Anglo’s underlying earnings cut in half

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BR Carrol 449 INLSA 23/06/2011 CEO of Anglo American Cynthia Carroll during a media briefing at Sandton JHB. (381) Photo: Leon Nicholas

Dineo Faku

ANGLO American, one of the world’s biggest diversified mining companies, posted significant losses last year amid a difficult economic climate, which placed severe pressure on mining firms.

The London- and Johannesburg-listed company with its roots in South Africa was negatively affected by weak commodity prices, rising input cost pressures and losses at its platinum business.

Underlying earnings halved to $2.8 billion (R24.78bn) and underlying operating profit fell 44 percent to $6.2bn last year, Anglo reported on Friday.

But the company rewarded its shareholders handsomely and declared a final dividend of 53 US cents a share, which was 15 percent higher than the previous year, bringing the total dividend to 85 US cents for the year, also 15 percent higher.

Anglo, which acquired another 40 percent of De Beers last year to increase its stake in the world’s largest diamond company by revenue to 85 percent, experienced a tough year.

It recorded an impairment of $4.6bn at its Minas-Rio iron ore project in Brazil, which was hit by delays. This resulting in an attributable loss for the year of $1.5bn.

Outgoing Anglo chief executive Cynthia Carroll said at the results presentation in London that she had no regrets.

“We did not go after a huge acquisition, or an enormous company. We did not have attempted acquisitions and then failed acquisitions, like some of our competitors. What we did do, and this was the mandate I was given when I arrived, was to pursue iron ore,” she said.

“Minas-Rio is a resource that has increased fourfold since we have gone into it and it is going to be bigger. The quality of this resource is phenomenal,” she said.

Carroll will step down in April to be replaced by Mark Cutifani, the chief executive of AngloGold Ashanti.

“It is possible now that the worst is over for Anglo,” Jefferies analyst Christopher LaFemina said in a report.

“While Minas-Rio still has risks, we believe the upside potential to the revised $8.8bn capex budget is minimal.”

In South Africa, the Rustenburg operations of Anglo subsidiary Anglo American Platinum (Amplats) have became uneconomic to mine amid depressed demand and negative global economic growth. Its position was made worse by a wildcat strike in the second half of last year.

The company conducted a review and proposed restructuring in which 14 000 jobs are at risk. The ANC and Mineral Resources Minister Susan Shabangu attacked Anglo for the restructuring and threatened to review its mining licences, while President Jacob Zuma said threatening mine closures was almost “blackmail”.

The restructuring was put on hold for 60 days to allow engagement with the government and labour unions.

Carroll said: “We believe the approach [the restructuring] is the right one. We are working to do the right thing. We know the industry is in a bad state.”

Last week Kumba Iron Ore, another subsidiary of Anglo, reported a 34 percent drop in operating profit to $2.98bn because of lower prices and an unprotected strike at the Sishen iron ore mine.

In terms of the business outlook, Anglo said economic growth in India and China, which were urbanising rural communities, should support the demand for its products.

Anglo rose 1.88 percent to R280.50 on Friday.

Additional reporting by Bloomberg


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