Anglo: encouraged, not happy

FILE PICTURE: Anglo American CEO Mark Cutifani. Picture: Desiree Swart.

Anglo American Chief Executive Officer, Mark Cutifani is encouraged by the group’s performance over the twelve months to end December 2013 but is not happy with it.

For the year, the transnational miner announced a loss attributable to equity shareholders of $961m, while underlying earnings fell 7% to $2.7bn. However, group underlying profit rose 6% to $6.6bn.

A $1.9bn in impairments didn’t help. Neither did the general metal price weakness, nor a poor performance by the nickel division and the ongoing issues at Sishen. But things weren’t all bad for Anglo American during the year.

As Cutifani explains, “I am encouraged by the fact that we have made many improvements over the course of the year particularly in copper. The fact is, we got a 6% improvement in underlying operating profit, that’s encouraging, particularly when one compares commodity prices year-to-year, that is a good result.

“But, we are still not where we need to be, we are at about 11% return on capital employed, we need to be north of 15%.”

This increase in underlying operating profit it said was owing to, “De Beers contributing for a full year as a subsidiary, improved sales at both Copper and Platinum and the weakening of the South African rand, partially offset by lower prices across the majority of our commodities.”

Looking at the various business units, underlying operating profits rose 4% to $3.12bn at iron ore and manganese, Copper delivered a similar performance to 2012, with an underlying operating profit of $1.7bn, as a result, Anglo said, “of lower realised sales prices, offset by increased production and sales volumes.

The weaker rand came to the aid of both the platinum and diamond divisions, while diamonds were definitely the jewel in the crown, with a 112% increase in profits to $1bn, a 112% increase, “reflecting the group’s increased shareholding, together with improved prices, largely owing to the product mix, and a weaker rand.”

On the downside, metallurgical coal saw operating profit fall 89% to $46m, while thermal coal profits fell 32% to $541m, and niobium and phosphates business produced a profit of $150m, 11% lower, largely as a result of lower realised prices.

The other headache was nickel, which reported an underlying operating loss of $44m, a $70m decrease, while its other mining and Industrial business lost $13m over the period, a $181m decrease, “owing to a nil contribution from Scaw South Africa (which was divested in November 2012), a weaker market at the Lafarge Tarmac joint venture, and the Amapá operation not benefiting from the reversal of penalty provisions, as it had in 2012.”

The group also announced $1.9bn in impairments. Principally, the group said, “in relation to Barro Alto ($0.7bn), Platinum portfolio review ($0.2bn), Michiquillay ($0.3bn) and Foxleigh ($0.2bn)”.

While he says that is now largely under control, Cutifani admits that it is always a concern when shareholders are impacted in such a manner.

Focusing on 2014, the three critical issues, Cutifani says, are: the continuing restructuring of the platinum business and managing all the various stakeholder relationships, particularly its relationship with its employees; ensuring that Minas Rio succeeds in landing its first ore on ship and, finally, ensuring that it puts the disappointment of Sishen’s performance during the year behind it.

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