CHANGE IN MINDSET: LOCAL PROCUREMENT

NOT A NECESSARY COST BUT A DRIVER OF STRATEGIC

BUSINESS VALUE

January 2016

IRON ORE BRAZIL

AGENDA

• Anglo American Group Approach to Local Procurement

• PROMOVA

–Operating model

– Current strategy

–Promova´s main results

IRON ORE BRAZIL

3

Social investment

Employee volunteering

Enterprise development

Employee volunteering

1. Leveraging our

core business

2. Focus on productivity of

public and private

sectors

3. Prioritising delivery

via partnerships

Outcome:

Greater Impact

Outcome:

Higher Effectiveness

Outcome:

Higher Efficiency

Supply

Chain +

GSA

Human

Resources

+ GSA

Projects /

Logistics /

BD

Local

Procurement

Local

Employment

External

Capacity

Development

Enterprise

Development

Synergies

from Mine

Infrastructure

Social

Investment

Sharing Skills

/ Employee

Volunteering

FunctionsProgrammes

GSA

GSA +

others (eg

S&SD)

NGOs:

Corporate partners:

Development finance

institutions and foundations:

Leveraging our core

business is an efficient

way to deliver

benefits…

…and leads to a more

effective and sustainable

developmental

contribution.

Our view on our most

effective SED contribution

ANGLO AMERICAN SOCIO-ECONOMIC DEVELOPMENT STRATEGY

Group Approach to Local Procurement

PROMOVA was designed and

implemented in 2012 following

the ten steps in the Anglo

American Group toolkit for

Local Procurement

WHAT IS THE PROMOVA PROGRAMME?

5

Develop small and medium size local suppliers, in a

responsible and sustainable way, building a competitive

supply chain and promoting the economic and social

development to the communities where we operate

General Goal

Socio-economic

development

Stakeholder

Engagement

Local

procurement

increase

Operational

efficiency

Focus

• Increase operational efficiency and improve supply chain

performance

• Lower costs over the life-cycle of purchasing - long term

• Contribute to our social license to operate

• Reduce transport and logistical costs

OPERATING MODEL

PROMOVA builds on four key areas supporting two strategic pillars:

Operating Model

FOMENTO ATRAÇÃO

Política de Desenvolvimento de Fornecedores

MANAGEMENT

Local Suppliers

Development Program

PROMOTION

FinancingProfessional

qualification

Communication /

Stakeholder

management

ATTRACTION

Develop local

companies from

several sectors

already established in

the area of influence

Attract businesses

and segments of

industry and

commerce to the area

of influence

Business

Development

GOVERNANCE AND MANAGEMENT MODEL

Local Procurement

Development Program

Business

Development

Opportunities from

the operation

demand

Assistance to urgent

demands

Introducing local

suppliers into large

suppliers

Financing

Anticipation of

receivable values

Credit to grow

Communication /

Stakeholder

management

Program

dissemination

actions (internal and

external media)

Programme

relationship channel

Spontaneous

media

Professional

qualification

Classroom

qualification

E-learning

Technological

training and

innovation

Segments with the

possibility of

expansion

Business round table

Support to the

entrepreneur

Internship

program

Each key area has specific actions to be delivered by a highly competent team that is

locally base and understands the local context

OPERATING MODEL - detailed

COVERAGE AREA

1ª Phase: Mine

• Conceição do Mato Dentro

• Alvorada de Minas

• Dom Joaquim

• Serro

2ª Phase: Port

• São João da Barra

• Campos dos Goytacazes

9

Key findings

• The ED and LP programmes

implemented across Anglo American

vary significant in relation to cost

efficiency. This reflects local specific

characteristics (e.g. strong regulatory

intervention) but also programme

design.

• Promova in Brazil blends the best of

our global approach to LP and

delivery partners (Technoserve) to be

the most cost-effective LP

programme in the group.

• Promova is currently below the cost

curve as it delivers savings and not

cost to the operation.Note:

The vertical axis takes the overall cost of the ED/LP programme and divides it by

the total number of jobs supported

The horizontal axis shows how many jobs have been supported during 2014 for

each of the programmes.

Jobs Support Cost Curve

Chile ED

Peru EDPROMOVA

Peer Africa

Peer Peru

Brazil ED

SA ED 2

SA ED 1

SA ED 3$6000

CHANGE IN MIND-SET: CAN A COST BE TURN INTO A SAVING?

10

CHANGE IN MIND-SET: FOCUS ON VALUE

We asked: “what if PROMOVA could deliver net savings to our mine and be a key driver of

growth beyond Anglo American?”

The business

case should

start here

Time

Sa

vin

gs

Cost of setting up the LP

programme

Total net savings

Year 2 Year 3 Year 4

• logistics and supply cost

reduction

• Reduction in stock levels

(WiC)

• Process optimization

• Local labor hiring

ACCESS TO CAPITAL – PARTNERSHIPS WITH LOCAL BANKS

• Consolidated process since 2012

• Anticipated amount US$ 92MM

• Rebate1 implemented in September 2015

• Financial income:

• Current: US$ 19K (Sep – Dec/15)

• Expected: US$80k, 2016

AchievementsCurrent Product

• Eligibility to 100% of the Anglo American suppliers

• For each transaction Anglo American gets a rebate from the bank

• 100% of the revenue obtained is recycled into Promova

• Visibility of the invoice status by suppliers at the Portal

• Low operating effort

Process optimization

Risk

mitigation

Cost Reduction

1discount, bonus, deduction, returning a value (R$) Characterized as financial income

The initiative provides short-term working capital to suppliers via invoice discounting that has

been design to fit local SME characteristics and leverage Anglo American’s risk profile

Rapid Local Economic Development

ACCESS TO MARKETS - PARTNERSHIPS WITH SUPPLIERS

Local diagnosis Report - 6 companies

4 producers approved

15% losses

1st stage – 13th mar – Komatsu

2st stage – 17th e 18th apr – DCML

3rd stage – 16th e 17th dec – DCML

13

CHANGE IN MIND-SET: CURRENT STRATEGY

OPERATIONAL EFFICIENCY

Compliance with Operation Cost Reduction Strategic Partnerships

• Reduced service time (ex .: SLA,

OTIF)

• Reducing mobilization time

• Mitigation stock out (redundancy)

• Increase quality services and

delivery

• logistics and supply cost

reduction

• Reduction in stock levels (WiC)

• Process optimization

• Local labor hiring

• Strengthening and integrating

the production chain (2nd tier)

• Investment incentive

• Industry sectors approach

• SMEs insertion in the chain

Program’s actions in key focus areas for operational efficiency

• Local development

• Attracting companies to the

region of influence

• Increase in quality

• Training and professional

qualification

• Increased technology and

process improvement

• Increased competitiveness

• Expansion and creation of new

partnerships (ex .: KOMATSU,

MICHELIN and SAPORE)

• Business rounds

• Strengthening and encouraging

entrepreneurship

Where

to act?

How ?

SUCCESS CASE

Context

What was

done

Results

Laundry

• Limited structure and few customers

• 2 employees• Revenues: R$ 75K (2011)

• Compliance with legislation• Technical and managerial

knowledge• Long-term growth plan

• Technical Approval• Diversification of the customer

portfolio• Contract with AA for 24 months• 8 employees• Revenues: R$ 550 K (2014)

Accommodation

• Insufficient local supply (rooms gap)

• Low quality

• Demand shared with local entrepreneurs

• Letter of intent for the construction of new rooms signed (guaranteed demand)

• Apartment standard and services defined

• 7 local lodges enlarged• New hotel chain attraction• Increase of 135 rooms

Mechanical

workshops

• Absence of technical knowledge• Outdated equipment and tools• High gap of local workshops with

diesel engine expertise

• In company training with Komatsu (Diesel Engine introductory, turbines and nozzles)

• Consultancies• On the job trainings at DCML

• 2 qualified workshops• 40% of increase in service volume• Local workshops capable to meet

demands of the Minas-Rio contractors

PROMOVA´s RESULTS - SNAPSHOT

Local Procurement – Consolidated IOB Local Procurement – Influenced by PROMOVA

US$ MMDec/15

35

9921

US$ 62 MM

16%GDP impact

(4 municipalities)

140Local Suppliers

(CMD – DJQ – ALV – SER – SJB CGY)

496

39

179157

121

US$ 250 MM

5,4%

Local procurement

Finalized purchase orders

3,508

Anticipation of receivable values

1,632transactions

102suppliers

US$ MMNov/15

Purchase Orders

with local suppliers

87Contracts signed

15 selected categories

Generation of 868 direct and indirect jobs

local GDP Impact by 4,6%

2,5MM/year in tax collection Potential

Supplier ParkEntrepreneurship

• 235 entrepreneurs benefited

• 800 job created

• US$ 300K mobilized funding

800Sustained jobs

13%Local GDP reached

and benefited

107

35

42

140Local Supppliers

34

250

78

63

74

20152012 2013 2014 TOTAL

US$ MMDec/15

18

31

10

62

9x

TOTAL

3

20152012 20142013

US$ 92MManticipated

16

Market Support System

~280 positions and potentially save

up to 30% of the cost via a

partnership with SENAI.

Local

Procurement

Enterprise

Development

Workforce

Development

SYSTEMATIC APPROACH – KEY RESULTS

Each dollar invested in PROMOVA,

allows up to US25 to be supplied by

local SMEs…

800 jobs supported in rural and

urban businesses

Each programme has been designed to allow the other to work more effectively. This reduces

costs, allows better partnerships to be built and increases the socio-economic impact

CHALLENGES

1. Enable local entrepreneurs to become successful AA suppliers

2. Generate long lasting and sustainable benefits for both

Community and Operations

3. Control the local supplier dependency level over the mining value

chain

THANK YOU

18

19

Categories x Top Suppliers

Local Procurement – Influenced by Promova

8 8 8

27

54

Q1

4

0

9

Q2

1

9

Q4

32

1

YTD

8

Q3

1

Mine Port

2015 – US$ MM

US$ 17MM

AGENCY 30%

UNIVALE 26%

FAGUNDES 22%

KOMATSU 5%

SANTA INES 2%

SERRA VELHA 2%

ALTO DO BAU 1%

GAC SERVICOS 1%

CMDNET 1%

QUILOMBO 1%

91%

51Local on going

contracts

72Local suppliers

contracted

28%

24%21%

7%

5%

15%

CAR RENTALPASSENGER TRANSPORTFAGUNDESACCOMODATIONKOMATSU

93%

7%

Contract

Spot

Purchasing volume in contract

42

70

38

8576

53 5748

56 58

1510

58

DecSepJun NovOctJul Aug YTDApr MayMarFebJan

2015 YTD

Local OTIF - %14 Suppliers

Typology of hiring process

98% Normal2015 YTD

ImpactGDP Mine

20,48%

2015 KPI´s