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Executives

Cynthia Blum Carroll - Chief Executive Officer, Executive Director, Chairman of Management Committee, Chairman of Executive Committee and Member of Safety & Sustainable Development Committee

René Médori - Finance Director, Executive Director, Chairman of Investment Committee, Member of Management Committee and Member of Executive Committee

Paulo Castellari -

Christopher Ivan Griffith - Chief Executive Officer of Kumba Iron Ore

John Mackenzie - Member of Executive Committee and Chief Executive Officer of Copper - Chile

Seamus French - Member of Executive Committee and Chief Executive Officer of Metallurgical Coal

David Maxwell Weston - Group Director of Business Performance & Projects, Member of Executive Committee, Member of Management Committee, Member of Investment Committee and Member of Safety & Sustainable Development Committee

Analysts

Jason Fairclough - BofA Merrill Lynch, Research Division

Grant Sporre - Deutsche Bank AG, Research Division

Liam Fitzpatrick - Crédit Suisse AG, Research Division

J. Timothy Clark - Deutsche Bank AG, Research Division

Caroline Learmonth

David Pleming - Macquarie Research

Kieran Daly - Macquarie Research

Anglo American plc (OTCPK:AAUKY) 2011 Earnings Call February 17, 2012 4:00 AM ET

Cynthia Blum Carroll

And it's good to see you again this morning. As you can see, I'll do anything to protect the rights of our shareholders. I'll start by giving you the highlights of what we've achieved this year. We'll also look at the operational performance, and René will take you through the financials. And then I'll say a few words about the long term, including our growth profile and world-class exploration achievements.

Over the past 5 years, Anglo American has been on a journey to become the leading global mining company. We've developed a clear strategy. We simplified our organization and our portfolio. We set strict targets, and we invested in growth. 5 years on, we continue our journey, and the fruits of our efforts are there for all to see: Record operating profit, delivery of 3 of our 4 major projects, robust balance sheet, the most diversified and balanced project pipeline in the industry and world-class geological discoveries. Our focus has and continues to be on people and driving performance with everyone involved. Our record financial performance last year reflects the operational and business improvement foundations we have put in place.

Total group operating profit was a record $11.1 billion, up 14%. Our underlying earnings were $6.1 billion, with earnings per share at $5.06. I'm therefore pleased to announce we raised the final dividend to $0.46 per share, and this brings the total dividend for the year to $0.74 per share. We have minimized the impact of events beyond our control like floods, rain or snow, input cost inflation and infrastructure constraints.

On the growth front, our decision in 2009 to continue investing in our 4 major projects is paying off. Three projects started production on or ahead of schedule. All 3 are ramping up. Our asset optimization and supply chain initiatives will continue to create and deliver value, and we are delivering volume growth and continue to move down the cost curve.

Beyond these initiatives, we have launched a commercial excellence model. We will adopt a coordinated global marketing approach with centers in Singapore and London. And we expect this to generate significant value.

Before we start and turn to the operating performance, I want to talk about safety. As you know, safety is an absolute priority for Anglo American and for me. In 2011, 17 of our colleagues lost their lives. The fact is that 2011 safety performance at Platinum was disappointing. The Platinum team are the first to admit this, and we're working together to do something about it. Following 2 fatalities in short succession, we decided to stop all Platinum operations on the 3rd of November.

I went to South Africa, joined by Neville, Norman and the team to address over 30,000 of our employees. We were also joined by trade union leaders and government safety inspectors and launched the zero harm in action initiative. It aims to bring about cultural change through targeted actions and individual responsibility. We've also shown zero harm is achievable in all parts of the organization. Across our business units, excluding Platinum, lost-time injury frequency rates have dropped by 16%, and 91% of our operations had no fatalities in 2011.

No matter what the record is though, 17 deaths are 17 too many. So we recommit ourselves to prioritize, to simplify and communicate our safety programs to achieve zero harm.

When considering our improved performance, there is one initiative that started us on a path to becoming best-in-class operators. 5 years ago, we launched the asset optimization and supply chain initiatives. In 2009, we set a savings target of $2 billion by 2011. Since then, we have consistently exceeded the target. In 2011, we delivered $3.2 billion in savings, and these programs are now embedded in our operations and will deliver substantial value.

Having exceeded our target, there was further value to be unlocked from asset optimization. We've embedded asset optimization and in operational excellence across the group. For example, best-in-class performance delivered record production in thermal metallurgical coal, open pit mines, but there is so much more value to extract.

Last year alone, we completed 6 operational reviews and identified almost $900 million in potential value. Beyond our asset optimization initiatives, global supply chain delivers multiple benefits, unlocking real savings, establishing long-term partnerships and providing benefits for the communities in which we operate through local procurement. All our suppliers are required to adopt and embed our approach to safety, as well as our values, effectively becoming our -- an extension of our organization.

In Queensland, we've established a partnership with Joy [ph] to improve Longwall productivity critical to tripling our Metallurgical Coal production by 2020. In 2011, we delivered 9 projects in challenging geographies, covering 4 countries and 5 commodities on or ahead of schedule. 3 of our 4 projects, all low-cost, long-life, Tier 1 assets, will generate significant value. Our decision to invest through the cycle is paying off, and we are now reaping the rewards.

Over and above our organic growth pipeline, we have delivered substantial value from recent transactions. In an industry that considers time in decades, not years, it is crucial to grow and replace production continuously. So we have always looked at opportunities to supplement our pipeline. De Beers was one of those, which we have been pursuing for some time. We're thrilled to have secured a world-class business through that deal.

Similarly, in recognition of the value Metallurgical Coal generates, we took a closer look at Peace River Coal, and we decided to retain and grow this business. This led us to take out the minorities, and we did that at an attractive value. In addition, the sale of our 24.5% interest in Anglo American Sur to Mitsubishi builds on our clear and consistent strategy of protecting and delivering value. We have done the right thing. At $22 billion on a 100% basis, the minority sale of Anglo American Sur generated significant value.

As you know, we're currently involved in a legal dispute with Cadelco over the option agreement relating to Anglo American Sur. We have said consistently that we are ready to work together to agree on a commercial solution, but it has not been possible to reach a settlement that takes into account Anglo American's strong legal position. We continue to be open to sensible negotiations conducted in good faith, but we will not be moved from defending our clear legal rights and protecting value for our shareholders, recognizing our legal rights under what is a simple contract between 2 companies and the effect of Cadelco's breach of the contract.

Cadelco knew what our alternatives were in terms of selling down our holding to a third party prior to any valid exercise of the option, and it sought to prematurely exercise the option. The strength of our legal position is beyond question.

Now turning to our operational performance. Let's start with Iron Ore and Manganese. 2011 was a record, achieving high margins and returns. Sishen continued to operate strongly despite being impacted by heavy rains in the first half. Kolomela was delivered on budget and 5 months ahead of schedule. Kolomela is set to deliver 4 million to 5 million tons in 2012. And we're pleased to hear the President of South Africa confirm the planned expansion of the Iron Ore export channel, removing an impediment to our growth.

Amapa continues to be a turnaround story. Although a relatively small part of our portfolio, we achieved operating profit of $120 million in 2011 compared to just $16 million the year before. And we're also making good progress at Minas-Rio, and I'll talk about that in a few minutes.

Turning to Metallurgical Coal. Operating profit was also a record. Production was impacted by rain in the first half followed by an incident at Moranbah underground mine, but we've staged a strong recovery, driven by best-in-class, open-pit performance with a 90% first half improvement versus the second half production increase. Phase I of the Grosvenor project was approved in December, and this kicks off our Moranbah metallurgical coal hub, which treats 4 sequential projects as 1.

Grosvenor will be a low-cost operation, leveraging existing infrastructure in our own backyard. We have plans to secure port and rail capacity for our growth. And in December, we were awarded preferred respondent status for the development of a 30 million-ton dedicated coal terminal at Abbott Point.

Thermal Coal is another business unit to have delivered a record operating profit despite production being impacted by rain in the first half. We were able to take advantage of the strong recovery in trials [ph] and performance in the second half to our own operational flexibility and efficient load-out stations. Zibulo, a 6.6 million-ton low-cost thermal coal mine was ramped up ahead of schedule. And Cerrejon set a new production record and is progressing with an 8 million-ton expansion.

Moving to Copper. Operating profit was $2.5 billion. While copper prices were somewhat volatile, on average, the copper price for the year was higher. As with industry peers, production was impacted by severe weather disruptions and gray decline. We've partially offset these impacts through asset optimization and volume growth.

At Los Bronces, SAG mill throughput improved following a series of asset optimization initiatives. At Collahuasi, we're working with our partners to accelerate all expansion projects. And in Peru, we are in dialogue with all levels of government and local communities to secure permits for Quellaveco. We are progressing, but it will take time.

Nickel operating profit was $57 million. Production increased by 44%. Loma de Níquel delivered a 14% compound annual growth rate in production since 2009. The Barro Alto project was delivered on time and on local budget. Barro Alto surpassed all other Nickel projects around the world in terms of on-time start-up, quality of metal produced from the outset and world-class safety performance. Barro Alto is ramping up well. At full capacity, it will more than double our nickel production.

Turning to Platinum. Operating profit increased to $890 million, despite 81 safety stoppages at our own operations. Mogalakwena open pit mine performed strongly. Unki produced 52,000 platinum ounces, reaching steady-state 1 year ahead of schedule. The Platinum business for today is a far cry from what it was in terms of production, in terms of productivity and in terms of safety. We have seen substantial improvements, and the returns are in line with the industry. However, these returns declined in recent years and are not acceptable to us for the medium term.

The Platinum industry faces significant challenges, whether cost inflation, whether safety stoppages or lingering concerns over European demand. As a result, we are embarking on a review to assess the optimal configuration of the Platinum portfolio, and we will do this with a single purpose in mind: Maximizing shareholder value and returns through the cycle.

And finally, Diamonds. De Beers operating profit was up 33%. Rough diamond prices were a record, up 29%, and we are optimistic about China and India continuing to drive demand growth in the medium to long-term. De Beers is well-positioned to capture this growth through its Forevermark and De Beers diamond jewelry brand expansions.

So with that, now I'll hand over to René.

René Médori

Thank you, Cynthia, and good morning, everybody. Very pleased to report or record operating profit at $11.1 billion, driven by a strong performance on the bulk side, Kumba, Metallurgical Coal and Thermal Coal. Underlying earnings up 23%. We got the benefit of lower tax rate at 23.3% as a result of favorable outcome of some outstanding issue with various tax authorities. For 2012, we are expecting a tax rate of 31%. CapEx, up to $5.8 billion as we were completing the 3 projects that Cynthia referred to, Los Bronces expansion, Barro Alto and Kolomela.

Net debt down to $1.4 billion, but if you incorporate the impact of the De Beers transaction, both from an equity and debt standpoint, as well as a capital gain tax which will be payable in the first quarter associated with the Mitsubishi transaction, the debt level at end of December on a pro forma basis is $9 billion.

Turning to the operating profit waterfall, you see the price variance, $3.8 billion, mostly in the first part of the year, primarily in Iron Ore and Metallurgical Coal, respectively $900 million for Met Coal and $1.3 billion for Iron Ore.

FX, negative variance of $149 billion, with a positive variance in the second half of 2011 following the declines around, somewhat offsetting the negative variance of $527 million in the first half of 2011.

Inflation, $585 million negative, with inflation ranging from 3.3% in Chile to 5% in South Africa. Volume, negative variance of $140 million, limited benefit of the commissioning of the 3 projects that Cynthia mentioned. We'll get the full benefit in 2012, 2011 negative impact from the volume standpoint to the flooding in Queensland, which impacted the position of Metallurgical Coal in Australia. Cash cost negative $1.2 billion, an increase of 8%, I will cover that in more details in my presentation.

Associate improvement of $175 million, with De Beers contributing $659 million in 2011, and then you see the impact of the divestment at the operating profit level of Scaw International and the Zinc business at end of 2010 and early 2011.

Turning to the price variance. First, PGM, copper and nickel. On the Platinum side, despite the situation in U.S. dollar, you see that the basket price in long term has been pretty stable, slightly above R19,000 from the second half of 2012, despite the decline of Platinum in U.S. dollar. Copper, average price realized at $3.78 versus an average LME price of $4. You see the impact of the mark-to-market adjustment. We had a positive impact in 2010, $195 million and a negative impact in 2011 of $278 million. At end of December, we had 138,000 tons of Copper, which were originally priced as $3.45. I'd like to highlight the fact that on the back of the expansion at Los Bronces, that will increase the volatility going forward as you will have larger volume provisioning price at the end of each period.

Turning to the Bulk side. On the Iron Ore side first, we are seeing some further change in terms of pricing mechanisms. In the last quarter of 2011, although Japanese and Korean customers remain on the quarterly [indiscernible] benchmark, Chinese customers and probably around 75% of European customers have moved either to mostly benchmark or current quarter benchmark.

On the Metallurgical Coal side, we had moved to a quarterly benchmark, and over the last 4 quarters, we have outperformed either the spot market or also mostly benchmark. For the current quarter, as you know, we have settled a $235 dollar return for hard coking coal and we are currently negotiating for the following quarter.

Turning to volume variance. Platinum sales up 3%, 2.6 million ounces, despite the decline in positions that Cynthia mentioned. Our guidance for 2012 is between 2.5 million and 2.6 million ounces. On Iron Ore, we were able also to maintain the level of export sales despite a 6% decline of production at Sishen, mostly associated with some issue at the DMS plant.

Copper down 2% as a result of the weather issue at Collahuasi and lower-grade nickel. We had the benefit of the commissioning at Barro Alto but also an improvement at Loma de Níquel. Met Coal decline of production mostly in the first half of 2011, due to the flooding in Queensland, with a very strong recovery in the second half of 2011, especially for our opencast operation.

Turning to cash cost. We continue to face sustainable inflationary pressure, primarily around wage and the electricity in South Africa and Chile. If you normalize the level of production for the weather event, whether it's in Queensland, at Collahuasi, at Sishen and for the [indiscernible] safety stoppage in Platinum, the inflationary pressure was around 5%. In 2012, we will see the benefit of a reversal of our power cost in Chile as a benefit of higher production and we expect this number to be below 5%, between 3% and 4%.

Turning to CapEx and net debt, $5.8 billion CapEx in 2011. You will notice the increase in Spain business CapEx, mostly associated with the renewal and the expansion of the 3 acquisitions, due to the higher west stripping activity, as well as the development program for our Longwall in Australia.

For 2012, we are projecting $7 billion CapEx with a ramp-up at Minas-Rio, we will spend $2.1 billion CapEx in 2012. So far we have spent $0.2 [ph] billion. We have also, as you know, approved the Grosvenor project in Australia, that's a $1.7 billion coking coal project, and we will spend $0.5 billion in 2012. We expect this level of same business CapEx to remain around this level of $2.4 billion.

Net debt, $1.4 billion at end of December. And you see the breakdown of the adjustment that I mentioned earlier with a pro forma net debt level of $9 billion at end of December.

Thank you. Over to you, Cynthia.

Cynthia Blum Carroll

Thank you very much, René. I'll now turn to the macroenvironment. Towards the end of 2011, there was a distinct slowdown in major emerging countries and continuing doubts over Europe's fiscal sustainability. Uncertainly is likely to persist in the short term. This is important, but we do not base our investment decisions on short-term drivers, and instead our eyes are on the next decade and beyond. What is important for us is that the long-term fundamentals are sound.

Looking at the left side of the page, you will see we have the most diversified and balanced portfolio, with unparalleled exposure to late cycle development. For the first time, more than half of China's population now lives in cities. This tipping point happened in the U.K. in the 1850s and in the U.S. in the 1920s, so there is a long road of growth and development ahead. We saw this during a recent trip to China and India.

While development in Chinese coastal provinces is maturing, inland provinces are at early stages of development, recording double-digit growth. This will continue to drive demand for raw materials over the coming decades. And we believe as development shifts from an investment to consumption-driven economy, the growth rate in steel will moderate.

Growing middle classes in China and India and rising disposable incomes are driving demand for late-cycle commodities like Diamonds and PGMs. In addition, medium term replacement of infrastructure in the developed world presents further opportunities for steel, and there's no doubt in my mind, value creation will be the fruit of our diversified and balanced portfolio.

Demand is only part of the story. Our industry continues to face tough challenges, and these include calls for higher taxes and royalties, rising capital intensity, infrastructure constraints and tighter environmental regulations. Coupled with declines in existing mines, a picture emerges of supply consistently under-delivering against market expectation. And this will support prices over the medium to long term. Because we take the long-term view, we look beyond current volatility, and continue to invest in value-accretive growth.

Barro Alto, Los Bronces, Kolomela showcase our ability to build large complex projects. We currently have 9 projects approved. These include Minas-Rio in Brazil, Grosvenor in Queensland, Collahuasi Phase 2 in Chile, Cerrejon P500 Phase 1 in Colombia and Jwaneng-Cut 8 in Botswana. And these projects are in the white commodities, at the low end of the cost curve offering attractive returns.

Minas-Rio is a very large and complex greenfield project. Here, we have a high quality Tier 1 asset. It has a large resource base that's only getting bigger. It is expandable. Its capital intensity remains in line with comparable Greenfield projects and at full production, the delivered cash cost around of around $50 per ton is at the very low end of the cost curve, and we are making progress. More than 90% of the land access has been secured along the pipeline. More than 200 kilometers of the pipeline has now been laid, buried and installed.

As to be expected, we are encountering environmental realities such as caves, land access and permitting within an ever-changing regulatory environment adds complexity, but we are overcoming these challenges to target first ore on ship in the second half of 2013 and within the announced 15% capital increase. We are accelerating pre-commissioning plans, engaging proactively both with permitting authorities and locking in labor cost. And yes, it takes time, but we want to get it right.

The project sharing value remains very robust when tested for cost and timing sensitivities, and we're still working at it, but we have the right team in place committed to making progress.

We have the potential to double production with the delivery of almost $100 billion project pipeline covering almost 90 projects. Our growth pipeline is the most diversified and balanced in the industry. We will continue to invest in commodities with strong fundamentals, the most attractive risk return profile that deliver long-term returns through the cycle for our shareholders. And all of this with a backdrop of continuing growth and demand for our products.

In the meantime, our world-class exploration team has been discovering the next generation of Tier 1 assets. Since 1999, we have made 15 major discoveries and have received international recognition for Los Sulfatos and Sakatti. Sakatti is a porphyry deposit of high-quality copper, nickel, PGMs and cobalts and forms part of our tenements covering more than 800 square kilometers. The deposit is within a stone's throw of world-class infrastructure and sits in an existing mining region.

All levels of government in Finland are very receptive to mining investments. Our drilling has yet to determine the extent of the deposit towards the north, towards the south and towards the west, as well as the depth of the deposits, and we will not, however, be making announcements until we have defined the resource size. This will take about 2 to 3 years, but the development is then not automatic. As with all projects, we will work through the relevant environmental approvals. In a world of diminishing Tier 1 assets, our world-class exploration approach truly gives us a competitive edge.

So, to sum up. We have again shown our ability to deliver value. Today, you've heard about record operating profits, strong project delivery and commercial success. We have the resources, we have the know-how, and we have the people to achieve our ambition of becoming the leading global mining company. And our success is made possible by our focus on delivering a clear and consistent strategy.

We invest in commodities with the strongest long-term fundamentals and with the most attractive risk return profile. The bulk of our operations are at the low end of the cost curve. Our growth pipeline is balanced, taking advantage of all stages of the cycle. And our exploration team is making the most impressive discoveries in the industry, restocking our pipeline of Tier 1 assets.

We have also made clear that we are prepared to take the tough decisions where assets are not delivering acceptable returns. You've seen us do this before, and we will do it again. We will become the leading global mining company, delivering real, sustainable shareholder value.

So thank you very much for your attention. Thanks for coming. Thank heavens for raw materials, because I would not be standing up here were it not for iron ore, stainless steel and titanium. And now, I'd be very happy to take any questions, and we'll start from London and then turn to South Africa.

Question-and-Answer Session

Cynthia Blum Carroll

Well, first of all, the question about risk of Minas-Rio. I'd like to introduce to all of you -- where's Paulo? Paulo Castellari has taken on the position of CEO. Paulo has been with Anglo American for 18 years. Paulo ran our Niobium and Phosphate business in Brazil before joining us in Minas-Rio. And maybe Paulo, I'll ask you to comment perhaps. I mean before I do, we are all aware that the Olympics and World Cup are being held in Brazil in the not so distant future, and we're facing the challenge of ensuring protection and making sure that we've got all the people that we need in place to deliver the project. So Paulo, you want to just talk a little bit about that?

Paulo Castellari

[indiscernible] in addition to what Cynthia already highlighted in terms of the progress that we've made in Brazil, I think as in any large large-scale project, as you already know, there's a very large footprint for mine support. It is an ever-changing, evolving licensing environment. And I think, to sum up, that the key risks that we still manage today are around licensing and permitting. We have made very good progress in 2011. Basically, out of the 130 license that we need, definitely 80% of them are concluded. There's still work to be done on the others of course. But I think the key challenge is to continue to engage very proactively with the government, with the entities that regulate the permitting, because there are things that come up, like the caves issue that Cynthia referred to. But then to sum up, there has been very good progress around the licensing and permitting. We continue to engage very proactively with the government. We have the right people in place, and we're very confident that we're going to continue to manage those.

Cynthia Blum Carroll

Thank you very much. Okay, Des, you asked a question about Kumba. So Chris is here, Chris Griffith. Chris, if you would grab the microphone next to you and just -- maybe you could talk a little bit, Chris, first about the opportunity in South Africa and then talk a little bit about other exploration work that we've got ongoing.

Christopher Ivan Griffith

Thanks, Cynthia. Yes, I'll just briefly mention that we have, consistently over the last few years, mentioned that we would deliver first the jig plant, which was a 13 million-ton expansion; then the Kolomela plant; and then above that there was still a potential of about another 20 million tons above then the 50 million tons. That still remains on track. There are a number of smaller projects in South Africa, and they depend on expansion of infrastructure then all the other normal health warnings. Now Cynthia mentioned that the President in his State of the Nation Address last week mentioned that one of the infrastructure expansion projects in South Africa would be the Sishen-Saldanha export channel. And he mentioned 2 numbers. He said we'll expand from 60 to 80 and a bit later mentioned that we'll expand from 60 to 100. But there's certainly I think it's very positive that in the State of the Nation Address, the President is mentioning infrastructure expansion and particularly on the iron ore export channel. So very positive news, and that's exactly one of the big bottlenecks that are needed to be unlocked to be able to grow in South Africa. So very positive news indeed. And then we also announced at the half-year and again at the final year results that Copebras would be seeking to work with Anglo American in Africa. And that project has started. Between myself and Peter we're running the steering committee that's looking at expansion opportunities. We are talking to some people, have identified some projects, but that is about as much as we can say at this point of time. But that work is now underway.

Cynthia Blum Carroll

Thank you very much, Chris. Jason?

Jason Fairclough - BofA Merrill Lynch, Research Division

Jason Fairclough of Bank of America. Just a question on Platinum. You have a great slide talking about value unlocked in all the different parts of the businesses. But really the biggest business, the one with the most potential for turnaround and for releasing value has to be Platinum. Anglo Platinum is, in theory, the industry leader. It's definitely the biggest. The whole industry is on its back. What can you do to fix this? Because really, for years, this is what Anglo has been trying to do is fix platinum. Whether it's letting the market value this thing separately or fixing it and then spinning it off or something?

Cynthia Blum Carroll

Well, okay. Let me just reflect a little bit on where we've come from. So as I've said earlier in my presentation, I mean we've come a long way. And I think it's very fair to say that since 2007 or so and I'm looking at Neville over here, I mean we've improved our safety performance substantially. We increased the productivity hugely. We've delivered on our production targets and we've contained costs in line with what we've committed to the market between ZAR 11,000 and ZAR 12,000 grand per ounce. So I think that was a big achievement. Now last year, sadly, unfortunately, however, you want to describe it, the industry was faced with serious safety stoppages and that the inspectors were going into our mines and not just sending down sections where there was a safety discrepancy identified by whole mines for days on end. The industry at large lost over 300,000 ounces. So what are we doing about this? Well we've got some near-term quick fixes, so to speak. Neville, I'm looking at you. Neville, if you grab the microphone. We've got some near-term initiatives that we're looking at. We have spent time with the DMR to engage with them and get them to take the right approach, and I think that they're now showing signs of doing that. And we're seeing some fair treatment with respect to stoppages. And we're looking at the longer term. So coming back to your question, I mean, and I mentioned that we're looking at the shape of the portfolio, we're looking at the size of the portfolio, we're looking at whether we should be doing more in recycling, we're looking at where do we want to leverage our asset base, where do want to take Mogalakwena for an example? Where are we taking Unki in the future? How do we deploy our workforce? And how do we get this business back to the returns that we were seeing in 2008? And that's the bottom line, Jason. We're not doing anything other than focusing on getting it right. Any it may be, as I said earlier, may be acceptable for the industry to see lower returns. Everybody's seeing the same thing, and as I also I said -- talked about our position on account -- cost curve, I mean 2007, 2008 we had about 1/3 of our operations in the first half of the cost curve. Today we have over 60%. So again we've come a long way, but we need to get this to a better place, so we're seeing those greater returns. So we're not -- we haven't taken the decision to do anything except focus and deliver more value in the business.

Jason Fairclough - BofA Merrill Lynch, Research Division

Could I just follow-up? So talking about the cost curve, is there cross-subsidization going on today? So are you taking money from shafts that are making money and putting that into shafts that are losing money? You do have operations at the top of the cost curve still?

Cynthia Blum Carroll

No, I think I mean all the operations are making money, but some are making a lot more than others. That's what we need to focus on, is how do we get the ones that are not as profitable up to a more acceptable level, or think about again the configuration overall. Okay? All right. Neville, do you have anything else to add on that? Okay.

Grant Sporre - Deutsche Bank AG, Research Division

It's Grant Spore from Deutsche Bank. This is probably a question for René, but I'll address you. Could you give us a breakdown of your sort of balance sheet offshore South Africa and then also you were very kind enough to give us a pro forma number. If you could do the same on a pro forma basis, please?

Cynthia Blum Carroll

Okay. René, you want to do that?

René Médori

At the end of December, the position in South Africa it's a net cash position of $1.9 billion. Now if you incorporate what I mentioned earlier in term of the acquisition of De Beers, what we might want to do in term of how to structure the acquisition for the South African asset, but also the impact of the dividend, as you remember, the dividend is funded from cash from South Africa, and the dividend we will pay to minorities in Platinum and in Kumba on a pro forma basis then the level of debt in South Africa in qualified stock of cash position is a debt position of $200 million.

Cynthia Blum Carroll

Okay. One more question from London, then we'll go to South Africa. Yes.

Liam Fitzpatrick - Crédit Suisse AG, Research Division

Liam Fitzpatrick from Credit Suisse. I've just got 2 questions. Firstly on Platinum, sorry to the labor the point a little bit, but can you say that in terms of the review you're doing, does that at all include Anglo's involvement in Anglo Platinum? And secondly, just on the Cadelco situation, I think in the past it had been talked about that maybe you were looking to buy the option from Cadelco. Do you still think that's a potential solution as we move ahead on that situation?

Cynthia Blum Carroll

Okay. Well, first of all, I'm going to just repeat what I said to Jason, and that is our focus is on improving the performance of Platinum, and we support the business, okay? And that's as far as I'm going to go with that. On the Cadelco buying option, your question is around where we are?

Liam Fitzpatrick - Crédit Suisse AG, Research Division

I think I mean there's obviously a legal fight going on, but it had been talked in the past that maybe a solution to this situation was you buying the option from Cadelco. Do you think some sort of payment is possible?

Cynthia Blum Carroll

Okay. Yes. I'm not going to -- I guess what I would say to you is I'm not going to get into what we've considered with respect to finding a commercial -- a commercially acceptable solution with Cadelco. We've looked at a range of options. But as I also said, we're going to protect the interest of our shareholders and our legal rights. And to repeat, we are very, very firm and clear about our legal rights. So that's where we are. Now let me turn to South Africa. Welcome everybody. Questions?

J. Timothy Clark - Deutsche Bank AG, Research Division

It's Tim Clark from Deutsche Bank. May I ask just 2 questions, please? First of all, Quellaveco. I wonder if you could just give us an update on Quellaveco, just on the timing and in the process and where we're at exactly with the feasibility and what we should expect there? And then secondly, on Metallurgical Coal, I wonder if we could just get an update to this Preferred Respondent status of Abbott Point. I wonder if you could just explore a little bit further the infrastructure constraints and how those are expected to ease over time and particularly linking the port in rail and what's happening with Queensland Rail?

Cynthia Blum Carroll

So I'm going to make an introductory comment. John, prepare yourself to talk about Quellaveco. With respect to Quellaveco, I do think that what we've done in Peru is really unique. We set back a year or so ago in recognition of the sensitivity around mining projects in Peru and decided to pause and decided to develop a dialogue table and see whether this would be the better approach in working through the expectations and concerns within the local community. I have seen President Humala twice. I saw him in January, and I saw him about 6 months earlier. I would have to say to you that he's very, very supportive of us and very pleased, again, with the approach that we have taken, recognizing that it's probably the model for the country. So John, you want to just talk about the timing around Quellaveco and a little bit more about the process? And maybe the water permit, the recent water permit?

John Mackenzie

Thanks, Cynthia. I think as Cynthia said, the model we're following has been held up by the Peruvian governments as the model they'd like to see in terms of community consultation, local representative consultation. What we're busy progressing with is 2 parallel but interconnected streams of work. The first of those is the dialogue table. I think that's going remarkably well. We've got 28 different stakeholders from the region, from central governments, and from all sorts of community groups. That's -- I think that dialogue table's divided into 3 aspects, the issues around water, the issues around environment and the issues around social contribution. We've completed the issues around water and with the result that the communities are supportive of the water scheme that we're proposing. We're very close to concluding the area, the part on the environmental where we've looked at the various environmental issues that were a concern to the community and I think we've satisfactorily resolved pretty much all of those. And we're now into the last phase of discussing how this project is going to contribute to the local communities. Simultaneously, with that, we're working on the permitting process. I think we've made some important steps forward in terms of -- it's a multistep process. Each permit requires steps that's -- one of the changes that happened in the legislation was these steps needed to be done in series rather than in parallel. So we're busy expediting each of those steps. At this stage, both processes need to come to a conclusion for us to take this project to the final stage, which is our board approval. The technical part of the feasibility study is done. That is complete. So it's really those 2 last steps that we're busy with. We're working through those as expeditiously as we can but also recognizing the fact that we intend to be a long-term investor in Peru. This isn't our only project in Peru, we've got Michiquillay as well. We've got a very extensive exploration program. And we want to make sure that we do this project right the first time, that we do have both the sort of local, regional and the national stakeholders all on sides when we do it. We have seen the consequences of projects that have stepped forward too quickly without getting everybody on sides and, in the long term, we believe that actually costs us more than it does to do it right the first time.

Cynthia Blum Carroll

Okay. I'm going to turn to Seamus. Seamus, would you mind talking about Abbott Point infrastructure and port and rail and what's going all overall in terms of Queensland Rail? And maybe, Seamus, to start with, just remind people what we're driving towards in terms of growth over the next number of years.

Seamus French

Just firstly on the growth story, we're looking to triple hard coking coal production to a total of 41 million by 2020. The increase in Queensland is between 25 million and 30 million ton, which is enough to justify dedicated terminal minimum economics size for terminals about 30 million ton. We were granted Preferred Respondent status for development of a terminal at Abbott Point in December. At the same time, we approved in fact Grosvenor project. We moved to develop a status in April of this year. So we had in fact anticipated granting of the Preferred Respondent rights. We started the pre-feasibility study on this terminal back in September. The first phase will be finished in March, which will allow us to go for internal approval to pay $75 million to move to developer status. So we'd anticipate the first week of April paying the $75 million and moving to developer status. The pre-fees were finished at the end of this year and in fees, we could move into fees at the end of this year, feasibility complete at the end of next year and we would be going for board approval. Then if all makes sense, at the end of next year to build that terminal. The rail development is integrated with the whole terminal development. The size we're looking at isn't enough to justify a dedicated track, so we are talking to Queensland Rail about expansion of the existing track, the so-called north [ph] missing link, which runs through Abbott Point. And initial indications from Queensland Rail that through incremental expansion of the existing track, electrification, et cetera, they should be able to accommodate our required tonnages for Abbott Point. What's called the Access Undertaking Queensland, which is the regulatory regime for construction of new track, allows us in the event that Queensland Rail don't feel able to actually fund the expansion of that track, it allows us as a producer to fund that ourselves and for Queensland Rail to manage it. So we have some certainty over the capacity and the timing and the only question mark would be about funding. But we worked through that as a part of that Abbott Point pre-feasibility work this year.

Cynthia Blum Carroll

Okay, other questions from South Africa.

Caroline Learmonth

Caroline Learmonth, Absa Capital. Just a follow-on question on Cadelco. So what is your base case scenario in terms of how the situation gets resolved of this Cadelco exercise, the remaining part of the option? Realistically, how long is it going to take for the situation to get resolved in your view? And what do you think the impact is on Anglo's in terms of doing business in Chile?

Cynthia Blum Carroll

Yes. Well, I mean base case scenario we sold 24.5% for $5.39 billion. I mean that's a very exciting starting point. And as I said, I mean we're very open to sensible negotiations, conducted in good faith. But we will continue to defend our legal position. And if we could find a commercial solution that does that, we're happy to resolve it on that basis. In terms of taking it forward, if we don't come to terms on that basis, and go forward on the legal side, clearly, it's going to take time. And we're talking not a couple of months. It will take more than a good year at least. In terms of the impact on doing business in Chile, well, we have been in Chile since 1980. We've got over 10,000 employees. We stand for the very, very best. If you look at our safety performance, we're actually #1 in Chile. We've continued a huge amount of work around job creation in our communities. We're very well-respected. And I would say, we are the leading mining company in Chile. Now I could -- I'm sure there are others who might argue about that, John, but I think that we have done and we'll continue to do all the right things in Chile. We will continue to invest in Chile. We spent $6.5 billion over the last couple of decades in Chile, and we're not going away. We're there for the long-term. We've got great assets, and we've got great people. So I don't -- I really don't see that as hindering or constraining us going forward. Okay. Thank you very much for the questions from South Africa. I'm going to take a question from a call on the line.

Operator

Mr. David Pleming.

David Pleming - Macquarie Research

I've got 2 questions. The first one with respect to the Met Coal expansion that Seamus talked about, the trimming of production. I'm wondering if you can give us an indication of what the full capital intensity of that would be? And secondly on Slide 30, you showed the Minas-Rio production costs at full production. That's on par now with Sishen, which is about $3, $5 I think to an FOB rate. Has there been any change in the cash cost parameters for Minas-Rio?

Cynthia Blum Carroll

Seamus, you want to talk about the capital intensity on the Met Coal side? Thanks very much for the questions, Dave.

Seamus French

I gave an indication at a presentation in October in Australia last year that the average capital intensity we're looking for these projects is about USD $350 per annualized ton of production. That's in real terms obviously, so it doesn't account for the fact that timing of the projects. And in fact, there's going to be an escalation. But in real terms, we're looking at a benchmark capital intensity of $350. The first stage of Grosvenor is slightly below that as you would have seen. The second thing I'll say is that the projects in Queensland are all Longwall projects and we're taking a what's called a program and management approach delivering all those projects. So we're designing the Longwall and the sort [ph] of infrastructure ones [ph] for Grosvenor and looking to repeat that then for the 4 Longwalls that encompass the growth plans in Queensland. We would therefore, by taking this approach, expect to see on average over those 4 Longwalls a reduction in an average capital intensity. But at the moment, if work off the $350 figure, we would hope and expect to see a reduction in that if we can maximize the benefit basically of delivering the same project effectively 4x.

Cynthia Blum Carroll

I'll just answer the second question about Minas-Rio production costs. This will be an operation on the very low end of the cost curve. As we've said before, OpEx is going to be around $20, $25 per ton landed in China than we're looking at about, say, $45 per ton, $50 per ton, and that compares extremely favorably to any other iron ore delivered in China from around the world, particularly out of Australia and comparing that to Sishen. Sishen actually will be higher cost. Sishen today is about $37 per ton going up, delivered in China will be closer to $60 per ton. Chris, anything else to add on that? Chris?

Christopher Ivan Griffith

[indiscernible] I think Cynthia nothing much to add. I think Dave asked a question referring to your slide on Page 30, and he compared Sishen and Minas-Rio being pretty much equal, and that sort of delivered to China basis. And the fact that Brazil is so much farther, its shipping costs will be higher, means that its operating cost on an FOB basis will be lower. So I think your slide is correct and it actually demonstrates that Minas-Rio has got really low operating costs and operating costs would be lower than Sishen's.

Cynthia Blum Carroll

We've done our homework. Other questions on the line?

Operator

We have a question from Kieran Daly from Macquarie.

Kieran Daly - Macquarie Research

Cynthia, you made a really vague reference to the start of the presentation to your marketing organization. You're looking at setting up and you mentioned Singapore. Could you elaborate a bit on that in terms of what you plan? I mean obviously, in terms of your peers, there are, I suppose, 2 models out there. The 1 model is the BHP Billiton model in terms of having a separate marketing organization, marketing all of the good products, et cetera. And then you have the newly announced Glencore-Xstrata type of model, which has got more of a trading bias. Could you just elaborate a bit on what -- how you see centralized marketing organization for Anglo, how it will operate and so on?

Cynthia Blum Carroll

David Weston is in the back. He is responsible for commercial activity from a group-wide basis, and he is the one leading the charge on the office in Singapore. So I'll ask David to briefly, David, just answer that question and what do we expect to get out of it and how we think about our marketing model.

David Maxwell Weston

Thank you, Cynthia. Yes, so in Anglo American, operates as a series of business units. And the intention is that those business units will continue to be responsible for their top and bottom lines. However, having said that, there are clear synergies and advantages to putting our commercial people together to enable us to have common insight across the markets that we serve, and also in order to put our front-line salespeople closer to the markets that they serve. And we're opening an office in Singapore during the first half of this year. And we expect all of the business units to conduct the bulk of their business through either Singapore or London through commercial centers using shared competence centers. And we'll be migrating all of them over the course of the next 2 years.

Cynthia Blum Carroll

Any other last pressing questions before we close?

Okay, everybody. Thank you very, very much in South Africa. Thank you to those who are on the line, and thank you to those here who joined us in London. Thank you very much.

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