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Posts Tagged ‘revenue’

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

Vale reports record full year financials

February 28, 2011 Comments off

“Vale, the world’s largest iron ore miner, reported record net profit for last year as demand remained strong in China and nickel volumes recovered. The company on Thursday said it earned net profit of $17.26bn in 2010, more than three times what it made a year earlier, as sales reached $46.48bn, nearly double the $23.94bn of revenue in 2009.

Asia accounted for more than 53 per cent of operating revenue, with China contributing more than 33 per cent and Japan 11 per cent.”

Source: Financial Times, February 25 2011

Observations:

  • Revenue for 2010 is 21% higher than the previous record of 2008. EBIT, EBITDA and Net Earnings are up over 30% since 2008 as the EBITDA margin increased by 6%, mainly driven by higher iron ore prices. Earnings per Share of $3.25 are on the top side of analyst expectations.
  • The company is working on iron ore expansion projects in Carajás (Northern Brazil) and the new Simandou deposit in Guinea. Apolo (Brazil’s Southeast system) and Carajás Serra Sul are further down the line of expanding production, planned to be delivered in 2014. Ferrous minerals accounted for 92% of adjusted EBIT over 2010, showing the company’s large dependence on iron ore prices.
  • Expansion for non-ferrous commodities mainly takes place outside Brazil: Mozambique’s Moatize coal project; Zambia’s Konkola North copper project; Argentina’s Rio Colorado fertilizer project; and Peru’s Bayovar fertilizer expansion signify the increasing international presence of the company.

Implications:

  • The improved gross margin of the company does not indicate it has costs under control, but mainly that prices were higher. Vale did not suffer from exchange rate fluctuations as much as its peers as most of its costs are incurred in currencies linked to the dollar, but it mentions cost pressures in the areas of depreciation (resulting from expansion of the equipment fleet) and in procurement.
  • Cash position of $10bln at the end of 2010 and the outlook to beat last year’s cash flow from operations of $20bln in 2011 gives Agnelli a lot of flexibility in expanding. Vale will have to use the pile of cash to build a sustainable position among the supermajors even if iron ore prices come down. As the senior management indicates no major acquisitions will be done, the company will focus on organic growth (33 projects to be delivered by 2015) to achieve this objective.
  • When presenting the results no mention was made of election of a new CEO for Vale. Reelection of Roger Agnelli when his current term ends in March is not fully certain as tensions with the government are mentioned. Henrique Meirelles, Brazil’s former central bank governor, and base metals chief Tito Botelho Martins would be potential candidates to succeed him. The decision will have to be made by the powers behind Vale: the Brazilian government, Pension fund Previ and Banco Bradesco, and Mitsui.

©2011 | Wilfred Visser | thebusinessofmining.com

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

Analyst expectations for diversified miner’s results

February 7, 2011 Comments off