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Posts Tagged ‘financial results’

Anglo American lifted by commodities boom

July 29, 2011 Comments off

“Anglo American has taken advantage of booming commodities prices to boost its interim pre-tax profits by more than two-thirds. A flight to safety among nervous investors has driven up prices for precious metals and diamonds, buoying first-half revenues by more than a fifth at the FTSE 100 miner and prompting Anglo to increase its dividend by 12 per cent.

Strong demand in China has also pushed up prices for iron ore and copper, helping Anglo shrug off the weak US dollar and harsh weather conditions in South Africa and Australia, which included the extensive flooding in Queensland earlier this year.

Anglo has an investment pipeline of $66bn to develop its iron ore and copper mines in South America and coal projects in Australia in order to reap the rewards of booming commodity prices.”

Source: Fincial Times, July 29 2011

Observations:

  • Good financial performance was offset by very poor safety performance: the group recorder 10 fatalities in the last 6 months (8 in the platinum business).
  • $450mln of the revenues (11%) are achieved in De Beers’ diamond business. Iron ore & Manganese (26%) and Platinum (23%) account for the largest share of Anglo’s revenues. Iron ore & Manganese (29%) and Copper (28%) bring in the largest part of the earnings, driven by particularly high commodity prices.

Implications:

  • Focus of Anglo American’s presentation was on expanding production (capex of $2.3bln for 2011H1 with pipeline of $66bln) and on cost control. The company’s operating profit compared to the same period last year suffered from $500mln higher cash costs. Input cost pressures were explained in detail in the investor presentation (see below) For each product the management presented initiatives for cost reduction.
  • Iron ore volumes (-12%) and metallurgical coal volumes (-19%) were down compared to the same period in the previous year, caused by weather disruptions that put BHP Billiton and Rio Tinto in the same position. It will be interesting to see the method of reporting the volumes next year if production can go on without interruptions. Higher volumes will then most likely be presented as significant achievements, without any mention of the disruptions of this year.

©2011 | Wilfred Visser | thebusinessofmining.com

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Rio Tinto: Reinvigorated, but worried about volatility

February 10, 2011 Comments off

“Chairman Jan du Plessis said ‘This year’s record results reflect a combination of strong
commodity markets
, first class assets and excellent operational performance at our managed
operations. We are in a significant growth phase and have multiple opportunities to pursue. Our strategy
remains the same, and our strengthened balance sheet means we are in a good position to
deliver on this. We will continue to make substantial investments in value-adding organic
growth
and targeted small to medium-sized acquisitions.’

Chief executive Tom Albanese said ‘Rio Tinto is reinvigorated, running strongly and benefiting from favourable markets. GDP growth in emerging markets and supply constraints mean the
general market and pricing outlook for commodities remain positive, albeit with elevated risk.
In particular, the timing and speed at which post-global financial crisis stimulus packages are
removed have the potential to generate both volatility and substantial swings in commodity
prices
. We are well placed to cope with the risks of both short term volatility and long term
demand growth. In 2010, by safely running many of our operations at full capacity we more than doubled our underlying earnings to $14 billion. Our leadership in operational performance was
demonstrated by record iron ore production from our world class Pilbara operations.'”

Source: Rio Tinto press release, February 10 2011

Observations:

  • Gross revenue for the year was $60.3bln, about 8% above analyst concensus estimate. Key revenue drivers were high iron ore, coal, and copper prices.
  • Earnings increased 122% to $14bln. Price increases led to a 151% increase, but exchange rates, inflation, energy costs, and increasing operational costs reduced the increase. Volumes increased slightly, primarily in the Pilbara iron ore operations.
  • Earnings Per Share of 735$ct are in the range of analyst expectations.
  • Rio Tinto launched an extensive report on the outlook for metals and minerals by Vivek Tupulé, the group’s Chief Economist. The report expresses concern about the high inflation in China and the potential impact of interest rate resulting increases for the resources industry.

Implications:

  • The prudent growth outlook, framed by both the chief economist and CEO Albanese, refuel the industry debate about the short and long term sustainability of Chinese growth. Shares of Rio Tinto dropped over 2% pre-market in New York (vs. just over 1% for basic materials peers), indicating that worries come as a surprise to part of the investor community.
  • The high commodity prices have helped the company to rebuild a healthy balance sheet. With current level of cash generation the announced share buybacks and the $11bln capital expenditure for 2011 should not impede the company to continue searching and bidding for sizeable acquisitions. The company might benefit from its relative low activity in acquisitions in the past years to gain regulatory and public approval for deals around the world that would currently be harder for rival BHP Billiton to pursue.

©2011 | Wilfred Visser | thebusinessofmining.com