years. And that capital removal is a function of efficiency in terms of the way that we look at capital. So no change in scope, but better and effective, better effective deployment of that capital. But more importantly, with a clear focus on every asset has a role to play in the portfolio at the right time in the cycle. And therefore we choose to allocate our growth capital to those elements of the portfolio that deserve to be growing at this particular point in time. I believe that we have therefore already made some very significant progress, but we are far, far from done here. And we still are in the process of systematically reviewing all of our assets in conjunction with the detailed mining plan work that I mentioned earlier. We will then take the further actions that are absolutely going to be needed to ensure that every asset is competitive and we're working towards positioning most of our key assets solidly in the bottom half of their respective cost curves. Now, portfolio improvement, which is our second strategic priority after operational excellence, and as we continue to go through these assets systematically, we also have to assess the role of every asset in the portfolio. As we go through that process, I want to assure you that nothing is off the table, but there has to be a very clear value rationale for it to either be in the portfolio or not in the portfolio. There are a number of important components to value. So when we look at this through the asset review, we have to look at the actual plan for that asset. We have to look at the markets in which that asset operates. We have to look at the time in the cycle that we'll be looking to make any of these decisions. We have to look at the role in the portfolio for this particular asset over what period of time, and we certainly have to be cognizant of any of the frictional costs of change to either adding or removing assets to the whole of the portfolio. And now, as everybody knows, share prices and commodity prices can bounce around quite materially every single day. But when you're dealing with a capital cycle that extends over many, many years, as we do in mining, with a very limited number of tier one assets, then these decisions have to be very thoughtful and based in deep seated logical value. And that is how we're thinking about it. I can definitely see portfolio improvement as a value lever, and I am working to remove the complexity from this business, but any changes that we make must be done with shareholder value in mind first. Finally, growth. At this time, this is the third on the list of priorities, and I mean in that order, but it doesn't mean that the growth potential in our portfolio is not genuinely exciting. we do have some very, very highly attractive project options that we already own and that do offer considerable growth potential in value. We are progressing a well-sequenced pipeline of copper projects with Woodsmith at the moment, and we have now created really valuable longotated optionality in high-quality iron ore with the Serpentina deal that we announced this morning, which we will be able to develop when the time is right. We have more of these adjacencies in the portfolio. We really like adjacencies. There are very few places in the world you can go in mining where you can extract actual industrial synergies from ore bodies or infrastructure. And there are a few more of these in the portfolio. So like Serpentina was an adjacency, I'm very keen to see if we can unlock others such as Los Bronces and at Coyahuasi as we continue to progress discussions there with our partners. We will look to syndicate the risk, as Stuart said, and the capital on large greenfields projects for value, and that includes Woodsmith, just as we did at Kiveco, at the right time and with the right partner. Our differentiated capabilities spanning sustainability and social impact, technology, and the belief in the importance of customer-centric marketing are absolutely critical enablers for all three of our strategic priorities as they position us as the partner of choice. These capabilities are critical to our day-in and day-out operations, as well as our ability to achieve our portfolio improvement and our growth ambitions. We have a compelling competitive advantage in how we bring these development projects to book. Kiveco is a blueprint for the success in partnering for long-term mutual benefit. And there is a deep expertise that runs through the organization to be enabled to do these sorts of things. And we are applying these capabilities and taking them further at Woodsmith here in the UK and also at Sakati in Finland. These will be minds of the future in terms of their minimal footprint and the sustainable impact that they have on society and on the environment and reinforce our credentials as a credible partner of choice. We have a more focused and a prioritized approach to technology now, meaning that we can better realize the benefits from our investment in future smart mining of recent years. We have learned a lot. with some wins such as coarse particle recovery and dry stack solutions amongst others. And we've learned that at this stage, we have to focus on the technologies that we believe can bring about the greatest change to our own assets in our own portfolio first. Our Southern Africa renewable strategy through INVUSA, I think, is a great example of developing big picture solutions to very difficult problems and solutions that in themselves are NPV positive. And we do continue to make great progress there with a financial close expected imminently on three of our projects, which will firm bring about 520 megawatts of energy in our drive for three to five gigawatts over time. So, moving on then just to a quick summary of the 23 operating performance. And as always, safety is first. We do continue to make some very, very solid progress in our safety journey and on our journey towards zero harm. We achieved our lowest ever injury frequency rate in 2023. And on top of that, we ended the year with the lowest frequency rate ever. That was 0.91. So we beat our own target quite significantly in terms of this. So on behalf of the whole organization, though, despite that progress, I do want to offer our deepest condolences to the family members, the friends, and the colleagues of those who did lose their lives during the course of the year. As you know, we had three fatalities during the course of 2023. With those fatalities and the other accidents that we've had during the year, we know that we have more work to do. I am very enthusiastically positive about the journey and the progress that we are making, but it is never going to be enough and it's never going to be okay until there are zero injuries and certainly zero fatalities. This improvement in safety, though, I think is an important indicator for us. It really does give me much deeper confidence in how we are improving our underlying operational capabilities. I have said to you before, if you've got safe, stable production, if the production is stable, the safety is likely to be improved. And I think the indicators in terms of our safety performance are now starting to give us a clue that production is starting to become a little bit more stable. So these are good foundations, but more work to do to improve it there. In December, I spoke at some length about the operational performance of this business through 2023. And you had the production update numbers just a couple of weeks ago. So I'm just going to keep this section quite brief before I hand over to John. Production was up 2%. That reflects really the ramp up of Kiweco, which produced 319,000 tons in the year. And all of that at a very, very competitive unit cost of 111 cents a pound. Minister Rio itself, great performer during the year, set a number of performance records, while Kumba at the same time performed extremely well, but as we know, was materially hampered in terms of its ultimate performance by some of the transnet constraints that we saw in South Africa. At Los Bronces, we are in a temporary phase now of lower grades and harder ores. and the mine development has to catch up with the productive capacity in the whole of the operation. And on that basis, we have taken the decision to temporarily shutter one of the plants there for the next few years to allow that to catch up and allow us to get into the softer, higher-grade ores from the next phase of the mine. At Steelmaking Coal, we do continue to focus here on safety. These protocols are absolutely extremely important given the ground that we're working in and given the interface of that ground to gas, and we are making good progress there, just not as good as we would have liked to have made, but absolutely progress indeed. The PGMs and De Beers businesses both performed well operationally, but as we have been speaking about for quite some time now, we're really hampered by market lows, which we believe to be cyclical lows generally. These numbers could have and should have been a little bit better, and that is where our focus is now on operational excellence. It is absolutely paramount to restoring the positive momentum within each and every asset in the business. the opportunities there remain significant. So with that, I'm going to hand over to John now, who can take us through the numbers, and then I'll come back and talk to you about our thoughts, intentions and plans going forward. John.

Thank you, Duncan, and good morning, everyone. It's great to be here at my first Anglo-American results presentation. As you know, it's been just over two months since I joined. And as well as getting to know the team here in London, I've had the opportunity to visit a number of our operations across South Africa, Peru and Brazil. And that's enabled me to reaffirm my view that Anglo-American has great people and great assets. But it is clear that we have some opportunity to do some things differently to drive stronger and more consistent financial outcomes, especially with regards to cash generation. Well, that will take some time. It has my full attention and of course, that of my executive colleagues. Turning now to the results for 2023. Those results were dominated by the impact of lower commodity prices. especially in PGMs, diamonds and steelmaking coal. Overall, our basket price was down 13%. PGMs and diamonds alone resulted in a $5.5 billion reduction in revenues, with the operating leverage impact of that being significant, with the group's EBITDA reducing by $4.5 billion. Of course, action was taken to manage costs with unit costs up only 4% against a backdrop of double digit mining inflation. There is, however, more to do on both unit costs and total costs, which I'll come back to later. With EPS at $2.42, we've proposed a final dividend of 41 cents in line with our 40% payout ratio, taking the full year payout to 96 cents. Cash generation was impacted by profit flow through and a working capital build, mainly in diamonds and PGMs. This resulted in an increase in net debt of $3.7 billion after funding growth capex and dividends. Leverage remains within our target range at 1.1 times. While such years are to be expected in a cyclical business and we run our balance sheet to absorb these periods, we are taking appropriate action to ensure robust, ongoing cash generation and balance sheet strength. Looking now at the year-on-year $4.5 billion reduction in EBITDA, you can see that this was mainly driven by price with a $4.8 billion impact, while volume and cost impacts were a net $0.1 billion. Looking firstly at the price impact, you can see this was driven by PGM's steelmaking coal and diamonds. PGM basket price was down 35%, steelmaking coal down 14%, while realised prices on diamonds were down 25%, mostly due to mix rather than the index price. Looking then at cost and volume, we were delighted with the successful ramp up of Caveco. which contributed an incremental $1.5 billion of EBITDA in the period, together with the record performance at Minas Rio, which contributed another $0.3 billion year on year. These gains were largely offset by three factors. Firstly, a $0.7 billion impact at De Beers, reflecting the margin impact of lower sales volumes in light of weak market demand. Secondly, A 0.7 billion reduction at Copper Chili, driven by the operational phase at Los Bronces and associated lower grades and therefore higher costs. Thirdly, a 0.5 billion impact at PGMs, reflecting cost inflation and lower volumes with production down 5%. So in summary, overall EBITDA was down $4.5 billion with a $4.6 billion impact from PGMs and De Beers, while copper overall was up $0.8 billion. Turning now to costs, which are going to be a big focus of mine. Unit costs across the group are up 4% in the year. with weaker producer currencies benefiting PGMs and iron ore, while copper chilli suffered in part from the impact of the low-grade phase at Los Bronces. SMC was impacted by higher costs of production in challenging conditions, as well as inflation. The overall position obviously benefited from the 18% reduction in Kiaveco unit costs as volumes ramped up. While unit costs are clearly an important measure for the industry, and for us total around $10 billion, to truly tackle costs and cash generation, I will be very much focused on total costs, which as you can see on this slide are closer to $22.5 billion and include certain overheads, third party commodity purchases, royalties, logistics and exploration. As we announced in December, and as you've seen with our recently announced restructuring in South Africa, we're well advanced with plans to continue to drive a cost culture through the operating businesses. And I'll say a little bit more about that shortly. Just wrapping up, EBITDA, it's worth standing back on how our businesses have contributed to the total in the year. We saw a smaller contribution from De Beers, which was loss making in the second half of the year as pricing took a further step down. while nickel remained a marginal contributor. Copper and iron ore together contribute $7.2 billion, or 72% of EBITDA, with steelmaking coal and PGMs broadly making up the balance at $2.5 billion, or 25%. Now moving on to other earnings matters below EBITDA. Firstly, the underlying effective tax rate was 38.5%. That is higher than last year, reflecting profit and associated country tax rate mix with higher profit contributions from Peru and lower contributions from South Africa. Also, the overall lower profit at the group level meant there was a proportionally higher impact of those countries which are loss making from a tax perspective, including the UK. In addition, there was a 1.2 percentage point increase from the deferred tax impact of the new Chile royalty regime as deferred tax balances were revalued. Guidance for 2024 remains, as I said in December, at between 40 and 42%. Moving on to special items outside of underlying earnings, and as mentioned in our production report, we've been reviewing the carrying value of our assets as part of our year-end audit process. That work has now concluded, with non-cash impairments being recognised at both De Beers and Nicol. At De Beers, we've taken a $1.6 billion impairment to take the carrying value to $7.6 billion, and this is largely driven by macroeconomic sentiment impacting our view on the near-term consumer demand for luxury goods, particularly in the US, while China demand has also been slow to recover post-Covid. There was no material impact on the value from the revised Botswana agreements. Moving on to nickel, you will recall we booked an impairment of 0.4 billion at the half year and have now booked an additional 0.4 billion reflecting the sharply lower short to medium term price outlook that emerged through the second half of the year. This takes the carrying value of assets excluding inventory to zero. and we're in the process of assessing the appropriate operating strategy for the near term. Looking now to capital expenditure and cash. CapEx was broadly in line with last year at $5.7 billion, with higher sustaining spend being offset by lower growth, with Kiev Echo having ramped up in the year. Our sustaining spend in the short term is slightly higher than I would expect on an ongoing basis, as we work through a number of investments in plant and tailing solutions, including our filtration plant at Minas Rio, tailing solutions at Los Bronces and the desalination plants at Kualawasi. Growth CapEx continues to be focused on woodsmith and copper, including both Kualawasi and Kiev Echo. More broadly, the industry is facing significant pressure from rising capital and operating costs, which in time will undoubtedly read through into prices as cost curves structurally shift. In the meantime, we have to have absolute focus on cash generation, as I will address on the following two slides. You can see here that our sustaining attributable free cash flow, that is cash flow before growth capex and dividends, was $0.1 billion. Starting with EBITDA of $10 billion, we saw a $1.2 billion outflow from working capital, driven by three main factors. Firstly, $0.5 billion of inventory build at De Beers, as sales dropped off sharply in the second half of the year. We took significant action to limit the purchase of diamonds from Dibswana in the back end of the year to minimise the increase and will continue to focus on managing the inventory balance, which now stands at more than $2 billion. Secondly, Coomba saw a $0.4 billion increase largely due to higher inventory as transnet rail challenges continued. And thirdly, we saw PGM's working capital increase as lower prices resulted in a reduction in the customer prepayment and POC creditors, partly offset by the lower inventory valuations. This left cash flow from operations of $8.1 billion, just sufficient to fund tax, interest, distributions to non-controlling interests and sustaining capex. I will be looking at opportunities within all of these cash items to ensure we have a more sustainable cash generation profile going forward, even absent price recovery in diamonds and PGMs. In the short term, this will include laser focus on working capital, optimising cash tax and strict control of sustaining capex without, of course, compromising the safe operation of our assets. This will be with the ultimate objective of increasing the rate at which our earnings convert to cash, allowing us to sustain our investment in our attractive growth options. With only marginal sustaining attributable free cash flow, net debt increased in the year by $3.7 billion, mainly as a result of $1.6 billion of dividends paid and our continued growth capex. Our balance sheet is designed to be able to ride through such challenging years, as shown by our net debt to EBITDA being 1.1 times, well within our bottom of the cycle target of 1.5. That said, I'm clear that this level of cash generation is not sustainable over the long term. And that is why operational focus, cost and capex management, and cash conversion have all of the executives' absolute focus. Some examples of initial areas of focus are detailed here. Our one billion operating cost savings are progressing well. The 0.5 billion from corporate streamlining is largely completed with around 25% cost reduction from the consolidation of senior head office roles and a more streamlined approach to governance and decision making. These savings will come through in the costs outside of unit costs and will be realised in full this year. The business focused half a billion dollars reflects the value over volume strategy at Los Bronces and in PGMs, as well as reflecting the significant cost out programmes announced this week in South Africa. Similar programmes are ongoing in Chile, Australia and De Beers. These savings compared to 2023 will be achieved on a run rate basis by the end of this year and then realised in full in 2025. We've also identified and committed to $1.6 billion of capital savings between 2024 and 2026. And as part of the corporate streamlining, we now have a single group-wide project organisation led by Ali Atkinson, who's transforming the way we look at our capital projects while ensuring safety standards, asset integrity and reliability are maintained. This is focused on what we spend and how we most effectively execute that spend. Working together with my team, this ensures that we focus our capital in line with our strategic priorities, namely into copper, crop nutrients and high-quality iron ore. Projects such as the third concentrator at Magallaquena have been deferred. It's also resulting in a much more appropriately focused technology programme, with our experience over the last few years allowing us to target those investments with the greatest opportunity for our assets in terms of production and water and energy efficiency. This means areas like coarse particle recovery and our renewable energy projects in South Africa. On top of these measures, and as I said before, We also have great focus on ensuring that our working capital is managed efficiently, especially in the case of inventory. To recap, 2023 was a challenging year with market conditions significantly impacting profitability and cash generation. Our balance sheet strength has absorbed that, but we are clear that we will not rely on a recovery in PGMs or diamond markets to improve our financial performance. We're taking clear and decisive action, as noted here, to reduce cost and capital spend to ensure that our cash generation is sufficient to maintain our strong balance sheet while funding our exciting growth options and returns to shareholders. Thank you. And I now hand back to Duncan. Cheers, John.