Prospectus • Mar 14, 2018
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Download Source FilePROSPECTUS
US$650,000,000
Anglo American Capital plc
US$650,000,000 4.500% Senior Notes due 2028
Guaranteed by Anglo American plc
This prospectus is being published by Anglo American Capital plc (the “Issuer” or “Anglo American Capital”) in connection with Admission (as defined below) of US$650 million of its 4.500% Senior Notes due 2028 (the “Notes”) with such Notes to be guaranteed (the “Guarantees”) by Anglo American plc (the “Company”, “Guarantor” or “Anglo American” and, together with the Company’s subsidiaries, joint ventures and associates, “Anglo American Group”, the “Group”, or “we”). Interest will be paid on the Notes semi-annually and in arrears on March 15 and September 15 of each year, commencing on September 15, 2018. The Notes will mature on March 15 , 2028.
The Issuer has the option to redeem all or a portion of the Notes at any time at the redemption prices set forth in this document.
The Notes will be unsecured senior obligations of the Issuer and will rank equally with all of its other existing and future unsubordinated indebtedness.
The Notes will be issued in fully registered form and only in denominations of US$200,000 and integral multiples of US$1,000 in excess thereof.
For a more detailed description of the Notes, see “Description of the Notes and the Guarantees” beginning on page 104.
An investment in the Notes involves risks. See “Risk Factors” beginning on page 23.
Offering Price for the Notes: 99.546% plus accrued interest, if any, from March 15, 2018
Application has been made to the Financial Conduct Authority in its capacity as competent authority pursuant to Part VI of the Financial Services and Markets Act 2000 (the “UK Listing Authority”) for the Notes to be admitted to the official list of the UK Listing Authority (the “Official List”) and to the London Stock Exchange plc (the “London Stock Exchange”) for the Notes to be admitted to trading on the London Stock Exchange’s Regulated Market (“Admission”). References in this document to the Notes being listed (and all related references) shall mean that the Notes have been admitted to trading on the London Stock Exchange’s Regulated Market and have been admitted to the Official List. The London Stock Exchange’s Regulated Market is a regulated market for purposes of Directive 2014/65/EU (“MiFID II”). The securities to which this document relates have not been recommended by the United States Securities and Exchange Commission or any other US federal or state securities commission or regulatory authority nor have such authorities confirmed the accuracy or adequacy of this document. Any representation to the contrary is a criminal offense in the United States.
The Notes and the Guarantees have not been registered, and we do not intend to register the Notes or the Guarantees, under the US Securities Act of 1933, as amended (the “Securities Act”), or any securities laws of any other jurisdiction. Accordingly, the Notes are being offered and sold in the United States only to qualified institutional buyers in accordance with Rule 144A under the Securities Act (“Rule 144A”) and outside the United States to certain non-US persons in accordance with Regulation S under the Securities Act (“Regulation S”). Prospective purchasers that are qualified institutional buyers are hereby notified that the seller of the Notes and the related Guarantees may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. For further details about eligible offerees and transfer restrictions, see “Plan of Distribution” and “Transfer Restrictions”.
The Company’s credit ratings have been issued by Moody’s Investors Service Ltd. (“Moody’s”) and Standard & Poor’s Credit Market Services Europe Limited (“S&P”) and are Baa3 (stable outlook) and BBB- (positive outlook), respectively. In general, European regulated investors are restricted from using a rating for regulatory purposes if such rating is not issued by a credit rating agency established in the European Union and registered under Regulation (EC) No. 1060/2009 (the “CRA Regulation”), unless the rating is provided by a credit rating agency operating in the European Union before June 7, 2010 which has submitted an application for registration in accordance with the CRA Regulation and such registration is not refused. S&P and Moody’s have each been registered under the CRA Regulation by the European Securities and Markets Authority as of October 31, 2011.
Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, Australia and New Zealand Banking Group Limited and Westpac Banking Corporation (collectively, the “Joint Bookrunners” or the “Initial Purchasers”) expect to deliver the Notes to purchasers on or about March 15, 2018 through the facilities of The Depository Trust Company including its participants Euroclear Bank S.A./N.V. and Clearstream Banking, société anonyme.
Joint Bookrunners
Australia and New Zealand Banking Group Limited
Credit Suisse
Goldman Sachs & Co. LLC
Morgan Stanley
Westpac Banking Corporation
Prospectus dated March 14, 2018
TABLE OF CONTENTS
Page
TABLE OF CONTENTS 3
IMPORTANT INFORMATION 4
PRESENTATION OF FINANCIAL INFORMATION 8
EXCHANGE RATE DATA 13
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE 14
OVERVIEW 15
SUMMARY FINANCIAL INFORMATION 22
RISK FACTORS 23
CAPITALIZATION 34
RECENT DEVELOPMENTS 35
USE OF PROCEEDS 36
BUSINESS DESCRIPTION 37
MINERAL PRODUCTION 54
INDUSTRY OVERVIEW AND OUTLOOK 56
SELECTED FINANCIAL INFORMATION 60
OPERATING AND FINANCIAL REVIEW 61
REGULATION 88
SUSTAINABLE DEVELOPMENT (INCLUDING SAFETY, HEALTH, ENVIRONMENT AND SOCIAL) 93
BOARD OF DIRECTORS AND MANAGEMENT OF ANGLO AMERICAN PLC 95
RELATED PARTY TRANSACTIONS 103
DESCRIPTION OF THE NOTES AND THE GUARANTEES 104
BOOK-ENTRY SETTLEMENT AND CLEARANCE 122
UK TAX CONSIDERATIONS 124
CERTAIN US FEDERAL TAX CONSIDERATIONS 126
PLAN OF DISTRIBUTION 128
TRANSFER RESTRICTIONS 131
LEGAL MATTERS 134
INDEPENDENT AUDITORS 135
DESCRIPTION OF ANGLO AMERICAN CAPITAL PLC 136
GENERAL INFORMATION 137
DEFINED TERMS 140
IMPORTANT INFORMATION
NOTICE TO INVESTORS
The Issuer and the Company accept responsibility for the information contained in this document. To the best of the knowledge of the Issuer and the Company (each having taken all reasonable care to ensure that such is the case) the information contained in this document is in accordance with the facts and contains no omission likely to affect its import. Where the information in this document has been sourced from a third party, such information has been accurately reproduced and so far as the Issuer and the Company are aware and are able to ascertain from information published by that third party, no facts have been omitted which would render the reproduced information inaccurate or misleading.
This document contains and incorporates by reference information that you should consider when making your investment decision. We have not authorized anyone to provide you with information, whether orally or in writing, either different from that contained in this document or not set forth in this document, and if you believe that there is any other information upon which you wish to rely that is either different from or not set forth in this document you should not rely on it at all. We are offering to sell the Notes only where offers and sales are permitted. The information contained in this document is accurate only as of the date of this document, regardless of the time of delivery of this document or any resale of the Notes and, except as required by the Financial Conduct Authority or applicable law and regulation, will not be updated.
By purchasing any Notes, you will be deemed to have acknowledged that: (1) you have reviewed this document; (2) you have had an opportunity to review all information considered by you to be necessary to make your investment decision and to verify the accuracy of, or to supplement, the information contained in this document; (3) you have not relied on the Initial Purchasers or any person affiliated with the Initial Purchasers in connection with your investigation of the accuracy of such information or your investment decision; (4) the Initial Purchasers are not responsible for, and are not making any representation to you concerning, our future performance or the accuracy or completeness of this document; and (5) no person has been authorized to give any information or to make any representation concerning us or the Notes, other than as contained in this document. If given or made, any such other information or representation should not be relied upon as having been authorized by us or the Initial Purchasers.
You should read this document before making a decision whether to purchase any Notes. In making any investment decision, you must rely on your own examination of the Issuer and the Company and the terms of this offering, including the merits and risks involved. You should consult with your own advisors as needed to assist you in making your investment decision and to advise you whether you are legally permitted to purchase the Notes.
You must comply with all applicable laws and regulations in force in any jurisdiction in connection with the possession or distribution of this document and the purchase, offer or sale of the Notes, and you must obtain any required consent, approval or permission for the purchase, offer or sale by you of the Notes under the laws and regulations applicable to you in force in any jurisdiction to which you are subject or in which you make such purchases, offers or sales. Neither we nor the Initial Purchasers are responsible for your compliance with these legal requirements.
We are offering the Notes and the Guarantees in reliance on exemptions from the registration requirements of the Securities Act. These exemptions apply to offers and sales of securities that do not involve a public offering.
The Notes are subject to restrictions on resale and transfer as described under “Transfer Restrictions”. By purchasing any Notes, you will be deemed to have made certain acknowledgments, representations and agreements as described in that section of this document. You may be required to bear the financial risks of investing in the Notes for an indefinite period of time.
The Initial Purchasers make no representation or warranty, express or implied, as to the accuracy or completeness of the information contained in this document. Nothing contained in this document is, or should be relied upon as, a promise or representation by the Initial Purchasers as to the past or future. The Initial Purchasers have not independently verified any of the information contained herein (financial, legal or otherwise) and assume no responsibility for the accuracy or completeness of any such information.
NOTICE TO INVESTORS IN THE EUROPEAN ECONOMIC AREA
This document constitutes a prospectus that has been prepared solely for use in connection with Admission of the Notes, and it has been approved by the Financial Conduct Authority for such purpose. Purchasers of Notes are notified that this document does not constitute an offer for sale of the Notes and has not been approved by the Financial Conduct Authority in connection with any such offer.
PRIIPS REGULATION/PROHIBITION OF SALES TO EEA RETAIL INVESTORS
The Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (“EEA”). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, “MiFID II”); or (ii) a customer within the meaning of Directive 2002/92/EC (as amended, the “Insurance Mediation Directive”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified investor as defined in Directive 2003/71/EC (as amended, the “Prospectus Directive”). Consequently no key information document required by Regulation (EU) No 1286/2014 (the “PRIIPs Regulation”) for offering or selling the Notes or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation.
MIFID II PRODUCT GOVERNANCE/ PROFESSIONAL INVESTORS AND ECPS ONLY TARGET
MARKET
Solely for the purposes of the manufacturer’s product approval process, the target market assessment in respect of the Notes has led to the conclusion that: (i) the target market for the Notes is eligible counterparties and professional clients only, each as defined in MiFID II; and (ii) all channels for distribution of the Notes to eligible counterparties and professional clients are appropriate. Any person subsequently offering, selling or recommending the Notes (a “distributor”) should take into consideration the manufacturer's target market assessment; however, a distributor subject to MiFID II is responsible for undertaking its own target market assessment in respect of the Notes (by either adopting or refining the manufacturer’s target market assessment) and determining appropriate distribution channels.
STABILIZATION
In connection with the issue of the Notes, any one of Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. LLC or Morgan Stanley & Co. LLC (the “Stabilizing Managers”) or any person acting on behalf of a Stabilizing Manager may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilizing Managers (or persons acting on their behalf) will undertake any stabilization action. Any stabilization action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the date on which the Issuer received the proceeds of the offering, or no later than 60 days after the date of the allotment of the Notes, whichever is the earlier. Any such stabilization or over-allotment must be conducted by the Stabilizing Managers (or persons acting on behalf of any Stabilizing Manager) in accordance with all applicable laws, regulations and rules.
MISCELLANEOUS INFORMATION
This document comprises a prospectus for the purposes of Art. 5.4 of the Prospectus Directive (2003/71/EC) and has been filed with, and approved by, the Financial Conduct Authority and has been made available to the public in accordance with requirements of the Prospectus Directive as implemented in the UK.
The distribution of this document and the offering and sale of the Notes in certain jurisdictions may be restricted by law. The Issuer, the Company and the Initial Purchasers require persons in possession of this document to inform themselves about and to observe any such restrictions. This document does not constitute an offer of, or an invitation to purchase, any of the Notes in any jurisdiction in which such offer or invitation would be unlawful.
FORWARD-LOOKING STATEMENTS
This document includes “forwardlooking information” within the meaning of Section 27A of the Securities Act and Section 21E of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are, or may be deemed to be, forwardlooking statements, including without limitation those concerning levels of actual production during any period, levels of global demand and commodity market prices, mineral resource exploration and development capabilities, recovery rates and other operational capabilities, the availability of mining and processing equipment, the ability to produce and transport products profitably, the impact of foreign currency exchange rates on market prices and operating costs, level of capex, rating and leverage targets, the availability of sufficient credit, the effects of inflation, political uncertainty and economic conditions in relevant areas of the world, the actions of competitors, activities by governmental authorities such as changes in taxation or safety, health, environmental or other types of regulation in the countries where Anglo American operates, conflicts over land and resource ownership rights and such other risk factors identified in this document (see “Risk Factors”). These forwardlooking statements are not based on historical facts, but rather reflect our current expectations concerning future results and events and generally may be identified by the use of forwardlooking words or phrases such as “believe”, “aim”, “expect”, “anticipate”, “intend”, “foresee”, “forecast”, “likely”, “should”, “planned”, “may”, “estimated”, “potential”, “projected”, “will”, “continue” or other similar words and phrases. Similarly, statements that describe our objectives, plans or goals are or may be forwardlooking statements.
These forwardlooking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or implied by these forwardlooking statements. Although we believe that the expectations reflected in these forwardlooking statements are reasonable, no assurance can be given that such expectations will prove to have been correct.
The risk factors described in this document could affect our future results, causing these results to differ materially from those expressed in any forwardlooking statements. These factors are not necessarily all the important factors that could cause our actual results to differ materially from those expressed in any forwardlooking statements. Other unknown or unpredictable factors could also have material adverse effects on future results.
You should review carefully all information, including the financial statements and the notes to the financial statements, which are incorporated by reference into this document. The forwardlooking statements included in this document are made only as of the last practicable date prior to the date hereof. Except as required by the Financial Conduct Authority or applicable law and regulation, neither we nor the Initial Purchasers undertake any obligation to update publicly or release any revisions to these forwardlooking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events. All subsequent written and oral forwardlooking statements attributable to us or any person acting on our behalf are qualified by the cautionary statements in this section.
MARKET AND INDUSTRY DATA
Where cited in this document, market data and industry data and forecasts were obtained and reproduced from reports prepared by Wood Mackenzie, Johnson Matthey, Platts, the World Steel Association, the London Metal Exchange and the IMF. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We have not independently verified any of the data from third party sources, nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, industry forecasts and market research, which we believe to be reliable based upon the Group’s management’s knowledge of the industry, have not been independently verified. Forecasts are particularly likely to be inaccurate, especially over long periods of time. In addition, we do not necessarily know what assumptions regarding general economic growth were used in preparing the forecasts we cite. We do not make any representation as to the accuracy of data from third party sources, industry forecasts and market research. Statements as to the Group’s market position are based on the most currently available data. While we are not aware of any misstatements regarding the Group’s industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this document. Neither we nor the Initial Purchasers can guarantee the accuracy or completeness of any such industry data contained in this document. Where the information in this document has been sourced from a third party, such information has been accurately reproduced and so far as the Issuer and the Company are aware and are able to ascertain from information published by that third party, no facts have been omitted which would render the reproduced information inaccurate or misleading. Further, where the information in this document has been sourced from a third party, reference is made to the third party source where such information appears in the document.
CAUTIONARY NOTE TO US INVESTORS CONCERNING ESTIMATES OF MEASURED, INDICATED AND INFERRED RESOURCES FOR MINING OPERATIONS
There are differences in reporting regimes for reserve estimates between Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, 2012 edition (the “JORC Code”) and the South African Code for Reporting of Exploration Results, Mineral Resources and Mineral Reserves (2007 Edition as amended July 2009) on the one hand, each of which are used by the Group, and the United States reporting regime under the requirements as adopted by the SEC in its Industry Guide 7—Description of Property by Issuers engaged or to be engaged in Significant Mining Operations (“Industry Guide 7”) on the other hand. The principal difference is the absence under Industry Guide 7 of any provision for the reporting of estimates other than proved (measured) or probable (indicated) reserves, and the SEC does not permit mining companies to disclose mineral resources in SEC filings. There is, therefore, no equivalent for “resources” or “mineral resources” under the SEC’s Industry Guide 7.
Additionally, under Industry Guide 7, reserves must be estimated on the basis of current economic and legal conditions, whereas the JORC Code permits the use of “realistic” assumptions, which may include forecast prices and reasonable expectations that required permits will be granted in the future and contracts will be entered into for the sale of production.
The SEC has applied the following reporting definitions to reserves under Industry Guide 7:
A “reserve” is “that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Reserves are customarily stated in terms of “ore” when dealing with metalliferous minerals; when other materials such as coal, oil, shale, tar, sands, limestone, etc. are involved, an appropriate term such as “recoverable coal” may be substituted.”
“Proven (measured) reserves” are “reserves for which: (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling; and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established.”
“Probable (indicated) reserves” are “reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation.”
This prospectus and the documents incorporated by reference herein use the term “resources”, which are comprised of “measured”, “indicated” and “inferred” mineral resources. “Inferred” mineral resources have a great amount of uncertainty as to their existence and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an “inferred” mineral resource will ever be upgraded to a higher category. Under SEC rules, estimates of “inferred” mineral resources may not form the basis of feasibility or other economic studies. Investors should not assume that all or any part of “measured” or “indicated” resources will ever be converted into Ore Reserves. Investors are also cautioned not to assume that all or any part of an “inferred” mineral resource exists or is economically or legally mineable.
Accordingly, investors should be aware that if this prospectus and the documents incorporated by reference herein had been prepared in accordance with Industry Guide 7, the Group’s mineral resources would not be permitted to be reported and our reserves would differ from those described herein and therein.
SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES
The Company and the Issuer are incorporated under the laws of England and Wales. Most of the directors and executive officers of the Company and all the directors of the Issuer live outside the United States. Most of the assets of the Company’s and the Issuer’s directors and executive officers and substantially all the Company’s and the Issuer’s assets are located outside the United States. As a result, it may be difficult for you to serve process on those persons or the Company or the Issuer in the United States or to enforce judgments obtained in US courts against them based on civil liability provisions of the securities laws of the United States.
There is doubt as to enforceability in the English courts, in original actions or in actions for enforcement of judgments of US courts, of liabilities predicated solely upon the federal securities laws of the United States. In addition, awards of punitive damages in actions brought in the United States or elsewhere may not be enforceable in the United Kingdom. The enforceability of any judgment in the United Kingdom will depend on the particular facts of the case in effect at the time.
AVAILABLE INFORMATION
For so long as the Company is neither subject to Section 13 or 15(d) of the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder, the Issuer and the Company, respectively, will furnish to the holder of any Notes and to each prospective purchaser designated by any such holder, upon the request of such holder or prospective purchaser, the information required to be delivered pursuant to Rule 144A (d)(4) under the Securities Act. Any such request may be made to us at 20 Carlton House Terrace, London, SW1Y 5AN, England. As of the date hereof, the Company is exempt from such reporting obligations under Rule 12g3-2(b) under the Exchange Act.
PRESENTATION OF FINANCIAL INFORMATION
Unless otherwise indicated, financial information in this document has been prepared on the basis of International Financial Reporting Standards as adopted for use by the European Union (“IFRS”). The financial information of the Company has been prepared on the basis of applicable law and IFRS. The financial information of the Issuer has been prepared on the basis of applicable law and Generally Accepted Accounting Principles in the United Kingdom, including FRS 101 “Reduced Disclosure Framework” (“UK GAAP”).
The Group 2017 Consolidated Financial Statements, and the Issuer 2017 Financial Statements incorporated by reference into this document, have been audited by Deloitte LLP (“Deloitte”), independent accountants who are registered to carry out audit work by the Institute of Chartered Accountants in England and Wales, with an address at 2 New Street Square, London, EC4A 3BZ, as stated in their report appearing therein. The Group 2016 Consolidated Financial Statements, Group 2015 Consolidated Financial Statements, Issuer 2016 Financial Statements and Issuer 2015 Financial Statements are incorporated by reference in this document and have been audited by Deloitte, as stated in their reports also incorporated therein.
Our business unit structure focuses our portfolio around principal commodities which are located in areas of key geographic focus for each commodity. These business units are:
De Beers (Worldwide);
Copper (Chile, Peru and Finland);
Platinum (South Africa and Zimbabwe);
Iron Ore and Manganese (Australia, Brazil and South Africa);
Coal (Australia and Canada, South Africa and Colombia);
Nickel (Brazil); and
Corporate and Other (Worldwide).
Our Group results are reported on a business segment basis in accordance with IFRS. Business segments are:
De Beers;
Copper;
Platinum;
Iron Ore and Manganese (comprises Kumba, Iron Ore Brazil and Samancor);
Coal
Nickel; and
Corporate and Other (includes the Niobium and Phosphates business unit disposed of on September 30, 2016).
The Group’s segments are aligned to those business units that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
The Kumba Iron Ore, Iron Ore Brazil and Samancor business units have been aggregated as the “Iron Ore and Manganese” segment on the basis of the ultimate product produced (ferrous metals). The “Corporate and Other” segment includes unallocated corporate costs, exploration costs and the Other Mining and Industrial business unit (the majority of whose remaining interests in operations was disposed of in the year ended December 31, 2015) and the Niobium and Phosphates business unit (sold on September 30, 2016). Exploration costs represent the cost of the Group’s exploration activities across all segments. Comparative information for “Corporate and Other” has been restated to include the Niobium and Phosphates business unit, which was previously disclosed separately.
Segments predominantly derive revenue as follows – De Beers: rough diamonds; Copper: copper; Platinum: platinum group metals; Iron Ore and Manganese: iron ore, manganese ore and alloys; Coal: metallurgical coal and thermal coal; Nickel: nickel. The segment results are stated after elimination of inter-segment transactions and include an allocation of corporate costs.
Some financial and other information in this document has been rounded and, as a result, the figures shown as totals in this document may vary slightly from the exact arithmetic aggregation of the figures that precede them.
The Group 2017, 2016 and 2015 Consolidated Financial Statements and the Issuer 2017, 2016 and 2015 Financial Statements, incorporated by reference herein, contain an independent auditor’s audit report from Deloitte that contains language limiting the scope of Deloitte’s duty of care in relation to such reports and the financial statements to which they relate. See “Independent Auditors” for a description of the auditor’s audit reports including language limiting Deloitte’s scope of responsibility in relation to such reports and the financial statements to which each relates. If any court were to give effect to this limiting language, the recourse that investors in the Notes may have against Deloitte based on their report or the aforementioned financial statements to which they relate could be limited.
The auditors have made reports under Chapter 3 of Part 16 of the Companies Act 2006 on the statutory accounts of the Company and the Issuer for the years ended December 31, 2015, 2016 and 2017 (each incorporated by reference in this document), which were unqualified and did not contain any statement as is described in Sections 498 (2) or (3) of the Companies Act 2006. Any financial information included in this document (other than the statutory accounts incorporated by reference in this document) does not constitute the statutory accounts of the Company or the Issuer within the meaning of Section 435 (1) and (2) of the Companies Act 2006 for any period presented. Statutory accounts of the Company and the Issuer have been delivered to the Registrar of Companies in England and Wales for the year-ended December 31, 2017 in accordance with, and as required by, UK law.
The financial results of the Platinum segment and Kumba’s contribution to the Iron Ore and Manganese segment, reconcile to the financial results of Anglo American Platinum and Kumba, respectively, when taking into account certain adjustments, principally consolidation adjustments and corporate cost allocations.
Non-IFRS Financial Measures
When assessing and discussing the Group’s reported financial performance, financial position and cash flows, management makes reference to Alternative Performance Measures (“APMs”) of historical or future financial performance, financial position or cash flows that are not defined or specified under IFRS.
The APMs used by the Group fall into two categories:
Financial APMs: These financial measures are usually derived from the financial statements, prepared in accordance with IFRS. Certain financial measures cannot be directly derived from the financial statements as they contain additional information, such as financial information from earlier periods or profit estimates or projections. The accounting policies applied when calculating APMs, where relevant and unless otherwise stated, are the same as those disclosed in the Group’s 2017 Consolidated Financial Statements.
Non-financial APMs: These measures incorporate certain non-financial information that management believes is useful when assessing the performance of the Group.
APMs are not uniformly defined by all companies, including those in the Group’s industry. Accordingly, the APMs used by the Group may not be comparable with similarly titled measures and disclosures made by other companies. APMs should be considered in addition to, and not as a substitute for or as superior to, measures of financial performance, financial position or cash flows reported in accordance with IFRS.
The Group uses APMs to improve the comparability of information between reporting periods and business units, either by adjusting for uncontrollable factors or special items which impact upon IFRS measures or, by aggregating measures, to aid the user in understanding the activity taking place across the Group’s portfolio.
Their use is driven by characteristics particularly visible in the mining sector:
Earnings volatility: The Group mines and markets commodities and precious metals and minerals. The sector is characterized by significant volatility in earnings driven by movements in macroeconomic factors, primarily commodity price and foreign exchange rates. This volatility is outside the control of management and can mask underlying changes in performance. As such, when comparing year-on-year performance, management excludes certain items (such as those classed as “special items”) to aid comparability and then quantifies and isolates uncontrollable factors in order to improve understanding of the controllable portion of variances.
Nature of investment: Investments in the sector typically occur over several years and are large, requiring significant funding before generating cash. These investments are often made with partners and the nature of the Group’s ownership interest affects how the financial results of these operations are reflected in the Group’s results, e.g. whether full consolidation (subsidiaries), consolidation of the Group’s attributable assets and liabilities (joint operations) or equity accounted (associates and joint ventures). Attributable metrics are therefore presented to help demonstrate the financial performance and returns available to the Group, for investment and financing activities, excluding the effect of different accounting treatments for different ownership interests.
Portfolio complexity: The Group operates in a number of different, but complementary commodities, precious metals and minerals. The cost, value of and return from each saleable unit (e.g. tonne, pound, carat, ounce) can differ materially between each business. This makes understanding both the overall portfolio performance and the relative performance of its constituent parts on a like-for-like basis, more challenging. The Group therefore uses composite APMs to provide a consistent metric to assess performance at the portfolio level.
Consequently, APMs are used by the Board and management for planning, reporting and incentive-setting purposes. A subset is also used by management in setting director and management remuneration.
The portion of the Anglo American plc 2017 Annual Report incorporated by reference herein contains an Alternative Performance Measures section that sets out the Financial APMs used by the Group along with the closest equivalent IFRS measure and the rationale for adjustments. The 2015, 2016 and 2017 Group Consolidated Financial Statements, incorporated by reference in this document, include the adjustments to reconcile the APMs to the primary financial statements. In addition the Group 2017 Annual Report also contains the Non-Financial APMs used by the Group along with the purpose for the Group using these measures. The APMs used by the Group are defined below.
Group Revenue (including attributable share of associates’ and joint ventures’ revenue)
Group revenue includes the Group’s attributable share of associates’ and joint ventures’ revenue. A reconciliation to “Revenue”, the closest equivalent IFRS measure to Group revenue is disclosed in Note 3 to the Group 2016 Consolidated Financial Statements and Note 2 to the Group 2017 Consolidated Financial Statements, incorporated by reference herein.
Underlying EBIT
Underlying EBIT is “operating profit/(loss)” presented before special items and re-measurements and includes the Group’s attributable share of associates’ and joint ventures’ underlying EBIT. Underlying EBIT of associates and joint ventures is the Group’s attributable share of associates’ and joint ventures’ revenue less operating costs before special items and re-measurements of associates and joint ventures. A reconciliation to “profit/(loss) before net finance income/(costs) and tax”, the closest equivalent IFRS measure to underlying EBIT is provided within Note 3 to the Group 2016 Consolidated Financial Statements and Note 2 to the Group 2017 Consolidated Financial Statements, incorporated by reference herein. Further, “profit/(loss) before net finance (costs)/income and tax”, is reconciled to “profit/(loss) for the financial period” in the consolidated income statement on page 116 of the Group 2016 Consolidated Financial Statements and on page 122 of the Group 2017 Consolidated Financial Statements as included in the respective 2016 and 2017 Annual Reports of the Company, incorporated by reference herein.
Underlying EBITDA
Underlying EBITDA is underlying EBIT before depreciation and amortization and includes the Group’s attributable share of associates’ and joint ventures’ underlying EBIT before depreciation and amortization. A reconciliation to “profit/(loss) before net finance income/(costs) and tax”, the closest equivalent IFRS measure to underlying EBITDA, is provided within Note 3 to the Group 2016 Consolidated Financial Statements and Note 2 to the Group 2017 Consolidated Financial Statements, incorporated by reference herein. Further, “profit/(loss) before net finance (costs)/income and tax”, is reconciled to “profit/(loss) for the financial period” in the consolidated income statement on page 116 of the Group 2016 Consolidated Financial Statements and on page 122 of the Group 2017 Consolidated Financial Statements as included in the respective 2016 and 2017 Annual Reports of the Company, incorporated by reference herein.
Underlying earnings
Underlying earnings is “profit/(loss) for the financial period attributable to equity shareholders of the Company” before special items and remeasurements and is therefore presented after net finance costs, income tax expense and non-controlling interests. A reconciliation to “profit/(loss) for the financial period attributable to equity shareholders of the Company”, the closest equivalent IFRS measure to underlying earnings is disclosed in Note 3 to the Group 2016 Consolidated Financial Statements and Note 2 to the Group 2017 Consolidated Financial Statements, incorporated by reference herein.
Net debt
Net debt is calculated as total borrowings less cash and cash equivalents (including derivatives which provide an economic hedge of net debt). A reconciliation to the IFRS measure consolidated balance sheet is disclosed in Note 23 to the Group 2016 Consolidated Financial Statements and Note 20 to the Group 2017 Consolidated Financial Statements, incorporated by reference herein.
Capital expenditure (“capex”)
Capital expenditure is defined as cash expenditure on property, plant and equipment, including related derivatives, and is presented net of proceeds from disposal of property, plant and equipment and includes direct funding for capital expenditure from non-controlling interests in order to match more closely the way in which it is managed. A reconciliation to “expenditure on property, plant and equipment”, the closest IFRS measure to capital expenditure is disclosed in Note 22 to the Group 2016 Consolidated Financial Statements and Note 12 to the Group 2017 Consolidated Financial Statements, incorporated by reference herein.
Capital employed
Capital employed is defined as net assets excluding net debt and financial asset investments. Attributable capital employed includes the Group’s share of associates’ and joint ventures’ capital employed and excludes capital employed of non-controlling interests. Average attributable capital employed is calculated by adding the opening and closing attributable capital employed for the relevant period and dividing by two. A reconciliation to the closest IFRS measure is disclosed in Note 3 to the Group 2016 Consolidated Financial Statements and Note 9 to the Group 2017 Consolidated Financial Statements, incorporated by reference herein.
Underlying effective tax rate
The underlying effective tax rate equates to the income tax expense before special items and remeasurements and including the Group’s share of associates’ and joint ventures’ tax before special items and remeasurements, divided by profit before tax before special items and remeasurements and including the Group’s share of associates’ and joint ventures’ profit before tax before special items and remeasurements.
The calculation of underlying effective tax rate for the years 2015, 2016 and 2017 is set forth in “Operating and Financial Review – Income Tax Expense before Special Items and Remeasurements”.
Attributable free cash flow
Attributable free cash flow is calculated as “Cash flows from operations” plus dividends received from associates, joint ventures and financial asset investments, less capital expenditure, less tax cash payments excluding tax payments relating to disposals, less net interest paid including interest on derivatives hedging net debt, less dividends paid to non-controlling interests. A reconciliation to “cash flows from operations”, the closest equivalent IFRS measure, is provided on page 38 of the Group Financial Review included in the respective 2016 and 2017 Annual Reports of the Company, incorporated by reference herein.
Copper equivalent production
Copper equivalent production, expressed as copper equivalent tonnes, shows changes in underlying production volume. It is calculated by expressing each commodity’s volume as revenue, subsequently converting the revenue into copper equivalent units by dividing by the copper price (per tonne). Long term prices (and foreign exchange rates where appropriate) are used, in order that period on period comparisons exclude any impact for movements in price.
When calculating copper equivalent production, all volumes relating to domestic sales are excluded, as are volumes from Samancor and sales from non-mining activities. Volume from projects in pre-commercial production are included.
Unit cost
Unit cost is the direct cash cost including direct cash support costs incurred in producing one unit of saleable production.
For bulk products (coal, iron ore), unit costs shown are FOB i.e. cost on board at port. For base metals (copper, nickel), they are shown at C1 i.e. after inclusion of by-product credits and logistics costs. For platinum and diamonds, unit costs include all direct expensed cash costs incurred i.e. excluding, amongst other things, market development activity, corporate overhead etc. Platinum unit costs exclude by-product credits. Royalties are excluded from all unit cost calculations.
Copper equivalent unit cost
Copper equivalent unit cost is the cost incurred to produce one tonne of copper equivalent. Only the cost incurred in mined output from subsidiaries and joint operations is included, representing direct costs in the consolidated income statement controllable by the Group. Costs and volumes from associates and joint ventures are excluded, as are those from operations that are not yet in commercial production, that deliver domestic production, and those associated with third-party volume purchases of diamonds and platinum concentrate.
When calculating copper equivalent unit cost, unit costs for each commodity are multiplied by relevant production, combined and then divided by the total copper equivalent production, to get a copper equivalent unit cost i.e. the cost of mining one tonne of copper equivalent. The metric is in US dollars and, where appropriate, long-term foreign exchange rates are used to convert from local currency to US dollars.
Productivity
The Group’s productivity measure calculates the copper equivalent production generated per employee. It is a measure that represents how well headcount is driving revenue. It is calculated by dividing copper equivalent production by the average direct headcount from consolidated mining operations in a given year.
Volume and cash cost improvements
The Group uses an underlying EBITDA waterfall to understand its year-on-year underlying EBITDA performance. The waterfall isolates the impact of uncontrollable factors in order that the real year-on-year improvement in performance can be seen by the user.
Three variables are normalized in the results of subsidiaries and joint operations, for:
Price: The movement in price between comparative periods is removed, by multiplying current year sales volume by the movement in realized price for each product group.
Foreign Exchange: The year-on-year movement in exchange is removed from the current year non-US dollar cost base i.e. they are restated at prior year foreign exchange rates. The non-US dollar cash cost base excludes costs which are price linked (e.g. purchase of concentrate from third-party platinum providers, third-party diamond purchases).
Inflation: consumer price index (CPI) is removed from cash costs, restating these costs at the level of the base year.
The remaining variances in the underlying EBITDA waterfall are in real US dollar terms for the base year i.e. for a waterfall comparing 2017 with 2016, the sales volume and cash cost variances exclude the impact of price, foreign exchange rates and CPI and are hence in real 2016 terms. This allows the user of the waterfall to understand the underlying real movement in sales volumes and cash costs on a consistent basis.
EXCHANGE RATE DATA
The following table shows the high, low, period-end and periodaverage end of day rates taken from Bloomberg composite pricing in London, expressed as the relevant currency per US dollar, for the periods presented:
Year-ended
December 31
2015
Year-ended
December 31
2016
Year-ended
December 31
2017
Two months
ended
February 28,
2018
South African rand (“ZAR”)
High for period
15.90
16.92
14.49
12.46
Low for period
11.28
13.28
12.31
11.56
End of period
15.47
13.73
12.31
11.75
Average for period
12.78
14.70
13.31
12.02
Euro (“EUR”)
High for period
0.95
0.96
0.96
0.84
Low for period
0.83
0.87
0.83
0.80
End of period
0.92
0.95
0.83
0.82
Average for period
0.90
0.90
0.89
0.82
Chilean peso (“CLP”)
High for period
715
731
678
615
Low for period
597
645
614
587
End of period
709
667
615
593
Average for period
655
676
649
601
Australian dollar (“AUD”)
High for period
1.45
1.46
1.39
1.28
Low for period
1.22
1.28
1.24
1.23
End of period
1.37
1.38
1.28
1.28
Average for period
1.33
1.34
1.30
1.26
British pound (“GBP”)
High for period
0.68
0.82
0.83
0.74
Low for period
0.63
0.68
0.74
0.70
End of period
0.68
0.81
0.74
0.72
Average for period
0.65
0.74
0.78
0.72
Brazilian real (“BRL”)
High for period
4.18
4.15
3.37
3.31
Low for period
2.57
3.11
3.06
3.13
End of period
3.96
3.25
3.31
3.25
Average for period
3.34
3.48
3.19
3.23
Botswanan pula (“BWP”)
High for period
11.27
11.73
10.74
9.88
Low for period
9.48
10.33
9.85
9.47
End of period
11.25
10.69
9.85
9.55
Average for period
10.12
10.89
10.34
9.66
The closing rates as at March 8, 2018, expressed as the relevant currency per US dollar, were as follows:
South African rand
11.93
Euro
0.81
Chilean peso
606
Australian dollar
1.28
British pound
0.72
Brazilian real
3.26
Botswanan pula
9.57
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
We are incorporating by reference certain information into this document, which means we are disclosing important information to you by referring you to such information. The information being incorporated by reference is an important part of this document and should be reviewed before deciding whether or not to purchase the Notes described herein.
Subject to the limitations and exclusions described in the paragraphs below, the following documents, which have previously been published and have been filed with the Financial Conduct Authority, shall be incorporated by reference into this document:
The auditor’s report and audited consolidated annual financial statements for the financial year-ended December 31, 2017 of Anglo American plc (such information, the “Group 2017 Consolidated Financial Statements”) as included in the 2017 Annual Report of the Company, on pages 117 to 186 thereof;
Alternative Performance Measures as included in the 2017 Annual Report of the Company, on pages 194 to 197 thereof;
the auditor’s report and audited consolidated annual financial statements for the financial year-ended December 31, 2016 of Anglo American plc (such information, the “Group 2016 Consolidated Financial Statements”) as included in the 2016 Annual Report of the Company, on pages 111 to 180 thereof;
the auditor’s report and audited consolidated annual financial statements for the financial year-ended December 31, 2015 of Anglo American plc (such information, the “Group 2015 Consolidated Financial Statements”) as included in the 2015 Annual Report of the Company, on pages 109 to 174 thereof;
the auditor’s report and audited non-consolidated annual financial statements for the year-ended December 31, 2017 of Anglo American Capital plc (such information, the “Issuer 2017 Financial Statements”) as included in the 2017 Annual Report and Financial Statements of the Issuer, on pages 6 to 34 thereof;
the auditor’s report and audited non-consolidated annual financial statements for the year-ended December 31, 2016 of Anglo American Capital plc (such information, the “Issuer 2016 Financial Statements”) as included in the 2016 Annual Report and Financial Statements of the Issuer, on pages 4 to 29 thereof;
the auditor’s report and audited non-consolidated annual financial statements for the year-ended December 31, 2015 of Anglo American Capital plc (such information, the “Issuer 2015 Financial Statements”) as included in the 2015 Annual Report and Financial Statements of the Issuer, on pages 4 to 31 thereof; and
estimated Ore Reserves and estimated mineral resources as at December 31, 2017 of Anglo American plc as included in the 2017 Annual Report of the Company, on pages 187 to 191 thereof.
Except as expressly stated above, no part of the 2017 Annual Report of the Company, the 2016 Annual Report of the Company, the 2015 Annual Report of the Company, the 2017 Annual Report and Financial Statements of the Issuer, the 2016 Annual Report and Financial Statements of the Issuer or the 2015 Annual Report and Financial Statements of the Issuer or any other document referred to in the documents listed above is incorporated by reference herein. Non-incorporated parts or other documents referred to in the documents listed above are either not relevant for the investor or are covered elsewhere in the document.
The documents which have been incorporated by reference into this document may be accessed at http://www.angloamerican.com/specialinformation9 (the “special purpose website”). The special purpose website contains only the foregoing information and is not part of our website. The content of our website does not form any part of this document. You may also obtain copies of this information by telephoning +44 (0) 20 7968 8888.
This document will be published, in accordance with paragraph 3.2.4(4) of the UK Prospectus Rules, on the website of the London Stock Exchange, by means of an announcement through a Regulatory Information Service (which may be accessed at http://www.londonstockexchange.com/exchange/news/market-news/market-news-home.html).
OVERVIEW
This overview highlights certain information contained in this document. This overview does not contain all the information you should consider before purchasing the Notes. You should read this entire document carefully, including the sections entitled “Forward-Looking Statements”, “Risk Factors”, “Business Description” and “Operating and Financial Review” included elsewhere in this document and the financial information and the notes thereto incorporated by reference as outlined in the section entitled “Incorporation of Certain Information by Reference”. Other than under “Description of the Notes and the Guarantees” or where the context indicates otherwise, references herein to “us”, “we”, “our” and similar terms are to the Group.
The Anglo American Group
Anglo American is a global diversified mining company. Our portfolio of world class competitive mining operations and undeveloped resources – spanning diamonds (through De Beers), copper, platinum and other precious metals, iron ore, coal and nickel – provides many of the key raw materials to meet the growing consumer-driven demands of the world’s developed and maturing economies.
Anglo American plc is the holding company of the Group. It is a public limited company incorporated under the laws of England and Wales and registered in England and Wales.
Our businesses’ contribution to underlying EBIT (underlying EBIT is “operating profit/(loss)” presented before special items and remeasurements and includes the Group’s attributable share of associates’ and joint ventures’ underlying EBIT) in 2015, 2016 and 2017 is summarized in the table below:
Year-ended December 31,
2015
2016
2017
(US$m)
De Beers
571
1,019
873
Copper
228
261
923
Platinum
263
185
512
Iron Ore and Manganese(1)
671
1,275
1,978
Coal(1)
457
1,112
2,274
Nickel
(22)
(15)
-
Corporate and Other(2)
55
(71)
(313)
2,223
3,766
6,247
The Group’s segments are aligned to those business units that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Kumba Iron Ore, Iron Ore Brazil and Samancor business units have been aggregated as the “Iron Ore and Manganese” segment on the basis of the ultimate product produced (ferrous metals).
The “Corporate and Other” segment includes unallocated corporate costs, exploration costs and the Other Mining and Industrial business unit (the majority of whose remaining interests in operations was disposed of in the year ended December 31, 2015) and the Niobium and Phosphates business unit (sold on September 30, 2016). Exploration costs represent the cost of the Group’s exploration activities across all segments. Comparative information for “Corporate and Other” has been restated to include the Niobium and Phosphates business unit, which was previously disclosed separately.
Business Overview
We are a global leader in the production of platinum and diamonds and have significant interests in metallurgical and thermal coal, copper and iron ore and manganese metals. The Anglo American business segments are outlined below. For a more detailed description of the business segments, see “Business Description—Business Segments”.
We plan to continue to refine and upgrade our asset portifolio as a matter of course in order to ensure that our capital is deployed effectively to generate enhanced and sustainable returns for our shareholders.
Anglo American has restructured significantly over the last four years and, as a result, upgraded the overall quality of its portfolio of mining assets since 2013, moving from 68 assets to 36 at the end of 2017. This transformation has been achieved through extensive improvements to operational efficiency, together with the sale, placing onto care and maintenance and closure of assets, resulting in a step-change in Anglo American’s operational performance, profitability and cash flow generation.
For a more detailed description of the Group’s strategy and strategic growth projects, see “Business Description—Strategy”.
De Beers
De Beers plc (“De Beers”) is Anglo American’s 85%-owned diamond business, with mining operations in Botswana, Canada, Namibia and South Africa. In 2017, De Beers, together with its joint venture partners, was responsible for the production and supply of approximately one-third of global rough diamond supply by value. De Beers operates across key parts of the diamond value chain, including exploration, production, sorting, valuing and selling of rough diamonds. It also markets polished diamonds under its proprietary diamond brand, Forevermark, which licenses the Forevermark brand and retails diamond jewelry through De Beers Jewellers.
Copper
We have interests in two major copper operations in Chile. A 50.1% interest in Anglo American Sur (“AA Sur”), which includes the Los Bronces and El Soldado mines and the Chagres smelter, which we manage and operate and a 44% interest in the Collahuasi mine. In Peru, we have an 81.9% interest in the Quellaveco copper project. The mineral endowments of these assets underpin our organic copper growth opportunities, in addition to a number of future potential projects.
Platinum
Our subsidiary, Anglo American Platinum Limited (“Anglo American Platinum”), a company listed on the Johannesburg Stock Exchange and located in South Africa, is the world’s leading primary producer of platinum group metals, extracting approximately 40% of the world’s newly mined platinum in 2017. The Group holds a 78% controlling interest in Anglo American Platinum.
Iron Ore and Manganese
Iron Ore: The business segment’s iron ore operations are represented in South Africa by a controlling interest of 69.7% in Kumba Iron Ore Limited (“Kumba”), a company listed on the Johannesburg Stock Exchange, and in Brazil by a 100% interest in Anglo American Minério de Ferro Brasil SA (“Minas-Rio”) and a 50% interest in Ferroport Logística Comercial Exportadora SA (“Ferroport”). Ferroport owns and operates the iron ore handling and shipping facilities at the port of Açu, from which iron ore from Minas-Rio is exported.
Manganese: The business segment’s manganese operations (manganese ore mining and alloy production) are represented in South Africa, Australia and Singapore by a 40% interest in Samancor Holdings Proprietary Limited (“Samancor Holdings”), Groote Eylandt Mining Company Pty Limited (“GEMCO”), Tasmanian Electro Metallurgical Company Pty Limited (“TEMCO”) and Samancor Marketing Pte. Ltd (“Samancor Marketing” and, together with Samancor Holdings, GEMCO and TEMCO, “Samancor”), respectively.
Coal
Metallurgical Coal: This business is Australia’s second largest metallurgical coal producer and the third largest global exporter of metallurgical coal, according to Wood Mackenzie. In Australia, we have four operating mines, one wholly owned and three in which we have a majority interest. All of these mines are located towards the east coast of Australia, in Queensland’s Bowen Basin. In addition, we hold an equity accounted interest in another mine in Queensland, which we do not operate, and one mine in British Columbia, Canada, which is in care and maintenance.
Coal South Africa and Cerrejón: In South Africa, the business owns and operates five mines and has a 50% interest in the Mafube colliery and a 73% interest in Anglo American Inyosi Coal (“AAIC”), which operates the Kriel colliery, the Zibulo mine and various other projects and holds a 50% interest in the Phola washing plant. This business also has a 23.2% interest in the Richards Bay Coal Terminal (“RBCT”) through which South African export thermal coal is routed. Its Colombian operations are represented by a 33.3% interest in Carbones del Cerrejón Limited, Cerrejón Zona Norte S.A. and CMC - Coal Marketing Company Limited (collectively referred to as “Cerrejón”). The sale of Kriel, New Denmark and New Vaal mines was completed on March 1, 2018.
Nickel
Our 100% owned nickel business serves the global stainless steel industry, which depends on nickel and drives demand for it. This business segment comprises two ferronickel production sites located in Brazil’s Goiás state, Barro Alto and Codemin.
Corporate and Other
This business segment includes the non-core businesses previously reported under Other Mining and Industrial and previously comprised the quarry materials companies operating under the Tarmac brand (“Tarmac”), including interests in Tarmac Middle East, which we sold in 2015 and 2016, and a 50% interest in the Lafarge Tarmac Holdings Limited (“Lafarge Tarmac”) joint venture, which we sold in 2015.
On September 30, 2016, the Group completed the sale of the Niobium and Phosphates businesses. The Niobium and Phosphates businesses were located in the states of Goiás and São Paulo, in Brazil. The Phosphates business consists of a mine, a beneficiation plant, two chemical complexes and two further mineral deposits. The Niobium business consisted of one mine and three processing facilities, two non-operating mines, two further mineral deposits and sales and marketing operations in the United Kingdom and Singapore.
Strategy
Our strategy is to secure, develop and operate a portfolio of high quality and long life resource assets with the potential to deliver leading shareholder returns. We seek to achieve this through innovative practices and technologies – in the hands of our world class people – towards a common purpose.
Portfolio
The quality and long life of our mineral assets are the foundation of our global business. We focus on securing and operating assets that we believe offer the most attractive long term value-creation potential, as measured by sustainable cash flow and returns. The scale and diversity of our portfolio allows us to leverage our financial resources, technical expertise and supplier relationships towards delivery on our potential and to the benefit of our customers, creating a measured risk profile and supporting strong returns.
Innovation
Across our business, we are thinking innovatively about how we ensure the safety of our people, enhance our sustainability performance and deliver superior value for all our stakeholders. From exploration to delivering our products to our customers, FutureSmart Mining™ is our innovation-led approach to sustainable mining. This approach, coupled with the operational improvements being delivered from our Operating Model, is fundamentally changing the way we extract, process and market our products and will provide the next step-change in operating and financial performance.
People
Our people are critical to all that we do. The partnerships we build locally and globally are central to maintaining our regulatory and social licenses to operate and our sustained commercial success. We create inclusive and diverse working environments that encourage and support high performance and innovative thinking. Our Organisation Model seeks that we have the right people in the right roles doing the right value-adding work at the right time, with clear accountabilities that minimize work duplication and increase capability and effectiveness.
Key Strategic Growth Projects
Projects ramping up
A number of projects across the Group have been delivered since 2016 and are contributing to operating cash flows, including Barro Alto (Nickel), Grosvenor (Metallurgical Coal), Gahcho Kué (De Beers) and Minas-Rio (Iron Ore). Together, these assets contributed US$686 million of underlying EBITDA in 2017.
Future project options
Strict value criteria are applied to the assessment of Anglo American’s portfolio of future growth options. Where appropriate, we aim to seek partners for the development of major greenfield projects and are likely to not commit to more than one such project at any given time. The Group will continue to maintain optionality to progress with value-accretive projects, should market conditions and capital availability permit.
Although no new major capital projects were approved during 2017, we continue to retain and advance select studies, abiding by our established social commitments and managing the costs of maintaining those options appropriately.
One such option is the Quellaveco project in southern Peru – one of the world’s largest untapped copper orebodies. The project’s feasibility study is expected to be presented to the Board for development consideration in 2018.
The Company
Anglo American plc is a public limited company organized under the laws of England and Wales. Anglo American has its primary listing on the London Stock Exchange and is one of the FTSE 100 companies, which comprises the 100 largest UK listed companies by market capitalization. As of December 31, 2017, Anglo American’s market capitalization was approximately US$27.1 billion.
Anglo American is a publicly traded company with no single controlling shareholder. The principal offices of Anglo American plc are located at 20 Carlton House Terrace, London, SW1Y 5AN, England and its telephone number is +44 (0) 20 7968 8888.
The Issuer
Anglo American Capital plc is a public limited company organized under the laws of England and Wales. It was formed for the purpose of securing and providing financing for the Anglo American Group.
The principal offices of Anglo American Capital plc are located at 20 Carlton House Terrace, London, SW1Y 5AN, England. For further information on the Issuer, see “Description of Anglo American Capital plc”.
Overview of the Notes
Certain of the terms and conditions described below are subject to important limitations and exceptions. The “Description of the Notes and the Guarantees” section of this document contains a more detailed description of the terms and conditions of the Notes and the Guarantees. Capitalized terms used but not defined in this section have the meanings set forth in “Description of the Notes and the Guarantees”.
The Issuer
Anglo American Capital plc, a public limited company organized under the laws of England and Wales. The Issuer is a wholly owned subsidiary of Anglo American plc that serves as a financing vehicle through which the Anglo American Group raises funds to support its operations.
The Guarantor of the Notes
Anglo American plc, a public limited company organized under the laws of England and Wales. The Company is the ultimate holding company for the Anglo American Group.
The Notes
US$650 million aggregate principal amount of 4.500% Senior Notes due March 15, 2028.
The Notes will be issued under the Indenture among the Issuer, the Company and the Trustee. The Notes will be treated as a separate class of securities under the Indenture.
The Guarantees
The obligations of the Issuer under the Notes will be unconditionally and irrevocably guaranteed on a senior and unsecured basis by the Company (the “Guarantees”) pursuant to the Indenture.
The Offering
The Notes are being offered in the United States to qualified institutional buyers in reliance on Rule 144A and outside the United States to persons other than US persons in reliance upon Regulation S.
Issue Price
99.546%.
Issue Date
March 15, 2018.
Maturity Date
March 15, 2028.
Interest
The Notes will bear interest from the Issue Date at the rate of 4.500% per annum, payable semi-annually in arrears.
Interest Payment Dates
March 15 and September 15 of each year, commencing September 15, 2018, until the Maturity Date.
Regular Record Dates
March 1 and September 1 of each year (whether or not a business day) immediately preceding each interest payment date.
Status of the Notes and the Guarantees
The Notes and the Guarantees will be direct, unsecured and unsubordinated obligations of each of the Issuer and the Company, respectively, ranking pari passu among themselves and with all other direct, unsecured and unsubordinated obligations (except those obligations preferred by statute or operation of law) of the Issuer and the Company, respectively. The Notes and the Guarantees will be effectively subordinated to any debt or other obligations of any other subsidiary of the Company with respect to the earnings and assets of that subsidiary.
Use of Proceeds
We expect that the net proceeds of the offering will be used for our general corporate purposes including but not limited to funding potential future liability management activities.
Covenants
The Issuer and the Company have agreed to certain covenants with respect to the Notes and the Guarantees, including limitations on:
• liens;
• sale and leaseback transactions; and
• mergers and consolidations.
Events of Default
The occurrence or existence of certain conditions or events, including the acceleration of certain other indebtedness of the Issuer or the Company, may accelerate the Issuer and the Company’s obligations under the Notes.
Optional Redemption
The Issuer may redeem the Notes, in whole or in part, at its option, at any time and from time to time, prior to December 15, 2027 (three months prior to the maturity date of the Notes) (the “Notes Par Call Date”), at a redemption price equal to the greater of (i) 100% of the principal amount of the Notes to be redeemed and (ii) the sum of the present values of the applicable Remaining Scheduled Payments discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 30 basis points, together with accrued interest on the principal amount of the Notes to be redeemed to, but not including, the date of redemption.
The Issuer may redeem the Notes in whole or in part, at its option, at any time and from time to time, on or after the Notes Par Call Date, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, together with accrued and unpaid interest on the principal amount of the Notes to be redeemed to, but not including, the date of redemption.
Optional Tax Redemption
The Notes are subject to redemption prior to maturity, at the option of the Issuer, in whole but not in part, at their principal amount, plus accrued interest to the date of redemption and any Additional Amounts, in the event of certain Changes in Tax Laws that would require the Issuer or the Company to pay Additional Amounts on the Notes.
Additional Amounts
Subject to certain exceptions and limitations provided for in the Indenture, the Issuer and the Company will pay such Additional Amounts on the Notes (or under the Guarantees in respect thereof) as may be necessary to ensure that the net amounts received by each holder of a Note after all withholding or deductions shall equal the amount of principal and interest which such holder would have received in respect of such Note (or payments under the Guarantees in respect thereof) in the absence of such withholding or deduction.
Change of Control
If a Change of Control Repurchase Event occurs (as defined under “Description of the Notes and the Guarantees”), the Issuer or the Company may be required to repurchase the Notes at a purchase price equal to 101% of their principal amount, plus any accrued and unpaid interest. See “Description of the Notes and the Guarantees—Change of Control Repurchase Event”.
Denomination, Form and Registration of Notes
The Notes will be issued in fully registered form and only in denominations of US$200,000 and integral multiples of US$1,000 in excess thereof. The Notes will be issued initially as Global Notes. The Depository Trust Company (“DTC”) will act as depositary for the Notes. Except in limited circumstances, Global Notes will not be exchangeable for certificated notes.
Further Issues
The Issuer may from time to time without the consent of the holders of the Notes issue as many distinct series of debt securities under the Indenture as it wishes. Subject to certain conditions, it may also from time to time without the consent of the holders of the Notes issue additional notes having the same terms and conditions as the Notes issued hereunder. The period of resale restrictions applicable to any Notes previously offered and sold in reliance on Rule 144A shall automatically be extended to the last day of the period of any resale restrictions imposed on any such additional notes.
Trustee, Paying Agent, Registrar and Transfer Agent
Citibank, N.A., whose address is Citigroup Centre, Canada Square, Canary Wharf, London, E14 5LB, United Kingdom.
Settlement
The Issuer expects to deliver the Notes on or about March 15, 2018 (the “Settlement Date”) which will be the second business day following the pricing date of the offering (this settlement cycle being referred to as “T+2”).
Transfer Restrictions
Neither the Notes nor the Guarantees have been or will be registered under the Securities Act and each is subject to certain restrictions on resale and transfer.
Governing Law
The Indenture, the Notes and the Guarantees will be governed by and construed in accordance with the laws of the State of New York.
Ratings
It is expected that the Notes will be rated Baa3 (stable outlook) by Moody’s and BBB- (positive outlook) by S&P, subject to confirmation on the Settlement Date.
A credit rating is not a recommendation to buy or hold securities and may be subject to revisions, suspension or withdrawal at any time by the assigning rating agency.
Listing
The Company expects to make an application for Admission of the Notes to listing on the Official List and to trading on the London Stock Exchange’s Regulated Market, a regulated market for purposes of MiFID II.
Risk Factors
We urge you to consider carefully the risks described in “Risk Factors” beginning on page 23 of this document before making an investment decision.
SUMMARY FINANCIAL INFORMATION
The summary financial information of the Group set forth below for the years ended December 31, 2015, 2016 and 2017 has been extracted from, and should be read in conjunction with, the consolidated financial statements and notes thereto prepared in accordance with IFRS and incorporated by reference in this document. See “Presentation of Financial Information”.
You should regard the financial data below only as an introduction and should base your investment decision on a review of this entire document and the information incorporated by reference herein. The disclosures in this section include certain Alternative Performance Measures (“APMs”). For more information on the APMs please see “Presentation of Financial Information”.
Year-ended December 31,
2015
2016
2017
(US$m unless otherwise stated)
Revenue
20,455
21,378
26,243
Group Revenue (including attributable share of associates’ and joint ventures’ revenue)(1)
23,003
23,142
28,650
Underlying EBIT(1)
2,223
3,766
6,247
Operating profit/(loss)
(4,112)
1,666
5,529
Profit/(loss) for the financial period attributable to equity shareholders of the Company
(5,624)
1,594
3,166
Underlying earnings(1)
827
2,210
3,272
Dividends per share (US cents)(2)
Ordinary
32.0
-
102.0
Net assets
21,342
24,325
28,882
Net debt(1)
(12,901)
(8,487)
(4,501)
Net cash inflows from operating activities
3,977
5,399
8,049
Capital Expenditure(1)
4,177
2,387
2,150
Definitions are set out in the “Non-IFRS financial measures” section.
Interim and year-end dividends proposed in respect of the applicable period.
RISK FACTORS
Prospective investors should read and carefully consider the following risk factors and other information in this document before deciding to purchase the Notes. We believe that the risk factors identified below represent the principal risks inherent in purchasing the Notes, but they are not the only risk factors we face. Additional risk factors not presently known to us or that we currently believe to be immaterial also may adversely affect our business, financial condition and results of operations. Should any known or unknown risk factors develop into actual events, these developments could have material adverse effects on our business, financial condition and results of operations.
Unless otherwise specified by reference to Anglo American or Anglo American Capital, the risks apply in the context of the Group and are also applicable to each of Anglo American plc and Anglo American Capital plc.
In this context, the following specific risks have been identified:
Risks Relating to Our Business
Our business, results of operations, cash flows and financial condition have been and may continue to be adversely affected by commodity and diamond price fluctuations and adverse economic conditions.
Commodity and diamond prices are determined principally by international markets and global supply and demand dynamics. Fluctuations in commodity and diamond prices have given rise, and may continue to give rise, to commodity price risk across the Group. Historically, such prices have been subject to substantial variation. See “Industry Overview and Outlook”.
Volatility or falls in commodity and diamond prices may have an adverse effect on our operating results, cash flows and financial condition and could prevent us from completing certain transactions that are important to our business, which may have an adverse effect on our financial position. For example, we may not be able to sell assets at the values or within the timelines expected, complete planned acquisitions or create joint ventures.
Adverse and volatile economic conditions, coupled with a negative price environment, can also limit our visibility in terms of anticipated revenues and costs and can affect our ability to approve, finance or implement planned projects and repay debt. In addition, rating agencies and industry analysts are likely to take such conditions into account when assessing our business and creditworthiness and any adverse determinations, including ratings downgrades, may make it more difficult or expensive for us to raise capital in the future and may adversely affect the market price of the Notes. Furthermore, certain of our financings contain financial and operational covenants. Our ability to comply with such covenants may come under greater pressure in a volatile economic environment and may therefore restrict our financial flexibility.
If global economic growth weakens in the medium to long-term, our ability to grow or maintain revenues in future years may be adversely affected, we may not be able to compete for new, complex projects that require significant capital investment and at certain longterm price levels for a given commodity and certain of our extractive operations with respect to that commodity may not be economic. We may have to suspend certain operations in order to reduce or stop production for a period of time. Such developments could have a materially adverse effect on our business, operational results, cash flows and financial condition.
Slower levels of growth in Chinese demand for commodities may negatively impact pricing.
China is an important driver of global demand and pricing for commodities worldwide. Slower than expected levels of GDP growth in China, in combination with a number of other factors, could have a negative impact on commodity prices generally, which would have a negative impact on our business and revenues. These factors include slower or flattened economic growth, unsuccessful economic reforms, government policies that affect commodities markets, reduced urbanization or industrialization and a slowing expansion of the middle class. Slowing demand for commodities from China, whether caused by these factors or otherwise, could have a material adverse effect on our business, operational results, cash flows, financial condition and competitive position.
Unplanned and unexpected operational issues may affect our ability to achieve our delivery of the Group’s earnings before interest, tax, depreciation and amortization (“EBITDA”) improvement targets.
In order to support our financial repositioning strategy, net cost and volume improvements are targeted. Risks to delivery include unplanned or unexpected operational issues, lack of joint venture partner support, limited and or stretched resources to manage complex and multi-disciplinary projects and inability to deliver savings through technology and innovation. Failure to deliver our EBITDA improvement targets could adversely affect our cash flow levels, reduce investor confidence and adversely affect our business.
Our business may be adversely affected by currency exchange rate fluctuations and interest rate movements.
Because of the global nature of our business, we are exposed to currency risk principally where transactions are not conducted in US dollars or where assets and liabilities are not US dollar-denominated. The majority of our sales revenue is denominated in US dollars, while the majority of our operating costs are influenced by the currencies of the countries where our operations are located and by the currencies in which the costs of imported equipment and services are denominated. The South African rand, Chilean peso, Brazilian real, Australian dollar, Canadian dollar, British pound and US dollar are the most important currencies influencing our operating costs and asset valuations. Because our policy is generally not to hedge such exposures, fluctuations in the exchange rates of these currencies may adversely affect our operating results, cash flows or financial condition to a material extent.
The Group’s policy is to borrow funds at floating rates of interest given the link with economic output, interest rates and therefore the expected correlation, over the longer term, with commodity prices. The Group uses interest rate swap contracts to manage its exposure to interest rate movements on its debt. Strategic hedging using fixed rate debt may also be undertaken from time to time. However, if the Group is subjected to volatile interest rate fluctuations, its operating results, cash flows, competitive position and financial condition could be materially and adversely affected. See “Operating and Financial Review of the Group—Financial Risk Exposure and Management—Interest rate risk”.
Inflation may have an adverse effect on our results of operations and cash flows.
Because we cannot control the market price at which commodities we produce are sold, we may be unable to pass through increased costs of production to our customers. As a result, it is possible that significantly higher future inflation in the countries in which we operate may increase future operational costs without a corresponding increase in the US dollar price of the commodities we produce, or a concurrent depreciation of the local currency against the US dollar.
Cost inflation in the mining sector is more apparent during periods of high commodity prices because demand for miningrelated products and services can tend to exceed supply during such periods. However, such inflation can occur at any point in the commodity cycle, and in the past we have also experienced cost inflation during periods of decreasing commodity prices. A lag in the reduction of input costs relative to declining commodity prices will have a similar negative effect on our results of operations. Any such increased costs or delays in cost reductions may adversely affect our profit margins, cash flows and results of operations and such effects could be material.
Our business may be adversely affected by liquidity and counterparty risk.
We are exposed to liquidity risk arising from the need to finance our ongoing operations and growth, as well as refinance our debt maturities as they fall due. Global credit markets have been severely constrained in the past and our ability to obtain funding has been and may in the future be significantly reduced.
Any future potential credit rating downgrade may have a negative impact on our ability to obtain funding and may further increase the cost of financing or require us to agree to more onerous financing terms and may adversely affect the value of the notes being offered.
If we are unable to obtain sufficient funding, either due to banking and capital market conditions generally, or due to factors specific to our business, we may not have sufficient cash to meet ongoing financing needs and other requirements, which in turn could materially and adversely affect our financial condition and could result in a loss of all or part of your investment in the Notes.
To the extent that our operating cash flows are insufficient to meet our debt service obligations, including payments of interest and principal on the Notes, we may be required to raise funds through disposals of assets or use alternative funding sources such as our US$4.5 billion revolving credit bank facility. There can be no assurance, however, that such cash flows or proceeds will be sufficient or that refinancing will be available on commercially viable terms. Any failure to meet our debt service obligations or to obtain refinancing on commercially viable terms, would have a material adverse effect on our financial condition and could result in a loss of all or part of your investment in the Notes.
In addition, we are exposed to counterparty risk from customers and financial institutions that could result in financial losses should those counterparties become unable to meet their obligations to us. Furthermore, the treasury operations of our joint ventures and associates are independently managed and may expose us to liquidity, counterparty and other financial risks.
Should our counterparties be unable to meet their obligations to us, or should the treasury operations of our joint ventures or associates incur losses, our operating results, cash flows, competitive position and financial condition could be materially and adversely affected.
We are subject to risks associated with litigation and regulatory proceedings.
As with most large corporations, we are involved from time to time as a party to various lawsuits, arbitrations, regulatory proceedings, investigations or other disputes. Litigation, arbitration and other such legal proceedings or investigations involve inherent uncertainties and, as a result, we face risks associated with adverse judgments or outcomes in these matters. Even in cases where we may ultimately prevail on the merits of any dispute, we may face significant costs defending our rights, lose certain rights or benefits during the pendency of any proceeding or suffer reputational damage as a result of our involvement. We are currently engaged in a number of legal and regulatory proceedings and arbitrations in various jurisdictions including the silicosis litigation described under “Business Overview—Other Recent Developments—AASA Silicosis Claims”, as well as described under “General Information—Litigation”.
There can be no assurance as to the outcome of any litigation, arbitration or other legal proceeding or investigation, and the adverse determination of material litigation could have a materially adverse effect on our business, operational results, cash flows and financial condition.
Safety, health and environmental exposures and related regulations may expose us to additional litigation, compliance costs, interruptions to operations, unforeseen environmental remediation expenses and loss of reputation.
Mining is a hazardous industry and is highly regulated by safety, health and environmental laws and regulations. Working conditions, including aspects such as weather, altitude and temperature, can add to the inherent dangers of mining, whether underground or in open pit mines. Failure to provide a safe and healthy working environment or an environmentally acceptable one in accordance with the relevant applicable legislation may result in government authorities forcing closure of mines on a temporary or permanent basis or refusing mining right applications.
Inability to deliver a sustained improvement in safety performance may result from management interventions and training initiatives failing to translate into behavioral change by all employees and contractors. Non-compliance with critical controls is a common failure in safety incidents which can lead to loss of life, workplace injuries and safety-related stoppages, all of which immediately impact production and in the long term, threaten our license to operate. As a consequence, we could face civil or criminal fines and penalties, liability to employees and third parties for injury illness, or death, statutory liability for environmental remediation and other financial consequences, which may be significant. We are currently subject to ongoing litigation relating to some of these areas of risk and may face additional litigation in the future. In the last few years, local claimants in countries outside Europe and the US have increasingly sought to raise claims arising from local environmental incidents in European and US courts. Although the success of these attempts remains uncertain, we could face the threat of similar claims.
The mining process, including blasting and processing ore bodies, can generate environmental impacts including dust and noise and may require the storage of waste materials (including in liquid form). Risk in the form of dust, noise or leakage of polluting substances from site operations or uncontrolled breaches of mine residue facilities such as tailings dams have the potential of generating harm to our employees, communities and the environment near our operations. Potential impacts include fines and penalties, statutory liability for environmental remediation and other financial consequences that may be significant. Governments may force closure of mines on a temporary or permanent basis or refuse future mining right applications.
We could also suffer impairment to our reputation, industrial action or difficulty in recruiting and retaining skilled employees. Any future changes in laws, regulations or community expectations governing our operations could result in increased compliance and remediation costs.
Any of the foregoing developments could have a materially adverse effect on our results of operations, cash flows or financial condition.
Climate change as well as existing and proposed legislation and regulations on greenhouse gas emissions may adversely affect certain of our operations.
Anglo American is a significant user of energy and is also a major coal producer and exporter. Our operations are exposed to changes in climate and the need to comply with changes in the regulatory environment aimed at reducing the effect of climate change. Various regulatory measures aimed at reducing greenhouse gas emissions and improving energy efficiency may affect our operations and customer demand for our products over time. Policy developments at an international, regional, national and subnational level and emissions trading systems, such as the Emissions Trading System of the European Union, have implications on the profitability of our business where our greenhouse gasintensive and energyintensive assets are concerned.
Potential impacts from climate change for our assets depend on the circumstances at individual sites, but increased rainfall, flooding, water shortages and higher average temperatures may increase costs, reduce production levels or impact the results of operations.
Uncertainty and instability in the mining industry, including the proposed amendments to the South African Mining Charter or other applicable regulation, legislation or tax regimes in any country in which we operate, could adversely affect our business.
Our businesses may be affected by political, regulatory or legal developments in any of the countries and jurisdictions in which we operate. These may include changes to fiscal regimes or other regulatory regimes that may result in restrictions on the export of currency, expropriation of assets, imposition of royalties or new taxes and requirements for local ownership or beneficiation. Political instability can also result in civil unrest or nullification of existing agreements, mining permits or leases which may adversely affect our operations or results of operations. Uncertainty over future business conditions can lead to a lack of confidence in making investment decisions, which can influence future financial performance. We may in the future incur significant costs as a result of changes in the interpretation of existing laws and guidelines or the imposition of new conditions to our mining rights, including, among others, the requirements relating to equity ownership by black South Africans as a result of changes to legislation and the proposed amendments to the Mining Charter in South Africa (referred to as “MCIII”). The Chamber of Mines applied to the High Court for judicial review of MCIII, which was scheduled to be heard on February 21, 2018. However following the election of a new president of the Republic of South Africa on February 15, 2018, the Chamber of Mines and the Government of South Africa agreed to postpone the judicial review pending a reconsideration of MCIII by all the relevant stakeholders. Due to the lack of clarity and significant uncertainties in both details and implementation timeline of MCIII, combined with the legal processes currently being implemented, there is significant uncertainty as to when and how the MCIII will impact the Company. For a description of MCIII and its current status, among other related regulatory matters, see “Regulation—South Africa—The MPRDA and the Mining Charter”.
If MCIII is implemented as originally drafted the Group may in the future incur significant costs as a result of changes in the interpretation of existing laws and guidelines or the imposition of new requirements relating to BEE. Increased costs can also be incurred as a result of additional regulations or resource taxes, while the ability to execute strategic initiatives that reduce costs or divest assets may also be restricted.
Any of these risks may materially and adversely affect our results of operations, cash flows and financial condition or deprive us of the economic benefits of ownership of our assets.
Regulatory, political, economic and social conditions in the countries in which our business operates could adversely affect our business.
Our business is affected by political, economic, regulatory and social conditions in the countries and jurisdictions in which we operate. We are exposed to various risks resulting from developments and changes to fiscal regimes or other legal or regulatory regimes that may result in restrictions on the export of currency, expropriation of assets, nationalization, political instability, corruption, terrorism the imposition of royalties or new taxes, failure to effect or renew agreements with host governments and requirements for local ownership or beneficiation. Furthermore, tax laws and regulations of the countries in which we operate may be subject to change, varying or adverse interpretation or inconsistent enforcement in a manner that is adverse to us. We have been and will continue to be subject to the risk of adverse or aggressive interpretations of tax laws or regulations or the imposition of arbitrary or onerous taxes, interest charges and penalties. The Organization for Economic Co-operation and Development and other government agencies in jurisdictions in which we operate have increasingly focused on issues related to the taxation of multinational corporations, including base erosion and profit shifting. We could also be exposed to significant fines and penalties and to enforcement measures, including, but not limited to, tax assessments, despite our best efforts at compliance. In response to tax assessments or similar tax deficiency notices in particular jurisdictions, we may be required to pay the full amount of the tax assessed (including stated penalties and interest charges) or post security for such amounts notwithstanding that we may contest the assessment and related amounts.
Actual or potential developments and changes may undermine investor confidence, which may hamper investment and thereby reduce economic growth, and otherwise may adversely affect the economic or other conditions under which we operate in ways that could have a materially negative effect on our business.
Our operations and development projects could be adversely affected by shortages of, as well as lead times to deliver, certain key inputs.
The inability to obtain, in a timely manner, strategic consumables, raw materials and mining and processing equipment could lead to lower output volumes and could have an adverse impact on our results of operations, development projects and financial condition. During periods of strong demand for commodities, increased demand for such supplies may result in periods when supplies are not always available or cause costs to increase above normal inflation rates. Any interruption to our supplies or increase in our costs would adversely affect our operating results and cash flows and such effects could be material.
We may be unable to obtain, renew, amend or extend required licenses, permits and other authorizations and/or such licenses, permits and other authorizations may be suspended, terminated or revoked prior to their expiration.
We currently conduct, and will in the future be required to conduct, our operations (including prospecting and exploration activities) pursuant to licenses, permits and other authorizations. Any delay and/or refusal by relevant government authorities in the obtaining or renewing of a license, permit or other authorization may require a delay in our investment or development of a resource which may adversely affect our production output and revenues and may have a material adverse effect on our results of operations, cash flows and financial condition. In addition, our existing licenses, permits and other authorizations may be suspended, terminated or revoked if we fail to comply with the relevant requirements. For example, the operations at, and expansion of, Minas-Rio are dependent on the Group acquiring and maintaining environmental licenses. The Step 3 installation license was granted in January 2018 but various risks remain to achieving full nameplate capacity, including delays in receiving the Step 3 operating license. In South Africa, from time to time we may receive notices from the regulators regarding compliance with the requirements of the applicable legislation and the terms of our mining rights. While there are processes enabling the holder of the right to respond to and ultimately appeal, any alleged breach, the right may be suspended or cancelled should such holder be deemed not to be in compliance with the relevant requirements. In such circumstances we may still have recourse to the South African courts on administrative justice grounds. There is also the continuing need to manage community issues at all operations and projects within the Group, which may delay completion of the civil works associated with the mine’s development, while delays in obtaining licenses may cause operational constraints. The license process is complex, with multiple stakeholders involved in the approval process at federal, state and local community levels. If we fail to fulfill the specific terms of any of our licenses, permits and other authorizations or if we operate our business in a manner that violates applicable law, government regulators may impose fines or suspend or terminate the license, permit or other authorization, any of which could have a material adverse effect on our results of operations, cash flows and financial condition. See “Regulation—South Africa—The MPRDA and the Mining Charter”.
The use of mining contractors at certain of our operations may expose those operations to delays or suspensions in mining activities.
Mining contractors are used at a number of our operations to perform various operational tasks, including carrying out mining activities and delivering ore to processing plants. In periods of high commodity prices, demand for contractors may exceed supply resulting in increased costs or lack of availability of key contractors. Disruptions of operations or increased costs also can occur as a result of disputes with contractors or a shortage of contractors with particular capabilities. Additionally, because we do not have the same control over contractors as we do over employees, there is a risk that contractors will not operate in accordance with our safety standards or other policies. To the extent that any of the foregoing risks materialize, our operating results and cash flows could be adversely affected.
We may have fewer reserves or resources than our estimates indicate.
Our resources and reserves estimates are based on a number of assumptions which are inherently prone to variability. Our mineral resources and Ore Reserves estimates are stated as at December 31, 2017 and such calculations are based on a number of assumptions, including the price of commodities, production costs, recovery rates, the availability and quality of geological and technical information, industry practice and subjective judgments made by management and our other competent persons with regard to the presence and grade of ore bodies and the ability to extract and process the ores economically. There are also risks associated with such estimates, including that ore mined may be different from the resource estimates in quality, volume, overburden strip ratio or stripping cost. In addition, ores may not ultimately be extracted at a profit.
If we encounter mineralization or geological or mining conditions different from those predicted by historical drilling, sampling and similar examinations, we may have to adjust our mining plans in a way that could materially and adversely affect our business, financial condition and results of operations and reduce the estimated amount of resources and reserves available for production and expansion plans.
In addition, our portfolio of mineral resources and reserves includes inferred mineral resources. Inferred mineral resources have a great amount of uncertainty as to their existence and physical properties and their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Furthermore, there is no guarantee that all or any part of an inferred mineral resource will ever be upgraded to a measured or indicated mineral resource category. The inclusion of resources estimates should not be regarded as a representation that these amounts could be exploited economically. There is no guarantee that the resources estimated are capable of being directly reclassified as reserves, nor that all or any part of the inferred mineral resources will ever be upgraded to a measured or indicated mineral resource category.
Future fluctuations in the variables underlying our estimates may result in material changes to our reserve estimates and such changes may have a materially adverse impact on our operating results, cash flows or financial condition and prospects.
Failure to discover new reserves, enhance existing reserves or adequately develop new projects could adversely affect our business.
Exploration and development are costly, speculative and often unproductive activities, but are necessary for our future growth. Failure to discover new reserves, to maintain our existing mineral rights, to enhance existing reserves or to extract resources from such reserves in sufficient amounts and in a timely manner could materially and adversely affect our results of operations, cash flows, financial condition and prospects. In addition, we may not be able to recover the funds we spend identifying new mining opportunities through our exploration program.
Increasingly stringent requirements relating to regulatory, environmental and social approvals can result in significant delays in construction of our facilities and may adversely affect the economics of new mining projects, the expansion of existing operations and, consequently, our results of operations, cash flows and financial condition and such effects could be material.
Damage to or breakdown of a physical asset, including due to fire, explosion or natural catastrophe or terrorism may adversely affect our operating results and result in loss of revenue, loss of cash flow or other losses.
Damage to or breakdown of a physical asset, including as a result of fire, explosion or natural catastrophe or terrorism, can result in a loss of assets and subsequent financial losses. Our operations and development projects are exposed to natural risks, such as earthquakes and extreme weather conditions. Other catastrophic risks faced by our business include failure of mine pit slopes, breaches, tailing dam walls, fire and explosion in underground mines or in buildings, plant and equipment and sudden and unexpected failure of mineshafts. The occurrence of one or more of these events could potentially lead to multiple fatalities and injuries, long term environmental damage, significant reputational damage and loss of license to operate. The financial impact associated with clean-up costs and legal liability claims could be substantial. Our insurance with respect to catastrophic event risk may not be sufficient to cover our financial loss flowing from an event and insurance is not available or is unavailable on economically viable terms for many risks we may face. The occurrence of events for which we are not insured, or for which our insurance is insufficient, may materially and adversely affect our revenues, operating results, cash flows and financial condition.
Our operations and development projects could be adversely affected by shortages of appropriately skilled employees, for whom we compete with mining and other companies to recruit, develop and retain.
Our ability to recruit, develop and retain personnel with appropriate skills is affected by global competition for skilled labor, particularly in periods of high commodity prices when demand for such personnel typically increases. Any failure to retain skilled employees or to recruit new staff may lead to increased costs, interruptions to existing operations and delay of new projects.
Labor disruptions could have an adverse effect on our results of operations, cash flows and financial condition.
There is a risk that strikes or other types of conflict with unions or employees may occur at any one of our operations, development projects or suppliers of critical goods and services, or in any of the geographic regions in which we operate. In key countries where we operate, the majority of employees are members of trade unions, especially in South Africa and South America. Labor disruptions may be used not only for reasons specific to our business, but also to advocate labor, political or social goals. Any labor disruptions could increase operational costs and decrease revenues, and if such disruptions are material, they could adversely affect, possibly significantly, our results of operations, cash flows and financial condition.
Failure to prevent acts of fraud, bribery, corruption or anticompetitive behavior could adversely affect our business.
Potential impacts of violations of laws governing fraud, bribery, corruption, money laundering and trade sanctions or anticompetitive behavior include prosecution, fines, penalties and reputational damage. We may suffer financial loss if we are the victim of a fraudulent act. We have introduced a code of conduct (the “Code of Conduct”) and developed training, compliance and audit programs to address the risks of contravening laws on bribery, corruption, sanctions, anticompetitive behavior and other matters of legal compliance; however, as indicated by indices prepared by independent nongovernmental organizations, we operate in certain countries where the risk of corruption is high, and certain industries in which we operate have in the past faced prosecution for anticompetitive behavior.
Failure to meet production, construction, delivery and cost targets can adversely affect both operational performance and our ability to implement projects in a timely and efficient manner, resulting in increased costs.
Failure to meet production targets can result in increased unit costs, and such increases may be especially pronounced at operations with higher levels of fixed costs. Unit costs may exceed forecasts, adversely affecting performance and results of operations. Results of operations can be affected by a range of technical and engineering factors. In addition, failure to meet project delivery times and costs could have a negative effect on operational performance and lead to increased costs or reductions in revenue and profitability. Such increases could materially and adversely affect the economics of a project, and consequently our results of operations, cash flows and financial condition.
Substitution of commodities mined by our business could adversely affect sales volumes and revenue.
Reduced demand for products mined by our business through substitution due to technological developments, for example alternatives being developed to the use of platinum group metals in catalytic converters, or substitution of supply through recycling, could have an adverse effect on our results of operations, cash flows and financial condition.
Technological developments are resulting in increased production and distribution of manufactured synthetic gem stones. These may be fraudulently sold as natural stones (undisclosed) or marketed and sold as synthetics (disclosed). Increased competition from disclosed synthetics may lead to a potential reduction in rough diamond sales, which could have a material adverse effect on our revenue, cash flow, profitability and value.
Restrictions on our ability to access necessary infrastructure services, including utilities and transportation, may adversely affect our operations.
Inadequate supply of the critical infrastructure elements for mining activity could result in reduced production or sales volumes or impact our development projects, which could have a negative effect on our financial performance. Prioritization, restrictions on supply or disruptions in the supply of essential utility services, such as water and electricity, can reduce or halt our production for the duration of the restriction or disruption and, when unexpected, may cause loss of life or damage to our mining equipment or facilities, which may in turn affect our ability to recommence operations on a timely basis.
Adequate provision of transportation services, in particular rail services and timely port access, are critical to getting our products to market and disruptions to such services may affect our operations. We are largely dependent on third party providers of utility and transportation services including rail, port and shipping services, and their provision of services, maintenance of networks and expansion and contingency plans are outside our control.
In certain instances, our growth plans are reliant on third party rail providers expanding their carrying capacity.
In South Africa, there is a risk that the electricity supply may not be able to meet the country’s demands, leading to unplanned outages and failure of the national grid. We are a significant consumer of power owing to the extent of our operations in South Africa. The risk is created through the lack of investment in generating capacity and a maintenance backlog in some generating facilities leading to unplanned outages. Unplanned and short-notice power supply outages can lead to production shortfalls, with a negative effect on revenue, costs and productivity. There are potential safety implications, particularly for underground mines and process activities. Loss of critical computing systems can interrupt normal business activities.
Any such events are likely to adversely affect our production volumes and may increase our costs, which would in turn adversely affect our results of operations and cash flows, and such effects could be material.
Failure to manage relationships with local communities, government and nongovernmental organizations or recognize and respond to changing social expectations could adversely affect our future growth potential.
We operate in several countries where ownership of rights in respect of land and resources is uncertain and where disputes in relation to ownership or other community matters may arise. These disputes are not always predictable and may cause disruption to projects or operations. Our operations can also have an impact on local communities, including the need, from time to time, to relocate communities or infrastructure networks such as railways and utility services. Failure to manage relationships with local communities, government and nongovernmental organizations may negatively affect our reputation, as well as our ability to bring projects into production, which could in turn adversely affect our revenues, results of operations and cash flows, potentially in a material manner.
Failure to recognize and respond to changing stakeholder expectations and global trends regarding issues such as the environment, corruption, human rights and diversity and inclusion matters could affect our growth opportunities and our future revenues and cash flows.
We face certain risks from the high infection rates of HIV/AIDS that may adversely affect our business and the communities in which we operate.
We recognize that the HIV/AIDS epidemic in sub-Saharan Africa is a significant threat to economic growth and development in that region and affects our business. In addition to the costs associated with the provision of anti-retroviral therapy to employees and their dependents and occupational health services (both of which will increase if the incidence of HIV/AIDS spreads), there is a risk that the recruitment and retention of the skilled personnel needed to maintain and grow our business in southern Africa (and other regions where HIV/AIDS is a major social issue) will be impacted. If this occurs, our business would be adversely affected.
Our noncontrolled assets may not comply with our standards.
Some of our operations are controlled and managed by joint venture partners, associates or by other companies. Management of noncontrolled assets may not comply with our standards, for example, on safety, health and environmental matters or on financial or other controls and procedures. This may lead to higher costs and lower production and adversely affect our results of operations, cash flows, financial condition or reputation.
Our business may be adversely affected by attacks from third parties on our information systems.
We maintain and rely on information technology systems, consisting of digital infrastructure, applications and communications networks to support our business activities. These systems may be subject to security breaches or other incidents that may result in the loss, disclosure or corruption of sensitive or proprietary information including information relating to acquisitions and divestments, strategic decisionmaking, investment market communications or commercially sensitive information relating to major contracts. Security breaches may also result in misappropriation of funds, fraud, disruptions to our business operations, environmental damage, increased health and safety risks to people, poor product quality, loss of intellectual property legal or regulatory breaches and liability or reputational damage. Damage is also possible to equipment that is critical to mining or processing of ore, resulting in interruption to production and possible financial loss.
The risk arises from cyber-crime or activist activity aimed at causing disruption or attempts by third parties to access sensitive information. The pace of technological development makes it challenging to prevent increasingly sophisticated methods of attacking information technology systems.
Investor activism may result in an inability to execute our strategy should investors seek to influence management to take an alternative direction.
Any larger, influential shareholder, or shareholders, may exert pressure on management to take a direction they assert is more conducive to realizing higher returns. This pressure may include the Group’s portfolio composition, commodity choices or geographical locations in which the Group operates or plans to operate in, any of which may have an adverse impact on the Group’s results or financial condition.
Certain factors may affect our ability to support the carrying value of our property, plants and equipment, acquired properties, investments and goodwill on our balance sheet.
We review and test the carrying value of our assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. If there are indications that impairment may have occurred, we prepare estimates of expected future cash flows for each group of assets. Expected future cash flows are inherently uncertain and could materially change over time. They are significantly affected by reserve and production estimates, together with economic factors such as spot and forward commodity prices, discount rates, currency exchange rates, estimates of costs to produce reserves and future capital expenditure.
If any of these uncertainties occur, either alone or in combination, it could require management to recognize an impairment, which could materially and adversely affect our results of operations or financial condition.
Inaccurate assumptions in respect of critical accounting judgments could adversely affect financial results.
In the course of preparing financial statements, our management necessarily makes judgments and estimates that can have a significant impact on our financial statements. The most critical of these relate to impairment and impairment reversals of assets, taxation, contingent liabilities, joint arrangements, estimation of Ore Reserves, assessment of fair value, restoration, rehabilitation and environmental costs, retirement benefits and deferred stripping. The use of inaccurate assumptions in calculations for any of these estimates could have a significant impact on our results of operations and financial condition. Notwithstanding anything in this risk factor, this risk factor should not be taken as implying that we will be unable to comply with our respective obligations as a company with securities admitted to the Official List.
We may not achieve projected benefits of acquisitions or divestments
We have undertaken a number of divestments in the recent past and have historically undertaken a number of acquisitions. See “Business Description”. With any such transaction there is the risk that any benefits, cost savings or synergies identified at the time of acquisition or divestment may not be achieved as a result of changing or incorrect assumptions, adverse regulatory conditions or materially different market conditions resulting in adverse effects on financial performance, production volumes or product quality. Furthermore, we could be found liable for past acts or omissions of the acquired business without any adequate right of redress; we may also face liabilities for divested entities if the buyer fails to honor all commitments or we agree to retain certain liabilities, any of which may have an adverse impact on the Group’s results or financial condition.
Risks Relating to the Notes
There is no established trading market for the Notes and one may not develop.
The Notes will be new securities for which there currently is no established trading market. The Notes have not been and will not be registered under the Securities Act and will be subject to significant restrictions on resale. See “Transfer Restrictions”. There can be no assurance regarding the future development of a market for the Notes or the ability of holders of the Notes to sell their Notes or the price at which such holders may be able to sell their Notes. If such a market were to develop, the Notes could trade at prices that may be lower than the initial offering prices depending on many factors, including prevailing interest rates, our operating results and the market for similar securities. Therefore, there can be no assurance as to the liquidity of any trading market for the Notes or that active markets for the Notes will develop. We have made an application for listing the Notes on the Official List and for Admission to trading on the London Stock Exchange’s Regulated Market. However, our listing and Admission may not be approved or, if approved, may not be maintained.
Changes in our credit ratings could adversely affect the value of the Notes.
Any of the rating agencies that rate the debt of the Company has the ability to lower the ratings currently assigned to that debt as a result of its views about the Group’s current or future business, financial condition, results of operations or other matters. Any ratings decline could adversely affect the value of the Notes. In addition, the credit ratings ascribed to the Group and the Notes are intended to reflect our ability to meet our repayment obligations in respect of the Notes and the Guarantees, and may not reflect the potential impact of all risks related to the structure, the market, the Group and other factors on the value of the Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating.
Proposed Financial Transactions Tax (“FTT”).
On February 14, 2013, the European Commission published a proposed draft for a common FTT in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the “participating Member States”). However, Estonia has since stated that it will not participate.
The published draft for a common FTT has very broad scope and could, if introduced in its current form, apply to certain transactions relating to the Notes (including secondary market transactions) in certain circumstances.
Under current proposals the FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain transactions relating to the Notes where at least one party is a financial institution (as defined in the FTT), and at least one party is established in a participating Member State. A party may be deemed to be “established” in a participating Member State in a broad range of circumstances, including (a) by transacting with a person established in a participating Member State or (b) where the financial instrument which is the subject of the transaction is issued in a participating Member State.
The FTT proposal remains subject to negotiation between the participating Member States. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate and/or certain of the participating Member States may decide to withdraw. Prospective holders of the Notes are advised to seek their own professional advice in relation to the FTT.
Our holding company structure means that the claims of creditors of subsidiaries of the Company will generally have priority over claims on the guarantee obligations.
Anglo American plc is a holding company and derives the majority of its operating income and cash flow from its subsidiaries. It must rely upon distributions from its subsidiaries to generate funds necessary to meet its obligations, including any payments under the Guarantees. These subsidiaries may not be able to make distributions to Anglo American plc. Any payment of interest, dividends, distributions, loans or advances by the Company’s subsidiaries could be subject to restrictions on dividends or repatriation of earnings under applicable local law, monetary transfer restrictions and foreign currency exchange regulations in the jurisdictions in which the subsidiaries operate or are incorporated. The obligations of the Issuer under the Notes are unsecured and rank equally in right of payment with all unsecured, unsubordinated obligations of the Issuer. The obligations of Anglo American under the Guarantees are unsecured and rank equally with all unsecured, unsubordinated obligations of Anglo American. These obligations will also be structurally subordinated to the holders of secured and unsecured debt and other creditors of subsidiaries of Anglo American. The Indenture does not place any limitation on the amount of unsecured debt that may be incurred by us or any of our subsidiaries (including the Issuer). As of December 31, 2017, a small proportion of our debt was outstanding at our subsidiaries and joint ventures (on a proportional basis), to which the notes would be structurally subordinated.
The Issuer is a finance vehicle, with no independent business operations.
Anglo American Capital plc is a finance vehicle, the primary business of which is the raising of money for the purpose of onlending to other members of the Group. Accordingly, substantially all of the assets of the Issuer are loans and advances made to other members of the Group. The ability of the Issuer to satisfy its obligations in respect of the Notes depends upon payments being made to it by other members of the Group in respect of loans and advances made by the Issuer.
Investors in the Notes may have limited recourse against the independent auditors.
See “Independent Auditors” for a description of the independent auditors’ reports, including language limiting the auditors’ scope of duty in relation to such reports and the various financial statements to which they relate. In particular, the February 21, 2018 report of Deloitte, with respect to the Group 2017 Financial Statements, in accordance with guidance issued by The Institute of Chartered Accountants in England and Wales, provides as follows: “This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.”
The SEC would not permit such limiting language to be included in a registration statement or a prospectus used in connection with an offering of securities registered under the Securities Act or in a report filed under the Exchange Act. If a US court (or any other court) were to give effect to the language quoted above, the recourse that investors in the Notes may have against the independent accountants based on their reports or the consolidated financial statements to which they relate could be limited.
Enforcement of US judgments may be difficult.
The Issuer and the Company are companies organized under the laws of England and Wales, and substantially all their respective assets are, or may be, located in jurisdictions outside the US. Accordingly, it could be difficult for holders of Notes to recover against the Issuer and the Company on judgments of US courts predicated upon civil liabilities under the US federal securities laws. See “Service of Process and Enforcement of Civil Liabilities”.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Group as of December 31, 2017, on an actual basis. You should read the following table together with “Use of Proceeds”, “Operating and Financial Review”, “Description of the Notes and the Guarantees” and the Group 2017 Consolidated Financial Statements and the notes thereto incorporated by reference in this document:
As of
December 31,
2017
(US$m)
Total debt(1)
11,971
Equity:
Called-up share capital
772
Share premium account
4,358
Other reserves
(8,702)
Retained earnings and own shares held
26,544
Equity attributable to equity shareholders of the Company
22,972
Total capitalization
34,943
Including short-term, medium-term and long-term borrowings. As at December 31, 2017, secured and unsecured debt totaled US$138 million and US$11,833 million, respectively. For more information regarding our secured and unsecured debt, see “Operating and Financial Review”.
On March 9, 2018, the Group redeemed US$750 million of its 9.375% senior notes due April 2019.
Anglo American considers participation in debt markets as part of the ongoing management of its liquidity and capital resources.
Also see “Recent Developments”
RECENT DEVELOPMENTS
On March 12, 2018, an incident occurred at the Group's iron ore pipeline in Brazil, resulting in a small leak of iron ore pulp into a local water stream in a rural area, which has since been stopped. The leaked pulp is classified under Brazilian standards as a non-dangerous residue, and the Group is responding to remediate any damage caused and to address the water supply of the local community. At this time, the Group is unable to determine the effect of this incident on its iron ore production in Brazil or any potential regulatory consequences. Please see “Risk Factors”.
On March 9, 2018, the Group redeemed US$750 million of its 9.375% senior notes due April 2019.
On March 7, 2018, the Group launched a bond buyback transaction consisting of Euro denominated bonds with maturities ranging from June 2019 to April 2021 with a total cash spend capped at US$1,200 million. The final results of the transaction are due to be announced on March 15, 2018. This Prospectus is not an offer to purchase, or a solicitation of an offer to sell, any notes that are the subject of the buyback transaction.
USE OF PROCEEDS
We estimate the net proceeds to us from our sale of Notes to be approximately US$644 million after deducting the underwriting discount and our estimated offering expenses. Anglo American expects to use the net proceeds of the offering for our general corporate purposes including but not limited to funding potential future liability management activities. Please see “Capitalization” and “Recent Developments”.
BUSINESS DESCRIPTION
Anglo American plc is the holding company of the Group, a globally diversified mining company. The Group has a range of high quality, core mining businesses with participation across precious, base and bulk commodities. The Group is geographically diverse, with operations across the world.
Strategy
Our strategy is to secure, develop and operate a portfolio of high quality and long life resource assets with the potential to deliver leading shareholder returns. We seek to achieve this through innovative practices and technologies – in the hands of our world class people – towards a common purpose.
Portfolio
The quality and long life of our mineral assets are the foundation of our global and diversified business. We plan to focus on securing and operating assets that offer – either in isolation or in combination with other assets in the portfolio – the most attractive long term value-creation potential, as measured by sustainable cash flow and returns. Anglo American is a global diversified mining company. The scale and diversity of our portfolio allows us to leverage our financial resources, technical expertise and supplier relationships towards delivery on our potential and to the benefit of our customers, creating a measured risk profile and supporting strong returns. Our portfolio of world class competitive mining operations and undeveloped resources – spanning diamonds (through De Beers), copper, platinum and other precious metals, iron ore, coal and nickel – provides many of the raw materials to meet the growing consumer-driven demands of the world’s developed and maturing economies.
We plan to continue to refine and upgrade our asset portfolio as a matter of course in order to ensure that our capital is deployed effectively to generate enhanced and sustainable returns for our shareholders. Anglo American has restructured significantly over the last four years and, as a result, upgraded the overall quality of its portfolio of mining assets since 2013, moving from 68 assets to 36 at the end of 2017. This transformation has accompanied by improvements to operational efficiency, together with the sale, placing onto care and maintenance and closure of assets, resulting in a step-change in Anglo American’s operational performance, profitability and cash flow generation.
Disposals announced and completed in 2017 and 2018
During 2017, we completed the disposal of our 83.3% interest in the Dartbrook coal mine (Metallurgical Coal) to Australian Pacific Coal Limited, our 42.5% interest in the Pandora mine (Platinum) to Eastern Platinum Limited, a wholly owned subsidiary of Lonmin, and of certain Amandelbult complex Mineral Resources (Platinum).
In February 2018, we completed the disposal of Platinum’s 85% interest in Union Mine and 50.1% interest in Masa Chrome Company Proprietary Limited in South Africa to a subsidiary of Siyanda Resources Proprietary Limited. The sale of our 88.2% interest in the Drayton thermal coal mine and Drayton South project in Australia to a wholly owned subsidiary of Malabar Coal Limited was completed on February 26, 2018 and the sale of the Eskom-tied domestic thermal coal operations in South Africa to a wholly owned subsidiary of Seriti Resources Holdings Proprietary Limited completed on March 1, 2018.
In addition, in January 2018 we agreed the conditional sale of our 73% interest in the New Largo thermal coal project and colliery in South Africa to New Largo Coal Proprietary Limited, which is owned by Seriti Resources Proprietary Limited and Coalzar Proprietary Limited, two companies majority owned and controlled by HDSAs and the Industrial Development Corporation SOC Limited.
Other portfolio changes
Operations that have been closed or placed onto care and maintenance in recent years include: Snap Lake (De Beers) and Peace River Coal (Metallurgical Coal), both in Canada; and Twickenham platinum mine and Thabazimbi (Iron Ore), both in South Africa. The Bokoni mine (Platinum) was placed onto care and maintenance by Platinum’s joint venture partner, Atlatsa Resources, during the year.
Damtshaa diamond mine in Botswana, which was placed on care and maintenance from January 1, 2016, successfully achieved a restart in the fourth quarter of 2017, in preparation for 2018 production. Having exceeded its original diamond production forecast over its expected lifespan, De Beers’ Victor mine in Canada is due to close in 2019, when the open pit will have been depleted.
Projects
Projects ramping up
A number of projects across the Group have been delivered or continue to ramp up since 2016 and are contributing to operating cash flows, including Barro Alto (Nickel), Grosvenor (Metallurgical Coal), Gahcho Kué (De Beers) and Minas-Rio (Iron Ore). Together, these assets contributed US$686 million of underlying EBITDA in 2017.
Future project options
Strict value criteria are applied to the assessment of our portfolio of future growth options. Where appropriate, we aim to seek partners for the development of major greenfield projects and are likely to not commit to more than one such project at any given time. The Group will continue to maintain optionality to progress with value-accretive projects, should market conditions and capital availability permit.
Although no new major capital projects were approved during 2017, we continue to retain and advance select studies, abiding by our established social commitments and managing the costs of maintaining those options appropriately.
One such option is the Quellaveco project in southern Peru – one of the world’s largest untapped copper orebodies. The project’s feasibility study is expected to be presented to the Board for development consideration in 2018.
Innovation
Across every aspect of our business, we are thinking innovatively about how we work to ensure the safety of our people, enhance our sustainability performance and deliver industry-leading margins and returns. We are developing a replicable model of differentiated practices and capabilities that is designed to deliver superior value to all our stakeholders from assets that are in our hands.
From resource exploration and discovery, to delivering our products into our customers’ hands, FutureSmart Mining™ is our innovation-led approach to sustainable mining. Our aim is for technologies that we are developing and deploying to fundamentally change the way we extract and process our products, as well as identify potential, to provide the next step-change in operating performance – creating significant safety improvements and major energy, water and capital cost savings.
Our ambition is, where possible, to completely remove fresh water from our mineral processing. An important area of focus is low-cost dry-tailings disposal because water sent to tailings often represents a mine’s largest water loss. Fine particle slurries in particular are difficult to dewater, and current dry disposal options have prohibitive capital and operating costs. We are exploring low-cost methods to minimize the amount of water sent to tailings. For the Group, innovation extends beyond the mine. It considers the entire mining ecosystem – from exploration, right through to mine closure and rehabilitation – and considers the perspectives of all our stakeholders, at every stage.
This approach, coupled with the operational improvements being delivered from our Operating Model, is fundamentally changing the way we extract, process and market our products and will provide the next step-change in operating and financial performance.
People
We create a sustainable competitive advantage by resourcing the Group with a capable and engaged workforce within a culture that fosters safety, inclusion, innovation and performance.
Our people are critical to all that we do. The partnerships we build, both within Anglo American and with our stakeholders – locally and globally, are central to maintaining our regulatory and social licenses to operate and our sustained commercial success. We create inclusive and diverse working environments that encourage and support high performance and innovative thinking. Our Organisation Model seeks to ensure we have the right people in the right roles doing the right value-adding work at the right time, with clear accountabilities that minimize work duplication and increase capability and effectiveness.
Capital allocation
Underpinning our strategy, we have a value-focused approach to capital allocation with clear prioritization: maintain asset integrity; ensure a strong balance sheet; and pay dividends to our shareholders, determined on an earnings-based payout ratio. Discretionary capital is then allocated towards the best value outcome, either by investing for profitable growth or making additional returns to shareholders. Growth investment is subject to a demanding risk framework to ensure that the balance sheet remains robust through the investment cycle.
Value-disciplined capital allocation throughout the cycle is critical to protecting and enhancing our shareholders’ capital, given the long term and capital intensive nature of our business.
Over the past two years we have focused primarily on strengthening the Group’s balance sheet. During 2017, this was facilitated by significant cash generation from operations, driven by further ongoing cost reduction and productivity improvements, as well as favorable prices for many of our products, particularly the bulk commodities and copper.
We will continue to allocate the appropriate capital expenditure across our portfolio of assets, to both sustain our business and to protect and enhance value. We aim to maintain a stronger balance sheet than in the past, to provide greater financial stability and to allow us to better manage the effects of volatility in the prices for our products through the cycle.
History
Anglo American was incorporated on May 14, 1998 and became a public listed company in May 1999 following the completion of a combination with Anglo American Corporation of South Africa Limited, a public limited company incorporated in South Africa, now known as Anglo American South Africa Limited (“AASA”), and an exchange offer for the shares of Minorco Société Anonyme, now know as Minorco Overseas Holdings Limited (“Minorco”). AASA was founded in South Africa in 1917 to exploit gold mining opportunities in the country. In the succeeding decades, AASA became increasingly involved in a wide range of mining and other industries. AASA was involved in pioneering the development of the Zambian copperbelt, and the successful development of the Zambian copper mines was one of our first major achievements. The successful simultaneous development in the 1950s of five gold mines in South Africa brought AASA to the forefront of the mining industry internationally.
Beginning in the mid-1960s, AASA developed a range of investments in Europe, North America, Australia and South East Asia. We entered into new markets, including the steel industry through the acquisition of Scaw Metals, the timber, pulp and paper industry with the founding of the Mondi Group (“Mondi”), and increased investment in the South African coal industry through the development of a portfolio of nine coal mines and a stake in the Richards Bay Coal Terminal.
By the 1990s, AASA had a wide range of mining, financial and industrial interests both in sub-Saharan Africa and internationally, with the latter largely held through Minorco, which was originally incorporated in the UK in 1928 as Rhodesian Anglo American Limited. The structures of AASA and Minorco had arisen as a result of South Africa’s period of political and financial isolation from the international community and had proven increasingly complicated as we sought to develop a focused strategy for the Group. As a result, in 1999, the newly formed Anglo American acquired all the shares of both companies, a combination designed to create focused divisions, to achieve simplicity and transparency of structure and, in the process, to enhance shareholder value.
Business Segments
This section provides background information, an industry overview and information related to strategy and business development for each segment.
Underlying EBIT by segment
The following table sets forth the Group’s underlying EBIT for the periods presented on a segment basis:
Year ended December 31, 2015
%
Year ended December 31, 2016
%
Year ended December 31, 2017
%
(US$m unless otherwise stated)
Subsidiaries
De Beers
580
26.1
1,016
27.0
871
13.9
Copper
228
10.3
261
6.9
923
14.8
Platinum
296
13.3
193
5.1
528
8.5
Iron Ore and Manganese(1)
649
29.2
1,066
28.3
1,444
23.1
Coal(1)
315
14.2
876
23.3
1,788
28.6
Nickel
(22)
(1.0)
(15)
(0.4)
-
0.0
Corporate and Other(2)
(8)
(0.4)
(66)
(1.8)
(312)
(5.0)
Total
2,038
3,331
5,242
Equity accounted entities
De Beers
(9)
(0.4)
3
0.1
2
0.0
Platinum
(33)
(1.5)
(8)
(0.2)
(16)
(0.3)
Iron Ore and Manganese(1)
22
1.0
209
5.5
534
8.5
Coal(1)
142
6.4
236
6.3
486
7.8
Corporate and Other(2)
63
2.8
(5)
(0.1)
(1)
0.0
Total Group operations including equity accounted entities
2,223
100
3,766
100
6,247
100
Less: associates and joint ventures
(185)
(435)
(1,005)
Total Group operations excluding equity accounted entities
2,038
3,331
5,242
Reconciliation:
Net income from associates and joint ventures
(221)
278
567
Special items and remeasurements
(7,428)
(462)
282
Net finance costs
157
(523)
(586)
Income tax expense
(388)
(698)
(1,446)
Profit for the financial year
(5,842)
100
1,926
100
4,509
100
Subsidiaries and attributable share of equity accounted entities
De Beers
571
25.7
1,019
27.1
873
14.0
Copper
228
10.3
261
6.9
923
14.8
Platinum
263
11.8
185
4.9
512
8.2
Iron Ore and Manganese(1)
671
30.2
1,275
33.8
1,978
31.7
Coal(1)
457
20.6
1,112
29.6
2,274
36.4
Nickel
(22)
(1.0)
(15)
(0.4)
-
0.0
Corporate and Other(2)
55
2.5
(71)
(1.9)
(313)
(5.0)
Total Group operations including equity accounted entities
2,223
100
3,766
100
6,247
100
The Group’s segments are aligned to those business units that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Kumba Iron Ore, Iron Ore Brazil and Samancor business units have been aggregated as the “Iron Ore and Manganese” segment on the basis of the ultimate product produced (ferrous metals).
The “Corporate and Other” segment includes unallocated corporate costs, exploration costs and the Other Mining and Industrial business unit (the majority of whose remaining interests in operations was disposed of in the year ended December 31, 2015) and the Niobium and Phosphates business unit (sold on September 30, 2016). Exploration costs represent the cost of the Group’s exploration activities across all segments. Comparative information for “Corporate and Other” has been restated to include the Niobium and Phosphates business unit, which was previously disclosed separately.
The above tables present equity accounted entities (associates and joint ventures) separately from subsidiaries.
• Associates are investments over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee. Typically, the Group owns between 20% and 50% of the voting equity of associates. The financial results of associates are accounted for in the consolidated financial statements of the Group using the equity method of accounting.
Under IFRS 11, a joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.
The following table sets forth the Group’s geographical analysis of Group revenue allocated based on the country in which the customer is located:
Year ended December 31, 2015
Year ended December 31, 2016
Year ended December 31, 2017
South Africa
1,764
1,630
1,876
Other Africa
982
1,604
1,709
Brazil
745
679
422
Chile
500
481
432
Other South America
12
12
9
North America
855
572
875
Australia
214
164
41
China
4,662
4,784
6,451
India
2,421
2,756
3,636
Japan
2,325
2,131
2.625
Other Asia
3,199
3,813
5,514
United Kingdom (Anglo American plc’s country of domicile)
2,220
1,341
1,571
Other Europe
3,104
3,175
3,489
Group Revenue (including attributable share of associates’ and joint ventures’ revenue)
23,003
23,142
28,650
Less: attributable share of associates’ and joint ventures’ revenue
(2,548)
(1,764)
(2,407)
Revenue
20,455
21,378
26,243
Business Segments
This section provides background information, a business overview, information related to strategy and business development and any significant growth or restructuring projects for each segment.
De Beers
Business Overview
De Beers is the world’s leading diamond company, accounting for approximately one third of the world’s rough diamond supply by value.
De Beers operates across key parts of the diamond value chain, including exploration, production (land and sea), the sorting and selling of rough diamonds, the marketing of polished diamonds through its proprietary diamond brand, Forevermark, which licenses the Forevermark brand and the retailing of diamond jewelry through De Beers Jewellers.
De Beers’ mining operations are located in four countries: Botswana, Canada, Namibia and South Africa. All current operations are open pit with the exception of Namdeb Holdings (Proprietary) Limited’s (“Namdeb Holdings”) alluvial and marine mining operations in and off the coast of Namibia. Snap Lake is an underground mine in Canada that has been flooded in preparation for closure and reclamation, having been placed on extended care and maintenance. In South Africa, the Venetia mine is being extended to an underground operation.
In Botswana, De Beers’ mining interests are held through Debswana Diamond Company (Proprietary) Limited (“Debswana”), a 50:50 joint venture with the Government of the Republic of Botswana (“GRB”). Debswana’s operations include Jwaneng, one of the world’s richest diamond mines; Orapa, among the world’s largest open-pit diamond mines; and Letlhakane and Damtshaa, satellite operations of Orapa. In response to trading conditions in late 2015, Orapa Plant 1 was placed on partial care and maintenance and, in January 2016, Damtshaa, was placed on temporary care and maintenance. Orapa Plant 1 resumed operations during 2017 as a result of supportive trading conditions, and Damtshaa resumed operations in late 2017.
In South Africa, De Beers has a 74% interest in De Beers Consolidated Mines Proprietary Limited (“DBCM”), with the remaining 26% held by De Beers’ BEE partner in South Africa, Ponahalo Holdings (Proprietary) Limited. DBCM’s operations include Venetia, which produces about 80-85% of De Beers’ production from South Africa; and Voorspoed, a source of large and exotic colored diamonds. On January 21, 2016, the sale of Kimberley Mines, including its tailings processing facility, to Ekapa Minerals (Pty) Limited was completed. In South Africa, De Beers also owns De Beers Marine Proprietary Limited, which provides marine production and prospecting services to the marine operations of Namdeb Holdings. In late 2017, De Beers announced its intention to dispose of the Voorspoed mine, owned by DBCM, and its intention to close the Victor mine in Canada in 2019.
In Namibia, De Beers’ interests are held through Namdeb Holdings, a 50:50 joint venture with the Government of the Republic of Namibia (“GRN”). Diamonds are mined on land by Namdeb Diamond Corporation (Proprietary) Limited, and at sea by De Beers Marine Namibia (Proprietary) Limited, both of which are wholly owned by Namdeb Holdings. Marine mining is performed by a fleet of six vessels. Certain related marine services are performed by De Beers Marine Proprietary Limited, a marine services company based in Cape Town, South Africa and wholly owned by De Beers. De Beers Marine Namibia’s new sampling vessel, the SS Nujoma, was officially inaugurated in June 2017 and is now fully operational. As part of the 10 year Namibia diamond sales agreement signed in May 2016, 15% of Namdeb Holdings’ run-of-mine production per annum will be made available to the government-owned independent sales company Namib Desert Diamonds (Proprietary) Limited.
In Canada, De Beers wholly owns two mining operations (Victor and Snap Lake) and owns 51% of Gahcho Kué. Victor is located in Northern Ontario and Snap Lake and Gahcho Kué are located in the Northwest Territories. Victor is due to close in 2019. Snap Lake was put on extended care and maintenance in December 2015, following a review of the mine’s operation in light of market conditions and in January 2017 the flooding of the underground workings commenced in preparation for closure and reclamation. The Gahcho Kué project, near Snap Lake, was commissioned in August 2016 and is held by an unincorporated joint venture between De Beers Canada Incorporated (51%) and Mountain Province Diamonds Incorporated (49%). Gahcho Kué, the world’s largest new diamond mine, by volume of carats produced on an annual basis, reached commercial production in March 2017.
De Beers sells rough diamonds through two distribution channels: about 90% is sold via term contract sales to clients (known as Sightholders) through De Beers Global Sightholder Sales (Proprietary) Limited, based in Botswana, with the remainder being sold via regular auctions via De Beers Auction Sales, based in Singapore. During the course of 2014, De Beers announced details of a new approach to its rough diamond sales contracts to Sightholders (and Accredited Buyers). The new three year contract period, which started at the end of March 2015 and (after being extended) will run for four years, with the ability for De Beers to extend, requires, amongst other things, its rough diamond customers to comply with more rigorous financial and governance criteria in order to be eligible for supply. 2019 is scheduled to be a selection year for Sightholders. De Beers is also an equal joint venture partner in Diamond Trading Company Botswana (Proprietary) Limited and in Namibia Diamond Trading Company (Proprietary) Limited (“NDTC”) with the GRB and GRN, respectively; these local companies are engaged in sorting and valuing diamonds and also support De Beers’ global selling function. NDTC also sells diamonds to local Namibian based Sightholders. In South Africa, De Beers holds, via DBCM, a 74% interest in De Beers Sightholder Sales South Africa Proprietary Limited (“DBSSSA”), with the remaining 26% held by Ponahalo Holdings (Proprietary) Limited following a transaction signed in August 2013 and concluded in April 2014. DBSSSA is engaged in sorting and valuing South African production and also supports De Beers in the global selling function. It also sells diamonds locally to South African based Sightholders.
Element Six is a global leader in the design, development and production of synthetic diamond supermaterials for a range of industrial applications. It comprises two businesses: Technologies, which is wholly owned, and Abrasives, in which De Beers holds an interest of approximately 60% (Umicore SA holds the remaining interest of approximately 40%).
With growth in demand for diamonds expected to outstrip growth in production in the medium to long-term, De Beers aims to maximize the value of every carat mined, sorted and sold. To achieve this objective, De Beers focuses on optimizing the value of its mining assets, operating the leading rough distribution system by selling to leading Sightholders and offering consumers the integrity and confidence of its brands.
Significant Transactions and Restructuring
Disposal of Kimberley mines
On January 21, 2016, DBCM announced that it has completed the sale of Kimberley Mines (all assets, including the tailings mineral resource) to Ekapa Minerals (Pty) Limited – an investor consortium comprising Ekapa Mining (Pty) Limited (50.1%) and Petra Diamonds Limited (49.9%).
Disposal of interest in Morupule
In August 2016, Debswana Diamond Company (Proprietary) Limited (50% De Beers) sold its 100% interest in Morupule Coal Mine (Proprietary) Limited to Mineral Development Company Botswana (Proprietary) Limited (wholly owned by the GRB). De Beers received net cash inflows of US$21 million on the disposal.
Acquisition of remaining 50% interest in De Beers Jewellers
In March 2017, De Beers acquired LVMH Moët Hennessy Louis Vuitton’s 50% shareholding in De Beers Jewellers, resulting in De Beers Jewellers becoming 100% owned subsidiary of De Beers.
Disposal of interest in Voorspoed mine
In late 2017, De Beers announced its intention to dispose of the Voorspoed mine, owned by DBCM, and its intention to close the Victor mine in Canada in 2019.
Snap Lake
Snap Lake was put on extended care and maintenance in December 2015, following a review of the mine’s operation in light of market conditions and, in January 2017, the flooding of the underground workings commenced.
Copper
Business Overview
We have interests in two major copper operations: a 50.1% interest in the Los Bronces mine, which we manage and operate, and a 44% share in the Collahuasi mine; we also manage and operate the El Soldado mine and Chagres smelter (50.1% interest in both). In Peru, we have an 81.9% interest in the Quellaveco project. On February 18, 2017 we temporarily suspended mining operations at our El Soldado mine due to licensing uncertainty and restarted operations on April 28, 2017 following approval of the updated mine plan by the authorities.
Anglo American has a world class position in copper, with the potential to establish a global leadership position built around its interests in two of the world’s largest copper mines, Los Bronces and Collahuasi, and its feasibility phase Quellaveco project in southern Peru. The mineral endowments of these assets underpin our organic copper growth opportunities, in addition to a number of future potential projects.
The mineral endowments of these assets, with Reserve Lives of 23 years and 69 years respectively as of 2017, underpin our future brownfield opportunities, in addition to a number of future potential projects, including our feasibility phase Quellaveco project in southern Peru, one of the world’s largest untapped copper orebodies, and the polymetallic Sakatti deposit in Finland.
The copper industry, although expected to be broadly balanced in the medium term, is expected to struggle to meet longer term demand growth, including from electric vehicles and renewable energy, as declining grades and more challenging physical and environmental conditions, along with tougher licensing and permitting requirements, will all affect the industry’s ability to deliver new copper supply.
Significant Transactions and Restructuring
Disposal of Anglo American Norte
On September 11, 2015, the Group completed the sale of its interest in Anglo American Norte S.A. (“AA Norte”) which consists of the Mantoverde and Mantos Blancos copper mines located in northern Chile. The consideration comprised US$300 million in cash plus deferred consideration up to a maximum of US$200 million, contingent on certain conditions. At present the potential deferred consideration is up to a maximum of US$150 million. A pre-tax loss on disposal of US$287 million (post-tax US$350 million) was recorded.
Platinum
Business Overview
Our Platinum business, based in South Africa, is the world’s leading primary producer of platinum group metals and accounts for approximately 40% of the world’s newly mined platinum in 2017. Anglo American Platinum mines, processes and refines the entire range of PGMs: platinum, palladium, rhodium, ruthenium, iridium and osmium. Base metals such as nickel, copper and cobalt sulphate are important secondary products and are significant contributors to earnings.
The operations of Anglo American Platinum exploit the world’s richest reserve of PGMs, known as the Bushveld Complex, which contains PGM-bearing Merensky, UG2 and Platreef ores. Access to an excellent portfolio of Ore Reserves ensures Platinum is well placed to be the world’s major platinum producer for many years to come.
Anglo American Platinum wholly owns three mining operations currently in production, three smelters, a base metals refinery and a precious metals refinery. In addition, Platinum wholly owns the Twickenham mine which was placed on care and maintenance in July 2016. Concentrating, smelting and refining of the output is undertaken at the metallurgical facilities of Rustenburg Platinum Mines Limited (“RPM”).
Following the implementation of the portfolio review, Anglo American Platinum’s 100% owned mining operations currently consist of Amandelbult, Mogalakwena and Twickenham mines. The Unki mine in Zimbabwe is currently wholly owned pending the implementation of a state approved indigenization plan in terms of local legislation that requires foreign companies to cede a portion of the ownership of their assets to indigenous Zimbabweans. Anglo American Platinum also has 50:50 joint ventures with a BEE consortium, led by African Rainbow Minerals, at Modikwa platinum mine; and with XK Platinum Partnership in respect of the Mototolo mine.
In addition, Platinum has 50:50 pooling and sharing agreements with Sibanye Gold Limited (“Sibanye”) covering the shallow Ore Reserves of the Kroondal mine. The company owns 49% of Bokoni mine and holds, through RPM, 22.75% of Atlatsa. Platinum is in partnership with Royal Bafokeng Resources and has a 33% shareholding in the combined Bafokeng-Rasimone platinum mine and Styldrift properties. Anglo American Platinum, through RPM, also has an 11.44% shareholding in Royal Bafokeng Platinum Limited. On October 31, 2017 Bokoni mine was placed on care and maintenance by Atlatsa.
Platinum is continuing its ongoing repositioning around a leaner, best in class operating footprint at the Mogalakwena and Amandelbult mines in South Africa and Unki in Zimbabwe, alongside its joint venture interests in the Kroondal, Mototolo and Modikwa mines in South Africa. Demand for PGMs is forecast to increase over time, given the ongoing trend towards cleaner-emission vehicles, driven by increasingly stringent global emissions legislation. Increasing demand by the automotive industry is likely to be augmented by growing opportunities for emerging new applications, including hybrid and hydrogen fuel cell electric vehicles, while emerging countries such as India offer the potential of developing, from a relatively low base, into significant platinum jewelry markets. We aim to proactively stimulate demand for platinum, including through targeted campaigns in emerging jewelry markets; creating new investment demand for the metal as a store of value; and through direct investment in a number of companies developing new technologies that are expected to drive industrial demand for PGMs.
Significant Transactions and Restructuring
Disposal of Rustenburg
On November 1, 2016, Anglo American Platinum completed the sale of the Rustenburg mining and concentration operations (the “Rustenburg Operations”) by its wholly owned subsidiary Rustenburg Platinum Mines Limited to Sibanye Rustenburg Platinum Mines Proprietary Limited, a subsidiary of Sibanye Gold Limited (“Sibanye”). Sibanye has now taken over ownership, control and management of those operations. The Rustenburg Operations comprise the Bathopele, Siphumelele (including Khomanani) and Thembelani (including Khuseleka) mining operations, two concentrating plants, an on-site chrome recovery plant, the Western Limb Tailings Retreatment Plant, associated surface infrastructure and related assets and liabilities on a going concern basis, including normalized levels of working capital.
The upfront cash proceeds of ZAR1.5 billion (US$110 million) were used to reduce net debt and further strengthen Anglo American Platinum’s balance sheet. Sibanye will also pay minimum deferred proceeds of ZAR3.0 billion (in nominal terms) (US$220 million), to be earned through a 35% share of the distributable free cash flows generated by the Rustenburg Operations on an annual basis for a period of six full years commencing from January 1, 2017.
To the extent that there is an outstanding minimum deferred proceeds balance at the end of the six year period, Sibanye has the option to extend the payment period for up to two years (to December 31 2024), or until the minimum deferred payment has been paid in full (whichever is earlier). Sibanye has the option to settle the outstanding balance in cash or listed Sibanye ordinary shares at the end of the six or eight year period. After the closing of the transaction on November 1, 2016, if the distributable free cash flow generated by the Rustenburg Operations is negative in 2016 (for November and December), 2017 or 2018, there will be a downwards adjustment to the upfront proceeds received up to ZAR267 million per annum (for November and December 2016, a pro-rate amount thereof), or a lesser amount required to reduce any negative distributable free cash flow to zero.
In 2016, the maximum amount payable was ZAR44.5 million, pro-rated from November 1, 2016 as the closing date of the transaction. In 2017 and 2018, the maximum payable amount is ZAR267 million per annum, plus any difference between the amounts actually paid and the maximum payable amount in the previous periods. In total the maximum adjustment to the purchase consideration is ZAR578.5 million (in nominal terms), if the distributable free cash flow generated by the Rustenburg Operations is negative in 2016, 2017 or 2018.
Anglo American Platinum has entered into a sale and toll treatment of concentrate agreement with Sibanye. Sibanye will sell all concentrate produced by the Rustenburg Operations to Anglo American Platinum until January 1, 2019 based on pre-agreed commercial terms. Thereafter, for a period of up to eight years (and no less than two years) starting January 1, 2019, Sibanye will enter into a toll treatment arrangement where Anglo American Platinum will undertake the smelting and refining activities in respect of the Rustenburg Operations on pre-agreed commercial terms. The charge payable by Sibanye under the toll treatment arrangement will reflect smelting and refining costs as well as economic return on the proportional share of the current capital base that Anglo American Platinum has invested in its processing assets.
Disposal of Union Mine
On February 15, 2017, the Group announced that it had agreed the sale of its 85% interest in the Union platinum mine to Siyanda Resources Proprietary Limited for consideration comprising upfront cash of ZAR400 million (approximately US$34 million) and deferred consideration based on the operation’s free cash flow generation over a ten year period. The transaction was completed on February 1, 2018.
The fair value of the Union mine and its associated mineral resources is expected to be recovered principally through the sale. An impairment of US$197 million (US$113 million after tax and non-controlling interests) has been recorded to bring the operation’s carrying value into line with its fair value less costs of disposal. The impairment charge has been recorded principally against property, plant and equipment.
Iron Ore and Manganese
Business Overview
Anglo American’s iron ore operations provide customers with niche, high iron content ore, a large percentage of which is direct-charge product for blast furnaces. In South Africa, we have a majority share (69.7%) in Kumba Iron Ore, while in Brazil we have developed the integrated Minas-Rio operation. In manganese, we have a 40% shareholding in Samancor, with operations in South Africa and Australia.
Kumba
Kumba, which is listed on the Johannesburg Stock Exchange, produces premium lump ore and also produces fine ore, in a lump-to-fine ratio of 66:34 for the 2017 financial year (2016: 64:36). Kumba holds a 76.3% interest in and manages, SIOC which, in turn, has two mining operations; Sishen mine in the Northern Cape Province and Kolomela mine, situated close to Sishen mine. All plant operations at a third mine, Thabazimbi, ceased in 2016. In November 2016, Kumba’s subsidiary, SIOC, and AMSA signed an agreement for the transfer of the Thabazimbi mine, including all remaining assets and liabilities, to AMSA, which will either become effective once all the conditions precedent have been met, or lapse. In the meantime, closure of the mine is proceeding according to plan.
Export ore is transported via the Sishen/Kolomela-Saldanha iron ore export channel to the Port of Saldanha Bay. The rail and port operations are owned and operated by the South African state-owned company, Transnet Freight Rail, the biggest division of Transnet. Kumba is well-positioned to supply the Asia-Pacific and European steel markets.
The roll-out of the Operating Model is continuing as scheduled at both Sishen mine and Kolomela mine. Sishen mine has been focusing on a review of the service and production strategies for the plant, as well as subsequent refinement of the work-scheduling system, which has identified significant opportunities to improve the planning process. At Kolomela, the Operating Model continues to deliver above scheduled-work and compliance targets as part of the work management component.
Iron Ore Brazil
In Brazil, the Minas-Rio project includes an open pit mine and beneficiation plant in Minas Gerais, producing pellet feed products. The ore is transported through a 529 kilometer slurry pipeline to the port of Açu in Rio de Janeiro state, from which iron ore is exported.
Minas-Rio continues to focus on obtaining the Step 3 operating licenses required for the operation to access the full range of run-of-mine ore grades and target the operation’s nameplate capacity of 26.5 Mt (wet basis). The Step 3 installation license was granted in January 2018, following delays during 2017, which will allow the Step 3 construction to proceed. As a consequence of receiving the installation license, the full Step 3 operational license is expected by mid-2019.
Samancor
Our manganese interests consist of a 40% shareholding in Samancor Holdings (in South Africa), GEMCO and TEMCO (both in Australia) and Samancor Marketing (in Singapore). The exceptions are the Mamatwan and Wessels mines where Samancor owns 74% (Anglo American indirect ownership is 29.6% and South 32 indirect ownership is 44%). Samancor is the world’s largest producer of manganese ore and is among the top global producers of manganese alloy. Its operations produce a combination of ores and alloys from sites in South Africa and Australia.
Strategy and business development
Anglo American’s strategy is to supply premium iron ore products against a background of declining quality global iron ore supplies. We have a unique iron ore resource profile, with extensive, high quality resource bases in South Africa and Brazil.
Kumba seeks to maximize total shareholder value by unlocking full operational potential of its current operations through elimination of fatalities through a culture of zero harm, and enhancement of its premium product quality to its full potential to realize a higher price premium while sustainably operating at lower unit costs through operating efficiencies.
In addition to optimizing its current assets, Kumba seeks to grow its core business by investing in new technologies to beneficiate potential in situ and stockpile/discard materials and realize various identified life extension projects around both Sishen and Kolomela. Kumba seeks to focus on the Northern Cape, as the region contains the most attractive ore bodies.
Kumba captures value across the value chain through its commercial and logistics strategies and by executing its growth projects efficiently, while continuing to deliver on its organizational responsibilities, capabilities and societal obligations.
Significant Transactions and Restructuring
Sishen Mining Right
In December 2013, the South African Constitutional Court ruled that SIOC held a 78.6% undivided share of the Sishen mining right and that, based on the provisions of the MPRDA, only SIOC could apply for, and be granted, the residual 21.4% share of the mining right at the Sishen mine. The grant of the mining right was subject to such conditions considered by the Minister of Mineral Resources (“the Minister”) to be appropriate. SIOC applied for the residual right in early 2014.
In 2015, SIOC received notice from the DMR that the Director General of the DMR had consented to the amendment of SIOC’s mining right in respect of the Sishen mine, by the inclusion of the residual 21.4% undivided share of the mining right for the Sishen mine, subject to certain conditions (which are described by the DMR as “proposals”). The conditions were not capable of being accepted by SIOC as SIOC believed the MPRDA did not provide for the imposition of such conditions, they were not practically implementable and they lacked sufficient detail to provide the company with legal certainty. SIOC submitted an internal appeal in terms of section 96 of the MPRDA to the Minister, which set out the basis of its objections to the proposals.
In October 2016, following the South African Constitutional Court ruling, the subsequent illegal granting and appeal lodged by SIOC in terms of Sec 96 of the MPRDA; Kumba announced that the DMR, after taking all the relevant considerations into account, had granted the residual 21.4% undivided share of the mining right for the Sishen mine to SIOC on terms and conditions acceptable to SIOC.
As a result of the grant of the residual 21.4% undivided share, SIOC is now the sole and exclusive holder of the right to mine iron ore and quartzite at the Sishen mine. This residual mining right has been incorporated into the 78.6% Sishen mining right that SIOC successfully converted in 2009. The consent to amend SIOC’s mining right, by the inclusion of the residual 21.4% undivided share, has been subject to various conditions. The conditions, where applicable, ultimately form part of the conditions to the Sishen Mining Right. These include the requirement for the continuation of the existing Export Parity Price based supply agreement between SIOC and AMSA in its role as a strategic South African steel producer, as well as SIOC’s continued support of skills development, research and development and initiatives to enable preferential procurement.
Furthermore, an application, in terms of Section 102 of the MPRDA No 28 of 2002, to extend Sishen mine’s mining right by the inclusion of the adjacent SIOC Prospecting Rights (including Dingleton) and other properties, was lodged on July 1, 2016. The official grant letter was received from the DMR on July 6, 2017 and the process to amend the Sishen mining right continues. Mining operations in this area will only commence once the required environmental authorization, in terms of the National Environmental Management Act 1998 (Act 107 of 1998), has been approved. The grant allows Sishen mine to expand its current mining operations within the adjacent Dingleton area.
Disposal of Thabazimbi Mine
Following the strategic decision to close the Thabazimbi mine in 2015, all remaining plant operations ceased in 2016. SIOC and AMSA concluded an agreement to transfer Thabazimbi mine to AMSA in November 2016.
Until 2014, Thabazimbi was a captive mine owned and run by SIOC, but supplying ore exclusively to and funded by AMSA. As a result, AMSA is accountable for 97% of the mine’s current rehabilitation liability, with SIOC responsible for the site’s management and the remaining liability. The transfer will simplify this arrangement by making AMSA solely responsible for Thabazimbi’s closure and rehabilitation.
The identified assets and liabilities of the mine will be transferred at a purchase consideration of ZAR1 plus the assumed liabilities.
The transfer of the mine is dependent on certain conditions being met, most notably, competition authority approval, cession of the Thabazimbi mining rights in terms of section 11 of the MPRDA, and a satisfactory due diligence investigation by AMSA. On fulfilment of these conditions, the employees, assets and liabilities will transfer to AMSA. If the conditions are not satisfied by the date agreed to by the parties (or any agreed extension thereto), the agreement will lapse. In the meantime, closure of the mine is proceeding according to plan.
Other Recent Developments
Kumba Tax Dispute
On February 3, 2017, Kumba reached a settlement agreement with the South African Revenue Service (“SARS”) for the dispute relating to assessments received for the years 2006 to 2010, and the tax treatment of the relevant issues in the years 2011 to 2015, inclusive, for a full and final total settlement amount of ZAR2.5 billion (US$185 million). Kumba had already provided for an amount of ZAR1.5 billion (US$97 million) in its annual financial statements for the financial years up to 2015 and an additional ZAR1.0 billion (US$73 million) was accounted for in 2016 in respect of this settlement agreement. The settlement was paid in full on March 17, 2017, with appropriate adjustments made for current advance payments held on account. See “Risk Factors—Risks Relating to Our Business—Tax laws and regulations in some of the countries in which we operate may be subject to change, varying or adverse interpretation or inconsistent enforcement.”
Kumba’s Early Repayment of Debt Facilities
As at December 31, 2016, Kumba had committed debt facilities of ZAR16.5 billion (US$1.2 billion), comprising ZAR4.5 billion (US$0.3 billion) term facility and ZAR12 billion (US$0.9 billion) revolving facility maturing in 2020. On January 26, 2017, the directors of Kumba approved an early settlement of the term facility of ZAR4.5 billion which was repaid on February 13, 2017. As a result of the settlement, the loan cannot be drawn again, effectively reducing Kumba’s committed debt facilities to ZAR12 billion (US$0.9 billion) on February 13, 2017. Committed debt facilities at December 31, 2017 were ZAR12 billion (US$1 billion), all of which had not been drawn down.
Changes in the Brazilian Mining Code and Calculation of Royalties
At the end of December 2017, Brazilian Law 13,540 introduced some amendments to the Brazilian mining code and the creation of the National Mining Agency (the “ANM”), replacing the National Department of Mineral Production (the “DNPM”). The main changes that affect our businesses are described below:
A change in the rates of CFEM applicable to iron ore which has increased from 2% to 3.5%; the CFEM rate for Nickel remained at 2%.
A change in the calculation base of CFEM applicable to Nickel from January 1, 2018 onwards. The calculation will be based on a self-assessment based on the “market price” of the ore (calcinated nickel) or based on a reference price to be defined by the ANM. The ANM will also decide what methodology will be applicable.
Most of the changes to the mining code are aimed at bringing it up to date and eliminating or adjusting provisions that impaired a more efficient development of projects. The creation of the ANM puts the mining industry into the same management model already applied in Brazil to oil, gas, power and communication, with expected increases in transparency and efficiency.
The provisional measures are subject to amendment or approval by the Brazilian Parliament.
Coal
Business Overview
Metallurgical Coal
Anglo American is Australia’s second largest metallurgical coal producer and is the third largest global exporter of metallurgical coal. Metallurgical Coal’s operating mines produce both high quality metallurgical coal used for steel production and thermal coal used for power generation and industrial applications.
We have four operating mines in Australia in which the Group has a majority interest. The coal operations in Australia are based on the east coast, from where the business serves a range of customers throughout Asia and the Indian sub-continent, Europe and South America.
The four mines are located in Queensland’s Bowen Basin: Moranbah North (metallurgical coal), Capcoal (metallurgical and thermal coal), Dawson (metallurgical and thermal coal) and Grosvenor (metallurgical coal). All of the mines are in well-established locations and have direct access to rail and port facilities at Dalrymple Bay and Gladstone in Queensland. The Group also has an equity accounted interest in one other mine, which it does not operate: Jellinbah (metallurgical and thermal coal).
On February 26, 2018, the Group announced the completion of the sale of its 88.17% interest in the Drayton thermal coal mine and Drayton South project.
The Group’s Canadian operations (Peace River Coal) are in care and maintenance.
Coal South Africa and Cerrejón
In South Africa, our business wholly owns and operates six mines. It also has a 73% stake in Anglo American Inyosi Coal Proprietary Limited. The remaining 27% of AAIC is owned by Inyosi Coal, a Broad-Based Black Economic Empowerment (“BBBEE”) entity. AAIC wholly owns two mines, Kriel and Zibulo colliery, and holds a 50% interest in the Phola washing plant, a joint operation with South 32 (following the demerger from BHP Billiton in 2015). In addition, Anglo American has a 50% interest in the Mafube colliery, owned by Mafube Coal Mining Proprietary Limited, a joint venture with Exxaro Resources Limited.
The South African mines supply both the export and domestic markets, delivering thermal coal domestically to Eskom Holdings Limited (“Eskom”), the state-owned power utility and Sasol, a coal-to liquids producer. Exports are currently routed through the RBCT, in which Anglo American has a 23.2% shareholding, to customers throughout the Atlantic, Mediterranean and Asia-Pacific regions.
In Colombia, Anglo American, BHP Billiton and Glencore each have a one-third shareholding in Cerrejón, one of the country’s largest thermal coal exporters
. Cerrejón owns and operates its own rail and deep water port facilities and sells into the export thermal and pulverized coal injection markets.
Coal South Africa’s strategic vision is to be a safe, high-margin, thermal coal producer with a global footprint that participates in the most attractive seaborne thermal coal markets. Thermal coal demand is being driven by Asian economic growth and its reliance on low-cost, readily available supply.
A structured program of business improvement has been implemented to deliver industry-best operational performance over the existing asset base, in particular targeting key equipment performance at the underground and open-cut mines. A simultaneous cost improvement drive to eradicate the impact of South African mining inflation has delivered incremental value.
Significant Transactions and Restructuring
Callide disposal
On October 31, 2016, the Group completed the sale of its wholly owned interest in the Callide thermal coal mine (“Callide”) in Queensland, Australia to Batchfire Resources Pty Ltd, following the announcement of the share sale agreement on January 20, 2016. Callide consists of an open cut thermal coal mine and associated processing infrastructure that produced 7.9Mt of coal in 2015 (and 6.2Mt in the first ten months of 2016), the majority of which was sold to two adjacent power stations under long term contracts.
Foxleigh disposal
On August 29, 2016, the Group completed the sale of its 70% interest in the Foxleigh metallurgical coal mine in Queensland, Australia to a consortium led by Taurus Fund Management, following the announcement of the sale and purchase agreement on April 4, 2016. Foxleigh is an open cut coal operation which produces high quality PCI coal, located in Queensland’s Bowen Basin, 12 kilometers southwest of Middlemount. Anglo American’s attributable share of Foxleigh’s saleable production was 1.86 million tonnes in 2015 (and 1.4 million tonnes in the last eight months of 2016).
Dartbrook disposal
On December 24, 2015, the Group announced that it had entered into a SPA (and agreed to enter into a related Royalty Deed) with a wholly-owned subsidiary of Australian Pacific Coal Ltd to sell its 83.33% interest in the Dartbrook Coal Mine (“Dartbrook”) in the Hunter Valley, New South Wales, Australia, for upfront proceeds of AUD25 million and a future royalty stream. Dartbrook consists of an underground thermal coal mine and associated processing infrastructure that has been in care and maintenance since 2006.
On May 29, 2017, the Group completed this sale with the net gain on disposal of US$76 million.
Disposal of Eskom-tied domestic thermal coal operations
On April 10, 2017, the Group announced the sale of the Eskom-tied domestic thermal coal operations which consisted of the New Vaal, New Denmark and Kriel collieries, as well as four closed collieries, all in South Africa, (together, the “Eskom tied operations”) by Anglo Operations Proprietary Limited and Anglo American Inyosi Coal Proprietary Limited to a wholly owned subsidiary of Seriti Resources Holdings Proprietary Limited, for a consideration payable as at January 1, 2017 of ZAR2.3 billion (approximately US$164 million). The sale was completed on March 1, 2018.
Disposal of New Largo
On January 29, 2018, the Group announced the sale, by its 73%-held subsidiary AAIC, of New Largo in South Africa to the Purchaser, which is owned by Seriti Resources Proprietary Limited and Coalzar Proprietary Limited, two companies majority owned and controlled by HDSAs and the the IDC. This transaction is expected to be completed in the second half of 2018.
Disposal of Drayton mine
On May 4, 2017, the Group announced that it had entered into a Sale and Purchase Agreement with a wholly-owned subsidiary of Malabar Coal Limited to sell its 88.17% interest in the Drayton thermal coal mine and Drayton South project, located in New South Wales, Australia. The transaction was effected via a sale of shares in the subsidiary companies holding Anglo American's interest in Drayton. The Group ceased mining activities at the Drayton mine during 2016. This transaction was completed on February 26, 2018.
Nickel
Business Overview
Our 100% owned nickel business serves the global stainless steel industry, which depends on nickel and drives demand for it. This business segment comprises two ferronickel production sites located in Brazil’s Goiás state, Barro Alto and Codemin.
Nickel’s strategy is focused on the delivery of efficient production at Barro Alto and Codemin, supported by asset optimization initiatives, which are driving improved output and reduced costs. At full production, both operations are positioned in the first half of the industry’s cash-cost curve. Our nickel business continues to assess its portfolio of expansionary and exploration projects, Jacaré and Morro Sem Boné.
Other Recent Developments
Changes in the Brazilian Mining Code and Calculation of Royalties
At the end of 2017, Brazilian Law 13,540 introduced some amendments to the Brazilian mining code and the creation of the ANM, replacing the DNPM. See further at “Iron Ore and Manganese – Other Recent Developments – Changes in the Brazilian Mining Code and Calculation of Royalties”.
Corporate and Other
Business Overview
This business segment includes the non-core businesses previously reported under Other Mining and Industrial and previously comprised the quarry materials companies operating under Tarmac, including interests in Tarmac Middle East and a 50% interest in the Lafarge Tarmac joint venture. On July 17, 2015, Anglo American announced that it had completed the sale of its 50% ownership interest in Lafarge Tarmac to Lafarge. The divestment of Anglo American’s remaining interests in the Tarmac Middle East operations was completed in 2016.
The “Corporate and Other” segment further includes the Niobium and Phosphates business unit (sold on September 30, 2016).
Significant Transactions and Restructuring
Disposal of Lafarge Tarmac
On July 17, 2015, Anglo American announced that it had completed the sale of its 50% ownership interest in Lafarge Tarmac to Lafarge. Anglo American received provisional cash proceeds of approximately £992 million (US$1,559 million including US$13 million of proceeds on a related hedge), constituting the agreed minimum consideration of £885 million set out in the July 2014 binding agreement and approximately £107 million of working capital and other adjustments. The final price has since been agreed at the same level as the provisional price after finalization of the post-closing review process. The divestment of Anglo American’s remaining interests in the Tarmac Middle East operations was completed in 2016.
Exxaro shareholding disposal
On December 1, 2016, the Group announced that it had sold approximately 35 million ordinary shares, representing a 9.7% interest in Exxaro Resources Limited (“Exxaro”) at a price of ZAR87 per share. The sale of Anglo American’s shares raised net proceeds of approximately ZAR3.0 billion (US$215 million). Following the sale, Anglo American no longer holds a direct equity interest in Exxaro. Anglo American used the proceeds to reduce net debt.
Bond buyback 2016
On March 22, 2016, the Group announced the successful completion of its bond buy-back program launched on February 18, 2016, consisting of Euro, British pound and US dollar denominated maturities from December 2016 to September 2018. The Group used US$1.7 billion of cash to retire US$1.83 billion of contractual repayment obligations (including derivatives hedging the bonds).
Anglo American’s bond maturities were reduced by US$250 million, US$680 million and US$900 million for 2016, 2017 and 2018 respectively, reducing the Group’s bond repayment obligations at original hedged rates to US$1.4 billion, US$1.9 billion and US$2.5 billion respectively for these years. The notes purchased by Anglo American have been cancelled.
The total net debt benefit of the buyback program amounts to US$190 million by September 2018 (US$130 million realized upfront through the discounts achieved on the notes and settlement of derivatives and an additional US$60 million over two years through interest savings before fees and expenses). Although the bond buyback was funded from cash reserves, Anglo American had maintained its conservative levels of liquidity by entering into a US$1.5 billion club facility with three international banks. On January 27, 2017, the Group retired the remaining club facility.
Disposal of Niobium and Phosphates businesses
On September 30, 2016, the Group announced the completion of the sale of its Niobium and Phosphates businesses in Brazil to China Molybdenum Co. Ltd (“CMOC”), following the agreement announced on April 28, 2016. The economic benefits of the businesses were transferred to CMOC as of the end of September 30, 2016. Anglo American has received cash proceeds of approximately US$1.7 billion, constituting the agreed consideration of US$1.5 billion and approximately US$175 million of working capital and other adjustments. Net proceeds, after taxes payable and transaction costs, of US$1.5 billion from the sale will be used to reduce debt.
The Niobium and Phosphates businesses were located in the states of Goiás and São Paulo, in Brazil. The Phosphates business consisted of a mine, beneficiation plant, two chemical complexes and two further mineral deposits. The Niobium business consisted of one mine and three processing facilities, two non-operating mines, two further mineral deposits and sales and marketing operations in the United Kingdom and Singapore.
Bond buybacks 2017
On March 29, 2017, the Group completed a bond buyback transaction consisting of Euro and British pound denominated bonds with maturities from April 2018 to June 2019. The Group used US$1.3 billion of cash to retire US$1.3 billion of contractual repayment obligations (including derivatives hedging the bonds).
In September 2017, the Group completed a bond buyback transaction consisting of Euro and US dollar denominated bonds with maturities from September 2018 to November 2020. The Group used U$$1.93 billion of cash to retire US$1.86 billion of contractual repayment obligations (including derivatives hedging the bonds).
Bond issuances 2017
In April 2017 the Group issued US$300 million 3.750% senior notes due 2022 and US$700 million 4.750% senior notes due 2027.
In September 2017, the Group issued US$650 million 3.625% senior notes due 2024 and US$650 million 4.000% senior notes due 2027 through accessing the US bond markets. The Group also issued €600 million 1.625% senior notes due 2025 under its EMTN program.
Bond early redemption 2018
On March 9, 2018, the Group redeemed in full its outstanding US$750 million 9.375% senior notes due April 2019.
Other Recent Developments
AASA Silicosis claims
Settled litigation
Anglo American South Africa Limited (“AASA”) was also a defendant in approximately 4,400 separate lawsuits filed in the North Gauteng High Court (Pretoria), which were referred to arbitration. These 4,400 claims (approximately 1,200 of which were separately instituted against AngloGold Ashanti) were settled by AASA and AngloGold Ashanti in 2016, without admission of liability, for an amount which is not material to AASA.
Current Litigation
AASA is named as one of 32 respondents in a consolidated class certification application filed in the South Gauteng High Court (Johannesburg) on behalf of former mineworkers (or their dependants or survivors) who allegedly contracted silicosis or tuberculosis as a result of having worked for various gold mining companies including some in which AASA was a shareholder and to which AASA provided various technical and administrative services. The High Court has certified two classes of claimants: those with silicosis or who died from silicosis and those with tuberculosis or who died from tuberculosis. AASA and other respondents are appealing the ruling which had been set down for hearing from March 19 to 23, 2018, but was subsequently postponed indefinitely based on the progress made in the settlement negotiations with the claimants’ representatives.
AASA, AngloGold Ashanti, Gold Fields, Harmony Gold and Sibanye Gold announced in November 2014 that they had formed an industry working group to address issues relating to compensation and medical care for occupational lung disease in the gold mining industry in South Africa. The working group was subsequently extended in 2015 to include African Rainbow Minerals. At the same time, the industry working group has been engaging all stakeholders on these matters, including government, organized labor, other mining companies and legal representatives of claimants who have filed legal suits against the companies. These engagements have sought a comprehensive solution to address legacy compensation issues and future legal frameworks that is fair to past and current employees and enables companies to continue to be competitive over the long term. The companies in the working group continue to defend the legal proceedings filed against them.
As a consequence of the status of negotiations between the working group and affected stakeholders, a charge of US$101 million was recognized at June 30, 2017 within non-operating special items ($101 million after tax), representing management’s best estimate of the cost to the Group of a settlement of the class action claims and related costs. The ultimate outcome of these matters remains uncertain, with a possible failure to reach a settlement or to obtain the requisite court approval of the settlement, and the provisions recorded in the financial statements are consequently subject to adjustment or reversal in the future, depending on the progress of the working group discussions and stakeholder consultations and the ongoing legal proceedings.
MINERAL PRODUCTION
This section provides the entire output of consolidated entities and the Group’s attributable share of joint operations, associates and joint ventures where applicable, except for Collahuasi in the Copper segment and De Beers’ joint operations which are presented on a 100% basis.
Year-ended December 31,
2015
2016
2017
(thousands of carats)
De Beers segment(1)
Debswana
20,368
20,501
22,684
Namdeb Holdings
1,764
1,573
1,805
DBCM
4,673
4,234
5,208
De Beers Canada
1,887
1,031
3,757
28,692
27,339
33,454
De Beers production is on a 100% basis, except for the Gahcho Kué joint venture which is on an attributable 51% basis.
Year-ended December 31,
2015
2016
2017
(tonnes)
Copper segment(1)(2)
Collahuasi (44% share)
200,300
222,900
230,500
AA Sur — Los Bronces mine
401,700
307,200
308,300
AA Sur — El Soldado mine
36,000
47,000
40,500
Anglo American Norte (3)
70,800
-
-
Total attributable copper production
708,800
577,100
579,300
Production is presented on a contained metal basis.
Excludes Anglo American Platinum’s copper production.
Anglo American Norte was sold on September 11, 2015.
Year-ended December 31,
2015
2016
2017
(thousands of ounces, except where noted otherwise)
Platinum segment
Produced ounces(1)
Platinum
2,337
2,382
2,397
Refined
Platinum
2,459
2,335
2,512
Palladium
1,595
1,464
1,669
Rhodium
305
317
323
Copper – Refined (tonnes)
16,800
14,100
15,700
Copper – Matte(2) (tonnes)
300
-
-
Nickel – Refined (tonnes)
25,400
25,400
26,000
Nickel – Matte(2) (tonnes)
400
-
-
Gold
113
108
115
Reflects own mine production and purchases of metals in concentrate.
Copper and nickel refined through third parties is shown as production of copper matte and nickel matte.
Year-ended December 31,
2015
2016
2017
(thousands of tonnes)
Iron Ore and Manganese segment
Iron ore – Kumba
44,878
41,476
44,983
Iron ore – Minas-Rio(1)
9,174
16,141
16,787
Manganese ore(2)
3,112
3,133
3,486
Manganese alloys(2)(3)
214
138
149
Wet basis.
Saleable production.
Production includes medium carbon ferro-manganese.
Year-ended December 31,
2015
2016
2017
(thousands of tonnes)
Coal segment
Australia
Metallurgical – Export
21,208
20,876
19,661
Thermal – Export
5,281
3,958
1,614
Thermal – Domestic
7,052
5,553
-
South Africa
Thermal – Export (1)
18,204
19,072
18,593
Thermal – Domestic (Eskom)
23,145
24,779
23,859
Thermal – Domestic (Non-Eskom) (2)
8,920
9,909
7,454
Colombia
Thermal – Export
11,074
10,668
10,642
Thermal export – All product produced and sold into the export market. Comparatives have been restated to reflect current presentation.
Thermal domestic (Non-Eskom) includes Thermal – Domestic (Other) and Thermal Domestic (Isibonelo). Thermal – Domestic (Other) is product sold domestically excluding Eskom-tied and Isibonelo. Comparatives have been restated to reflect current presentation.
Year-ended December 31,
2015
2016
2017
(tonnes)
Nickel segment(1)
Nickel
30,300
44,500
43,800
Excludes Anglo American Platinum’s nickel production.
Year-ended December 31,
2015
2016(1)
2017
(tonnes)
Niobium (part of Corporate and Other segment)
Niobium
6,300
4,700
-
Year-ended December 31,
2015
2016(1)
2017
(tonnes)
Phosphates (part of Corporate and Other segment)
Concentrate
1,341,400
1,033,400
-
Phosphoric acid
265,100
233,600
-
Fertilizer
1,110,800
864,300
-
Dicalcium phosphate (DCP)
147,300
113,900
-
Metrics relating to 2016 include results up to the date of disposal, September 30, 2016.
INDUSTRY OVERVIEW AND OUTLOOK
Global Markets
A Cautiously Positive Outlook
The world economy recovered slightly in 2017, providing the basis for a more positive outlook. According to the IMF, global GDP growth was 3.6% for 2017, moderately higher than its April forecast of 3.5%. The IMF has also increased its growth forecast slightly for 2018, from 3.6% to 3.7%.
Over the course of the year, there were broad-based upward revisions in the Eurozone, Japan, emerging Asia, emerging Europe and Russia – where growth outcomes in the first half were better than expected – more than offsetting downward revisions for the US and the UK. China continued to surprise on the upside, relative to commentators’ expectations, as a number of measures proved to be positive for the economy.
Commodity prices also fared well, with prices for the majority of Anglo American’s products performing better than the market had expected.
China’s Slowdown
While concerns continue to be raised around China and its economy, the authorities’ policy of gently moderating growth appears to be working. The IMF forecast growth rate for the country increased further to 6.8% in 2017 (2016: 6.7%), reflecting stronger economic growth in the first half of the year, as well as robust external demand for China’s products and services. The IMF’s growth forecast reflects a slower rebalancing of activity away from investment towards services and consumption, despite higher projected debt potentially limiting the scope for further fiscal stimulus. According to the IMF, if recent efforts to curb the expansion of credit are accelerated, this would help further to reduce the remaining risk of a sharp growth slowdown in China that would have adverse international repercussions.
China’s 19th Party Congress in October 2017 marked the start of the “New Era” for Xi Jinping and the Communist Party. By 2020, Beijing seems likely to prioritize financial deleveraging, poverty reduction and environmental protection, with less focus on economic growth targets. An exit from large-scale fiscal stimulus and a slowing housing market may add some downward economic pressure.
Global Political and Policy Environment
Growth in most of the advanced economies accelerated during the first half of 2017, relative to the second half of 2016, with both domestic and external demand contributing to the improved statistics. The US is estimated to have grown by 2.2% in the year, with Japan and South Korea by 1.5% and 3.0%, respectively. The Eurozone is expected to have expanded by 2.1%, with Germany, France and Italy having estimated growth rates of 2.1%, 1.6% and 1.5%, respectively. The one exception was the UK, where growth is estimated to have reduced to 1.7%.
The US faced significant policy uncertainty during 2017, associated with the Trump administration’s slow reform implementation and lags in the renegotiation of the North American Free Trade Agreement with Mexico and Canada.
In South Africa, the Mining Charter was gazetted. The Chamber of Mines brought an application to judicially review and set aside this latest Charter. The Chamber also sought to interdict the Minister of Mineral Resources from implementing the Charter, pending finalization of the review application. In order to avoid the hearing of the interdict application, the Minister gave a written undertaking that his department will not implement or apply the provisions of the Charter in any way, pending final resolution of the judicial review. More generally, in February 2018, there was a transition of power in the governing African National Congress from Jacob Zuma to Cyril Ramaphosa, the impact of which remains to be seen.
In India, the IMF economic growth projection for 2017 was revised down to 6.7% (2016: 7.1%), reflecting lingering disruptions associated with the currency exchange initiative introduced in November 2016, as well as transition costs related to the launch of the national Goods and Services Tax (GST) in July 2017. The GST promises the fiscal unification of India’s vast domestic market, and is among several reforms being implemented that may result in a more positive growth outlook.
COMMODITY REVIEW
Diamonds
Early signs are that global consumer demand for diamond jewelry registered positive growth in 2017 in US dollar terms, following a marginal increase in 2016. Sustained diamond jewelry demand growth in the US was once again the main contributor to this positive outcome. Demand for diamond jewelry by Chinese consumers grew marginally year-on-year, in local currency and US dollar terms. In contrast, consumer demand for diamonds softened in India and the Gulf states, both in local currency and dollar terms, while Japan’s consumer demand growth was flat in local currency and lower in dollars.
Diamond producers’ primary stocks are estimated to have reduced during the first half of 2017, as sentiment in the midstream improved and rough and polished inventories normalized for businesses in this segment of the value chain. However, as a result of US retailers tightly managing their inventories and the earlier timing of Diwali in India, there
was a slight seasonal build-up of polished inventory in the midstream going into the fourth quarter. Overall, early indications are that additional consumer marketing undertaken during the main selling season had a positive effect on polished demand in the US, China and India in the final quarter of the year, leading to a beneficial effect on overall polished inventories.
Base metals
Global refined copper consumption grew by 2% in 2017, with China, which now accounts for almost 48% of global refined demand, continuing to display robust demand growth (+3%), notably from the infrastructure, home appliance and machinery sectors.
Copper prices averaged 280 c/lb in 2017 (2016: 221 c/lb), reflecting a tighter market, as disruptions to supply during the first half of the year more than offset ramp-ups of new supply. This led to the first year-on-year decline in copper mine output since 2011. The tight market, coupled with renewed investor confidence, saw prices surge in the fourth quarter, reaching US$7,000/tonne for the first time in three years. The higher average prices also brought greater scrap volumes to the market, helping to offset some of the primary supply shortfall.
Nickel demand increased by 5%, driven primarily by increases in global stainless steel output, which rose by 6% year-on-year. On the supply side, threatened mine closures in the Philippines had less of an impact on ore supply than was initially expected, while a partial lifting of a ban on ore exports from Indonesia, together with a ramp-up of new Indonesian nickel pig iron production, saw refined production recover some of the losses seen during 2015 and 2016. This was not enough, however, to prevent an overall deficit in the refined nickel market, which helped to lift prices to an average of 472 c/lb, 8% higher than in 2016.
Overall, the nickel market saw a second consecutive year of deficit, though LME stocks remained at high levels. Looking ahead, demand for nickel may experience a potentially significant boost from batteries for electric vehicles, which is expected to keep the nickel industry in focus over the years ahead.
Precious metals
Primary platinum supply in 2017 declined by 2%, owing mainly to lower Russian shipments, as sales from inventory and output from alluvial deposits declined. In South Africa, supply remained relatively flat, despite processing facility issues experienced by some in the industry. The modest decline in primary platinum supply was, to a large extent, offset by increased secondary supply (+3%) as autocatalyst recycling increased to record levels.
Gross platinum demand declined by 5%, mainly as a result of a steep decline (-14%) in platinum demand from Chinese jewelry manufacturers and Japanese investment bar sales returning to more normal levels. Autocatalyst demand remained robust, with increased light-duty diesel vehicle production outside Europe and higher demand from the heavy-duty diesel sector offsetting the decline of light-duty diesel vehicle production within Europe. Demand from the industrial sector reached record levels (+7%), with the electrical (+12%), glass (+24%) and petroleum (+13%) demand segments experiencing double digit growth.
Average platinum prices were 4% lower as the market moved into surplus, owing to lower gross platinum demand and increased secondary supply, despite the modest decline in primary production.
Primary palladium supply declined by 2%, reflecting lower shipments from Russia. In contrast, secondary supply increased strongly (+17%). Outflows from exchange traded funds continued in 2017 and, over the past three years, more than 1.5 million ounces of metal has returned to the market, providing much needed market liquidity in a time of strong autocatalyst demand. Palladium autocatalyst demand reached new highs and grew 6% year-on-year, with the strongest growth occurring in North America, as new emissions legislation resulted in higher loadings and with China also posting significant gains. In the industrial sector, growth in demand from the chemicals sector more than offset declines in demand in both the electrical and dental sectors.
While all palladium supply rose by 3%, gross demand was 10% higher than in the prior year, resulting in the market remaining in deficit. The persistent market deficits of the past six years have had a significant impact on the palladium market, with the price trading at around US$1,000/ounce by the end of 2017, at a premium to platinum for the first time in 16 years and averaging 42% higher than in 2016.
In the near future, platinum markets are expected to remain balanced, with limited potential for demand growth or upside for mine output from South Africa or elsewhere. Palladium is expected to remain in deficit for the foreseeable future as gasoline engine automotive demand continues its upward trend, with limited opportunity for an increase in primary production. With palladium trading above platinum, it is becoming more likely that platinum is substituted back into gasoline autocatalysts. The timing and extent of such a move remains uncertain, but is not expected in the short term owing to practical and regulatory hurdles.
Bulk commodities
Global steel demand is estimated to have increased by around 2% in 2017, supported by healthy demand conditions in a number of markets. In China, consumption remained robust, rising by an estimated 2-3%, driven by an extended upswing in the property cycle and continued growth in infrastructure investment. The government’s crackdown on polluting and inefficient industry has eliminated an estimated 120 Mt of basic oxygen furnace (BOF) and electric arc furnace (EAF) capacity and all illegal induction furnace capacity, over the past three years.
These reforms, as well as additional seasonal closures over winter, sharply increased profit margins, encouraging the remaining BOF and EAF producers to increase productivity through the use of higher-quality raw materials and higher scrap rates.
Such changes also reduced China’s ability to maintain exports at the record levels of recent years, allowing other regions to increase their exports. In 2017, crude steel output, excluding China, rose by an estimated 5%, or 40 Mt, much of this growth being supported by scrap and direct-reduced iron-based steel production from the US, Turkey, Iran, India and Vietnam.
Iron ore prices fared significantly better than in 2016, with the CFR China 62% Fe benchmark averaging US$71/dmt (2016: US$58/dmt), though with significant volatility throughout the year. On the supply side, the net addition of around 40 Mt of low-cost Australian and Brazilian iron ore displaced both higher-cost seaborne and domestic Chinese supply. Grade-related price spreads widened significantly as steelmakers preferred high-grade iron ore as they focused on increased productivity owing to high costs of coking coal, high steelmaking margins and environmental restrictions.
The metallurgical coal market experienced another year of supply tightness and pronounced price volatility. The focus on safety in the Chinese domestic coal sector – and accompanying shutdowns – continued into 2017, while structural reforms, which aim to eliminate excess capacity and restore sector profitability, remain on track. Meanwhile, Australian export volumes were disrupted by a series of events, including cyclone Debbie, mine shutdowns and port queues. Chinese and Australian disruptions have necessitated increased supply from other regions to fill the gap, including from the US, Mozambique, Indonesia and Mongolia. As with iron ore, price differentials between higher- and lower-grade coals have widened, reflecting steelmakers’ drive for productivity, as well as relative tightness at the premium end of the market.
The thermal coal market also saw the positive price effects of the Chinese domestic market rationalization, which supported both coal imports into China and the seaborne price. On the supply side, Australia was stable, while Indonesia was constrained by mining issues arising from ongoing wet weather. The Atlantic region saw coal prices supported by higher electricity prices (partly driven by nuclear outages in France).
OUTLOOK
Although commodity markets and prices are becoming more positive, the sustainability of certain commodities’ very positive recent performance remains uncertain, with risks to the Asian demand outlook in particular. Demand for niche-grade materials is starting to provide an opportunity for some commodity producers, which may persist for some time. However, as supply struggles to either catch up with demand growth, or adjust downwards in line with any reduction in demand, it is likely that there will be ongoing commodity price volatility that reflects the normal dynamics of the industry.
SELECTED FINANCIAL INFORMATION
The selected financial information for the Group set forth below as at or for the years ended December 31, 2017, 2016 and 2015 has been derived from, and should be read in conjunction with, the Group 2017 Consolidated Financial Statements, the Group 2016 Consolidated Financial Statements and the Group 2015 Consolidated Financial Statements and notes thereto prepared in accordance with IFRS and incorporated by reference herein.
You should regard the selected financial data below only as an introduction and should base your investment decision on a review of this entire document, including the sections entitled “Operating and Financial Review” and “Non-IFRS Financial Measures”. The disclosures in this section include certain Alternative Performance Measures (“APMs”). For more information on the APMs please see “Presentation of Financial Information”.
As at or for
the year-ended
December 31,
2015
As at or for
the year-ended
December 31,
2016
As at or for
the year-ended
December 31,
2017
(US$m unless otherwise stated)
Income statement measures
Revenue
20,455
21,378
26,243
Group Revenue (including attributable share of associates’ and joint ventures’ revenue)(1)
23,003
23,142
28,650
Operating profit before special items and remeasurement
2,038
3,331
5,242
Underlying EBIT(1)(2)
2,223
3,766
6,247
Underlying EBITDA(1)
4,854
6,075
8,823
Profit/(loss) for the financial period
(5,842)
1,926
4,059
Underlying earnings(1)
827
2,210
3,272
Earnings/(loss) per share (US$)
Basic
(4.36)
1.24
2,48
Diluted
(4.36)
1.23
2.45
Dividends per share (US cents)(3)
Ordinary
32.0
0.0
102.0
Balance sheet measures
Total assets
52,013
50,149
54,561
Medium and long-term borrowings
(16,318)
(11,363)
(10,620)
Net debt(1)
(12,901)
(8,487)
(4,501)
Cash flow measures
Net cash inflows from operating activities
3,977
5,399
8,049
Net cash used in investing activities
(2,614)
(525)
(1,947)
Net cash inflows / (used in) from financing activities
(947)
(5,780)
(4,553)
Definitions are set out in “Non-IFRS Financial Measures”.
The reconciliation from underlying EBIT to underlying EBITDA is as follows:
As at or for
the year-ended
December 31,
2015
As at or for
the year-ended
December 31,
2016
As at or for
the year-ended
December 31,
2017
(US$m unless otherwise stated)
Income statement measures
Underlying EBIT
2,223
3,766
6,247
Depreciation and amortization (including associates and joint ventures)
2,631
2,309
2,576
Underlying EBITDA
4,854
6,075
8,823
Year-end dividends proposed in respect of the applicable year-ended December 31.
OPERATING AND FINANCIAL REVIEW
This “Operating and Financial Review” section is intended to convey management’s perspective on the Group’s operational performance and its financial performance as measured in accordance with IFRS. We intend this disclosure to assist investors in understanding and interpreting the financial statements incorporated by reference in this document. This section is based on and should be read in conjunction with the Group 2017 Consolidated Financial Statements, the Group 2016 Consolidated Financial Statements and the Group 2015 Consolidated Financial Statements, which are incorporated by reference into this document, as well as the “Presentation of Financial Information” section. In this analysis, all references to “2017” are to the year ended December 31, 2017, all references to “Q1 2017” are to the three months ended March 31, 2017, all references to 2016 or the “prior year” are to the year ended December 31, 2016 and all references to “2015” are to the year ended December 31, 2015.
The following discussion also contains trend information and forwardlooking statements. Actual results could differ materially from those discussed in these forwardlooking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this document, particularly under “ForwardLooking Statements” and “Risk Factors”.
We make reference herein to certain non-IFRS financial information that is explained in “Non-IFRS Financial Measures”.
Overview
The Group’s underlying earnings in 2017, 2016 and 2015 were US$3,272, US$2,210 million and US$827 million, respectively.
The 48% increase from 2016 to 2017 was primarily due to strong bulk commodity and copper prices, US$1.1 billion of volume and cash cost improvements across the Group, driven by the ongoing ramp-up of Minas-Rio and strong sales volumes at De Beers in Q1 2017. Kumba’s increased fleet efficiency and higher plant yields, as well as Platinum’s solid recovery from the operational challenges experienced in 2016, also contributed to the Group volume improvement. The impact of the Group’s ongoing cost-efficiency program played a significant role in exceeding the improvement target for the year. These were partially offset by:
Stronger producer currencies, mainly owing to a 9% strengthening of the South African rand; and
Inflationary cost increases, principally influenced by South Africa, which had local CPI of 5%.
The 167% increase from 2015 to 2016 was primarily due to Metallurgical coal and Kumba’s average realized iron ore prices increasing by 24% and 21%, respectively, weaker producer country currencies (US$0.7 billion earnings impact including from a 15% weakening of the South African rand against the dollar), higher sales volumes at De Beers (following a weak 2015), ramp-up at Grosvenor following the start of commercial production during the third quarter of 2016 and a strong plant performance at Collahuasi. These were partially offset by:
10% decrease in the average realized rough diamond price;
8% decrease in the platinum US dollar basket price;
Lower volumes at Kumba Iron Ore following the pit reconfiguration at Sishen; and
Lower volumes at Los Bronces owing to expected lower grades and the adverse weather conditions during the year.
The reconciliation of profit for the financial period to underlying earnings is set out below:
Year-ended December 31,
2015
2016
2017
(US$m)
Profit/(loss) for the financial period
(5,842)
1,926
4,059
Non-controlling interests
218
(332)
(893)
Profit/(loss) for the financial period attributable to equity shareholders of the Company
(5,624)
1,594
3,166
Operating special items
5,972
1,632
(382)
Operating remeasurements
178
33
95
Non-operating special items
1,278
(1,203)
5
Financing special items and remeasurements
(615)
314
113
Special items and remeasurements tax
(47)
(44)
122
Non-controlling interests on special items and remeasurements
(584)
(109)
145
Share of associates’ and joint ventures’ special items and remeasurements
269
(7)
8
Underlying earnings
827
2,210
3,272
The Group’s profit/(loss) attributable to equity shareholders for 2017, 2016 and 2015 was US$3,166, US$1,594 million and US$(5,624) million, respectively.
The US$1,572 million increase from 2016 to 2017 was principally due to strong commodity prices, particularly in bulk commodities and copper, continued productivity improvements and cost control across the portfolio. This was in addition to the decrease in the net special items and remeasurements expense, which in 2017 included impairment reversals at Sishen and El Soldado.
The US$7,218 million increase from 2015 to 2016 was principally due to a reduction in impairment charges of US$3.5 billion, gain from disposal of businesses and investments compared with losses on disposal in the prior year (net impact of US$2.1 billion) and net impact from financial special items and remeasurements of US$1 billion (principally driven by movements on derivatives hedging net debt and from bond buybacks completed in 2016).
The 124% increase in loss from 2014 to 2015 was principally due to increased impairments, additional write down to fair value of mines and increased loss on disposal of US$1.6 billion before tax, US$0.7 billion before tax and US$0.4 billion before tax respectively. This was in addition to falling commodity prices from 2014 to 2015.
Factors Affecting Results of Operations
The Group’s results of operations and period-to-period comparability of its financial results are affected by a number of factors, including changes in commodity prices and exchange rates, production levels, cost pressures, acquisitions, divestments and accounting standards.
Commodity Prices
The table below sets forth the average market prices for certain of our key commodities for the periods presented:
Year-ended December 31,
2015
2016
2017
Average prices for the period
Copper (US cents/lb)(1)
249
221
280
Platinum (US$/oz)(2)
1,051
989
950
Palladium (US$/oz)(2)
691
615
871
Rhodium (US$/oz)(3)
932
681
1,097
Iron ore (62% Fe CFR) (US$/tonne)(4)
56
58
71
Iron ore (66% Fe Concentrate CFR) (US$/tonne)(5)
67
69
87
Hard coking coal (FOB Australia) (US$/tonne)(8)
87
143
188
PCI (FOB Australia)(8)
74
97
119
Thermal coal (FOB South Africa) (US$/tonne)(6)
57
64
84
Thermal coal (FOB Australia) (US$/tonne)(7)
59
66
89
Thermal coal (FOB Colombia) (US$/tonne)(6)
52
58
78
Nickel (US cents/lb) (1)
536
436
472
Source: London Metal Exchange (LME).
Source: London Platinum and Palladium Market (LPPM).
Source: Comdaq.
Source: Platts.
Source: Metal Bulletin.
Source: Argus/McCloskey.
Source: globalCOAL.
Represents average spot prices for the period.
For further discussion on contributing factors to changes in commodity prices, see “Industry Overview and Outlook—Commodity and Diamond Markets”.
Set forth below is the impact on 2017 underlying earnings of a 10% fluctuation in the prices for certain of the Group’s key commodities. These sensitivities reflect movement of an individual commodity price in isolation and are offered for illustrative purposes. In reality the combination of movements in commodity prices, exchange rates and interest rates will result in a different outcome.
Year ended December 31, 2017
10%
sensitivity
(US$m)(3)
Iron ore(1)
+/-212
Hard Coking coal
+/- 176
Thermal coal
+/- 112
Copper(2)
+/- 162
Nickel
+/- 19
Platinum
+/- 92
Sensitivity reflects the impact of a 10% change in the average price across lump and fine.
Sensitivity excludes the impact of provisionally priced copper.
Stated after tax at marginal rate. Sensitivities are the average of the positive and negative and reflect the impact of a 10% change in the average prices achieved during 2017. Increases in commodity prices increase underlying earnings and vice versa.
Average market prices for the Group’s basket of commodities and products increased by 16% from 2016 to 2017, contributing US$2.4 billion of improvement to underlying EBIT. The realized prices of metallurgical coal and copper increased by 57% and 29% respectively, while palladium (Platinum) showed a 44% improvement in realized price. The average realized price of diamonds decreased by 13%, mainly owing to a lower-value mix, with the average rough price index being 3% higher.
On average, realized prices in 2016 were comparable with 2015 (US$(0.1) billion underlying EBIT impact). Metallurgical coal and Kumba’s iron ore prices increased by 24% and 21%, respectively, but were offset by a 10% decrease in the average realized rough diamond price and an 8% decrease in the platinum US dollar basket price.
The table below sets forth the spot market prices for certain of our key commodities at period end:
At December 31,
Period end prices
2015
2016
2017
Copper (US cents/lb)(1)
213
250
325
Platinum (US$/oz)(2)
868
898
925
Palladium (US$/oz)(2)
555
670
1,057
Rhodium (US$/oz)(3)
644
758
1,700
Iron ore (62% Fe CFR) (US$/tonne)(4)
43
80
74
Iron ore (66% Fe Concentrate CFR) (US$/tonne)(5)
46
101
96
Hard coking coal (FOB Australia) (US$/tonne)(4)
89
230
262
PCI (FOB Australia)(4)
71
112
147
Thermal coal (FOB South Africa) (US$/tonne)(6)
49
86
95
Thermal coal (FOB Australia) (US$/tonne)(7)
50
94
104
Thermal coal (FOB Colombia) (US$/tonne)(6)
45
94
86
Nickel (US cents/lb)(1)
393
454
556
Source: London Metal Exchange (LME).
Source: London Platinum and Palladium Market (LPPM).
Source: Comdaq.
Source: Platts.
Source: Metal Bulletin.
Source: Argus/McCloskey.
Source: globalCOAL.
The Group’s policy is generally not to hedge exposure to commodity prices. This is discussed further under “—Financial Risk Exposure and Management”.
Exchange Rates
The Group’s results are influenced by a variety of currencies (the most important of which are listed in the table below) owing to its geographical diversity and because we sell our products principally in US dollars but incur most of our costs in local currencies.
The table below sets forth the average exchange rates for certain of our key currencies with respect to the US dollar for the periods presented. The average exchange rate has been determined using the end of day Bloomberg rates averaged for the year.
Year-ended December 31,
2015
2016
2017
Average spot prices for the period
(per US dollar)
South African rand
12.78
14.70
13.31
Brazilian real
3.34
3.48
3.19
British pound
0.65
0.74
0.78
Australian dollar
1.33
1.34
1.30
Euro
0.90
0.90
0.89
Chilean peso
655
676
649
Botswanan pula
10.12
10.89
10.34
Closing spot prices
South African rand
15.47
13.73
12.31
Brazilian real
3.96
3.25
3.31
British pound
0.68
0.81
0.74
Australian dollar
1.37
1.38
1.28
Euro
0.92
0.95
0.83
Chilean peso
709
667
615
Botswanan pula
11.25
10.69
9.85
Set forth below is the impact for 2017 underlying earnings of the Group of a 10% fluctuation in certain exchange rates. These sensitivities reflect movement of an individual exchange rate in isolation and are offered for illustrative purposes. In reality, the combination of movements in commodity prices, exchange rates and interest rates will result in a different outcome.
Year ended December 31, 2017
10%
sensitivity
(US$m)(1)
South African rand/US dollar(2)
+/- 259
Australian dollar/US dollar(2)
+/- 129
Chilean peso/US dollar(2)
+/- 27
Brazilian real/US dollar(2)
+/- 62
Excludes the effect of any hedging activities. Stated after tax at marginal rate.
A strengthening of the South African rand, Australian dollar, Chilean peso and Brazilian real relative to the US dollar reduces underlying earnings and vice versa.
In 2017, stronger producer country currencies had the effect of reducing underlying EBIT by $0.7 billion, mainly owing to a 9% strengthening of the South African rand and a 4% strengthening of the Chilean peso against the US dollar.
Underlying EBIT in 2016 was positively impacted by fluctuations in foreign exchange rates (US$0.7 billion), principally due to a 15% weakening of the South African rand against the US dollar.
Input Costs and Effects of Inflation
The mining industry continues to experience price inflation for costs of inputs used in production, which leads to higher production costs reported by many mining companies, including the Group which has experienced generally higher production costs across its operations.
Commodity prices are determined principally by international markets and global supply and demand and the Group is unable to control the prices at which it sells the commodities it produces. Accordingly, in the event of significant inflation in input costs, particularly labor and power costs, without a concurrent devaluation of the local currency or an increase in commodity prices, there could be a material adverse effect on the Company’s results of operations and financial condition.
Divestments
We have undertaken a number of significant transactions since the beginning of 2015, including several that were entered into for the purpose of actively restructuring the Group in order to improve our portfolio and strengthen our financial position. For an overview of significant transactions and restructuring, see “Overview—The Anglo American Group—Significant Transactions and Restructuring”.
The transformation of our portfolio is well advanced, moving from 68 assets in 2013 to 36 at the end of December 2017. We will continue to refine and upgrade our asset portfolio on an ongoing basis in order to ensure that our capital is deployed effectively to generate enhanced returns for our shareholders. We have started to see the benefits of our own cost and productivity improvements with prices also firming for a majority of our products, which together with the successful divestment of coal and platinum assets, in addition to the niobium and phosphates business, has resulted in less pressure to divest further major assets to strengthen our financial position. For further discussion of major divestment transactions, see “Business Description—Strategy”. The table below summarizes the key divestments.
Operation
Segment
Date
Further information (including proceeds)
Lafarge Tarmac
Corporate and Other
July 17, 2015
Business Description—Corporate and Other—Tarmac disposal
Anglo American Norte S.A.
Copper
September 11, 2015
Business Description—Copper—AA Norte S.A. disposal
Kimberley
De Beers
January 21, 2016
Business Description—De Beers—Significant Transactions and Restructuring— Disposal of Kimberley mines
Morupule
De Beers
August, 2016
Business Description—De Beers—Significant Transactions and Restructuring— Disposal of interest in Morupule
Foxleigh
Coal
August 29, 2016
Business Description—Coal—Significant Transactions and Restructuring—Foxleigh disposal
Niobium and Phosphates businesses
Niobium and Phosphates
September 30, 2016
Business Description—Corporate and Other—Significant Transactions and Restructuring—Disposal of Niobium and Phosphates businesses
Callide
Coal
October 31, 2016
Business Description—Coal— Significant Transactions and Restructuring—Callide disposal
Rustenburg mining and concentration operations
Platinum
November 1, 2016
Business Description—Platinum—Significant Transactions and Restructuring—Disposal of Rustenburg
Exxaro Resources Ltd
Corporate and Other
December 1, 2016
Business Description—Corporate and Other— Significant Transactions and Restructuring—Disposal of Exxaro shareholding
Dartbrook
Coal
May 29, 2017
Business Description—Coal—Significant Transactions and Restructuring—Disposal Dartbrook
Union Mine
Platinum
February 1, 2018
Business Description—Platinum—Significant Transactions and Restructuring—Disposal Union
New Largo
Coal
February 19, 2018
Business Description—Coal—Significant Transactions and Restructuring—Disposal New Largo
Drayton
Coal
February 26, 2018
Business Description—Coal—Significant Transactions and Restructuring—Disposal of Drayton mine
Eskom-tied domestic coal operations
Coal
March 1, 2018
Business Description—Coal—Significant Transactions and Restructuring—Disposal Eskom-tied domestic thermal coal operations
Results Of Operations for the Years Ended December 31, 2015, 2016 and 2017
The table below summarizes the Group’s income statement and certain other measures for the periods indicated and should be read in conjunction with, and is qualified in its entirety by reference to, the Group 2017 Consolidated Financial Statements, the Group 2016 Consolidated Financial Statements and Group 2015 Consolidated Financial Statements and notes thereto, which are incorporated by reference into this document.
Year-ended
December 31,
2015
Year-ended
December 31,
2016
Year-ended
December 31,
2017
(US$m)
Income statement
Revenue
20,455
21,378
26,243
Total operating costs before special items and remeasurements
(18,417)
(18,047)
(21,001)
EBIT from subsidiaries and joint operations before special items and remeasurements
2,038
3,331
5,242
Operating special items
(5,972)
(1,632)
382
Operating remeasurements
(178)
(33)
(95)
EBIT from subsidiaries and joint operations
(4,112)
1,666
5,529
Non-operating special items
(1,278)
1,203
(5)
Share of net income from associates and joint ventures(1)
(221)
278
567
Total profit/(loss) from operations and associates
(5,611)
3,147
6,091
Net finance costs before financing special items and remeasurements
(458)
(209)
(473)
Financing special items and remeasurements
615
(314)
(113)
Profit/(loss) before tax
(5,454)
2,624
5,505
Income tax expense
(388)
(698)
(1,446)
Profit/(loss) for the financial year
(5,842)
1,926
4,059
Underlying EBIT
2,223
3,766
6,247
Underlying earnings
827
2,210
3,272
Dividends per share (US cents)(2)
Ordinary
32.0
0.0
102.0
Balance sheet
Total assets
52,013
50,149
54,561
Net assets
21,342
24,325
28,882
Total share capital
5,130
5,130
5,130
Net debt
(12,901)
(8,487)
(4,501)
Associates’ EBIT is reconciled to “Share of net income from associates and joint ventures” as follows:
Revenue
2,548
1,764
2,407
Operating costs (before special items and remeasurements)
(2,363)
(1,329)
(1,402)
Associates’ and joint ventures’ underlying EBIT
185
435
1,005
Net finance costs
(40)
(44)
(53)
Income tax expense
(100)
(123)
(373)
Non-controlling interests
3
3
(2)
Share of net income from associates and joint ventures (before special items and remeasurements)
48
271
577
Special items and remeasurements
(226)
1
(12)
Special items and remeasurements tax
(43)
6
2
Share of net (loss)/income from associates and joint ventures
(221)
278
567
Interim and year-end dividends proposed in respect of the applicable year-ended December 31.
Revenue
Revenue for 2017, 2016 and 2015 was US$26,243 million, US$21,378 million and US$20,455 million, respectively. The 23% increase in revenue from 2016 to 2017 was principally driven by strong bulk commodity and copper prices, the on-going ramp-up of Minas-Rio, strong sales volumes at De Beers in Q1 2017 and 6% higher total sales volumes at Kumba Iron Ore. This was offset by stronger producer currencies, a 13% decrease in the average realized price of diamonds owing to a lower-value mix and the disposal of our Niobium and Phosphates business during 2016.
The 5% increase in revenue from 2015 to 2016 was principally driven by increases in coking coal and iron ore prices by 24% and 21% respectively, weaker producer country currencies, higher sales volumes at De Beers, the ramp-up at Grosvenor and a strong plant performance at Collahuasi. This was offset by a 10% decrease in the average realized rough diamond price an 8% decrease in the platinum US dollar basket price, expected lower volumes at Kumba following the pit reconfiguration at Sishen and lower volumes at Los Bronces owing to expected lower grades and the adverse weather conditions during 2016.
Total Operating Costs
Total operating costs before operating special items and remeasurements for 2017, 2016 and 2015 were US$21,001 million, US$18,047 million and US$18,417 million, respectively. The 16% increase in operating costs from 2016 to 2017 was driven by higher volumes and stronger producer currencies, mainly owing to a 9% strengthening of the South African rand and a 4% strengthening of the Chilean peso against the US dollar, combined with inflationary cost increases averaging 4% across the Group, partially offset by the numerous cost-saving initiatives being implemented across the Group.
The 2% decrease in operating costs from 2015 to 2016 was principally due to the divestments during 2016 along with the consequence of cost-reduction initiatives and the benefits of weaker producer country currencies.
Operating Special Items and Remeasurements
Operating special items in 2017, 2016 and 2015 amounted to US$382 million gain, a US$1,632 million loss and a US$5,972 million loss, respectively, and operating remeasurements were losses of US$95 million, US$33 million, US$178 million, respectively.
The operating special items gain in 2017 of US$382 million principally consists of net impairment related credits of US$442 million (principally the impairment reversals of Sishen and El Soldado operations by US$468 million and US$194 million respectively, a restructuring costs credit of US$31 million relating to the release of previously recognized provisions relating to the closure of the Brisbane corporate office, following the decision to continue metallurgical coal operations in Australia, partially offset by an impairment of the investment in Bafokeng-Rasimone Platinum Mine (BRPM) of US$147 million, an impairment of other assets within the Coal segment of US$61 million (see “—Coal”) and a loss of US$91 million related to the cost to the Group of an arbitration settlement relating to a commercial dispute arising during the construction of the Barro Alto Nickel project (see “—Nickel”).
The operating special items loss in 2016 of US$1,632 million principally consists of impairment related charges of US$1,512 million , related to the impairment of Moranbah and Grosvenor operations by US$1,248 million (see “—Coal”), an impairment charge of US$200 million for El Soldado due to licensing uncertainty (see “—Copper”), other assets within the Coal segment of US$64 million (see “—Coal”) and a charge of US$120 million relating to restructuring costs, principally to organizational changes as part of the Driving Value program.
The operating special items loss in 2015 of US$5,972 million consists of impairment related charges of US$5,824 million, principally the impairment of Minas-Rio by US$2,503 million (see “—Iron Ore and Manganese”), the impairment of Peace River Coal and other assets within the Coal segment of US$1,218 million (see “—Coal”), assets and investments in the Platinum business of US$720 million (see “—Platinum”); and the Snap Lake operation being placed on care and maintenance within the De Beers business of US$595 million (see “—De Beers”).
Non-Operating Special Items
Non-operating special items in 2017, 2016 and 2015 amounted to a US$5 million loss, a US$1,203 million gain and a US$1,278 million loss, respectively.
The 2017 non-operating special items include an impairment of US$197 million to the Union Platinum mine, bringing its fair value into line with its fair value less costs of disposal following the agreement to sell the operation, partially offset by a gain on disposal of US$82 million on disposal of long-dated resources in Platinum, a gain of US$76 million on disposal of Dartbrook (Coal), and a gain of US$43 million on disposal of the group’s 11.18% interest in Dreamvision Investments 15 Proprietary Limited (equivalent to a 2.28% holding in Exxaro), which formed part of the unwinding of Exxaro Resources Limited’s original BEE transaction. Non-operating special items further included adjustments relating to business combinations amounting to a gain of US$59 million, principally in respect of the acquisition of the remaining 50% share in De Beers Jewellers, and adjustments relating to former operations amounting to a net charge of US$84 million, principally comprising a provision for settlement of class action claims.
The 2016 non-operating special items include a US$1,157 million gain on disposal of businesses and investments (principally comprising net gains on disposal of subsidiaries and joint operations of US$977 million, which relate to the disposals of Callide (gain of US$564 million), Niobium and Phosphates (gain of US$460 million), Rustenburg (loss of US$121 million), Foxleigh (gain of US$42 million), Morupule (gain of US$32 million) and net gain of US$180 million realized on the disposal of the Group’s 9.7% interest in Exxaro Resources Limited), adjustments relating to the fair value on acquisition of De Beers in 2012 of US$121 million and BEE transaction charges of US$63 million.
The 2015 non-operating special items include a US$728 million charge for the write-down to fair value of the Rustenburg Platinum mine. In addition it includes the loss on disposals of the Anglo American Norte S.A. and Tarmac businesses (see “Divestments”) of US$287 million and US$172 million, respectively.
Share of Net Income from Associates and Joint Ventures
Our share of net income from associates and joint ventures in 2017, 2016 and 2015 was US$567 million income, US$278 million income and US$221 million loss, respectively.
The US$289 million increase from 2016 to 2017 was principally due to a US$141 million increase in joint venture income, principally driven by higher earnings from Samancor Holdings (see “—Iron Ore and Manganese”) and US$148 million increase in associates income, principally driven by Cerrejón change in contribution (see “—Coal”).
The US$499 million increase from 2015 to 2016 was principally due to a US$365 million increase in joint venture income, principally driven by Samancor Holdings change in contribution and US$134 million increase in associates income, principally driven by Cerrejón change in contribution.
Net Finance Costs before Financing Special Items and Remeasurements
Net finance costs before financing special items and remeasurements in 2017, 2016 and 2015 were US$473 million, US$209 million and US$458 million, respectively.
The increase from 2016 to 2017 of US$264 million was principally driven by the cessation of capitalization of borrowing costs associated with Minas-Rio and Grosvenor, leading to a reduction in interest costs capitalized.
The decrease from 2015 to 2016 was principally due to a net foreign exchange gain on cash and borrowings of US$84 million (2015: US$180 million loss) principally due to the strengthening of the Brazilian real and South African rand during 2016.
Financing Special Items and Remeasurements
Financing special items and remeasurements in 2017, 2016 and 2015 were a US$113 million loss, US$314 million loss and US$615 million gain, respectively.
Financing special items and remeasurements in 2017 principally comprise a loss arising on bond buybacks of US$95 million and a net fair value loss of US$14 million on derivatives hedging net debt.
Income Tax Expense before Special Items and Remeasurements
Income tax expense before special items and remeasurements in 2017, 2016 and 2015 was US$1,324 million, US$742 million and US$435 million, respectively. Income tax expense is a function of profit before tax and the tax rates applicable in the various geographic locations in which the Group operates.
The effective rate of tax, before special items and remeasurements (including share of associates’ tax before special items and remeasurements), in 2017, 2016 and 2015 was 29.7%, 24.6% and 31.0%, respectively.
The increase in underlying effective tax rate from 2016 to 2017 was principally due to the reassessment of withholding tax provisions primarily in relation to Chile and South Africa and the impact of the relative levels of profits arising in the Group’s operating jurisdictions partially offset by the impact of a benefit received in relation to the reassessment of deferred tax balances primarily in Australia and Brazil.
The decrease in underlying effective tax rate from 2015 to 2016 was principally due to the impact of a benefit received in relation to the reassessment of withholding tax provisions, utilization of losses and similar tax attributes, partially offset by the impact of enhanced tax depreciation and other prior year adjustments.
Associates’ and joint ventures’ tax included within Net income from associates and joint ventures for the year ended 31 December 2017 is a charge of US$371 million (2016: charge of US$117 million). Excluding special items and remeasurements, this becomes a charge of US$373 million (2016: charge of US$123 million).
The table below summarizes the Group’s tax expense before special items and remeasurements for the periods indicated.
Year-ended December 31, 2015
Year-ended December 31, 2016
Year-ended December 31, 2017
Before
special items and
remeasure-ments
Associates’
tax and
non-
controlling
interests
Including
associates
Before
special items and
remeasur
ements
Associates’ and joint ventures’
tax and
non-
controlling
interests
Including
associates
Before
special items and
remeasure
ments
Associates’ and joint ventures’
tax and
non-
controlling
interests
Including
associates
(US$m)
Profit before tax
1,628
97
1,725
3,393
120
3,513
5,346
375
5,721
Tax
(435)
(100)
(535)
(742)
(123)
(865)
(1,324)
(373)
(1,697)
Profit for the financial year
1,193
(3)
1,190
2,651
(3)
2,648
4,022
2
4,024
Effective tax rate including associates
31.0%
24.6%
29.7%
Income Tax Expense – Special Items and Remeasurements
For 2017, tax on special items and remeasurements includes a tax remeasurement charge of US$34 million (2016: credit of US$74 million) principally arising on Brazilian deferred tax assets. Of the total tax charge of US$122 million, there is a net current tax charge of US$1 million (2016: charge of US$129 million) and a net deferred tax charge of US$121 million (2016: credit of US$173 million).
Profit/(Loss) for the Financial Year
Profit/(loss) for the financial years 2017, 2016 and 2015 was US$4,059 million, US$1,926 million and US$(5,842) million, respectively. The year on year movements are explained by reference to the movements of the component parts which are discussed above.
Business Segment Discussion — Full-Year December 31, 2017, 2016 and 2015
In this section, Group revenue and underlying EBIT include the Group’s share of revenue and EBIT from associates and joint ventures and excludes special items and remeasurements, unless otherwise stated. Capital expenditure relates to cash expenditure on property, plant and equipment in the year presented.
The table below sets forth the Group’s underlying EBIT by business segment for the years presented:
Year-ended December 31, 2015
%
Year-ended December 31, 2016
%
Year-ended December 31, 2017
%
(US$m unless otherwise stated)
De Beers
571
25.7
1,019
27.1
873
14.0
Copper
228
10.3
261
6.9
923
14.8
Platinum
263
11.8
185
4.9
512
8.2
Iron Ore and Manganese(1)
671
30.2
1,275
33.8
1,978
31.7
Coal
457
20.6
1,112
29.6
2,274
36.4
Nickel
(22)
(1.0)
(15)
(0.4)
-
-
Corporate and Other(2)
55
2.5
(71)
(1.9)
(313)
(5.0)
The Group’s segments are aligned to those business units that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Kumba Iron Ore, Iron Ore Brazil and Samancor business units have been aggregated as the “Iron Ore and Manganese” segment on the basis of the ultimate product produced (ferrous metals).
The “Corporate and Other” segment includes unallocated corporate costs, exploration costs and the Other Mining and Industrial business unit (the majority of whose remaining interests in operations was disposed of in the year ended December 31, 2015) and the Niobium and Phosphates business unit (sold on September 30, 2016). Exploration costs represent the cost of the Group’s exploration activities across all segments. Comparative information for “Corporate and Other” has been restated to include the Niobium and Phosphates business unit, which was previously disclosed separately.
De Beers
The following table summarizes the results of operations of De Beers for the years indicated:
Year-ended December 31,
2015
2016
2017
(US$m unless otherwise stated)
Group Revenue (including attributable share of associates’ and joint ventures’ revenue)
4,671
6,068
5,841
Underlying EBIT
571
1,019
873
Underlying EBITDA
990
1,406
1,435
Capital employed
8,642
8,725
9,294
Capital expenditure(1)
697
526
273
Share of Group EBIT
26%
27%
14%
Share of Group capital employed
26%
27%
28%
Total production (thousand carats) – 100% basis(2)
28,692
27,339
33,454
Capital expenditure is defined as cash expenditure on property, plant and equipment, including related derivatives, and is presented net of proceeds from disposal of property, plant and equipment and includes direct funding for capital expenditure from non-controlling interests in order to match more closely the way in which it is managed.
Except for Gahcho Kué, from which the Group’s 51% attributable share is included.
The Group’s share of underlying EBIT from De Beers in 2017, 2016 and 2015 was US$873 million, US$1,019 million and US$571 million respectively.
De Beers’ underlying EBIT in 2017 reduced by 14% compared with 2016 with lower revenue following the one-off industry midstream restocking in 2016, unfavorable exchange rates, increased waste mining expense at Venetia and higher depreciation and amortization. This was partly offset by improved margins, which benefited from lower unit costs (supported by higher production and efficiency drives across the business), a strong contribution from Canada (driven by Gahcho Kué’s ramp-up and the placing of Snap Lake onto care and maintenance ahead of closure and reclamation) and Element Six (which benefited from a recovery in oil and gas markets).
De Beers’ underlying EBIT in 2016 increased by 78% compared with 2015, principally due to higher revenues from stronger rough diamond demand, which led to reduced inventory levels, reflecting improved trading conditions compared with those experienced in the second half of 2015. Results also benefited from the cost-saving programs, portfolio changes and the impact of favorable exchange rates.
The Group’s share of De Beers’ revenue was US$5,841 million, US$6,068 million and US$4,671 million for 2017, 2016 and 2015 respectively. The 4% decrease from 2016 to 2017 was primarily attributable to strong midstream restocking in the first half of 2016. The average realized rough diamond price decreased by 13% to US$162/carat (2016: US$187/carat), partly offset by an 8% increase in consolidated sales volumes to 32.5 million carats (2016: 30.0 million carats). This reflected stronger demand for lower-value goods in the early part of 2017, following a recovery from the initial impact of India’s demonetization program in late 2016, as well as the ramp-up of production from lower value per carat but high margin operations, including Orapa and Gahcho Kué. The lower-value mix was compensated in part by a higher average rough price index, which was 3% above that of 2016.
The 30% increase from 2015 to 2016 was principally driven by higher rough diamond sales, which increased by 37% to US$5.6 billion. This was attributable to a 50% increase in consolidated sales volumes to 30.0 million carats (2015: 19.9 million carats), partly offset by a 10% decrease in the average realized rough diamond price to US$187/carat (2015: US$207/carat). This reflected the 13% lower average rough price index in 2016, offset to some extent by an improved sales mix.
Total De Beers rough diamond production on a 100% basis (with the exception of the Gahcho Kué joint venture, which is on an attributable 51% basis) was 33.5 million carats in 2017, 27.3 million carats in 2016 and 28.7 million carats in 2015. The 22% increase from 2016 to 2017 reflected stronger underlying trading conditions as well as the contribution from the ramp-up of Gahcho Kué.
In 2017, Botswana (Debswana) increased production by 11% to 22.7 million carats (2016: 20.5 million carats). Production at Orapa was 28% higher, mainly driven by planned increases in plant performance and the ramp-up of Plant 1, which was previously on partial care and maintenance in response to trading conditions in late 2015. In June 2017, Jwaneng processed its first ore from Cut-8, which is expected to become the mine’s main source of ore during 2018. Production at Namdeb Holdings, increased by 15% to 1.8 million carats (2016: 1.6 million carats), primarily owing to higher production from Debmarine Namibia’s Mafuta vessel, driven by higher mining rates following an extended scheduled in-port during 2016. In South Africa (DBCM), production increased by 23% to 5.2 million carats (2016: 4.2 million carats), primarily owing to Venetia, driven by higher grades as well as improved operational performance benefiting tonnes treated. In Canada, production increased to 3.8 million carats (2016: 1.0 million carats) owing to the ramp-up of Gahcho Kué, which entered commercial production in March 2017.
The 5% decline from 2015 to 2016 was principally due to the decision taken in 2015 to reduce the production in response to prevailing trading conditions. In 2016, Debswana maintained production at close to the previous year’s levels, with output of 20.5 million carats (2015: 20.4 million carats). Jwaneng’s production increased by 23%, principally driven by higher tonnes treated, largely offset by Orapa, where production was 20% lower. Production at Namdeb Holdings decreased by 11% to 1.6 million carats (2015: 1.8 million carats), with reduced output at Debmarine Namibia (as a result of the Mafuta vessel undergoing extended planned in-port maintenance) and lower grades at Namdeb’s land operations. In South Africa, production declined by 9% to 4.2 million carats (2015: 4.7 million carats), mainly due to the completion of the sale of Kimberley Mines in January 2016, partly offset by an increase of 12% at Venetia owing to the processing of higher grades. In Canada, production declined by 45% to 1.0 million carats (2015: 1.9 million carats) owing to Snap Lake being placed on care and maintenance in December 2015.
Copper
The following table summarizes the results of operations of the Copper business segment and average market price for copper for the years indicated:
Year-ended December 31,
2015
2016
2017
(US$m unless otherwise stated)
Group Revenue (including attributable share of associates’ and joint ventures’ revenue)
3,539
3,066
4,233
Underlying EBIT
228
261
923
Underlying EBITDA
942
903
1,508
Capital employed
6,332
6,073
5,899
Capital expenditure(1)
659
563
665
Share of Group underlying EBIT
10%
7%
15%
Share of Group capital employed
19%
19%
18%
Production (kilotonnes) (2)
708.8
577.1
579.3
Copper (US cents/lb)(3)
249
221
280
Capital expenditure is defined as cash expenditure on property, plant and equipment, including related derivatives, and is presented net of proceeds from disposal of property, plant and equipment and includes direct funding for capital expenditure from non-controlling interests in order to match more closely the way in which it is managed.
Total Copper segment production represents 100% of production for all operations except Collahuasi which represents 44%.
Average LME price.
Copper business segment underlying EBIT in 2017, 2016 and 2015 was US$923 million, US$261 million and US$228 million, respectively.
Underlying EBIT in 2017 increased by 254% primarily as a result of a 27% increase in the average LME copper price, as well as a continued focus on cost-reduction initiatives.
Underlying EBIT in 2016 increased by 14% principally due to benefits from cost-reduction initiatives and productivity improvements across all operations, as well as from the implementation, at the start of 2016, of an optimized mine plan at El Soldado. This was off-set by a decrease in the average LME copper price and an 18% decline in sales volumes reflecting in part the sale of AA Norte in September 2015.
Underlying EBIT in 2015 was 81% lower than 2014. This was largely due to a 20% decline in average LME copper prices, lower product prices and a 7% decline in sales volumes, partly mitigated by the effects of the weaker Chilean peso and a US$208 million reduction in on-mine cash costs of the retained operations. These were driven by cost-reduction initiatives and productivity improvements, including a 16% reduction in headcount at Los Bronces and an 18% reduction at Collahuasi.
On September 11, 2015, the Group completed the sale of its interest in AA Norte. The company consisted of the Mantoverde and Mantos Blancos copper mines located in northern Chile. The consideration comprised US$300 million in cash plus deferred consideration up to a maximum of US$200 million, contingent on certain conditions. At present the potential deferred consideration is up to a maximum of US$150 million. A pre-tax loss on disposal of US$287 million (post-tax US$350 million) was recorded.
Group Revenue (including attributable share of associates’ and joint ventures’ revenue) in 2017, 2016 and 2015 were US$4,233 million, US$3,066 million and US$3,539 million, respectively. Revenue increased by 38% from 2016 to 2017, driven by the 27% increase in average LME copper price as sales volumes were largely in line with 2016. The 13% decrease in revenue from 2015 to 2016 was primarily due to the average LME copper price being 11% lower than 2015 at 221 c/lb and the 18% lower sales volumes due to the disposal of AA Norte in September 2015.
Sales of certain commodities are “provisionally priced” such that the price is not settled until a predetermined future date usually based on the average market price over a period defined in the contract. Revenue on these sales is initially recognized at the current market price and then marked to market until final settlement using the forward price for the period equivalent to that outlined in the contract (mark to market adjustments are recorded in revenue). A gain to revenue of US$182 million (2016: gain of US$144 million; 2015: loss of US$366 million) reflecting the impact of provisional pricing was recognized in 2017.
At Los Bronces, production in 2017 increased marginally to 308,300 tonnes (2016: 307,200 tonnes). Higher grades (2017: 0.71% vs 2016: 0.67%) were partly offset by lower throughput, following a failure in the ball mill stator at the processing plant during the third and fourth quarter. C1 unit costs increased by 8% to 169 c/lb (2016: 156 c/lb), reflecting the effect of the stronger Chilean peso and cost inflation. 2016 production at Los Bronces was 307,200 tonnes, 24% lower than in 2015, primarily driven by expected significantly lower grades (2016: 0.67% vs. 2015: 0.92%). The mine returned to processing lower average grades than in 2015, when it had prioritized the processing of higher grade areas in order to offset the impact of water shortages. In 2016, in contrast, a series of unusual weather events resulted in the operations having to cope with excess water. Snowfall late in 2015, and its subsequent melting, caused dewatering problems in the pit, while significant snowfall in 2016 (when more than 10 meters was recorded, 30% higher than average) interrupted ore extraction, particularly from the mine’s higher-altitude and higher-grade areas, which affected the ability to feed high-grade ore to the plants. In addition, a seven-day strike affected production in September 2016 and there were disruptions in November 2016 and December 2016 owing to illegal industrial action by contractor unions. In spite of the production challenges, unit costs were only 5% higher than in 2015, at 156 c/lb (2015: 148 c/lb), as cost-reduction initiatives across all areas of the operation partly compensated for the lower output. Production in 2015 of 401,700 tonnes was marginally lower compared to 2014. The impact of drought-related water restrictions on plant throughput was offset by an increased cut-off grade and higher achieved recoveries. The water restrictions in 2015 had a net negative impact on production of 18,000 tonnes.
At Collahuasi, Anglo American’s attributable share of copper production was 230,500 tonnes, an increase of 3% (2016: 222,900 tonnes). It was another year of record copper in concentrate production for the operation, building on 2016’s record output. Production benefited from higher grades, as well as strong sustained plant performance following the completion of a two-month planned maintenance at the processing plant in the second quarter. C1 unit costs were 113 c/lb (2016: 111c/lb), with the increase in production and continued cost-saving initiatives partially offsetting the stronger Chilean peso, cost inflation and lower by-product credits. In 2016 Anglo American’s attributable production at Collahuasi increased by 11% to 222,900 tonnes (2015: 200,300 tonnes). Strong, sustained plant performance, following rectification work undertaken in 2015, was supported by higher grades (2016: 1.22% vs. 2015: 1.15%). This was offset by reduced cathode production following the closure of the higher-cost oxide plant at the end of 2015. Unit costs decreased by 19% to 111 c/lb in 2016 (2015: 137 c/lb), benefiting from the higher production as well as from an ongoing focus on reducing costs at the operation. Our share of Collahuasi’s production of 200,300 tonnes was 3% lower in 2015 than the prior year. This was a reflection of lower ore feed as a result of planned plant maintenance, as well as speed restrictions imposed on the two smaller processing lines in the second and third quarters following the detection of vibrations in the SAG mills. The vibration issue was successfully resolved, delivering a step-change in plant operating times in the fourth quarter, as part of the implementation of a wider plan to achieve stability in the operation of the plant. Higher-cost oxide production ramped down from October 1, resulting in lost production of ~3,000 tonnes.
Production at El Soldado decreased by 14% to 40,500 tonnes (2016: 47,000 tonnes), owing largely to the temporary suspension of mine operations, from February 18, to April 28, 2017, due to which resulted in 6,000 tonnes of lost production. C1 unit costs increased by 27% to 233 c/lb (2016: 184 c/lb) as a result of the lower output, the stronger Chilean peso and cost inflation. 2016 production at El Soldado increased by 31% to 47,000 tonnes (2015: 36,000 tonnes) as a result of improved throughput and higher grades. Unit costs declined by 19% to 184 c/lb in 2016 (2015: 228 c/lb), reflecting the benefits of both the higher production and the implementation of the optimized mine plan from the start of the year. In July 2016, the unionized workforce at El Soldado went on a 13-day strike before agreement was reached with the company on a new remuneration offer. Production at El Soldado in 2015 increased by 11% to 36,000 tonnes, attributable to higher grades and increased recovery arising from improved ore availability.
Platinum
The following table summarizes the results of operations of the Platinum business segment and the average basket price of metal sold for the years indicated:
Year-ended December 31,
2015
2016
2017
(US$m unless otherwise stated)
Group Revenue (including attributable share of associates’ and joint ventures’ revenue)
4,900
4,394
5,078
Underlying EBIT
263
185
512
Underlying EBITDA
718
532
866
Capital employed
4,392
4,457
4,510
Capital expenditure(1)
366
314
355
Share of Group EBIT
12%
5%
8%
Share of Group capital employed
13%
14%
14%
Platinum refined production (thousands of ounces)
2,459
2,335
2,512
Palladium refined production (thousands of ounces)
1,595
1,464
1,669
Rhodium refined production (thousands of ounces)
305
317
323
Average basket price (US$/ounce)
1,905
1,753
1,966
Capital expenditure is defined as cash expenditure on property, plant and equipment, including related derivatives, and is presented net of proceeds from disposal of property, plant and equipment and includes direct funding for capital expenditure from non-controlling interests in order to match more closely the way in which it is managed.
Platinum business segment underlying EBIT in 2017, 2016 and 2015 was US$512 million, US$185 million and US$263 million, respectively. The 177% increase from 2016 to 2017 was as a result of higher sales volumes (platinum, palladium and some minor metals) and stronger prices for palladium and rhodium. The 30% decrease from 2015 to 2016 was principally driven by lower sales volumes of platinum, palladium, rhodium and minor metals, weakening dollar metal prices and the effects of inflation. This was partially offset by a weaker South African rand and cost improvements.
Group Revenue (including attributable share of associates’ and joint ventures’ revenue) in 2017, 2016 and 2015 were US$5,078 million, US$4,394 million and US$4,900 million, respectively. The 16% increase from 2016 to 2017 was principally due to strengthening US dollar metal prices and higher sales volumes The 10% decrease from 2015 to 2016 was principally due to weakening dollar metal prices and lower sales volumes.
The average dollar price realized for the basket of metals sold by Platinum in 2017, 2016 and 2015 was US$ 1,966, US$1,753 and US$1,905 per platinum ounce, respectively. The 12% increase in basket price from 2017 to 2016, despite a 5% fall in the average realized platinum price in US dollar terms, was principally due to a 44% increase in the average realized palladium price and 61% increase in the average realized rhodium price. The 8% decrease from 2015 to 2016 was principally due to a 6% fall in the average realized platinum price in US dollar terms, even though the rand basket price increased by 6%.
The average market price for platinum in 2017, 2016 and 2015 was US$950, US$989 and US$1,051 per ounce, respectively. The average market price for palladium in 2017, 2016 and 2015 was US$871, US$615 and US$691 per ounce, respectively. The average market price for rhodium in 2017, 2016 and 2015 was US$1,097, US$681 and US$932 per ounce, respectively. The average market price for gold in 2017, 2016 and 2015 was US$1,258, US$1,248 and US$1,160 per ounce, respectively.
Total platinum production (metal in concentrate), including both own-mined production and purchase of concentrate, increased by 1% to 2,397,400 ounces (2016: 2,381,900 ounces). The increase was primarily driven by production increases at Mogalakwena, the joint ventures Modikwa and Kroondal and the associate BRPM, which was offset by lower output from Amandelbult and the joint venture Mototolo which was impacted by the stoppage of the Mototolo concentrator for remedial work to stabilize the tailings storage facility. On October 31, 2017, the associate Bokoni mine was placed onto care and maintenance by Platinum’s joint venture partner, Atlatsa Resources, no further loss-making production will be produced from Bokoni while the mine and concentrator remain on care and maintenance.
Total platinum production (metal in concentrate) in 2016 rose by 2% to 2,382 thousand ounces (2015: 2,337 thousand ounces). The increase was primarily driven by production increases at Mogalakwena, Amandelbult, Unki, Union and independently managed operations, which was mitigated by lower output from Rustenburg and Bokoni. Putting Twickenham on care and maintenance removed approximately 10,000 ounces of unprofitable platinum, while a contractual agreement with a third party for concentrate ended in 2015, which led to a reduction in purchase of concentrate of 11,000 ounces compared with 2015.
Refined platinum production increased by 8% in 2017 to 2,511,900 ounces (2016: 2,334,700 ounces). Refined production in 2016 was materially affected by a Section 54 safety stoppage at the Precious Metals Refinery, as well as by a run-out at the Waterval smelter in September of that year; the subsequent recovery from these developments was largely responsible for the increase in output in 2017. Platinum sales volumes increased by 4% to 2,504,600 ounces (2016: 2,415,700 ounces), in line with higher refined production.
Refined platinum production in 2016 decreased by 5% to 2,335 thousand ounces (2015: 2,459 thousand ounces) primarily due to the run-out at Waterval in September 2016, which had the effect of reducing refined production by 65,000 ounces. Platinum sales volumes decreased by 2% to 2,415,700 platinum ounces (2015: 2,471,400 ounces), reflecting the decrease in refined platinum production. Sales were higher than refined production and were supplemented by a drawdown in refined inventory.
The platinum cash operating unit cost increased by 8% year-on-year to US$1,443 per ounce of platinum metal in concentrate (2016: US$1,330) owing primarily to a stronger rand, although, mitigated in part as a result of ongoing cost improvement initiatives.
The platinum cash operating unit cost decreased by 12% year-on-year to US$1,330 per ounce of platinum metal in concentrate (2015: US$1,508), excluding projects, owing primarily to the softer rand and cost improvements.
Iron Ore and Manganese
The following table summarizes the results of operations of the Iron Ore and Manganese business segment and average market price for iron ore for the years indicated:
Year-ended December 31,
2015
2016
2017
(US$m unless otherwise stated)
Group Revenue (including attributable share of associates’ and joint ventures’ revenue)
3,390
3,426
5,831
Underlying EBIT
671
1,275
1,978
Kumba
739
1,135
1,246
Iron Ore Brazil
(21)
(6)
335
Samancor
22
209
478
Projects and Corporate
(69)
(63)
(81)
Underlying EBITDA
1,026
1,536
2,357
Capital employed
6,666
7,472
8,008
Capital expenditure(1)
1,422
269
252
Share of Group underlying EBIT
30%
34%
32%
Share of Group capital employed
20%
23%
24%
Iron Ore Kumba production (Mt)
44.9
41.5
45.0
Iron Ore Brazil production (Mt) (3)
9.2
16.1
16.8
Iron Ore (US$/t)(2)
56
58
71
Capital expenditure is defined as cash expenditure on property, plant and equipment, including related derivatives, and is presented net of proceeds from disposal of property, plant and equipment and includes direct funding for capital expenditure from non-controlling interests in order to match more closely the way in which it is managed.
Iron Ore Brazil production is Mt (wet basis)
Average iron ore market price for the year. Source: Platts (62% Fe, CFR). The Platts 62 Index is used for comparison purposes. Differing grades of iron ore product are priced using other indices.
Iron Ore and Manganese business segment underlying EBIT in 2017, 2016 and 2015 was US$1,978 million, US$1,275 million and US$671 million, respectively. The 55% increase from 2016 to 2017 was principally due to increased prices for iron ore and manganese ore, where average benchmark prices rose by 22% and 36% respectively. This was accompanied by increased underlying EBIT from Minas-Rio, reflecting the continued ramp-up of production and the cessation of capitalization of operating results from January 2017, as well as at Kumba due to improvements in mining productivity, partially offset by the strengthening of the South African rand. The 90% increase from 2015 to 2016 was principally due to increased average realized iron ore prices at Kumba, unit cost reductions, productivity gains and weakening of the South African rand, partially off-set by lower sales volumes at Kumba following the Sishen pit reconfiguration.
Group Revenue (including attributable share of associates’ and joint ventures’ revenue) in 2017, 2016 and 2015 were US$5,831 million, US$3,426 million and US$3,390 million. The 70% increase in revenue from 2016 to 2017 was due to the cessation of capitalization of operating results at Minas-Rio, as well as 11% higher realized FOB export prices and 6% higher sales volumes at Kumba and significantly higher manganese ore and alloy prices and increased sales volumes at Samancor. Group revenue remained relatively flat from 2015 to 2016 principally due to a 21% increase in the Kumba average realized FOB export iron ore price from US$53/tonne to US$64/tonne, higher manganese ore prices driving higher revenues at Samancor, offset by lower sales volumes at Kumba following the Sishen pit reconfiguration.
Kumba
Underlying EBIT in 2017, 2016 and 2015 was US$1,246 million, US$1,135 million and US$739 million, respectively. 2017 underlying EBIT was 10% higher than in 2016 principally due to an 11% increase in the average realized FOB export iron ore price from US$64/tonne to US$71/tonne and 6% higher sales volumes, partially offset by stronger South African rand. 2016 underlying EBIT was 54% higher than in 2015 principally due to a 21% increase in the average realized FOB export iron ore price from US$53/tonne to US$64/tonne and weaker South African rand, partially offset by lower sales volumes.
Kumba’s iron ore production for 2017, 2016 and 2015 was 45.0, 41.5 Mt and 44.9 Mt, respectively. The 8% increase from 2016 to 2017 was due to improvements in mining productivity resulting from fleet efficiencies at both mines, as well as higher plant yields at Sishen and an additional 0.5 Mt from the modular plant at Kolomela. Unit costs increased by 15% to US$31/tonne driven by the stronger South African rand and cost inflation, including higher rail costs. The 8% decrease from 2015 to 2016 was driven by lower production at Sishen following the reconfiguration of the Sishen pit to a lower-cost shell, partially offset by increased production at Kolomela. Unit costs decreased by 13% to US$27/tonne (2015: US$31/tonne) driven by the Sishen restructuring and benefit of the weaker rand.
Iron Ore Brazil
Underlying EBIT in 2017 was US$335 million, following operating losses in 2016 and 2015 of US$6 million and US$21 million, respectively. This reflected the operation’s continued ramp-up to its current operating capacity and the cessation of capitalization of operating results since January 2017.
Minas-Rio production for 2017, 2016 and 2015 was 16.8 Mt, 16.1 Mt and 9.2 Mt respectively. The increase from 2015 to 2017 was driven by the continued ramp up of the operation. Full year production in 2017, at 16.8 Mt (wet basis), was within the market guidance of 16-18 Mt (wet basis), although the ramp-up schedule was affected as mining operations were restricted to the remaining Ore Reserves in the Step 2 license, which included lower-grade ore.
Minas-Rio project capital expenditure is estimated at US$8.3 billion, of which US$8.1 billion was spent from 2007 to 2017.
The Minas-Rio iron ore project in Brazil was acquired in two separate transactions in 2007 and 2008. Prior to 2016, impairment charges totaling US$11.3 billion (before tax) were recorded against the carrying value of Minas-Rio. The valuation was reassessed as at December 31, 2017 and the recoverable amount was considered to be in line with the carrying value of US$4.2 billion. The valuation remains sensitive to economic and operational factors that provide both upside and downside risk, including price and the scheduling of required permits and licenses. For example, a US$5/tonne change in the long-term price forecast for iron ore, with all other valuation assumptions remaining the same, would change the valuation by US$0.7 billion.
Samancor
Underlying EBIT in 2017, 2016 and 2015 was US$478 million, US$209 million and US$22 million, respectively. The US$269 million increase from 2016 to 2017 was driven principally by a significantly higher realized manganese ore price, due to a 36% increase in the average benchmark price and a 7% increase in ore sales. Production from the Australian operations was 7% higher, owing to increased concentrator throughput and higher yields, and from the South African operations was 18% higher, taking advantage of stronger demand and pricing and the sale of lower-quality fines product. The US$187 million increase from 2015 to 2016 was driven by a recovery in manganese ore prices, a 6% increase in ore sales and lower costs partly attributable to the restructuring of the South African manganese operations which was completed in the first quarter of 2016. This reduced the operating cost base and increased production flexibility in response to the sharp decline in the manganese index ore price, which was carried through from the previous year into the first six months of 2016. During the second six months of 2016, however, the price increased significantly.
Coal
The following table summarizes the results of operations of the Coal business segments and average realized price for metallurgical and thermal coal for the years indicated:
Year-ended December 31,
2015
2016
2017
(US$m unless otherwise stated)
Group Revenue (including attributable share of associates’ and joint ventures’ revenue)
4,888
5,263
7,211
Underlying EBIT
457
1,112
2,274
Metallurgical Coal
190
661
1,594
South Africa
230
366
466
Cerrejón
90
143
296
Projects and Corporate
(53)
(58)
(82)
Underlying EBITDA
1,046
1,646
2,868
Capital employed
4,079
3,509
3,384
Capital expenditure(1)
941
613
568
Share of underlying Group EBIT
21%
30%
36%
Share of Group capital employed
12%
11%
10%
Export metallurgical coal production (Mt)
21.2
20.9
19.7
Australia thermal coal production (Mt)
12.3
9.5
1.6
RSA thermal coal export production (Mt)
18.2
19.1
18.6
RSA thermal coal domestic (non-Eskom) production (Mt)
8.9
9.9
7.5
RSA Eskom production (Mt)
23.1
24.8
23.9
Colombian export thermal production (Mt)
11.1
10.7
10.6
Export metallurgical price (US$/t)(2)
90
112
185
Australian export thermal (US$/t)(2)
55
55
91
Australian domestic thermal (US$/t)(3)
28
24
-
South Africa export thermal coal price (US$/t)(2)
55
60
76
South Africa domestic thermal coal price (US$/t)(3)
19
17
21
Colombia export thermal coal price (US$/t)(2)
55
56
75
Capital expenditure is defined as cash expenditure on property, plant and equipment, including related derivatives, and is presented net of proceeds from disposal of property, plant and equipment and includes direct funding for capital expenditure from non-controlling interests in order to match more closely the way in which it is managed.
Weighted average realized FOB sales price.
Weighted average realized sales price.
Metallurgical Coal
Metallurgical Coal’s underlying EBIT in 2017, 2016 and 2015 was US$1,594 million, US$661 million and US$190million, respectively.
Between 2016 and 2017, underlying EBIT increased by 141% to US$1,594 million, reflecting a 65% increase in the metallurgical coal realized price and cost reductions across the business. Underlying EBITDA further benefited from an increase in the proportion of hard coking coal production to 80% of total export production (2016: 65%).
Between 2015 and 2016, underlying EBIT increased by 248% to US$661 million, reflecting a 24% increase in the metallurgical coal realized price, and cost reductions across the business. EBITDA further benefited from an increase in the proportion of hard coking coal production to 65% of total export production (2015: 60%). Although total production declined following a number of divestments, unit costs decreased by 7% in US dollar terms (7% in local currency) following the implementation of significant cost-reduction initiatives, particularly at the open-cut operations. Local currency (Australian dollar) unit costs were the lowest since 2006.
Excluding the divestment of Foxleigh (completed on August 29, 2016), metallurgical coal production was in line with the prior year, as the ramp-up of production at Grosvenor and strong performances at Moranbah, Dawson and Jellinbah offset the impact of geological issues at Capcoal’s Grasstree.
The divestment of Callide was completed on October 31, 2016.
Grosvenor produced its first longwall coal in May 2016, seven months ahead of schedule and more than US$100 million under its total capital budget.
Group Revenue (including attributable share of associates’ and joint ventures’ revenue) in 2017, 2016 and 2015 were US$3,675 million, US$2,547 million and US$2,374 million, respectively.
The 44% increase from 2016 to 2017 reflects a 65% increase in the metallurgical coal realized price, driven by another year of supply tightness and price volatility. The focus on safety in the Chinese domestic coal sector – and accompanying shutdowns – continued into 2017, while structural reforms, which aim to eliminate excess capacity and restore sector profitability, remain on track. Meanwhile, Australian export volumes were disrupted by a series of events, including Cyclone Debbie, mine shutdowns and port queues. The increase in price was partially offset by a 6% decrease in export metallurgical sales volumes of 6% from 20.9 Mt in 2016 to 19.7 Mt in 2017, and an 83% decrease in thermal sales from 9.5Mt in 2016 to 1.6Mt in 2017, reflecting the divestment of Callide.
The 7% increase from 2015 to 2016 was principally due to a 24% increase in export metallurgical coal prices from US$90/tonne in 2015 to US$112/tonne in 2016. In the second half of 2016, China’s imposition of safety, environmental and working time controls on its domestic mines, along with supply disruptions arising from geological difficulties encountered at several mines in Australia, caused significant market tightness, resulting in a sharp increase in both spot and contract prices.
From 2016 to 2017 production from the Australian mines, excluding the impact of divestments and cessation of mining activities at Drayton (thermal coal), decreased by 1%. Planned reductions in production at Dawson & Capcoal’s open cut were partially offset by the ramp-up of Grosvenor, productivity improvements at Capcoal’s Grasstree and a record year at Moranbah. Hard Coking Coal (“HCC”) production increased by 5% due to the ramp-up of Grosvenor (a benchmark HCC producer), productivity gains and a change in mix to higher value metallurgical coal production.
From 2015 to 2016 production from the Australian mines, excluding the impact of divestments, decreased by 4% due to the cessation of mining activities at Drayton (thermal coal). Production from the remaining operations was flat in 2015 as geological issues at Grasstree and a planned reduction at Capcoal’s open cut, which moved to a five-day operation, were offset by the ramp-up of Grosvenor, productivity improvements at Dawson and Jellinbah and another record year at Moranbah.
Hard Coking Coal production increased by 2% due to the ramp-up of Grosvenor, productivity gains and a change in mix to higher value metallurgical coal production at Dawson.
In 2015 Australia and Canada achieved record metallurgical coal production of 21.2 Mt, chiefly attributable to a step-change in performance at Grasstree following its implementation of the management operating system and improvements across all Australian open-cut operations.
South Africa and Cerrejón
Coal –South Africa and Cerrejón’s underlying EBIT in 2017, 2016 and 2015 was US$762 million, US$509 million and US$320 million, respectively.
South Africa’s 27% increase in underlying EBIT from 2016 to 2017 was driven by a 27% increase in the export thermal coal price, notwithstanding 3% lower export sales volumes, with continued productivity improvements at the underground operations more than offset by a self-enforced 100-hour safety stoppage across all operations and challenges at Khwezela.
Cerrejón's 107% increase in underlying EBIT in 2017 was principally due to stronger prices, up 34% from US$56/t in 2016 to US$75/t in 2017.
South Africa’s 59% increase in underlying EBIT from 2015 to 2016 was principally due to a 9% increase in the export thermal coal price, notwithstanding 4% lower export sales volumes as a result of planned destocking in 2015 (which was not repeated in 2016), facilitated by accessing additional rail and port capacity. Despite continued inflationary pressure in South Africa, unit costs reduced by 13% to US$34/tonne owing to the weaker rand and a 2% reduction in on-mine rand unit costs. On-mine local currency costs have now reduced in line with those reported in 2013, as a result of the business’ cost-saving and productivity initiatives.
Cerrejón's 59% increase in underlying EBIT in 2016 was principally due to stronger prices and lower costs following planned lower production to remove the highest-cost capacity, and by the sustained benefits of significant cost-reduction programs implemented in 2015.
Group Revenue (including attributable share of associates’ and joint ventures’ revenue) in 2017, 2016 and 2015 were US$3,535 million, US$2,716 million and US$2,514 million, respectively.
The increase of 30% from 2016 to 2017 was principally driven by the increase of 29% in the export thermal coal market price and partially offset by 2% lower export sales in both regions. The increase of 8% from 2015 to 2016 was principally driven by the increase of 12% in the export thermal coal market price, and partially offset by 4% lower export sales in both regions.
Total South Africa attributable production in 2017 decreased to 49.9 Mt (2016: 53.8 Mt; 2015: 50.3 Mt). Total production from the export operations decreased by 11% to 22.0 million tonnes following a self-enforced 100-hour safety stoppage across all operations and challenges with Khwezela’s waste fleet and coal recovery operations. Production from Eskom-tied operations decreased by 4% to 23.9Mt (2016: 24.8 Mt) due to lower Eskom offtake from New Vaal and reserve constraints at Kriel as it approaches the end of its mine life.
Export sales from South Africa at 18.6 Mt in 2017 were 2% below 2016, impacted by lower production volumes.
Anglo American’s attributable output from its 33.3% shareholding in Cerrejón was 10.6 Mt, in line with the prior year.
Total South Africa attributable production in 2016 increased to 53.8 Mt (2015: 50.3 Mt). Total production from the export operations increased by 9% to 24.6 million tonnes following the implementation of various productivity improvement initiatives at all managed sites, the introduction of enhanced shift systems at Goedehoop and Zibulo, and plant innovations at Kleinkopje and Goedehoop that have delivered incremental saleable production from previously discarded material.
Export sales from South Africa at 19.1 Mt in 2016 were the second highest ever recorded, but 4% below 2015, when prior year sales volumes benefited from a planned 1 Mt drawdown of inventory. Eskom mine production increased by 7%, with New Vaal’s third dragline back in production following maintenance in the second half of 2015, and an improved performance at Kriel’s underground operations.
Anglo American’s attributable output in 2016 from its 33.3% shareholding in Cerrejón decreased by 4% to 10.7 Mt following heavy rainfall in May and June, and ongoing planned reductions to remove the highest-cost capacity in reaction to the falling price environment.
Nickel
The following table summarizes the results of operations of the Nickel business segment and the average market price for nickel for the years indicated:
Year-ended December 31,
2015
2016
2017
(US$m unless otherwise stated)
Group Revenue (including attributable share of associates’ and joint ventures’ revenue)
146
426
451
Underlying EBIT
(22)
(15)
0
Underlying EBITDA
(3)
57
81
Capital employed
1,968
2,003
1,959
Capital expenditure(1)
26
62
28
Share of Group underlying EBIT
(1.0)%
(0.4)%
-
Share of Group capital employed
6%
6%
6%
Attributable production (tonnes)
30,300
44,500
43,800
Nickel price (US cents/lb)(2)
536
436
472
Capital expenditure is defined as cash expenditure on property, plant and equipment, including related derivatives, and is presented net of proceeds from disposal of property, plant and equipment and includes direct funding for capital expenditure from non-controlling interests in order to match more closely the way in which it is managed.
Average LME price.
Nickel business segment underlying EBIT in 2017, 2016 and 2015 was US$0 million, US$(15) million and US$(22) million, respectively. The increase from 2016 to 2017 reflects a higher nickel price, partially offset by the unfavorable impact of the stronger Brazilian real and cost inflation. The increase from 2015 to 2016 was primarily driven by lower cash costs combined with higher volumes following the successful rebuild of Barro Alto’s furnaces, with the operation reaching nameplate capacity in the third quarter of 2016, as well as the favorable impact of the weaker Brazilian real.
Group Revenue (including attributable share of associates’ and joint ventures’ revenue) in 2017, 2016 and 2015 were US$451 million, US$426 million and US$146 million, respectively. The increase from 2016 to 2017 reflects an 8% increase in average LME nickel price, offset by lower sales volumes. The increase between 2015 and 2016 of US$280 million was mainly due to the ceasing of Barro Alto capitalization as a consequence of the operation reaching commercial production whereas between 2014 and 2015 they remained broadly flat. Underlying operating results generated by the Barro Alto operation were capitalized and did not affect revenue or underlying EBIT until October 2015, when commercial production was achieved.
Nickel production in 2017 decreased by 2% to 43,800 tonnes (2016: 44,500 tonnes) as instabilities at both smelting operations negatively affected Barro Alto’s production performance in February. The root causes were addressed and the operations returned to stable performance from the second quarter. Codemin’s production of metal was in line with the prior year at approximately 9,000 tonnes. Total nickel production in 2016, compared to 2015, increased by 47% to 44,500 tonnes (2015: 30,300 tonnes), following the successful rebuild of the Barro Alto furnaces which are now producing close to nameplate capacity. Codemin’s production of metal was in line with the previous year at approximately 9,000 tonnes.
Corporate and Other
The following table summarizes the results of operations of the Corporate and Other business segment for the years indicated:
Year-ended December 31,
2015
2016
2017
(US$m unless otherwise stated)
Group Revenue (including attributable share of associates’ and joint ventures’ revenue)
1,469
499
5
Underlying EBIT
55
(71)
(313)
Niobium and Phosphates(1)
124
82
-
Exploration
(154)
(107)
(103)
Corporate activities and unallocated costs(2)
85
(46)
(210)
Underlying EBITDA
135
(5)
(292)
Capital employed
763
(335)
(241)
Capital expenditure(3)
66
40
9
Share of Group underlying EBIT
2.5%
(1.9)%
(5.0)%
Share of Group capital employed
2.3%
(1.1)%
(0.7)%
Metrics relating to 2016 include results up to the date of disposal, September 30, 2016.
Corporate activities and unallocated cost includes other mining and industrial which has been disclosed separately in prior years.
Capital expenditure is defined as cash expenditure on property, plant and equipment, including related derivatives, and is presented net of proceeds from disposal of property, plant and equipment and includes direct funding for capital expenditure from non-controlling interests in order to match more closely the way in which it is managed.
Niobium
The sale of the Niobium and Phosphates business to China Molybdenum Co Ltd. was completed on September 30, 2016. Underlying EBIT in 2016 and 2015 was US$21 million and US$33 million, respectively. The 36% decrease from 2015 to 2016 was driven primarily by the sale of the business, as well as higher sales volumes from Boa Vista Fresh Rock (“BVFR”) and lower cash costs offsetting lower prices and the impact of the sale of the business.
At the point of disposal in 2016, production was in line with the prior year at 4,700 tonnes (Q3 2015: 4,700 tonnes; FY 2015: 6,300 tonnes). This was despite two shutdowns; the first in the first quarter of 2016 to reduce stock levels and facilitate site maintenance and work on residue disposal; and the second, a planned stoppage in May 2016 in order to implement the downstream metallurgy project. Following the project’s implementation, plant performance was strong, with an all-time production record achieved in July 2016.
Phosphates
The sale of the Niobium and Phosphates business to China Molybdenum Co Ltd. was completed on September 30, 2016. Underlying EBIT in 2016 and 2015 was US$61 million and US$91 million, respectively. The US$30 million decrease from 2015 to 2016 was driven primarily by the sale of the business, as well as lower sales pricing and inflation, partially offset by a reduction in operating costs.
At the time of disposal in the third quarter of 2016, fertilizer production was 0.9 million tonnes (Q3 2015: 0.8 million tonnes; FY 2015: 1.1 million tonnes), with the increase being attributable to strong granulation plant performance at both sites and favorable operational conditions, which allowed two separate planned maintenance stoppages (scheduled for January and March 2016) to be combined. Phosphoric acid production was also boosted as a result of increased plant stability and higher equipment availability at both sites. Dicalcium phosphate production was higher because of improved plant performance (principally lower idle time at Cubatão and a reduction in time spent on tank maintenance at Catalão), as well as higher phosphoric acid availability.
Corporate activities and unallocated costs
Underlying EBIT in 2017, 2016 and 2015 was US$(210) million, US$(43) million and US$90 million, respectively. The US$(167) increase in the loss was driven primarily by a year-on-year loss recognized in the Group’s self-insurance entity, reflecting lower premium income and higher net claims and settlements during 2017. The US$133 million decrease from 2015 to 2016 was due to the impact of the disposal of Anglo American’s interest in the Lafarge Tarmac joint venture in July 2015 and a year-on-year loss of US$62 million that was recognized in the Group’s self-insurance entity, reflecting lower premium income and higher net claims and settlements during 2016.
Exploration
Exploration expenditure for 2017, 2016 and 2015 was US$103 million, US$107 million and US$154 million respectively, reflecting a general reduction across most of the commodities, driven primarily by lower drilling activities
Liquidity and Capital Resources
Anglo American focuses on ensuring that there are sufficient committed loan facilities (including refinancing, where necessary) in order to meet near-term cash requirements, after taking into account cash flows from operations and our holding of cash and cash equivalents, as well as any existing restrictions on distributions. We believe that these facilities (including refinancing, where necessary) and cash generation will be sufficient to cover our anticipated near-term cash requirements.
For more information on our borrowing arrangements and liquidity sources, see “—Cash Flow—Funding Sources” below, Notes 20 and 21 to the Group 2017 Consolidated Financial Statements, incorporated by reference herein.
We operate in some countries (principally South Africa) in which the existence of exchange controls may restrict the use of certain cash balances. The restrictions are not expected to have a material effect on our ability to meet our ongoing obligations. In light of the multinational nature of our business, cash is held in a number of countries and currencies. The majority of our cash is held in US dollars, South African rand, Brazilian real and Australian dollars.
Cash Flow
The table below summarizes our consolidated cash flow statement for the periods indicated:
Year-ended December 31,
2015
2016
2017
(US$m)
Cash flows from operations
4,240
5,838
8,375
Dividends from associates and joint ventures
324
167
506
Dividends from financial asset investments
9
5
11
Income tax paid
(596)
(611)
(843)
Net cash inflows from operating activities
3,977
5,399
8,049
Net cash used in investing activities
(2,614)
(525)
(1,947)
Net cash (used in)/inflows from financing activities
(947)
(5,780)
(4,553)
Net increase/(decrease) in cash and cash equivalents
416
(906)
1,549
Attributable free cash flow(1)
(982)
2,562
4,943
Definition is set out in the “Non-IFRS financial measures” section. A reconciliation to “cash flows from operations”, the closest equivalent IFRS measure, is provided with respect to 2017, 2016 and 2015 in the table below:
Year-ended December 31,
2015
2016
2017
(US$m)
Cash flows from operations
4,240
5,838
8,375
Capital expenditures
(4,177)
(2,387)
(2,150)
Cash tax paid(a)
(596)
(465)
(843)
Dividends from associates, joint ventures and financial asset investments
333
172
517
Net interest(b)
(540)
(581)
(355)
Dividends paid to non-controlling interests
(242)
(15)
(601)
Attributable free cash flow
(982)
2,562
4,943
Excludes tax payments of US$146 million for year ended December, 31 2016 (2015 and 2014: nil) relating to 2016 disposals which are shown as part of net disposal proceeds. These tax payments all related to H2 2016.
Includes cash inflows of US$22 million for the year ended December 31, 2017 (2016: US$89 million and 2015: US$169 million) relating to interest payments on derivative hedging net debt, which are included in cash flows from derivatives related to financing activities.
Net cash inflows from operating activities in 2017, 2016 and 2015 were US$8,049 million, US$5,399 million and US$3,977 million respectively. The 49% increase from 2016 to 2017 was principally due to strong bulk commodity and copper prices increasing revenues. Cash inflows on operating working capital were US$0.9 billion (2016: inflows of US$0.4 billion and 2015: inflows of US$25 million), driven mainly by an increase in operating payables of US$1.2 billion across the Group as a result of extending supplier payment terms and $0.2 billion which relates to a key customer advancing pre-payment for future guaranteed delivery of metal. These inflows were offset by an increase in inventories of US$0.3 billion.
The 36% increase from 2015 to 2016 was principally due to a focus on cost savings, an increase in sales volumes at De Beers and weakening foreign exchange rates.
Net cash used in investing activities in 2017, 2016 and 2015 was US$1,947 million, US$525 million and US$2,614 million, respectively. The 271% increase from 2016 to 2017 was principally due to lower disposal proceeds. The 80% decrease from 2015 to 2016 was principally due to decreased capital expenditure.
Net cash (used in)/inflows from financing activities in 2017, 2016 and 2015 was US$(4,553) million, US$(5,780) million and US$(947) million, respectively. The decrease in cash flows used between 2016 and 2017 of US$1,227 million is principally due to lower interest paid on borrowings and issuance of bonds. These were offset by higher dividends paid to Group shareholders and non-controlling interests.
The increase in cash flows used between 2015 and 2016 of US$4,833 million is principally due to repayment of loans and borrowings.
Capital Expenditure
Capital expenditure is defined as cash expenditure on property, plant and equipment, including related derivatives, and is presented net of proceeds from disposal of property, plant and equipment and includes direct funding for capital expenditure from non-controlling interests in order to match more closely the way in which it is managed.
The following table summarizes capital expenditure by business segment for the periods indicated:
Year-ended December 31,
2015
2016
2017
(US$m)
De Beers
697
526
273
Copper
659
563
665
Platinum
366
314
355
Iron Ore and Manganese
1,422
269
252
Coal
941
613
568
Nickel
26
62
28
Corporate and Other(1)
66
40
9
Capital expenditure on property, plant and equipment
4,177
2,387
2,150
The “Corporate and Other” segment includes the Niobium and Phosphates business unit (sold on September 30, 2016). Comparative information for “Corporate and Other” has been restated to include the Niobium and Phosphates business unit, which was previously disclosed separately.
Capital expenditure for 2017, 2016 and 2015 was US$2,150 million, US$2,387 million and US$4,177 million, respectively. Capital expenditure in 2017 was primarily driven by “stay-in-business” capital expenditure across all business units.
For a description of the Group’s project pipeline, see “Business Description—Strategy”.
Net Debt
Net debt, including the impact of related hedges, as of December 31, 2017, 2016 and 2015 was US$4,501 million, US$8,487 million and US$12,901 million, respectively. Net debt was made up of the following:
As of December 31,
2015
2016
2017
(US$m)
Cash and cash equivalents
6,889
6,044
7,792
Short-term borrowings
(1,634)
(1,799)
(1,324)
Medium and long-term borrowings
(16,318)
(11,363)
(10,620)
Net debt, excluding the impact of hedges
(11,063)
(7,118)
(4,152)
Hedges
(1,838)
(1,369)
(349)
Net debt, including the impact of related hedges
(12,901)
(8,487)
(4,501)
Net debt movements are principally a function of cash flows from operating, investing and financing activities. In addition, non-cash items including fair value adjustments and exchange rate movements and hedges of debt also influence our net debt level.
Net debt as of December 31, 2017 decreased by US$3,986 million, from US$8,487 million as of December 31, 2016 to US$4,501 million principally due to free cash flow generation, partially offset by the payment of dividends to Group shareholders in September.
Net debt as of December 31, 2016 decreased by US$4,414 million, from US$12,901 million as of December 31, 2015 to US$8,487 million principally due to strong operating cash inflows, a decrease in capital expenditure and proceeds from disposals.
In September 2017, the Group completed a bond buyback transaction consisting of Euro and US dollar denominated bonds with maturities from September 2018 to November 2020. The Group used US$1.93 billion of cash to retire US$1.86 billion of contractual repayment obligations (including derivatives hedging the bonds). In September 2017, the Group issued US$650 million 3.625% senior notes due 2024 and $650 million 4.000% senior notes due 2027 through accessing the US bond markets. The Group also issued €600 million 1.625% senior notes due 2025 under its EMTN program.
In March 2017 the Group completed a bond buyback transaction consisting of Euro and British pound denominated bonds with maturities from April 2018 to June 2019. The Group used US$1.27 billion of cash to retire US$1.25 billion of contractual repayment obligations (including derivatives hedging the bonds). In April 2017 the Group issued US$300 million 3.750% senior notes due 2022 and US$700 million 4.750% senior notes due 2027.
In March 2016, the Group completed the bond buyback transaction consisting of Euro, British pound and US dollar denominated bonds with maturities from December 2016 to September 2018. The Group used US$1.7 billion of cash to retire US$1.83 billion of contractual repayment obligations (including derivatives hedging the bonds), resulting in an immediate reduction in net debt of US$130 million. Anglo American’s bond maturities were reduced by US$250 million, US$680 million and US$900 million for 2016, 2017 and 2018 respectively, reducing the Group’s bond repayment obligations at original hedged rates to US$1.4 billion, US$1.9 billion and US$2.5 billion respectively for these years. The notes purchased by Anglo American have been cancelled.
In 2015 the Group issued corporate bonds with a US$ equivalent value of US$2.2 billion. These included €600 million 1.5% guaranteed notes due 2020 issued under the EMTN program, US$850 million 3.625% senior notes due 2020 and US$650 million 4.875% senior notes due 2025 through accessing the US bond markets. In March 2015, we further extended the maturity date of US$4,808 million of our revolving credit facility to 2020 with the consent of the lenders.
Non-wholly owned subsidiaries, where possible, will maintain their own financing and funding requirements. In most cases, the financing is non-recourse to Anglo American. In addition, certain projects are financed by means of limited recourse project finance, if appropriate.
Funding Sources
The maturity profile of our debt obligations as of December 31, 2017 is set forth below:
Within
1 year or on
demand
Between
1 year and
2 years
Between
2 years and
5 years
After
5 years
Total
(US$m)
Secured
Bank loans and overdrafts
18
12
27
-
57
Obligations under finance leases
13
11
12
45
81
Total secured loans
31
23
39
45
138
Unsecured
Bank loans and overdrafts
24
3
113
7
147
Bonds issued under EMTN program
717
439
2,599
1,664
5,419
US Bonds
-
763
2,008
2,591
5,362
Bonds issued under AMTN program
397
-
-
-
397
Bonds issued under DMTN program
-
114
85
-
199
Other loans
182
20
107
-
309
Total unsecured loans
1,320
1,339
4,912
4,262
11,833
Total borrowings
1,351
1,362
4,951
4,307
11,971
We had available undrawn committed borrowing facilities of US$9,008 million as of December 31, 2017, US$9,707 million as of December 31, 2016 and US$7,879 million as of December 31, 2015.
The maturity profile of our undrawn committed borrowing facilities as of December 31, 2017 is set forth below:
Within
1 year or on
demand
Between
1 year and
2 years
Between
2 years and
5 years
After
5 years
Total
(US$m)
Undrawn committed borrowing facilities
490
598
7,920
-
9,008
Our available undrawn committed borrowing facilities of US$9,008 million as of December 31, 2017 included undrawn rand facilities equivalent to US$300 million in respect of a series of facilities with 364 day maturities which roll automatically on a daily basis, unless notice is served.
Financial Risk Exposure and Management
The Group is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors of Anglo American plc (the “Board”) approves and monitors the risk management processes, including documented treasury policies, counterparty limits, controlling and reporting structures. The risk management processes of Anglo American’s independently listed subsidiaries (including Anglo American Platinum and Kumba) are in line with Anglo American’s own policies.
Credit Risk
The Group’s principal financial assets are cash, trade and other receivables, investments and derivative financial instruments. The Group limits credit risk on liquid funds and derivative financial instruments through diversification of exposures with a range of financial institutions approved by the Board. Counterparty limits are set for each financial institution with reference to credit ratings assigned by Standard & Poor’s, Moody’s and Fitch Ratings, shareholder equity (in case of relationship banks) and fund size (in case of asset managers).
Given the diverse nature of the Group’s operations (both in relation to commodity markets and geographically), and the use of payment security instruments (including letters of credit from financial institutions), it does not have significant concentration of credit risk in respect of trade receivables, with exposure spread over a large number of customers. A provision for impairment of trade receivables is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows.
Liquidity Risk
The Group ensures that there are sufficient committed loan facilities (including refinancing, where necessary) in order to meet short-term cash requirements, after taking into account cash flows from operations and its holding of cash and cash equivalents, as well as any group distribution restrictions that exist. Non-wholly owned subsidiaries, where possible, will maintain their own financing and funding requirements. In addition, certain projects are financed by means of limited recourse project finance, if appropriate.
Foreign Exchange Risk
As a global business, the Group is exposed to many currencies principally as a result of non-US dollar operating costs incurred by US dollar functional currency companies and, to a lesser extent, from non-US dollar revenues.
The Group’s policy is generally not to hedge such exposures given the correlation, over the longer term, with commodity prices and the diversified nature of the Group, though exceptions can be approved by the Group Management Committee. In addition, currency exposures exist in respect of non-US dollar approved capital expenditure projects and non-US dollar borrowings in US dollar functional currency entities. The Group’s policy is that such exposures should be hedged subject to a review of the specific circumstances of the exposure.
Interest Rate Risk
Interest rate risk arises due to fluctuations in interest rates which impact on the value of short term investments and financing activities. The Group is principally exposed to US and South African interest rates.
The Group’s policy is to borrow funds at floating rates of interest given the link with economic output and therefore the correlation, over the longer term, with commodity prices. The Group uses interest rate swap contracts to manage its exposure to interest rate movements on its debt. Strategic hedging using fixed rate debt may also be undertaken from time to time if approved by the Group Management Committee.
In respect of financial assets, the Group’s policy is to invest cash at floating rates of interest and to maintain cash reserves in short term investments (less than one year) in order to maintain liquidity, while achieving a satisfactory return for shareholders.
Commodity Price Risk
The Group’s earnings are exposed to movements in the prices of the commodities it produces. The Group’s policy is to sell its products at prevailing market prices and is generally not to hedge commodity price risk, although some hedging may be undertaken for strategic reasons. In such cases, the Group generally uses forward contracts and other derivative instruments to hedge the price risk. Certain of the Group’s sales and purchases are provisionally priced, meaning that the selling price is determined normally 30 to 180 days after delivery to the customer, based on quoted market prices stipulated in the contract, and as a result are susceptible to future price movements.
Derivatives and Hedging
The Group utilizes derivative instruments to manage certain market risk exposures as explained above. The Group does not use derivative financial instruments for speculative purposes; however it may choose not to designate certain derivatives as hedges for accounting purposes. Such derivatives are classified as non-hedges and fair value movements are recorded in the income statement. The use of derivative instruments is subject to limits and the positions are regularly monitored and reported to senior management. Derivatives are classified as current or non-current depending on the maturity of the derivative.
Off-Balance Sheet Arrangements
The Group enters into certain arrangements in the ordinary course of business that would be considered “off balance sheet”. Such arrangements principally arise from the requirement, in several jurisdictions, to provide guarantees in respect of environmental restoration and decommissioning obligations. The Group has provided for the estimated cost of these activities, see note 15 to the Group 2017 Consolidated Financial Statements.
Contractual Obligations and Commercial Commitments
As of December 31, 2017, the Group had contractual cash obligations arising in the ordinary course of business as follows:
Total
Less than
1 year
Between
1 year and
2 years
Between
2 years and
5 years
More than
5 years
(US$m)
Debt obligations(1)
(14,334)
(1,838)
(1,739)
(5,852)
(4,905)
Operating lease obligations
(513)
(168)
(101)
(129)
(115)
Purchase obligations(2)
(1,444)
(720)
(313)
(411)
-
Other liabilities(3)
(4,235)
(3,985)
(22)
-
(228)
Total Contractual Obligations
(20,526)
(6,711)
(2,175)
(6,392)
(5,248)
Debt obligations include finance lease obligations, the effect of related currency derivatives and interest rate swaps and the anticipated future interest payments on borrowings.
Purchase obligations reflect the Group’s capital commitments at December 31, 2017.
Other liabilities include trade payables and other financial liabilities of the Group.
Information relating to the Group’s post-retirement benefit obligations is provided in Note 27 of the Group 2017 Consolidated Financial Statements, incorporated by reference herein. On the basis of the levels of obligations described above, the Group’s access to debt and equity capital markets, access to committed and uncommitted bank debt, the level of cash deposits and the level of currently anticipated free cash flow, we believe that the Group has sufficient short and long-term sources of funding available to meet our liquidity requirements.
Application of Critical Accounting Policies and Estimates
In the course of preparing our financial statements, management necessarily makes judgments and estimates that can have a significant impact on the financial statements. The most critical of these relate to estimation of Ore Reserves, assessment of fair value and impairment of assets. The use of inaccurate assumptions in assessments made for any of these estimates could result in a significant impact on financial results.
For a detailed discussion of these critical accounting policies, judgments and estimates please see note 7 to the Group 2017 Consolidated Financial Statements, which are incorporated by reference in this document.
Differences Between IFRS and US GAAP
The financial information included in this document in respect of the years ended December 31, 2015, 2016 and 2017 has been prepared and presented in accordance with IFRS. Certain differences exist between IFRS and US GAAP, which might be material to the financial information herein.
In making an investment decision, investors must rely on their own examination of the Group, the terms of the offering and the financial information. Potential investors should consult their own professional advisers for an understanding of the differences between IFRS and US GAAP, and how these differences might affect the financial information herein.
REGULATION
We are subject to government regulations that affect all aspects of our operations. In particular, legislation, regulations and government policy in South Africa could have a material effect on the Group’s business.
In most jurisdictions, the rights to mineral deposits are conferred by the state. We therefore must rely upon rights granted to us by the government who acts as the custodian of the minerals (and the renewal of those rights). These rights typically take the form of a lease or license that grants us the right to gain access to the land and to explore for and subsequently extract the minerals. Exploration rights typically include the obligation to spend a predetermined amount of money on the exploration or to undertake specific exploration activities. The terms of the leases or licenses, including the time period for which they are effective, are specific to the laws of the relevant governmental authority. Generally, we own the minerals that we extract and pay royalties or similar taxes to the relevant government.
We also have a number of joint venture arrangements with government and private entities (including the Government of the Republic of Botswana and the Government of the Republic of Namibia), which are sometimes necessary in order to operate exploration and mining activities in certain jurisdictions.
In addition to reliance upon government grants of rights to explore for and extract materials, in certain jurisdictions we rely upon the relevant government to grant the rights necessary to transport and to treat the extracted minerals in order to prepare them for sale, as well as to export the raw or processed material.
Governments generally impose applicable regulations relating to, for example, environmental protection, water use, land rehabilitation, occupational health and safety, indigenous land title and socio-economic commitments, and we must comply with these regulations in order to continue to enjoy the right to conduct our operations within that jurisdiction. These obligations often require us to make substantial expenditure to minimize, to remediate or to rehabilitate the environmental impact of our operations, to ensure the safety of our employees and contractors and to meet defined socio-economic obligations.
South Africa
Requirements to obtain permits and licenses are imposed by various departments of the South African government. We strive to follow the required procedures in the application for these environmental, water and mineral permits and licenses.
Additionally, the transfer of a share of the ownership, management and benefits of the South African mining industry into the hands of people previously excluded from the economy is a longstanding government policy referred to as Black Economic Empowerment (“BEE”).
The MPRDA and the Mining Charter
Historical background
The South African Constitution expressly authorizes “…legislative and other measures designed to protect or advance persons … disadvantaged by unfair discrimination …”. There are many examples of such reparatory initiatives across the South African economy, some of which are statutory/regulatory in nature (“Legal Instruments”) while others are in the nature of policies or guidelines (“Policy Instruments”).
In the mining industry, the primary Legal Instrument is the Mineral and Petroleum Resources Development Act, 2003 (“MPRDA”), which vests custodianship of South Africa’s minerals in the state, which regulates the right to prospect and mine in the form of prospecting rights or Mining Rights to applicants. The MPRDA contains within its objectives (section 2) the following (collectively referred to as the “Transformation Objectives”):
The promotion of equitable access to the nation's mineral and petroleum resources to all the people of South Africa (section 2(c) of the MPRDA);
Substantially and meaningfully expanding opportunities for historically disadvantaged persons, including women and communities, to enter into and actively participate in the mineral and petroleum industries and to benefit from the exploitation of the nation's mineral and petroleum resources (section 2(d) of the MPRDA); and
Promoting employment and advancing the social and economic welfare of all South Africans (section 2(f) of the MPRDA).
Pursuant to the MPRDA, the Minister of Mineral Resources (“Minister”) and the DMR are authorized to exercise the administrative discretion conferred under that Act such that the Transformation Objectives are advanced. Examples of such delegated powers include, but are not limited to, the adjudication of applications for the award of new mining and prospecting rights and requests for consent for the transfer of existing mining and prospecting rights between parties. Under the MPRDA, the exercise of administrative discretion by the Minister and the DMR must take into account the Transformation Objectives and any such exercise which failed to consider the Transformation Objectives would be unlawful and could be set aside upon review by the courts. The Transformation Objectives must be applied in a manner consistent with the Constitution of South Africa and any overreach by the Minister or the DMR in applying the MPRDA is similarly subject to review by the courts.
The Policy Instrument supporting the Transformation Objectives is the “mining charter” provided for in section 100(2) of the MPRDA. Section 100(2) provides that the Minister must develop, within six months of the promulgation of the MPRDA, a “broad-based socio-economic Charter” for the South African mining industry. This charter (generally referred to as the “Mining Charter”) was developed through a collaborative consensus based process, commencing in 2001, involving the DMR, the mining industry (represented by the Chamber of Mines) and organized labor in the mining industry and the finalized version was included as an appendix to the promulgated MPRDA in 2004.
In section 100(2) of the MPRDA, the Mining Charter is described as a “framework for targets and [a] time table for effecting the entry into and active participation of historically disadvantaged South Africans into the mining industry” and should “allow such [historically disadvantaged] South Africans to benefit from the exploitation of mining and mineral resources”. It continues that the Mining Charter “must set out, amongst others, how the … [Transformation Objectives] … can be achieved”. The Mining Charter is thus a Policy Instrument supporting the attainment of the Transformation Objectives of the MPRDA.
As a Policy Instrument, the Mining Charter is not the subject of regulatory compliance obligations, it merely establishes a policy and guideline for the framing, measurement and implementation of each mining company’s contribution to the achievement of the Transformation Objectives. Accordingly, the Mining Charter provides guidance on reparatory initiatives in relation to employment equity (the South African form of workplace affirmative action), human resource development, preferential procurement, corporate ownership, migrant labor, housing and living conditions for employees, beneficiation as well as mine community and rural development. This guidance includes descriptions of what initiatives would qualify for recognition, the targeted impact and timeline for implementation as well as the manner of measurement of completion. Being a Policy Instrument, this guidance does not constitute a binding legal obligation. That said, we have always regarded continued performance in accordance with the Mining Charter as a duty arising from our participation in its development. Since the promulgation of the MPRDA, we have consistently submitted our statutory annual returns to the DMR, demonstrating our successful performance against the Mining Charter targets.
Although the MPRDA makes no provision for the amendment or substitution of the mining Charter, at the end of the first five years following the promulgation of the MPRDA, the mining industry (again represented by the Chamber of Mines), the DMR and organized labor all agreed to review the Mining Charter, again within a collaborative consensus based process. This processes resulted in the development of a revised Mining Charter in late 2009 which enjoyed support from all stakeholders. However, when the Minister finally gazetted the revised mining charter as the “Amendment of the Broad-Based Socio-Economic Empowerment Charter for the South African Mining Industry” (generally referred to as “MC2”), text was included that was suggestive of that Policy Instrument being enforceable in law. The MPRDA makes no provision for a legally enforceable mining charter. In South Africa, law can only be enacted by the legislature or under authority of statute enacted by the legislature. As such, regardless of the inclusion of language suggesting the contrary, MC2 remained a Policy Instrument and we continued to consider performance against its target as a necessary consequence of our participation in its development.
Recent developments
An amendment bill (“Amendment Bill”) to the MPRDA was published for comment in December 2012 and after receiving comments this Amendment Bill was passed by the legislature. However, the President of South Africa, exercising powers granted to him under the Constitution of South Africa, returned the Amendment Bill to the legislature citing a number of procedural and constitutional concerns. The Amendment Bill remains before the legislature. Key aspects of such Amendment Bill include:
Empowering the Minister to designate minerals as strategic minerals. The Minister will be required to consult with affected stakeholders before designating minerals and mineral products and before determining the percentages, quantities, qualities and timelines that have to be offered to local beneficiators at a mine gate price; and
Amending the term “this Act” as being inclusive of the Mining Charter (or MC2 as it is not entirely clear) with a view to granting the status of legislation to the Mining Charter. This provision appears to be an attempt to transform the Mining Charter from a Policy Instrument into a Legal Instrument, which is more than likely unconstitutional – and this precise issue was one of the grounds upon which the President returned the Amendment Bill to the legislature for reconsideration.
In March 2015, the Minister announced that the DMR and the Chamber of Mines had agreed to seek a declaratory order from the courts regarding the interpretation of certain elements of MC2 and, specifically, whether a company’s performance against the target in MC2 ownership target is discounted where the target has been met but the ownership stakes acquired by BEE parties are subsequently sold, thereby diluting HDSA ownership.
This matter has commenced and is before the courts. The first hearings were held in early 2016, but the litigation was postponed in order to allow the parties to attempt to reach settlement of the dispute. The litigation was re-enrolled for hearing in November 2017 and judgment is awaited.
On April 16, 2016, the Minister published a draft reviewed mining charter (generally referred to as MCIII) for comment. The draft MCIII was not a product of a collaborative consensus-based process and was developed by the DMR to the exclusion of the mining industry and other stakeholders. As discussed above, the MPRDA does not provide for substitution or amendment of the Mining Charter as originally provided for in section 100(2). We (and the mining industry) made comprehensive submissions to the DMR regarding the draft MCIII.
On June 15, 2017, the Minister published, again without meaningful participation by the mining industry (and in a departure from past practice), the “Broad-Based Black Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry, 2017” in the government gazette. While Anglo American and the Chamber of Mines contend that MCIII is not enforceable law, it is important to note that MCIII differs significantly from the Mining Charter provided for in section 100(2) of the MPRDA and the subsequently gazetted MC2 in the following respects, among others:
holders of mining and prospecting rights have only 12 months to meet most of the new targets of MCIII, and the penalty for not meeting such timelines are stated by MCIII to include criminal sanctions, suspension of operations and/or suspension or withdrawal of the mining right. We do not believe any of these penalties to be authorized in the MPRDA;
an ownership target of 30% of the equity of mining companies to be held by black people (who are South Africans) must be achieved and maintained, and black partners must directly and actively control their share of equity interest in the mining company, which must include participation in the transportation, as well as trading and marketing of a proportionate share of production;
a holder of a new mining right must pay a minimum 1% of its annual turnover in any given financial year to its black shareholders, prior to and over and above any distributions to the shareholders of the company (subject only to the solvency and liquidity requirements as set out in the Companies Act);
black owned companies must be given a “preferential” option to purchase any mining assets sold by a mining rights holder;
mining companies must achieve the following minimum black men and black women demographic representation: 50% at executive management (board) level (25% of which must be black women), 60% at senior management level (30% of which must be black women), 75% at middle management level (38% of which must be black women), 88% at junior management level (44% of which must be black women) and 60% of the company's core and critical skills employees;
new procurement targets have been set which increase over a three-year transitional period until in the third year: (a) at least 70 % of all mining goods procurement spend must be in respect of South African manufactured goods procured from a combination of black owned companies, black owned companies controlled by women or youth and BEE Legislation compliant manufacturing companies (BEE Level 4 and 26% black owned) and 80% of all mining services must be procured from South African based companies and apportioned between black owned companies and black owned companies controlled by women or youth.
The Chamber of Mines, with our support, has indicated that it will challenge MCIII on several grounds, including its position that the MPRDA only authorizes the development of the Mining Charter, and the development of MC2 and MCIII is outside the scope of the authority of the Minister and that MCIII is unsustainably commercially onerous. Further, the Chamber of Mines contends that while MCIII purports to be enforceable law, the MPRDA does not authorize the enforcement of any charter and the Constitution of South Africa reserves the power to enact law to its legislature and the power to make regulations to officials duly authorized to do so under legislation enacted by the legislature. The Chamber of Mines applied to the High Court for an interdict (which was scheduled to be heard on September 14 and 15, 2017) preventing the implementation of MCIII until the dispute was resolved. In the days leading up to hearing of the interdict application, and in order to avoid the hearing of that application, the Minister entered into an agreement with the Chamber of Mines stating that he and his department will take no action intended to give effect to MCIII until such time as the Chamber of Mines’ application for a judicial review of MCIII is determined by the High Court. The application was scheduled to commence on February 21, 2018, however following the election of a new president of the Republic of South Africa on February 15, 2018, the Chamber of Mines and the Government of South Africa agreed to postpone the review pending a reconsideration of MCIII by all the relevant stakeholders.
If MCIII is implemented as originally drafted, the Group may in the future incur significant costs as a result of changes in the interpretation of existing laws and guidelines or the imposition of new requirements relating to BEE. See "Risk Factors—Risks Relating to Our Business—Uncertainty and instability in the mining industry or other applicable regulation, legislation or tax regimes in any country in which we operate could adversely affect our business."
Current status of our rights
The DMR has to date granted our applications for conversion of our “old order” rights, i.e. mining rights as they existed prior to the promulgation of the MPRDA, and several new mining rights have also been granted. All of the licenses for our operating mines within Coal South Africa, Kumba Iron Ore, Anglo American Platinum and De Beers Consolidated Mines are in full grant.
New and converted mining rights are granted for a maximum period of 30 years, with renewals of up to 30 years each. The average remaining tenure of our existing mining rights is approximately 23 years. Prospecting rights are valid for a period of five years, with one renewal of up to three years. For gas exploration rights, the maximum period is three years with options of renewal for up to two years each. Furthermore, the MPRDA provides for a retention period after prospecting of up to three years with one renewal of up to two years, subject to certain conditions, such as non-concentration of resources, fair competition and non-exclusion of others.
Mining rights are transferable only with the approval of the Minister and are subject to various terms and conditions, including commencement of operations within specified periods, continuing and active operations and compliance with work programs, social and labor plans, environmental authorizations and empowerment requirements.
Under section 47 of the MPRDA, mining rights can be suspended or cancelled by the Minister if the holder has breached its obligations under the terms of the rights and has failed to remedy such breach after written notice of the breach from the Minister and an opportunity for response. Currently, “non-compliance” with the Mining Charter or MC2 is not grounds for the suspension or cancellation of a right.
The MPRDA imposes specific responsibilities on mining companies relating to environmental management and in respect of any environmental damage caused by prospecting, exploration or mining activities.
In accordance with the MPRDA, we are required to report annually to the DMR on all aspects of our compliance with the MPRDA and on progress against the targets contained in the Mining Charter/MC2. Our reports have all been accepted by the DMR.
Exchange Controls
The following is a general outline of South African exchange control regulations (“Exchange Control Regulations”) and its impact on the Group’s business.
The current set of Exchange Control Regulations was promulgated on December 1, 1961. It is the stated intention of the South African authorities to relax Exchange Control Regulations in an orderly manner as and when it is deemed appropriate. Although a gradual relaxation has taken place over a number of years, exchange controls still exist with the intention of controlling the flow of capital into and out of the member countries of the Common Monetary Area (comprising South Africa, Lesotho, Namibia and Swaziland) and generally to prevent the unauthorized export of capital by residents.
The administration of exchange controls has been delegated to the Financial Surveillance Department of the South African Reserve Bank (“SARB”). The SARB has broad discretion, but it acts within policies set by the Minister of Finance and the National Treasury in consultation with the SARB. Certain powers have been delegated to authorized dealers (banks licensed by the SARB to deal in foreign exchange) to approve applications for foreign exchange. Matters that are beyond these powers are referred to the SARB, which adjudicates applications on their merits in accordance with policy and national interests.
Exchange Control Regulations apply to all South African residents. For this purpose, a resident is a natural person or legal entity, whether of South African or any other nationality, who has taken up residence, is domiciled or registered in the Republic of South Africa. A branch of a foreign company is resident for exchange control purposes.
All subsidiaries of the Group registered in South Africa, including Anglo American South Africa Limited, Anglo American Platinum, De Beers’ South African operations and Kumba, are South African residents and, consequently, are subject to South African Exchange Control Regulations. Any offshore transaction by these companies of a capital nature requires prior authorized dealer or SARB approval, depending on the value and specific circumstances of the transaction.
Most transactions of a revenue nature would not usually require prior SARB approval, although there are administrative and reporting requirements. These transactions would include the import and/or export of trade goods and the remittance of dividends to non-resident shareholders from profits earned in the normal course of business.
Normally, non-residents may freely invest or disinvest from South Africa and income due to the non-resident may be freely remitted. However, because the Group’s acquisition of its South African interests was by means of a share issue, SARB approval would be required for the remittance of any capital to the Group offshore by its South African resident subsidiaries. Further, operating profits of the South African Group can be distributed outside of South Africa in the form of dividends, although these cannot, without SARB approval, exceed the amount of the Anglo American plc dividend.
SUSTAINABLE DEVELOPMENT (INCLUDING SAFETY, HEALTH, ENVIRONMENT AND SOCIAL)
The extractive industry is subject to increasing pressure following various environmental incidents and bribery allegations levied against major corporations. Such pressure results in industry participants committing more resources to safety and sustainability efforts in the jurisdictions where they operate. Such efforts are important for the purposes of improving relationships with the host communities where the companies operate as well as for the maintenance of licenses to operate.
Through the careful planning of operations at our mines, we seek to ensure the efficient use of our capital and resources and to maintain the sustainability of our mining activities. As part of this effort, we use new technologies available to us to ensure our operations are more cost-effective, productive and safe, such as remote-controlled digital equipment, automation and investment in low-carbon technologies.
During the second half of 2017, we launched our new sustainability strategy. The importance of developing and maintaining positive relationships with host communities will remain a key aspect of our new strategy. We have made progress in implementing our Social Way program. Our Social Way defines Anglo American’s governing framework for social performance. It provides clear requirements for all Anglo American managed sites to ensure that policies and systems are in place to engage with affected communities, to avoid, prevent and mitigate adverse social impacts and to optimize development opportunities.
Safety and health
We value the health and safety of our employees. In 2017 we recorded a reduction in lost-time injury frequency rate (calculated as the number of lost time injuries for both employees and contractors per 200,000 hours worked) decreasing by 8% from 0.37 in 2016 to 0.34 in 2017 (2015: 0.47). We recorded a decrease in fatal injuries, with 9 lives lost at the Group’s operations sites compared to 11 lives in 2016 and 6 in 2015. Several of the fatal incidents arose as a result of front-line operational practice not being aligned with our stringent safety policies. To prevent the recurrence of such incidents in the future, the Board, and particularly the Sustainability Committee, is engaging closely with chief executive, Mark Cutifani and his management team.
The safety of our mines is also subject to tailings dam breaches, of which there have been a number in the mining industry in recent years. A failure of a tailings dam wall can have catastrophic consequences both at the mine site and downstream of the operation. We have confidence in the integrity of our tailings storage facilities and our tailings dam monitoring exceeds legal-compliance requirements, we are increasing our degree of surveillance, inspection monitoring and risk assurance.
We have taken significant steps to resolve the matter of silicosis claims in South Africa as described under “General Information—Litigation”. We also work with industry participants, local and national government and the surrounding communities to formulate an approach to the various challenges of primary and occupational healthcare in South Africa.
Climate change
Through various partnerships, we continue to work to address the causes and impacts of climate change as they relate to the mining industry. As part of our outreach, we have consulted with the Aiming for A coalition, which was established in 2012 by a group of investors, including some of our largest shareholders, to enhance extractive companies’ reporting requirements as a way to address climate change and how the companies manage the impact of climate change on their respective businesses.
In April 2016, the Board supported a special resolution proposed by a group of shareholders that was then passed by shareholders at the AGM. The resolution in support of strategic climate resilience for 2035 and beyond was prepared by the Aiming for A coalition.
The resolution seeks a step change in companies’ disclosure to investors on how they measure and manage climate change risks and opportunities to their businesses. Anglo American’s climate change policy articulates our commitment to five principles, building internal agility and ensuring resilience to climate change, driving energy and carbon savings throughout our business, understanding and responding to the carbon life-cycle risks and opportunities of our products, developing and implementing collaborative solutions with our stakeholders and contributing our skills and knowledge to the development of responsible public policy.
Code of Conduct
The Code of Conduct explains the boundaries within which Anglo American must work every day and brings together in one place the Group’s material ethical principles and policies. It has at its core Anglo American’s shared values, which describe how the Group must behave consistently to continue to earn the trust that gives the Group its license to operate.
The board and its sustainability committee
The Sustainability Committee, on behalf of the Board, actively engages in all aspects of the Group’s sustainability agenda. The sustainability agenda includes overseeing the policies, processes and strategies designed to manage safety, health, environmental and socio-political risks. It also oversees compliance with sustainability commitments and an industry-leadership position on sustainability.
BOARD OF DIRECTORS AND MANAGEMENT OF ANGLO AMERICAN PLC
Board of Directors
The Board of Directors has a duty to promote the long-term success of the Company for its shareholders. Its role includes the establishment, review and monitoring of strategic objectives, approval of major acquisitions, disposals and capital expenditure and overseeing the Group’s systems of internal control, governance and risk management.
Certain matters are reserved for the Board’s decision regarding key aspects of the Company’s affairs that the Board does not delegate (including, among other things, approval of business plans, budgets and material expenditure).
The Board is chaired by Stuart Chambers, who is responsible for leading the Board and for its effectiveness. Mark Cutifani is the chief executive and is responsible for the execution of strategy and the day-to-day management of the Group, supported by the Group Management Committee (“GMC”) which he chairs.
The Company has adopted the Statement of Division of Responsibilities between the Chairman and Chief Executive promulgated by the Institute of Chartered Secretaries and Administrators.
The Board has a strong independent element and currently comprises, in addition to the chairman, three executive directors and eight non-executive directors who are independent according to the definition contained in the UK Corporate Governance Code 2016.
Conflicts of Interest
If directors become aware that they have a potential or actual direct or indirect interest in an existing or proposed transaction with Anglo American, they are required to notify the Board at the next Board meeting or by a written declaration. Directors and members of the GMC and its subcommittees have a continuing duty to update any changes in their interests.
No potential conflicts of interest exist between each of the Directors’ duties to Anglo American plc and his or her private interests or other duties other than as reflected above.
Composition of the Board of Directors
There were a number of changes to the Board in 2017, as described below. These changes ensured that the skills and experience lost as a result of recent resignations and retirements were replaced, and aimed to achieve gender and ethnic diversity on the Board as a whole.
At the conclusion of Anglo American’s Annual General Meeting (“AGM”) on April 24, 2017, René Medori retired as Finance Director. René was succeeded by Stephen Pearce, who joined Anglo American and its GMC on January 30, 2017.
Nolitha Fakude joined the Board as a non-executive director with effect from the conclusion of Anglo American’s AGM on April 24, 2017.
Ian Ashby was appointed as a non-executive director, with effect July 25, 2017.
As announced in June 2017, Stuart Chambers joined the Board of Anglo American as a non-executive director and Chairman Designate on September 1, 2017. On 31 October 2017, Sir John Parker retired from the Board as Chairman, as announced in February 2017. Stuart Chambers was appointed as Chairman of Anglo American with effect from November 1, 2017.
In 2016, two non-executive directors stepped down from the Board: July Dlamini in August and Ray O’Rourke in July.
In November 2015, Phuthuma Nhleko stepped down as non-executive director.
Tony O’Neill joined the Board as technical director on July 22, 2015, having joined the Group in 2013.
The names and biographical details of the directors are set forth below. The business address of each Director is 20 Carlton House Terrace, London SW1Y 5AN, England.
Executive Directors
Mark Cutifani, BE (Mining Engineering) (59), was appointed as a director and chief executive with effect from April 3, 2013, is chairman of the Group Management Committee (“GMC”) and a member of the Corporate Committee (“CorpCo”), Operational Committee (“OpCo”) and the Sustainability Committee. Mark brings to Anglo American over 40 years’ experience in the mining industry across a wide range of geographies and commodities. He is a non-executive director of Anglo American Platinum Limited and De Beers. Mark was appointed as an independent director of Total S.A. on May 26, 2017. He was previously CEO of AngloGold Ashanti. Before joining AngloGold Ashanti, Mark was COO at Vale’s global nickel business. Prior to this he held senior executive positions with the Normandy Group, Sons of Gwalia, Western Mining Corporation, Kalgoorlie Consolidated Gold Mines and CRA (Rio Tinto). In 2016, Mark was awarded an honorary doctorate by the Laurentian University in Canada.
Stephen Pearce, BBus (Acc), FCA, GIA, MAICDB (53), Stephen joined Anglo American as finance director designate on January 30, 2017 and joined the Board as finance director on April 24, 2017. Stephen brings to Anglo American more than 16 years of public company director experience and over 30 years of financial and commercial experience in the mining, oil and gas, and utilities industries. He is a member of the GMC, and chairman of the CorpCo and the Investment Committee (“InvestCo”). He is also a non-executive director of Kumba Iron Ore Limited, Anglo American Platinum Limited and De Beers. Before joining Anglo American, Stephen served as chief financial officer and an executive director of Fortescue Metals Group from 2010 to 2016. Prior to that, he held the positions of managing director and CEO of Southern Cross Electrical Engineering Ltd and was chief financial officer of Alinta Ltd. He is a former non-executive director of Cedar Woods Properties Ltd. Stephen has a Bachelor of Business from Royal Melbourne Institute of Technology and a Graduate Diploma in Company Secretarial Practice. He is a Fellow of the Institute of Chartered Accountants and a member of the Governance Institute of Australia and the Australian Institute of Company Directors.
Tony O’Neill, MBA, MASc (Eng) (60), was appointed to the Board as technical director on July 22, 2015. Tony joined Anglo American in 2013 and has responsibility for the Group’s technical and sustainability function. Tony brings to Anglo American 37 years’ experience in the mining industry across numerous geographies, and commodities spanning iron ore, copper, nickel and gold. He is a member of the GMC, chairman of the OpCo, and a member of the CorpCo, InvestCo and the Sustainability Committee. He is also a non-executive director of Anglo American Platinum Limited and De Beers. Tony was previously EVP-Business and Technical Development at AngloGold Ashanti from 2008, where he served as joint acting CEO during July 2013. His extensive career in the mining industry includes roles as operations executive at Newcrest Mining and as the head of the gold business at Western Mining Corporation. Tony is a mining engineer with an MBA from the University of Melbourne.
Non-Executive Directors
Stuart Chambers, BSc (61), was appointed to the Board as a non-executive director and Chairman Designate on September 1, 2017 and as Chairman on November 1, 2017. Stuart brings to Anglo American significant global executive and boardroom experience across the industrial, logistics and consumer sectors. He is chairman and a non-executive director at Travis Perkins PLC, and a member of the UK Takeover Panel. Stuart previously served as chairman of ARM Holdings plc and Rexam plc until 2016; and as a non-executive director on the boards of Tesco plc (2010-2015), Manchester Airport Group plc (2010-2013), Smiths Group plc (2006-2012) and Associated British Ports Holdings plc (2002-2006). His executive career included 13 years at Nippon Sheet Glass (formerly Pilkington) until 2010, in a number of executive roles and ultimately as chief executive. Prior to that, Stuart gained 10 years of sales and marketing experience at Mars Corporation, following 10 years as Shell.
Ian Ashby, BEng (60), joined the Board on July 25, 2017 and is a member of the Sustainability Committee. Ian brings to Anglo American substantial knowledge of the minerals industry across a wide range of commodities, combined with global operating, major projects and capital development experience. He served as President of Iron Ore for BHP Billiton between 2006 and 2012, when he retired from the company. During his 25-year tenure with BHP Billiton, Ian held numerous roles in its iron ore, base metals and gold businesses in Australia, the US, and Chile, as well as project roles in the corporate office. He began his 37-year mining career as an underground miner at the Mount Isa Mines base metals operations in Queensland, Australia. Ian is chairman of Petropavlovsk PLC and a non-executive director of Nevsun Resources Ltd and Alderon Iron Ore Corp. He has previously served as a non-executive director of New World Resources Plc and Genco Shipping & Trading, and in an advisory capacity with Apollo Global Management and Temasek. Ian holds a Bachelor of Engineering (Mining) degree from the University of Melbourne in Australia.
Nolitha Fakude, BA Hons (53), joined the Board on April 24, 2017. Nolitha is a member of the Audit and Sustainability Committees. Nolitha brings to Anglo American significant management experience in various functional leadership roles across the oil and energy, chemicals, financial services and retail industries. Until 2016, Nolitha served as an executive director at Sasol Limited and as Executive Vice President of Strategy and Sustainability, following an 11 year career with the company where she held executive roles in human resources and business transformation. Prior to that she held senior management positions in corporate affairs, strategy and operations in the retail and financial sectors. Nolitha is deputy chair of South African Airways, a non-executive director of the JSE Limited and African Oxygen Limited (AFROX), and a Patron of Guild Cottage home for girls. She has previously served as deputy chairman and lead independent director of Datacentrix Holdings Limited, and as a non-executive director of Harmony Gold and Woolworths Holdings.
Dr. Byron Grote, PhD Quantitative Analysis (70), was appointed to the Board on April 19, 2013. He is chairman of the Audit Committee and a member of the Nomination and Remuneration Committees. Byron contributes to Anglo American broad business, financial and board experience in numerous geographies. Bryon is vice chairman of the supervisory board of Akzo Nobel and a non-executive director of Standard Chartered PLC and Tesco PLC. He is a member of the European Audit Committee Leadership Network and an emeritus member of the Cornell University Johnson Advisory Council. Byron has extensive management experience across the oil and gas industry. He served on the BP plc board from 2000 until 2013 and was BP’s chief financial officer during much of that period. He was previously a non-executive director of Unilever NV and Unilever PLC.
Sir Philip Hampton, MA, ACA, MBA (64), joined the Board on November 9, 2009 and has served as the senior independent director since April 2014. He is chairman of the Remuneration Committee and a member of the Audit and Nomination Committees. Sir Philip is chairman of GlaxoSmithKline (GSK) plc and brings to Anglo American significant financial, strategic and boardroom experience across a number of industries. His previous appointments include chairman of The Royal Bank of Scotland and J Sainsbury plc, finance director of Lloyds TSB Group plc, BT Group plc, BG Group plc, British Gas plc and British Steel plc, executive director of Lazards and non-executive director of RMC Group plc and Belgacom SA.
Dr. Mphu Ramatlapeng, MD, MHSc (65), was appointed to the Board on July 8, 2013 and is a member of the Sustainability Committee. Mphu is a highly experienced leader who brings to Anglo American a broad range of global health expertise at board level across both the public and private sectors. Mphu is the executive vice president of HIV/AIDS and Tuberculosis programs for the Clinton Health Access Initiative and also the vice chair of the Global Fund to Fight AIDS, TB and Malaria. She served as Minister of Health and Social Welfare of Lesotho between 2007 and 2012. In this role, she championed Lesotho’s significant achievements in reducing the transmission of HIV from mother to child. Across her career, she has been a leading advocate for women in business, including serving as founding board member of Women in Business in Lesotho.
Jim Rutherford, BSc (Econ), MA (Econ) (58) joined the Board on November 4, 2013 and is a member of the Audit, Remuneration and Sustainability Committees. Jim has over 25 years’ experience in investment management and investment banking. He has extensive international experience, and brings to the Board considerable financial insight from the perspective of the capital markets and a deep understanding of the mining industry. Jim is chairman of Dalradian Resources Inc., chairman of the Queen’s University Belfast Foundation Board, and an independent director of the Tantallon India Fund Board. Between 1997 and 2013, he was a senior vice president of Capital International Investors, a division of the Capital Group, and had responsibility for investments in the mining and metals industry. Prior to joining Capital Group, Jim was an investment analyst covering the South American mining and metals industry for HSBC James Capel in New York.
Anne Stevens, PhD, BSc (70), joined the Board on May 14, 2012 and is a member of the Audit, Nomination and Remuneration Committees. Anne brings a wealth of experience and wide-ranging commercial acumen from a number of global industries in North, Central and South America. Anne is chief executive of GKN plc and a non-executive of XL Catlin. She served as chairman and CEO of SA IT Services from 2011 until her retirement in December 2014. From 2006 to 2009 Anne was chairman and CEO of Carpenter Technology Corporation. Prior to this, she was COO for the Americas at Ford Motor Company until 2006, the culmination of her 16-year career with the company. Her early career was spent at Exxon Corporation, where she held roles in engineering, product development, and sales and marketing. Anne is a former non-executive director of Lockheed Martin Corporation and GKN plc.
Jack Thompson, BSc, PhD (68), joined the Board on November 16, 2009. Jack is chairman of the Sustainability Committee and a member of the Nomination and Remuneration Committees. He brings to Anglo American a wealth of experience gained at all levels of the mining industry and extensive boardroom experience in both executive and non-executive roles. Jack received wide recognition as a mining executive during a long and distinguished career in the industry. He was previously chairman and CEO of Homestake Mining Company, vice chairman of Barrick Gold Corporation, and has served on the boards of Tidewater Inc., Centerra Gold Inc., Century Aluminum Company, Molycorp Inc., Phelps Dodge Corporation, Rinker Group, and Stillwater Mining.
Committees of the Board of Directors
Subject to those matters reserved for its decision, the Board delegates certain responsibilities to a number of standing committees: the Audit, Remuneration, Nomination and Sustainability Committees.
Audit Committee
The primary role of the Audit Committee is to ensure the integrity of financial reporting and the audit process, and that a sound risk management and internal control system is maintained. In pursuing these objectives, the Audit Committee oversees relations with the external auditors and reviews the effectiveness of the internal audit function. The committee also monitors developments in corporate governance to ensure the Group continues to apply high and appropriate standards.
In fulfilling its responsibility of monitoring the integrity of financial reports to shareholders, the Audit Committee reviews accounting principles, policies and practices adopted in the preparation of public financial information and examines documentation relating to the Annual Report of the Company, Half Year Financial Report of the Company, preliminary announcements and related public reports. The clarity of disclosures included in the financial statements is reviewed by the Audit Committee, as is the basis for significant estimates and judgments. In assessing the accounting treatment of major transactions open to different approaches, the committee considers written reports by management and the external auditors. The committee’s recommendations are submitted to the Board for approval.
The Audit Committee presently consists of: Byron Grote (chairman), Nolitha Fakude, Sir Philip Hampton, Jim Rutherford and Anne Stevens, all of whom are independent non-executive directors. The Board, in consultation with the Audit Committee chairman, makes appointments to the committee. The Board has determined that the committee members have the skills and experience necessary to contribute meaningfully to the committee’s deliberations. In addition, the chairman has requisite experience in accounting and financial management.
Remuneration Committee
The Remuneration Committee is responsible for establishing and developing the Group’s general policy on executive and senior management remuneration, determining specific remuneration packages for the Chairman and executive directors, and designing the Company’s share incentive schemes. The Remuneration Committee presently consists of: Sir Philip Hampton (chairman), Byron Grote, Jim Rutherford, Anne Stevens and Jack Thompson, all of whom are independent non-executive directors.
Nomination Committee
The Nomination Committee makes recommendations to the Board on the appointment of new executive and non-executive directors, including making recommendations as to the composition of the Board and its committees and the balance between executive and non-executive directors with the aim of cultivating a board with the appropriate mix of skills, experience, independence and knowledge of the Company. The Nomination Committee is also responsible for setting guidelines (with the approval of the Board) for the types of skills, experience and diversity being sought when making a search for new directors and with the assistance of external consultants, identifying and reviewing in detail each potential candidate available in the market. The Committee then agrees a “long list” of candidates for each directorship and following further discussion and research decides upon a shortlist of candidates for interview. Shortlisted candidates are each interviewed by the Committee members who then convene to discuss their impressions and conclusions, culminating in a recommendation to the Board. The Nomination Committee meets as and when required and engages external consultants to identify appropriate candidates.
The Board, via the Nomination Committee, has taken steps to ensure that the Human Resources function of the Group regularly reviews and updates the succession plans of directors and senior managers. The Nomination Committee currently consists of: Stuart Chambers (chairman), Sir Philip Hampton, Byron Grote, Anne Stevens and Jack Thompson.
Sustainability Committee
The Sustainability Committee’s purpose is to oversee, on behalf of the Board, material management policies, processes and strategies designed to manage safety, health, environment, socio-political and people risks. It aims to achieve compliance with sustainable development responsibilities and commitments and strive for an industry leadership position on sustainability.
The Sustainability Committee meets four times each year, including a visit to an operation, and business unit heads are invited to attend committee meetings. The Sustainability Committee presently consists of: Jack Thompson (chairman), Mark Cutifani, Tony O’Neill, Ian Ashby, Stuart Chambers, Nolitha Fakude, Mphu Ramatlapeng and Jim Rutherford.
MANAGEMENT
The GMC is supported by the Corporate Committee (“CorpCo”), the Operational sub-committee (“OpCo”) and the Investment Committee (“InvestCo”).
Composition of the Group Management Committee
The names and biographical details of the present members of GMC are set forth below. The business address of each such person is 20 Carlton House Terrace, London, SW1Y 5AN. No potential conflicts of interest exist between the duties of each such person to Anglo American plc and his or her private interests or other duties.
Mark Cutifani is chief executive of Anglo American plc, see “—Composition of the Board of Directors—Executive Directors”.
Stephen Pearce is finance director of Anglo American plc, see “—Composition of the Board of Directors—Executive Directors”.
Tony O’Neill is technical director of Anglo American plc, see “—Composition of the Board of Directors—Executive Directors”.
Didier Charreton, MSc (54), is Group director of people and organization since December 1, 2015. Didier has held a number of senior HR roles across his more than 25-year career. From 2007 until 2014 he was chief human resources officer for Baker Hughes, the US-based oilfield services company. Prior to 2007, Didier was HR director at Coats plc in the UK, and before that held a number of HR roles at Schlumberger, based in the US, Argentina, Venezuela and France.
Bruce Cleaver, BSc, LLB, LLM (52), was appointed CEO of De Beers Group on July 1, 2016. Bruce has previously served as Group director of strategy and business development at Anglo American, as well as executive head of strategy and corporate affairs for De Beers, having joined the Group in 2005. Before joining De Beers, he was a partner at Webber Wentzel, the largest law firm in Africa, specializing in commercial matters.
Seamus French, BEng (Chemical) (55), is CEO of Bulk Commodities and other minerals, with responsibility for the Group’s coal, iron ore and nickel businesses. He is a non-executive director of Kumba Iron Ore Limited. Seamus joined the Group in 2007 and was CEO of Metallurgical Coal between 2009 and 2013, and CEO of Coal until 2015. Prior to his career at Anglo American, Seamus joined WMC Resources in Australia in 1994 in a strategic planning and business development role, and progressed to various operational management roles, gaining extensive experience in the gold and nickel businesses before being appointed executive general manager of the copper uranium division. Seamus joined BHP Billiton as global vice president, business excellence, following its takeover of WMC in 2005.
Chris Griffith, BEng (Mining) Hons, Pr Eng (53), is CEO of Anglo American Platinum Limited since September 1, 2012. Chris was previously CEO of Kumba Iron Ore from 2008 to 2012 and prior to this, served as Anglo American Platinum’s head of operations for joint ventures. Chris has been with the Group for over 25 years, joining Anglo American Platinum where he progressed from shift supervisor to one of the youngest general managers in the company at that time.
Norman Mbazima, FCCA, FZICA (59), is deputy chairman of Anglo American South Africa since June 1, 2015. From 2012 to 2016 he served as CEO of Kumba Iron Ore. Norman joined Anglo American in 2001 at Konkola Copper Mines plc and was subsequently appointed global CFO for Anglo Coal. He became finance director of Anglo American Platinum in 2006 and later stepped in as joint acting CEO. Norman was CEO of Scaw Metals from 2008 and later CEO of Thermal Coal from 2009 to 2012.
Anik Michaud, LL.L (Law) (50), is Group director of corporate relations since June 3, 2015. Her remit includes corporate communication, international and government relations, social performance and engagement, and the office of the chief executive. Anik joined Anglo American in 2008 as Group head of corporate communication. Prior to that, she was director of public affairs for Rio Tinto Alcan, after having spent 10 years with the Alcan group. Anik began her career as the political attaché to the Minister of Finance for Quebec.
Duncan Wanblad, BSc (Eng) Mech, GDE (Eng Management) (51), is CEO of Base Metals and Group director of strategy and business development since July 2016. He is a non-executive director of De Beers. Between 2009 and 2013, Duncan held the position of Group director, Other Mining and Industrial businesses. He was appointed joint acting CEO of Anglo American Platinum Limited in 2007, having joined the board in 2004, before taking over as CEO of Anglo American’s copper operations in 2008. Duncan began his career at Johannesburg Consolidated Investment Company in 1990.
Peter Whitcutt, BCom (Hons), CA (SA), MBA (52), is CEO of Marketing since January 2016. He is a non-executive director of De Beers. Peter joined the Group in 1990 within the corporate finance division. He worked on the merger of Minorco with Anglo American Corporation of South Africa, the listing of Anglo American plc in 1999, and the subsequent unwinding of the cross-holding with De Beers. Peter was appointed Group head of finance in 2003, CFO of Base Metals in 2008 and served as Group director of strategy business development and marketing from 2013 to 2015.
Richard Price, LL.B, BA (Hons) (54). Richard joined Anglo American as Group General Counsel in May 2017. From 1996 to 2017, he held a number of roles at Shearman & Sterling, the international law firm. In 1999, he transferred from Canada to the Singapore office as head of its South East Asian and Indian capital markets practice. Richard moved to London in 2003 as a senior corporate partner, and acted for clients across the metals, mining, energy and financial services sectors, among others. He served as co-head of the firm’s global mining and metals practice and head of its EMEA capital markets and EMEA corporate practices. Richard has a Bachelor of Arts (Hons.) degree from Mount Allison University in Canada and a Bachelor of Laws degree from the University of Toronto.
Management Committees
Group Management Committee
The GMC is responsible for advising and supporting the chief executive in the following matters: developing and implementing Group strategy, as agreed by the Board, setting budget and performance targets, talent management and managing the Group’s portfolio. The names and biographical details of the current members are shown above. The business address of each member is 20 Carlton House Terrace, London SW1Y 5AN, England.
Along with the chief executive, finance director and technical director, the members of GMC are selected from the heads of business units and corporate functions.
Corporate Committee
CorpCo meets monthly and is principally responsible for reviewing corporate policies and processes, as well as reviewing financial performance and budgets at a business unit level.
Operational Committee
OpCo meets monthly. Its responsibilities include driving operational best practices across the Group and the setting of technical standards.
Investment Committee
The role of the InvestCo is to manage the process of capital allocation by ensuring that investments and divestments increase shareholder value and meet Anglo American’s financial criteria. The Committee makes recommendations to GMC and/or the Board on these matters. The Committee meets as required.
Dates of Appointment and Re-election
Executive Directors(1)
The following table summarizes the executive directors’ date of appointment and the applicable date of re-election or election to the Board:
Date of appointment
Next AGM
re-election or
election
Mark Cutifani (chief executive)
April 3, 2013
April 2018
Tony O’Neill (technical director)
July 22, 2015
April 2018
Stephen Pearce (finance director)
April 24, 2017
April 2018
At each AGM all directors shall retire from office.
Non-Executive Directors(1)(2)
All non-executive directors have letters of appointment with the Company for an initial period of three years from their date of appointment, subject to reappointment at the AGM.
The following table summarizes the non-executive directors’ date of appointment and the applicable date of re-election or election to the Board:
Date of
appointment
Next AGM
re-election or
election
Stuart Chambers
September 1, 2017
April 2018
Ian Ashby
July 25, 2017
April 2018
Nolitha Fakude
April 24, 2017
April 2018
Byron Grote
April 19, 2013
April 2018
Sir Philip Hampton
November 9, 2009
April 2018
Mphu Ramatlapeng
July 8, 2013
April 2018
Jim Rutherford
November 4, 2013
April 2018
Anne Stevens
May 14, 2012
April 2018
Jack Thompson
November 16, 2009
April 2018
(1) At each AGM, all directors shall retire from office.
(2) There is no fixed notice period; however, the Group may in accordance with, and subject to, the provisions of the 2006 Companies Act, by Ordinary Resolution of which special notice has been given, remove any director from office. The Company’s Articles of Association also permit the directors, under certain circumstances, to remove a director from office.
Employees
Our employees are essential to the long-term success of the Group. We continue to invest in the development of our people and strive to ensure that we are positioned to attract and retain the best mining and other talent.
The table below sets forth the average number of employees, excluding contractors and associates’ employees and joint ventures’ employees and including a proportionate share of employees within joint operations.
Year-ended December 31,
2015
2016
2017
(thousands)
De Beers
11
9
10
Copper
5
4
4
Platinum
48
45
36
Iron Ore and Manganese
10
7
8
Coal
11
10
9
Nickel
2
2
1
Corporate and Other(1)
4
3
1
Total
91
80
69
The “Corporate and Other” segment includes the Niobium and Phosphates business unit (sold on September 30, 2016). Comparative information for “Corporate and Other” has been restated to include the Niobium and Phosphates business unit, which was previously disclosed separately.
The table below sets forth the average number of employees (for continuing operations) by principal location of employment, by geographical segment, for the periods presented.
Year-ended December 31,
2015
2016
2017
(thousands)
South Africa
69
61
52
Other Africa
4
4
4
South America
10
9
8
North America
2
1
1
Australia and Asia
4
3
2
Europe
2
2
2
Total
91
80
69
For detail of the Group’s retirement benefits, please see note 26 to the Group 2017 Consolidated Financial Statements, which are incorporated by reference in this document.
RELATED PARTY TRANSACTIONS
The Group has a related party relationship with its subsidiaries, joint ventures and associates.
The Group, in the ordinary course of business, enters into various sale, purchase and service transactions with joint ventures and associates and others in which the Group has a material interest. These transactions are under terms that are no less favorable than those arranged with third parties.
Dividends received from associates and joint ventures during the year ended December 31, 2017: US$506 million. Dividends received from associates and joint ventures during the year end December 31, 2016 totaled US$167 million (December 31, 2015: US$324 million).
At December 31, 2017, the Group had provided loans to joint ventures of US$230 million. At December 31, 2016, the Group had provided loans to joint ventures of US$401 million.
Related Party transaction with Siyanda
On February 1, 2018, the Group completed the sale of its interest in the Union platinum mine and its interest in Masa Chrome Company (Pty) Limited to a subsidiary of Siyanda Resources Proprietary Limited (“Siyanda”) for consideration comprising upfront cash of ZAR400 million (approximately US$34 million) and deferred consideration based on the operation’s cumulative free cash flow generation over a ten year period. The transaction was a smaller related party transaction under UK Listing Authority Listing Rules as Siyanda is a 30% associate of the Public Investment Corporation, a substantial shareholder of Anglo American, and Siyanda is a 49.9% shareholder in Masa Chrome Company (Pty) Limited, a subsidiary of Anglo American.
Related Party transaction with the Industrial Development Corporation
On January 29, 2018, the Group announced the sale, by its 73%-held subsidiary Anglo American Inyosi Coal (Proprietary) Limited, of New Largo in South Africa to New Largo Coal Proprietary Limited (the “Purchaser”), which is owned by Seriti Resources Proprietary Limited and Coalzar Proprietary Limited, two companies majority owned and controlled by HDSAs, and the IDC. This transaction is expected to be completed in the second half of 2018.
The consideration payable for New Largo is ZAR850 million (approximately US$71 million). The consideration will be payable in cash by the Purchaser upon closing of the transaction. The transaction is a small related party transaction under UK Listing Authority Rules as the IDC, a substantial shareholder in Anglo American’s subsidiary Kumba Iron Ore Limited, is a shareholder in the Purchaser. The Transaction is subject to the requirements of UKLA Listing Rule 11.1.10R, due to aggregation with the related party transaction in respect of Union platinum mine and MASA Chrome Company (Pty) Limited involving the Public Investment Corporation, an associate of the IDC, both of which are ultimately controlled by the Government of South Africa.
Related Party Transactions with Key Management
Remuneration and benefits of key management personnel are given in Note 26 to the 2017 Group Consolidated Financial Statements. Information relating to pension fund arrangements is disclosed in Note 27 to the 2017 Group Consolidated Financial Statements.
DESCRIPTION OF THE NOTES AND THE GUARANTEES
The following is a summary of the material provisions of the Indenture and the Notes. Copies of the Indenture, the Guarantees and the Notes will be available for inspection during normal business hours at any time after the closing date of the offering of the Notes at the London offices of the Trustee, which are currently located at 14th Floor, Citigroup Centre, Canary Wharf, London E14 5LB. Any capitalized term used herein but not defined shall have the meaning assigned to such term in the Indenture.
General
The US$650 million 4.500% Senior Notes due 2028 (the “Notes”) will be issued under an Indenture dated as of April 8, 2009, as supplemented by the first supplemental indenture dated as of April 2, 2012 and the second supplemental indenture dated as of May 14, 2015 (together, the “Indenture”), among Anglo American Capital plc (the “Issuer”), Anglo American plc (the “Company”) and Citibank, N.A., as trustee (the “Trustee”), London paying agent and registrar (the “Agent”).
The Indenture is not required to be nor will it be qualified under the US Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”), and will not incorporate by reference any of the provisions of the Trust Indenture Act. Consequently, the Holders of Notes generally will not be entitled to the protections provided under such Act to holders of debt securities issued under a qualified indenture, including those requiring the Trustee to resign in the event of certain conflicts of interest and to inform the Holders of Notes of certain relationships between it and the Issuer or the Company. In this “Description of the Notes and the Guarantees”, the terms “Holder”, “Noteholder” and other similar terms refer to a “registered holder” of Notes, and not to a beneficial owner of a book-entry interest in any Notes, unless the context otherwise clearly requires.
Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC Australia and New Zealand Banking Group Limited and Westpac Banking Corporation(together, the “Initial Purchasers”) propose to resell the Rule 144A Global Notes in registered form to certain institutions in the United States in reliance upon Rule 144A. The Rule 144A Global Notes may not be sold or otherwise transferred except pursuant to registration under the Securities Act or in accordance with Rule 144A or pursuant to Rule 904 of Regulation S thereunder or in a resale transaction that is otherwise exempt from such registration requirements, and will bear a legend to this effect. In light of current US securities laws, subject to certain exceptions, an exemption should be available for a sale or transfer of a Rule 144A Global Note after its Specified Date. The “Specified Date” means, with respect to any Rule 144A Global Note, the date following the expiration of the applicable required holding period determined pursuant to Rule 144 under the Securities Act (such period, the “applicable holding period”) after the later of the date of acquisition of such Rule 144A Global Note from the Issuer, or an affiliate of the Issuer, or any resale of such Rule 144A Global Note in reliance on Rule 144 under the Securities Act for the account of either the acquiror or any subsequent holder of such Rule 144A Global Note, in each case demonstrated to the reasonable satisfaction of the Issuer or the Company (which may require delivery of legal opinions). Unless a Holder of a Rule 144A Global Note holds such Rule 144A Global Note for the entire applicable holding period, such Holder may not be able to determine the Specified Date because such Holder may not be able to determine the last date on which the Issuer, the Company or any affiliate thereof was the beneficial owner of such Holder’s Rule 144A Global Note. The registrars and the transfer agents for the Notes will not be required to accept for registration or transfer any Rule 144A Global Notes, except upon presentation of satisfactory evidence (which may include legal opinions) that the restrictions on transfer have been complied with, all in accordance with such reasonable regulations as the Issuer and the Company may from time to time agree with such registrars and the transfer agents.
For so long as any Notes remain outstanding and are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, the Company will, during any period in which it is neither subject to Section 13 or 15(d) of the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, make available to any registered Holder of Notes (or any Holder of a book-entry interest in such Notes designated by the registered holder thereof) in connection with any sale thereof and to any prospective purchaser of Notes or a book-entry interest in Notes designated by such registered holder, in each case upon request of such registered holder, the information specified in, and meeting the requirements of, Rule 144A(d)(4) under the Securities Act. As of the date of this document, the Company is exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act.
The Regulation S Global Notes will be resold by the Initial Purchasers only to non-US persons located outside the United States in offshore transactions in reliance on Regulation S.
Principal, Maturity and Interest
The Notes will be unsecured and unsubordinated obligations of the Issuer and will be unconditionally guaranteed on a senior, unsecured basis by the Company (the “Guarantees”). The Notes are initially issuable in an aggregate principal amount not to exceed US$650 million and will mature on March 15, 2028. The Notes will bear interest at 4.500% per annum from the date of the initial issuance of such Notes or from the most recent interest payment date to which interest has been paid or provided for. Interest on the Notes is payable semi-annually in arrears on March 15 and September 15, commencing September 15, 2018, to the person in whose name any such Note is registered at the close of business on March 1 or September 1 (whether or not a business day) immediately preceding such interest payment date (each, a “record date”), notwithstanding any transfer or exchange of such Notes subsequent to the record date and prior to such interest payment date, except that, if and to the extent the Issuer shall default in the payment of the interest due on such interest payment date and the applicable grace period shall have expired, such defaulted interest may, at the option of the Issuer, be paid to the persons in whose names Notes are registered at the close of business on a subsequent record date (which shall not be less than five days which are business days in New York City prior to the date of payment of such defaulted interest) established by notice given by mail by or on behalf of the Issuer to the Holders (which term means registered holders) of Notes not less than fifteen days preceding such subsequent record date. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months and in the case of an incomplete month, the number of days elapsed. If the date on which any interest payment or principal payment is to be made is not a business day in New York City and the place of payment of such interest or principal, such payment will be made on the next day which is a business day in New York City and the place of payment of such interest or principal without any further interest or other amounts being paid or payable in connection therewith.
Form and Denomination
The Notes will be issued in fully registered form and only in denominations of US$200,000 and integral multiples of US$1,000 in excess thereof. The Notes will be issued initially as Global Notes.
Further Issues
The Issuer may, from time to time, without notice to or the consent of the Holders of the Notes, issue as many distinct series of debt securities under the Indenture as it wishes. It may also from time to time, without notice to or the consent of the Holders of the Notes, “reopen” the Notes and create and issue additional notes having identical terms and conditions as the Notes (or in all respects except for the payment of interest accruing prior to the issue date of such additional notes or except for the first payment of interest following the issue date of such additional notes) so that the additional notes are consolidated and form a single series of notes with the Notes (a “Further Issue”); provided that any additional notes which have the same CUSIP, ISIN or other identifying number as the outstanding Notes must be fungible with such outstanding Notes for US federal income tax purposes.
The period of resale restrictions applicable to any Notes previously offered and sold in reliance on Rule 144A shall automatically be extended to the last day of the period of any resale restrictions imposed on any such additional notes.
Status of the Notes and the Guarantees
The Notes will be unsecured and unsubordinated obligations of the Issuer and will rank pari passu in right of payment among themselves and with other unsecured and unsubordinated indebtedness of the Issuer (save for certain obligations required to be preferred by law). Upon issue, the Company will unconditionally guarantee, on a senior, unsecured basis, the due and punctual payment (and not collectability) of the principal of and interest on the Notes (and the payment of additional amounts described under “—Payment of Additional Amounts”) when and as the same shall become due and payable, whether at stated maturity, by declaration of acceleration, call for redemption or otherwise. The Guarantees will be an unsecured and unsubordinated obligation of the Company and will rank pari passu in right of payment with other unsecured and unsubordinated indebtedness of the Company (save for certain obligations required to be preferred by law).
Payment of Additional Amounts
The Issuer or, if applicable, the Company (pursuant to the terms of the Guarantees) will make payments of, or in respect of, principal, any premium and interest on the Notes or any payment pursuant to the Guarantees, as the case may be, without withholding or deduction for or on account of any and all present or future tax, levy, impost or other governmental charge whatsoever imposed, assessed, levied or collected (“Taxes”) by or for the account of a Relevant Jurisdiction (as defined below), unless such withholding or deduction is required by law.
If the Issuer or, if applicable, the Company is required by a Relevant Jurisdiction to deduct or withhold Taxes, the Issuer or, if applicable, the Company will pay to a Holder of a Note or the beneficial owner thereof such additional amounts (“Additional Amounts”) as may be necessary so that the net amount received by such Holder or beneficial owner will not be less than the amount such Holder or beneficial owner would have received if such Taxes had not been withheld or deducted; provided, however, that the Issuer or, if applicable, the Company shall not be required to pay any Additional Amounts for or on account of:
any Taxes that would not have been so imposed, assessed, levied or collected but for the fact that the Holder of the applicable Note or Guarantee (or a fiduciary, settlor, beneficiary, member or shareholder of, or possessor of a power over, such Holder, if such Holder is an estate, trust, partnership or corporation) is or has been a domiciliary, national or resident of, or engaging or having been engaged in a trade or business or maintaining or having maintained a permanent establishment or being or having been physically present in the jurisdiction in which such Taxes have been imposed, assessed, levied or collected or otherwise having or having had some connection with such jurisdiction, other than the mere holding or ownership of, or the collection of principal of, and interest on, a Note or the enforcement of a Guarantee, as the case may be;
any Taxes that would not have been so imposed, assessed, levied or collected but for the fact that, where presentation is required in order to receive payment, the applicable Note or Guarantee was presented more than 30 days after the date on which such payment became due and payable or was provided for, whichever is later, except to the extent that the Holder or beneficial owner thereof would have been entitled to Additional Amounts had the applicable Note or Guarantee been presented for payment on any day during such 30-day period;
any estate, inheritance, gift, sales, transfer, excise, personal property or similar Taxes;
any Taxes that are payable otherwise than by deduction or withholding from payments on or in respect of the applicable Note or Guarantee;
any Taxes that would not have been so imposed, assessed, levied or collected but for the failure by the Holder or the beneficial owner of the applicable Note or Guarantee to comply (following a written request addressed to the Holder or beneficial owner, as applicable), with any certification, identification or other reporting requirements concerning the nationality, residence or identity of such Holder or beneficial owner or its connection with a Relevant Jurisdiction if compliance is required by statute, regulation or administrative practice of such Relevant Jurisdiction as a condition to relief or exemption from such Taxes;
any withholding or deduction required to be made from a payment pursuant to Sections 1471-1474 of the US Internal Revenue Code of 1986, as of the issue date (or any amended or successor version) (the “Code”), any current or future regulations or official interpretations thereof, any intergovernmental agreement between a non-US jurisdiction and the United States with respect to the foregoing, any similar law or regulations adopted pursuant to such an intergovernmental agreement or any agreements entered into pursuant to Section 1471(b)(1) of the Code; or
any combination of the Taxes described in (i) through (vi) above.
In addition, Additional Amounts will not be paid in respect of any payment in respect of the applicable Notes or Guarantees to any Holder or beneficial owner of the applicable Notes or Guarantees that is a fiduciary, a partnership, a limited liability company or any person other than the sole beneficial owner of such payment to the extent such payment would be required by the laws of a Relevant Jurisdiction to be included, for tax purposes, in the income of a beneficiary or settlor with respect to such fiduciary, a member of such partnership, an interest holder in such limited liability company or a beneficial owner that would not have been entitled to such amounts had such beneficiary, settlor, member, interest holder or beneficial owner been the Holder of such Notes or Guarantees.
Whenever the Company refers in this document to the payment of the principal of any premium, any interest or other amounts to which a holder or beneficial owner is entitled, if any, on or in respect of the Notes or the Guarantees, unless the context otherwise requires, the Company means to include the payment of Additional Amounts to the extent that, in context, Additional Amounts are, were or would be payable.
Redemption
Optional Redemption
The Issuer may redeem the Notes in whole or in part, at the Issuer’s option, at any time and from time to time, prior to December 15, 2027 (three months prior to the maturity date of the Notes) (the “Notes Par Call Date”), at a redemption price equal to the greater of (i) 100% of the principal amount of the Notes to be redeemed and (ii) as determined by the Independent Investment Banker, the sum of the present values of the applicable Remaining Scheduled Payments discounted to the date fixed for redemption (the “Redemption Date”) on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months or in the case of an incomplete month, the number of days elapsed) at the Treasury Rate plus 30 basis points, together with, in each case, accrued and unpaid interest on the principal amount of the Notes to be redeemed to, but not including, the Redemption Date.
The Issuer may redeem the Notes in whole or in part, at its option, at any time and from time to time, on or after the Notes Par Call Date, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, together with accrued and unpaid interest on the principal amount of the Notes to be redeemed to, but not including, the Redemption Date.
In connection with such optional redemption, the following defined terms apply:
“Treasury Rate” means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity (computed as at the third Business Day immediately preceding that Redemption Date) of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for that Redemption Date.
“Comparable Treasury Issue” means the United States Treasury security selected by the Independent Investment Banker that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Notes, assuming for such purpose that the Notes mature on the Notes Par Call Date.
“Comparable Treasury Price” means, with respect to any Redemption Date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day preceding that Redemption Date, as set forth in the daily statistical release designated H.15 (or any successor release) published by the Federal Reserve Bank of New York or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, (A) the average of the Reference Treasury Dealer Quotations for that Redemption Date, after excluding the highest (or, if there is more than one such highest quotation , only one of such quotations) and lowest (or, if there is more than one such lowest quotation, only one of such quotations) of such Reference Treasury Dealer Quotations, or (B) if the Independent Investment Banker for the Notes obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such Quotations.
“Independent Investment Banker” means one of the Reference Treasury Dealers appointed by the Issuer to act as the “Independent Investment Banker”.
“Remaining Scheduled Payments” means, with respect to each Note to be redeemed, the remaining scheduled payments of the principal thereof and interest thereon that would be due after the related Redemption Date but for such redemption, assuming for such purpose that the Notes mature on the Notes Par Call Date; provided, however, that if that Redemption Date is not an interest payment date with respect to such Notes, the amount of the next succeeding scheduled interest payment thereon will be reduced by the amount of interest accrued thereon to that Redemption Date.
“Reference Treasury Dealer” means each of Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC, their respective successors and two other nationally recognized investment banking firms that are Primary Treasury Dealers specified from time to time by the Issuer; provided, however, that if any of the foregoing shall cease to be a primary US Government securities dealer in the United States (a “Primary Treasury Dealer”), the Issuer shall substitute therefor another nationally recognized investment banking firm that is a Primary Treasury Dealer.
“Reference Treasury Dealer Quotation” means, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined by the Independent Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Independent Investment Banker by such Reference Treasury Dealer at 10:30 a.m., New York City time, on the third Business Day preceding that Redemption Date.
Notice of any redemption will be given in accordance with “Notices” below at least 10 days but not more than 60 days before the Redemption Date to each Holder of the Notes to be redeemed. On and after any Redemption Date, interest will cease to accrue on the Notes or any portion thereof called for redemption.
Upon presentation of any Note redeemed in part only, the Issuer will execute and instruct the Trustee to authenticate and deliver to or on the order of the Holder thereof, at the expense of the Issuer, a new Note or Notes, of authorized denominations, in principal amount equal to the unredeemed portion of the Note so presented.
On or before any Redemption Date, the Issuer shall deposit with the Trustee money sufficient to pay the redemption price of and accrued interest on the Notes to be redeemed on such date. If less than all the Notes are to be redeemed, the Notes to be redeemed shall be selected by the Trustee by such method as the Trustee shall deem fair and appropriate. The redemption price shall be calculated by the Independent Investment Banker and the Issuer and notice of such redemption price shall be provided to the Trustee and the Holders at least two (2) business days prior to the Redemption Date, and the Trustee and any paying agent for the Notes shall be entitled to rely on such calculation.
Final Maturity
Unless previously purchased or redeemed by the Issuer or the Company or any of their Subsidiaries, and cancelled, the principal amount of the Notes will mature and become due and payable on March 15, 2028, in an amount equal to their principal amount, with accrued and unpaid interest to such date.
Reacquisition
There is no restriction on the ability of the Issuer or the Company or any of their respective Subsidiaries to purchase or repurchase Notes.
Redemption for Tax Reasons
The Notes are redeemable by the Issuer, at the Issuer’s option at any time prior to their maturity if due to a Change in Tax Law (as defined below) (i) the Issuer or, if applicable, the Company, in accordance with the terms of the applicable Notes or the applicable Guarantees, respectively, has, or would, become obligated to pay to the Holder or beneficial owner of any Note any Additional Amounts; (ii) in the case of the Company, (A) the Company would be unable, for reasons outside its control, to procure payment by the Issuer or (B) the procuring of such payment by the Issuer would be subject to withholding taxes imposed by a Relevant Jurisdiction; and (iii) the obligation described in (i) cannot be avoided by the Issuer or, if applicable, the Company taking reasonable measures available to it. In such case, the Issuer may redeem the Notes in whole, but not in part, upon not less than 30 nor more than 60 days’ notice as provided in “Notices” below, at 100% of the principal amount of the Notes plus accrued and unpaid interest to the applicable Redemption Date and any Additional Amounts payable with respect thereto; provided that (a) no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer or, if applicable, the Company would be obligated to pay any such Additional Amounts were a payment in respect of the applicable Notes or the applicable Guarantees then due and (b) at the time such notice is given, such obligation to pay such Additional Amounts remains in effect. The Issuer’s right to redeem the Notes shall continue as long as the Issuer or the Company, as the case may be, is obligated to pay such Additional Amounts, notwithstanding that the Issuer or the Company shall have made payments of Additional Amounts. Prior to the giving of any such notice of redemption, the Issuer must deliver to the Trustee (1) a certificate stating that the Issuer is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Issuer so to redeem have occurred and (2) an opinion of independent counsel of recognized standing selected by the Issuer or the Company, as applicable, to the effect that the Issuer or the Company has, or would, become obligated to pay such Additional Amounts as a result of such change or amendment.
For purposes hereof, “Change in Tax Law” shall mean (i) any changes in, or amendment to, any law of a Relevant Jurisdiction (including any regulations or rulings promulgated thereunder) or any amendment to or change in the application or official interpretation (including judicial or administrative interpretation) of such law, which change or amendment is announced, if applicable, and becomes effective on or after March 13, 2018 or (ii) if the Issuer or the Company consolidates or merges with, or transfers or leases its assets substantially as an entirety to, any person that is incorporated or tax resident under the laws of any jurisdiction other than a Relevant Jurisdiction, as defined immediately prior to such consolidating merger or other transaction, and as a consequence thereof such person becomes the successor obligor to the Issuer or the Company in respect of Additional Amounts that may become payable (in which case, for purposes of this redemption provision, all references to the Issuer, or the Company hereunder, as applicable, shall be deemed to be and include references to such person), any change in, or amendment to, any law of the jurisdiction of incorporation or residence for tax purposes of such person or any successor entity, or any political subdivision or taxing authority thereof or therein for purposes of taxation (including any regulations or rulings promulgated thereunder) or any amendment to or change in the application or official interpretation (including judicial or administrative interpretation) of such law, which change or amendment becomes effective on or after the date of such consolidation, merger or other transaction.
Certain Definitions
Set forth below are certain of the defined terms used in the Notes and the Indenture. You should refer to the Notes and the Indenture for the full set of definitions.
“Attributable Debt” means, as to any particular lease under which any Person is liable at the time as lessee, and at any date as of which the amount of the payment is to be determined, the total net amount of rent required to be paid by such Person under such lease during the remaining term of such lease (including any period for which such lease has been extended or may, at the option of the lessor, be extended), discounted from the respective due dates thereof to the date of determination at a rate per annum equivalent to the rate inherent in such lease (as determined by the directors of the Company) compounded semiannually, excluding amounts required to be paid on account of or attributable to operating costs and overhead charges and including, in certain circumstances, any termination penalty in the case of a lease terminable by the lessee.
“Business Day” means any day which is not, in London, England, New York City, or the place of payment of interest or principal a Saturday, Sunday, a legal holiday or a day on which banking institutions in such places are authorized or obligated by law to close.
“Company Jurisdiction” means any of the jurisdictions of incorporation or residence for tax purposes of the Company or any successor entity, or any political subdivision or taxing authority thereof or therein.
“Consolidated Net Tangible Assets” means the aggregate amount of assets (less applicable provisions) after deducting therefrom (1) all current liabilities; (2) all goodwill, trade names, trademarks, patents, unamortized debt discount and financings costs and all similar intangible assets; and (3) appropriate adjustments on account of minority interests of other Persons holding stock in any Subsidiary of the Company, all as set forth on the most recent consolidated balance sheet of the Company and computed in accordance with IFRS.
“Government Obligations” means money or obligations issued by the United States government.
“IFRS” means International Financial Reporting Standards as adopted by the European Union.
“Indebtedness” means all obligations for borrowed money represented by notes, bonds, debentures or similar evidence of indebtedness and obligations for borrowed money evidenced by credit, loan or other like agreements.
“Issuer Jurisdiction” means any of the jurisdictions of incorporation or residence for tax purposes of the Issuer or any successor entity, or any political subdivision or taxing authority thereof or therein.
“Mortgage” means any mortgage, deed of trust, pledge, hypothéc, lien, encumbrance, charge or other security interest of any kind.
“Person” means any individual, corporation, partnership, joint venture, association, limited liability company, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
“Principal Property” means the interest of the Company or any Subsidiary in any (a) mineral property or (b) manufacturing or processing plant, building, structure, dam or other facility, together with the land upon which it is erected and fixtures comprising a part thereof, whether owned as of the date of the Indenture or thereafter acquired or constructed by the Company or any Subsidiary, of which interest the net book value in each case, on the date as of which the determination is being made, is an amount which exceeds 10% of Consolidated Net Tangible Assets, other than (i) any such mineral property, manufacturing or processing plant, building, structure, dam or other facility which, in the opinion of the Board, is not of material importance to the total business conducted by the Company and its Subsidiaries as an entirety or (ii) any portion of any such property which, in the opinion of the Board, is not of material importance to the use or operation of such property.
“Project Financing” means the financing or refinancing of the acquisition, construction, expansion, improvement or development of any physical assets in which the providers of such finance or refinance solely look to the entity that owns and operates such assets, the equity interests in such entity, the assets themselves, and/or the revenues generated thereby as the source of repayment of the amounts financed or refinanced, without recourse to the Company or any Subsidiary (other than such entity) other than through a completion guarantee or other obligations that are customary in non-recourse financing or refinancing.
“Relevant Jurisdiction” means an Issuer Jurisdiction and/or a Company Jurisdiction.
“Restricted Subsidiary” means (1) any Subsidiary which owns or leases a Principal Property; and (2) any Subsidiary engaged primarily in the business of owning or holding securities of Restricted Subsidiaries.
“Sale and Leaseback Transactions” mean any arrangement with a bank, insurance company or other lender or investor (other than the Company or a Restricted Subsidiary) providing for the leasing by the Company or any Restricted Subsidiary of any Principal Property which has been or is to be sold or transferred, more than 180 days after the later of the acquisition, completion of construction or commencement of full operation thereof by the Company or such Restricted Subsidiary to such lender or investor or to any Person to whom funds have been or are to be advanced by such lender or investor on the security of that property or asset.
“Significant Subsidiary” means any Subsidiary that would be a “significant subsidiary” under the definition in Article 1, Rule 1-02(w)(2) of Regulation S-X (but as calculated pursuant to IFRS), promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof.
“Subsidiary” means, at any relevant time, any person of which the voting shares or other interests carrying more than 50% of the outstanding voting rights attached to all outstanding voting shares or other interests are owned, directly or indirectly, by or for the Company and/or one or more Subsidiaries of the Company.
Covenants of the Issuer and the Company
Negative Pledge
Each of the Issuer and the Company will covenant under the Indenture that for so long as any of the Notes are outstanding under the Indenture, and subject to the provisions of the Indenture, it will not, and the Company will not permit any Restricted Subsidiary to, create, permit to exist, incur, issue, guarantee, assume or otherwise have outstanding any Mortgage on or over any Principal Property now owned or hereafter acquired by the Company or a Restricted Subsidiary to secure any Indebtedness of the Issuer, the Company or any Restricted Subsidiary, or on shares of stock or Indebtedness of any Restricted Subsidiary now owned or hereafter acquired by the Company or a Restricted Subsidiary to secure any Indebtedness of the Issuer, the Company or any Restricted Subsidiary, unless at the time thereof or prior thereto the Notes then outstanding under the Indenture are secured equally and ratably with (or prior to) any and all such Indebtedness for so long as such Indebtedness is so secured by such Mortgage; provided, however, such negative pledge will not apply to or operate to prevent or restrict the following permitted encumbrances:
(1) any Mortgage on property, shares of stock or Indebtedness of any Person existing at the time such Person becomes a Restricted Subsidiary or created, incurred, issued or assumed in connection with the acquisition of any such Person;
(2) any Mortgage on any Principal Property created, incurred, issued or assumed at or prior to the time such property became a Principal Property or existing at the time of acquisition of such Principal Property by the Company or a Restricted Subsidiary, whether or not assumed by the Company or such Restricted Subsidiary; provided that no such Mortgage will extend to any other Principal Property of the Company or any Restricted Subsidiary;
(3) any Mortgage on all or any part of any Principal Property (including any improvements or additions to improvements on a Principal Property) hereafter acquired, developed, expanded or constructed by the Company or any Restricted Subsidiary to secure the payment of all or any part of the purchase price, cost of acquisition or cost of development, expansion or construction of such Principal Property or of improvements or additions to improvements thereon (or to secure any Indebtedness incurred by the Company or a Restricted Subsidiary for the purpose of financing all or any part of the purchase price, cost of acquisition or cost of development, expansion or construction thereof or of improvements or additions to improvements thereon) created prior to, at the time of, or within 360 days after the later of, the acquisition, development, expansion or completion of construction (including construction of improvements or additions to improvements thereon), or commencement of full operation of such Principal Property; provided that no such Mortgage will extend to any other Principal Property of the Company or a Restricted Subsidiary other than, in the case of any such construction, improvement, development, expansion or addition to improvement, all or any part of any other Principal Property on which the Principal Property so constructed, developed or expanded, or the improvement or addition to improvement, is located;
(4) any Mortgage on any Principal Property of any Restricted Subsidiary to secure Indebtedness owing by it to the Company, the Issuer or another Restricted Subsidiary;
(5) any Mortgage on any Principal Property of the Company to secure Indebtedness owing by it to the Issuer or another Restricted Subsidiary;
(6) any Mortgage on any Principal Property or other assets of the Company or any Restricted Subsidiary existing on the date of the Indenture;
(7) any Mortgage on any Principal Property arising by operation of law (or an agreement solely evidencing otherwise applicable law) and (i) arising in the ordinary course of business or (ii) not securing amounts more than 90 days overdue or otherwise being contested in good faith;
(8) Judgment Mortgages on any Principal Property not giving rise to an Event of Default;
(9) any Mortgage on any Principal Property of the Company or any Restricted Subsidiary in favor of the government of any country or political subdivision thereof, or any instrumentality of any of them, securing the obligations of the Company or any Restricted Subsidiary pursuant to any contract or payments owed to such entity pursuant to applicable laws, rules, regulations or statutes;
(10) any Mortgage on or over all or any part of the interest of the Company or any Restricted Subsidiary in any joint venture, partnership or similar undertaking, including the revenues and assets derived by the Company or any Restricted Subsidiary from such joint venture, partnership or similar undertaking, or employed by the Company or any Restricted Subsidiary in such joint venture, partnership or similar undertaking, which is in favor of its co-ventures and/or the manager or operator of the joint venture, partnership or similar undertaking as security for the due payment of amounts payable under or in respect of such joint venture, partnership or similar undertaking;
(11) Mortgages arising in connection with any Project Financing;
(12) any Mortgage on any Principal Property or other assets of the Company or any Restricted Subsidiary created for the sole purpose of extending, renewing, altering or refunding any of the foregoing Mortgages (or any successive extension, renewal, alteration or refunding thereof); provided that the Indebtedness secured thereby will not exceed the principal amount of Indebtedness so secured at the time of such extension, renewal, alteration or refunding, plus an amount necessary to pay fees and expenses, including premiums, related to such extensions, renewals, alterations or refundings, and that such extension, renewal, alteration or refunding Mortgage will be limited to all or any part of the same Principal Property and improvements and additions to improvements thereon and/or shares of stock and Indebtedness of a Restricted Subsidiary which secured the Mortgage extended, renewed, altered or refunded either of such property or shares of stock or Indebtedness;
(13) Mortgages on any Principal Property subject to Sale and Leaseback Transactions described below in clause (1) or (3) of the section headed “Limitation on Sale and Leaseback Transactions”; or
(14) any Mortgage on any Principal Property or on any shares of stock or Indebtedness of any Restricted Subsidiary created, incurred, issued or assumed to secure Indebtedness of the Company or any Restricted Subsidiary, which would otherwise be subject to the foregoing restrictions, in an aggregate amount which, together with the aggregate principal amount of other Indebtedness secured by Mortgages on any Principal Property or on any shares of stock or Indebtedness of any Restricted Subsidiary then outstanding (excluding Indebtedness secured by Mortgages permitted under the foregoing exceptions) and the Attributable Debt in respect of all Sale and Leaseback Transactions entered into after the date of the Indenture (not including Attributable Debt in respect of any such Sale and Leaseback Transactions described below in clause (1) or (3) of the section headed “Limitation on Sale and Leaseback Transactions”) would not then exceed the greater of US$4 billion or 15% of Consolidated Net Tangible Assets of the Company.
Limitation on Sale and Leaseback Transactions
Each of the Issuer and the Company will covenant under the Indenture that for so long as any of the Notes are outstanding under the Indenture, and subject to the provisions of the Indenture, it will not, and the Company will not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction unless (1) such transaction involves a lease or right to possession or use for a temporary period not to exceed three years following such transaction, by the end of which it is intended that the use of such property by the lessee will be discontinued; (2) immediately prior to the entering into of such transaction, the Company or such Restricted Subsidiary could create a Mortgage on Principal Property subject to the Sale and Leaseback Transaction securing Indebtedness in an amount equal to the Attributable Debt with respect to the particular Sale and Leaseback Transaction; or (3) the proceeds of such transaction within 180 days after such transaction, are applied to either (A) the payment of all or any part of the purchase price, cost of acquisition, cost of development, cost of expansion or cost of construction of a Principal Property or cost of improvements or additions to improvements thereon or (B) the retirement of long-term debt ranking at least ratably with the Notes.
Limitation on Mergers and Consolidations
The Indenture will provide that for so long as any of the Notes are outstanding under the Indenture, each of the Issuer and the Company may not consolidate or amalgamate with or merge (including by way of a scheme of arrangement) into or with any other Person, or, directly or indirectly, sell, convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to any Person (other than a Person satisfying the condition set forth in clause (i), below, that is directly or indirectly wholly owned by the Company), unless:
(i) the Person formed by or continuing from such consolidation or amalgamation or into which the Issuer or the Company is merged or the Person which acquires or leases the Issuer’s or the Company’s properties and assets as an entirety or substantially as an entirety is organized and existing under the laws of the United States, the United Kingdom or any other country that is a member of the Organization for Economic Cooperation and Development, or the Republic of South Africa, Brazil or India;
(ii) the successor Person assumes, or assumes by operation of law, the Issuer’s or the Company’s obligations under the Notes, the Guarantees and the Indenture to pay Additional Amounts;
(iii) if the Issuer or Company, as applicable, is not the continuing entity, the successor Person expressly assumes or assumes by operation of law all of the Issuer’s or the Company’s obligations under the Notes, the Guarantees and under the Indenture;
(iv) immediately before and after giving effect to such transaction, no Event of Default (as defined below) and no event which, after notice or lapse of time or both, would become an Event of Default, will have happened and be continuing; and
(v) certain other conditions are met.
If, as a result of any such transaction, any of the Issuer’s or the Company’s Principal Properties become subject to a Mortgage, then, unless such Mortgage could be created pursuant to the Indenture provisions described under the section headed “Negative Pledge” without equally and ratably securing the Notes, the Issuer or the Company, simultaneously with or prior to such transaction, will cause the Notes to be secured equally and ratably with or prior to the Indebtedness secured by such Mortgage.
The Notes will not contain covenants or other provisions to afford protection to Holders in the event of a highly leveraged transaction or a change in control of the Issuer or the Company except as provided herein.
Upon certain mergers or consolidations involving the Issuer or the Company, or upon certain sales or conveyances of the respective properties of the Issuer or the Company as an entirety or substantially as an entirety, the obligations of the Issuer or the Company, as the case may be, under the Notes or the Guarantees, as the case may be, shall be assumed by the Person formed by such merger or consolidation or which shall have acquired such property (except in the case of an acquisition of such property, for any such Person that meets the condition set forth in clause (i), above, that is directly or indirectly wholly owned by the Company) and upon such assumptions such Person shall succeed to and be substituted for the Issuer or the Company, as the case may be, and then the Issuer or the Company, as the case may be, will be relieved from all obligations under the Notes or the Guarantee, as the case may be. The terms “Issuer” and “Company”, as used in the Notes, the Guarantees and the Indenture, also refer to any such successors or assigns so substituted.
Provision of Financial Information
For so long as any Notes are outstanding, each Issuer and the Company shall deliver to the Trustee, or post on its website copies of any annual reports or periodic results announcements it files with each of the United Kingdom Financial Conduct Authority and the London Stock Exchange within 30 days after it files such documents with the United Kingdom Financial Conduct Authority or London Stock Exchange, as the case may be; provided, however, that this covenant shall not create any obligation under the Indenture to make any such filings or to make such filings in a timely manner. This covenant relates solely to the obligations of the Issuer and the Company under the Notes and is not intended to affect any obligations the Issuer or the Company may have under the UK Disclosure and Transparency Rules.
Change of Control Repurchase Event
If a Change of Control Repurchase Event occurs, unless the Issuer has exercised its right to redeem the Notes as described above, the Issuer or the Company will be required to make an offer to each holder of Notes to repurchase all or any part (equal to US$200,000 or an integral multiple of US$1,000 in excess thereof) of that holder’s Notes at a repurchase price in cash equal to 101% of the aggregate principal amount of Notes repurchased plus any accrued and unpaid interest on the Notes repurchased to, but not including, the date of repurchase.
Within 30 days following any Change of Control Repurchase Event or, at the option of the Issuer or the Company, prior to any Change of Control, but after the public announcement of the Change of Control, the Issuer or the Company will mail, by first class mail or equivalent, a notice to each holder, with a copy to the Trustee, describing the transaction or transactions that constitute or may constitute the Change of Control Repurchase Event and offering to repurchase Notes on the payment date specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed. The notice shall, if mailed prior to the date of consummation of the Change of Control, state that the offer to purchase is conditioned on a Change of Control Repurchase Event occurring on or prior to the payment date specified in the notice.
The Issuer and the Company will comply with the requirements of the Exchange Act, and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control Repurchase Event. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control Repurchase Event provisions of the Notes, the Issuer and the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached their respective obligations under the Change of Control Repurchase Event provisions of the Notes by virtue of such conflict.
On the repurchase date following a Change of Control Repurchase Event, the Issuer or the Company will, to the extent lawful:
1. accept for payment all Notes or portions of Notes properly tendered pursuant to the Issuer’s or the Company’s offer;
2. deposit an amount equal to the aggregate purchase price and accrued interest in respect of all Notes or portions of Notes properly tendered with the Agent (or with such other agent as agreed upon at such time); and
3. deliver or cause to be delivered to the Trustee the Notes properly accepted, together with an officers’ certificate stating the aggregate principal amount of Notes being purchased by the Issuer or the Company.
The Agent will promptly mail to each holder of Notes properly tendered the purchase price for the Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book-entry) to each holder a new note equal in principal amount to any un-purchased portion of any Notes surrendered; provided that each new note will be in a principal amount of US$200,000 or an integral multiple of US$l,000 in excess thereof.
The Issuer or the Company will not be required to make an offer to repurchase the Notes upon a Change of Control Repurchase Event if a third party makes such an offer in the manner, at the times and otherwise in compliance with the requirement for an offer made by the Issuer or the Company and such third party purchases all Notes properly tendered and not withdrawn under its offer.
For purposes of the foregoing description of a repurchase at the option of the holders, the following definitions are applicable:
“Below Investment Grade Ratings Event” means that the Notes cease to be rated Investment Grade by at least two of the three Rating Agencies on any date during the period commencing 60 days prior to, and ending 60 days after (which 60-day period will be extended so long as the rating of the notes is under publicly announced consideration for a possible downgrade by any Rating Agency) the earlier of (1) the occurrence of a Change of Control; or (2) public notice of the occurrence of a Change of Control or the intention of the Company to effect a Change of Control. Notwithstanding any of the foregoing, a Below Investment Grade Ratings Event otherwise arising by virtue of a particular reduction in rating shall not be deemed to have occurred in respect of a particular Change of Control (and thus shall not be deemed a Below Investment Grade Ratings Event for purposes of the definition of Change of Control Repurchase Event hereunder) if the Rating Agencies making the reduction in rating to which this definition would otherwise apply do not announce or publicly confirm or inform the Trustee in writing at its request that the reduction was the result, in whole or in part, of any event or circumstance comprised of or arising as a result of, or in respect of, the applicable Change of Control (whether or not the applicable Change of Control shall have occurred at the time of the ratings event).
“Change of Control” means the occurrence of one or more of the following:
1. the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of consolidation, amalgamation or merger), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any “person” (as that term is used in Section 13(d)(3) of the Exchange Act), other than to the Company or one of its Subsidiaries;
2. the consummation of any transaction (including, without limitation, any consolidation, amalgamation, or merger or other combination (including by way of a scheme of arrangement)) the result of which is that any “person” (as that term is used in Section 13(d)(3) of the Exchange Act) becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the outstanding Voting Stock of the Company, measured by voting power rather than number of shares;
3. the Company consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company or such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where the shares of the Voting Stock of the Company outstanding immediately prior to such transaction constitute, or are converted into or exchanged for, a majority of the Voting Stock of the surviving Person immediately after giving effect to such transaction;
4. the first day on which the majority of the members of the board of directors of the Company cease to be Continuing Directors; or
5. the adoption of a plan relating to the liquidation, winding up or dissolution of the Company.
Notwithstanding the foregoing, a transaction will not be deemed to involve a change of control for the purposes of this definition only if (1) the Company becomes a direct or indirect wholly owned subsidiary of a holding company and (2)(A) the direct or indirect holders of the Voting Stock of such holding company immediately following that transaction are substantially the same as the holders of the Company’s Voting Stock immediately prior to that transaction or (B) immediately following that transaction no person (other than a holding company satisfying the requirements of this sentence) is the beneficial owner, directly or indirectly, of more than 50% of the Voting Stock of such holding company.
“Change of Control Repurchase Event” means the occurrence of both a Change of Control and a Below Investment Grade Ratings Event.
“Continuing Director” means, as of any date of determination, any member of the board of directors of the Company who:
1. was a member of such board of directors on the date of the Indenture; or
2. was nominated for election or elected to such board of directors with the approval of a majority of the Continuing Directors who were members of such board of directors at the time of such nomination or election.
“Exchange Act” means the United States Securities Exchange Act of 1934, as amended.
“Fitch” means Fitch, Inc., a subsidiary of Fimalac, S.A., and its successors.
“Investment Grade” means a rating of Baa3 or better by Moody’s (or its equivalent under any successor rating categories of Moody’s); a rating of BBB- or better by S&P or Fitch (or its equivalent under any successor rating categories of S&P and Fitch); or the equivalent Investment Grade credit rating from any additional Rating Agency or Rating Agencies selected by the Issuer or the Company.
“Moody’s” means Moody’s Investor Services Ltd.
“Person” means any individual, corporation, partnership, joint venture, association, limited liability company, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
“Rating Agency” means each of Moody’s, S&P and Fitch; provided that if any of Moody’s, S&P or Fitch ceases to rate the Notes or fails to make a rating of the Notes publicly available for reasons outside of the Issuer’s or the Company’s control, a “nationally recognized statistical rating organization” within the meaning of Section 3(a)(62) of the Exchange Act, selected by the Issuer or the Company (as certified by a resolution of the Chief Executive Officer or Chief Financial Officer) as a replacement agency for Moody’s, S&P or Fitch, or all of them, as the case may be.
“S&P” means Standard & Poor’s Credit Market Services Europe Limited.
“Subsidiary” means, at any relevant time, any person of which the voting shares or other interests carrying more than 50% of the outstanding voting rights attached to all outstanding voting shares or other interests are owned, directly or indirectly, by or for the Company and/or one or more subsidiaries of the Company.
“Voting Stock” of any specified “person” (as that term is used in Section 13(d)(3) of the Exchange Act) as of any date means the capital stock of such person that is at the time entitled to vote generally in the election of the board of directors of such person.
The Change of Control Repurchase Event feature of the Notes may in certain circumstances make more difficult or discourage a sale or takeover of the Company and, thus, the removal of incumbent management. Subject to the limitations discussed below, the Issuer or the Company could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Notes, but that could increase the amount of indebtedness outstanding at such time or otherwise affect the Issuer’s or the Company’s capital structure or credit ratings on the Notes.
The Issuer or the Company may not have sufficient funds to repurchase all the Notes, or any other outstanding debt securities that the Issuer or the Company would be required to repurchase, upon a Change of Control Repurchase Event.
Events of Default
The following will be Events of Default (each an “Event of Default”) with respect to the Notes:
(i) default in the payment of any installment of interest (excluding Additional Amounts) upon any Note as and when the same shall become due and payable, and continuance of such default for 30 days; or
(ii) default in the payment of the applicable Additional Amounts as and when the same shall become due and payable, and continuance of such default for a period of 30 days; or
(iii) default in the payment of all or any part of the principal of or premium on any Note as and when the same shall become due and payable either at maturity, upon any redemption, by declaration or otherwise; or
(iv) default in the performance or breach of any covenant of the Issuer or the Company in respect of the Notes or the Indenture (other than those described in paragraphs (i), (ii) and (iii) above), and continuance of such default or breach for a period of 90 days after there has been given a written notice, by registered or certified mail, to the Issuer and the Company by the Trustee or to the Issuer, the Company and the Trustee by the Holders of at least 25% in principal amount of the outstanding Notes affected thereby, specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” under the Indenture; or
(v) (a) any present or future indebtedness of the Issuer, the Company or any Significant Subsidiary, other than the Notes, for or in respect of moneys borrowed is declared or becomes due and payable prior to its stated maturity as the result of any event of default (howsoever described), or (b) any such indebtedness is not paid when due or, as the case may be, within any applicable grace period or (c) the Issuer, the Company or any Significant Subsidiary fails to pay, within any applicable grace period therefor, any amount payable by it under any present or future guarantee for, or indemnity in respect of, any moneys borrowed or raised; provided that the aggregate amount of the relevant indebtedness, guarantees and indemnities in respect of which one or more of the events mentioned in this paragraph (v) will have occurred (which indebtedness, guarantees or indemnities have not been repaid or paid and as to which such default has not been cured or such acceleration has not been rescinded or annulled) exceeds US$100,000,000 or its equivalent; or
(vi) a distress, attachment, execution or other legal process is levied or enforced against any assets of the Issuer, the Company or any Significant Subsidiary having a value exceeding US$100,000,000 following upon a decree or judgment of a court of competent jurisdiction and (A) is not discharged or stayed within 90 days or (B) is the subject of a bona fide active dispute (for the avoidance of doubt, any such distress, attachment, execution or other legal process shall be deemed discharged upon any enforcement of a Mortgage on any such assets); or
(vii) the Issuer, the Company or any Significant Subsidiary admits in writing that it is unable to pay its debts generally; a resolution is passed by the board of directors of the Issuer or the Company for such entity to be wound up or dissolved; the Issuer or Company is unable to pay its debts within the meaning of Section 123(2) of the Insolvency Act of Great Britain or makes a general assignment for the benefit of its creditors; an administrator is appointed in respect of, or an administration order is made in relation to, the Issuer or the Company; the Issuer or the Company stops payment of its obligations generally or ceases to carry on its business or substantially all thereof; or an encumbrancer takes possession or an administrative or other receiver is appointed over the whole or any material part of the either the Issuer’s or the Company’s assets; or
(viii) certain specified events in bankruptcy, insolvency or reorganization involving the Issuer, the Company or any Significant Subsidiary; or
(ix) the Company ceases to own, directly or indirectly, all of the Voting Stock of the Issuer.
The Issuer and/or the Company shall promptly notify the Trustee in writing upon becoming aware of the occurrence of an Event of Default.
The Indenture provides that if an Event of Default occurs and is continuing, then and in each and every such case (other than certain Events of Default specified in paragraphs (vii) and (viii) above with respect to the Issuer or the Company), unless the principal of all the Notes shall have already become due and payable, either the Trustee (at the direction of the Holders) or the Holders of not less than 25% in aggregate principal amount of the Notes then outstanding, by notice in writing to the Issuer and the Company (and to the Trustee if given by the Holders), may declare the entire principal amount of all Notes issued pursuant to the Indenture and interest accrued and unpaid thereon, if any, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable, without any further declaration or other act on the part of the Trustee or any Holder. If certain Events of Default described in paragraph (vii) or (viii) above occur with respect to the Issuer or the Company and are continuing, the principal amount of and accrued and unpaid interest on all the Notes issued pursuant to the Indenture shall become immediately due and payable, without any declaration or other act on the part of the Trustee or any Holder. Under certain circumstances, the Holders of a majority in aggregate principal amount of the Notes then outstanding, by written notice to the Issuer, the Company and the Trustee, may waive defaults and rescind and annul declarations of acceleration and its consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon.
The Holders of a majority in aggregate principal amount of the Notes then outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, subject to certain limitations to be specified in the Indenture.
The Indenture provides that no Holder of any Note may institute any action or proceeding at law or in equity or in bankruptcy or otherwise upon or under or with respect to the Indenture, or for the appointment of a trustee, receiver, liquidator, custodian or other similar official or for any other remedy under the Indenture (except suits for the enforcement of payment of overdue principal or interest) unless such Holder previously shall have given to the Trustee written notice of an Event of Default and continuance thereof and unless the Holders of not less than 25% in aggregate principal amount of the Notes then outstanding shall have made written request upon the Trustee to institute such action or proceedings in its own name as Trustee and shall have offered the Trustee reasonable indemnity, the Trustee shall not have instituted any such action or proceeding within 90 days of its receipt of such notice, request and offer of indemnity and the Trustee shall not have received direction inconsistent with such written request by the Holders of a majority in aggregate principal amount of the Notes at the time outstanding.
An Event of Default with respect to the Notes would not necessarily constitute an event of default with respect to the securities of any other series issued in the future under the Indenture.
The Indenture provides that each of the Issuer and the Company will each furnish to the Trustee on or before June 30 in each year, if Notes are then outstanding, a certificate from an officer as to his or her knowledge of the Issuer’s or the Company’s, as the case may be, compliance with all conditions and covenants under the Indenture.
Defeasance
The Indenture provides that the Issuer will have the option either (a) to be deemed (together with the Company) to have paid and discharged the entire indebtedness represented by, and obligations under, the applicable Notes and the Guarantees and to have satisfied all the obligations under the Indenture relating to the Notes, and the Guarantees (except for certain obligations, including those relating to the defeasance trust and obligations to register the transfer or exchange of Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain paying agencies) on the day after the applicable conditions described below have been satisfied or (b) to cease (together with the Company) to be under any obligation to comply with the covenants described under “—Covenants of the Issuer and the Company—Negative Pledge”, “—Covenants of the Issuer and the Company—Provision of Financial Information” and “—Covenants of the Issuer and the Company—Limitation on Sale and Leaseback Transactions” and the condition relating to the absence of any events of default under “—Covenants of the Issuer and the Company—Limitation on Mergers and Consolidations” under the Notes, and noncompliance with such covenants and the occurrence of certain events described above under “Events of Default” will not give rise to any Event of Default under the Indenture, at any time after the applicable conditions described below have been satisfied.
In order to exercise either defeasance option, the Issuer must deposit with the Trustee, irrevocably in trust, money or Government Obligations for the payment of principal of and interest (including Additional Amounts) on the outstanding Notes to and including the Redemption Date irrevocably designated by the Issuer on or prior to the date of deposit of such money or Government Obligations, and must (i) comply with certain other conditions, including delivering to the Trustee an opinion of US counsel, or a ruling received from or published by the United States Internal Revenue Service, to the effect that beneficial owners of the Notes will not recognize income, gain or loss for United States federal income tax purposes as a result of the exercise of such option and will be subject to United States federal income tax on the same amount and in the same manner and at the same time as would have been the case if such option had not been exercised and, in the case of (a) above, such opinion must state that it is based on a change of law or final and binding ruling received from or published by the United States Internal Revenue Service after March 13, 2018 and (ii) pay in full all other amounts due and owing under the Indenture.
Modification and Waiver
Without Consent of Noteholders
The Indenture provides provisions permitting the Issuer, the Company and the Trustee, without the consent of the Holders of any of the Notes at any time outstanding, from time to time and at any time, to enter into an indenture or indentures supplemental to the Indenture or to otherwise amend the Indenture:
to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Notes any property or assets;
to evidence the succession of another person to the Issuer or the Company, as the case may be, or successive successions, and the assumption by the successor person of the covenants, agreements and obligations of the Issuer or the Company, as the case may be, pursuant to the Indenture;
to evidence and provide for the acceptance of appointment of a successor trustee, principal paying agent, registrar or transfer agent, as the case may be;
to add to the covenants of the Issuer and the Company, as the case may be, such further covenants, restrictions, conditions or provisions as the Issuer and the Company, as the case may be, and the Trustee shall consider to be for the protection of the Holders of Notes, and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions, conditions or provisions an Event of Default under the Indenture permitting the enforcement of all or any of the several remedies provided in the Indenture, Notes or Guarantees; provided that, in respect of any such additional covenant, restriction, condition or provision, such supplemental indenture may provide for a particular period of grace after default (which may be shorter or longer than that allowed in the case of other defaults) or may limit the remedies available to the Trustee upon such an Event of Default or may limit the right of Holders of a majority in aggregate principal amount of the applicable Notes to waive such an Event of Default;
to modify the restrictions on, and procedures for, resale and other transfers of the Notes pursuant to law, regulation or practice relating to the resale or transfer of restricted securities generally;
to cure any ambiguity or to correct or supplement any provision contained in the Indenture which may be defective or inconsistent with any other provision contained therein or to make such other provision in regard to matters or questions arising under the indenture as the Issuer or the Company may deem necessary or desirable and which will not adversely affect the interests of the Holders of the Notes in any material respect (provided that any modification or amendment to conform language in the Indenture to that appearing in this description of notes shall be deemed not to adversely affect the interests of the Holders of the Notes in any material respect); or
to issue as many distinct series of debt securities under the Indenture as the Issuer wishes or to “reopen” each series of notes and create and issue additional notes having identical terms and conditions as an existing series of Notes (or in all respects except for the payment of interest accruing prior to the issue date of such additional notes or except for the first payment of interest following the issue date of such additional notes) so that the additional notes are consolidated and form a single series with the Notes.
With Consent of Noteholders
The Indenture provides provisions permitting the Issuer, the Company and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding (including consents obtained in connection with a tender offer or exchange offer for the Notes), from time to time and at any time, to enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or any supplementary indenture or of modifying in any manner the rights of the Holders of the Notes or the Guarantees; provided that no such indenture may, without the consent of the Holder of each of the Notes so affected:
change the stated maturity of the principal of or the date for payment of any instalment of interest on any Note;
reduce the principal amount of or interest on any Note or Additional Amounts payable with respect thereto or reduce the amount payable thereon in the event of redemption or default;
change the currency of payment of principal of or interest on any Note or Additional Amounts payable with respect thereto;
change the obligation of the Issuer or the Company, as the case may be, to pay Additional Amounts;
impair the right to institute suit for the enforcement of any such payment on or with respect to any Note;
reduce the aforesaid percentage in principal amount of the outstanding Notes, the consent of whose Holders is required for any such supplemental indenture; or
reduce the aforestated aggregate principal amount of any Note outstanding necessary to modify or amend the Indenture or any such Notes or to waive any future compliance or past default or reduce the quorum requirements or the percentage of aggregate principal amount of any Notes outstanding required for the adoption of any action at a meeting of holders of such Notes or reduce the percentage of the aggregate principal amount of such Notes outstanding necessary to rescind or annul any declaration of the principal of and all accrued and unpaid interest on any Notes to be due and payable; provided that no consent of any Holder of any Note shall be necessary to permit the Trustee, the Issuer and the Company to execute supplemental indentures described under “Modification and Waiver—Without Consent of Noteholders” above.
Any modifications, amendments or waivers to the Indenture or to the conditions of the Notes will be conclusive and binding on all Holders of the Notes, whether or not they have consented to such action or were present at the meeting at which such action was taken, and on all future holders of the Notes, whether or not notation of such modifications, amendments or waivers is made upon such Notes. Any instrument given by or on behalf of any Holder of such a Note in connection with any consent to any such modification, amendment or waiver will be irrevocable once given and will be conclusive and binding on all subsequent registered holders of such Note.
Prescription
Under New York’s statute of limitations, any legal action upon the Notes in respect of interest or principal must be commenced within six years after the payment thereof is due. Thereafter the Notes and the Guarantees will become generally unenforceable.
Listing
The Issuer expects to make an application for Admission of the Notes to listing on the Official List and to trading on the London Stock Exchange’s Regulated Market, a regulated market.
The Issuer and the Company will use their reasonable best efforts to have such (i) Admission of the Notes to trading on the regulated market of the London Stock Exchange and (ii) listing of such Notes on the Official List become effective and then maintain such listing for so long as any of the Notes remain outstanding.
Notices
Notices to Holders of Notes will be mailed by firstclass mail (or equivalent) postage prepaid to Holders of Notes at their last registered addresses as they appear in the Notes register. The Issuer and the Company will consider any mailed notice to have been given two Business Days after it has been sent.
In addition, for so long as the Notes are listed on the Official List and admitted to trading on the London Stock Exchange’s Regulated Market, and the rules of the London Stock Exchange so require, the Issuer and the Company will publish notices to the Holders of such Notes in a leading newspaper having general circulation in London, England (which is initially expected to be the Financial Times) and immediately provide a copy thereof to the Trustee. The Issuer and the Company will consider any published notice to be given on the date of its first publication.
Consent to Service, Submission to Jurisdiction; Enforceability of Judgments
Each of the Issuer and the Company will appoint CT Corporation System, as its process agent for any action brought by a holder based on the Indenture or the Notes or Guarantees, as applicable, instituted in any state or federal court in the Borough of Manhattan, The City of New York.
Each of the Issuer and the Company will irrevocably submit to the non-exclusive jurisdiction of any state or federal court in the Borough of Manhattan, The City of New York in respect of any action brought by a holder based on the Notes, the Guarantees or the Indenture. Each of the Issuer and the Company will also irrevocably waive, to the extent permitted by applicable law, any objection to the venue of any of these courts in an action of that type. Holders of the Notes may, however, be precluded from initiating actions based on the Notes, the Guarantees or the Indenture in courts other than those mentioned above.
Each of the Issuer and the Company will, to the fullest extent permitted by law, irrevocably waive and agree not to plead any immunity from the jurisdiction of any of the above courts in any action based upon the Notes, the Guarantees or the Indenture.
Since a substantial portion of the assets of each of the Issuer and the Company is outside the United States, any judgment obtained in the United States against the Issuer or the Company, including judgments with respect to the payment of principal, premium, interest and any redemption price and any purchase price with respect to the Notes or payments due under the Guarantee, may not be collectable within the United States.
Governing Law
The Indenture, the Notes and the Guarantees shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws thereof.
Book-Entry System; Delivery and Form
Upon issuance, the Notes will be represented by beneficial interests in Global Notes. Each Global Note will be deposited with, or on behalf of, DTC and registered in the name of Cede & Co., as nominee of DTC. Except under the circumstances described below, Global Notes will not be exchangeable at the option of the holder for certificated notes and Global Notes will not otherwise be issuable in definitive form.
Upon issuance of the Global Notes, DTC will credit the respective principal amounts of the Notes represented by the Global Notes to the accounts of institutions that have accounts with DTC or its nominee (called participants of DTC), including Euroclear and Clearstream. The accounts to be credited shall be designated by the Initial Purchasers. Ownership of beneficial interests in the Global Notes will be limited to participants or persons that may hold interests through participants. Ownership of beneficial interest in the Global Notes will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee (with respect to participants’ interests) or by participants or persons that hold through participants. Such beneficial interest shall be in denominations of US$200,000 and in multiples of US$1,000 in excess thereof.
So long as DTC, or its nominee, is the registered owner or holder of the Global Notes, DTC or its nominee, as the case may be, will be considered the sole owner and holder of the Global Notes for all purposes under the Indenture.
Except as set forth below, owners of beneficial interests in the Global Notes:
will not be entitled to have the Notes represented by the Global Notes registered in their names, and
will not receive or be entitled to receive physical delivery of Notes in definitive form and will not be considered the owners or holders thereof under the Indenture.
Accordingly, each person owning a beneficial interest in the Global Notes must rely on the procedures of DTC, and indirectly Euroclear and Clearstream, and, if such person is not a participant, on the procedures of the participant through which such person owns its interest, to exercise any rights of a holder under the Indenture.
Principal and interest payments on Global Notes registered in the name of or held by DTC or its nominee will be made to DTC or its nominee, as the case may be, as the registered owner or holder of the Global Note. None of the Issuer, the Company, the Trustee or any paying agent for such Global Notes will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
The Issuer expects that DTC, upon receipt of any payments of principal or interest in respect of the Global Notes, will credit the accounts of the related participants (including Euroclear and Clearstream), with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Notes as shown on the records of DTC. Payments by participants to owners of beneficial interest in the Global Notes held through such participants will be the responsibility of the participants, as is now the case with securities held for the accounts of customers in bearer form or registered in “street name”.
Unless and until it is exchanged in whole or in part for Notes in definitive form in accordance with the terms of the Indenture, a Global Note may not be transferred except as a whole by the depositary to a nominee of the depositary or by a nominee of DTC to DTC or another nominee of DTC.
If any note, including a Global Note, is mutilated, defaced, stolen, destroyed or lost, such note may be replaced with a replacement note at the office of the registrar or any successor registrar or transfer agent, on payment by the Noteholder of such costs and expenses as may be incurred in connection with the replacement, and on such terms as to evidence and indemnity as we may reasonably require. Mutilated or defaced Notes must be surrendered before replacement Notes will be issued.
Exchanges of Global Notes for Definitive Notes
Global Notes shall be exchangeable for definitive notes registered in the names of persons other than DTC or its nominee for such Global Notes only if:
DTC has notified the Issuer that it is unwilling or unable to continue as depositary or has ceased to be a clearing agency registered under the Exchange Act, and in either case, we have failed to appoint a successor depositary within 90 days of such notice, or
there shall have occurred and be continuing an Event of Default (as defined in the Indenture) with respect to the Notes; or
the Issuer shall have determined in its sole discretion that the Notes shall no longer be represented by the applicable Global Notes.
Any Global Note that is exchangeable for definitive notes pursuant to the preceding sentence shall be exchangeable for Notes issuable in denominations of US$200,000 and in multiples of US$1,000 in excess thereof and registered in such names as DTC shall direct. Subject to the foregoing, a Global Note shall not be exchangeable, except for a Global Note of like denomination to be registered in the name of DTC or its nominee. Bearer notes will not be issued.
Exchanges Between and Among Global Notes
The “distribution compliance period”, as defined in Regulation S, will begin on the closing date and end 40 days after the closing date of the offering.
Beneficial interests in one Global Note may generally be exchanged for interests in another Global Note. Depending on whether the transfer is being made during or after the distribution compliance period, and to which Global Note the transfer is being made, the Trustee may require the seller to provide certain written certifications in the form provided in the Indenture.
A beneficial interest in a Global Note that is transferred to a person who takes delivery through another Global Note will, upon transfer, become subject to any transfer restrictions and other procedures applicable to beneficial interests in the other Global Note.
Transfers from Definitive Notes to Global Notes
Definitive notes, if any, may be transferred or exchanged for a beneficial interest in the relevant Global Note in accordance with the procedures described in the Indenture.
BOOK-ENTRY SETTLEMENT AND CLEARANCE
The Global Notes
The Notes will be issued in the form of several registered notes in global form, without interest coupons, which we refer to as the Global Notes, as follows:
Notes sold to qualified institutional buyers under Rule 144A will be represented by one or more Rule 144A Global Notes; and
Notes sold in offshore transactions to non-US persons in reliance on Regulation S will be represented by one or more Regulation S Global Notes.
Upon issuance, each of the Global Notes will be deposited with the Registrar and Transfer Agent as custodian for DTC and registered in the name of Cede & Co., as nominee of DTC.
Ownership of beneficial interests in each Global Note will be limited to persons who have accounts with DTC, or DTC participants, or persons who hold interests through DTC participants. We expect that under procedures established by DTC:
upon deposit of each Global Note with DTC’s custodian, DTC will credit portions of the principal amount of the Global Note to the accounts of the DTC participants designated by the Initial Purchasers; and
ownership of beneficial interests in each Global Note will be shown on, and transfer of ownership of those interests will be effected only through, records maintained by DTC (with respect to interests of DTC participants) and the records of DTC participants (with respect to other owners of beneficial interests in the Global Note).
Each Global Note and beneficial interests in each Global Note will be subject to restrictions on transfer as described under “Transfer Restrictions”.
See “Description of the Notes and the Guarantees—Book-Entry System; Delivery and Form”.
Book-Entry Procedures for the Global Notes
All interests in the Global Notes will be subject to the operations and procedures of DTC, Euroclear and Clearstream. We provide the following summaries of those operations and procedures solely for the convenience of investors. The information in this section concerning DTC, Euroclear and Clearstream, Luxembourg (referred to herein as Clearstream) and their book-entry systems has been obtained from sources that we believe to be reliable, but neither we nor the Initial Purchasers take any responsibility for or make any representation or warranty with respect to the accuracy of this information. DTC, Euroclear and Clearstream are under no obligation to follow the procedures described herein to facilitate the transfer of interest in Global Notes among participants and account holders of DTC, Euroclear and Clearstream, and such procedures may be discontinued or modified at any time. Neither we, the Company, the Trustee nor any paying agent will have any responsibility for the performance of DTC, Euroclear and Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations.
DTC has advised us that it is:
a limited purpose trust company organized under the laws of the State of New York;
a “banking organization” within the meaning of the New York State Banking Law;
a member of the Federal Reserve System;
a “clearing corporation” within the meaning of the Uniform Commercial Code; and
a “clearing agency” registered under Section 17A of the Securities Exchange Act of 1934.
DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between its participants through electronic book-entry changes to the accounts of its participants. DTC’s participants include securities brokers and dealers, including the Initial Purchasers; banks and trust companies; clearing corporations and other organizations. Indirect access to DTC’s system is also available to others such as banks, brokers, dealers and trust companies; these indirect participants clear through or maintain a custodial relationship with a DTC participant, either directly or indirectly. Investors who are not DTC participants may beneficially own securities held by or on behalf of DTC only through DTC participants or indirect participants in DTC.
So long as DTC’s nominee is the registered owner of a Global Note, that nominee will be considered the sole owner or holder of the Notes represented by that Global Note for all purposes under the Indenture.
As a result, each investor who owns a beneficial interest in a Global Note must rely on the procedures of DTC to exercise any rights of a holder of Notes under the Indenture (and, if the investor is not a participant or an indirect participant in DTC, on the procedures of the DTC participant through which the investor owns its interest).
Payments of principal, premium (if any) and interest with respect to the Notes represented by a Global Note will be made by the Paying Agent to DTC’s nominee as the registered holder of the Global Note. Neither we nor the Paying Agent will have any responsibility or liability for the payment of amounts to owners of beneficial interests in a Global Note, for any aspect of the records relating to or payments made on account of those interests by DTC, or for maintaining, supervising or reviewing any records of DTC relating to those interests.
Payments by participants and indirect participants in DTC to the owners of beneficial interests in a Global Note will be governed by standing instructions and customary industry practice and will be the responsibility of those participants or indirect participants and DTC.
Transfers between participants in DTC will be effected under DTC’s procedures and will be settled in same-day funds. Transfers between participants in Euroclear or Clearstream will be effected in the ordinary way under the rules and operating procedures of those systems.
Cross-market transfers between DTC participants, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected within DTC through the DTC participants that are acting as depositaries for Euroclear and Clearstream. To deliver or receive an interest in a Global Note held in a Euroclear or Clearstream account, an investor must send transfer instructions to Euroclear or Clearstream, as the case may be, under the rules and procedures of that system and within the established deadlines of that system. If the transaction meets its settlement requirements, Euroclear or Clearstream, as the case may be, will send instructions to its DTC depositary to take action to effect final settlement by delivering or receiving interests in the relevant Global Notes in DTC, and making or receiving payment under normal procedures for same-day funds settlement applicable to DTC. Euroclear and Clearstream participants may not deliver instructions directly to the DTC depositaries that are acting for Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or Clearstream participant that purchases an interest in a Global Note from a DTC participant will be credited on the business day for Euroclear or Clearstream immediately following the DTC settlement date. Cash received in Euroclear or Clearstream from the sale of an interest in a Global Note to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Euroclear or Clearstream cash account as of the business day for Euroclear or Clearstream following the DTC settlement date.
DTC, Euroclear and Clearstream have agreed to the above procedures to facilitate transfers of interests in the Global Notes among participants in those settlement systems. However, the settlement systems are not obligated to perform these procedures and may discontinue or change these procedures at any time. Neither we nor the Trustee will have any responsibility for the performance by DTC, Euroclear or Clearstream or their participants or indirect participants of their obligations under the rules and procedures governing their operations.
UK TAX CONSIDERATIONS
The summary below is of a general nature and describes certain UK tax implications of acquiring, holding or disposing of Notes. It is not tax advice and is not intended to be exhaustive. The summary is based on current UK tax law, current UK H.M. Revenue and Customs (“HMRC”) published practice, which may not be binding on HMRC and the terms of the double taxation treaty between the United States and the United Kingdom which entered into force on March 31, 2003 (the “Treaty”), all of which are subject to change at any time, possibly with retrospective effect. The comments relate only to the position of persons who are the absolute beneficial owners of their Notes and may not apply to certain classes of holders, such as dealers in securities and holders who are connected with the Issuer for UK tax purposes, and do not necessarily apply where the income in respect of the Notes is deemed for UK tax purposes to be the income of any person other than the holder of the Notes.
Please consult your own tax advisor concerning the consequences of acquiring, owning and disposing of the Notes under UK tax law and the laws of any other jurisdiction in which you may be subject to tax.
Interest Payments: Any premium payable on a redemption of the Notes at the option of the Issuer may, in certain circumstances, constitute interest for UK tax purposes and so be treated in the manner described below. References to “interest” in this section mean interest as understood in UK tax law. The statements below do not take account of any different definitions of interest which may prevail under any other law.
Payments of interest on Notes issued by the Issuer will not be subject to withholding or deduction for or on account of UK income tax because the Notes will be treated as “quoted Eurobonds” (within the meaning of section 987 of the Income Tax Act 2007 (“ITA 2007”)), so long as the Notes are “listed on a recognised stock exchange”. Section 1005 ITA 2007 provides that securities will be treated as “listed on a recognised stock exchange” if (and only if) they are admitted to trading on that exchange, and either they are included in the United Kingdom official list (within the meaning of Part 6 of the Financial Services and Markets Act 2000) or they are officially listed, in accordance with provisions corresponding to those generally applicable in European Economic Area states, in a country outside the United Kingdom in which there is a “recognised stock exchange”. The London Stock Exchange is a “recognised stock exchange” for these purposes.
Even if the Notes do not qualify as “quoted Eurobonds”, no withholding or deduction for or on account of UK income tax is required (subject to contrary direction from HMRC) in respect of payments to a holder who the Issuer reasonably believes is the beneficial owner of the interest payable on the Notes and is either a UK resident company or a non-UK resident company carrying on a trade in the United Kingdom through a UK permanent establishment where the payment is taken into account in calculating the UK corporation tax liability of that company, or falls within various categories enjoying a special tax status (including charities and certain pension funds), or is a partnership consisting of such persons.
In most other cases, payments of interest will generally be subject to withholding or deduction for or on account of UK income tax at the basic rate, which is currently 20%. Certain holders of Notes who are resident in the United States may be entitled to receive payments free of withholding or deduction for or on account of UK tax under the Treaty and HMRC may issue a direction to the Issuer to that effect. Holders of Notes who are resident in other jurisdictions may also be able to receive payment free of withholding or deduction for or on account of UK tax or subject to a lower rate of such withholding or deduction under an appropriate double taxation treaty and HMRC may issue a direction to that effect. However, any such direction will, in any case, be issued only on prior application to the relevant tax authorities by the holder in question. If such a direction is not in place at the time a payment of interest is made, the Issuer will be required to withhold or deduct for or on account of UK tax, although a holder of Notes resident in another jurisdiction who is entitled to relief may subsequently claim from HMRC the amount, or proportion of the amount, withheld or deducted.
The interest on Notes issued by the Issuer will have a UK source for UK tax purposes and, as such, may be subject to UK tax by direct assessment (including self-assessment) even where paid without withholding or deduction for or on account of UK income tax. However, interest with a UK source received without withholding or deduction for or on account of UK income tax will not be chargeable to UK tax in the hands of a person (other than certain trustees) who is not resident for tax purposes in the United Kingdom unless that person carries on a trade, profession or vocation in the United Kingdom through a branch or agency (or, for holders who are companies, carries on a trade through a permanent establishment) in the United Kingdom in connection with which the interest is received or to which the Notes are attributable, in which case (subject to exemptions for interest received by certain categories of agent) tax may be levied on the UK branch, agency or permanent establishment.
Disposal (including redemption): In general, a holder of Notes who is resident in a jurisdiction outside the United Kingdom will not be liable to UK chargeable gains taxation in respect of a disposal (including redemption) of a Note, any gain accrued in respect of a Note or any change in the value of a Note, unless at the time of the disposal, the holder carries on a trade, profession or vocation in the United Kingdom through a branch or agency (or, for holders who are companies, carries on a trade through a permanent establishment) and the Note was used in or for the purposes of that trade, profession or vocation or is attributable to the branch or agency or permanent establishment.
UK Corporation Tax Payers: In general, holders within the charge to UK corporation tax (other than certain authorized investment funds) will be treated for UK tax purposes as realizing profits, gains or losses in respect of the Notes on a basis which is broadly in accordance with their accounting treatment, so long as that accounting treatment is in accordance with generally accepted accounting practice (as that term is defined for UK tax purposes). Such profits, gains and losses whether attributable to currency fluctuations or otherwise will be taken into account in computing taxable income for UK corporation tax purposes.
Other UK Tax Payers: If the holder is an individual resident in the United Kingdom for UK tax purposes, he or she may have to account for UK capital gains tax in respect of any gains arising on a disposal (including a redemption) of a Note. Any such capital gains would be calculated by comparing the British pound values on purchase and disposal of the Notes, so a liability to UK tax could arise even where the non-British pound amount received on a disposal was less than or the same as the amount paid for the Notes.
The rules relating to “accrued income profits and losses” (contained in Part 12 ITA 2007) may apply to certain holders who are not subject to UK corporation tax, in relation to a transfer of the Notes. On a transfer of securities with accrued interest, the rules usually apply to deem the transferor to receive an amount of income equal to the accrued interest and to treat the deemed or actual interest subsequently received by the transferee as reduced by a corresponding amount.
Generally, persons who are not resident in the UK and who do not carry on a trade in the United Kingdom through a branch or agency in the United Kingdom for the purposes of which the Notes were used, held or acquired will not be subject to the rules relating to accrued income profits and losses.
Dependent, among other things, on the discount (if any) at which the Notes are issued, the Notes may be deemed to constitute “deeply discounted securities” for the purposes of Chapter 8 of Part 4 of the Income Tax (Trading and Other Income) Act 2005. If the Notes are deemed to constitute deeply discounted securities, individual holders of Notes who are resident for tax purposes in the United Kingdom or who carry on a trade, profession or vocation in the United Kingdom through a branch or agency to which the Notes are attributable generally will be liable to UK income tax on any gain made on the sale or other disposal (including redemption) of the Notes. Holders of Notes are advised to consult their own professional advisers if they require any advice or further information relating to “deeply discounted securities”.
Special rules may apply to individual holders who have ceased to be resident for UK tax purposes in the United Kingdom and once again become resident for UK tax purposes in the United Kingdom after a period of nonresidence. Such holders should consult their own tax advisors.
Stamp Duty and Stamp Duty Reserve Tax (“SDRT”): No UK stamp duty or SDRT should arise on the issue or transfer of a Note, or on its redemption.
Provision of Information: Holders of Notes should note that, in certain circumstances, HMRC has power to obtain information (including details of the beneficial owners of the Notes (or the persons for whom the Notes are held) or the persons to whom payments derived from the Notes are or may be paid and information and documents in connection with transactions relating to the Notes) from, amongst others, the holders of the Notes, persons by or through whom payments derived from the Notes are made, persons who receive (or would be entitled to receive) such payments, persons who effect or are a party to transactions relating to the Notes on behalf of others and certain registrars or administrators. HMRC also has the power, in certain circumstances, to obtain information from any person in the UK who pays amounts payable on the redemption of notes that are deeply discounted securities for the purposes of the Income Tax (Trading and Other Income) Act 2005, or receives such amounts for the benefit of another person (although HMRC published practice indicates that it will not exercise its power to require this information where such amounts are paid on or before April 5, 2018). Any such information referred to in this paragraph may, in certain circumstances, be exchanged by HMRC with the tax authorities in other countries.
CERTAIN US FEDERAL TAX CONSIDERATIONS
This section describes certain US federal income tax consequences to a US holder (as defined below) of acquiring, owning or disposing of the Notes we are offering. It applies to you only if you acquire Notes in the offering at the initial offering price and you hold your Notes as capital assets for US federal income tax purposes. This section does not describe all the US federal income tax considerations that may apply to you if you are a member of a class of owners subject to special rules, such as:
a dealer in securities or currencies;
a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings;
a bank;
a life insurance company;
a tax-exempt organization;
a real estate investment trust;
a regulated investment company;
a US expatriate;
a person that owns Notes that are a hedge or that are hedged against interest rate risks;
a person that owns Notes as part of a straddle or conversion transaction for tax purposes; or
a person whose functional currency for tax purposes is not the US dollar.
If a partnership (or an entity or arrangement treated as a partnership for US federal income tax purposes) holds Notes, the US federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. Partnerships holding Notes and their partners should consult their tax advisors with regard to the US federal income tax treatment of an investment in the Notes.
This section is based on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed regulations under the Code, published rulings and court decisions, all as of the date hereof. These laws are subject to change, possibly on a retroactive basis. This section does not address alternative minimum tax consequences, US federal estate and gift tax consequences, the applicability of the Medicare tax on net investment income or any US state and local or non-US tax consequences of acquiring, owning or disposing of Notes.
Please consult your own tax advisor concerning the consequences of owning these Notes in your particular circumstances under the Code and the laws of any other taxing jurisdiction.
You are a US holder if you are a beneficial owner of a Note and you are for US federal income tax purposes:
a citizen or individual resident of the United States;
a corporation, or other entity treated as a corporation for US federal income tax purposes, created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
an estate whose income is subject to US federal income tax regardless of its source; or
a trust if (i) a US court can exercise primary supervision over the trust’s administration and one or more US persons are authorized to control all substantial decisions of the trust or (ii) a valid election is in place to treat the trust as a US person.
Payments of Interest: You will be taxed on interest on your Notes (without reduction for any withholding tax) and, without duplication, any Additional Amounts, including the amount of any withholding tax on payments of Additional Amounts, as ordinary income at the time you actually or constructively receive the interest or when it accrues, depending on your method of accounting for US federal income tax purposes.
Interest paid by us on the Notes is income from sources outside the United States for the purposes of the rules regarding the foreign tax credit allowable to a US holder. The interest will, depending on your circumstances, be either “passive” or “general” income for purposes of computing the foreign tax credit.
If a Change of Control Repurchase Event occurs, the Issuer or Company will be required to make an offer to each holder of Notes to repurchase all or any part of that holder’s Notes at a repurchase price in cash equal to 101% of the aggregate principal amount of Notes repurchased and any accrued interest (see “Description of the Notes and the Guarantees—Change of Control Repurchase Event”). Notwithstanding this possibility, we do not believe that the Notes are contingent payment debt instruments for US federal income tax purposes, and, consequently, we do not intend to treat the Notes as contingent payment debt instruments. If, notwithstanding our view, any of the Notes were treated as contingent payment debt instruments, a US holder may be required to accrue ordinary income at a rate that is different to the stated interest rate on such Notes and to treat as ordinary income (rather than capital gain) any gain recognized on a sale or other taxable disposition of such Notes. The remainder of this discussion assumes that the Notes will not be treated as contingent payment debt instruments for US federal income tax purposes.
Disposition of a Note: You generally will recognize capital gain or loss on the sale, exchange, redemption, retirement or other taxable disposition of your Notes equal to the difference between the amount you realize on the sale, exchange, redemption, retirement or other taxable disposition, excluding any amounts attributable to accrued but unpaid interest, which will be taxed as described above, and your tax basis in your Notes. Your tax basis in your Notes generally will be their cost. Capital gain of a noncorporate US holder is generally taxed at preferential rates where the property is held for more than one year. The deductibility of capital losses is subject to limitations.
Information with Respect to Foreign Financial Assets: Certain owners of “specified foreign financial assets” with an aggregate value in excess of US$50,000 (and in some circumstances, a higher threshold) may be required to file an information report with respect to such assets with their US federal income tax returns. “Specified foreign financial assets” generally include financial accounts maintained by foreign financial institutions, including those in which Notes may be held, and securities issued by non-US persons, such as the Notes, if they are not held in accounts maintained by financial institutions. Holders are urged to consult their tax advisors regarding the application of this reporting requirement to their ownership of the Notes.
Backup Withholding and Information Reporting: Backup withholding and information reporting requirements may apply to certain payments to US holders of interest on the Notes and to the proceeds of a sale or other disposition of a Note. Backup withholding (currently at a rate of 24%) may be required if you fail (i) to furnish your taxpayer identification number, (ii) to certify that you are not subject to backup withholding or (iii) to otherwise comply with the applicable requirements of the backup withholding rules. Certain US holders (including, among others, corporations) are not currently subject to the backup withholding and information reporting requirements. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a US holder generally may be claimed as a credit against such US holder’s US federal income tax liability and any excess may result in a refund, provided that the required information is timely furnished to the Internal Revenue Service.
PLAN OF DISTRIBUTION
Subject to the terms and conditions of a purchase agreement among the Issuer, the Company and the Initial Purchasers, the Issuer has agreed to sell to the Initial Purchasers, and each Initial Purchaser has severally agreed to purchase from the Issuer, the principal amount of Notes indicated in the following table.
Initial Purchasers
Principal Amount of Notes
Credit Suisse Securities (USA) LLC
$162,500,000
Goldman Sachs & Co. LLC
$162,500,000
Morgan Stanley & Co. LLC
$162,500,000
Australia and New Zealand Banking Group Limited
$81,250,000
Westpac Banking Corporation
$81,250,000
Total
$650,000,000
The obligations of the Initial Purchasers under the purchase agreement, including their agreement to purchase Notes from the Issuer, are several and not joint. The purchase agreement provides that the Initial Purchasers will purchase all the Notes if any of them are purchased.
The Initial Purchasers initially propose to offer and sell the Notes at the respective prices set forth on the cover page of this document. The Initial Purchasers may change such offering prices and any other selling terms at any time without notice. The offering of the Notes by the Initial Purchasers is subject to receipt and acceptance and subject to the Initial Purchasers’ right to reject any order in whole or part. The Initial Purchasers may offer and sell Notes through certain of their affiliates.
In the purchase agreement, the Issuer and the Company have agreed to indemnify the several Initial Purchasers, their affiliates, directors, officers, employees and controlling persons against certain liabilities in connection with this offering, including liabilities under the Securities Act, and to contribute to payments that the several Initial Purchasers may be required to make in respect thereof.
The Initial Purchasers expect that delivery of the Notes will be made against payment therefore on the Settlement Date, which will be the second business day following the pricing date of the offering (this settlement cycle being referred to as “T+2”).
The Notes and the Guarantees have not been, and will not be, registered under the Securities Act or qualified for sale under the securities laws of any state or any jurisdiction inside or outside the United States. The Initial Purchasers propose to resell the Notes and the Guarantees to qualified institutional buyers in reliance on Rule 144A and outside the United States to certain non-US persons in reliance on Regulation S. Each purchaser of the Notes offered hereby in making its purchase will be deemed to have made by its purchase certain acknowledgments, representations, warranties and agreements as set forth under the sections entitled “Notice to Investors” and “Transfer Restrictions”.
In connection with sales outside the United States, the Initial Purchasers have agreed that they will not offer, sell or deliver the Notes to, or for the account or benefit of, US persons (i) as a part of the Initial Purchasers’ distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering or the date the Notes are originally issued other than in accordance with Regulation S or another exemption from the registration requirements of the Securities Act. The Initial Purchasers will send to each broker or dealer to whom they sell such Notes during such 40-day distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, US persons.
In addition, until the expiration of the 40-day distribution compliance period referred to above, an offer or sale of the Notes within the United States by a broker/dealer, whether or not participating in this offering, may violate the registration requirements of the Securities Act if such sale is made otherwise than in accordance with Rule 144A or pursuant to another exemption from registration under the Securities Act.
The Notes is a new issue of securities for which there currently is no market. The Issuer intends to make an application for Admission of the Notes to listing on the Official List and to trading on the London Stock Exchange’s Regulated Market, a regulated market. The Initial Purchasers have advised the Issuer that following the completion of this offering, they presently intend to make a market in the Notes. They are not obligated to do so, however, and any marketmaking activities with respect to the Notes may be discontinued at any time at their sole discretion without notice. In addition, such marketmaking activity will be subject to the limits imposed by the Securities Act and the Exchange Act. Accordingly, the Issuer cannot give any assurance as to the development of any market or the liquidity of any market for the Notes.
In connection with this offering, the Stabilizing Managers may engage in over-allotment, stabilizing transactions, syndicate covering transactions and penalty bids. Over-allotment involves sales in excess of the offering size, which creates a short position for the Initial Purchasers. Stabilizing transactions involve bids to purchase the Notes in the open market for the purpose of pegging, fixing or maintaining the price of the Notes. Syndicate covering transactions involve purchases of the Notes in the open market after the distribution has been completed in order to cover short positions. Penalty bids permit the Stabilizing Managers to reclaim a selling concession from a broker/dealer when the Notes originally sold by such broker/dealer are purchased in a stabilizing or syndicate covering transaction to cover short positions. Any of these activities may prevent a decline in the market price of such Notes, and may also cause the price of such Notes to be higher than it would otherwise be in the absence of these transactions. The Stabilizing Managers may conduct these transactions in the over-the-counter market or otherwise. If the Stabilizing Managers commence any of these transactions, they may discontinue them at any time.
The Issuer and the Company have each agreed not to, for a period from the date hereof until the date of delivery of the Notes, without the prior written consent of the Initial Purchasers, directly or indirectly, issue, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, any securities similar to the Notes, or any securities convertible into or exchangeable for the Notes or any such similar securities or the Guarantees, except for the Notes sold to the Initial Purchasers pursuant to the purchase agreement.
The Initial Purchasers and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the Initial Purchasers and their respective affiliates have provided, and may in the future provide, a variety of these services to the Issuer and the Company and to persons and entities with relationships with the Issuer and the Company, for which they received or will receive customary fees expenses. In particular, affiliates of certain of the Initial Purchasers are lenders under certain of our existing credit facilities, and proceeds from the sale of the Notes may be used to service or repay these facilities. Certain of the Initial Purchasers and/or their affiliates may be holders of notes being tendered in the liability management exercise and, accordingly, may receive a portion of the net proceeds of this offering in connection with the liability management exercise referred to in “Use of Proceeds”, if undertaken.
In the ordinary course of their various business activities, the Initial Purchasers and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments, including serving as counterparties to certain derivatives and hedging instruments, and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the Issuer or the Company (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the Issuer or the Company. Certain of the Initial Purchasers or their affiliates that have a lending relationship with the Issuer or the Company routinely hedge their credit exposure to the Issuer or the Company consistent with their customary risk management policies. Typically, such Initial Purchasers and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in the securities of the Issuer or the Company, including potentially the Notes offered hereby. Any such credit default swaps or short positions could adversely affect future trading prices of the Notes offered hereby. The Initial Purchasers and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
In connection with the offering, the Initial Purchasers are not acting for anyone other than the Issuer and will not be responsible to anyone other than the Issuer for providing advice in relation to the offering.
To the extent any Initial Purchaser that is not a US registered broker-dealer intends to effect any offers or sales of any Notes in the United States, it will do so through one or more US registered broker-dealers in accordance with the applicable US securities laws and regulations.
PRIIPS Regulation/Prohibition of Sales To Eea Retail Investors
The Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (“EEA”). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, “MiFID II”); or (ii) a customer within the meaning of Directive 2002/92/EC (as amended, the “Insurance Mediation Directive”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified investor as defined in Directive 2003/71/EC (as amended, the “Prospectus Directive”). Consequently no key information document required by Regulation (EU) No 1286/2014 (the “PRIIPs Regulation”) for offering or selling the Notes or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation.
United Kingdom
This document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”) and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. In the United Kingdom, any investment or investment activity to which this document relates is only available to, and will be engaged in with, relevant persons.
Each Initial Purchaser has agreed that (a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer or the Company; and (b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything in relation to the Notes in, from or otherwise involving the United Kingdom.
Hong Kong
The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.
The Notes may not be offered or sold in Hong Kong by means of any document other than (i) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) and any rules made under that Ordinance, or (ii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) or which do not constitute an offer to the public within the meaning of that Ordinance; and no advertisement, invitation or document relating to the Notes may be issued or may be in the possession of any person for the purposes of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to Notes which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) and any rules made under that Ordinance.
Singapore
This document has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this document and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Notes may not be circulated or distributed, nor may the Notes be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the SFA, (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the Securities and Futures Act of Singapore (“SFA”) or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the Notes are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the Notes under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
Japan
The securities offered hereby have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948 as amended, the “FIEL”) and each Initial Purchaser has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the FIEL and any other applicable laws, regulations and ministerial guidelines of Japan.
TRANSFER RESTRICTIONS
The Notes and the Guarantees have not been registered under the Securities Act or any other applicable securities laws, and may not be offered, sold or delivered in the United States or to, or for the account or benefit of, any US person, except pursuant to an effective registration statement or in a transaction not subject to the registration requirements of the Securities Act or in accordance with an applicable exemption from the registration requirements and those other laws. Accordingly, the Notes and the Guarantees are being offered and sold only (i) to qualified institutional buyers in a private sale exempt from the registration requirements of the Securities Act pursuant to Rule 144A and any other applicable securities laws or (ii) outside the United States to non-US persons in compliance with Regulation S.
Each purchase of Notes is subject to restrictions on transfer as summarized below. By purchasing Notes, each purchaser will be deemed to have made the following acknowledgements, representations to and agreements with us and the Initial Purchasers:
The purchaser understands and acknowledges that:
each of the Notes and the Guarantees have not been registered under the Securities Act or any other securities laws and are being offered for resale in transactions that do not require registration under the Securities Act or any other securities laws; and
unless so registered, the Notes and the Guarantees may not be offered, sold or otherwise transferred except under an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act or any other applicable securities laws, and in each case in compliance with the conditions for transfer set forth in paragraph (3) below.
The purchaser represents that it is not an affiliate (as defined in Rule 144 under the Securities Act) of the Company or the Issuer, that the purchaser is not acting on behalf of such persons and that either:
the purchaser is a qualified institutional buyer (as defined in Rule 144A), is aware that the sale to it is being made in reliance on Rule 144A and is purchasing Notes for its own account or for the account of another qualified institutional buyer; or
the purchaser is not a US person (as defined in Regulation S) or is acquiring the Notes for its own account or as a fiduciary or agent for others in a transaction outside the United States pursuant to Regulation S.
The purchaser represents that it is purchasing Notes for its own account, or for one or more investor accounts for which it is acting as a fiduciary or agent, in each case not with a view to, or for offer or sale in connection with, any distribution of the Notes in violation of the Securities Act, subject to any requirement of law that the disposition of its property or the property of that investor account or accounts be at all times within its or their control and subject to its or their ability to resell the Notes pursuant to Rule 144A or any other available exemption from registration under the Securities Act. The purchaser agrees on its own behalf and on behalf of any investor account for which it is purchasing Notes, and each subsequent holder of the Notes by its acceptance of the Notes will agree, that until the end of the Resale Restriction Period (as defined below), the Notes may be offered, sold or otherwise transferred only: (a) to us; (b) under a registration statement that has been declared or has become effective under the Securities Act; (c) for so long as the Notes are eligible for resale under Rule 144A, to a person the seller reasonably believes is a qualified institutional buyer that is purchasing for its own account or for the account of another qualified institutional buyer and to whom notice is given that the transfer is being made in reliance on Rule 144A; (d) through offers and sales that occur outside the United States within the meaning of Regulation S; (e) to an institutional accredited investor (within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that is purchasing for its own account or for the account of another institutional accredited investor, in each case in a minimum principal amount of Notes of US$250,000; or (f) under any other available exemption from the registration requirements of the Securities Act; in each case in compliance with any applicable state securities laws; subject in each of the above cases to any requirement of law that the disposition of the seller’s property or the property of an investor account or accounts be at all times within the seller’s or account’s control.
The purchaser also acknowledges that:
the above restrictions on resale will apply from the closing date until the date after which such Notes may be freely transferred pursuant to Rule 144 under the Securities Act (in the case of the Notes sold pursuant to Rule 144A) or 40 days (in the case of the Notes sold pursuant to Regulation S) after the later of the closing date and the last date that we or any of our affiliates were the owner of the Notes or any predecessor of the Notes (the “Resale Restriction Period”), and will not apply after the applicable Resale Restriction Period ends;
if a holder of Notes proposes to resell or transfer Notes under clause (e) above before the applicable Resale Restriction Period ends, the seller must deliver to us and the Trustee a letter from the purchaser in the form set forth in the indenture which must provide, among other things, that the purchaser is an institutional accredited investor that is not acquiring the Notes for distribution in violation of the Securities Act;
we and the Trustee reserve the right to require in connection with any offer, sale or other transfer of Notes under clauses (d), (e) and (f) above the delivery of an opinion of counsel, certifications and/or other information satisfactory to us and the Trustee; and
each Note being sold pursuant to Rule 144A will contain a legend substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, ONLY (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BECOME OR BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER QUALIFIED INSTITUTIONAL BUYER AND TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF US$250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, (F) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (G) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER’S AND THE TRUSTEE’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E), (F) OR (G) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/ OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
each Note being sold pursuant to Regulation S will contain a legend substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION, AND MAY NOT BE OFFERED, SOLD OR DELIVERED IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY US PERSON, UNLESS SUCH NOTES ARE REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF IS AVAILABLE. THIS LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF FORTY DAYS FROM THE LATER OF (i) THE DATE ON WHICH THESE NOTES WERE FIRST OFFERED AND (ii) THE DATE OF ISSUE OF THESE NOTES.
The purchaser has received a copy of the prospectus relating to the offering of the Notes and the Guarantees and acknowledges that (a) neither we nor the Initial Purchasers or any person representing us or the Initial Purchasers have made any representation to it with respect to us or the offering and the sale of the Notes and the Guarantees other than the information contained in and incorporated by reference into this document and (b) it has had access to such financial and other information and has been offered the opportunity to ask questions of us and received answers thereto, as it deemed necessary in connection with the decision to purchase Notes.
The purchaser understands that we, the Company, the Initial Purchasers and others will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements and agrees that if any of the representations and acknowledgements deemed to have been made by it by its purchase of the Notes are no longer accurate, the purchaser shall promptly notify us and the Initial Purchasers. If the purchaser is acquiring the Notes as a fiduciary or agent for one or more investor accounts, it represents that it has sole investment discretion with respect to each such account and it has full power to make the foregoing representations, acknowledgements and agreements on behalf of such account.
The purchaser: (a) is able to fend for itself in the transactions contemplated by this document; (b) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its prospective investment in the Notes; and (c) has the ability to bear the economic risks of its prospective investment and can afford the complete loss of such investment.
By acceptance of a Note, each purchaser and subsequent transferee will be deemed to have represented and warranted that either (a) no portion of the assets used by such purchaser or transferee to acquire or hold the Notes constitutes assets of any employee benefit plan that is subject to Title I of the United States Employee Retirement Income Security Act of 1974, as amended (“ERISA”), a plan, individual retirement account or other arrangement that is subject to Section 4975 of the United States Internal Revenue Code of 1986, as amended (the “Code”) or provision under any federal, state, local, non-US or other laws, rules or regulations that are similar to such provisions or ERISA or the Code (collectively, “Similar Laws”) or entity whose underlying assets are considered to include “plan assets” of any such plan, account or arrangement or (b) the purchase and holding of the Notes will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or a violation under any applicable Similar Laws.
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed upon for us by Shearman & Sterling (London) LLP, as to matters of United States federal law, New York State law and English law. Certain legal matters in connection with this offering will be passed upon for the Initial Purchasers by Davis Polk & Wardwell London LLP, as to matters of United States federal and New York State law.
INDEPENDENT AUDITORS
The consolidated financial statements of the Group as at and for the year-ended December 31, 2017, for the year-ended December 31, 2016 and for the year-ended December 31, 2015, prepared in accordance with IFRS as adopted by the European Union have been audited by Deloitte LLP, independent auditors, as stated in their reports incorporated by reference herein.
The auditor’s reports, in accordance with guidance issued by The Institute of Chartered Accountants in England and Wales, include the following limitations: “This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.”
DESCRIPTION OF ANGLO AMERICAN CAPITAL PLC
Incorporation, Registered Office and Purpose
Anglo American Capital, a wholly owned subsidiary of Anglo American, was incorporated and registered in England and Wales under the registered number 04658814 on February 6, 2003 and operates under the Companies Act 2006 as a public limited company. Its registered office is at 20 Carlton House Terrace, London SW1Y 5AN. Anglo American Capital was formed as a special purpose company solely for the purposes of issuing debt securities and has no subsidiaries.
Anglo American Capital’s authorized share capital is £50,000 and US$1,000,000,000 divided into 50,000 3% cumulative preference shares of £1.00 each and 1,000,000,000 ordinary shares of US$1.00 each, of which 50,000 cumulative preference shares and 1,200 ordinary shares are in issue and fully paid up. All of Anglo American Capital’s issued shares are beneficially owned by Anglo American.
Board of Directors
The Directors of Anglo American Capital and their functions and principal directorships outside Anglo American Capital are as follows:
Name
Title
Principal directorships outside
Anglo American Capital
John Mills
Director
None
Douglas Smailes
Director
None
Alan Macpherson
Director
None
Stephen Pearce
Director
Anglo American plc
Clare Davage
Director
None
Ellie Klonarides
Director
None
The business address of each of the above is 20 Carlton House Terrace, London SW1Y 5AN and the telephone number of Anglo American Capital’s registered office is: +44 (0) 20 7968 8888.
No potential conflicts of interest exist between the Directors’ duties to Anglo American Capital and their private interests or other duties.
Financial Statements
Deloitte audited Anglo American Capital’s accounts in accordance with generally accepted auditing standards in the United Kingdom for the period from February 6, 2003 (Anglo American Capital’s date of incorporation) to December 31, 2004 and in accordance with International Standards on Auditing (UK and Ireland) from December 31, 2005 to December 31, 2017. Audit reports issued by Deloitte on these financial statements were without qualification.
GENERAL INFORMATION
Authorization
The issue of the Notes, or, in the case of the Company, the giving of the guarantee, has been duly authorized by the resolutions of the Board of Directors of Anglo American plc dated December 6, 2017 and of the Board of Directors of Anglo American Capital plc dated March 2, 2018.
Listing
Application has been made to the UK Listing Authority for the Notes to be admitted to the Official List and to the London Stock Exchange for the Notes to be admitted to trading on the London Stock Exchange’s Regulated Market and is expected to be effective as of March 15, 2018, subject only to the issuance of the Global Notes. The listing of the Notes on the Official List will be expressed as a percentage of their nominal amount (exclusive of accrued interest). Prior to listing of the Notes on the Official List and Admission to trading, however, dealings will be permitted by the London Stock Exchange in accordance with its rules. Transactions will normally be effected for delivery on the third working date after the day of the transaction.
The Issuer’s and the Company’s out-of-pocket expenses in relation to Admission to trading of the Notes on the London Stock Exchange’s Regulated Market are expected to amount to approximately £600,000.
Clearing Reference Numbers
The Notes have been accepted for clearance through DTC’s book-entry settlement system. The CUSIP and ISIN numbers for the Notes are as follows:
Notes distributed pursuant to Rule 144A: CUSIP 034863 AU4, ISIN US034863AU41
Notes distributed pursuant to Regulation S: CUSIP G0446N AP9, ISIN USG0446NAP99
The address of DTC is The Depository Trust Company, 55 Water Street, New York, NY 10041-0099, USA.
Financial and Trading Position and Prospects
There has been no significant change in the financial or trading position and no material adverse change in the prospects of the Group since December 31, 2017 being the date of its last published audited financial statements.
There has been no significant change in the financial or trading position of the Issuer since December 31, 2017 being the date of its last published audited financial statements.
There has been no material adverse change in the prospects of the Issuer since December 31, 2017 being the date of its last published audited financial statements.
Litigation
Proceedings in South Africa
Industry working group
AASA, AngloGold Ashanti, Gold Fields, Harmony Gold and Sibanye Gold announced in November 2014 that they had formed an industry working group to address issues relating to compensation and medical care for occupational lung disease in the gold mining industry in South Africa. The working group was subsequently extended in 2015 to include African Rainbow Minerals. At the same time, the industry working group has been engaging all stakeholders on these matters, including government, organized labor, other mining companies and legal representatives of claimants who have filed legal suits against the companies. These engagements have sought comprehensive solutions to address legacy compensation issues and future legal frameworks that is fair to past and current employees and enables companies to continue to be competitive over the long term. The companies in the working group continue to defend the legal proceedings filed against them.
As a consequence of the status of negotiations between the working group and affected stakeholders, a charge of US$101 million was recognised at June 30, 2017 within non-operating special items (US$101 million after tax), representing management’s best estimate of the cost to the Group of a settlement of the class action claims and related costs. The ultimate outcome of these matters remains uncertain, with a possible failure to reach a settlement or to obtain the requisite court approval of the settlement, and the provisions recorded in the financial statements are consequently subject to adjustment or reversal in the future, depending on the progress of the working group discussions and stakeholder consultations, and the ongoing legal proceedings.
Settled litigation
AASA was also a defendant in approximately 4,400 separate lawsuits filed in the North Gauteng High Court (Pretoria), which were referred to arbitration. These 4,400 claims (approximately 1,200 of which were separately instituted against AngloGold Ashanti) were settled by AASA and AngloGold Ashanti in 2016, without admission of liability, for an amount which is not material to AASA.
Current Litigation
Anglo American South Africa (“AASA”) is named as one of 32 respondents in a consolidated class certification application filed in the South Gauteng High Court (Johannesburg) on behalf of former mineworkers (or their dependents or survivors) who allegedly contracted silicosis or tuberculosis as a result of having worked for various gold mining companies including some in which AASA was a shareholder and to which AASA provided various technical and administrative services. The high court has certified two classes of claimants: those who have silicosis or who died from silicosis and those with tuberculosis or who died from tuberculosis. AASA and other respondents are appealing the ruling, which had been set down for hearing from March 19 to March 23, 2018, but was subsequently postponed indefinitely based on the progress made in the settlement negotiations with the claimants’ representatives.
Other than as disclosed in this section, there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which Anglo American or the Issuer is aware), during the 12 months preceding the date of this document which may have, or have had in the recent past, significant effects on the Issuer and/or the Group’s financial position or profitability.
Nature of Financial Information and Auditors
The auditors have made reports under Chapter 3 of Part 16 of the Companies Act 2006 on the statutory accounts of the Company and the Issuer for the years ended December 31, 2015, 2016 and 2017 (each incorporated by reference in this document), which were unqualified and did not contain any statement as is described in Sections 498 (2) or (3) of the Companies Act 2006. Any financial information included in this document (other than the statutory accounts incorporated by reference in this document) do not constitute the statutory accounts of the Company or the Issuer within the meaning of Section 435 (1) and (2) of the Companies Act 2006 for any period presented. Statutory accounts of the Company and the Issuer have been delivered to the Registrar of Companies in England and Wales for the year-ended December 31, 2017 in accordance with, and as required by, UK law.
The auditors of the Company and the Issuer are Deloitte of 2 New Street Square, London EC4A 3BZ, who are registered to carry out audit work by the Institute of Chartered Accountants in England and Wales and regulated by the Audit Inspection Unit of the Professional Oversight Board of the Financial Reporting Council in the United Kingdom, whose address is Eighth Floor, 1 Canada Square, Canary Wharf, London E14 5AG. The auditors of the Issuer and the Company have no interest in the Issuer or the Company.
Yield
The projected yield of the Notes will be 4.557%. Such projection has been calculated on the basis of the offering prices as at the date of this document and is not an indication of actual future returns for investors.
Interests of Natural and Legal Persons Involved in the Issue
Save for any fees payable to the Initial Purchasers, so far as the Company and the Issuer are aware, no person involved in the issue of the Notes has an interest material to the offer.
Documents on Display
For the period of 12 months following the date of this document, copies of the following documents will be available for inspection during normal office hours (local time) on any weekday (Saturdays, Sundays and public holidays excluded) at the registered office of the Company and the Issuer:
(a) this document;
(b) the Memorandum and Articles of Association of Anglo American plc and Anglo American Capital plc;
(c) the Group 2015 Consolidated Financial Statements, the Group 2016 Consolidated Financial Statements, the Group 2017 Consolidated Financial Statements, the Issuer 2015 Financial Statements, the Issuer 2016 Financial Statements and the Issuer 2017 Financial Statements;
(d) the Indenture.
DEFINED TERMS
Defined Term
Definition
“AA Sur”
Anglo American Sur SA
“AAIC”
Anglo American Inyasi Coal
“AASA”
Anglo American South Africa Limited
“Agent”
Citibank, N.A.
“ANM”
National Mining Agency
“AMSA”
ArcelorMittal South Africa Limited
“Anglo American”, “Company” and “Guarantor”
Anglo American plc
“Anglo American Capital” and “Issuer”
Anglo American Capital plc
“Anglo American Group”, “Group”, “us”, “we” and “our”
Anglo American, together with its subsidiaries, joint ventures and associates
“Anglo American Platinum”
Anglo American Platinum Limited
“AngloGold Ashanti”
AngloGold Ashanti Limited
“Atlatsa”
Atlatsa Resources Corporation
“Australian dollar” and “AUD”
The lawful currency of Australia
“BBBEE”
Broad-Based Black Economic Empowerment
“BEE”
Black Economic Empowerment
“Brazilian real” and “BRL”
The lawful currency of Brazil
“British pound” and “GBP”
The lawful currency of the United Kingdom
“Cerrejón”
Carbones del Cerrejón Limited, Cerrejón Zona Norte SA and CMC - Coal Marketing Company Limited
“CFEM”
Calculation of mining royalties
“Chilean peso” and “CLP”
The lawful currency of Chile
“CMA”
Competition and Markets Authority
“CRA Regulation”
Regulation (EC) No. 1060/2009
“c/lb”
US cents per pound
“DBCM”
De Beers Consolidated Mines Limited
“De Beers”
DB Investments Plc and De Beers Plc together with its subsidiaries, joint ventures and associated companies
“Debswana”
Debswana Diamond Company, a 50:50 joint venture with the GRB
“Deloitte”
Deloitte LLP
“DNPM”
National Department of Mineral Production
“DMR”
South African Department of Mineral Resources
“DTC”
The Depository Trust Company
“Eskom”
Eskom Holdings Limited (the South African electrical utility operator)
“Euro” and “EUR”
The lawful common currency of the EU member states who have adopted the Euro as their sole national currency
“Exchange Act”
The United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder
“Ferroport”
Ferroport Logística Comercial Exportadora SA (formerly referred to as LLX Minas-Rio Logística Comercial Exportadora SA or LLX Minas-Rio Logística SA)
“FIEL”
Financial Exchange Law of Japan (Law No. 25 of 1998, as amended)
“FSMA”
The Financial Services and Markets Act 2000
“GEMCO”
Groote Eylandt Mining Company Pty Limited
“GMC”
Group Management Committee
“GRB”
The Government of the Republic of Botswana
“GRN”
The Government of the Republic of Namibia
“Group 2015 Consolidated Financial Statements”
The audited consolidated financial statements of the Anglo American Group and notes prepared in accordance with IFRS and Company financial statements prepared in accordance with UK GAAP, together with the related independent auditor’s audit report, as at and for the year-ended December 31, 2015
“Group 2016 Consolidated Financial Statements”
The audited consolidated financial statements of the Anglo American Group and notes prepared in accordance with IFRS and Company financial statements prepared in accordance with UK GAAP, together with the related independent auditor’s audit report, as at and for the year-ended December 31, 2016
“Group 2017 Consolidated Financial Statements”
The audited consolidated financial statements of the Anglo American Group and notes prepared in accordance with IFRS and Company financial statements prepared in accordance with UK GAAP, together with the related independent auditor’s audit report, as at and for the year-ended December 31, 2017
“HDSA(s)”
Historically Disadvantaged South Africans
“Hotazel”
Hotazel Manganese Mined and Metalloys
“IFRS 11”
International Financial Reporting Standard 11 Joint Arrangements
“IFRS”
International Financial Reporting Standards as adopted for use by the European Union
“Indenture”
The Indenture, dated April 8, 2009, as supplemented by first supplemental indenture dated as of April 2, 2012 and the second supplemental indenture dated as of May 14, 2015, under which the Notes will be issued, among the Issuer, Anglo American and Citibank, N.A.
“Indicated Mineral Resource”
An Indicated Mineral Resource is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence. It is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are too widely or inappropriately spaced to confirm geological and/or grade continuity but are spaced closely enough for continuity to be assumed.
“Initial Purchasers”
Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. LLC, Morgan Stanley & Co.LLC, Australia and New Zealand Banking Group Limited and Westpac Banking Corporation
“Iron Ore Brazil”
The business unit containing the Minas-Rio Project
“Issuer 2015 Financial Statements”
The audited financial statements of Anglo American Capital and notes thereto prepared in accordance with UK GAAP, together with the related independent auditor’s audit report, as at and for the year-ended December 31, 2015
“Issuer 2016 Financial Statements”
The audited financial statements of Anglo American Capital and notes thereto prepared in accordance with UK GAAP, together with the related independent auditor’s audit report, as at and for the year-ended December 31, 2016
“Issuer 2017 Financial Statements”
The audited financial statements of Anglo American Capital and notes thereto prepared in accordance with UK GAAP, together with the related independent auditor’s audit report, as at and for the year-ended December 31, 2017
“Joint Bookrunners”
Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. LLC, Morgan Stanley & Co.LLC, Australia and New Zealand Banking Group Limited and Westpac Banking Corporation
“JORC Code”
The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, 2012 edition
“kt”
Denotes kilotonnes
“Kumba”
Kumba Iron Ore Limited
“Lafarge”
Lafarge SA
“Lafarge Tarmac”
The joint venture between Lafarge and Tarmac
“lb”
Denotes pounds
“Measured Mineral Resource”
A Measured Mineral Resource is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a high level of confidence. It is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are spaced closely enough to confirm geological and grade continuity.
“MiFID II”
Directive 2014/65/EU
“Minas-Rio”
Anglo American Minério de Ferro Brasil SA (previously Anglo Ferrous Minas-Rio Mineração SA)
“Minas-Rio Project”
Minas-Rio together with Ferroport
“Mineral Resource”
A Mineral Resource is a concentration or occurrence of material of intrinsic economic interest in or on the Earth’s crust in such form, quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge. Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories.
“Mining Charter”
The Broad-Based Socio-Economic Empowerment Charter for the South African Mining Industry
“Mining Right”
The Mining Right granted by the South African Department of Mineral Resources in accordance with the provision of MPRDA to undertake or conduct mining activities for a defined period in relation to the area and the mineral to which the Mining Right relates and in accordance with the terms and conditions imposed by the Mining Right and the MPRDA.
“Minorco”
Minorco Société Anonyme, a Luxembourg based company
“Mondi”
Mondi Group
“MPRDA”
The South African Mineral and Petroleum Resources Development Act, 2002
“Mt”
Denotes million tonnes
“Mtpa”
Denotes million tonnes per annum
“Namdeb Holdings”
Namdeb Holdings (Proprietary) Limited
“Niobium”
Anglo American Nióbio Brasil Limitada (previously Mineração Catalão de Goiás Limitada, “Catalão”)
“Notes”
The 4.500% Senior notes due 2028
“Official List”
The official list of the UK Listing Authority
“old order” mining or prospecting rights”
Prospecting, mining and mineral rights formerly regulated under the South African Minerals Act 50 of 1991 of the RSA and South African common law
“Operating Model”
A model for how we set targets, plan, manage, execute and improve our work, bringing consistency of approach to everything we do
“Ore Reserves”
An Ore Reserve is the economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined. Appropriate assessments and studies have been carried out and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified. Ore Reserves are sub-divided in order of increasing confidence into Probable Ore Reserves and Proved Ore Reserves.
“oz”
Denotes ounces
“PCI”
Pulverized coal injection
“Peace River Coal”
Peace River Coal Incorporated
“PGM(s)”
Platinum group metal(s)
“Phosphates”
Anglo American Fosfatos Brasil Limitada
“Ponahalo Holdings”
Ponahalo Holdings (Proprietary) Limited
“Ponahalo Investments”
Ponahalo Investments (Proprietary) Limited
“Probable Ore Reserves”
A Probable Ore Reserve is the economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments and studies have been carried out and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified.
“Proved Ore Reserves”
A Proved Ore Reserve is the economically mineable part of a Measured Mineral Resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments and studies have been carried out and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified.
“RBCT”
The Richards Bay Coal Terminal
“RMX”
Ready mix concrete
“RPM”
Rustenburg Platinum Mines
“RSA”
The Republic of South Africa
“Samancor”
Samancor Holdings together with GEMCO, TEMCO and Samancor Marketing
“Samancor Holdings”
Samancor Holdings Proprietary Limited
“Samancor Marketing”
Samancor Marketing Pte. Ltd
“SARB”
South African Reserve Bank
“SARS”
South African Revenue Service
“Scaw Metals”
Scaw South Africa (Proprietary) Limited together with, in respect of periods prior to 2011, the Scaw Metals International business
“SIOC”
Sishen Iron Ore Company (Proprietary) Limited
“South African rand”, “ZAR”
The lawful currency of the Republic of South Africa
“Tarmac”
The group of aggregates and building products companies operating, under the Tarmac brand in the UK, Middle East and prior to its disposal in 2014, Tarmac Building Products Limited
"TEMCO"
Tasmanian Electro Metallurgical Company Pty Limited
“tonnes”
Denotes metric tonnes (1,000 kilograms)
“Trustee”
Citibank, N.A.
“Trust Indenture Act”
The US Trust Indenture Act of 1939, as amended
“UK GAAP”
Generally Accepted Accounting Principles in the United Kingdom
“UK Listing Authority”
The Financial Conduct Authority in its capacity as competent authority pursuant to Part VI of the FSMA
“US GAAP”
Generally Accepted Accounting Principles in the United States
“US$” and “US dollar”
The lawful currency of the United States of America
No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this document. You must not rely on any unauthorized information or representations. This document constitutes a prospectus that has been prepared solely for the purpose of Admission of the Notes and does not constitute an offer for sale of Notes. The information contained in this document is current only as of its date.
TABLE OF CONTENTS
Page
IMPORTANT INFORMATION
4
PRESENTATION OF FINANCIAL INFORMATION
8
EXCHANGE RATE DATA
13
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
14
OVERVIEW
15
SUMMARY FINANCIAL INFORMATION
22
RISK FACTORS
23
CAPITALIZATION
34
RECENT DEVELOPMENTS
35
USE OF PROCEEDS
36
BUSINESS DESCRIPTION
37
MINERAL PRODUCTION
54
INDUSTRY OVERVIEW AND OUTLOOK
56
SELECTED FINANCIAL INFORMATION
60
OPERATING AND FINANCIAL REVIEW
61
REGULATION
88
SUSTAINABLE DEVELOPMENT
93
BOARD OF DIRECTORS AND MANAGEMENT OF ANGLO AMERICAN PLC
95
RELATED PARTY TRANSACTIONS
103
DESCRIPTION OF THE NOTES AND THE GUARANTEES
104
BOOK-ENTRY SETTLEMENT AND CLEARANCE
122
UK TAX CONSIDERATIONS
124
CERTAIN US FEDERAL TAX CONSIDERATIONS
126
PLAN OF DISTRIBUTION
128
TRANSFER RESTRICTIONS
131
LEGAL MATTERS
134
INDEPENDENT AUDITORS
135
DESCRIPTION OF ANGLO AMERICAN CAPITAL PLC
136
GENERAL INFORMATION
137
DEFINED TERMS
140
US$650,000,000
Prospectus
Anglo American Capital plc
US$650,000,000 4.500% Senior Notes due 2028
Guaranteed by Anglo American plc
Joint Bookrunners
Australia and New Zealand Banking Group Limited
Credit Suisse
Goldman Sachs & Co. LLC
Morgan Stanley
Westpac Banking Corporation
144
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