Since 2003, when a Group-wide energy efficiency training programme and a pilot project were conducted, there has been an increasing focus on efficiency, energy security, the cost of energy and the reduction of carbon emissions.

Total energy use by the managed companies in the Group amounted to 304 million GJ (2005: 298 million GJ), including 58 million GJ of biomass – due to increased production. Excluding Mondi, the Group used 168 million GJ.

With the implementation of the Group strategy which will see significant energy users leave the Group in the first half of 2007, the energy usage and energy mix is likely to change significantly in the future. (see Data tables.)

Energy management

Two energy days were held to share experiences and focus the Group on carbon mitigation, efficiency and successful energy reduction interventions by suppliers. Key recommendations summarised by our chairman, Sir Mark Moody-Stuart, included the need for Group-wide reviews of electrical energy supply and security and an increased need to make capital available for energy-efficiency projects.

Interaction with other leading companies on their experience of energy management has provided valuable insight into how to speed up the energy efficiency improvement programme.

Internally, focus groups work closely with the procurement, engineering and mining functions to ensure the integration of energy efficiency into daily business.

Targets

Group companies reaffirmed their commitment to the voluntary South African Energy Accord when the new Minister of Minerals and Energy was appointed. This accord formally commits South African operations to a 15% energy saving against a business-as- usual baseline. Anglo American has a similar target for 2014.

The measurement of energy efficiency to a common standard is proving to be a challenge in a changing and evolving organisation. Project management software to monitor and focus this process will be tested.

Electricity supply

The South African electricity industry is straining under the burden of increasing growth in demand, a lack of significant recent investment in capacity and problems resulting from the restructuring of the electrical distribution system.

The Group is monitoring the associated risks including those related to the installation of new and rebuilt power stations in South Africa and the shortage of reserve capacity. The availability of skills to support energy generation and the shortage of generator-set manufacturing capability are concerns. Anglo American’s South African companies are significant players in national electricity supplier Eskom’s Demand Side Management programme. Current proposals submitted to Eskom amounted to R345 million ($51 million) in savings at year end. In addition, the Group has benefited from participation in the demand market through which unused energy contractually supplied to Namakwa Sands, the Rustenburg platinum smelters, Highveld Steel and Mondi Richards Bay is offered back to the electricity market at peak rates during crisis periods.

Climate change

In 2006, the Group generated greenhouse gas (GHG) emissions of 36 million tonnes of direct and indirect CO² equivalents (CO²e), including 3 million tonnes of CO²e from coal mine methane (30 million tonnes excluding Mondi). This represents an increase of 11% on the 32 million tonnes of GHG emissions generated in 2005, of which 1.25% is attributed to a change in the factor for CO² from electricity purchased in South Africa. CO² emissions from spontaneous combustion and the use of explosives by Anglo Coal South Africa were reported for the first time.

Anglo Coal has begun engaging more directly with customers who use the thermal coal for power generation (89% of total sales) to promote a better understanding of sustainable development, clean coal technology and CO² mitigation. During 2007, Anglo Coal will initiate work to quantify lifecycle CO² emissions associated with its coal production.

A 2003 assessment of our likely direct financial exposure from climate change policy indicated only minor potential impacts from compliance requirements and moderate potential impacts on product sales in the period to 2012 as our operations in developing countries do not have emissions-reduction targets.

As part of our commitment to work responsibly wherever we operate, all investment proposals are required to factor in a cost of carbon to raise awareness and support efforts to reduce emissions. We recognise the risk that current policies on carbon emissions may increase the cost of energy.

Clean energy from coal

During 2006, our strategic focus was on identifying and developing carbon abatement opportunities. The Monash Energy clean coal-to-liquids project in the state of Victoria, Australia, is the first in a clean coal energy alliance formed by Anglo American and Shell in May 2006.

In the initial concept phase, which is expected to conclude during 2007, Monash Energy in conjunction with technical advisers from the two investors will carry out a study of the commercial and technical aspects, including carbon capture and storage. If successful, this study will form the basis for the feasibility phase and demonstration activities.

The Monash Energy project will involve the gasification of Anglo American’s brown coal from Victoria’s Latrobe valley for further conversion into clean transportation fuels, principally ultra low sulphur synthetic diesel. The process will use Shell’s proprietary gas-to-liquids technology. A number of locations under the Bass Strait, between Australia and Tasmania, have been identified as potential sites for the storage of CO² from the process.

Should the feasibility of the project be proved and we continue with Shell to construct the plant, a highly significant step would be taken to demonstrate the commercial viability of synthetic fuel processes with geological storage of CO². Our project could also play an important role in providing the infrastructure for other industrial processors in South Victoria to transport their CO² to long-term storage sites.

Two coal mine methane abatement projects in Queensland, Australia, were commissioned. These will reduce our GHG emissions by as much as 2 million tonnes of CO²e over 12 months.

A number of important relationships are developing with other stakeholders in order to help make a reality of clean coal technologies. These can be classified as those related to industry bodies, those that are project or technology focused and those that are political.

In 2006, we signed up as members of the FutureGen Alliance led by the US Department of Energy. This aims to produce coal-fired power with near-zero emissions of sulphur, nitrogen, particulates and carbon, but at a cost no greater than 10% above the cost of conventional coal-fired power generation.

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The alliance includes 12 international coal mining and power generating companies and is likely to constitute the most advanced clean coal power generation project under development.

Future focus

Mining is vulnerable to the effects of climate change. Extreme weather events and changing patterns in water distribution leading to floods or prolonged droughts and water shortages could be of great significance. Mining and ore processing operations are large users of water, although it is possible to reduce these volumes (see also water use).

We are considering an investigation, based on meteorological models, of the possible physical impacts of climate change on our operations. If commissioned, we would use the results of this assessment to judge the degree to which our operations might be affected and to consider changes in the design and layout of our mines and facilities to minimise possible disruption.

We published our Climate Change Policy in 2002 and have used it to guide our actions to date. All policies will be reviewed during 2007.

The likelihood of operating in a carbon-constrained future has been built into our strategic thinking. A post-2012 Climate Change Policy Scenarios exercise was conducted in June 2006 with inputs from a range of international experts. The scenarios have helped inform our business decisions.

At the heart of our strategic considerations has been the investigation of ways in which the widespread use of coal in the future can be made compatible with sustainable development.

We recognise that climate change will be a reality for the rest of this century and beyond, despite our ability to advance the mitigation of future emissions from our operations and those that arise from the use of our products.

Transport emissions survey

In 2004, we committed to estimate the emissions that arise from air travel and the transportation of our products by land, sea and air to final customers. This proved challenging and a number of assumptions had to be made:

• road transport data were sometimes available only as kilometre totals. The average truck loading was assumed to be 20 tonnes
• generic emissions factors, obtained from the Greenhouse Gas Proctocol developed by the World Resources Institute and the WBCSD, were used as we do not have detailed information on vehicle types and sizes used by contractors
• return journeys were not included
• approximations were made for the location of customers and at what point our responsibility for emissions ended
• the boundary issue requires further work
• emissions from air travel in 2005 were estimated at about 13,000 tonnes of CO² – based on 102 million longhaul kilometres and 13.7 million mediumhaul kilometres flown between London and Johannesburg.

Given the assumptions and, in some instances, best guesses made in producing these estimates, the results must be taken as indicative only. KPMG reviewed the methodology and we are confident that the final figures identify those products and modes of transport where our emissions are most material.

Unsurprisingly, in view of its bulk and the distances travelled, more than 80% of these emissions arise from the transport of coal.

Engagement on energy

We are active in the debate about energy at industry, project and political level. Critical engagement takes place through the World Coal Institute, the International Energy Agency’s Coal Industry Advisory Board and Clean Coal Centre, as well as organisations in South Africa and Australia.

Project-focused engagement has been through the Australian CO² Co-operative Research Centre (CO²CRC), the Carbon Sequestration Leadership Forum, the International Emissions Trading Association, the South African National Energy Research Institute and Coaltech 2020 in South Africa.

At a political level, this has involved South African, Australian and EU energy and environment ministries and the Globe Legislators for a Balanced Environment.

Clean Development Mechanism (CDM)

Group companies have a number of projects nearing completion of CDM project registration and the Group is positioning itself to increase involvement in this area now that the processes are becoming more transparent. Long-term progress in this area is premised on a continuation of some form of Kyoto Protocol-style mechanisms beyond 2012.

In August, the methodologies used by Highveld Steel’s Transalloys energy efficiency project (estimated reduction of 98 kilotonnes of CO²e) and Mondi Richards Bay’s biomass fuel switch project (estimated reduction of 122 kilotonnes of CO²e) were approved by the CDM executive board, which represents a critical stage on the road to obtaining project registration.

In South Africa, we have also identified potential projects in the Waterberg area and at New Denmark colliery (coal mine methane), Scaw Metals (fuel switch from producer gas to natural gas) and at a number of our platinum mines (substitution of electric for pneumatic rock drills).

Namakwa Sands saves energy

Following a local energy supply crisis during which energy users were required to restrict peak usage, Namakwa Sands conducted a comprehensive energy audit.

The continuous production process and customer obligations meant that periodic switch-off was impossible for Namakwa Sands. However, the operation found ways to reduce demand quickly by cutting its non-essential use of electricity. This included switching off office lights, air conditioning, plant lighting and motors running unnecessarily during peak periods.

High-energy consumption pumps were used only during off-peak hours. A substantial saving was also achieved at the smelter by using only one ladle heater during off-peak periods. The total energy reduction of 2.5 megawatt hours per day translated into a financial saving of R4.5 million ($665,000).

The success of the project has prompted a closer look at all power usage and further initiatives are planned, including focusing on the need to save energy to prevent outages and as a way of tackling climate change. Large power-usage information display boards are being erected at the plants to increase awareness and encourage further savings.

Alternative energy – biodiesel trial

Anglo Coal Australia is exploring alternative renewable fuels for use in on-site machinery and equipment.

A biodiesel blend has been put to the test at Callide mine since June 2006 as part of an Anglo American management development programme project on alternative fuel solutions.

Preliminary results showed no significant reduction in power output or increase in the fuel burn rate of the machinery.

Additional equipment will be tested. Work is continuing on the estimations but external studies report greenhouse gas emission reductions of 16% when using a 20% biodiesel blend.

If the tests are successful, Anglo Coal Australia will explore the potential for a local biodiesel plant run on methane gas for its opencast operations.

Upstream and downstream benefits are anticipated, including reduced greenhouse gas emissions, reduced transport emissions, local job opportunities and the supply of surplus biodiesel to neighbouring communities and mine sites.

Climate change: getting the message across

Anglo Coal Australia hosted an evening to show the Oscarwinning documentary about climate change, An Inconvenient Truth, to customers, suppliers, government departments and mining industry representatives including John Wallington, chief executive officer of Anglo Coal and Anglo American’s head of energy, Roger Wicks.

Rachel Mitchell, environmental advisor at Anglo Coal’s Moranbah North site in Australia, was selected by Al Gore’s Climate Project to spread the word about climate change. She is one of 75 Australians trained to deliver this presentation on climate change.

The Australian Conservation Foundation will support the training programme, working closely with Climate Project staff in the US. Mitchell will now take the presentation to local communities around Moranbah and central Queensland.

Anglo Coal Australia’s Capcoal power plant at German Creek mine, is one of Queensland’s first electricity generators to be fuelled by coal seam methane.

Saving energy at Anglo Platinum mines

Anglo Platinum is installing an automatic system that will optimise the use of air compressors to reduce energy consumption and cut costs at its South African mines.

Compressed air is a major source of energy in underground mines. It is used to power drills, pumps and other mechanical equipment. Up to 15 megawatts of power is needed to drive compressors. The new system will ensure the optimum number of compressors is in use at any one time. Off-peak electricity will be used where possible. Savings of up to 75,978 GJ and R3.2 million ($0.5 million) could be achieved.

The system will be working at Anglo Platinum’s Rustenburg mine in early 2007, and is being installed at Amandelbult and Lebowa mines.

Chilean innovation

As a contribution towards combating climate change, Anglo American Chile has set a target of decreasing CO² emissions by 10% by 2008 (against a business-as-usual baseline) as well as reducing energy and fresh water consumption. The 2014 goal is 15% saving in energy use.

Anglo American Chile also has an initiative to introduce modified hybrid vehicles into its fleet. These vehicles have significantly lower fuel consumption and generate half the emissions of conventional vehicles. This agreement also makes provision for cheaper finance to employees through salary advances, thereby encouraging the purchase of hybrid technology vehicles and reduction of the energy use and CO² emission profiles of employees.

An energy committee has defined a 2003-2013 energy consumption and emissions framework and a campaign to promote responsible energy usage by all employees, at work and at home.

A standardised measurement methodology, which uses specific control indicators to enable comparison against a business-as-usual baseline, was established. This is necessary due to changes in the operations where new projects might mask energy efficiencies that have already been achieved.

The methodology enables the determination of certified reductions, potential reductions and required reductions, which are internally certified. Potential reductions are the reduction opportunities still to be implemented, while the others are required to achieve the targets that have been set.

Anglo American Chile is also working with Chile’s country-wide energy efficiency programme to share experiences. More than 2,400 leaflets in support of the campaign were distributed to the company’s employees and a further 600 to the communities around the five operations.

In Victoria, Australia, Monash energy engineers (Matt Pietsch and Greg Eagle) examining cored material.