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Anglo American: Restructured and competitive again

February 21, 2011

“Anglo American performed strongly in 2010, both operationally and financially, and we have continued to deliver on our clear strategic objectives. In addition to benefiting from higher commodity prices, our focused commodity businesses are driving superior operating performances, through major productivity improvements, disciplined cost management and the benefits of our asset optimisation and global supply chain programmes. We completed a number of sales of non-core businesses during 2010 and into 2011 and our divestment programme is now well advanced. Anglo American’s EBITDA of $12.0 billion, operating profit of $9.8 billion and underlying earnings of $5.0 billion, reflects delivery on all fronts.

We have transformed our Platinum business, moving it down the cost curve, with 23% productivity gains and cash operating costs controlled below inflation, and further safety improvements, while exceeding our refined platinum production target of 2.5 million ounces. Our Kumba Iron Ore, Metallurgical Coal and Nickel businesses also delivered productivity gains, while the benefits of the restructuring of De Beers are clear to see, with the business reaping the rewards of the much improved environment for diamonds.”

Source: Anglo American press release, February 18 2011

Observations:

  • Anglo American’s revenue, EBITDA and Earnings per Share outperformed analyst’s average expectations. Contrary to BHP Billiton and Rio Tinto the company managed to keep controllable costs stable while increasing output.
  • Capex for the next 3 years is planned at $16bln, below planned investments for the main competitors. However, the company has a strong exploration portfolio, especially in thermal coal, copper and platinum.

Implications:

  • The company did announce dividends, but is not yet planning to buy back shares. As the company now holds over $6bln in cash it might be aiming for targeted acquisitions in the near future.
  • The high commodity prices of last year have helped all major diversified miners to reduce gearing to low levels (Anglo American now at 16%). The low gearing and the high cash flow from operations will enable the miners to undertake large projects, both in organic growth and M&A.

©2011 | Wilfred Visser | thebusinessofmining.com

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