Anglo American reports record interim headline earnings for 2005, up 43%
04 August, 2005
Anglo American's interim results press release
- Record interim results – headline earnings up 43% to $1.8 billion
- Interim dividend rebased to 28 US cents per share, up 47%
- Record performances from Base and Ferrous Metals; higher contributions from Platinum and Coal, reflecting stronger prices and volumes
- Cost savings and efficiency improvements exceed target at $303 million, up 22%
- Ongoing asset optimisation: disposals with an enterprise value of $1.2 billion completed
- Strong cash generation: EBITDA up 25% at $4.2 billion
- 5 major new projects approved totalling $1.2 billion; $5.1 billion expansion programme on track
- AngloGold Ashanti achieves SA mining rights conversion
| HIGHLIGHTS FOR THE SIX MONTHS ENDED 30 JUNE 2005 |
6 months ended 30.06.05 IFRS |
6 months ended 30.06.04 IFRS |
% change |
|---|---|---|---|
| US$ million, except per share amounts | |||
| Group revenue including associates(1) | 17,145 | 15,299 | 12.1% |
| Operating profit including associates before special items(2) | 2,975 | 2,325 | 28.0% |
| Profit for the financial period attributable to equity shareholders(3) | 1,838 | 2,226 | (17.4)% |
| Headline earnings(4) | 1,784 | 1,248 | 42.9% |
| Net operating assets | 36,621 | 36,919 | (0.8)% |
| EBITDA(5) | 4,249 | 3,400 | 25.0% |
| Net cash inflows from operating activities | 2,931 | 2,135 | 37.3% |
| Basic earnings per share (US$): | |||
| Profit for the period attributable to equity shareholders | 1.27 | 1.56 | (18.6)% |
| Headline earnings for the financial period | 1.24 | 0.87 | 42.5% |
(1)Includes the Group's share of associates' turnover of $2,635 million (June 2004: $2,953 million). See note 4 to the financial information.
(2)Includes share of associates' operating profit (before share of associates' tax and finance charges). See note 4 to the financial information.
(3)The decrease in profit attributable to equity shareholders to $1,838 million is due to a reduction in net profit on disposals compared with the prior period.
(4)See note 8 to the financial information for basis of calculation of headline earnings.
(5)EBITDA is operating profit before special items plus depreciation and amortisation of subsidiaries and joint ventures and share of EBITDA of associates. EBITDA is reconciled to cash inflows from operations in note 16 to the financial information.
First half results - overview
Headline earnings increased to $1.24 per share, up 43% over the first half of 2004 – a record interim level. Operating profit(1) for the half year was $2,975 million, with strong contributions from Base Metals and Ferrous Metals. Kumba and Highveld Steel in particular benefited from higher prices and improved volumes. There were also significant increases in contributions from Coal and Platinum. Industrial Minerals recorded higher earnings reflecting a full contribution in the first half from the new Buxton cement plant. Diamonds and Gold were once again affected by the ongoing firmness of the South African currency: the contribution from Diamonds, before exchange gains on preference shares, was lower than for the prior period, while AngloGold Ashanti's results were in line with the first half of 2004. Paper and Packaging recorded lower earnings in tough market conditions.
The significant growth in operating profit in the first half reflects the ongoing favourable trading environment for many of the Group's commodities, as well as the progress made over the past few years in improving the operating efficiency of Anglo American's assets, growing the asset base and leveraging procurement spend. Prices for platinum, gold, diamonds, coal, and base and ferrous metals remained healthy on the back of robust growth in China and the US, coupled with limited growth in productive capacity. The Group's strong cash generation provides it with the flexibility to continue with its significant organic growth profile as well as to pursue its disciplined acquisition process in creating a balanced portfolio of high quality natural resource assets.
Over the past three years, Anglo American's focus on improving the operating efficiency of its assets and the management of the procurement and supply chain has delivered cost savings in excess of $1.2 billion, across all of its business units. In the first half, further cost savings and efficiency improvements of
$303 million were attained, an increase of 22% over the prior period.
These cost savings helped contain the cumulative effect of the significant increases in energy, steel and other consumable prices, treatment and refining charges and labour costs at many of the Group's mining operations. Anglo American will maintain its cost savings and efficiency programmes in the second half.
Cash generation (EBITDA) also benefited from the strong operational results, reaching $4.2 billion, up 25% from last year's interim level.
Interim dividend
In line with the Group's progressive dividend policy and reflecting the strong first half increase in earnings, the interim dividend has been rebased to 28 US cents per share from 19 US cents per share, an increase of 47%. The level of the total dividend will, as always, be considered on the basis of the full year's results.
Growing the asset base
Since its primary listing in London in mid-1999, Anglo American has spent $15 billion on acquisitions and its growth profile is one of the strongest in the industry, with $5.1 billion of approved projects and $8 billion of unapproved projects across a range of commodities. In the first half, good progress was made on the project pipeline, with some projects moving to full production, in addition to a number of new projects being approved.
Kumba, 66% owned, continued to pursue a number of growth opportunities in iron ore. In March, a major expansion project at the Sishen iron ore mine in South Africa's Northern Cape province was announced. The $365 million Sishen Expansion Project will increase Sishen's production from the current 28 million tonnes per annum to 38 million tonnes per annum by 2009. Construction work has commenced with production ramp-up planned for mid 2007.
An investment decision on the Sishen South project, with an initial production capacity of 3 million tonnes per annum and the potential to increase to 9 million tonnes per annum, is expected in the third quarter of 2005. Work on the feasibility study of the Faleme project in Senegal, West Africa, which has a capacity of up to 12 million tonnes per annum, is also progressing well.
(1) including operating profit of associates and before special items
De Beers approved the development of the Snap Lake project in Canada at a cost of $513 million. Snap Lake, located in the Northwest Territories, will be De Beers' first mine outside of Africa and the first fully underground diamond mine in Canada and will begin production in 2007. The $791 million Victor project in Canada has also been approved, subject to regulatory approvals.
The $67 million Codemin 2 nickel project in Brazil, which was commissioned on time and on budget towards the end of 2004, reached design capacity in May this year and will take Codemin's total annual production to 10,000 tonnes of nickel. In June, the $454 million Skorpion zinc project reached design capacity and the $21 million expansion of the Chagres smelter will be completed in the fourth quarter of 2005. The feasibility study on the Barro Alto nickel project in Brazil will be completed by early 2006 and scoping studies for significant brownfield expansions at Los Bronces and Collahuasi are in progress.
n July 2005, the $65 million Isibonelo coal mine in South Africa entered production on track and on budget. When it reaches full production in 2006, the mine will supply 5 million tonnes of thermal coal to Sasol Synfuels. In Colombia, the approved expansion at Cerrejón from 22 to 28 million tonnes per annum by 2007 is also on track and a further expansion to 32 million tonnes per annum has recently been approved. The Grasstree project in Australia is progressing well, with weekly development exceeding plan and installation of the longwall on target for 2006. The $650 million Dawson project has commenced and orders for some of the critical lead-time equipment have been placed.
China is already a significant market for many of the Group's commodities and the Group continues to actively look for further investment opportunities within the country. On 1 June, Anglo American committed to invest $150 million in the Initial Public Offering of China Shenhua Energy Company Limited, the largest coal producer in China and the fifth largest in the world. Anglo American looks forward to a mutually beneficial strategic alliance with the company.
In South Africa, the Richards Bay pulp mill modernisation and expansion project has been commissioned and ramp-up is ahead of budget. It is anticipated that full production of an additional 145,000 tonnes of pulp per annum will be achieved during 2006. The $174 million PM31 paper machine rebuild at Merebank is on track for commissioning at the end of 2005 and will bring additional capacity of 160,000 tonnes per annum.
Anglo Platinum, which continues to expand production in line with robust current and future demand for platinum group metals, recently announced the $35 million Marikana venture with Aquarius Platinum to jointly mine contiguous properties in the Rustenburg area. The existing $138 million Kroondal venture, also with Aquarius Platinum, commenced production from its new 250,000 tonnes per month concentrator ahead of schedule. The $200 million 50:50 Mototolo joint venture with Xstrata plc, announced this week, will access adjacent farms on the eastern limb of the Bushveld complex and produce 132,000 ounces of platinum and 82,000 ounces of palladium in concentrate with first production in 2006. Anglo Platinum is also proceeding with a $179 million project at its Lebowa mine to replace declining reserves.
In addition to the future potential of Obuasi Deeps in Ghana and the Boddington joint venture expansion project in Australia, AngloGold Ashanti has a $1.3 billion total capital expenditure programme currently focused on existing operations in South Africa and Brazil. These projects, including the new Moab mine in South Africa, will come online within the next three years and yield a total production of around 15 million ounces of gold over the life of these operations.
Disposals
As part of the ongoing strategy of optimising the Company's asset base, a number of disposals have been made during the past six months. The biggest of these was Boart Longyear, a manufacturer of mining equipment, which was agreed in June at an enterprise value of $545 million. Together with the sale of Wendt (part of Boart Longyear) that was announced on 31 March, the total enterprise value achieved amounted to $635 million. The sale was completed in July.
In February 2005, Anglo American and BHP Billiton announced that they had reached agreement for the sale of their respective 40% and 60% shareholdings in Samancor Chrome at an enterprise value of $469 million. In May, Highveld Steel sold its remaining stainless steel investments, Acerinox and Columbus, at an attributable enterprise value of $91 million. This followed the $70m attributable enterprise value disposal of Acerinox shares made by the Group in January 2005.
In July, Kumba's local partner in the Hope Downs iron ore project in Australia exercised an option to purchase Kumba's 49% interest in the project for $176 million.
SA mining rights
The achievement by AngloGold Ashanti of the conversion of its mineral rights in South Africa in respect of the Minerals and Petroleum Development Act (“the Act”) is a significant milestone in terms of South African Black Economic Empowerment. It recognises the substantial empowerment transactions put in place by AngloGold Ashanti, as well as the educational, community and social programmes in place in the company. The intention is to introduce an Employee Share Ownership Scheme that will extend ownership in AngloGold Ashanti to its employees.
The granting of the new order mining rights represents real progress in terms of the South African government's desire to achieve certainty in terms of implementing the Act. Anglo American is greatly encouraged by this positive outcome which reflects the open and constructive dialogue between the Group's mining businesses and the SA Department of Minerals and Energy.
Outlook
The outlook for most of the Group's commodities remains sound. Dollar prices for many metals and minerals have continued at high levels on the back of strong Chinese growth which has offset weaker OECD demand in the first half. If Chinese demand continues at current levels and prospects for OECD growth improve in the second six months, the Group's earnings should remain strong for the remainder of the year.
Anglo American continues to generate substantial cash flows which it is investing in its $5.1 billion approved project pipeline. The growth projects span all of the Group's business sectors and will generate attractive returns. Further projects, growth opportunities and asset optimisations are being evaluated.
Webcast: a live webcast of the interim results presentation starting at 10.00am UK time on 4th August can be accessed through the Anglo American website at www.angloamerican.co.uk.
Pictures: high resolution images can be downloaded by the media at www.vismedia.com
Anglo American plc is one of the world's largest mining and natural resource groups. With its subsidiaries, joint ventures and associates, it is a global leader in platinum group metals, gold and diamonds, with significant interests in coal, base and ferrous metals, industrial minerals and paper and packaging. The group is geographically diverse, with operations in Africa, Europe, South and North America, Australia and Asia.
Note: Throughout this press release '$' denotes United States dollars and 'cents' refers to United States cents; special items are defined in note 5 and headline earnings are calculated as set out in note 8 to the financial information. EBITDA is operating profit before special items plus depreciation and amortisation of subsidiaries and joint ventures and share of EBITDA of associates. EBITDA is reconciled to cash inflows from operations in note 16 to the financial information.