Interim Results
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News Release Half year financial report |
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31 July 2008 |
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Anglo American announces record half year underlying earnings of $3.5 billion |
Half year financial results
$45 billion pipeline driving production growth
Strong outlook for the full year
Dividend
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HIGHLIGHTS FOR THE SIX MONTHS ENDED 30 JUNE 2008 |
6 months ended |
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6 months ended |
Change |
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Total Group revenue including associates(4) |
17,915 |
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19,849 |
(9.7)% |
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Operating profit including associates before special items and remeasurements - core continuing operations(1)(2) |
5,974 |
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4,608 |
29.6% |
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Operating profit including associates before special items and remeasurements - total Group(1) |
6,181 |
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5,452 |
13.4% |
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Underlying earnings for the period - total Group(3) |
3,483 |
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3,058 |
13.9% |
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EBITDA - total Group(5) |
7,038 |
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6,554 |
7.4% |
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Net cash inflows from operating activities - total Group |
3,822 |
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3,678 |
3.9% |
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Profit for the period attributable to equity shareholders - total Group |
4,281 |
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3,379 |
26.7% |
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Earnings per share (US$): |
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Basic earnings per share - total Group |
3.56 |
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2.41 |
47.7% |
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Underlying earnings per share - total Group |
2.90 |
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2.18 |
33.0% |
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Interim dividend (US cents per share) |
44 |
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38 |
15.8% |
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(1) Operating profit includes share of associates' operating profit (before share of associates' tax, finance costs 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 continuing Group basis. For definition of special items and remeasurements see note 6 to the condensed financial statements. |
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(2) Continuing operations considered core to the Group are Base Metals, Platinum, Ferrous Metals' core businesses (Kumba Iron Ore, Scaw Metals, Samancor Manganese and Minas-Rio), Coal and Diamonds. See the operating profit and underlying earnings tables in the Financial review of Group results section for a reconciliation of operating profit and underlying earnings from core operations to total Group. |
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(3) See note 9 to the condensed financial statements for basis of calculation of underlying earnings. |
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(4) Represents total Group revenue (including the revenue of discontinued operations) and includes the Group's share of associates' revenue of $3,384 million (six months ended 30 June 2007: $2,903 million). See note 3 and 14 to the condensed financial statements. |
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(5) EBITDA is operating profit before special items, remeasurements, depreciation and amortisation in subsidiaries and joint ventures and share of EBITDA of associates. See note 13 to the condensed financial statements for analysis of EBITDA by continuing and discontinued operations. |
Cynthia Carroll, Chief Executive, said:
"I am pleased to announce another record performance by Anglo American, reporting operating profit of $6.2 billion for the half year and underlying earnings of $3.5 billion. The key drivers of this performance were production growth in copper, iron ore, manganese ore, coal and phosphates, continued strength in the commodity price environment and the early benefits of tighter operational discipline across the businesses.
Our $45 billion project pipeline, which now includes some $15 billion of approved projects, is set to deliver substantial volume growth in the most attractive commodity segments across the near, medium and long term. Our near term projects are on track to deliver significant new coal and iron ore production this year, with the Dawson and Lake Lindsay coking coal projects in Australia and the Sishen iron ore expansion project all now ramping up to full production. We have also approved a number of new projects in South Africa, including the Twickenham platinum expansion project, the Amandelbult No.4 shaft platinum replacement project and, most recently, the Sishen South iron ore project.
This half year we have seen further strategic progress with the shape of the portfolio through the disposal of non-core holdings, including the sale of our stake in China Shenhua Energy and the announced sale of Tarmac Iberia, with combined proceeds in excess of $900 million.
We are focused on achieving growth in our core mining businesses, making targeted, value enhancing acquisitions and on uplifting the performance of our existing long life asset base. These initiatives to drive operational improvements are particularly important at a time when the industry continues to experience significant cost pressures across the supply chain. We are also making excellent progress in driving cultural change across the Group by capitalising on our scale with increased integration, knowledge-sharing across business units and adherence to common standards and policies. We are also embedding a performance culture throughout the organisation and building a management team driven by value maximisation. I am delighted with the changes we have made to strengthen our operational management capabilities, particularly in our platinum and coal businesses.
In April, the South African Department of Minerals and Energy granted new order mining rights across our South African mining operations. This significant achievement provides an ever stronger platform for our $8 billion of approved projects in South Africa, our employees, contractors and for the many black empowered businesses with which we are partners. This is good news for Anglo American and for South Africa as we continue to grow our businesses and contribute to the country's economic prosperity.
Last year we initiated a step change in our safety practices across the Group and Anglo American today is helping to lead the way, particularly in South Africa, working together with the unions and the government to achieve a safer, more productive industry. I am pleased to say that our new global safety risk management training is under way and we are continuing to make good progress at the operations, with significant incidents reduced by more than 50% year-on-year and extended periods of incident free, safe production. This progress reflects increased trust and dedication on the part of our employees. We are re-energised as a group and working on our journey to "Zero Harm".
The power constraints in South Africa continue to have an impact on our businesses in the country and we are working closely with Eskom and the government to identify solutions. Among many initiatives, Anglo American is stepping up its own energy efficiency programmes, in addition to procuring some 85 MW of supplementary power.
Despite the macro outlook for the second half remaining uncertain due to the evident slowdown in many developed economies, this is offset by continued strong demand, particularly from the developing economies, led by China. We expect a strong second half to the year driven by increased production, further improvements in our operational performance and robust pricing. Anglo American's unique portfolio, spanning precious, base and bulks, positions us well to maximise the benefit from the strong demand environment as we capture the full value of our considerable growth prospects."
Review of the six months ended 30 June 2008
Financial results
Anglo American's first half total Group underlying earnings were a record $3.5 billion as continued strong metal prices reflected the favourable trading environment for the Group's key commodities and volumes improved in most commodities. Operating profit from the Group's core operations was 30% higher than for the corresponding period last year at $6.0 billion.
Strong contributions came from Ferrous Metals, Coal, Base Metals and Diamonds, which all achieved higher operating profit in the period. Platinum recorded lower operating profit due to lower refined production volumes and higher inflation. Industrial Minerals suffered from the downturn in the UK housing market.
Base Metals generated an operating profit of $2,454 million (41% of Anglo American's total operating profit from core operations), up 13%, due to increased copper and phosphate fertiliser production and higher copper, lead and fertiliser prices.
Platinum reported operating profit of $1,467 million (25% of Anglo American's total operating profit from core operations), down 3%, due to lower refined production volumes, partially offset by higher US dollar prices and the weaker average rand in relation to the US dollar.
Ferrous Metals' operating profit increased 80% to $1,296 million, with operating profit from its core businesses increasing by 129% to $1,252 million, (21% of Anglo American's total operating profit from core operations), mainly due to higher iron ore and manganese ore sales volumes and prices, and manganese alloy prices.
Coal recorded operating profit of $731 million (12% of Anglo American's total operating profit from its core operations), 129% higher, mainly due to higher prices for both thermal and metallurgical export coal and higher production, particularly at the Australian operations.
Diamonds recorded attributable operating profit of $328 million (5% of Anglo American's total operating profit from core operations), up 23%, principally due to the steady increase in the price of diamonds during the period.
Industrial Minerals' operating profit fell 22% to $163 million reflecting the difficult trading conditions in key markets such as Spain and the UK, as well as the impact of significant cost increases. Excluding the results of Tarmac Iberia, the sale of which is due to complete during Q3, results were 17% below the same period in the prior year.
Production
Production volumes were up for copper, zinc, iron ore, manganese ore, coal and phosphate fertilisers. Platinum production volumes from mining operations were down on the prior year due to flooding at the Amandelbult mine, skilled labour shortages, safety related stoppages, lower throughput at the Mogalakwena (formerly Potgietersrust or 'PPRust') South concentrator and electricity constraints. Nickel production was down following labour related disruptions and furnace downtime at Loma de Níquel.
Capital structure and increased return to shareholders
Net debt, excluding hedges, has increased by $161 million since 31 December 2007 and at 30 June 2008 amounted to $5.4 billion, reflecting the impact of the acquisition of the Foxleigh coal mine in Queensland, Australia, planned capital expenditure, the share buyback and the purchase of additional shares in Anglo Platinum Limited. This was partly offset by proceeds from disposal of our equity interest in China Shenhua Energy. The $4 billion share buyback programme announced in August 2007, is 35% complete, with around $1.4 billion of shares having been repurchased at 30 July 2008.
Dividends
The interim dividend has been set at 44 US cents per share (cps) - 16% higher than the 38 cps interim dividend declared for the first half of 2007.
Strategic update
Anglo American has made further progress in 2008 as the Group focuses on its core mining businesses and optimises its unique portfolio of assets.
In May, the disposal of our interest in China Shenhua Energy was announced, realising cash proceeds of approximately $700 million. In June, the sale of Tarmac Iberia to Holcim was announced for a consideration of up to $230 million. The Tarmac group continues to be managed to maximise shareholder value while options for its sale are being explored.
The asset optimisation scheme to improve operational efficiencies at site level and to allow performance benchmarking is delivering benefits. For example, at the German Creek coal operation in Australia, plant debottlenecking has resulted in a record first half performance, increasing production from 118 kt to 167 kt per week, a 42% increase. Similarly at Dawson, blending has delivered a 30% value increase in coking coal. The scheme is being rolled out across the Group, delivering more value from existing assets, in terms of resources, equipment and people.
Anglo American was granted its new order mining rights conversions by the South African Department of Minerals and Energy in April. This relates to the conversion of all the mineral rights in Anglo American's South African Coal, Ferrous Metals, Base Metals and Platinum businesses. The applications for conversion of mineral rights associated with Anglo Platinum's 50:50 joint ventures with Royal Bafokeng Resources and the African Rainbow Minerals consortium continue and are being processed based on joint submissions and representations by all stakeholders.
Several senior management changes have been announced in 2008, marking a significant strengthening of the leadership team, involving a combination of internal and external appointments. Neville Nicolau was appointed CEO of Anglo Platinum and Ian Cockerill was appointed CEO of Anglo Coal, joining from Gold Fields. Following Ras Myburgh's secondment to Eskom, Chris Griffith moved from Anglo Platinum to become CEO of Kumba Iron Ore. Kuseni Dlamini was appointed Head of Anglo American South Africa, Russell King was appointed Chief Strategy Officer and Andrew Hinkly was appointed Global Head of Procurement and Supply Chain. The two previous Joint Acting CEOs of Anglo Platinum have been appointed to new roles within the Group; Norman Mbazima becomes CEO of Scaw Metals and Duncan Wanblad was appointed CEO of Copper in the Base Metals division of Anglo American.
Delivering profitable growth through projects and acquisitions
Anglo American's $45 billion project pipeline includes some $15 billion of approved projects that are currently under development (compared to $12 billion at 20 February 2008). These projects are set to deliver considerable organic growth in the near, medium and long term and will build upon the Group's existing portfolio of assets in precious, base metals and bulk commodities.
Recently approved platinum projects in South Africa include the $800 million Twickenham expansion project, which is expected to produce 180,000 oz of refined platinum per annum by 2016 and the $1.6 billion Amandelbult No.4 shaft 271,000 oz replacement project. Anglo Platinum's Mogalakwena North expansion project is on schedule to reach full production in 2009 and to produce an additional 230,000 oz per annum of refined platinum.
Kumba Iron Ore's Sishen Expansion Project made its first contribution to production during the period, having been commissioned at the end of 2007. The $782 million Sishen South project has also been approved and is expected to produce 9 Mtpa of iron ore, with first production forecast for 2012.
In Peru, where one of Anglo American's key priorities has been to build strong and supportive relationships with local communities, agreement was reached in June with the communities around the proposed Michiquillay copper project and exploration activity has now commenced. This project has the potential to produce up to 300,000 tpa of copper from one of the largest undeveloped copper deposits in the world. The feasibility study for Anglo American's other major investment in Peru, at the Quellaveco copper deposit, is now at an advanced stage.
In Chile, the expansion of Los Bronces is progressing on schedule for completion in 2011 and will increase copper production by an average of 170,000 tpa to an initial production level exceeding 400,000 tpa. The debottlenecking project at Collahuasi, also in Chile, is on schedule to enter production in the fourth quarter of 2008, increasing sulphide mill throughput to 140,000 tpd.
In Brazil, the 36,000 tpa Barro Alto ferronickel project is 40% complete and is progressing well, on track to begin production in the first quarter of 2010.
Also in Brazil, Anglo American has agreed to acquire a 63.3% shareholding in a new company ("IronX"), which holds a 51% interest in the Minas-Rio iron ore project and 70% in the Amapá iron ore system, from Eike Batista and other selling shareholders for $3.5 billion. Subject to the satisfaction of final conditions under the transaction agreements, this transaction will be completed by 5 August 2008. Following completion of this transaction, Anglo American has committed to extend the offer to the minority shareholders in IronX at the same price per share. The successful completion of the offer to the minority shareholders will result in Anglo American owning 100% of the Minas-Rio project, 70% of the Amapá system and 49% of LLX Minas-Rio, the owner of the Port of Açu, at a cost of approximately $5.5 billion in cash for 100% of the issued and outstanding shares in IronX. This would mark a significant step in Anglo American's aim of becoming a substantial player in the global seaborne iron ore trade.
Anglo American's coal projects at Dawson, Lake Lindsay and Mafube are all ramping up towards full production. The construction of the MacWest project is advanced, with first coal having been produced in July. The Zondagsfontein mixed product mine is progressing well and first coal production is due in 2009. The acquisition of a 70% shareholding in Foxleigh was completed in February and is contributing to 2008 profits.
At De Beers, the Victor diamond mine in Ontario, Canada has been commissioned more than eight months ahead of schedule, with full production expected in the third quarter of 2008. The Snap Lake mine in the Northwest Territories was brought into commercial production in early 2008 and is expected to reach full production in the second half. In South Africa, the commissioning of Voorspoed in the Free State is under way, and its first diamonds were recovered in June 2008, ahead of schedule.
Outlook
The global macro-economic outlook continues to be uncertain, with US economic activity expected to be weak in the near term. It is also clear that the constraints in the credit markets are far from resolved and risk rates have not yet returned to normalised or long-term levels.
However, in emerging markets, the Chinese economy in particular continues to develop and is expected to grow at around 10% in 2008/09. This growth is relatively resilient, being driven primarily by the secular domestic trend of urbanisation and development. Furthermore, this growth is driving an increasing intensity of use for the commodities that China requires to build its infrastructure, such that China now represents the largest regional consumer of many key commodities and is the dominant driver of demand growth.
On the supply side, a number of operational challenges across the industry have led to near-term supply being lower than anticipated (e.g. power availability in a number of countries, infrastructure bottlenecks, weather-related shortages and labour issues), while in the longer term the mining industry is adjusting to the higher demand environment. It seems likely that the industry will be working hard for some years to keep pace with this sustained higher level of demand and that higher than inflation cost pressures will remain. Consequently, the balance of supply and demand should sustain strong prices for many of Anglo American's key commodities despite the current challenges in the developed economies.
Selected major projects
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Sector |
Project |
Country |
First production date |
Full production date |
Capex $m(1) |
Production volume(2) |
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Platinum |
Mototolo JV |
South Africa |
Q4 2006 |
2008 |
200 |
130 kozpa refined platinum |
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Marikana JV |
South Africa |
Q1 2006 |
2009 |
36 |
145 kozpa refined platinum |
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Mogalakwena North expansion(3) |
South Africa |
Q4 2007 |
2009 |
692 |
230 kozpa refined platinum |
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Newly approved |
Mogalakwena North replacement(3) MC plant capacity expansion - phase 1 |
South Africa South Africa |
Q4 2007 Q3 2009 |
2009 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 |
2010 |
188 |
Improve process recoveries |
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Newly approved |
Lebowa Brakfontein Merensky Slag cleaning furnace 2 |
South Africa South Africa |
Q2 2008 Q4 2009 |
2010 2010 |
179 134 |
Replace 108 kozpa refined platinum 650 tpd increased slag cleaning capacity |
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Base metals refinery expansion |
South Africa |
Q3 2009 |
2010 |
279 |
11 ktpa nickel |
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Amandelbult East Upper UG2 |
South Africa |
Q3 2007 |
2012 |
224 |
100 kozpa refined platinum |
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Townlands ore replacement |
South Africa |
Q4 2007 |
2014 |
139 |
Replace 70 kozpa refined platinum |
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Paardekraal |
South Africa |
Q2 2010 |
2015 |
316 |
Replace 120 kozpa refined platinum |
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Newly approved Newly approved |
Twickenham Amandelbult No 4 shaft project |
South Africa South Africa |
Q1 2012 Q4 2015 |
2016 2019 |
800 1,602 |
180 kozpa refined platinum Replace 271 kozpa refined platinum |
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Diamonds |
Snap Lake |
Canada |
- |
2008 |
997 |
1.6 m carats pa |
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Victor |
Canada |
- |
2008 |
1,021 |
0.6 m carats pa |
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Voorspoed |
South Africa |
- |
2009 |
185 |
0.7 m carats pa |
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Base Metals |
Collahuasi debottlenecking |
Chile |
Q4 2008 |
2009 |
64 |
30 ktpa copper(4) |
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Barro Alto |
Brazil |
Q1 2010 |
2011 |
1,500 |
36 ktpa nickel |
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Los Bronces expansion |
Chile |
Q1 2011 |
2011 |
1,744 |
170 ktpa copper(4)(5) |
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Ferrous Metals |
Sishen expansion |
South Africa |
Q4 2007 |
2009 |
754 |
13 mtpa iron ore |
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Minas-Rio phase 1 |
Brazil |
Q4 2010 |
2011 |
3,456 |
26.5 mtpa iron ore pellet feed (wet basis) |
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Newly approved |
Sishen South(6) |
South Africa |
H1 2012 |
2013 |
782 |
9 mtpa iron ore |
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Coal |
Dawson |
Australia |
Q3 2007 |
2008 |
839 |
5.7 mtpa coking, semi-soft and thermal |
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Lake Lindsay |
Australia |
Q4 2007 |
2008 |
726 |
4.0 mtpa coking & semi-soft |
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Mafube |
South Africa |
Q4 2007 |
2008 |
218 |
5.4 mtpa thermal |
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Cerrejón |
Colombia |
Q1 2007 |
2008 |
131 |
3.0 mtpa (2nd stage) thermal |
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MacWest |
South Africa |
Q3 2008 |
2009 |
47 |
2.7 mtpa thermal |
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Zondagsfontein |
South Africa |
Q2 2009 |
2010 |
505 |
6.6 mtpa thermal |
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Sector |
Project |
Country |
First production date |
Full production date |
Capex $m(7) |
Production volume(2) |
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Base Metals |
Quellaveco |
Peru |
2013 |
2013 |
2,200 |
200 ktpa copper(4) |
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Collahuasi expansion phase 1 |
Chile |
2010 |
2010 |
750 |
650 ktpa copper(4)(8) |
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Collahuasi expansion phase 2 |
Chile |
2014 |
2015 |
TBD |
1,000 ktpa copper(4) (8) |
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Michiquillay |
Peru |
2016 |
2017 |
TBD |
300 ktpa copper(4) |
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Pebble |
USA |
2015 |
2020 |
TBD |
350 ktpa copper(4) |
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Ferrous Metals |
Sishen Pellet |
South Africa |
2014 |
2015 |
338 |
1.5 mtpa iron ore pellets |
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Sishen Expansion 2 Sishen C Grade |
South Africa South Africa |
2013 TBD |
2014 TBD |
775 TBD |
10 mtpa iron ore 10 mtpa iron ore |
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Minas-Rio phase 2 |
Brazil |
TBD |
TBD |
TBD |
26.5 mtpa pellet feed (wet basis) |
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Coal |
Heidelberg opencast |
South Africa |
2009 |
2009 |
35 |
0.9 mtpa thermal |
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Elders opencast |
South Africa |
2009 |
2011 |
450 |
6.4 mtpa thermal |
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Heidelberg underground |
South Africa |
2013 |
2014 |
300 |
4.2 mtpa thermal |
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Elders underground |
South Africa |
2011 |
2012 |
240 |
3.2 mtpa thermal |
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New Largo |
South Africa |
2012 |
2015 |
670 |
14.7 mtpa thermal |
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The Group has a number of other projects under evaluation including Der Brochen, Pandora and Styldrift in Platinum, Cerrejón P40 and Roman in Coal and Gahcho Kue in Diamonds.
(1) Capital expenditure shown on 100% basis, unless otherwise stated. Platinum and Ferrous Metals projects reflect approved capex. Estimates for Base Metals, Platinum and Diamonds are presented on a nominal basis, estimates for Coal and Ferrous Metals are presented on a real basis
(2) Represents 100% of average incremental or replacement production, at full production, unless otherwise stated
(3) Mogalakwena was formerly known as PPRust
(4) Projects will also produce molybdenum and silver by-products, Pebble will produce molybdenum and gold by-products and Michiquillay will produce molybdenum, gold and silver
by-products
(5) Production represents average over first 10 years of the project
(6) Sishen South was approved on 30 July 2008
(7) Shown on 100% basis, approximate amounts
(8) Total production of mine when project ramps up to full production
For further information, please contact:
United Kingdom
Anna Poulter, Investor Relations
Tel: +44 (0)20 7968 2155
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 and natural resource 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 31 July, can be accessed through the Anglo American website at www.angloamerican.co.uk.
Note: Throughout this half year financial report '$' 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 14. 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 operations and associates in note 13 to the condensed financial statements and to cash inflows from operations in the primary statements.
Financial review of Group results*
Group operating profit was a record $6,181 million, with operating profit from core operations of $5,974 million up 30% compared to the corresponding period in 2007. There was a significantly increased contribution from Ferrous Metals' core businesses and from Coal, as well as increased contributions from Diamonds and Base Metals where operating profit was higher than in the same period in 2007. Platinum's operating profit was slightly lower than the corresponding period in 2007, although contribution to underlying earnings increased. The main driver for the increase in Group operating profit was higher prices realised in the period, including copper, iron ore, manganese, coal and phosphate fertilisers. Increased volumes from copper, phosphate fertilisers, coal, iron ore and manganese ore also contributed to the increase. Coal production in Australia in the first half was up 20% on 2007, with record production in the latter months of the first half of 2008. Industrial Minerals' contribution was lower as a result of the weakening housing market in the UK.
Group underlying earnings per share on a continuing basis for the period were $2.90, an increase of 45% compared with 2007. Record Group underlying earnings were $3,483 million, with underlying earnings from core operations up 28% to $3,314 million.
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Underlying earnings
$ million
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6 months ended
30 June 2008
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6 months ended
30 June 2007(1)
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Profit for the financial period attributable to equity shareholders
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4,281
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3,034
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Operating special items including associates
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26
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(4)
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Operating remeasurements including associates
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(8)
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(13)
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Net profit on disposals including associates
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(643)
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(195)
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Financing remeasurements including associates:
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Foreign exchange gain on De Beers preference shares
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(18)
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(1)
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Unrealised net gains on non-hedge derivatives
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(182)
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(27)
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Tax on special items and remeasurements including associates
|
8
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43
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|
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Minority interests on special items and remeasurements including associates
|
19
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(33)
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Underlying earnings – continuing operations
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3,483
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2,804
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|
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Underlying earnings – discontinued operations
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–
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254
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|
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Underlying earnings – total Group
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3,483
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3,058
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Underlying earnings – core continuing operations
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3,314
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2,590
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Underlying earnings per share ($) – continuing operations
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2.90
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2.00
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Underlying earnings per share ($) – discontinued operations
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–
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0.18
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Underlying earnings per share ($) – total Group
|
2.90
|
2.18
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(1) Comparatives have been adjusted to reclassify amounts relating to discontinued operations
Profit for the period attributable to equity shareholders after special items and remeasurements increased by 41% to $4,281 million compared with $3,034 million in the corresponding period in the prior year. The increase relates mainly to strong operational results, as discussed above and in the Chief Executive's statement, and an increase in net profit on disposals as well as a higher net unrealised gain on non-hedge derivatives related to net debt.
Net profit on disposals of $643 million including associates, was $448 million higher than in the same period in 2007, and includes the net profit of $551 million arising on sale of the investment in China Shenhua Energy.
* Throughout the financial review, the Group results are presented on a continuing basis unless otherwise stated
The Group's results are influenced by a variety of currencies owing to the geographic diversity of the Group. The South African rand on average weakened against the US dollar compared with the same period in 2007, with an average exchange rate of R7.66 compared with R7.16. Currency movements positively impacted underlying earnings by $66 million. The weaker rand benefited operating results, although this was partly offset by the stronger Brazilian real, Chilean peso and Australian dollar. There was a significant beneficial effect on underlying earnings from increased prices amounting to $1,265 million, particularly in respect of platinum, palladium, rhodium, copper, iron ore, manganese, coal and phosphates.
|
Summary income statement
$ million
|
6 months ended
30 June 2008
|
6 months ended
30 June 2007(1)
|
|||
|
Operating profit before special items and remeasurements
|
5,121
|
4,496
|
|||
|
Operating special items
|
(22)
|
7
|
|||
|
Operating remeasurements
|
25
|
19
|
|||
|
Operating profit from subsidiaries and joint ventures
|
5,124
|
4,522
|
|||
|
Net profit on disposals
|
640
|
175
|
|||
|
Share of net income from associates(2)
|
658
|
321
|
|||
|
Total profit from operations and associates
|
6,422
|
5,018
|
|||
|
Net finance costs before special items and remeasurements
|
(159)
|
(65)
|
|||
|
Financing special items and remeasurements
|
205
|
21
|
|||
|
Profit before tax
|
6,468
|
4,974
|
|||
|
Income tax expense
|
(1,590)
|
(1,480)
|
|||
|
Profit for the financial period – continuing operations
|
4,878
|
3,494
|
|||
|
Minority interests
|
(597)
|
(460)
|
|||
|
Profit for the financial period attributable to equity shareholders – continuing operations
|
4,281
|
3,034
|
|||
|
Profit for the financial period attributable to equity shareholders – discontinued operations
|
–
|
345
|
|||
|
Profit for the financial period attributable to equity shareholders –
total Group
|
4,281
|
3,379
|
|||
|
Basic earnings per share ($) – continuing operations
|
3.56
|
2.17
|
|||
|
Basic earnings per share ($) – discontinued operations
|
–
|
0.24
|
|||
|
Basic earnings per share ($) – total Group
|
3.56
|
2.41
|
|||
|
|
|
|
|||
|
Group operating profit including associates before special items and remeasurements – continuing operations
|
6,181
|
4,990
|
|||
|
Group operating profit including associates before special items and remeasurements – discontinued operations
|
–
|
462
|
|||
|
Group operating profit including associates before special items and remeasurements – total Group
|
6,181
|
5,452
|
|||
|
(1) Comparatives have been adjusted to reclassify amounts relating to discontinued operations
|
|
|
|||
|
|
|
|
|||
|
(2) Operating profit from associates before special items and remeasurements – continuing operations
|
1,060
|
494
|
|||
|
Operating special items and remeasurements
|
(21)
|
(9)
|
|||
|
Operating profit from associates after special items and remeasurements – continuing operations
|
1,039
|
485
|
|||
|
Net profit on disposals
|
3
|
20
|
|||
|
Net finance costs (before remeasurements)
|
(41)
|
(40)
|
|||
|
Financing remeasurements
|
(5)
|
7
|
|||
|
Income tax expense (after special items and remeasurements)
|
(313)
|
(130)
|
|||
|
Minority interests (after special items and remeasurements)
|
(25)
|
(21)
|
|||
|
Share of net income from associates – continuing operations
|
658
|
321
|
|||
In this document, reference has been made to core continuing operations. Operations considered core to the Group are Base Metals, Platinum, Ferrous Metals' core businesses (Kumba Iron Ore, Scaw Metals, Samancor Manganese and Minas-Rio), Coal and Diamonds. The tables below reconcile operating profit and underlying earnings from core operations to total Group operating profit and underlying earnings.
|
Operating profit $ million |
6 months ended 30 June 2008 |
6 months ended 30 June 2007(1) |
|
Base Metals |
2,454 |
2,165 |
|
Platinum |
1,467 |
1,517 |
|
Ferrous Metals - core businesses(2) |
1,252 |
546 |
|
Coal |
731 |
319 |
|
Diamonds |
328 |
266 |
|
Corporate and Exploration(3) |
(258) |
(205) |
|
Operating profit including associates before special items and remeasurements - core continuing operations |
5,974 |
4,608 |
|
Industrial Minerals |
163 |
209 |
|
Ferrous Metals - other businesses(2) |
44 |
173 |
|
Operating profit including associates before special items and remeasurements - continuing operations |
6,181 |
4,990 |
|
Operating profit including associates before special items and remeasurements - discontinued operations |
- |
462 |
|
Operating profit including associates before special items and remeasurements - total Group |
6,181 |
5,452 |
|
Underlying earnings $ million |
6 months ended 30 June 2008 |
6 months ended 30 June 2007(1) |
|
Base Metals |
1,494 |
1,504 |
|
Platinum |
850 |
717 |
|
Ferrous Metals - core businesses |
675 |
236 |
|
Coal |
543 |
242 |
|
Diamonds |
166 |
156 |
|
Corporate and Exploration(3) |
(414) |
(265) |
|
Underlying earnings including associates before special items and remeasurements - core continuing operations |
3,314 |
2,590 |
|
Industrial Minerals |
139 |
181 |
|
Ferrous Metals - other businesses |
30 |
33 |
|
Underlying earnings including associates before special items and remeasurements - continuing operations |
3,483 |
2,804 |
|
Underlying earnings including associates before special items and remeasurements - discontinued operations |
- |
254 |
|
Underlying earnings including associates before special items and remeasurements - total Group |
3,483 |
3,058 |
(1) In the second half of 2007, Yang Quarry was reclassified from Industrial Minerals to Coal to align with internal management reporting. As such, the comparative data has been reclassified
(2) See Ferrous Metals and Industries operations review
(3) Corporate includes corporate activities, unallocated costs and insurance costs
Special items and remeasurements
|
|
6 months ended 30 June 2008 |
|
6 months ended 30 June 2007(1) |
||||
|
$ million |
Excluding associates |
Associates |
Total |
|
Excluding associates |
Associates |
Total |
|
Operating special items |
(22) |
(4) |
(26) |
|
7 |
(3) |
4 |
|
Operating remeasurements |
25 |
(17) |
8 |
|
19 |
(6) |
13 |
|
Operating special items and remeasurements |
3 |
(21) |
(18) |
|
26 |
(9) |
17 |
|
|
|
|
|
|
|
|
|
(1) Comparatives have been adjusted to exclude amounts relating to discontinued operations
Operating special items and remeasurements, including associates, amounted to $18 million. The $8 million operating remeasurement gain relates to net gains on non-hedge derivatives, principally due to a net gain on foreign currency instruments held by MMX Minas-Rio and LLX Minas-Rio, partially offset by an unrealised loss on an embedded derivative at Minera Loma de Níquel and net losses on non-hedge derivatives from associates. This was offset by operating special items of $26 million which included costs associated with the "One Anglo" restructuring initiatives amounting to $24 million.
Net profit on the sale of operations, including associates, amounted to $643 million (2007: $195 million), and arises mainly on the sale of the Group's investment in China Shenhua Energy which generated a profit on disposal of $551 million.
Financing remeasurements, including associates, are made up of unrealised net gains of $182 million on non-hedge derivatives related to net debt and a $18 million foreign exchange gain on De Beers dollar preference shares held by a rand denominated entity. The unrealised net gains on non-hedge derivatives principally comprise an unrealised gain on an embedded interest rate derivative.
The De Beers US dollar preference shares held by a rand functional currency entity are classified as 'financial asset investments' and are retranslated at each period end. The resulting rand:US dollar foreign exchange gains and losses are reported through the income statement as a financing remeasurement.
Discontinued operations
On 2 July 2007 the Paper and Packaging business 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 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. At 30 June 2008, the Group's percentage shareholding was 16.6%. On 7 July 2008, the Group subscribed for 11,172,254 additional shares in AngloGold Ashanti Limited as part of a rights issue. The total cash paid for the subscription was $280 million and the Group's shareholding in AngloGold Ashanti Limited reduced from 16.6% to 16.3%.
Both of these operations were considered discontinued in the financial statements for the year ended 31 December 2007.
|
$ million |
6 months ended 30 June 2008 |
6 months ended 30 June 2007 |
|
Profit for the financial period - discontinued operations |
- |
288 |
|
Special items and remeasurements |
- |
91 |
|
Profit for the financial period after special items and remeasurements- discontinued operations |
- |
379 |
|
Minority interests - discontinued operations |
- |
(34) |
|
Profit for the financial period attributable to equity shareholders - discontinued operations |
- |
345 |
Please refer to note 14 for further details of the discontinued operations.
Net finance costs
Net finance costs from continuing operations, excluding a $205 million gain on special items and remeasurements (2007: gain of $21 million), increased from $65 million in 2007, to $159 million. The increase reflects higher interest costs due to an increase in average net debt.
Taxation
|
|
6 months ended
30 June 2008
|
|
6 months ended
30 June 2007(1)
|
||||
|
$ million
|
Before special items and remeasurements
|
Associates’ tax and minority interests
|
Including associates
|
|
Before special items and remeasurements
|
Associates’ tax and minority interests
|
Including associates
|
|
Profit before tax
|
5,643
|
338
|
5,981
|
|
4,737
|
148
|
4,885
|
|
Tax
|
(1,582)
|
(313)
|
(1,895)
|
|
(1,440)
|
(127)
|
(1,567)
|
|
Profit for financial period
|
4,061
|
25
|
4,086
|
|
3,297
|
21
|
3,318
|
|
Effective tax rate including associates %
|
|
|
31.7%
|
|
|
|
32.1%
|
(1) Comparatives have been adjusted to exclude amounts relating to discontinued operations
IAS 1 Presentation of Financial Statements requires income from associates to be presented net of tax on the face of the income statement. The associates' tax is therefore not included within the Group's total tax charge. Associates' tax before special items and remeasurements included within 'Share of net income from associates' for the period ended 30 June 2008 was $313 million (2007: $127 million).
The effective rate of tax before special items and remeasurements including share of associates' tax was 31.7%. This was a decrease from the equivalent effective rate of 32.1% in the six months ended 30 June 2007. The main reason for this net decrease was the relative impact of the statutory tax rates, on a fully distributed basis where appropriate, of the countries in which the Group's operations are based, and a reduction of the statutory tax rate in South Africa. In future periods it is expected that the effective tax rate, including associates' tax, will remain above the UK statutory tax rate.
Balance sheet
Equity attributable to equity shareholders of the Company was $23,250 million compared with $22,461 million at 31 December 2007.
The share buyback programme of $4 billion, announced in August 2007 is 35% complete, with around $1.4 billion of shares having been repurchased at 30 July 2008.
Net debt, excluding hedges, was $5,400 million, an increase of $161 million from 31 December 2007. The increase reflects the impact of the acquisition of the Foxleigh joint venture in Queensland, Australia, increased planned capital expenditure on projects in Base Metals and Ferrous Metals, the share buyback and the acquisition of a larger stake in Anglo Platinum Limited.
Net debt at 30 June 2008 comprised $8,745 million of debt, offset by $3,345 million of cash and cash equivalents. Net debt to total capital(1) at 30 June 2008 was 20.1%, compared with 20.0% at 31 December 2007.
(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.
Cash flow
|
$ million |
6 months ended 30 June 2008 |
6 months ended 30 June 2007 |
|
Net cash inflows from operating activities - continuing operations |
3,822 |
3,218 |
|
Net cash inflows from operating activities - discontinued operations |
- |
460 |
|
Net cash inflows from operating activities - total Group |
3,822 |
3,678 |
Net cash inflows from operating activities on a continuing operations basis were $3,822 million compared with $3,218 million in the first half of 2007.
Acquisition expenditure from continuing operations accounted for an outflow of $1,495 million compared with $58 million in the same period in 2007. This included $605 million in respect of the Group's acquisition of a 70% interest in the Foxleigh joint venture in Queensland, Australia and $578 million in respect of the purchase of additional Anglo Platinum Limited shares.
Cash outflow from the purchases of tangible assets amounted to $1,998 million, an increase of $394 million compared to the same period in 2007. Increased capital expenditure by Platinum, Base Metals, Ferrous Metals and Industrial Minerals was partly offset by lower spend at Coal.
Proceeds from disposals on a continuing basis totalled $707 million and include net proceeds of $704 million from the sale of our holding in China Shenhua Energy.
Capital expenditure on tangible assets and biological assets
|
$ million |
6 months ended 30 June 2008 |
6 months ended 30 June 2007(1) |
|
Platinum |
697 |
643 |
|
Base Metals |
554 |
148 |
|
Ferrous Metals and Industries |
268 |
250 |
|
Coal |
352 |
444 |
|
Industrial Minerals |
118 |
104 |
|
Other |
9 |
15 |
|
Investment in biological assets - continuing operations |
- |
- |
|
Capital expenditure on tangible assets and biological assets - continuing operations |
1,998 |
1,604 |
|
Paper and Packaging |
- |
186 |
|
Investment in biological assets - discontinued operations |
- |
26 |
|
Capital expenditure on tangible assets and biological assets - discontinued operations |
- |
212 |
|
Capital expenditure on tangible assets and biological assets - total Group |
1,998 |
1,816 |
(1) In the second half of 2007, Yang Quarry was reclassified from Industrial Minerals to Coal to align with internal management reporting. As such, the comparative data has been reclassified
Capital expenditure shown above comprises cash expenditure on tangible assets and biological assets. Segmental capital expenditure shown in note 3 includes accruals, expenditure on acquisitions and intangible assets and capitalised interest, but excludes expenditure on biological assets.
Weighted average number of shares
The weighted average number of shares used to determine earnings per share in 2008 was 1,203 million compared with 1,400 million in the same period in 2007. This reflects the effect of the share buyback programme as well as the Anglo American share consolidation on demerger of Mondi which, on 2 July 2007, resulted in every 100 existing Anglo American ordinary shares being exchanged for 91 new Anglo American ordinary shares.
Dividends
An interim dividend of 44 US cents per share, to be paid on 18 September 2008, has been declared.
Principal risks and uncertainties
Anglo American is exposed to a variety of risks and uncertainties which may have a financial or reputational impact on the Group and which may also impact the achievement of social, economic and environmental objectives.
The principal risks and uncertainties facing the Group at the year end were set out in detail in the Operating and financial review section in the Annual Report 2007, and remain appropriate in 2008. Key headline risks relating to the following were identified:
-
Safety, health and environmental
-
Treasury and capital, which includes currency and commodity prices
-
Suppliers
-
Contractors
-
Political, legal and regulatory
-
Inflation
-
Natural events and damage to assets by fire or machinery breakdown
-
Reserves and resources
-
Exploration
-
Employees
-
Operational performance, including project execution
-
Community relations
-
Acquisitions
-
Infrastructure
-
Critical accounting judgements and key sources of estimation and uncertainty
The Group is exposed to changes in the economic environment, as with any other business. This is discussed throughout the Principal risks and uncertainties section of the Annual Report 2007.
Details of any risks and uncertainties specific to the year are covered in the Operations review section.
The Annual Report 2007 is available on our website www.angloamerican.co.uk.
Forward looking statements
This half year financial report contains certain forward looking statements with respect to the financial condition, results, operations and businesses of the Group. These statements and forecasts involve risk and uncertainty because they relate to events that depend on circumstances in the future. There are a number of factors that could cause actual results or developments to differ from those expressed or implied by these forward looking statements.
Operations review for the six months ended 30 June 2008
BASE METALS
|
$ million
(unless otherwise stated)
|
6 months ended
30 June 2008
|
6 months ended
30 June 2007
|
|
|
Operating profit
|
2,454
|
2,165
|
|
|
|
Copper
|
1,941
|
1,428
|
|
|
Nickel, Niobium, Mineral Sands and Phosphates
|
425
|
436
|
|
|
Zinc
|
149
|
345
|
|
|
Other
|
(61)
|
(44)
|
|
EBITDA
|
2,623
|
2,329
|
|
|
Net operating assets
|
5,666
|
4,937
|
|
|
Capital expenditure
|
554
|
148
|
|
|
Share of Group operating profit
|
40%
|
43%
|
|
|
Share of Group net operating assets
|
19%
|
22%
|
|
Anglo Base Metals generated its highest ever operating profit of $2,454 million (2007: $2,165 million). The copper and zinc divisions and the phosphate fertiliser operation increased production in an environment of strong copper and fertiliser prices. Labour related disruptions and furnace downtime contributed to lower nickel production. Lower nickel and zinc prices combined with adverse exchange rate movements and further rises in the costs of energy, labour and most key consumables to put pressure on margins.
Markets
|
Average(1) prices (c/lb) |
6 months ended 30 June 2008 |
6 months ended 30 June 2007 |
|
Copper |
368 |
307 |
|
Nickel |
1,237 |
2,024 |
|
Zinc |
103 |
162 |
|
Lead |
118 |
90 |
(1) Represents average market price for the period
With the exception of copper and lead, the prices of base metals declined over the period, particularly in the second quarter against a backdrop of weakening demand, rising stocks and price induced demand erosion. The copper market remained in balance, with stocks at low levels due to supply side disruptions remaining, for the fourth consecutive year, at the top end of estimates. Phosphate fertiliser prices attained record levels, more than doubling since the comparable period of 2007, due to increased demand following improved agricultural market conditions as soya and corn prices have risen. Demand for agricultural products has been driven by growing demand for food in emerging markets and for biofuels worldwide.
Operating performance
|
Copper division |
6 months ended 30 June 2008 |
6 months ended 30 June 2007 |
|
Operating profit ($m) |
1,941 |
1,428 |
|
Attributable production (tonnes) |
320,700 |
308,300 |
|
Nickel, Niobium, Mineral Sands and Phosphates |
6 months ended 30 June 2008 |
6 months ended 30 June 2007 |
|
Operating profit ($m) |
425 |
436 |
|
Attributable nickel production (tonnes) |
9,600 |
12,900 |
Falling nickel prices, combined with significant cost and exchange rate pressures, impacted nickel operating profits, but was largely offset by a record performance from the phosphate operations at Copebrás. Codemin output increased marginally to 4,900 tonnes due to higher grades and recoveries. Loma de Níquel had a difficult first half year with production falling by 43% to 4,700 tonnes. Strike action in February and March was followed by a number of ramp up difficulties. Heavy rains in the second quarter and ongoing unplanned refractory and equipment failures further impacted production. Sales performance at 5,900 tonnes (2007: 7,700) fared better than production.
At Catalão, niobium production was flat.
Copebrás continues to operate at satisfactory levels and, despite cost (particularly sulphur) and foreign exchange pressures, reported record profits on the back of improved sales volumes (an average of around 5% across the various fertiliser product lines) and prices that have more than doubled over the past year.
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. Since the MIBAM has not ruled on these appeals within the applicable statutory time periods, MLdN is now entitled to file further appeals with the Tribunal Supremo de Justicia, a course of action which it is currently considering. Operations are continuing as normal. 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.
At 30 June 2008, Anglo American's interest in the book value of MLdN, including its mineral rights, was $571 million (as included in the Group's balance sheet). In the six months ended June 2008, MLdN's production and contribution to the Group's operating profits were 4,700 tonnes of nickel in ferronickel and $67 million respectively. The average price of nickel in the six months ended June 2008 was 1,237 c/lb. At 29 July 2008, the price of nickel was 829 c/lb.
|
Zinc division |
6 months ended 30 June 2008 |
6 months ended 30 June 2007 |
|
Operating profit ($m) |
149 |
345 |
|
Attributable zinc production (tonnes) |
171,100 |
168,500 |
|
Attributable lead production (tonnes) |
31,800 |
30,400 |
Skorpion produced 68,600 tonnes of zinc in the first half of 2008 (2007: 74,600 tonnes) primarily due to decreased mining throughput arising from power shortages that were experienced in southern Africa in the first quarter of the year. Plant throughput was, however, maintained throughout three weeks of industrial action in May.
Black Mountain produced 15,300 tonnes of zinc, and 23,600 tonnes of lead (14,900 tonnes and 21,400 tonnes respectively, in the first half of 2007). Notwithstanding the aforementioned power shortages, ore mined and ore milled were higher than last year as the Deeps Shaft continued to ramp up production. Zinc grades were lower than the same period in 2007, largely due to lower tonnages of higher grade Gamsberg ore being processed, while lead grades rose.
Lisheen produced 87,200 tonnes of zinc and 8,200 tonnes of lead in six months ended 30 June 2008 (79,000 tonnes and 9,000 tonnes respectively, in the first half of 2007). Ore production was impacted by poor ground conditions but zinc head grades increased as higher grade stopes in the Bog Zone orebody were brought into production.
Projects
The debottlenecking project at Collahuasi, which will result in increasing sulphide mill throughput to 140,000 tpd, will enter production in October 2008. The phase 1 expansion, up to a level of circa 170,000 tpd, will be presented for approval in the second half of 2008 with commissioning currently forecast for 2010. With the significant exploration success at Rosario Oeste, studies are under way targeting a phase 2 expansion to increase production to around the 1 million tpa level within a five to seven year time horizon.
The 200,000 tpa Quellaveco project revised feasibility study remains on target for completion before year end.
Both Mantoverde (sulphide ore life extension) and Chagres (refinery plus possible expansion) have pre-feasibility and conceptual studies under way.
Following the successful $403 million tender for Michiquillay in April 2007, the focus has been on developing a productive relationship with the local communities, culminating, in June 2008, in reaching formal agreements with those communities. As a result, a four year programme comprising exploration, pre-feasibility study and feasibility study has now commenced.
Progress is being made at the 50% owned Pebble project with the aim of completing a pre-feasibility study and then assessing all options during 2009. The objective is to obtain permits and to engineer, construct and operate a world class mine which operates to the highest environmental standards and which contributes to the sustainable development of the Alaskan economy.
Following the success of exploration drilling at Gamsberg East and the supply side outlook for the zinc industry, a decision has been made to commence an optimisation evaluation of Gamsberg. This evaluation, which will take 18 months to complete, will consider the 2000 feasibility study but will also look at other options as to scale as well as opportunities arising from technological evolution since 2000.
A feasibility study is under way at Copebrás for an expansion project that will more than double fertiliser production to approximately 2.3 Mtpa. The feasibility study is expected to be completed by late 2009.
Scoping studies, examining what will be the first phase of the Jacaré nickel project in Brazil, have commenced and preliminary indications of the project scale and economics are anticipated in 2009.
Outlook
Production of copper, zinc, lead, niobium and fertilisers are all forecast to be higher than in 2007, while nickel production will be lower, primarily as a result of the first half performance of Loma de Níquel. Exchange rate and cost pressures remain, while power constraints in northern Chile and southern Africa remain of concern. A balanced market is forecast for copper as a result of the magnitude of supply side disruptions.
PLATINUM
|
$ million (unless otherwise stated) |
6 months ended 30 June 2008 |
6 months ended 30 June 2007 |
|
Operating profit |
1,467 |
1,517 |
|
EBITDA |
1,714 |
1,737 |
|
Net operating assets |
9,369 |
7,617 |
|
Capital expenditure |
697 |
643 |
|
Share of Group operating profit |
24% |
30% |
|
Share of Group net operating assets |
31% |
34% |
|
|
|
|
Anglo Platinum's operating profit for the first six months of 2008 was $1,467 million, a decrease of 3% when compared with the same period in 2007. The decrease was attributable to lower production volumes, offset by higher US dollar prices realised on metals sold and a weaker rand / US$ exchange rate.
Strong demand together with constrained supply to the market by major producers resulted in Anglo Platinum achieving significantly higher US dollar metal prices on its sales. The average dollar price realised for the basket of metals sold equated to $3,115 per platinum ounce, 19% higher than in 2007, with firmer platinum, rhodium and palladium prices making the largest contribution to the increase. The average prices achieved on platinum, palladium and nickel sales for the half year were $1,906 per ounce, $436 per ounce and $12.14 per pound respectively. The contract sales terms for rhodium were successfully renegotiated in the first quarter of 2008. As a result of the revised contract terms, the specific details of which are subject to contractual confidentiality the sales price of rhodium will move closer towards market prices during 2008 and 2009. Consequently, the average price achieved on rhodium sales in the first six months of 2008 increased to $5,833 per ounce.
Equivalent refined platinum production from the mines managed by Anglo Platinum and its joint venture partners for the first half of 2008 was 1,128,200 oz, a decrease of 11%, or 145,800 oz, when compared with the first half of 2007. Factors contributing to the decrease include:
-
the disruption of operations at the Amandelbult mine as a result of underground working areas being flooded. Production has now been restored;
-
lower throughput at the Mogalakwena South concentrator;
-
the suspension of operations to rehabilitate shaft steelwork at the Turffontein shaft of Rustenburg Mine;
-
an overall expected reduction in built-up head grade;
-
the electricity supply constraints in January and the associated ramp up period when supply resumed.
Repair work at the Polokwane Smelter, following a minor run-out in February, was completed in the first half of 2008 and normal smelting operations have recommenced. When combined with the scheduled rebuild of Mortimer furnace and slag cleaning furnace repairs, this resulted in an increase in pipeline stocks in the first half of 2008.
Consequently, refined platinum of 1,001,100 oz for the first half of 2008 represents a decrease of 16% when compared to the same period in 2007. To ensure that Anglo Platinum met contractual delivery of refined platinum to its customers, some 111,000 oz were sold from normal working levels of refined stock, resulting in refined platinum sales for the six months ended 30 June 2008 of 1,112,000 oz.
The cash operating cost per equivalent refined platinum ounce in rand terms increased by 46% due primarily to reduced mining production and expected lower grades than achieved in the strong first half of 2007, intensified by above inflation pressures experienced in key input costs, including diesel, chemicals, steel grinding media, explosives and cement.
Anglo Platinum remains confident of continued robust demand for platinum and is continuing with its expansion programme. In the first half of 2008, Anglo Platinum approved a number of projects including Amandelbult No.4 Shaft, the Twickenham Platinum Mine project and the Waterval Slag Cleaning Furnace 2 project.
The $1.6 billion Amandelbult No.4 Shaft project will replace 271,000 oz of refined platinum per annum from 2019. The project will co-extract the Merensky and UG2 reefs and will partially replace diminishing Merensky reserves while providing a moderate increase in UG2 production. The lengthy process of shaft sinking and build up to steady state volumes results in an overall project duration of 12 years, with first production expected at the end of 2015.
The $800 million Twickenham platinum mine project, at steady state, will contribute an additional 180,000 oz of refined platinum from 2016. The project will expand current operations and exploit the UG2 reef horizon.
The $134 million Slag Cleaning Furnace will double the existing Waterval Converter Slag smelting capacity during 2010. The increased capacity requirement is a direct result of Anglo Platinum's expansion strategy and the requirement to maintain current recoveries.
The $80 million MC Plant capacity expansion project (phase 1) will increase the current capacity from 64 ktpa Waterval Converter Matte to 75 ktpa during 2009.
Markets
High platinum prices will continue to be supported by lower than anticipated supplies from South Africa, the weak US dollar and investment demand.
Platinum auto and industrial demand remains firm, with the switch to smaller cars in the US impacting palladium more than platinum. Automobile growth in emerging markets continues, offsetting some of the weakness in the major markets.
Consistently high prices coupled with price volatility this year have reduced confidence in platinum jewellery at the trade level, despite strong consumer demand. Evidence of such strong demand is seen through the increasing levels of recycling of platinum jewellery in China.
Outlook
Management continues to vigorously address unit costs. The emphasis on increasing volumes and improving operating efficiencies remains a key driver of performance at operations. Risks affecting future production include the impact of constrained electricity supply on production and expansion projects, the ongoing skills shortage and production stoppages related to safety.
Anglo Platinum's commitment to employee safety will continue to be an area of focus. Mining output in the second half of the year will increase significantly as Amandelbult and the Turffontein shaft have returned to full production and the Mogalakwena North project ramp up is almost complete. Smelter availability for the balance of 2008 will assist in reducing pipeline stocks accumulated at the half-year. Consequently, the outlook for refined platinum production remains 2.4 million ounces for 2008.
FERROUS METALS AND INDUSTRIES
|
$ million (unless otherwise stated) |
6 months ended 30 June 2008 |
6 months ended 30 June 2007 |
|
Operating profit |
1,296 |
719 |
|
Kumba Iron Ore |
677 |
409 |
|
Scaw Metals |
121 |
84 |
|
Samancor Manganese |
485 |
57 |
|
Minas-Rio |
(16) |
- |
|
Other |
(15) |
(4) |
|
Core businesses |
1,252 |
546 |
|
Highveld Steel |
- |
108 |
|
Tongaat-Hulett / Hulamin |
44 |
65 |
|
Other businesses |
44 |
173 |
|
EBITDA |
1,359 |
780 |
|
Net operating assets |
5,360 |
1,865 |
|
Capital expenditure |
268 |
250 |
|
Share of Group operating profit |
21% |
14% |
|
Share of Group net operating assets |
18% |
8% |
Ferrous Metals achieved a record operating profit of $1,296 million, an increase of 80% on the same period in 2007, with operating profit from core businesses (Kumba Iron Ore, Scaw Metals, Samancor Manganese and Minas-Rio) increasing by 129%, mainly due to higher iron ore and manganese ore sales volumes and prices, and alloy prices.
Kumba Iron Ore achieved a record operating profit of $677 million, an increase of 66% on 2007, due to higher iron ore sales volumes and prices. Operating costs increased owing to inflationary pressures, the rising costs of fuels and lubricants and an increase in maintenance related activities. Production increased 9% to 17.1 million tonnes of iron ore, mainly due to the Sishen Expansion Project which commenced commercial production towards the end of 2007.
Export sales for the first three months of 2008 were based on the 9.5% increase in the iron ore benchmark price for the 2007/2008 iron ore year. Final settlement for 2008/2009 between Kumba and its customers is anticipated in the third quarter of 2008. In preparing the financial results, Kumba has used a prudent estimate of future prices. These price estimates (April to June 2008) are based on settlements announced by the three iron ore majors and take into account Kumba's lump-to-fines ratio, its importance as a supplier to the Asian market and the physical characteristics of its products.
Scaw delivered a record operating profit of $121 million, up 44% on 2007, with strong demand for most products in South Africa and internationally. Margins remained under pressure owing to significant price increases in key raw materials. In June 2008, Scaw South Africa acquired Ozz Industries, a manufacturer of crusher and mill consumable steel wear parts principally for the mining and aggregate industries in Africa, Australia, Europe and North America.
The attributable share of Samancor Manganese operating profit increased more than eight-fold to $485 million, mainly due to significantly higher manganese ore and alloy prices driven by the high demand for steel, as well as higher manganese ore sales volumes.
The Tongaat-Hulett and Hulamin contribution to operating profit declined by 32% to $44 million. These businesses, which were consolidated for the first six months of 2007, were equity accounted for the first half of 2008 following the unbundling of Hulamin from Tongaat-Hulett and related empowerment transactions in June 2007.
Projects
The $782 million, 9 Mtpa Sishen South Project, which involves the development of an opencast mine some 80 kilometres south of Sishen mine, has been approved, with first production anticipated in 2012.
The $754 million, 13 Mtpa Sishen Expansion Project has commenced commercial production. Ramp up continues and full design capacity is expected to be achieved in 2009.
In Brazil, Anglo American has agreed to acquire a 63.3% shareholding in a new company ("IronX"), which holds a 51% interest in the Minas-Rio iron ore project and 70% in the Amapá iron ore system, from Eike Batista and other selling shareholders for $3.5 billion. Subject to the satisfaction of final conditions under the transaction agreements, this transaction will be completed by 5 August 2008. Following completion of this transaction, Anglo American has committed to extend the offer to the minority shareholders in IronX at the same price per share. The successful completion of the offer to the minority shareholders will result in Anglo American owning 100% of the Minas-Rio project, 70% of the Amapá system and 49% of LLX Minas-Rio, the owner of the Port of Açu, at a cost of approximately $5.5 billion in cash for 100% of the issued and outstanding shares in IronX. This would mark a significant step in Anglo American's aim of becoming a substantial player in the global seaborne iron ore trade.
Planned annual capacity of the Minas-Rio iron ore project will be 26.5 Mtpa of iron ore pellet feed, with start up expected during 2010.
Outlook
Global demand for steel is expected to remain strong through 2008, underpinning demand for iron ore. The prospects for iron ore are positive, with strong Chinese demand continuing. Major producers, including Kumba Iron Ore, are expanding production to meet incremental demand.
Manganese ore and alloy demand is forecast to remain strong which, together with constraints in global seaborne supply, will continue to have a favourable impact on prices through 2008.
Demand for Scaw's products is forecast to remain strong, driven by mining demand in Latin America and mining and construction led growth in South Africa and Canada. Increasing input costs will, however, place further pressure on Scaw's margins.
COAL
|
$ million (unless otherwise stated) |
6 months ended 30 June 2008 |
6 months ended 30 June 2007(1) |
|
Operating profit |
731 |
319 |
|
South Africa |
369 |
178 |
|
Australia |
225 |
38 |
|
South America |
157 |
115 |
|
Canada |
3 |
- |
|
Projects and corporate |
(23) |
(12) |
|
EBITDA |
900 |
441 |
|
Net operating assets |
5,071 |
3,388 |
|
Capital expenditure |
352 |
444 |
|
Share of Group operating profit |
12% |
6% |
|
Share of Group net operating assets |
17% |
15% |
(1) In the second half of 2007, Yang Quarry was reclassified from Industrial Minerals to Coal to align with internal management reporting. As such, the comparative data has been reclassified.
Operating Profit increased by 129% to $731 million. Profits increased in all the regions in which Coal operates.
Markets
The construction of the Zondagsfontein project which will produce 6.6 Mtpa of Export and Eskom coal is under way, with production anticipated during 2009.
South America
Sales volume increased overall, as growth at Cerrejón continued as planned towards the 32 Mt profile. This offset lower sales from Carbones del Guasare (“CDG”) in Venezuela, arising from the ongoing political and social uncertainty. Attributable coal production from Cerrejón rose by 11% to 5.2 Mt, whereas coal production at CDG was marginally lower at 0.6 Mt over the period.
Export prices are expected to remain strong and exceed those of the previous year. Many initiatives have been implemented to maximise production to take advantage of the prevailing strong market conditions.
|
$ million
(unless otherwise stated)
|
6 months ended
30 June 2008
|
6 months ended
30 June 2007
|
|
Share of associate’s operating profit
|
328
|
266
|
|
EBITDA
|
397
|
310
|
|
Group’s aggregate investment in De Beers
|
1,844
|
2,201
|
|
Share of Group operating profit
|
5%
|
5%
|
In Asia, jewellery sales for the first quarter of 2008 were robust but growth in China is slowing, impacted by the earthquake in Sichuan province and the Chinese stockmarket fall. This slowdown for the Chinese jewellery market is believed to be temporary and the outlook for the year remains bullish.
In India, the growth in the jewellery market is still close to 7%, with double digit growth expected by the end of the year
Operating performance
|
$ million
(unless otherwise stated)
|
6 months ended
30 June 2008
|
6 months ended
30 June 2007(1)
|
|
Operating profit
|
163
|
209
|
|
Operating profit excluding Tarmac Iberia
|
169
|
204
|
|
Operating profit – Tarmac Iberia
|
(6)
|
5
|
|
EBITDA
|
291
|
326
|
|
Net operating assets
|
4,574
|
4,638
|
|
Capital expenditure
|
118
|
104
|
|
Share of Group operating profit
|
3%
|
4%
|
|
Share of Group net operating assets
|
15%
|
21%
|
The outlook for demand from the construction market in the UK and Europe remains weak, with the effects of inflation, the credit crisis and a general economic slowdown expected to continue for the near term at least. In the longer run, however, the fundamental supply and demand outlook remains favourable in the markets in which Tarmac operates.
http://www.rns-pdf.londonstockexchange.com/rns/2704A_-2008-7-30.pdf
This information is provided by RNS
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