Final Results
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News Release |
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20 February 2009 |
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Anglo American announces underlying earnings of $5.2 billion |
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HIGHLIGHTS FOR THE YEAR ENDED 31 DECEMBER 2008 |
Year ended |
|
Year ended |
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Total Group revenue including associates(6) |
32,964 |
|
35,674 |
(7.6)% |
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|
|
|
|
|
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Operating profit including associates before special items and remeasurements - core continuing operations(1)(2) |
9,765 |
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8,894 |
9.8% |
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|
|
|
|
|
Operating profit including associates before special items and remeasurements - total Group(1) |
10,085 |
|
10,116 |
(0.3)% |
|
|
|
|
|
|
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Underlying earnings for the year - total Group(3) |
5,237 |
|
5,761 |
(9.1)% |
|
|
|
|
|
|
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EBITDA - total Group(7) |
11,847 |
|
12,132 |
(2.3)% |
|
|
|
|
|
|
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Net cash inflows from operating activities - total Group |
8,065 |
|
7,264 |
11.0% |
|
|
|
|
|
|
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Profit for the year attributable to equity shareholders - total Group |
5,215 |
|
7,304 |
(28.6)% |
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|
|
|
|
|
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Earnings per share (US$):(3) |
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|
|
|
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Basic earnings per share - total Group |
4.34 |
|
5.58 |
(22.2)% |
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Underlying earnings per share - total Group |
4.36 |
|
4.40 |
(0.9)% |
|
Interim dividend (US cents per share) |
44 |
|
38 |
15.8% |
|
Recommended final dividend |
- |
|
86 |
|
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Total dividend for the year |
44 |
|
124 |
(64.5)% |
In 2007, total Group included the results of AngloGold Ashanti and the Paper and Packaging business (Mondi).
|
(1) Operating profit includes share of associates' operating profit (before share of associates' interest, tax and minority interests) and is before special items and remeasurements, unless otherwise stated. See note 4 to the condensed financial statements for operating profit on a total Group basis. For the definition of special items and remeasurements see note 6 to the condensed financial statements and see note 17 for information on discontinued operations. |
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(2) Operations considered core to the Group are Base Metals, Platinum, Ferrous Metals' core businesses (Kumba Iron Ore, Scaw Metals, Samancor Manganese and Anglo Ferrous Brazil), Coal and Diamonds. See the summary income statement in the financial review of Group results for a reconciliation of operating profit from core operations to total operating profit. |
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(3) See note 9 to the condensed financial statements for basis of calculation of underlying earnings and see note 17 for information on discontinued operations (which contributed $284 million to underlying earnings in 2007). |
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(4) Net debt excludes hedges but includes the net debt in disposal groups. See note 11 to the condensed financial statements. |
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(5) After taking account of commercial paper maturing throughout 2009 of $1.1 billion. |
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(6) Represents total Group revenue (including the revenue of discontinued operations) and includes the Group's share of associates' revenue of $6,653 million (2007: $6,142 million). See note 3 and note 17 (for discontinued operations) to the condensed financial statements. Discontinued operations contributed revenue of $5,115 million in 2007. |
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(7) EBITDA is operating profit before special items, remeasurements, depreciation and amortisation in subsidiaries and joint ventures and share of EBITDA of associates. See note 12 to the condensed financial statements for analysis of EBITDA by continuing and discontinued operations. |
Cynthia Carroll, chief executive, said:
"Overall, Anglo American delivered a solid performance in 2008 - a year that saw the end of a lengthy period of highly supportive commodity prices as the trajectory of the global economy turned sharply downwards during the second half. We achieved operating profit of $10.1 billion and underlying earnings of $5.2 billion, with strong performances from our coal, iron ore and manganese businesses.
The breadth and severity of the global economic downturn and its impact on growth rates in key sectors and economies are difficult to overstate. From global automotive production to construction activity in emerging markets, there was a marked contrast between the first and second halves of 2008, when commodity prices fell sharply. As we begin 2009, the economic outlook remains weak, with limited visibility and we are continuing to experience volatility and downward pressure on commodity prices. Against this backdrop, we have acted decisively to position the Group through the downturn, including pulling back planned production growth, reducing the size of our workforce by 19,000 by the end of 2009 in line with our revised production and growth plans and further cost cutting throughout the Group. These actions are necessary to ensure that Anglo American is well positioned through the cycle, both operationally and financially, to continue to deliver long term value to our shareholders.
In December, we announced that capital expenditure plans for 2009 would be scaled back by some 50% in response to the changed economic outlook. We nevertheless remain committed to our long term strategy and will continue to allocate capital to our existing businesses and the advancement of our portfolio of high quality development projects. Despite the current economic environment, we have confidence in the fundamentals and long term outlook for our core commodities. We therefore believe that our projects remain a key driver of future value creation for shareholders, with several projects well timed to enter production from 2011 onwards.
The three key cost-saving and efficiency initiatives that we have put in place over the last 18 months are well advanced and are already beginning to make an important contribution to our financial and operating performance. Such disciplines are particularly valuable during these times. The asset optimisation programme has been rolled out across the Group and is expected to contribute a significant uplift to operating profit of some $1 billion over the next three years. This is in addition to the expected $1 billion in savings by 2011 we have announced from our procurement and shared services initiatives, which have already delivered value of over $200 million in savings in 2008.
While the global economy continues to face unprecedented challenges and, with severely constrained financing markets, it is critical for us to safeguard balance sheet flexibility as far as possible. Notwithstanding the other measures we have taken, the Board has decided to suspend dividend payments in order to preserve the Group's strategic growth options.
We made further strategic progress during 2008, including the significant achievement of securing 'new order' mineral rights across our mining businesses in South Africa. We made further disposals of non-core assets, including the sale of the Group's investment in China Shenhua Energy for $704 million, the sale of Tarmac Iberia for $186 million and the sale of Namakwa Sands and 26% of both Black Mountain and Gamsberg to Exxaro Resources for a total of $353 million. During the year, we also advanced our long term iron ore growth strategy by securing control of the Minas-Rio project and the Amapá iron ore system in Brazil. Minas-Rio has multi-phase expansion potential, the first phase of which is due to begin production in 2012. In recent weeks, we have also reduced our shareholding in AngloGold Ashanti to 11.8%, realising total proceeds of $434 million.
I am encouraged by the much improved safety record of the Group over the last year. Of particular note was the significant reduction in the number of fatal incidents, though there is much work still to do. The changes we have made across Anglo American and in collaboration with the South African government, unions and the mining industry, are saving lives and reducing injury rates and we must continue to do all we can to progress towards our ultimate goal of Zero Harm.
Anglo American has a world class asset base with long life, low cost mines and a strong and geographically diverse project pipeline across the most attractive commodity segments. In light of the many challenges faced by the global economy and by the mining sector during the second half of 2008 and expected to continue during 2009, we have taken decisive action to position Anglo American through the downturn and to emerge in robust shape, ready to capitalise on the next phase of economic growth."
Review of 2008
Financial results
Anglo American's Group underlying earnings were $5.2 billion. Strong performances came from Ferrous Metals and Coal which achieved significantly higher operating profit in the year. Operating profit from the Group's core operations was 10% higher than for the prior year at $9.8 billion. Platinum recorded lower operating profit due to lower sales volumes and higher costs; Base Metals' operating profit was impacted by lower achieved prices; and Industrial Minerals suffered from the downturn in the UK housing market.
Base Metals generated an operating profit of $2,505 million (26% of Anglo American's total operating profit from core operations), down 42% due to sharply lower copper, nickel, zinc and lead prices, lower overall sales volumes and rises in input costs.
Platinum reported operating profit of $2,226 million (23% of Anglo American's total operating profit from core operations), down 17%, due to lower metal sales and higher key input costs, partially offset by a higher achieved basket price of metals sold and a weaker average rand against the US dollar.
Ferrous Metals reported a record operating profit of $2,935 million, up 105%, with operating profit from core businesses up 135% to $2,843 million (29% of Anglo American's total operating profit from core operations), mainly due to higher iron ore sales volumes and higher iron ore, manganese ore and alloy prices.
Coal had record operating profit of $2,240 million (23% of Anglo American's total operating profit from core operations), 265% higher, mainly due to higher prices for both thermal and metallurgical export coal, higher production and the benefits of tighter operational discipline.
Diamonds recorded attributable operating profit of $508 million (5% of Anglo American's total operating profit from core operations), up 5%, principally due to the steady increase in the price of diamonds during the first seven months of the year.
Industrial Minerals' operating profit fell 52% to $228 million, reflecting the difficult trading conditions in the UK, particularly in the second half of the year, as well as the impact of significant cost increases.
Production
Record production of coal and iron ore was achieved. Platinum production volumes from mining operations were lower than the prior year due to flooding at the Amandelbult mine, suspension of operations to rehabilitate shaft steelwork at Turffontein, electricity supply constraints and throughput challenges at Mogalakwena. Refined platinum met its mid year production targets, though was below 2007 levels due to run-outs at the Polokwane and Waterval smelters. Base Metals' production was down for all key products, with nickel production significantly lower following strike action and knock-on operational difficulties and power outages at Loma de Níquel and copper production impacted by lower ore grades and challenging rock stability conditions at El Soldado.
Capital structure
Net debt, excluding hedges but including net cash of $8 million in disposal groups, increased by $5,804 million in the year and at 31 December 2008 amounted to $11,043 million, reflecting $5.3 billion funding the acquisition of the controlling interest and subsequently the acquisition of 97% of the remaining minorities in Anglo Ferrous Brazil SA, the purchase of additional shares in Anglo Platinum Limited and an increase in planned capital expenditure. This was partly offset by proceeds from disposal of the equity interest in China Shenhua Energy for $704 million. The $4 billion share buyback programme announced in August 2007 has been suspended with around $1.7 billion of shares having been repurchased.
In addition to the Group's existing funding requirements, the shareholders of De Beers have agreed to provide loans to De Beers, proportionate to their shareholdings, totalling $500 million in 2009. Anglo American holds a 45% interest in De Beers and will therefore provide a loan of $225 million.
Dividends
In light of the abrupt decline in commodity prices, the unprecedented challenges facing the global economy and the critical importance of preserving sufficient balance sheet flexibility in order to fund the Group's strategic growth projects in the context of the current challenging financing environment, the Group has suspended dividend payments and will not pay a final dividend for 2008. Total dividends for the year will therefore be 44 cents per share (2007: 124 cents per share). The Board will continue to review the Group's financial position and is committed to the resumption of dividend payments as soon as market conditions allow.
Positioning Anglo American through the cycle
In response to the worsening economic conditions during the second half of 2008, Anglo American completed a thorough review of its capital expenditure programme. Planned capital expenditure for 2009 was reduced by more than 50% to $4.5 billion. This substantial reduction will be achieved principally by rescheduling capital expenditure on many of the Group's major development projects. The $3.2 billion of capital expenditure that will be spent on the Group's projects in 2009 will enable their continuing development without incurring undue delays or penalties that may impact their investment cases, balancing necessary short term action in the context of the long term nature of the mining industry. These projects are a key driver of Anglo American's long term growth and several are well timed to enter production from 2011 onwards. Stay-in-business capital expenditure for 2009 was reduced to $1.3 billion, equal to 64% of depreciation.
In line with the Group's revised production, growth and project development plans, worldwide headcount will be reduced by 19,000 by the end of 2009, achieved predominantly through a combination of natural attrition, scaling back contractor arrangements and redundancies. Cuts to production growth at existing operations reflect the weaker demand prospects, while further cost initiatives are under way at the corporate offices to reduce ongoing costs.
The Group's pipeline of high quality growth and development projects is focused on the most attractive commodity segments of iron ore, metallurgical coal and copper, in addition to further expansion options in platinum and diamonds. While much reduced capital investment is planned during 2009 and many projects have seen the timing of their development adjusted to reflect the current weak conditions, a high degree of flexibility of project timing will be retained in order to enable appropriate reactions to changing market conditions. Anglo American is ensuring that it is positioned optimally for the next period of upward momentum in the cycle.
Delivering operational excellence and safe production
Anglo American is well advanced with a number of Group-wide initiatives to deliver superior operating performance. Excellent early progress has been made in terms of operational efficiencies and performance benchmarking through the asset optimisation programme and it is expected that these will deliver approximately $1 billion of uplift to operating profit by 2011. This uplift is in addition to Anglo American's shared services and supply chain performance, which has delivered over $200 million of cost savings during 2008 and are on track to achieve savings of $1 billion by 2011.
The changes made to the Group's safety practices in 2007 and a renewed commitment to a new level of safety performance have delivered results in 2008 and Anglo American is helping to lead the way, particularly in South Africa, to achieve a safer, more productive mining industry. In April, the Anglo Tripartite Safety Summit was held in Johannesburg, bringing together government, unions and the industry to unlock and leverage potential in working together to tackle some of the critical issues around mining safety in South Africa.
The Group has achieved a year-on-year reduction of 17% in lost time incidents at its operations, with extended periods of incident free, safe production. 2008 also saw an improvement in terms of a 33% reduction in the number of fatalities at our operations. During the year 27 people died while on company business, compared with 40 fatalities during 2007; this is a significant step in the right direction, but there is still a long way to go. Of particular note is Anglo Platinum's Union Mine in South Africa, which has achieved more than six million Fatality Free Shifts, and the Barro Alto nickel project and Anglo Ferrous Brazil which achieved 966 days and 3.5 million hours respectively without a Lost Time Injury. The implementation of global Fatal Risk Standards and the successful roll-out of the global safety risk management programme are helping to ensure a systematic approach to managing safety and preventing incidents as Anglo American continues on its journey towards "Zero Harm".
As part of the extensive cultural change that has been implemented throughout Anglo American, several senior management changes have been made during 2008, marking a significant strengthening of the leadership team, involving a combination of internal and external appointments. These have included new CEOs for Anglo Platinum, Anglo Coal and Kumba Iron Ore.
Delivering strategic objectives
In pursuit of Anglo American's ambition of becoming the leading global mining company, further strategic progress has been made to focus the business on its core mining portfolio, by making disposals of non-core assets, securing new order mining rights across its businesses in South Africa and positioning the Group for profitable growth.
In April, Anglo American was granted its new order mining rights conversions by the South African Department of Minerals and Energy. The conversions relate to the mineral rights across Anglo American's South African businesses. This significant achievement provides an ever stronger platform for the Group's long term development projects in South Africa, its employees and contractors, as well as for the many black empowered businesses with which it is partnered.
In May, the Company disposed of its interest in China Shenhua Energy, realising cash proceeds of $704 million and in June, the sale of Tarmac Iberia to Holcim was announced for a consideration of $186 million. The Tarmac group continues to be managed to maximise shareholder value while options for its sale continue to be explored, recognising that the sale of a business of its scale is unlikely in the near term.
In August, following a series of transactions in 2007 and 2008, Anglo American acquired control of the Minas-Rio iron ore project and the Amapá iron ore system. The Minas-Rio project has considerable expansion potential and is a key element in the Group's long term iron ore growth ambitions.
In October, the sale of the Namakwa Sands mineral sands business was completed and, in November, the sale of 26% interests in both the Black Mountain zinc, lead and copper operation and the Gamsberg zinc project to Exxaro Resources were completed for a total consideration of approximately $353 million.
After the year end, Anglo American reduced its shareholding in AngloGold Ashanti to 11.8%, realising total proceeds of $434 million.
Early in the year, mining production in South Africa was severely disrupted for a short time due to national electricity supply problems. While the crisis was averted through collaboration and consensus across the mining industry, resulting in reduced power usage, Anglo American is continuing to play an important role, working in partnership with the South African government and Eskom to develop and implement long term solutions to guarantee electricity supply.
Outlook
As a result of the global economic slowdown, the second half of 2008 saw markedly lower commodity prices, following several years of highly supportive prices. Across the industry, there has been curtailment of some high cost operations in markets where prices and demand have declined significantly, for example in nickel, platinum, iron ore and coking coal, while the difficult financing environment is expected to continue to impact the funding and timing of many potential new mines and expansions by both major and junior miners, thereby having the potential to further constrain future supply when economic growth returns.
The world economy faces an unprecedented level of uncertainty and the outlook remains poor in the near term, with expectations for continuing volatility and weakness in commodity prices. It is against this backdrop that Anglo American has taken a series of measures to ensure that the Group's operating and cost profiles are appropriate and that its balance sheet and capital structure have sufficient flexibility through the current downturn. However, over the medium to long term, Anglo American believes that the fundamentals of its core commodities remain attractive, with significant value to be created by the Group's long life, low cost growth projects, several of which are timed to enter production from 2011. The economic recovery of the OECD member countries and the ongoing industrialisation of the world's major developing markets are expected to drive long term demand for commodities, stimulated further by government spending programmes in many major economies, including the US and China.
Selected major projects
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Sector |
Project |
Country |
Completion date |
|
Capex $m(1) |
Production volume(2) |
|
Base Metals |
Collahuasi debottlenecking |
Chile |
Q4 2008 |
|
66 |
31 ktpa copper(3) |
|
Diamonds |
Snap Lake |
Canada |
Q4 2008 |
|
796 |
1.6 million carats pa |
|
|
Victor |
Canada |
Q3 2008 |
|
834 |
0.6 million carats pa |
|
|
Voorspoed |
South Africa |
Q4 2008 |
|
185 |
0.7 million carats pa |
|
Coal |
Dawson |
Australia |
Q4 2008 |
|
839 |
5.7 Mtpa coking, semi-soft and thermal |
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Sector |
Project |
Country |
First production date |
Full production date |
Capex $m(1) |
Production volume(2) |
|
Platinum (4) |
Mototolo JV |
South Africa |
Q4 2006 |
Q2 2009 |
200 |
130 kozpa refined platinum |
|
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Marikana JV |
South Africa |
Q1 2006 |
Q1 2009 |
36 |
145 kozpa refined platinum |
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Mogalakwena North expansion(5) |
South Africa |
Q4 2007 |
Q2 2010 |
692 |
230 kozpa refined platinum |
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Mogalakwena North replacement(5) MC plant capacity expansion - phase 1 |
South Africa South Africa |
Q4 2007 Q3 2009 |
Q2 2010 Q3 2009 |
230 80 |
Replace 200 kozpa refined platinum 11 ktpa waterval converter matte |
|
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Mainstream inert grind projects |
South Africa |
Q4 2009 |
Q3 2010 |
188 |
Improve process recoveries |
|
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Lebowa Brakfontein Merensky Slag cleaning furnace 2 |
South Africa South Africa |
Q2 2008 Q4 2009 |
Q1 2011 Q4 2010 |
179 134 |
Replace 108 kozpa refined platinum 650 tpd increased slag cleaning capacity |
|
|
Base metals refinery expansion |
South Africa |
Q3 2009 |
Q3 2010 |
279 |
11 ktpa nickel |
|
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Amandelbult East Upper UG2 |
South Africa |
Q3 2007 |
Q4 2012 |
224 |
100 kozpa refined platinum |
|
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Townlands ore replacement |
South Africa |
Q4 2007 |
Q4 2015 |
139 |
Replace 70 kozpa refined platinum |
|
|
Paardekraal |
South Africa |
Q2 2010 |
Q2 2015 |
316 |
Replace 120 kozpa refined platinum |
|
|
Twickenham Amandelbult No 4 shaft project Styldrift Merensky phase 1 |
South Africa South Africa South Africa |
Q4 2011 Q1 2012 Q2 2017 |
Q4 2016 Q1 2019 Q2 2018 |
800 1,602 1,621 |
180 kozpa refined platinum Replace 271 kozpa refined platinum 245 kozpa refined platinum |
|
Base Metals |
Barro Alto |
Brazil |
Q1 2011 |
Q3 2012 |
1,600 - 1,800 |
36 ktpa nickel |
|
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Los Bronces expansion |
Chile |
Q4 2011 |
Q4 2012 |
2,200 - 2,500 |
173 ktpa copper(3)(6) |
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Ferrous Metals(7) |
Sishen expansion |
South Africa |
Q4 2007 |
Q4 2009 |
588 |
13.0 Mtpa iron ore |
|
|
Minas-Rio phase 1 |
Brazil |
Q2 2012 |
Q3 2013 |
3,627 |
26.5 Mtpa iron ore pellet feed (wet basis) |
|
|
Sishen South |
South Africa |
H1 2012 |
Q1 2013 |
924 |
9.0 Mtpa iron ore |
|
Coal |
Lake Lindsay |
Australia |
Q4 2007 |
Q1 2009 |
726 |
4.0 Mtpa coking & semi-soft |
|
|
Mafube |
South Africa |
Q4 2007 |
Q2 2008 |
214 |
5.4 Mtpa thermal |
|
|
Cerrejón |
Colombia |
Q1 2007 |
Q1 2009 |
134 |
3.0 Mtpa (2nd stage) thermal |
|
|
MacWest |
South Africa |
Q3 2008 |
Q1 2009 |
49 |
2.7 Mtpa thermal |
|
|
Zondagsfontein |
South Africa |
Q2 2009 |
Q4 2010 |
473 |
6.6 Mtpa thermal |
|
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Sector |
Project |
Country |
First production date |
Full production date |
Capex $m |
Production volume(2) |
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Base Metals |
Goias II Quellaveco |
Brazil Peru |
2013 2014 |
2014 2016 |
1,915 2,500-3,000 |
Fertiliser (8) 225 ktpa copper(3) |
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|
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Gamsberg Jacare Phase I Collahuasi expansion phase 1 |
South Africa Brazil Chile |
2016 2015 2010 |
2018 2017 2011 |
1,930 2,200 450 |
400 ktpa zinc 40 ktpa nickel 485 ktpa copper(3) (9) |
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Morro Sem Bone |
Brazil |
2016 |
2018 |
1,670 |
32 ktpa nickel |
|||||
|
|
Michiquillay |
Peru |
TBD |
TBD |
TBD |
300 ktpa copper(3) |
|||||
|
|
Pebble |
US |
TBD |
TBD |
TBD |
350 ktpa copper(3) |
|||||
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Ferrous Metals (7) |
Sishen Expansion Project phase 1B |
South Africa |
2010 |
2010 |
60 |
0.4 Mtpa iron ore |
|||||
|
|
Sishen Expansion Project 2 |
South Africa |
2013 |
2014 |
1,180 |
10.0 Mtpa iron ore |
|||||
|
|
Sishen C Grade |
South Africa |
2013 |
2014 |
TBD |
10.0 Mtpa iron ore |
|||||
|
|
Sishen Pellet |
South Africa |
2014 |
2015 |
590 |
2.0 Mtpa iron ore pellets |
|||||
|
|
Minas-Rio phase 2 |
Brazil |
TBD |
TBD |
TBD |
26.5 Mtpa pellet feed |
|||||
|
Coal |
Heidelberg opencast |
South Africa |
2010 |
2010 |
30 |
0.9 Mtpa thermal |
|||||
|
|
Elders opencast |
South Africa |
2011 |
2011 |
475 |
6.4 Mtpa thermal |
|||||
|
|
Elders underground |
South Africa |
2011 |
2012 |
225 |
3.2 Mtpa thermal |
|||||
|
|
Cerrejón P40 |
Colombia |
2012 |
2014 |
1,065 |
8.0 Mtpa thermal |
|||||
|
|
New Largo |
South Africa |
2012 |
2015 |
660 |
14.7 Mtpa thermal |
|||||
|
|
Heidelberg underground |
South Africa |
2013 |
2014 |
290 |
4.2 Mtpa thermal |
|||||
The Group has a number of other projects under evaluation including Der Brochen, Waterval Phase 5, Frank Ore Replacement UG2, Turffontein Ore Replacement UG2, Union Deep Shaft Project, BRPM Phase 3 UG2 and MR North shaft, Pandora JV and Ga-Phasa JV in Platinum, Cerreón P50 in Coal and Gahcho Kué in Diamonds.
|
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At 30 June 2008 |
|
|
|
Capex (real) |
Capex (nominal) |
|
|
$m |
$m |
|
Approved |
|
|
|
Sishen Expansion |
754 |
797 |
|
Minas-Rio Phase 1 |
3,456 |
3,543 |
|
Sishen South |
782 |
1,017 |
|
Future unapproved |
|
|
|
Sishen Expansion Project 2 |
775 |
819 |
|
Sishen Pellet |
338 |
359 |
For further information, please contact:
United Kingdom
Anna Poulter, Investor Relations
Tel: +44 (0)20 7968 2155
Caroline Metcalfe, Investor Relations
Tel: +44 (0)20 7968 2192
James Wyatt-Tilby, Media Relations
Tel: +44 (0)20 7968 8759
South Africa
Pranill Ramchander, Media Relations
Tel: +27 (0)11 638 2592
Notes to editors:
Anglo American plc is one of the world's largest mining groups. With its subsidiaries, joint ventures and associates, it is a global leader in platinum group metals and diamonds, with significant interests in coal, base and ferrous metals, as well as an industrial minerals business. The Group is geographically diverse, with operations in Africa, Europe, South and North America, Australia and Asia. (www.angloamerican.co.uk)
Webcast of presentation:
A live webcast of the annual results presentation, starting at 10.00am UK time on 20 February, can be accessed through the Anglo American website at www.angloamerican.co.uk.
Note: Throughout this results announcement, '$' denotes United States dollars and 'cents' refers to United States cents; operating profit includes associates' operating profit, is before special items and remeasurements and refers to continuing operations, unless otherwise stated; special items and remeasurements are defined in note 6 and results of discontinued operations are presented in note 17. Underlying earnings refers to continuing operations unless otherwise stated and is calculated as set out in note 9 to the condensed financial statements. EBITDA is operating profit before special items and remeasurements, depreciation and amortisation in subsidiaries and joint ventures and share of EBITDA of associates and refers to continuing operations unless otherwise stated. EBITDA is reconciled to 'Total profit from continuing operations and associates' in note 12 to the condensed financial statements and to 'Cash inflows from operations' in the primary statements. Tonnes are metric tons, 'Mt' denotes million tonnes and 'kt' denotes thousand tonnes unless otherwise stated.
Financial review of Group results*
Group operating profit was $10,085 million, with operating profit from core operations of $9,765 million, 10% higher than 2007. Operating profit was driven by higher prices realised in the year, particularly for coal, iron ore, manganese ore and alloy, platinum, rhodium, and diamonds. Higher sales volumes of coal and iron ore also contributed, as did the favourable exchange rate of the South African rand against the US dollar. Coal and Ferrous Metals saw very significant increases in operating profit, to record levels, on the back of stronger prices, increased volumes and operational efficiencies. Operating profit from Platinum and Base Metals was lower than 2007. At Platinum, this was due to a decrease in metal sales and higher key input costs, which were only partly offset by the higher realised platinum and rhodium prices. The Base Metals results were impacted by sharply lower base metals prices, particularly in the fourth quarter as the LME copper price fell to 132 c/lb at the end of December. The impact of prices, as well as lower overall production and sales volumes and increased input costs, resulted in lower operating profit from the Base Metals division.
Group underlying earnings were $5,237 million, 4% lower than the prior year on a continuing basis. Underlying earnings from core operations were in line with 2007. Underlying earnings reflect the operational results discussed above, an increase in net finance costs due to higher interest as the result of an increase in debt levels, as well as an increase in the effective tax rate.
Group underlying earnings per share were $4.36 compared with $4.18 in 2007 on a continuing basis, reflecting the lower weighted average number of shares as a result of the share buyback programme.
|
Underlying earnings $ million |
Year ended 31 Dec 2008 |
Year ended 31 Dec 2007 |
|
Profit for the financial year attributable to equity shareholders of the Company - continuing operations |
5,215 |
5,294 |
|
Operating special items including associates |
477 |
713 |
|
Operating remeasurements including associates |
880 |
(2) |
|
Net profit on disposals including associates |
(1,027) |
(484) |
|
Financing remeasurements including associates: |
|
|
|
Exchange (gain)/loss on De Beers preference shares |
(28) |
3 |
|
Unrealised net gains on non-hedge derivatives related to net debt |
(8) |
(28) |
|
Tax remeasurements |
153 |
- |
|
Tax on special items and remeasurements including associates |
(264) |
15 |
|
Minority interests on special items and remeasurements including associates |
(161) |
(34) |
|
Underlying earnings - continuing operations |
5,237 |
5,477 |
|
Underlying earnings - discontinued operations |
- |
284 |
|
Underlying earnings - total Group |
5,237 |
5,76 |
|
Underlying earnings per share ($) - continuing operations |
4.36 |
4.18 |
|
Underlying earnings per share ($) - discontinued operations |
- |
0.22 |
|
Underlying earnings per share ($) - total Group |
4.36 |
4.40 |
Profit for the year after special items and remeasurements decreased by 1% to $5,215 million compared with $5,294 million in the prior year. The decrease reflects the results discussed above and in the chief executive's statement, in particular a reduction in the operational results of non core businesses, as well as a charge of $880 million for operating remeasurements including a $760 million loss on non-hedge derivatives. This is partly offset by an increase in net profit on disposals, lower operating special items charges, particularly in the Group's associates, and a net tax credit on special items and remeasurements compared with a charge in 2007.
* Throughout the financial review, Group results are presented on a continuing basis unless otherwise stated and therefore exclude Mondi and AngloGold Ashanti in 2007.
The Group's results are influenced by a variety of currencies owing to the geographic diversity of the Group. In 2008, there was a positive exchange variance in underlying earnings of $725 million. Results benefited from the weaker South African rand against the US dollar with an average exchange rate of R8.27 compared with R7.05 in 2007 as well as from the slightly weaker Australian dollar and Chilean peso, although these were partly offset by the overall strengthening of the Brazilian real over the year. There was a positive impact on underlying earnings from increased prices amounting to $1,311 million, reflecting better prices for coal, iron ore, manganese ore and alloys, platinum, rhodium and a range of Tarmac's products, partly offset by significantly lower base metals prices.
|
Summary income statement $ million |
Year ended 31 Dec 2008 |
Year ended 31 Dec 2007 |
|
Operating profit before special items and remeasurements - continuing operations |
7,981 |
8,518 |
|
Operating special items |
(352) |
(251) |
|
Operating remeasurements |
(779) |
5 |
|
Operating profit from subsidiaries and joint ventures |
6,850 |
8,272 |
|
Net profit on disposals |
1,009 |
460 |
|
Share of net income from associates - continuing operations(1) |
1,113 |
197 |
|
Total profit from operations and associates |
8,972 |
8,929 |
|
Net finance costs before remeasurements |
(452) |
(137) |
|
Financing remeasurements |
51 |
29 |
|
Profit before tax |
8,571 |
8,821 |
|
Income tax expense |
(2,451) |
(2,693) |
|
Profit for the financial year - continuing operations |
6,120 |
6,128 |
|
Minority interests |
(905) |
(834) |
|
Profit for the financial year attributable to equity shareholders - continuing operations |
5,215 |
5,294 |
|
Profit for the financial year attributable to equity shareholders - discontinued operations |
- |
2,010 |
|
Profit for the financial year attributable to equity shareholders - total Group |
5,215 |
7,304 |
|
Basic earnings per share ($) - continuing operations |
4.34 |
4.04 |
|
Basic earnings per share ($) - discontinued operations |
- |
1.54 |
|
Basic earnings per share ($) - total Group |
4.34 |
5.58 |
|
Group operating profit including associates before special items and remeasurements - continuing operations |
10,085 |
9,590 |
|
Group operating profit including associates before special items and remeasurements - discontinued operations |
- |
526 |
|
Group operating profit including associates before special items and remeasurements - total Group |
10,085 |
10,116 |
|
|
|
|
|
|
|
|
|
(1) Operating profit from associates before special items and remeasurements - continuing operations |
2,104 |
1,072 |
|
Operating special items and remeasurements(2) |
(226) |
(465) |
|
Net profit on disposals(2) |
18 |
24 |
|
Net finance costs (before remeasurements) |
(147) |
(85) |
|
Financing remeasurements(2) |
(15) |
(4) |
|
Income tax expense (after special items and remeasurements) |
(606) |
(303) |
|
Minority interests (after special items and remeasurements) |
(15) |
(42) |
|
Share of net income from associates - continuing operations |
1,113 |
197 |
(2) See note 6 to the condensed financial statements.
Towards the beginning of this document, reference has been made to core operations. Operations considered core to the Group are Base Metals, Platinum, Ferrous Metals' core businesses (Kumba Iron Ore, Scaw Metals, Samancor Manganese and Anglo Ferrous Brazil), Coal and Diamonds. The table below reconciles operating profit from core operations to total Group operating profit.
|
Operating profit $ million |
Year ended 31 Dec 2008 |
Year ended 31 Dec 2007 |
|
Base Metals |
2,505 |
4,338 |
|
Platinum |
2,226 |
2,697 |
|
Ferrous Metals - core businesses(1) |
2,843 |
1,210 |
|
Coal |
2,240 |
614 |
|
Diamonds |
508 |
484 |
|
Corporate Activities and Exploration |
(557) |
(449) |
|
Operating profit including associates before special items and remeasurements - core continuing operations |
9,765 |
8,894 |
|
Industrial Minerals |
228 |
474 |
|
Ferrous Metals - other businesses(1) |
92 |
222 |
|
Operating profit including associates before special items and remeasurements - continuing operations |
10,085 |
9,590 |
|
Operating profit including associates before special items and remeasurements - discontinued operations |
- |
526 |
|
Operating profit including associates before special items and remeasurements - total Group |
10,085 |
10,116 |
|
Underlying earnings - core continuing operations |
5,011 |
5,031 |
(1) See the Ferrous Metals operations review.
Special items and remeasurements
|
|
Year ended 31 Dec 2008 |
|
Year ended 31 Dec 2007 |
||||
|
$ million |
Excluding associates |
Associates |
Total |
|
Excluding associates |
Associates |
Total |
|
Operating special items |
(352) |
(125) |
(477) |
|
(251) |
(462) |
(713) |
|
Operating remeasurements |
(779) |
(101) |
(880) |
|
5 |
(3) |
2 |
|
Operating special items and remeasurements |
(1,131) |
(226) |
(1,357) |
|
(246) |
(465) |
(711) |
|
|
|
|
|
|
|
|
|
Operating special items and remeasurements, including associates, amounted to a charge of $1,357 million. Included in operating special items of $477 million was $393 million in respect of impairments and restructuring including a $140 million impairment relating to Base Metals assets, $91 million impairment and restructuring relating to Tarmac assets and $79 million relating to the Group's share of De Beers' impairment. Also included in special items and remeasurements were one-off costs associated with 'One Anglo' initiatives of $72 million. Operating remeasurements of $880 million principally related to net losses on non-hedge capital expenditure derivatives held by Anglo Ferrous Brazil and Los Bronces and an unrealised loss on an embedded derivative at Minera Loma de Níquel.
Net profit on disposals of $1,027 million which, including associates, was $543 million higher than 2007, includes the net profit of $551 million relating to the sale of the Group's interest in China Shenhua Energy, $142 million relating to the disposal of the interest in Minera Santa Rosa SCM and $101 million relating to the disposal of Northam Platinum Limited.
Financing remeasurements including associates are made up of an unrealised net gain of $8 million on non-hedge derivatives and a $28 million foreign exchange gain on retranslating De Beers US dollar preference shares held by a rand denominated entity.
Tax remeasurements amounted to a charge of $153 million related to foreign currency translation of deferred tax balances.
Net finance costs
Net finance costs from continuing operations, excluding net remeasurement gain of $51 million (2007: $29 million), increased to $452 million (2007: $137 million). The increase reflects higher interest costs due to the increase in debt and higher net foreign exchange losses on net debt monetary items, principally at Anglo Ferrous Brazil and Base Metals, partly offset by higher interest capitalised.
Taxation
|
|
Year ended 31 Dec 2008 |
|
Year ended 31 Dec 2007 |
||||
|
$ million (unless otherwise stated) |
Before special items and remeasurements |
Associates' tax and minority interests |
Including associates |
|
Before special items and remeasurements |
Associates' |
Including associates |
|
Profit before tax |
8,832 |
654 |
9,486 |
|
9,021 |
347 |
9,368 |
|
Tax |
(2,545) |
(623) |
(3,168) |
|
(2,676) |
(305) |
(2,981) |
|
Profit for the financial year |
6,287 |
31 |
6,318 |
|
6,345 |
42 |
6,387 |
|
Effective tax rate including associates (%) |
|
|
33.4 |
|
|
|
31.8 |
IAS 1 Presentation of Financial Statements requires income from associates to be presented net of tax on the face of the income statement. Associates' tax is therefore not included within the Group's total tax charge on the face of the income statement. Associates' tax before special items and remeasurements included within 'Share of net income from associates' for the year ended 31 December 2008 was $623 million (2007: $305 million).
The effective rate of tax before special items and remeasurements, including share of associates' tax, on a continuing basis was 33.4%. This was an increase from the equivalent effective rate of 31.8% in the year ended 31 December 2007. The main reasons for this net increase are tax losses not recognised for deferred tax purposes and changes in the geographic mix of profits around the Group, partially offset by changes in statutory tax rates and the impact of prior year adjustments. In addition, the 2007 rate benefited from the availability of enhanced tax depreciation on certain assets.
Discontinued operations
On 2 July 2007, the Paper and Packaging business (Mondi) was demerged from the Group by way of a dividend in specie paid to shareholders.
On 2 October 2007, the Group sold 67.1 million shares in AngloGold Ashanti Limited which reduced the Group's shareholding from 41.6% to 17.3%. The Group's representation on the company's board was also withdrawn at this time. The remaining investment is accounted for as a financial asset investment.
Both of these operations are presented as discontinued.
Refer to note 17 for financial information on discontinued operations.
Balance sheet
Equity attributable to equity shareholders of the Company was $20,221 million compared with $22,461 million at 31 December 2007. This decrease resulted primarily from the balance sheet impact of weakening exchange rates relative to the US dollar (in particular the rand) partly offset by the consolidation of Amapá iron ore system and additional effective interest in the Minas-Rio iron ore project, the proportionate consolidation of the Foxleigh joint venture and the additional interest acquired in Anglo Platinum.
The $4 billion buyback programme announced in August 2007 was suspended, with around $1.7 billion of shares having been repurchased.
Cash flow
Net cash inflows from operating activities were $8,065 million compared with $6,800 million in 2007. EBITDA was $11,847 million, an increase of 6% from $11,171 million in 2007.
Acquisition expenditure accounted for an outflow (net of cash acquired) of $7,907 million (including settlement of related derivative instruments) compared with $1,934 million in 2007. This included $5,282 million in respect of the Group's acquisition of the controlling interest and subsequent acquisition of 97% of the remaining minorities in Anglo Ferrous Brazil SA and $1,113 million in respect of the Group's investment in ordinary shares in Anglo Platinum Limited.
Proceeds from disposals totalled $1,524 million including net cash inflows on the sale of the Namakwa Sands mineral sands operation to Exxaro of $311 million, $704 million from the sale of the Group's holding in China Shenhua Energy, $155 million on the sale of Tarmac Iberia and $205 million on the sale of Northam Platinum Limited by Anglo Platinum.
Purchases of tangible assets amounted to $5,146 million, an increase of $1,215 million. Planned increases in capital expenditure by Platinum, Base Metals, Ferrous Metals and Industrial Minerals were partly offset by lower expenditure by Coal.
Net cash received from financing activities was $3,542 million compared with net cash used in 2007 of $5,661 million. This primarily arose from the receipt of $6,616 million of additional borrowings (an increase in the year of $3,495 million) together with a $5,507 million reduction in cash outflow in respect of share purchases.
Liquidity and funding
Net debt, excluding hedges but including net debt of disposal groups (net cash of $8 million), was $11,043 million, an increase of $5,804 million from 31 December 2007. The increase reflects planned capital expenditure on projects in Platinum, Base Metals, Ferrous Metals and Industrial Minerals, debt taken on to fund the acquisition of the controlling interest and subsequent acquisition of 97% of the remaining minorities in Anglo Ferrous Brazil SA and to increase the stake in Anglo Platinum Limited. This was partly offset by operating cash inflows and $1.5 billion proceeds from disposals.
Net debt at 31 December 2008 comprised $13,960 million of debt, partly offset by $2,744 million of cash and cash equivalents (net of bank overdrafts) and $173 million current financial asset investments. Net debt to total capital(1) at 31 December 2008 was 37.8%, compared with 20.0% at 31 December 2007.
Over the last 12 months, Anglo American has issued medium and long term debt in the Euro and sterling bond markets, in addition to arranging new bank financing in both Europe and South Africa.
At 31 December 2008, Anglo American had undrawn bank facilities of $6.1 billion, cash deposits of $2.7 billion and commercial paper maturing throughout 2009 of $1.1 billion. Anglo American's only significant debt repayment in the next year is a $3 billion revolving bank facility (of which $1.1 billion was drawn at 31 December 2008) which matures in December 2009. In addition, a £300 million ($500 million) Euro bond matures in December 2010.
With respect to the $3 billion facility, the intention is to refinance part or all of the facility, subject to requirements, taking into consideration proceeds from disposal of assets and cash flow from operations, using a variety of sources which may include the issue of public bonds in the European and US markets and new bank facilities.
The Group's forecasts and projections, taking account of reasonably possible changes in trading performance and the refinancing of the facilities above, show that the Group will be able to operate within the level of its current facilities.
(1) Net debt to total capital is calculated as net debt divided by total capital less investments in associates. Total capital is net assets excluding net debt.
Weighted average number of shares
The weighted average number of shares used to determine earnings per share in 2008 was 1,202 million compared to 1,309 million in 2007. This reduction reflects the effect of the share buyback programme and the share consolidation following the demerger of the Paper and Packaging business in July 2007.
Dividends
The Board has decided to suspend dividend payments.
|
Analysis of dividends US cents per share |
2008 |
2007 |
|
Interim dividend |
44 |
38 |
|
Recommended final dividend |
- |
86 |
|
Total dividends |
44 |
124 |
Operations review 2008
In the operations review on the following pages, operating profit includes associates' operating profit and is before special items and remeasurements unless otherwise stated. Capital expenditure relates to cash expenditure on tangible and biological assets. Share of Group operating profit and share of Group net operating assets for both 2008 and 2007 are based on continuing operations and therefore, in 2007, exclude the contribution from Mondi and AngloGold Ashanti.
BASE METALS
|
$ million (unless otherwise stated) |
Year ended 31 Dec 2008 |
Year ended 31 Dec 2007 |
|
|
Operating profit |
2,505 |
4,338 |
|
|
|
Copper |
2,017 |
2,983 |
|
|
Nickel, Niobium, Mineral Sands and Phosphates |
507 |
786 |
|
|
Zinc |
136 |
654 |
|
|
Other |
(155) |
(85) |
|
EBITDA |
2,845 |
4,683 |
|
|
Net operating assets |
5,474 |
4,989 |
|
|
Capital expenditure |
1,494 |
610 |
|
|
Share of Group operating profit |
25% |
45% |
|
|
Share of Group net operating assets |
17% |
19% |
|
Operating profit at Base Metals of $2,505 million was some 42% lower than the previous year. This followed sharply lower copper, nickel, zinc and lead prices, including a significant $591 million adverse mark to market and final liquidation adjustment due to lower realised copper prices on revenue initially recognised on provisionally priced sales, as well as lower copper prices at the end of 2008. Of the negative mark to market and final liquidation adjustment, there was a positive impact of $265 million in the first half, offset by a negative impact of $856 million in the second half. Lower overall sales volumes and continued rises in input costs also contributed to the reduction in operating profit. The sale of Namakwa Sands was completed on 1 October 2008, with that operation therefore only contributing for nine months of the year.
Markets
|
Average market prices (c/lb) |
2008 |
2007 |
|
Copper |
315 |
323 |
|
Nickel |
953 |
1,686 |
|
Zinc |
85 |
147 |
|
Lead |
95 |
118 |
During the first nine months of 2008, the copper market continued to be tight, with prices rising to an all time record level of 407 c/lb in July. However, concerns about future global economic growth in the latter half of the year led to a sharp drop in prices, with copper ending the year at 132 c/lb. Weakness in the nickel market continued into 2008, with rising inventories (LME stocks closing the year at a 13-year high) and declining economic sentiment, leading to a material drop in prices. Zinc prices continued to weaken materially for similar reasons.
Operating performance
|
Copper division |
2008 |
2007 |
|
Operating profit ($m) |
2,017 |
2,983 |
|
Attributable production (tonnes) |
641,300 |
655,000 |
Los Bronces, Collahuasi and Mantoverde all increased production in 2008, partially offsetting lower production at both El Soldado and, less so, at Mantos Blancos. Record production was achieved at Los Bronces and Mantoverde.
Los Bronces increased output by 2% principally due to higher ore grades. The Group's share of Collahuasi's production was 3% higher than for 2007 as a result of significantly improved grades, somewhat offset by pipeline and pumping constraints and a SAG mill motor stator failure in September. Production at El Soldado was 32% lower as a consequence of lower ore grades, largely owing to challenging rock stability conditions impacting sequencing in the underground and open pit mines. Output from Mantoverde was 2% higher following recoveries from the heap leach operations, achieving a record level. At Mantos Blancos, production fell by 3%; while improved throughput and grades lifted concentrate production, this was offset by lower cathode production resulting from lower volumes of ore and enriched solution purchased from third parties. Chagres' output fell by 11%, mainly due to the lower average grade of concentrate treated.
|
Nickel, Niobium, Mineral Sands and Phosphates |
2008 |
2007 |
|
Operating profit ($m) |
507 |
786 |
|
Attributable nickel production (tonnes) |
20,000 |
25,600 |
At Codemin, output fell 8% owing to a scheduled stoppage to reline one of the furnaces. Sales fell 15%, reflecting the lower production and also a slowdown in stainless steel producer offtake. At Catalão, niobium production reduced by 2% as a result of lower recoveries on ore from the Boa Vista mine. Performance at Copebrás during 2008 can be divided into two distinct phases: from January to August, demand for all products was extremely strong and the company sold its entire production at rising prices; from September onwards, sales volumes and prices reduced sharply as farmers were forced to reduce or even curb fertiliser usage completely owing to the reduced availability of credit arising from the global economic downturn.
Loma de Níquel's production declined by 31% following strike action and a consequential series of operational difficulties on restarting the plant, as well as two nationwide power outages. Sales fell 33%, partly reflecting lower production, but also because of congestion and delays at the port, compounded by the bankruptcy of the main shipper and a number of cancellations from customers towards the year end.
In January 2008, Minera Loma de Níquel (MLdN) was notified of the intention of the Venezuelan Ministry of Basic Industries and Mining (MIBAM) to cancel 13 of its exploration and exploitation concessions due to MLdN's alleged failure to fulfil certain conditions of the concessions. These concessions do not include the concessions where the current mining operations and metallurgical facilities are located. MLdN believes that it has complied with the conditions of these concessions and has lodged administrative appeals against the notices of termination and is waiting for a response from MIBAM. MLdN may in the future undertake further appeals, including with Venezuela's Supreme Court, if MIBAM's ruling does not adequately protect its interests.
Anglo American and MLdN continue to strive to resolve the matter by way of constructive dialogue; however, Anglo American and MLdN believe that there is a valid legal basis to reverse the notices of termination and will pursue all appropriate legal and other remedies and actions to protect their respective interests both under Venezuelan and international law. As such, Anglo American anticipates restoration of these 13 concessions and renewal of all concessions that expire in 2012. As a result, the Group continues to consolidate MLdN and no impairment has been recorded for the year ended 31 December 2008.
In a separate development, the environmental permit for slag deposition expired on 23 November 2008. Pending reissuance of the permit, MLdN implemented a short term contingency plan to allow operations to continue by storing the slag in various locations in the plant area. On 23 December, MLdN suspended operations, but a satisfactory temporary alternative operating and deposition approach was developed which enabled operations to restart on 28 January 2009.
At 31 December 2008, Anglo American's interest in the book value of MLdN, including its mineral rights, was $443 million (as included in the Group's balance sheet). In the 12 months to December 2008, MLdN's production and contribution to Group operating profits were respectively 10,900 tonnes of nickel in ferronickel and $30 million. The average price of nickel in 2008 was 953 c/lb. As of 19 February 2009, the price of nickel was 447 c/lb.
Anglo American is proud of its record in Venezuela, where it has invested substantial amounts in exploration and subsequently the construction of the country's only primary nickel producer. It is a major contributor to and employer in the Venezuelan economy as well as a significant tax payer. The operation continues, as it has always done, to work constructively with all stakeholders - employees, local communities and government - and to the highest sustainable development, social and environmental standards.
|
Zinc division |
2008 |
2007 |
|
Operating profit ($m) |
136 |
654 |
|
Attributable zinc production (tonnes) |
340,500 |
343,100 |
|
Attributable lead production (tonnes) |
62,900 |
62,100 |
At Skorpion, production was 3% lower owing to electricity supply constraints in southern Africa in the first quarter, mechanical failure of a cathode crane in the electrowinning cellhouse and industrial action. Despite tight cost control, mine operating unit costs rose following lower production volumes and rising input costs. At Lisheen, zinc production increased by 2% primarily as a result of higher feed grades and improved metallurgical recoveries, but lead output was down 21% due to lower grades and recoveries. Improvements in stope availability and underground infrastructure at Black Mountain resulted in a 13% increase in tonnage mined, despite the week-long unplanned stoppage of the mine and plant in January following a power shortage in South Africa. Lower zinc grades and recoveries resulted in zinc production decreasing by 1% to 27,900 tonnes, although lead production increased by 12% to 47,000 tonnes. The sale of 26% of Black Mountain and Gamsberg to Exxaro Resources was completed on 3 November 2008, following the successful conversion of old order to new order mining rights.
Impairments of $78 million and $62 million were provided at Lisheen and Black Mountain respectively.
Projects
Base Metals has a strong project pipeline which provides significant scope for organic growth in the medium and long term. Anglo American's review of its capital expenditure programmes in late 2008 resulted in the decision to slow the rate of development of the two major projects under construction, Barro Alto and the Los Bronces expansion project.
The Barro Alto nickel project in Brazil has been delayed by a year and first production is now planned for early 2011. Owing to pressure on project costs and exchange rate fluctuations, total capital expenditure for the project is now estimated at $1.6 - 1.8 billion, of which $1.2 billion has been spent and committed.
Construction progress on the $2.2 - 2.5 billion Los Bronces expansion project in Chile was in line with plan. Targeted commissioning has, however, now been pushed out by eight months to late 2011. Cost pressures remain and will be managed closely under the revised project schedule and in the context of the changing global economic environment.
At Collahuasi, further progress was made on the 140,000 tonne per day concentrator throughput de-bottlenecking project, which has now been commissioned.
The revised feasibility for the Quellaveco project in Peru reached an advanced stage of completion during the year. Resource development, community projects, a technical review and project optimisation work are continuing. Also in Peru, the Michiquillay project, acquired through a privatisation auction in 2007, received the social licences from both the Michiquillay and La Encañada communities, and will now proceed into the exploration phase.
Chagres, Mantoverde, Collahuasi and Gamsberg all have early-stage studies under way, examining options for projects that will either increase production and/or extend mine lives.
Outlook
In January 2009, Codelco, the Chilean mining company, did not exercise its option to purchase up to a 49% minority interest in Anglo American Sur, the wholly owned Group company that owns the Los Bronces and El Soldado copper mines and the Chagres smelter. The window for exercising the option is limited to once every three years in the month of January until January 2027. The next such window is in January 2012.
Production of nickel, subject to operating difficulties in Venezuela, and copper are forecast to increase in 2009, with zinc and phosphate production remaining at similar levels to 2008. Operating margins are expected to start to benefit from declining costs of certain key inputs, such as fuel, energy, sulphur, sulphuric acid, ammonia and explosives.
For all base metals, a period of price weakness is anticipated due to the weak outlook for global growth. Across the industry, persistent supply side constraints in the case of copper and, for nickel and zinc, the closure of operations or deferral of projects, should support a price recovery once signs of a sustained improvement in demand start to emerge.
PLATINUM
|
$ million (unless otherwise stated) |
Year ended 31 Dec 2008 |
Year ended 31 Dec 2007 |
|
Operating profit |
2,226 |
2,697 |
|
EBITDA |
2,732 |
3,155 |
|
Net operating assets |
9,045 |
9,234 |
|
Capital expenditure |
1,563 |
1,479 |
|
Share of Group operating profit |
22% |
28% |
|
Share of Group net operating assets |
27% |
35% |
Anglo Platinum's operating profit declined by 17% to $2,226 million. This was as a result of lower metal sales and significant increases in key input costs, partly offset by a higher price achieved for the basket of metals sold and a weaker average rand dollar exchange rate.
The average dollar price realised for the basket of metals sold equated to $2,764 per platinum ounce, a 7% rise over 2007, with higher prices achieved for platinum and rhodium making the largest contribution to the increase. The average realised price for platinum of $1,570 per ounce was $268 or 21% above the 2007 figure, while the achieved nickel price was sharply lower at $9.79 per pound (2007: $17.04). Anglo Platinum successfully renegotiated the contract sales terms for rhodium, resulting in the realised sales price of rhodium moving closer to market prices during 2008. The average price achieved on rhodium sales for the year was $5,174 per ounce.
Markets
2008 was a year of unprecedented price volatility in the platinum market with platinum reaching a record of $2,276 per ounce in March before falling sharply as economic conditions deteriorated. In the second half of the year, the global economic downturn reduced credit availability for vehicle purchases. Anglo Platinum estimates that demand from the autocatalyst segment decreased by more than 8%, or 330,000 ounces, owing to the smaller number of vehicles produced and a run-down of stock levels by major auto companies. Although not immune to the global economic downturn, industrial demand held up reasonably well in 2008, with demand increasing in some areas such as the chemical sector as investment in new capacity reached a peak. High prices in the first half of the year discouraged consumer purchases of jewellery and increased the recycling of old jewellery, thereby reducing demand for new metal. In the second half of the year, the declining price of platinum encouraged purchases of metal by jewellers and investors alike.
The global supply of platinum has decreased by 11%, or 740,000 ounces, over the past two years and is not expected to increase in the current global economic environment.
Anglo Platinum expects a balanced platinum market in 2009. It also anticipates that the platinum price, which suffered 'downside overcorrection' on negative news flow in the second half of 2008, is likely to trade above $1,000 per ounce on average during 2009.
Operating performance
Refined platinum production for the year of 2,386,600 ounces was 4% lower than 2007 but in line with the mid-2008 forecast.
Several factors impacted production at operations, including safety related stoppages; the suspension of operations to rehabilitate shaft steelwork at the Turffontein shaft of Rustenburg Mine; the disruption of operations at the Amandelbult Mine as a result of a major flood event; electricity supply constraints in January and the associated ramp up period when supply resumed; commissioning delays at Mogalakwena North concentrator and lower throughput at the Mogalakwena South concentrator; the overall expected reduction in built-up head grade; and furnace run-outs at the Polokwane and Waterval smelters.
These reductions were largely offset by an increase in purchased ounces from the new Eland Platinum mine, which commenced delivery to Anglo Platinum in December 2007, together with increased output from the new Mogalakwena North pit and the Modikwa and Kroondal Platinum mines.
The cash operating cost per equivalent refined platinum ounce (in respect of Anglo Platinum's own mines plus its share of joint ventures) increased by 36% to R11,093 per ounce. The increase in unit costs is attributable primarily to above inflation pressures experienced in key input costs including labour, diesel, chemicals, steel grinding media, explosives and cement, compounded by reduced production from Anglo Platinum's attributable share of mining operations.
Anglo Platinum's focus on safety, based on Zero Harm and a change in safety culture, has resulted in an improvement in the safety performance across the operations with the lost-time injury frequency rate improving by 14% to 1.74 from 2.03 in 2007. Despite the improvement, 17 employees lost their lives at Anglo Platinum's managed operations during the year, compared with 25 in 2007. Safety continues to be a focus area in the company's aspiration towards Zero Harm through the elimination of all unsafe incidents and conditions.
Projects
The rapid decrease in revenue in the second half of 2008 led to declining margins, increased debt levels and confirmation that global economic events would negatively influence short term demand. In line with the Anglo American Group, a review of the company's capital expenditure programme was completed, resulting in the reduction of total expected capital expenditure for 2009 to $900 million through the deferral of expenditure across several major and numerous smaller projects.
The criteria used to determine project expenditure deferral were to maximise short term reductions in expenditure and minimise the delay in reaching full production. The expected reduction in short term production arising from the deferral of capital projects is largely expected to match the reduced demand.
The commissioning of the Mogalakwena North expansion project concentrator is complete. Capital expenditure planned for the accelerated removal of overburden at the new North pit has been deferred. As a result, less ore will be exposed, thereby reducing the level of mining output originally planned for 2009.
Outlook
Notwithstanding the current uncertainty in the global resources and platinum sectors, Anglo Platinum's long term strategy to develop the market for platinum group metals, expand its production into that opportunity and to conduct its business cost-effectively and competitively remains sound.
The long term prosperity of the business is considered when taking short term action and Anglo Platinum will continue to respond to the challenges that face the platinum industry. Whilst the planned level of refined platinum production of 2.4 million ounces is currently expected to be appropriate for 2009, the Company will take appropriate action should economic conditions affecting net platinum demand deteriorate further. Production levels will be continually monitored against global economic developments and revised production guidance will be provided when appropriate.
In order to maintain positive operating margins at the planned 2009 production level of 2.4 million ounces of refined platinum, the current cost of production will be reduced. This will be achieved through active management of the supply chain to realise, without delay, the benefits of the significant reduction of input commodity prices; safely reducing units of consumption where possible; managing labour more effectively to improve efficiencies through re-skilling and re-deployment where required; avoiding recruitment of non-critical positions; and reducing the number of contract employees at operations.
Every effort will be made to avoid the retrenchment of permanent employees. However, should economic conditions deteriorate further, this may become unavoidable.
FERROUS METALS AND INDUSTRIES
|
$ million (unless otherwise stated) |
Year ended 31 Dec 2008 |
Year ended 31 Dec 2007 |
|
Operating profit |
2,935 |
1,432 |
|
Kumba Iron Ore |
1,618 |
834 |
|
Scaw Metals |
274 |
172 |
|
Samancor Manganese |
980 |
225 |
|
Anglo Ferrous Brazil |
(8) |
(9) |
|
Other |
(21) |
(12) |
|
Core businesses |
2,843 |
1,210 |
|
Tongaat-Hulett / Hulamin |
92 |
114 |
|
Highveld Steel |
- |
108 |
|
Other businesses |
92 |
222 |
|
EBITDA |
3,064 |
1,561 |
|
Net operating assets |
11,167 |
3,987 |
|
Capital expenditure (including biological assets) |
832 |
471 |
|
Share of Group operating profit |
29% |
15% |
|
Share of Group net operating assets |
34% |
15% |
Operating profit at Anglo Ferrous Metals reached a record $2,935 million, with operating profit from its core businesses increasing by 135% to $2,843 million, mainly due to higher iron ore sales volumes and higher iron ore, manganese ore and alloy prices.
Markets
World crude steel production decreased by 1.2% in 2008 to 1.33 billion tonnes. China's steel production grew by 2.6%, with its share of global production rising to 37.8%. However, as a result of the decline in steel demand in the final quarter of 2008, demand for iron ore has decreased significantly, resulting in reduced production and delays to project capital spend from major iron ore producers.
Similarly, the manganese ore and alloy market was characterised by increasing stocks and falling prices towards the end of the year, as steel mills delayed or cancelled their purchases. As a result, major suppliers announced plans to reduce production in the fourth quarter of 2008. A return to production at full capacity will depend on improved global economic conditions.
Operating performance
Kumba Iron Ore achieved a strong financial and operational performance for the year, with operating profit increasing by 94% to $1,618 million, principally as a result of higher export prices, higher export sales volumes and increased revenue from shipping operations. These improvements were offset marginally by a 20% increase in net operating expenses, mainly due to the shipping operations, rising costs of fuels and lubricants and broad inflationary pressures. Production increased by 13% to 36.7 million tonnes (Mt), principally as a result of the Sishen jig plant (Sishen expansion), which achieved production of 4.7 Mt for the year.
Scaw Metals delivered a record operating profit of $274 million, with strong demand for most of its products. Margins remained under pressure owing to significant price increases in key raw materials and import competition but they were able to successfully pass this on to its customers.
Anglo Ferrous Brazil comprises the Group's effective 99.4% interest in the Minas-Rio iron ore project, the effective 69.2% interest in the Amapá iron ore system and the 49% interest in LLX Minas-Rio. The Amapá system is at a pre-operational phase while ramping up to design capacity of 6.5 Mtpa. In 2008, the ramp-up of operations was significantly slower than previously envisaged, with annual production totalling 1.2 Mt. Anglo American, together with its partner at Amapá, Cliffs Natural Resources Inc., is studying all aspects of the mine and taking proactive steps to ensure that production is ramped up to design capacity.
Samancor Manganese delivered record results with operating profit of $980 million, more than four times its $225 million contribution in 2007, following a sharp increase in manganese ore and alloy prices for most of 2008.
The Tongaat-Hulett and Hulamin contribution to operating profit declined by 19% to $92 million. Following the unbundling of Hulamin from Tongaat-Hulett and related empowerment transactions in June 2007, these businesses, which were consolidated for the first six months of 2007, were equity accounted in the second half of 2007 and for the full 12 months of 2008.
Projects
Minas-Rio's capital expenditure programme fell behind schedule during 2008, mainly due to the delay in obtaining several environmental licences and permits that prevented the initiation of works, particularly at the mine and beneficiation plant. The project also experienced delays in negotiations with groups of landowners, thereby slowing the progress on the pipeline, transmission line and the access roads to the port. However, a number of other key environmental licences were granted during the year, including the Installation Licences for the port and pipeline and the Preliminary Licences for the beneficiation plant and the mine.
The pace of construction at Minas-Rio is driven by the timing of the Environmental Licence and other permits, and there is therefore expected to be a 12 to 15 month commissioning delay to the first phase of the Minas-Rio iron ore project, with first iron ore production now expected in the second quarter of 2012. Planned annual capacity will be 26.5 Mtpa of iron ore pellet feed at an anticipated cost of $3.6 billion which is currently being updated following the announced delay.
Anglo American will continue to develop the Minas-Rio iron ore project during 2009, with planned capital expenditure for the year focusing on the port and pipeline units. The timing of the capital expenditure will be further adjusted in accordance with the granting of the Environmental Licence and other permits. The pre-feasibility study for the second phase of the Minas-Rio iron ore project was initiated during 2008, a phase which will further increase Anglo American's long term iron ore production capacity.
Sishen's jig plant commenced commercial production during the year, having been commissioned at the end of 2007. Ramp-up continues and full design capacity of 13 Mtpa is expected to be achieved in the fourth quarter of 2009.
The Sishen South project, which involves the development of an opencast mine some 80 kilometres south of Sishen mine, was approved in July 2008. Earthworks have commenced and bulk construction is scheduled to begin with the establishment of the major civil contracts during the first quarter of 2009. The mine is scheduled to start production in the first half of 2012, ramping up to full capacity of 9 Mtpa in 2013.
The $183 million GEMCO expansion project in Australia's Northern Territory is expected to be completed in the first half of 2009. The project is on target to increase GEMCO's manganese ore production capacity from 3.0 million dry metric tonnes per annum (mdmt pa) to 4.0 mdmt pa.
Outlook
The first half of 2009 is expected to be a challenging period for sales volumes of iron ore and manganese ore and alloys.
Kumba Iron Ore plans to increase iron ore production by approximately 10% during 2009 as the ramp up of the jig plant continues. Kumba will continue to target customers in China in order to redirect any lower contract sales volumes in Europe or Japan. In the short term, minor production cutbacks may be appropriate to produce a higher quality product. More substantial production cutbacks are dependent on the scale of demand reductions from Europe and Japan and the extent to which these can be offset by demand from China.
Iron ore price negotiations are a key area of uncertainty in the volatile economic conditions, though Kumba's high quality product range and the strength of its longstanding customer relationships are expected to enable the company to continue its successful performance. Iron ore market fundamentals remain robust in the medium to long term.
The market for manganese ore and alloys is dependent on the carbon steel industry and is therefore directly impacted by the current weak steel markets. Should global steel production decline further during 2009, manganese ore and alloy prices are expected to remain under pressure.
Demand for Scaw Metals' products is expected to remain strong, driven by demand from the mining and infrastructure sectors. However, profitability is likely to remain under pressure from increasing input costs.
COAL
|
$ million (unless otherwise stated) |
Year ended 31 Dec 2008 |
Year ended 31 Dec 2007 |
|
Operating profit |
2,240 |
614 |
|
South Africa |
736 |
414 |
|
Australia |
1,144 |
9 |
|
South America |
396 |
227 |
|
Canada |
8 |
- |
|
Projects and corporate |
(44) |
(36) |
|
EBITDA |
2,585 |
882 |
|
Net operating assets |
3,962 |
3,984 |
|
Capital expenditure |
933 |
1,052 |
|
Share of Group operating profit |
22% |
6% |
|
Share of Group net operating assets |
12% |
15% |
Coal delivered a record operating profit of $2,240 million, a 265% increase over 2007. This resulted from higher metallurgical and thermal coal prices, combined with increased coal production totalling 99.5 Mt, weaker exchange rates and the early benefits of tighter operational discipline across the businesses, partially offset by further rises in the costs of royalties, fuel, rail, labour and most key consumables.
Markets
2008 began with a very tight international metallurgical coal market, with supply falling into deficit as a result of bad weather in Queensland which had the effect of reducing coal production and shipping volumes during the first quarter. These events resulted in 2008 coal prices being settled at historically high levels. By the end of the year, however, market conditions had deteriorated significantly, with a collapse in global steel production leaving the metallurgical coal market oversupplied.
Demand for thermal coal remained strong in 2008 with increased consumption, particularly in the north Asia region. Prices continued to increase during the first half of the year, reaching a peak in early July, driven by the cold winter in China together with numerous coal production and logistics difficulties, including electricity shortages in South Africa. The increase in crude oil and natural gas prices during the same period allowed thermal coal to maintain its price competitiveness against these fuels despite the significant coal price increases. In the last quarter of the year, the global economic downturn caused a sharp drop in oil prices and thermal coal prices declined in line.
Operating performance
South Africa
Operating profit from South Africa sourced coal was 78% higher at $736 million, mainly due to the increase in export thermal prices and a weaker exchange rate. During January 2008, South African operations were affected by Eskom load shedding, which evolved into a national electricity crisis. Despite this, annual production remained constant at 59.4 Mt, driven mainly by operational efficiency and equipment improvements, higher output at Kleinkopje, where additional coal for Eskom was produced in order to alleviate the power crisis, as well as at Mafube, which ramped up production.
Australia
Operating profit from Australia was a record $1,144 million, largely resulting from the significant increase in metallurgical coal prices and production, partly offset by cost and royalty increases. Production reached record levels of 27.8 Mt despite the delays caused by abnormal levels of rainfall in the first quarter. Such production was achieved through implementing higher cost volume initiatives to take advantage of market conditions and the successful negotiation of alternative port and rail corridors in order to alleviate expansion constraints.
South America
Operating profit from South America was 74% higher than 2007 at $396 million, driven primarily by 33.3% held Cerrejón in Colombia. Cerrejón's significantly increased operating profit was offset by higher fuel prices, the appreciation of the Colombian peso and an increase in royalties arising from higher realised sales prices. The mine's total sales were 6% higher at 31.5 Mt as growth continued as planned towards the 32 Mtpa profile. In Venezuela, total sales at Carbones del Guasare were sharply lower at 4.6 Mt following a lack of availability of equipment, spares and ongoing political, logistical and labour disruptions.
Canada
Peace River Coal commenced commercial production of high quality coking coal in January 2008 at its Trend Mine in British Columbia, delivering $8 million of operating profit in the year. Total coal production for the year was 0.8 Mt.
Projects
In South Africa, the $473 million Zondagsfontein project is under construction and includes a 50:50 joint venture plant with BHP Billiton Energy Coal South Africa. The project is on track to deliver 6.6 Mtpa of export and Eskom coal from 2010, with first production expected in the second quarter of 2009. The Mafube project achieved production rates of 5.4 Mtpa in 2008, work continues on the housing project and the conveyor system and completion is expected in early 2009. MacWest is nearly complete, with first production achieved in July 2008 and full production of 2.7 Mtpa expected in March 2009.
In Australia, the $726 million Lake Lindsay coking coal project is progressing well; the coal handling and preparation plant has been commissioned, having achieved milestones on or ahead of plan, while the dragline started operations in January 2009. The $839 million Dawson expansion project was completed in 2008. The Foxleigh mine was acquired in February 2008, delivering additional volumes and synergies with Anglo American's adjacent operations.
In Canada, Peace River Coal is making good progress on a $95 million capitalisation programme to acquire and operate its own mining equipment fleet.
In Colombia, the $42 million (attributable) expansion at Cerrejón to 32 Mtpa is complete and full production is expected to be achieved early in 2009. Feasibility studies are under review to expand the operation to around 40 Mtpa.
Outlook
Global economic weakness has led to a rapid decline in global steel production following falling demand from the construction and automotive sectors in particular. This continues to have a significant impact on the metallurgical coal market. In the thermal coal market, underlying demand remains relatively strong, although the decline in the oil price is having a significant impact.
The outlook for 2009 for both metallurgical and thermal coal remains uncertain in a testing macro-economic environment where global energy prices are expected to be highly volatile.
In response to weakening markets, Coal's plans to grow metallurgical coal production by 10% during 2009 were curtailed and output is expected to be marginally below 2008 levels. Should conditions change materially, Coal will respond with further adjustments to its metallurgical coal production.
DIAMONDS
|
$ million (unless otherwise stated) |
Year ended 31 Dec 2008 |
Year ended 31 Dec 2007 |
|
Share of associate's operating profit |
508 |
484 |
|
EBITDA |
665 |
587 |
|
Group's aggregate investment in De Beers |
1,623 |
1,802 |
|
Share of Group operating profit |
5% |
5% |
The Group's share of operating profit from De Beers rose by 5% to $508 million.
De Beers' sales for 2008 at $6,888 million (attributable $3,096 million) were marginally above the previous year (2007: $6,836 million (attributable $3,076 million)), though below expectation owing to the impact of the global economic downturn. Over the first nine months, the Diamond Trading Company (DTC), which represented 86% of De Beers' total sales, achieved record sales as buoyant demand for diamonds translated into increased prices. Fourth quarter sales slowed as a result of the downturn and the consequent liquidity squeeze in the key global cutting centres.
Net interest bearing debt fell to $3.55 billion (2007: $4.06 billion) as a result of the benefits of a stronger dollar, the repayment of debt and shareholder support. In light of the weak outlook for diamond sales, the shareholders of De Beers have agreed to provide loans to De Beers, proportionate to their shareholdings, totalling $500 million in 2009. Anglo American holds a 45% interest in De Beers and will therefore provide a loan of up to $225 million. De Beers is an associate company of Anglo American and its debt is therefore not consolidated onto Anglo American's balance sheet.
Markets
Global retail sales showed steady growth during the first half of 2008 driven principally by the emerging markets of China, India and the Middle East. However in 2008, the all important holiday period took place amidst significant weakness in US economic sentiment, with American consumers, the world's major diamond purchasers, cutting back sharply on spending. The luxury goods sector appears to have been particularly impacted, with jewellery retailers in the US reporting double digit year-on-year declines over the traditional key buying season between Thanksgiving and Christmas. As a result, we estimate that global diamond retail sales were down, in the low single digits, for the year as a whole.
Operating performance
During the year, De Beers produced 48.1 million carats (2007: 51.1 million carats). Production from Debswana was 32.3 million carats (2007: 33.6 million carats), Namdeb yielded 2.1 million carats (2007: 2.2 million carats), while the output from South African operations fell to 12.0 million carats (2007: 15.0 million carats). The new Canadian operations at Snap Lake and Victor produced 1.6 million carats (2007: 81,000 carats).
Element Six recorded total annual sales of almost $500 million for the year and growth of 25% as a result of the inclusion of a full year's trading in respect of E6 Hard Materials (Barat Carbide), acquired in 2007, as well as organic growth.
De Beers has made an impairment to goodwill of $176 million ($79 million attributable) as well as a $82 million charge ($37 million attributable) in relation to restructuring and retrenchment as a result of current trading conditions.
Projects
For the first time in its history, De Beers opened three new mines in one year. In Canada, Victor mine in northern Ontario was completed and commissioned eight months ahead of schedule, while Snap Lake mine in the Northwest Territories commenced commercial production in early 2008, with both mines achieving full production in the second half. De Beers' Voorspoed mine in South Africa was officially opened in November and is expected to produce 8.3 million carats at an average value of $120 per carat over the next 12 to 16 years.
Outlook
The global economic crisis is having a significant impact on sales of retail diamond jewellery, liquidity and demand for rough diamonds in the cutting centres. This, in turn, has resulted in a reduction in sales of rough diamonds by the DTC. Trading conditions are expected to remain challenging throughout 2009. De Beers has taken steps to significantly reduce production levels, costs and capital expenditure across all operations. These actions, together with the business restructuring initiatives already completed, including the disposal of the marginal Cullinan and Williamson mines, have positioned De Beers to weather this tough economic environment.
Recent market research from the US and China confirm that consumers' desire for diamonds remains strong. As economic conditions improve, emerging demand, coupled with the decline in long term diamond supply, is expected to form a positive foundation for future increases in diamond prices.
INDUSTRIAL MINERALS
|
$ million (unless otherwise stated) |
Year ended 31 Dec 2008 |
Year ended 31 Dec 2007 |
|
Operating profit |
228 |
474 |
|
EBITDA |
487 |
732 |
|
Net operating assets |
3,335 |
4,509 |
|
Capital expenditure |
301 |
274 |
|
Share of Group operating profit |
2% |
5% |
|
Share of Group net operating assets |
10% |
17% |
Tarmac's operating profit fell by 52% to $228 million compared with 2007, mainly due to the impact of significant cost increases as well as a decline in the UK volumes of around 20% in the second half of the year. Tarmac accelerated cost reductions and generated operating savings of $101 million, while maintaining its market share. As a result, Tarmac continued to make a positive cash flow contribution with net cash inflow from operating activities of $398 million.
In the UK, operating profits fell by 65% on a like-for-like basis, with sales falling in line with the overall market. At Tarmac International, operating profits (excluding the positive impact of exchange rates and on a like-for-like basis) were broadly in line with 2007, benefiting from previous expansionary investment and relative resilience in certain markets such as Poland.
Markets
The construction industry in the UK experienced challenging market conditions during 2008, particularly in the second half of the year with the rapid deterioration in UK house-building activity. The volatility of energy prices and the impact on cement and distribution costs also continued to affect the industry. Overall in continental Europe, the decline in construction activity has been less severe to date than in the UK.
Operating performance
Volumes in the UK aggregates and concrete products were 15-20% lower than the prior year, with significantly reduced demand from the housing and commercial sectors, while asphalt volumes showed more resilience, with similar volumes to 2007. Tarmac showed declines in line with the market as it maintained its leadership positions in key areas.
The significant decline in volumes from UK Aggregate Products in the second half prompted a portfolio right-sizing exercise. 45 operating sites have been mothballed and further cost savings of $63 million were achieved through an increased focus on capacity and cost reduction. Underlying operating profit for this business fell by 42% compared with 2007 (after adjusting for the United Marine Aggregates (UMA) acquisition and the impact of exchange). During 2008, the remaining 50% of the UMA business was acquired from Hanson.
Within Tarmac, the UK Building Products business was affected by the economic downturn to the greatest extent and saw underlying operating profits fall by 69% (before the impact of exchange). Mothballing six operating sites and further cost savings of $21 million reduced the effect of weakening demand on the business's operating profit.
Tarmac International's underlying operating profit (on a like-for-like basis) was in line with 2007, with favourable market conditions in Poland and cost savings of $17 million offsetting emerging weakness in France. Tarmac Iberia was sold in August 2008 to Holcim for $186 million.
Following a structural review of the Industrial Mineral business by management, as a result of trading conditions in the construction sector, restructuring and impairments charges totalling $91 million have been recorded.
Outlook
The outlook in the short to medium term is for continued demand weakness in UK and international markets. Tarmac will continue to take steps to adapt to market changes through capacity reductions. Additional cost saving and a continued focus on cash generation, while maintaining existing market leadership, will ensure that the business remains both resilient and well positioned for the future.
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